<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 22, 1997
REGISTRATION NO. 333-34585
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
JORDAN TELECOMMUNICATION PRODUCTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------
DELAWARE 3678 36-4173125
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
JORDAN TELECOMMUNICATION PRODUCTS, INC.
ARBORLAKE CENTRE, SUITE 550
1751 LAKE COOK ROAD
DEERFIELD, ILLINOIS 60015
(847) 945-5591
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------
G. ROBERT FISHER, SECRETARY
JORDAN TELECOMMUNICATION PRODUCTS, INC.
ARBORLAKE CENTRE, SUITE 550
1751 LAKE COOK ROAD
DEERFIELD, ILLINOIS 60015
(847) 945-5591
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
--------------
WITH A COPY TO:
PHILIP J. NIEHOFF
MAYER, BROWN & PLATT
190 SOUTH LASALLE STREET
CHICAGO, ILLINOIS 60603
(312) 701-7843
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
9 7/8% Series B Senior
Notes Due 2007......... $190,000,000 99.2164% $188,511,160 $57,124.59
- -----------------------------------------------------------------------------------
11 3/4% Series B Senior
Discount Notes Due
2007................... $120,000,000 70.8619% $ 85,034,280 $25,767.96
- -----------------------------------------------------------------------------------
13 1/4% Series B Senior
Exchangeable Preferred
Stock Due 2009......... $ 25,000,000 100% $ 25,000,000 $ 7,575.76
- -----------------------------------------------------------------------------------
13 1/4% Series B Senior
Exchangeable Preferred
Stock Due 2009......... -- (2) -- $ -- $ -- (3)
- -----------------------------------------------------------------------------------
13 1/4% Series B
Subordinated Preferred
Stock Exchange Notes
due 2009............... $ 25,000,000 -- $ -- $ -- (4)
- -----------------------------------------------------------------------------------
Total................... $90,468.31(5)
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purposes of calculating the registration fee.
(2) Such indeterminate number of shares of 13 1/4% Senior Exchangeable
Preferred Stock as may be issued from time to time in lieu of cash
dividends.
(3) The Company will not receive any additional consideration in connection
with the issuance of these securities and therefore no registration fee is
required.
(4) Pursuant to paragraph 457(i) no additional consideration will be received
in connection with the exchange, therefore no registration fee will be
required.
(5) Previously paid.
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS SUBJECT TO COMPLETION, DATED OCTOBER 22, 1997
JORDAN TELECOMMUNICATION PRODUCTS, INC.
OFFER TO EXCHANGE ALL OUTSTANDING 9 7/8% SERIES B SENIOR NOTES DUE 2007, 11
3/4% SERIES B SENIOR DISCOUNT NOTES DUE 2007 AND 13 1/4% SERIES B SENIOR
EXCHANGEABLE PREFERRED STOCK DUE 2009, WHICH HAVE EACH BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, FOR ANY AND ALL OUTSTANDING 9 7/8% SERIES A SENIOR
NOTES DUE 2007, 11 3/4% SERIES A SENIOR DISCOUNT NOTES DUE 2007 AND 13 1/4%
SERIES A SENIOR EXCHANGEABLE PREFERRED STOCK DUE 2009
----------
Jordan Telecommunication Products, Inc., a Delaware corporation ("JTP" or the
"Company"), hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal (the
"Letter of Transmittal"), which together constitute the "Exchange Offer," to
exchange up to $190 million aggregate principal amount of 9 7/8% Series B
Senior Notes due 2007 (the "New Senior Notes"), $120 million principal amount
at maturity of 11 3/4% Series B Senior Discount Notes (the "New Discount Notes"
and together with the New Senior Notes, the "New Notes") and $25 million
liquidation preference of 13 1/4% Series B Senior Exchangeable Preferred Stock
due 2009 (the "New Senior Preferred Stock") of the Company for a like principal
amount of the Company's issued and outstanding 9 7/8% Series A Senior Notes due
2007 (the "Old Senior Notes" and together with the New Senior Notes, the
"Senior Notes"), 11 3/4% Series A Senior Discount Notes due 2007 (the "Old
Discount Notes" and together with the New Discount Notes, the "Discount Notes;"
the Old Discount Notes and the Old Senior Notes are sometimes collectively
referred to as the "Old Notes" and sometimes collectively with the New Notes,
as the "Notes"), and a like liquidation preference of 13 1/4% Series A Senior
Exchangeable Preferred Stock due 2009 (the "Old Senior Preferred Stock" and
together with the New Senior Preferred Stock, the "Senior Preferred Stock")
with the holders (each holder of Old Notes or Old Senior Preferred Stock, a
"Holder") thereof. The New Notes and New Senior Preferred Stock are sometimes
referred to as the "New Securities" and the Old Notes and Old Senior Preferred
Stock are sometimes referred to as the "Old Securities." The terms of the New
Notes and New Senior Preferred Stock are substantially identical to the terms
of the Old Notes and Old Senior Preferred Stock that are to be exchanged
therefor. See "Description of the Notes" and "Description of Senior Preferred
Stock." Upon the occurrence of a Change of Control (as defined herein), the
Company will be required, subject to certain conditions, to make an offer to
purchase the Notes and Senior Preferred Stock at a price equal to 101% of the
principal amount or the liquidation preference thereof, as applicable, plus
accrued and unpaid interest to the date of purchase. In the event of a Change
of Control, there can be no assurance that the Company will have, or will have
access to, sufficient funds to repurchase the Notes or Senior Preferred Stock
or to pay the holders of the Notes or Senior Preferred Stock. See "Risk
Factors--Change of Control Provisions; Limitations on Rights of Repayment,"
"Description of Notes--Certain Covenants," "--Certain Definitions," "--
Mandatory Offers to Purchase Notes--Change of Control," "Description of Senior
Preferred Stock--Certain Covenants" and "--Redemption of Senior Preferred
Stock--Change of Control."
Prior to the Exchange Offer, there has been no established trading market for
the Old Securities or the New Securities. The Company does not intend to apply
for listing or quotation of the New Securities on any securities exchange or
stock market. Therefore, there can be no assurance as to the liquidity of any
trading market for the New Securities or that an active public market for the
New Securities will develop. Any Old Securities not tendered and accepted in
the Exchange Offer will remain outstanding. To the extent that Old Securities
are tendered and accepted in the Exchange Offer, a Holder's ability to sell
untendered, or tendered but unaccepted, Old Securities could be adversely
affected. Following the consummation of the Exchange Offer, the Holders of Old
Securities will continue to be subject to the existing restrictions on transfer
thereof and the Company will have no further obligations to such Holders to
provide for the registration of the Old Securities under the Securities Act of
1933, as amended (the "Securities Act"). See "Exchange Offer--Consequences of
Not Exchanging Old Securities."
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON , 1997, UNLESS EXTENDED.
(Cover continued on following page)
----------
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS OF
OLD NOTES WHO TENDER THEIR OLD NOTES IN THE EXCHANGE OFFER, SEE "RISK FACTORS"
ON PAGE 16 OF THIS PROSPECTUS.
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 , 1997
<PAGE>
The New Senior Notes will bear interest at a rate of 9 7/8% per annum.
Interest on the New Senior Notes will be payable semi-annually in cash in
arrears on February 1 and August 1 of each year, commencing February 1, 1998.
The New Discount Notes are being sold at a substantial discount from their
principal amount at maturity, and there will not be any payment of interest on
the New Discount Notes prior to February 1, 2001. The New Discount Notes will
accrete at a rate of 11 3/4%, compounded semi-annually, to par by August 1,
2000. Commencing August 1, 2000, the New Discount Notes will bear interest at
a rate of 11 3/4% per annum, payable semi-annually in cash in arrears on
February 1 and August 1, commencing February 1, 2001. Dividends on the New
Senior Preferred Stock will accrue in each period ending on February 1, May 1,
August 1, and November 1 of each year at a rate of 13 1/4% per annum of the
liquidation preference. On or before August 1, 2002 the Company may, at its
option, pay dividends in cash or in additional fully paid and non-assessable
shares of New Senior Preferred Stock having an aggregate liquidation
preference equal to the amount of such dividends. Thereafter, dividends may be
paid in cash only. On any scheduled dividend payment date, the Company may, at
its option, exchange all but not less than all of the shares of New Senior
Preferred Stock then outstanding for the Company's 13 1/4% Subordinated
Preferred Stock Exchange Notes due 2009 (the "Preferred Stock Exchange
Notes"). The Preferred Stock Exchange Notes will bear interest at a rate of 13
1/4% per annum. Interest on the Preferred Stock Exchange Notes will be payable
semi-annually in cash in arrears on February 1 and August 1 of each year,
commencing with the first such date to occur after the date of exchange. On or
before August 1, 2002, the Company may, at its option, pay interest in cash or
in additional Preferred Stock Exchange Notes having an aggregate principal
amount equal to the amount of such interest. Thereafter, interest may be paid
in cash only.
The New Notes will be senior unsecured obligations of the Company, will rank
senior in right of payment to any future subordinated indebtedness of the
Company, pari passu in right of payment with all existing and future senior
indebtedness of the Company and effectively subordinated in right of payment
to all existing and future senior secured indebtedness of the Company,
including indebtedness under the new senior secured bank credit agreement
entered into between JTP Industries, Inc. ("JTP Industries"), a wholly owned
subsidiary of the Company, and BankBoston, as agent, which provides the
Company and its subsidiaries with a revolving credit and letter of credit
facility of up to $110.0 million (the "New Credit Agreement"), to the extent
of the assets securing such indebtedness and to all indebtedness and claims of
creditors of the Company's subsidiaries. The Old Senior Preferred Stock was
and the New Senior Preferred Stock will, with respect to dividend
distributions and distributions upon the liquidation, winding-up or
dissolution of the Company, rank senior to all classes of common stock of the
Company, $.01 par value per share (the "Common Stock") and to each series of
preferred stock of the Company, $.01 par value per share (the "Preferred
Stock") existing on the date of this Prospectus (including the Junior
Preferred Stock sold to Jordan Industries (see "The Company--Company
Formation")) and junior to all indebtedness of the Company including the
Notes. The Preferred Stock Exchange Notes will be subordinated unsecured
obligations of the Company, junior in right of payment to all existing and
future senior indebtedness of the Company, including the Senior Notes, the
Discount Notes and the New Credit Agreement, and pari passu with all other
subordinated indebtedness of the Company. At June 30, 1997, on a pro forma
basis, the aggregate amount of outstanding Senior Indebtedness would have been
approximately $301.4 million. See "Risk Factors--Ranking of Senior Notes,
Discount Notes, Senior Preferred Stock and Preferred Stock Exchange Notes,"
and "Description of Preferred Stock Exchange Notes." As of June 30, 1997, the
aggregate principal amount of Senior Indebtedness of the Company to which the
New Notes would have been effectively subordinated would have been
approximately $27.9 million and, on a pro forma basis, the aggregate principal
amount of indebtedness of the Company to which the New Senior Preferred Stock
and Preferred Stock Exchange Notes would have been effectively subordinated
would have been approximately $301.4 million. The Indentures (as defined
herein) will permit the Company and its subsidiaries to incur additional
indebtedness, subject to certain limitations. See "Description of Notes."
The Company will accept for exchange any and all Old Securities that are
validly tendered and not withdrawn on or prior to 5:00 p.m., New York City
time, on , 1997, unless the Exchange Offer is extended (the
"Expiration Date"). Tenders of Old Securities may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the Expiration Date. The Exchange
Offer is not conditioned upon any minimum principal amount of Old Notes or
liquidation preference of Old Senior Preferred Stock being tendered for
exchange. However, the Exchange Offer is subject to certain customary
conditions which may be waived by the Company. The Company has agreed to pay
the expenses of the Exchange Offer. There will be no cash proceeds to the
Company from the Exchange Offer. See "Use of Proceeds."
The Old Securities were issued and sold on July 25, 1997 (the "Old
Offerings"), in a transaction not registered under the Securities Act in
reliance upon the exemption provided in Section 4(2) of the Securities
<PAGE>
Act. Accordingly, the Old Securities 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. The New Securities are being offered for exchange
in order to satisfy certain obligations of the Company under Registration
Rights Agreements (as defined herein) between the Company and the Initial
Purchasers (as defined herein). The New Securities will be obligations of the
Company evidencing the same indebtedness and equity interests as the Old
Securities, and will be entitled to the benefits of the same Indentures which
govern both the Old Notes and the New Notes and the same Certificate of
Designation (as defined herein) which governs both the Old Senior Preferred
Stock and the New Senior Preferred Stock. The form and terms (including
principal amount, interest rate, dividend payment, maturity and ranking) of the
New Securities are the same as the form and terms of the Old Securities, except
that the New Securities (i) will be registered under the Securities Act and
therefore will not be subject to certain restrictions on transfer applicable to
the Old Securities; (ii) will not be entitled to registration rights; and (iii)
will not provide for any Liquidated Damages (as defined herein). See "The
Exchange Offer--Registration Rights; Liquidated Damages."
The Company is making the Exchange Offer pursuant to the registration
statement of which this Prospectus is a part in reliance upon the position of
the staff of the Securities and Exchange Commission (the "Commission") set
forth in certain no-action letters addressed to other parties in other
transactions. However, the Company has not sought its own no-action letter and
there can be no assurance that the staff of the Commission would make a similar
determination with respect to the Exchange Offer. Based on these
interpretations by the staff of the Commission, the Company believes that the
New Securities issued pursuant to the Exchange Offer may be offered for resale,
resold and otherwise transferred by holders thereof (other than (i) any such
holder that is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act; (ii) an Initial Purchaser who acquired the Old
Securities directly from the Company solely in order to resell pursuant to Rule
144A of the Securities Act or any other available exemption under the
Securities Act; or (iii) a broker-dealer who acquired the Old Securities as a
result of market making or other trading activities) without further compliance
with the registration and prospectus delivery requirements of the Securities
Act, provided that such New Notes or New Senior Preferred Stock are acquired in
the ordinary course of such holder's business and such holder is not
participating and has no arrangement or understanding with any person to
participate in a distribution (within the meaning of the Securities Act) of
such New Securities. Each broker-dealer that receives New Securities for its
own account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Securities. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of New
Securities received in exchange for Old Securities where such Old Securities
were acquired by such broker-dealer as a result of market-making activities or
other trading activities. The Company has agreed that, for a period of 120 days
after the Expiration Date, it will make this Prospectus available to any
broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
<PAGE>
AVAILABLE INFORMATION
The Company has filed the Registration Statement with the Commission,
pursuant to the Securities Act and the rules and regulations promulgated
thereunder, covering the New Securities 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. For further information with respect to the
Company and the New Securities, reference is hereby made to the Registration
Statement. 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 its entirety by
such reference. Upon consummation of the Exchange Offer, the Company will
become subject to the periodic and other informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Periodic
reports and other information filed by the Company with the Commission may be
inspected at the public reference facilities maintained by the Commission at
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 7 World Trade Center, New York, New York 10048. Copies of
such material can be obtained at prescribed rates from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
Such materials may also be accessed electronically by means of the
Commission's home page on the Internet at http://www.sec.gov.
----------------
The DURA-LINE(R) and SILICORE(R) marks are registered trademarks of the
Company.
i
<PAGE>
SUMMARY
The following summary is qualified in its entirety by reference to and should
be read in conjunction with the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this
Prospectus. Unless indicated or the context otherwise requires, the information
in this Prospectus gives effect to the transactions described under "The
Company--Company Formation" and references in this Prospectus to the "Company"
or "JTP" are to Jordan Telecommunication Products, Inc. and its subsidiaries,
including their respective predecessors.
THE COMPANY
Jordan Telecommunication Products, Inc. ("JTP" or the "Company") is a leading
worldwide designer, manufacturer and distributor of products to niche markets
within the rapidly growing telecommunications and data communications
industries. JTP manufactures and markets its products to over 7,500 customers
throughout the world from facilities based in the United States, China, the
Czech Republic, France, India, Israel, Mexico, Russia and the United Kingdom.
The Company's product offerings serve numerous end-use telecommunications
markets and cover a broad range of applications, including, among others: (i)
infrastructure equipment, such as fiber optic cable conduit, power conditioning
systems and cable television ("CATV") components and transmitters used by
wireline and wireless telecommunications, CATV, cellular telephone and personal
communication system ("PCS") service providers; (ii) custom cable assemblies
and specialty wire and cable used by internetworking suppliers and original
equipment manufacturers ("OEMs") in the data processing and telecommunications
industries; and (iii) electronic connectors and components used in mobile
communications, instrumentation, local area networks ("LANs") and computer
equipment. As a result, the Company believes it is well positioned to benefit
from the significant growth taking place in global telecommunications markets.
JTP believes it has distinguished itself through its international presence,
high-quality products and outstanding customer service and field support,
resulting in strong customer relationships with major industry participants and
leading market share positions.
Due to strong industry fundamentals and JTP's solid competitive position, the
Company has achieved significant and consistent growth. Pro forma combined net
sales grew from $147.5 million in 1994 to $233.9 million in 1996, representing
a compound annual growth rate of 25.9%. The Company expects its continued
growth to result from the significant expansion in global telecommunications
markets driven by: (i) continuing deregulation, which is allowing numerous new
service providers to enter the marketplace and is increasing the competitive
pressure on existing participants to upgrade and expand their networks; and
(ii) increasing consumer demand for advanced telecommunications services
enabled by rapid technological advancement. To capitalize on these trends, the
Company has invested substantial capital in recent years to develop its
overseas manufacturing and marketing presence. Most recently, the Company has
established new manufacturing facilities in Mexico and China that became
operational in late 1996 and in India which is expected to become operational
in September 1997. In addition, JTP anticipates establishing a local sales
and/or manufacturing presence in Spain and Malaysia by late 1997, and in Brazil
by early 1998. The Company anticipates generating significant additional
revenues from such international facilities.
COMPETITIVE STRENGTHS
The Company believes that several characteristics differentiate it from many
of its competitors, including:
Established Global Presence. The Company's products are sold in over 50
countries through a highly trained direct sales force and a global network of
approximately 2,800 distributors and independent manufacturing representatives.
Management believes a key competitive reason for its success in international
markets has been its commitment to establishing joint ventures and local
manufacturing facilities. JTP currently operates 28 manufacturing and
distribution facilities in nine countries around the world. The marketing and
cost advantages of such investments in serving fast-growing markets are
substantial and include: (i) close customer contact; (ii) ability to provide
close field support and customer service; (iii) quick delivery time; (iv) low
labor, raw materials and transportation costs; and (v) avoidance of significant
government tariffs and restrictions on
1
<PAGE>
foreign imports. The success of this strategy is evidenced by the Company's
recent selection by the Chinese government as the first approved cable conduit
supplier for China Telecom, positioning the Company to be a major participant
in the planned construction of more than 50 million phone lines in China during
the next five years. Furthermore, by entering markets ahead of major
competitors, the Company is able to achieve "first mover" advantages and
entrench itself in markets with capacity and customer relationships. In
addition, the Company believes that its international experience has allowed it
to develop a core competency in establishing effective operations overseas.
Strong Customer Relationships. By emphasizing product quality, customer
service and field support, the Company has developed strong, long-term
relationships with many of its customers. Customers have turned to the Company
for its ability to reliably deliver small customized product orders in short
lead times as well as to provide large quantities of product under long-term
contracts. The Company's ability to work closely with many of its customers in
the design phase of end-use products further entrenches the Company with its
customer base. Examples of these relationships include the selection of JTP to
be Sprint Corporation's ("Sprint") primary supplier of PCS power conditioning
equipment over the next four years and to be one of Cisco Corporation's
("Cisco") four primary, long-term suppliers of cable assemblies. The Company is
also the primary supplier of cable conduit to the Regional Bell Operating
Companies ("RBOCs"). Such strong ties to major industry participants present an
opportunity for the Company to follow such customers worldwide as they enter
growing international markets. Moreover, these relationships have contributed
to the Company's leadership positions in its niche markets. For example, the
Company estimates that it holds a 50% share of the RBOC cable conduit market
and a 30% share of the market for PCS power conditioning equipment.
Diverse and Stable Customer Base. As a result of its extensive product line
and the wide variety of end-use markets, JTP serves a broad and diverse
customer base. Customers include some of the largest and most sophisticated
suppliers of telecommunications and data communications products in the world,
such as the RBOCs, Applied Materials, Inc. ("Applied Materials"), Cisco, GTE
Corporation ("GTE"), Hewlett-Packard Company ("Hewlett-Packard"), Lucent
Technologies, Inc. ("Lucent"), Motorola, Inc. ("Motorola"), Rostelecom, SPT
Telecom AS ("Czech Telecom"), Sprint, Sun MicroSystems, Inc. ("Sun"), TCI
Communications, Inc. ("TCI"), Telewest Communications plc ("Telewest") and Time
Warner, Inc. ("Time Warner"). The diversity of products, markets and customers
minimizes the Company's exposure to individual end-use technologies, economic
cycles and geographic markets, and provides a stable cash flow stream.
BUSINESS STRATEGY
The Company's goal is to be a leading single-source supplier offering the
breadth of products, services and geographical coverage necessary to meet the
needs of worldwide telecommunications and data communications customers in its
niche markets. The Company intends to reach this goal by capitalizing on its
competitive advantages and implementing the following business strategy through
internal initiatives and the continued pursuit of numerous opportunities for
strategic acquisitions that exist within its highly fragmented markets:
Continue International Expansion. To exploit the significant opportunities in
international markets, the Company will continue to expand its global
manufacturing and marketing presence. JTP is particularly focused on developing
nations that are making large investments in their telecommunications
infrastructures. The Company believes that such countries offer a high growth
potential and favorable competitive dynamics. The Company has invested more
than $35 million in the past several years to develop a strong local presence
in countries such as China, the Czech Republic, India, Israel, Mexico, Russia
and the United Kingdom, positioning itself for substantial growth in these and
surrounding markets. The Company established its first emerging market
greenfield manufacturing facility in the Czech Republic in November 1993, which
in 1996 generated sales of $22.6 million. More recently, JTP opened
manufacturing plants in Mexico and China in August 1996 and December 1996,
respectively, and a new manufacturing facility in India which is expected to
become operational in September 1997. In addition, the Company anticipates
establishing a local sales and/or manufacturing presence in Spain and Malaysia
by late 1997, and in Brazil by early 1998.
2
<PAGE>
Develop New Products and Markets. The Company will continue to focus on
designing, developing and marketing products that meet the evolving needs of
customers in the high-growth sectors of its markets to maintain its
differentiation. An example of this strategy is the Company's introduction in
March 1997 of transmitters and equipment for multichannel, multipoint
distribution systems ("MMDS"), a wireless television signal technology that has
emerged in recent years as a more economically feasible alternative to
traditional CATV. JTP believes that this technology is particularly applicable
in emerging international markets, such as Brazil, China, India and Russia,
where construction of a traditional cable network in smaller cities and rural
areas can be cost-prohibitive. In only four months since the commercial
introduction of this product in Russia, the Company has received 10 contracts
for an aggregate of more than $3.5 million. The Company has also developed a
widely used line of specialized two-way CATV amplifiers and a line of
microminiature coaxial connectors that meet the miniaturization requirements of
the wireless and cellular communications industry. In addition to internal
growth, the Company believes that significant opportunities exist in
acquisitions that enable it to broaden its product offerings, allowing it to be
more of a full-service "solutions" provider and leverage its existing customer
relationships.
Develop and Exploit Synergies Among Subsidiaries. The Company will continue
to actively pursue sales, marketing and manufacturing synergies among its
subsidiaries. For example, Johnson Components, Inc. ("Johnson"), a domestic
subsidiary of the Company, recently began selling products through Vitelec
Electronics Ltd. ("Vitelec"), a foreign subsidiary of the Company, enabling
Johnson to access new international markets and allowing Vitelec to broaden its
product offerings. JTP believes that numerous similar opportunities exist to
add breadth and depth to its product offerings and lower costs through cross-
sourcing of materials and components between subsidiaries. The Company also
intends to exploit cross-selling opportunities by leveraging the established
presence of certain of its products in foreign markets in order to introduce
additional products and increase market penetration. In addition, the Company
believes that significant opportunities exist to share its combined
international experience base among its subsidiaries to facilitate their
expansion into new global markets.
COMPANY FORMATION
The Company was formed (the "Company Formation") by the Company's management
and stockholders of the Company's parent, Jordan Industries, Inc. ("Jordan
Industries"), and certain of their affiliates and engaged in the Old Offerings
in connection with an overall recapitalization and refinancing (the "Jordan
Industries Recapitalization") of Jordan Industries. JTP undertook the Company
Formation as a component of the Jordan Industries Recapitalization for a number
of reasons, including establishing the Company as a stand-alone, industry-
focused company, which is expected to increase its financial flexibility.
Through a series of transactions on July 25, 1997, JTP Industries, a wholly-
owned subsidiary of JTP, acquired from Jordan Industries all of its
telecommunications and data communications products businesses (the
"Telecommunications Subsidiaries") for aggregate consideration of $294.0
million. This acquisition was financed with a portion of the net proceeds from
the Notes offered pursuant to the Old Offerings and $47.0 million of Equity
Investment. In addition, JTP assumed $10.0 million of the Telecommunications
Subsidiaries' obligations. The Equity Investment is comprised of: (i) the sale
of the $25.0 million initial liquidation preference of Senior Preferred Stock
offered pursuant to the Old Offerings; (ii) the sale of $20.0 million initial
liquidation preference of Junior Preferred Stock to Jordan Industries; and
(iii) $2.0 million in cash proceeds from the sale of an aggregate of 995,000
shares of Common Stock to stockholders and affiliates of Jordan Industries,
including Jordan Zalaznick Capital Company, MCIT PLC, Leucadia Investors, Inc.,
John W. Jordan, David W. Zalaznick, Thomas H. Quinn, Jonathan F. Boucher, John
W. Lowden, A. Richard Caputo, James E. Jordan, Paul Rodzevik, Bruce Zalaznick
and Douglas Zych (collectively, the "Jordan Group"), management of the Company,
the purchasers of the Preferred Stock Units pursuant to the Old Offerings and
Jefferies & Company, Inc. ("Jefferies"). See "Certain Transactions."
3
<PAGE>
Concurrent with the consummation of the Old Offerings, JTP Industries entered
into the New Credit Agreement. See "The Company--Company Formation,"
"Capitalization" and "Certain Transactions--The Company Formation and Proceeds
From the Old Offerings."
THE EXCHANGE OFFER
Securities Offered............. $190,000,000 principal amount of 9 7/8% Series
B Senior Notes due 2007, $120,000,000
principal amount at maturity of 11 3/4% Series
B Senior Discount Notes due 2007 and
$25,000,000 aggregate liquidation preference
of 13 1/4% Series B Senior Exchangeable
Preferred Stock due 2009. The terms of the New
Securities and the Old Securities are
identical in all material respects, except for
certain transfer restrictions and registration
rights relating to the Old Securities and
except for certain Liquidated Damages
provisions relating to the Old Securities
described below under "--Summary Description
of the New Securities."
Issuance of Old Notes and Old
Senior Preferred Stock;
Registration Rights...........
On July 25, 1997, the Old Senior Notes were
issued to Jefferies, Donaldson, Lufkin &
Jenrette Securities Corporation and Smith
Barney Inc. (collectively, the "Initial
Purchasers"), and the Old Discount Notes and
Old Senior Preferred Stock (which was sold as
part of a unit (the "Preferred Stock Units")
together with the Common Stock (as defined
herein)) were issued to Jefferies. The Old
Securities were placed with "qualified
institutional buyers" (as such term is defined
in Rule 144A promulgated under the Securities
Act) and institutional "accredited investors"
(as such term is defined in Rule 501(A)(1),
(2), (3) or (7) under the Securities Act). In
connection therewith, the Company executed and
delivered for the benefit of the holders of
Old Securities certain registration rights
agreements (the "Registration Rights
Agreements"), pursuant to which the Company
agreed (i) to file a registration statement
(the "Registration Statement") on or prior to
September 23, 1997 with respect to the
Exchange Offer and (ii) to use its best
efforts to cause the Registration Statement to
be declared effective by the Commission on or
prior to November 22, 1997. In certain
circumstances, the Company will be required to
provide a shelf registration statement (the
"Shelf Registration Statement") to cover
resales of the Old Securities by the holders
thereof. If the Company does not comply with
its obligations under the Registration Rights
Agreements, it will be required to pay
Liquidated Damages to holders of the Old
Securities under certain circumstances. See
"The Exchange Offer--Registration Rights;
Liquidated Damages."
The Exchange Offer............. The New Notes are being offered in exchange
for a like principal amount of Old Notes and
the New Senior Preferred Stock is being
offered in exchange for a like aggregate
liquidation preference of Old Senior Preferred
Stock. The issuance of the New Securities is
intended to satisfy the
4
<PAGE>
obligations of the Company contained in the
Registration Rights Agreements. Based upon the
position of the staff of the Commission set
forth in no-action letters issued to third
parties in other transactions substantially
similar to the Exchange Offer, the Company
believes that the New Securities issued
pursuant to the Exchange Offer may be offered
for resale, resold and otherwise transferred
by holders thereof (other than (i) any such
holder that is an "affiliate" of the Company
within the meaning of Rule 405 under the
Securities Act; (ii) an Initial Purchaser who
acquired the Old Securities directly from the
Company solely in order to resell pursuant to
Rule 144A of the Securities Act or any other
available exemption under the Securities Act;
or (iii) a broker-dealer who acquired the Old
Securities as a result of market making or
other trading activities) without further
compliance with the registration and
prospectus delivery requirements of the
Securities Act, provided that such New
Securities are acquired in the ordinary course
of such holder's business and such holder is
not participating and has no arrangement with
any person to participate in a distribution
(within the meaning of the Securities Act) of
the New Securities. Each broker-dealer that
receives New Securities for its own account
pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act
in connection with any resale for the New
Securities. Although there has been no
indication of any change in the staff's
position, there can be no assurance that the
staff of the Commission would make a similar
determination with respect to the resale of
the New Securities. See "Risk Factors."
Procedures for Tendering....... Tendering holders of Old Securities must com-
plete and sign the Letter of Transmittal in
accordance with the instructions contained
therein and forward the same by mail, facsim-
ile or hand delivery, together with any other
required documents, to the applicable Exchange
Agent (as defined herein), either with the Old
Securities to be tendered or in compliance
with the specified procedures for guaranteed
delivery of Old Securities. Holders of the Old
Securities desiring to tender such Old Securi-
ties in exchange for New Securities should al-
low sufficient time to ensure timely delivery.
Certain brokers, dealers, commercial banks,
trust companies and other nominees may also
effect tenders by book-entry transfer. Holders
of Old Securities registered in the name of a
broker, dealer, commercial bank, trust company
or other nominee are urged to contact such
person promptly if they wish to tender Old Se-
curities pursuant to the Exchange Offer. Let-
ters of Transmittal and certificates repre-
senting Old Securities should not be sent to
the Company. Such documents should only be
sent to the Exchange Agent. Questions regard-
ing how to tender and requests for information
should be directed to the Exchange Agent. See
"The Exchange Offer--Procedures for Tendering
Old Securities."
5
<PAGE>
Tenders; Expiration Date; The Exchange Offer will expire on 5:00 p.m.,
Withdrawal.................... New York City time, on , 1997, or such
later date and time to which the Exchange Of-
fer is extended (the "Expiration Date"). The
tender of Old Securities pursuant to the Ex-
change Offer may be withdrawn at any time
prior to the Expiration Date. Certificates
representing Old Securities not accepted for
exchange for any reason will be returned with-
out expense to the tendering holder thereof as
promptly as practicable after the expiration
or termination of the Exchange Offer. See "The
Exchange Offer--Terms of the Exchange Offer;
Period for Tendering Old Securities" and "--
Withdrawal Rights."
Certain Conditions to the
Exchange Offer................ The Exchange Offer is subject to certain cus-
tomary conditions, all of which may be waived
by the Company, including the absence of (i)
threatened or pending proceedings seeking to
restrain the Exchange Offer or resulting in a
material delay to the Exchange Offer; (ii) a
general suspension of trading on any national
securities exchange or in the over-the-counter
market; (iii) a banking moratorium; (iv) a
commencement of war, armed hostilities or
other similar international calamity directly
or indirectly involving the United States; and
(v) change or threatened change in the busi-
ness, properties, assets, liabilities, finan-
cial condition, operations, results of opera-
tions or prospects of the Company and its sub-
sidiaries taken as a whole that, in the rea-
sonable judgment of the Company, is or may be
adverse to the Company. The Company shall not
be required to accept for exchange, or to is-
sue New Securities in exchange for, any Old
Securities, if at any time before the accept-
ance of such Old Securities for exchange or
the exchange of the New Securities for such
Old Securities, any of the foregoing events
occurs which, in the sole judgment of the Com-
pany, make it inadvisable to proceed with the
Exchange Offer and/or with such acceptance for
exchange or with such exchange. If the Company
fails to consummate the Exchange Offer because
the Exchange Offer is not permitted by appli-
cable law or Commission policy, it will file
with the Commission a Shelf Registration
Statement to cover resales of the Transfer Re-
stricted Securities (as defined herein) by the
holders thereof who satisfy certain condi-
tions. If the Company fails to consummate the
Exchange Offer or file a Shelf Registration
Statement in accordance with the Registration
Rights Agreements, the Company will pay Liqui-
dated Damages (as defined herein) to each
holder of Transfer Restricted Securities until
the cure of all Registration Defaults (as de-
fined herein). The Exchange Offer is not con-
ditioned upon any minimum aggregate principal
amount of Old Notes or aggregate liquidation
preference of Old Senior Preferred Stock being
tendered for exchange. See "The Exchange Of-
fer--Registration Rights; Liquidated Damages"
and "--Certain Conditions to the Exchange
Offer."
6
<PAGE>
Federal Income Tax For Federal income tax purposes, the exchange
Consequences................... pursuant to the Exchange Offer will not result
in any income, gain or loss to the Holders or
the Company. See "Certain Federal Income Tax
Considerations."
Use of Proceeds................ There will be no proceeds to the Company from
the exchange pursuant to the Exchange Offer.
Appraisal Rights............... Holders of Old Securities will not have dis-
senters' rights or appraisal rights in connec-
tion with the Exchange Offer.
Exchange Agent................. First Trust National Association is serving as
Exchange Agent in connection with the Notes,
and Harris Trust and Savings Bank is serving
as the Exchange Agent in connection with the
Senior Preferred Stock, in the Exchange Offer.
CONSEQUENCES OF NOT EXCHANGING THE OLD SECURITIES
Holders of Old Securities who do not exchange their Old Securities for New
Securities pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Old Securities as set forth in the legend
thereon as a consequence of the issuance of the Old Securities 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 Old Securities may not be offered or sold, unless registered under
the Securities Act, except pursuant to an exemption from, or in a transaction
not subject to, the Securities Act and applicable state securities laws. The
Company does not currently anticipate that it will register the Old Securities
under the Securities Act. See "Risk Factors--Consequences of Exchange and
Failure to Exchange" and "The Exchange Offer--Consequences of Not Exchanging
Old Securities."
SUMMARY DESCRIPTION OF THE NEW SECURITIES
The terms of the New Securities and the Old Securities are identical in all
material respects, except for certain transfer restrictions and registration
rights relating to the Old Securities and except that, if the Exchange Offer is
not consummated within 30 business days of the Registration Statement of which
this Prospectus is a part being declared effective by the Commission, subject
to certain exceptions, with respect to the first 90-day period immediately
following thereafter, the Company will be obligated to pay liquidated damages
to each Holder of Old Notes in an amount equal to $.05 per week for each $1,000
principal amount of Old Notes, and to each Holder of Old Senior Preferred Stock
in an amount equal to $.05 per week for each $1,000 of liquidation preference
of Old Senior Preferred Stock (the "Liquidated Damages"). The amount of the
Liquidated Damages will thereafter increase to $.10 per week for each $1,000
principal amount or liquidation preference of Old Notes or Old Senior Preferred
Stock, as applicable, until the Exchange Offer is consummated.
The New Senior Notes and New Senior Preferred Stock will bear interest or pay
dividends from the most recent date to which interest or dividends have been
paid on the Old Senior Notes or Old Senior Preferred Stock or, if no interest
or dividends have been paid on the Old Senior Notes or Old Senior Preferred
Stock, from July 25, 1997 and the New Discount Notes will accrete from July 25,
1997. Accordingly, registered Holders of New Senior Notes or New Senior
Preferred Stock on the relevant record date for the first interest or dividend
payment date following the consummation of the Exchange Offer will receive
interest accruing from the most recent date to which interest or dividends have
been paid or, if no interest or dividends have been paid, from July 25, 1997.
Old Senior Notes, Old Discount Notes or Old Senior Preferred Stock accepted for
exchange will cease to accrue interest, accrete or accrue dividends from and
after the date of consummation of the Exchange Offer. Holders of Old Securities
whose Old Securities are accepted for exchange will not receive any payment in
respect of interest or dividends on such Old Securities otherwise payable on
any interest payment date which occurs on or after consummation of the Exchange
Offer.
7
<PAGE>
THE NEW NOTES AND NEW SENIOR PREFERRED STOCK
Issuer......................... Jordan Telecommunication Products, Inc., a
Delaware corporation.
Securities Offered............. $190,000,000 aggregate principal amount of 9
7/8% Series B Senior Notes due 2007 (the "New
Senior Notes").
$120,000,000 principal amount at maturity
($85,034,280 initial Accreted Value (as
defined herein)) of 11 3/4% Series B Senior
Discount Notes due 2007 (the "New Discount
Notes").
$25,000,000 aggregate liquidation preference
of 13 1/4% Series B Senior Exchangeable
Preferred Stock due 2009 (the "New Senior
Preferred Stock").
NEW SENIOR NOTES
Securities Offered............. $190,000,000 aggregate principal amount of 9
7/8% Series B Senior Notes due 2007.
Maturity Date.................. August 1, 2007.
Interest Rate and Payment The New Senior Notes will bear interest at a
Dates.......................... rate of 9 7/8% per annum. Interest on the New
Senior Notes will be payable semi-annually in
cash in arrears on February 1 and August 1 of
each year, commencing February 1, 1998.
Ranking........................
The New Senior Notes will be senior unsecured
obligations of the Company, will rank pari
passu in right of payment with all existing
and future senior indebtedness of the Company
(including the Discount Notes) and senior to
all existing and future subordinated
indebtedness of the Company. In addition, the
Senior Notes will be effectively subordinated
to senior secured indebtedness of the Company,
including indebtedness under the New Credit
Agreement, to the extent of the assets
securing such indebtedness, and to all
indebtedness and claims of creditors of its
subsidiaries. As of June 30, 1997, on a pro
forma basis, the aggregate principal amount of
indebtedness of JTP's subsidiaries to which
the Senior Notes would have been effectively
subordinated would have been approximately
$27.9 million.
Optional Redemption............ The New Senior Notes will be redeemable at the
option of the Company, in whole or in part, on
or after August 1, 2002, at the redemption
prices set forth herein, plus accrued and
unpaid interest, if any, to the date of
redemption. Notwithstanding the foregoing, at
any time or from time to time prior to August
1, 2000, the Company may redeem up to one-
third of the original principal amount of the
New Senior Notes at the redemption price of
109.875% of the principal amount thereof, plus
accrued and unpaid interest, if any, through
the date of redemption, with the net cash
proceeds of one or more Equity Offerings (as
8
<PAGE>
defined herein), provided that at least two-
thirds of the aggregate principal amount of
the New Senior Notes remain outstanding
immediately thereafter.
Change of Control.............. Upon a Change of Control (as defined herein),
the Company will be required to offer to
repurchase all of the outstanding New Senior
Notes at 101% of the principal amount thereof,
together with accrued and unpaid interest, if
any, to the date of repurchase.
Certain Covenants.............. The Senior Note Indenture (as defined herein)
contains certain covenants that limit the
ability of the Company and its Restricted
Subsidiaries to (i) incur additional
indebtedness; (ii) make restricted payments;
(iii) enter into certain transactions with
affiliates; (iv) create certain liens; (v)
sell certain assets; and (vi) merge,
consolidate or sell substantially all of the
Company's assets. All of these limitations are
subject to various qualifications.
For a more detailed description of the terms of the New Senior Notes, see
"Description of Notes."
NEW SENIOR DISCOUNT NOTES
Securities Offered............. $120,000,000 principal amount at maturity
($85,034,280 initial Accreted Value) of 11
3/4% Series B Senior Discount Notes due 2007.
Maturity Date.................. August 1, 2007.
Interest Rate and Payment The New Discount Notes are being sold at a
Dates.......................... substantial discount from their principal
amount at maturity, and there will not be any
payment of interest on the Discount Notes
prior to February 1, 2001. The New Discount
Notes will accrete at a rate of 11 3/4%,
compounded semi-annually, to par by August 1,
2000. Commencing August 1, 2000, the New
Discount Notes will bear interest at a rate of
11 3/4% per annum, payable semi-annually in
cash in arrears on February 1 and August 1,
commencing February 1, 2001.
Original Issue Discount........ For federal income tax purposes, the New
Discount Notes will be treated as having been
issued with "original issue discount." Each
holder of a New Discount Note will be required
to include amounts in gross income for federal
income tax purposes in advance of the receipt
of cash payments to which the income is
attributable. See "Certain Federal Income Tax
Considerations."
Ranking........................ The New Discount Notes will be senior
unsecured obligations of the Company, will
rank pari passu in right of payment with all
existing and future senior indebtedness of JTP
(including the Senior Notes) and senior to all
existing and future subordinated indebtedness
of the Company. In addition, the New Discount
9
<PAGE>
Notes will be effectively subordinated to
senior secured indebtedness of JTP, including
indebtedness under the New Credit Agreement,
to the extent of the assets securing such
indebtedness, and to all indebtedness and
claims of creditors of the Company's
subsidiaries. As of June 30, 1997, on a pro
forma basis, the aggregate principal amount of
indebtedness of JTP's subsidiaries to which
the New Discount Notes would have been
effectively subordinated would have been
approximately $27.9 million.
Optional Redemption............ The New Discount Notes will be redeemable at
the option of the Company, in whole or in
part, on or after August 1, 2002, at the
redemption prices set forth herein, plus
accrued and unpaid interest, if any, to the
date of redemption. Notwithstanding the
foregoing, at any time or from time to time
prior to August 1, 2000, the Company may
redeem up to one-third of the original
principal amount of the New Discount Notes at
the redemption price of 111.75% of the
aggregate Accreted Value thereof, with the net
cash proceeds of one or more Equity Offerings,
provided that at least two-thirds of the
aggregate principal amount of the New Discount
Notes remain outstanding immediately
thereafter.
Change of Control.............. Upon a Change of Control, the Company will be
required to offer to repurchase all of the
outstanding New Discount Notes at 101% of the
Accreted Value thereof, together with accrued
and unpaid interest, if any, to the date of
repurchase.
Certain Covenants.............. The Discount Note Indenture (as defined
herein) contains certain covenants that will
limit the ability of the Company and its
Restricted Subsidiaries to (i) incur
additional indebtedness; (ii) make restricted
payments; (iii) enter into certain
transactions with affiliates; (iv) create
certain liens; (v) sell certain assets; and
(vi) merge, consolidate or sell substantially
all of the Company's assets. All of these
limitations are subject to various
qualifications.
For a more detailed description of the terms of the New Discount Notes, see
"Description of Notes."
NEW SENIOR PREFERRED STOCK
Securities Offered............. 25,000 shares of 13 1/4% Series B Senior
Exchangeable Preferred Stock due August 1,
2009.
Dividends...................... Dividends on the New Senior Preferred Stock
will accrue in each period ending on February
1, May 1, August 1, and November 1 of each
year at a rate of 13 1/4% per annum of the
liquidation preference. On or before August 1,
2002 the Company may, at its option, pay
dividends in cash or in additional fully paid
and non-assessable shares of New Senior
Preferred Stock having an aggregate
liquidation preference equal to the amount of
such dividends. Thereafter, dividends may be
paid in cash only.
10
<PAGE>
Liquidation Preference......... $1,000 per share.
Ranking........................
The New Senior Preferred Stock will rank
senior in right of payment with respect to all
Junior Securities and pari passu with respect
to all Parity Securities. See "Risk Factors--
Ranking of Senior Notes, Discount Notes,
Senior Preferred Stock and Preferred Stock
Exchange Notes," "Description of Senior
Preferred Stock" and "Description of Preferred
Stock--Ranking."
Mandatory Redemption........... The Company will be obligated to redeem all of
the New Senior Preferred Stock on August 1,
2009 at a redemption price equal to 100% of
the liquidation preference on the date of
redemption, plus an amount in cash equal to
all accrued and unpaid dividends to the date
of redemption.
Optional Redemption............ The New Senior Preferred Stock will be
redeemable at the option of JTP, in whole or
in part, on or after August 1, 2002 at the
redemption prices set forth herein, plus an
amount in cash equal to all accrued and unpaid
dividends to the date of redemption. In
addition, at the option of the Company, the
New Senior Preferred Stock may be redeemed in
whole, but not in part, at any time at the
redemption price set forth herein, plus an
amount in cash equal to all accrued and unpaid
dividends to the date of redemption, with the
net cash proceeds of one or more Equity
Offerings. See "Description of Senior
Preferred Stock--Redemption of Senior
Preferred Stock--Optional Redemption."
Change of Control.............. If a Change of Control occurs, each holder of
New Senior Preferred Stock will have the right
to require the Company to purchase all or any
part of such holder's New Senior Preferred
Stock at an offer price in cash equal to 101%
of the liquidation preference thereof, plus an
amount in cash equal to all accrued and unpaid
dividends per share to the date of purchase.
Certain Covenants.............. The Certificate of Designation contains
customary covenants that limit the ability of
the Company to redeem or repurchase Junior
Securities or Parity Securities and pay
dividends thereon, to merge or consolidate
with any other entity, to sell assets and to
enter into transactions with affiliates. The
Certificate of Designation also requires the
Company to deliver certain reports and
information to the holders of the New Senior
Preferred Stock.
Exchange Feature............... On any scheduled dividend payment date, the
Company may, at its option, exchange all but
not less than all of the shares of New Senior
Preferred Stock then outstanding for the
Company's 13 1/4% Subordinated Preferred Stock
Exchange Notes due 2009.
For a more detailed description of the terms of the New Senior Preferred
Stock, see "Description of Senior Preferred Stock."
11
<PAGE>
PREFERRED STOCK EXCHANGE NOTES
Securities Offered............. 13 1/4% Subordinated Preferred Stock Exchange
Notes due 2009 (the "Preferred Stock Exchange
Notes").
Maturity Date.................. August 1, 2009.
Interest Rate and Payment The Preferred Stock Exchange Notes will bear
Dates.......................... interest at a rate of 13 1/4% per annum.
Interest on the Preferred Stock Exchange Notes
will be payable semi-annually in cash in
arrears on February 1 and August 1 of each
year, commencing with the first such date to
occur after the date of exchange. On or before
August 1, 2002, the Company may, at its
option, pay interest in cash or in additional
Preferred Stock Exchange Notes having an
aggregate principal amount equal to the amount
of such interest. Thereafter, interest may be
paid in cash only.
Ranking........................
The Preferred Stock Exchange Notes will be
subordinated unsecured obligations of the
Company, junior in right of payment to all
existing and future Senior Indebtedness,
including the Senior Notes, the Discount Notes
and the New Credit Agreement, and pari passu
with all other Subordinated Indebtedness of
the Company. At June 30, 1997, on a pro forma
basis, the aggregate amount of outstanding
Senior Indebtedness would have been
approximately $301.4 million. See "Risk
Factors--Ranking of Senior Notes, Discount
Notes, Senior Preferred Stock and Preferred
Stock Exchange Notes," and "Description of
Preferred Stock Exchange Notes."
Optional Redemption............ The Preferred Stock Exchange Notes will be
redeemable at the option of the Company, in
whole or in part, on or after August 1, 2002,
at the redemption prices set forth herein,
plus accrued and unpaid interest, if any, to
the date of redemption. In addition, at any
time, the Company may redeem the Preferred
Stock Exchange Notes in whole, but not in
part, at a redemption price equal to 113.25%
of the principal amount thereof, plus accrued
and unpaid interest, if any, through the date
of redemption, with the net cash proceeds of
one or more Equity Offerings.
Change of Control.............. Upon a Change of Control, the Company will be
required to repurchase all of the outstanding
Preferred Stock Exchange Notes at 101% of the
principal amount thereof, together with
accrued and unpaid interest, if any, to the
date of repurchase.
Certain Covenants.............. The Exchange Note Indenture (as defined
herein) contains certain covenants that limit
the ability of the Company and its Restricted
Subsidiaries to (i) make restricted payments;
(ii) enter into certain transactions with
affiliates; and (iii) merge, consolidate or
sell substantially all of the Company's
assets. All of these limitations are subject
to various qualifications.
For a more detailed description of the terms of the Preferred Stock Exchange
Notes, see "Description of Preferred Stock Exchange Notes."
12
<PAGE>
RECENT DEVELOPMENTS
On September 2, 1997, JTP acquired the assets of Engineered Endeavors, Inc.
("EEI") for $41.5 million, including estimated costs incurred directly related
to the transaction. The acquisition was financed with $21.5 million of cash and
$20.0 million of borrowings under the New Credit Agreement. See "Terms of the
Acquisitions."
EEI, headquartered in Mentor, Ohio, designs complete antenna tower
structures, manufactures monopole antenna mount platforms, custom bell and
clock towers and accessories and distributes ancillary products used in the
construction of cellular and PCS towers. EEI fits into the Company's
infrastructure products and equipment product segment. See "The Company--
Infrastructure Products and Equipment."
RISK FACTORS
Holders of the Old Securities should consider carefully all of the
information set forth in this Prospectus and, in particular, should evaluate
the specific factors set forth under "Risk Factors."
13
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following table presents summary (i) historical combined operating and
other data of the Company for the years ended December 31, 1994, 1995 and 1996,
and the six months ended June 30, 1996 and 1997; (ii) historical combined and
pro forma balance sheet data of the Company at June 30, 1997; and (iii) pro
forma combined operating and other data of the Company for the year ended
December 31, 1996 and the six months ended June 30, 1997. The pro forma data is
unaudited. The pro forma information gives effect to the transactions described
in Note 2 to the following table. The pro forma information does not purport to
represent what the consolidated results of the Company would have been had such
transactions actually occurred at the beginning of the relevant period, and
does not purport to project the combined financial position or the combined
results of operations of the Company for the current year or any future period.
The summary historical combined financial information reflects the results of
the Company and its subsidiaries from the date of acquisition of such
subsidiaries. The historical information of the Company at June 30, 1997 and
for the six months ended June 30, 1996 and 1997 was derived from the unaudited
combined financial statements of the Company. The results of operations for the
six months ended June 30, 1997 are not necessarily indicative of the results of
operations to be expected for the full year. The summary financial information
set forth below should be read in conjunction with the financial statements and
the related notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
HISTORICAL COMBINED(1) PRO FORMA COMBINED(2)
------------------------------------------ -----------------------
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30, YEAR ENDED SIX MONTHS
------------------------ ---------------- DECEMBER 31, ENDED JUNE
1994 1995 1996 1996 1997 1996 30, 1997
------- ------- -------- ------- -------- ------------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............. $64,690 $96,969 $132,999 $50,917 $107,802 $233,642 $130,361
Depreciation and
Amortization......... 5,100 5,105 6,642 2,954 4,775 10,640 5,744
Operating income
(loss)(3)............ 8,388 14,886 13,323 7,739 (1,407) 23,957 1,190
Net income (loss)..... 1,385 4,006 (2,577) 1,498 (8,795) (6,211) (10,193)
OTHER DATA:
Capital expenditures.. 3,289 5,415 6,873 2,812 3,103 7,763 3,363
Cash interest expense. 5,778 6,555 11,826 4,356 9,265 21,367 10,684
Total interest
expense(4)........... 5,778 6,555 11,826 4,356 9,265 31,801 15,754
Ratio of earnings to
fixed charges(5)..... 1.4 2.3 1.1 1.8 -- -- --
Ratio of earnings to
combined fixed
charges and preferred
stock dividends(6)... 1.4 2.2 1.1 1.8 -- -- --
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1997
--------------------
HISTORICAL PRO
COMBINED FORMA(7)
---------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents(8)............................ $ 3,032 $ 9,461
Total assets............................................ 204,968 263,200
Total debt.............................................. 177,909 301,432
Preferred stock(9)...................................... 1,875 46,823
Stockholders' equity (net capital deficiency)(9)........ (20,694) (138,120)
</TABLE>
14
<PAGE>
- --------
(1) Includes the results of operations and other data of the subsidiaries
comprising the Telecommunications Subsidiaries from their respective dates
of acquisition by Jordan Industries.
(2) Includes the results of operations and other data of the Company and the
Telecommunications Subsidiaries on a combined basis, as if all of the
Telecommunications Subsidiaries were acquired at the beginning of the
relevant period, as further adjusted to reflect the Company Formation and
the elimination or adjustment of certain expenses and fees as described in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Certain Transactions--Services Agreements," "--SAR Payments"
and the Unaudited Pro Forma Combined Financial Statements of JTP and the
related notes thereto appearing elsewhere in this Prospectus.
(3) Historical and pro forma operating income (loss) includes general,
administrative and operating expenses associated with new facility start-
ups of $1.7 million for the year ended December 31, 1996 and $0.7 million
for the six months ended June 30, 1997; non-competition payments paid to
the partners of the Czech Republic joint venture of $1.0 million for the
year ended December 31, 1996 and $0.4 million for the six months ended June
30, 1997 and 1996; the Company's payment and purchase of stock appreciation
rights from the management and prior owners of Dura-Line and AIM of $1.8
million, $1.1 million, $3.4 million for the years ended December 31, 1994,
1995 and 1996, respectively, and $15.4 million for the six months ended
June 30, 1997; and, purchase accounting adjustments relating to inventory
at Viewsonics of $1.9 million for the year ended December 31, 1996 and $0.2
million for the six months ended June 30, 1997.
(4) Pro forma total interest expense excludes amortization of deferred
financing costs of $0.9 million for the year ended December 31, 1996, and
$0.5 million for the six months ended June 30, 1997.
(5) For puposes of calculating the ratio of earnings (losses) to fixed charges,
earnings consist of loss before taxes, minority interest, extraordinary
(loss), plus (minus) fixed charges and fixed charges consist of interest
expense on indebtedness, amortization of financing costs and debt discount,
plus that portion of lease rental expense representative of the interests
factor.
Historical earnings (losses) were insufficient to cover fixed charges by
$10.6 million for the six months ended June 30, 1997. However, this
deficiency reflects non-cash charges for depreciation and amortization of
goodwill and other intangibles of $4.8 million.
Pro forma earnings (losses) were insufficient to cover fixed charges by
$7.8 million and $14.9 million for the year ended December 31, 1996 and the
six months ended June 30, 1997, respectively. However, these deficiencies
reflect non-cash charges for depreciation and amortization of goodwill and
other intangibles and amortization of financing costs and debt discount of
$11.5 million and $6.2 million for the respective periods.
(6) In the computation of the ratio of earnings (losses) to combined fixed
charges and preferred stock dividends, earnings (losses) consist of loss
before income taxes, minority interest, extraordinary (loss) plus (minus)
fixed charges. Combined fixed charges and preferred stock dividends
consist of interest expense on indebtedness, amortization of financing
costs and debt discount, preferred stock dividend requirements of
majority-owned subsidiaries, plus that portion of lease rental expense
representative of the interest factor.
Historical earnings (losses) were insufficient to cover combined fixed
charges and preferred stock dividends by $10.8 million for the six months
ended June 30, 1997. However, this deficiency reflects non-cash charges for
depreciation and amortization of goodwill and other intangibles of $4.8
million.
Pro forma earnings (losses) were insufficient to cover combined fixed
charges and preferred stock dividends by $13.4 million and $17.7 million
for the year ended December 31, 1996 and for the six months ended June 30,
1997, respectively. However, this deficiency reflects non-cash charges for
depreciation and amortization of goodwill and their intangibles, and
amortization of financing costs and debt discount of $11.5 million and $6.2
million for the respective periods.
(7) Pro forma balance sheet data at June 30, 1997 reflects the combined
financial position of the Company as of such date, as adjusted to reflect
the Old Offerings and the application of the net proceeds therefrom as
described in "Use of Proceeds," in each case, as if each had occurred on
June 30, 1997.
(8) Includes $0.7 million of restricted cash and cash equivalents held as
purchase price adjustments in connection with the acquisition of Bond
Technologies, Inc. by Jordan Industries.
(9) A portion ($0.1 million) of the issue price of the Preferred Stock Units
offered in the Old Offerings has been allocated to the Common Stock forming
a part of the units which, under GAAP, has decreased the balance of the
Senior Preferred Stock and increased the amount of stockholders' equity
reflected on the balance sheet.
15
<PAGE>
RISK FACTORS
Holders of the Old Securities should consider carefully the following risk
factors, in addition to the other information set forth in this Prospectus,
before tendering their Old Securities in the Exchange Offer. This Prospectus
contains certain forward-looking statements, including statements containing
the words "believes," "anticipates," "expects" and words of similar import.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors which may cause the actual results, performance or
achievements of the Company, or industry results, to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
following: adverse changes in national or local economic conditions, increased
competition, changes in availability, cost and terms of financing, changes in
operating expenses and other factors referenced in this Prospectus. Certain of
these factors are discussed in more detail elsewhere in this Prospectus,
including without limitation, under the captions "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business."
Given these uncertainties, prospective investors are cautioned not to place
undue reliance on such forward-looking statements. The Company disclaims any
obligation to update any such factors or to publicly announce the results of
any revisions to any of the forward-looking statements contained in this
Prospectus to reflect future events or developments. The risk factors set
forth below (other than "Consequences of Exchange and Failure to Exchange")
are generally applicable to the Old Securities as well as the New Securities.
CONSEQUENCES OF EXCHANGE AND FAILURE TO EXCHANGE
Issuance of the New Securities in exchange for the Old Securities pursuant
to the Exchange Offer will be made only after timely receipt by the applicable
Exchange Agent of such Old Securities, a properly completed and duly executed
Letter of Transmittal and all other required documents. Therefore, holders of
the Old Securities desiring to tender such Old Securities in exchange for New
Securities should allow sufficient time to ensure timely delivery. The Company
is under no duty to give notification of defects or irregularities with
respect to tenders of Old Securities for exchange. Holders of Old Securities
who do not exchange their Old Securities for New Securities pursuant to the
Exchange Offer will continue to be subject to the restrictions on transfer of
such Old Securities as set forth in the legend thereon. In general, the Old
Securities may not be offered or sold, unless registered under the Securities
Act, except pursuant to an exemption from, or in a transaction not subject to,
the Securities Act and applicable state securities laws. The Company does not
currently anticipate that it will register the Old Securities under the
Securities Act. In addition, upon the consummation of the Exchange Offer
holders of Old Securities which remain outstanding will not be entitled to any
rights to have such Old Securities registered under the Securities Act or to
any rights under the Registration Rights Agreements. To the extent that Old
Securities are tendered and accepted in the Exchange Offer, a holder's ability
to sell untendered, or tendered but unaccepted, Old Securities could be
adversely affected. See "The Exchange Offer--Consequences of Not Exchanging
Old Securities."
Based on interpretations by the staff of the Commission, the Company
believes that the New Securities issued pursuant to the Exchange Offer in
exchange for Old Securities may be offered for resale, resold and otherwise
transferred by a holder thereof (other than (i) an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act; (ii) an Initial
Purchaser who acquired the Old Securities directly from the Company solely in
order to resell pursuant to Rule 144A of the Securities Act or any other
available exemption under the Securities Act; or (iii) a broker-dealer who
acquired the Old Securities as a result of market making or other trading
activities) without further compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that such New Securities
are acquired in the ordinary course of such holder's business and that such
holder is not participating and has no arrangement or understanding with any
person to participate in a distribution (within the meaning of the Securities
Act) of such New Securities. The Company has not, however, sought its own no-
action letter from the staff of the Commission. Although there has been no
indication of any change in the staff's position, there can be no assurance
that the staff of the Commission would make a similar determination with
respect to the resale of the New Securities. Any holder that cannot rely upon
such prior staff interpretations must comply with the registration and
prospectus delivery requirements of the
16
<PAGE>
Securities Act in connection with a secondary resale transaction, unless such
sale is made pursuant to an exemption from such requirements. See "The
Exchange Offer--Purpose of the Exchange Offer."
LEVERAGE AND COVERAGE; NET CAPITAL DEFICIENCY
JTP has substantial indebtedness and debt service obligations. At June 30,
1997, the Company's total indebtedness, including current portion, would have
been approximately $301.4 million and its net capital deficiency would have
been approximately $163.4 million, in each case on a pro forma basis after
giving effect to the Old Offerings, the application of the net proceeds
therefrom, the Company Formation and the Jordan Industries Recapitalization.
In addition, subject to the restrictions under the New Credit Agreement and
the Indentures, the Company and its subsidiaries may incur additional
indebtedness (including additional secured indebtedness and senior
indebtedness) from time to time. See "Use of Proceeds," "Capitalization" and
"Description of Notes--Certain Covenants."
The level of the Company's indebtedness could have important consequences to
holders of the Notes, Senior Preferred Stock and, if issued, Preferred Stock
Exchange Notes, including: (i) a substantial portion of the Company's cash
flow from operations must be dedicated to debt service and will not be
available for other purposes; (ii) JTP's ability to obtain additional debt
financing in the future for working capital, capital expenditures, research
and development or acquisitions may be limited; and (iii) the Company's level
of indebtedness could limit its flexibility in reacting to changes in its
operating environment and in economic conditions generally.
On the basis of its historical financial information, its recent operating
history as discussed in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and other factors, the Company believes
that cash flow from operations will be sufficient to cover fixed charges as
they come due for at least the next 12 months. However, if cash flow from
operations declines, fixed charges (including interest on the Notes and, if
issued, Preferred Stock Exchange Notes, and dividends on the Senior Preferred
Stock) and capital expenditures may exceed cash flow. To the extent that cash
flow from operations is insufficient to cover the Company's fixed charges and
fund the Company's capital expenditure requirements, JTP, in order to pay such
expenses, may obtain funds from additional borrowings (which may qualify as
Senior Indebtedness), if permitted, may seek to sell a portion of its business
or other assets, engage in sale/leaseback transactions, raise additional
equity capital and/or acquire other businesses that would provide additional
positive cash flow. No assurance can be given as to the availability of these
or other similar transactions, or that these or similar transactions could be
accomplished on terms favorable to the Company.
The Company's ability to pay principal and interest on the Notes and, if
issued, the Preferred Stock Exchange Notes, and to pay dividends on the Senior
Preferred Stock will depend on the future operating performance and the
financial results of the Company, which will be subject in part to factors
beyond the control of the Company, such as prevailing economic conditions and
financial, business and other factors including, possibly, the availability of
revolving credit borrowings under the New Credit Agreement. The New Credit
Agreement contains restrictions on dividends and other payments, limitations
on the incurrence of additional Indebtedness or liens, limitations on material
acquisitions, limitations on transactions with affiliates and maintenance of
capital funds, and net worth and cash flow coverage ratio requirements. See
"Description of Certain Indebtedness and Other Obligations" and "Description
of Notes." The highly leveraged position of the Company and the restrictive
covenants contained in the Indentures and the New Credit Agreement could
significantly limit JTP's ability to withstand competitive pressures or
adverse economic conditions, make acquisitions or take advantage of business
opportunities that may arise.
RANKING OF SENIOR NOTES, DISCOUNT NOTES, SENIOR PREFERRED STOCK AND PREFERRED
STOCK EXCHANGE NOTES
The Senior Notes and Discount Notes are senior unsecured obligations of the
Company and rank pari passu in right of payment with all Senior Indebtedness
of the Company. The Preferred Stock Exchange Notes, if issued, will be
unsecured obligations of JTP and will be subordinated in right of payment to
all existing and future Senior Indebtedness of the Company, including the
Senior Notes and the Discount Notes. In the event of the insolvency,
liquidation, reorganization, dissolution or other winding up of the Company,
or upon the maturity of any Senior
17
<PAGE>
Indebtedness, whether by lapse of time, acceleration or otherwise, the holders
of Senior Indebtedness must be paid in full in cash before any payment of
principal or interest in respect of the Preferred Stock Exchange Notes. As a
result, holders of Preferred Stock Exchange Notes may recover ratably less
than general creditors of the Company. The Senior Preferred Stock ranks junior
to all Indebtedness and other obligations of JTP and its subsidiaries,
including the Senior Notes and Discount Notes. The Senior Notes, Discount
Notes and, if issued, Preferred Stock Exchange Notes effectively rank junior
to any secured Indebtedness of the Company, to the extent of the assets
securing such Indebtedness, and to Indebtedness and claims of creditors of the
Company's subsidiaries, including Indebtedness incurred under the New Credit
Agreement. At June 30, 1997, on a pro forma basis, after giving effect to the
Old Offerings, the Company Formation and the Jordan Industries
Recapitalization, the aggregate indebtedness of JTP's subsidiaries, which the
Senior Notes and Discount Notes would effectively rank junior to, was
approximately $27.9 million and the aggregate amount of Senior Indebtedness,
which the Preferred Stock Exchange Notes would effectively rank junior to,
would have been approximately $301.4 million. See "Description of Notes--
Ranking." The Indentures permit the Company and its subsidiaries to incur
additional indebtedness, including secured indebtedness and indebtedness of
its subsidiaries, subject to certain limitations. See "Terms of the
Acquisitions," "Description of Certain Indebtedness and Other Obligations" and
"Description of Notes--Certain Covenants."
HOLDING COMPANY STRUCTURE; DEPENDENCE ON SUBSIDIARIES; LIMITATIONS ON ACCESS
TO CASH FLOW OF THE SUBSIDIARIES
The Company is structured as a holding company that owns all of the stock of
JTP Industries. JTP Industries owns all of the stock of the Company's
operating subsidiaries. See "The Company--General." JTP's current operations
are conducted exclusively through its subsidiaries, and the Company's only
significant asset is the capital stock of JTP Industries. As a holding
company, the Company is dependent on dividends or other intercompany transfers
of funds from its subsidiaries to meet the Company's debt service, preferred
stock dividends and other obligations. The Notes, Senior Preferred Stock and,
if issued, Preferred Stock Exchange Notes will be obligations exclusively of
the Company and will not be guaranteed by any of the Company's subsidiaries
except under certain limited circumstances. See "Description of Notes--Certain
Covenants--Limitations on Guarantees of Company Indebtedness by Restricted
Subsidiaries." In addition, JTP conducts its business through its
subsidiaries, and all existing and future liabilities of the Company's
subsidiaries, including borrowings under the New Credit Agreement, will be
effectively senior to the Notes, Senior Preferred Stock and, if issued,
Preferred Stock Exchange Notes. Each subsidiary's management is given broad
discretion in conducting the day-to-day operations of such subsidiary, and the
performance of the subsidiaries is largely dependent upon their individual
efforts. Consequently, the Company's cash flow and ability to service its debt
and preferred stock dividend obligations, including the Notes, Senior
Preferred Stock and, if issued, Preferred Stock Exchange Notes, are dependent
upon the earnings of the subsidiaries and the distribution of those earnings
to the Company, or upon loans, advances or other payments made by the
subsidiaries to the Company. Furthermore, the terms of the permitted
Indebtedness of the Company and its Restricted Subsidiaries may have the
effect of limiting the ability of subsidiaries of the Company to pay dividends
to the Company.
ORIGINAL ISSUE DISCOUNT CONSEQUENCES OF THE DISCOUNT NOTES
The Discount Notes were issued at a substantial discount from their
principal amount. Consequently, the holders of the Discount Notes generally
will be required to include amounts in gross income for federal income tax
purposes in advance of receipt of the cash payments to which the income is
attributable. See "Certain Federal Income Tax Considerations" for a more
detailed discussion of the federal income tax consequences to the holders of
the Discount Notes of the purchase, ownership and disposition of the Discount
Notes. If a bankruptcy case is commenced by or against the Company under the
United States Bankruptcy Code after the issuance of the Discount Notes, the
claim of a holder of Discount Notes may be limited to an amount equal to the
sum of (i) the price paid by the holder for the Discount Notes (which price
may be deemed to be the closing price of the Discount Notes on their first day
of trading); and (ii) that portion of the original issue discount which is not
deemed to constitute "unmatured interest" for purposes of the United States
Bankruptcy Code. Any original issue discount that was not amortized as of any
such bankruptcy filing would constitute "unmatured interest."
18
<PAGE>
The amortization of OID (as defined herein) for purposes of a claim in
bankruptcy may be calculated differently than the amortization of such OID for
tax purposes.
RESTRICTIVE COVENANTS LIMITING THE COMPANY'S ABILITY TO REPAY THE SENIOR
NOTES, DISCOUNT NOTES, SENIOR PREFERRED STOCK AND PREFERRED STOCK EXCHANGE
NOTES
The New Credit Agreement contains covenants that are additional to, or more
restrictive than, those contained in the Indentures and the Certificate of
Designation, certain of which may prohibit the Company and its subsidiaries
from prepaying other indebtedness, including the Notes and, if issued,
Preferred Stock Exchange Notes. The New Credit Agreement also requires JTP to
maintain specified financial ratios and satisfy certain financial condition
tests. The Company's ability to meet those financial ratios and tests can be
affected by events beyond its control, and there can be no assurance that the
Company will meet those ratios and tests. A breach of any of these covenants
could result in a default under the New Credit Agreement. Upon the occurrence
of an event of default under the New Credit Agreement, the lenders thereunder
could elect to declare all amounts outstanding under the New Credit Agreement,
together with accrued interest, to be immediately due and payable. If the
Company were unable to repay those amounts, such lenders could proceed against
the collateral granted to them to secure that indebtedness. If the Senior
Indebtedness were to be accelerated, there can be no assurance that the assets
of the Company would be sufficient to repay in full all Indebtedness of JTP,
including the Notes and, if issued, Preferred Stock Exchange Notes, or to
redeem the Senior Preferred Stock of the Company. Substantially all of the
assets of the Company's subsidiaries are pledged as security under the New
Credit Agreement. See "Description of Certain Indebtedness and Other
Obligations--New Credit Agreement" and "Description of Notes."
CONTROL BY PRINCIPAL STOCKHOLDER; RELATIONSHIP WITH JORDAN INDUSTRIES
Jordan Industries' stockholders and affiliates (collectively, the "Jordan
Group") and management of the Company own 96.5% of the outstanding Common
Stock. In addition, Jordan Industries owns all of the Junior Preferred Stock
of the Company, entitling Jordan Industries to cast 95% of the votes entitled
to be cast on most matters submitted to shareholders for a vote. Accordingly,
the Jordan Group will have sufficient voting power to elect the entire Board
of Directors, exercise control over the business, policies and affairs of the
Company and, in general, determine the outcome of any corporate transaction or
other matters submitted to the stockholders for approval such as (i) any
amendment to the Company's Certificate of Incorporation (the "Certificate of
Incorporation"), including the authorization of additional shares of capital
stock; (ii) any merger, consolidation or sale of all or substantially all of
the assets of JTP; and (iii) any "going private" transaction, and prevent or
cause a change of control of the Company, all of which may adversely affect
the Company and the interests of its other stockholders. The Jordan Group is
expected to maintain a majority ownership interest in the Company for the
foreseeable future. Messrs. Boucher, Jordan, Quinn and Zalaznick, all
directors of the Company, are directors and stockholders of Jordan Industries.
Messrs. Boucher, Jordan and Quinn are also executive officers of Jordan
Industries.
Approximately $284.0 million of net proceeds to JTP from the Old Offerings
and Equity Investment were paid to Jordan Industries as the cash consideration
for the Telecommunications Subsidiaries and the repayment of the intercompany
indebtedness owed by the Telecommunications Subsidiaries to Jordan Industries.
See "The Company--Company Formation." Such funds will not be available to the
Company for other uses such as funding future acquisitions or working capital.
Further, concurrent with the consummation of the Old Offerings, the Company
entered into a number of affiliate transactions with Jordan Industries and The
Jordan Company, an affiliate of Jordan Industries, including the New
Subsidiary Consulting Agreement, the New Subsidiary Advisory Agreement, the JI
Properties Services Agreement, the Tax Sharing Agreement (each as defined
herein) and certain other agreements and transactions. See "Certain
Transactions."
Jordan Industries expects to include the Company in its consolidated group
for Federal income tax purposes. However, if the Junior Preferred Stock ceased
to represent at least 80% of the voting power and 80% of the value of all
outstanding stock of the Company, including the Common Stock, the Company
would be
19
<PAGE>
deconsolidated from the Jordan Industries group. Deconsolidation will occur,
at the latest, on the fifth anniversary after issuance, when the Junior
Preferred Stock is redeemed according to its terms or discontinues its
participation in the earnings of the Company, although deconsolidation could
occur prior to the fifth anniversary after issuance. Deconsolidation of the
Company from the Jordan Industries group will trigger the recognition of
substantial amounts of deferred intercompany gain that certain of the
subsidiaries of Jordan Industries will realize as a result of the Jordan
Industries Recapitalization. Although Jordan Industries would be primarily
liable for the Federal income tax liability arising from the recognition of
those gains, the Company could have secondary liability for the Federal income
tax on those gains if Jordan Industries failed to pay such tax.
LIMITED OPERATING HISTORY AND LIMITED RELEVANCE OF HISTORICAL FINANCIAL
INFORMATION
The Company was incorporated on July 18, 1997 to consolidate the
subsidiaries of Jordan Industries that are engaged in the manufacture and
distribution of products for use in the rapidly growing telecommunications and
data communications industries. JTP has conducted limited operations to date.
The historical financial information included herein for periods prior to June
30, 1997 is based upon the historical information of AIM, Cambridge, Dura-Line
and, for some periods, Bond, Diversified, Johnson, LoDan, Northern, Viewsonics
and Vitelec (each as defined herein) on a combined basis prior to the
formation of the Company and does not reflect the actual results of
operations, financial position or cash flows of the Company on a stand-alone
basis with its currently owned subsidiaries. As a result, the historical
financial information is of limited relevance in understanding what the
results of operations, financial position or cash flows of JTP would have been
for the historical periods presented had the Company in fact owned all of its
current or planned subsidiaries or had the Company in fact been organized for
such periods. See "Selected Historical Financial Information" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
ACQUISITION STRATEGY
One of the Company's business strategies is to acquire additional
telecommunications and data communications product companies that will
complement the Company's existing operations or provide JTP with an entry into
regions or markets it does not presently serve. Inherent in such a strategy
are certain risks, such as increasing leverage and debt service requirements,
potential exposure to liabilities of acquired companies, and operating
businesses in many geographically diverse markets. There can be no assurance
that the Company will be able to identify suitable acquisition candidates or
successfully acquire or profitably manage additional companies. The Company
competes and will continue to compete with many other buyers, some of which
have greater financial and other resources than those of the Company, for the
acquisition of telecommunications and data communications product companies.
The Company may be required to utilize its cash resources, if available, in
order to continue its acquisition program. If the Company does not have
sufficient cash resources, its growth could be limited unless it is able to
obtain the necessary capital through additional debt or equity financings.
There can be no assurance that JTP will be able to obtain such financing if
and when it is needed or that, if available, it will be available on terms the
Company deems acceptable. As a result, the Company might be unable to
successfully implement its acquisition strategy. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources," "Business--Business Strategy" and "Terms of the
Acquisitions."
FRAUDULENT TRANSFER CONSIDERATIONS
Under fraudulent transfer law, if a court were to find, in a lawsuit by an
unpaid creditor or representative of creditors of the Company, that the
Company received less than fair consideration or reasonable equivalent value
for incurring the indebtedness represented by the Notes, or, if issued,
Preferred Stock Exchange Notes, and, at the time of such incurrence, JTP (i)
was insolvent or was rendered insolvent by reason of such incurrence; (ii) was
engaged or about to engage in a business or transaction for which its
remaining property constituted unreasonably small capital; or (iii) intended
to incur, or believed it would incur, debts beyond its ability to pay
20
<PAGE>
as such debts mature, such court could, among other things, (a) void all or a
portion of the Company's obligations to the holders of the Offered Securities
and/or (b) subordinate the Company's obligations to the holders of the Notes
and, if issued, Preferred Stock Exchange Notes to other existing and future
indebtedness of the Company, the effect of which would be to entitle such
other creditors to be paid in full before any payment could be made on the
Notes and Preferred Stock Exchange Notes. 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 which is being
applied. Generally, however, a debtor would be considered insolvent if the sum
of all of its liabilities were greater than the value of all of its property
at a fair evaluation, or if the present fair saleable value of the debtor's
assets were less than the amount required to repay its probable liability on
its debts as they become absolute and mature. There can be no assurance as to
what standard a court would apply in order to determine solvency.
On the basis of its historical financial information, its recent operating
history as discussed in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and other factors, the Company believes
that after giving effect to the Company Formation and the Jordan Industries
Recapitalization, JTP was and will be solvent, did and will have sufficient
capital for the business in which it is engaged and did not and will not have
incurred debts beyond its ability to pay such debts as they mature. There can
be no assurance, however, that a court would necessarily agree with these
conclusions.
CHANGE OF CONTROL PROVISIONS; LIMITATIONS ON RIGHTS OF REPAYMENT
Upon the occurrence of a Change of Control, each holder of Notes, Senior
Preferred Stock and, if issued, Preferred Stock Exchange Notes will have the
right to require the Company to purchase all or part of such holder's Notes,
Senior Preferred Stock or Preferred Stock Exchange Notes, as the case may be.
The Change of Control provisions will not afford any protection in a highly
leveraged transaction, including such a transaction initiated by the Company,
management of the Company or an affiliate of the Company, if such transaction
does not result in a Change of Control. In addition, because the obligations
of JTP with respect to the Notes, Senior Preferred Stock and, if issued,
Preferred Stock Exchange Notes are effectively subordinated to all secured
indebtedness of the Company and all obligations of the Company's subsidiaries,
including the New Credit Agreement, existing or future secured indebtedness of
the Company or obligations of the Company's subsidiaries may prohibit the
Company from repurchasing or redeeming any of the Notes, Senior Preferred
Stock and, if issued, Preferred Stock Exchange Notes, as the case may be, upon
a Change of Control. Moreover, the ability of JTP to repurchase or redeem the
Notes, Senior Preferred Stock and, if issued, Preferred Stock Exchange Notes,
as the case may be, following a Change of Control will be limited by the
Company's then-available resources. Accordingly, the Change of Control
provisions are likely to be of limited usefulness in such situations. See
"Description of Notes--Mandatory Offers to Purchase Notes--Change of Control,"
"--Amendment, Supplement and Waiver" and "Description of Preferred Stock
Exchange Notes--Mandatory Offers to Purchase Preferred Stock Exchange Notes--
Change of Control."
The Change of Control purchase feature of the Notes, Senior Preferred Stock
and Preferred Stock Exchange Notes may in certain circumstances discourage or
make more difficult a sale or takeover of the Company and, thus, the removal
of incumbent management.
TAX CONSEQUENCES OF DEEMED AND STOCK DISTRIBUTIONS WITH RESPECT TO THE SENIOR
PREFERRED STOCK AND ORIGINAL ISSUE DISCOUNT ON PREFERRED STOCK EXCHANGE NOTES;
POTENTIAL FOR UNPLANNED DEEMED DIVIDEND INCOME
If the redemption price of the Senior Preferred Stock exceeds its issue
price by more than a de minimis amount, such excess may be treated as a
constructive distribution with respect to the Senior Preferred Stock of
additional stock over the term of the Senior Preferred Stock using a constant
interest rate method similar to that used for accruing original issue
discount. As a result of the allocation of a portion of the purchase price of
the Preferred Stock Units to the Common Stock, the Senior Preferred Stock
initially purchased by holders may have
21
<PAGE>
a redemption price that exceeds its issue price by more than a de minimis
amount, resulting in such constructive distribution. In addition, because the
issue price of the Senior Preferred Stock distributed in lieu of payments of
cash dividends will be equal to the fair market value of the Senior Preferred
Stock at the time of distribution, it is possible, depending on its fair
market value at that time, that such Senior Preferred Stock will be issued
with a redemption premium large enough to be considered a dividend as
described above. In such event holders would be required to include such
premium in income as a distribution over some period in advance of receiving
the cash attributable to such income, and such Senior Preferred Stock might
not trade separately, which might adversely affect the liquidity of the Senior
Preferred Stock.
Further, to the extent holders of Senior Preferred Stock receive additional
shares of Senior Preferred Stock as a distribution in respect to such Senior
Preferred Stock, such holders would be required to include in gross income for
federal income tax purposes the fair market value of such stock, even though
such holders have not received such fair market value in cash.
Finally, the Company may, at its option and under certain circumstances,
exchange Preferred Stock Exchange Notes for the Senior Preferred Stock. Any
such exchange will be a taxable event to holders of the Senior Preferred
Stock. Furthermore, the Preferred Stock Exchange Notes may in certain
circumstances be treated as having been issued with original issue discount
("OID") for federal income tax purposes. In such event, holders of Preferred
Stock Exchange Notes will be required to include such OID (as ordinary income)
in income over the life of the Preferred Stock Exchange Notes, in advance of
the receipt of the cash attributable to such income. See "Certain Federal
Income Tax Considerations."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
Many of the facilities at which the Company's products are manufactured and
assembled are located outside of the United States. JTP also provides services
and markets and sells products in many foreign countries. Although JTP has not
experienced significant problems conducting operations outside of the United
States, risks inherent in the Company's international business activities
generally include unexpected changes in regulatory requirements, tariffs and
other trade barriers, changes in local economic or political conditions,
longer accounts receivable payment cycles, difficulties in managing
international operations and protecting proprietary rights, potentially
adverse tax consequences, restrictions on repatriation of earnings and the
burdens of complying with a wide variety of foreign laws. The Company derived
approximately 22% of its total net sales on a pro forma basis from customers
outside of the United States in 1996. The Company intends to continue to
expand its operations outside of the United States and to enter additional
international markets. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business--Manufacturing and
International Operations."
Most of JTP's international sales are currently denominated in foreign
currencies. Decreases in the value of foreign currencies relative to the U.S.
dollar could result in losses from foreign currency translations. The Company
does not currently hedge its foreign exchange exposure. With respect to the
Company's sales that are U.S. dollar-denominated, decreases in the value of
foreign currencies relative to the U.S. dollar could make the Company's
products less price competitive.
COMPETITION
The Company is subject to competition from a substantial number of national,
international and regional competitors, many of which have greater financial,
manufacturing, engineering and other resources than JTP. The Company's
manufacturing operations encounter competition from both domestically
manufactured products and products manufactured outside the United States.
Except for the SILICORE polymer pipe products, certain of its CATV components
and its fiber optic connector technology, the Company's products are generally
not protected by virtue of any proprietary rights such as patents. The Company
competes by providing its customers with reliable, rapid delivery of products
that are priced at competitive levels and meet strict quality control
standards. The Company's competitors can be expected to continue to improve
the design and performance of their products and to introduce new products
with competitive price and performance characteristics. Although
22
<PAGE>
the Company believes that it has certain advantages over its competitors,
realizing and maintaining such advantages will require continued investment by
the Company in manufacturing, research and development, quality standards,
marketing and customer service and support. There can be no assurance that the
Company will have sufficient resources to continue to make such investments or
that the Company will be successful in maintaining such advantages. Failure to
make such investments or to maintain such advantages could have a material
adverse effect on JTP's business, financial condition and results of
operations. See "Business--Competition."
PRICE FLUCTUATIONS OF RAW MATERIALS
The Company purchases most of the raw materials for its products on the open
market and the Company's sales may be affected by changes in the market price
of such raw materials. The Company does not generally engage in commodity
hedging transactions for raw materials. Although the Company has generally
been able to pass on increases in the price of raw materials to its customers,
there have been delays in JTP's ability to pass on such increases in the past
and there can be no assurance that the Company will be able to do so in the
future, on a timely basis or at all. The results of operations for Dura-Line
Corporation have in the past been affected by fluctuations in the price of its
primary raw material, high density polyethylene ("HDPE"). Additionally,
significant increases in the price of the Company's products due to increases
in the cost of raw materials could have a negative effect on demand for the
Company's products and a material adverse effect on the Company's financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business--Raw
Materials; Suppliers."
ABSENCE OF PUBLIC MARKET FOR THE NEW SECURITIES AND PREFERRED STOCK UNITS AND
COMMON STOCK; RESTRICTIONS ON TRANSFERS
The New Securities are being offered to Holders of the Old Securities. The
Old Securities were issued on July 25, 1997 to a small number of institutional
investors and are eligible for trading in the Private Offering, Resale and
Trading through Automated Linkages (PORTAL) Market, the National Association
of Securities Dealers, Inc.'s screen-based, automated market for trading of
securities eligible for resale under Rule 144A. The New Securities are new
securities for which there currently is no market. Although the Initial
Purchasers have advised the Company that they currently intend to make a
market in the New Securities, they are not obligated to do so and may
discontinue such market making at any time without notice. The Company does
not intend to list the New Securities or the Preferred Stock Units or Common
Stock on any national securities exchange or to seek the admission thereof to
trading in the National Association of Securities Dealers Automated Quotation
System. Accordingly, no assurance can be given that an active market will
develop for any of the New Securities or the Preferred Stock Units or Common
Stock or as to the liquidity of the trading market for any of the New
Securities. If a trading market does not develop or is not maintained, holders
of the New Securities, Preferred Stock Units or Common Stock may experience
difficulty in reselling such securities or may be unable to sell them at all.
If a market for the New Securities develops, any such market may be
discontinued at any time. If a trading market develops for the New Securities,
future trading prices of such New Securities will depend on many factors,
including, among others, prevailing interest rates, the Company's results of
operations and the market for similar securities. Depending on prevailing
interest rates, the market for similar securities and other factors, including
the financial condition of the Company, the New Securities may trade at a
discount from their principal amount or liquidation preference, as applicable.
23
<PAGE>
THE COMPANY
GENERAL
The Company is a leading worldwide designer, manufacturer and distributor of
products to niche markets within the rapidly growing telecommunications and
data communications industries. JTP manufactures and markets its products to
over 7,500 customers throughout the world from facilities based in the United
States, China, the Czech Republic, France, India, Israel, Mexico, Russia and
the United Kingdom. The Company's product offerings serve numerous end-use
telecommunications markets and cover a broad range of applications, including,
among others: (i) infrastructure equipment, such as fiber optic cable conduit,
power conditioning systems and CATV components and transmitters used by
wireline and wireless telecommunications, CATV, cellular telephone and PCS
service providers; (ii) custom cable assemblies and specialty wire and cable
used by internetworking suppliers and OEMs in the data processing and
telecommunications industries; and (iii) electronic connectors and components
used in mobile communications, instrumentation, LANs and computer equipment.
As a result, the Company believes it is well positioned to benefit from the
significant growth taking place in global telecommunications markets. JTP
believes it has distinguished itself through its international presence, high-
quality products and outstanding customer service and field support, resulting
in strong customer relationships with major industry participants and leading
market share positions.
The Company conducts all of its operations through an intermediate holding
company, JTP Industries, and JTP Industries' subsidiaries and each of their
respective subsidiaries.
The Company currently operates in three product groups: (1) infrastructure
products and equipment, which represented 55.1% of pro forma net sales in
1996; (2) custom cable assemblies and specialty wire and cable, which
represented 25.6% of pro forma net sales in 1996; and (3) electronic
connectors and components, which represented 19.3% of pro forma net sales in
1996.
Infrastructure Products and Equipment
Dura-Line Corporation ("Dura-Line"), founded in 1971 and acquired by a
Jordan Industries affiliate in October 1985, is one of the world's leading
suppliers of specialized telecommunications HDPE conduit systems used to
install and protect fiber optic cables, coaxial cables and other telephone,
data transmission and electronic cables. Dura-Line is also a leading supplier
of cable conduit for use in the CATV industry and supplies cable conduit for
electric power cables. Dura-Line's net sales represented 29% of the Company's
net sales in 1996 on a pro forma basis.
Northern Technologies, Inc. ("Northern"), founded in 1985 and acquired by
Jordan Industries in December 1996, designs, manufactures and markets power
conditioning and power protection equipment primarily for telecommunication
applications, such as cellular and PCS networks. Northern also offers a
variety of products including voltage regulators, uninterruptible power
supplies, isolation transformers and grounding devices to protect power-
critical applications. Northern's net sales represented approximately 11% of
the Company's net sales in 1996 on a pro forma basis.
Viewsonics, Inc. ("Viewsonics"), founded in 1974 and acquired by Jordan
Industries in August 1996, designs, manufactures and markets branded CATV
electronic network components and patented electronic security components
primarily for the "drop" or home connection portion of the CATV
infrastructure. Viewsonics' net sales represented 6% of the Company's net
sales in 1996 on a pro forma basis.
EEI, founded in 1987 and acquired by JTP in September 1997, designs complete
cellular and PCS towers, manufactures monopole antenna mount platforms, custom
bell and clock towers, and accessories. EEI also distributes ancillary
products used in the construction of cellular and PCS towers. EEI's net sales
represented 9% of the Company's pro forma net sales in 1996.
24
<PAGE>
Custom Cable Assemblies and Specialty Wire and Cable
Bond Technologies Inc. ("Bond"), founded in 1988 and acquired by Jordan
Industries in September 1996, designs, engineers and manufactures high-quality
custom electronic cable assemblies and sub-assemblies for data communications
and telecommunications customers. Bond's net sales represented approximately
6% of the Company's net sales in 1996 on a pro forma basis. The Company owns
80% of the outstanding common stock of Bond.
Diversified Wire & Cable, Inc. ("Diversified"), founded in 1988 and acquired
by Jordan Industries in June 1996, is a broad line provider and value added
reseller of wire, cable, connectors and custom cable assemblies for the data
communications and telecommunications markets. Diversified's net sales
represented 11% of JTP's net sales in 1996 on a pro forma basis. The Company
owns 87.5% of the outstanding common stock of Diversified.
LoDan West, Inc. ("LoDan") founded in 1967 and acquired by Jordan Industries
in May 1997, designs, engineers and manufactures high-quality custom
electronic cable assemblies, sub-assemblies and electro-mechanical assemblies
to OEMs in the data and telecommunications markets of the electronics
industry. LoDan's net sales represented approximately 9% of the Company's net
sales in 1996 on a pro forma basis.
Electronic Connectors and Components
AIM Electronics Corporation ("AIM"), founded in 1980 and acquired by Jordan
Industries in May 1989, is an importer and producer of electronic connectors,
adaptors, switches, tools and other electronic hardware products for
telecommunications and data communications networks sold to the commercial and
consumer electronics markets. While AIM sells over 3,000 products, electronic
connectors are AIM's primary product. In addition, AIM manufactures and
distributes custom cable assemblies. AIM's net sales represented 6% of the
Company's net sales in 1996 on a pro forma basis.
Cambridge Products Corporation ("Cambridge"), founded in 1972 and acquired
by Jordan Industries in September 1989, is a domestic producer of high-quality
electronic connectors, plugs, adaptors and other accessories. Cambridge is
primarily a designer and marketer of specialty radio frequency ("RF") coaxial
electronic connectors used in radio, mobile communications, television and
computer equipment. Cambridge's net sales represented 2% of JTP's net sales in
1996 on a pro forma basis.
Johnson, founded in 1953 and acquired by Jordan Industries in January 1996,
is a fully integrated manufacturer of high-quality, specialty RF coaxial
connectors and electronic hardware. Johnson's expertise is in manufacturing
miniature, sub-miniature and microminiature RF connectors used primarily in
telecommunications, computer and other related OEM applications. Johnson's net
sales represented 8% of the Company's net sales in 1996 on a pro forma basis.
Vitelec, founded in 1987 and acquired by Jordan Industries in August 1996,
is a United Kingdom-based importer, packager and master distributor of over
700 different connectors, plugs, jacks, sockets, adaptors, terminators,
cabling, converters, cable assemblies and other accessories for data
communications and telecommunications networks sold to the commercial and
consumer electronics markets. Vitelec's net sales represented 3% of the
Company's net sales in 1996 on a pro forma basis.
The foregoing operating subsidiaries and their respective subsidiaries are
sometimes referred to collectively as the "Telecommunications Subsidiaries."
For a more detailed discussion of the terms of the acquisitions of these
operating subsidiaries by Jordan Industries, see "Terms of Acquisitions."
COMPANY FORMATION
The Company was formed by Jordan Industries and the Company's management and
the Jordan Group and engaged in the Old Offerings in connection with the
Jordan Industries Recapitalization. The Company undertook
25
<PAGE>
the Company Formation as a component of the Jordan Industries Recapitalization
for a number of reasons, including establishing the Company as a stand-alone,
industry-focused company, which is expected to increase its financial
flexibility.
The Company purchased the Telecommunications Subsidiaries from Jordan
Industries and repaid indebtedness owed by the Telecommunications Subsidiaries
to Jordan Industries for an aggregate of $294.0 million. This acquisition was
financed with a portion of the net proceeds from the Notes offered pursuant to
the Old Offerings and $47.0 million of Equity Investment. In addition, JTP
assumed $10.0 million of the Telecommunications Subsidiaries' obligations. The
Equity Investment is comprised of: (i) the sale of the $25.0 million initial
liquidation preference of Senior Preferred Stock offered pursuant to the Old
Offerings; (ii) the sale of $20.0 million initial liquidation preference of
Junior Preferred Stock to Jordan Industries; and (iii) $2.0 million in cash
proceeds from the sale of an aggregate of 995,000 shares of Common Stock to
the Jordan Group, management of the Company, the purchasers of the Preferred
Stock Units pursuant to the Old Offerings and Jefferies & Company, Inc. See
"Certain Transactions." The Company contributed all of the stock of the
Telecommunications Subsidiaries to JTP Industries, a newly formed subsidiary
of the Company. As a result of the Company Formation transactions described
above, JTP owns JTP Industries, which owns the Telecommunications
Subsidiaries. JTP remains a subsidiary of Jordan Industries and the Jordan
Group owns 96.5% of the outstanding Common Stock. In addition, Jordan
Industries owns all of the Junior Preferred Stock of the Company. See "Risk
Factors--Control by Principal Stockholders; Relationship with Jordan
Industries."
JTP Industries also entered into a senior secured bank credit agreement with
certain lenders concurrently with the consummation of the Old Offerings, which
provides the Company and its subsidiaries with a revolving credit and letter
of credit facility of up to $110.0 million.
The Company and its subsidiaries will continue to be included in Jordan
Industries' consolidated financial statements, and will be part of the Jordan
Industries consolidated group for tax purposes until the redemption of the
Junior Preferred Stock or until such time as they can no longer be
consolidated for federal income tax purposes.
----------------
The Company was incorporated in the State of Delaware on July 18, 1997. Its
principal executive offices are located at ArborLake Centre, Suite 550, 1751
Lake Cook Road, Deerfield, Illinois 60015, and its telephone number is (847)
945-5591.
26
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds in connection with the Exchange
Offer. The net proceeds received by the Company from the Old Offerings and the
Equity Investment (after the deduction of discounts and commissions, fees and
other expenses associated with Old Offerings and the New Credit Agreement)
were approximately $306.0 million. The net proceeds from the Old Offerings
were used by the Company to: (i) fund the cash portion of the purchase price
payable by the Company to Jordan Industries in connection with the Company
Formation; and (ii) repay certain obligations of the Telecommunication
Subsidiaries.
The following table sets forth the sources and uses of consideration by the
Company as a result of the Old Offerings and the Company Formation. JTP
Industries entered into the $110.0 million New Credit Agreement concurrently
with the consummation of the Old Offerings. See "The Company--Company
Formation" and "Description of Certain Indebtedness and Other Obligations--New
Credit Agreement."
<TABLE>
<CAPTION>
SOURCES
- --------
USES
- -----------------------------------
<S> <C>
Acquisition Price(3)........ $294.0
Fees and expenses(4)........ 14.5
Excess cash................. 22.0
------
Total Uses.............. $330.5
======
</TABLE>
(DOLLARS IN MILLIONS)
<TABLE>
<S> <C>
Senior Notes....................... $188.5
Discount Notes..................... 85.0
Assumed obligations(1)............. 10.0
Equity Investment(2)............... 47.0
------
Total Sources.................. $330.5
======
</TABLE>
- --------
(1) The Company assumed approximately $10.0 million of obligations of the
Telecommunications Subsidiaries, including $8.1 million of indebtedness
and an obligation to fund the redemption of $1.9 million of preferred
stock.
(2) The Equity Investment is comprised of: (i) the sale of the $25.0 million
initial liquidation preference of Senior Preferred Stock offered hereby;
(ii) the sale of $20.0 million initial liquidation preference of Junior
Preferred Stock to Jordan Industries; and (iii) $2.0 million in cash
proceeds from the sale of an aggregate of 999,500 shares of Common Stock
to the Jordan Group, management of the Company, the purchasers of the
Preferred Stock Units pursuant to the Old Offerings and Jefferies. See
"Certain Transactions."
(3) The acquisition price (the "Acquisition Price"), which was paid to Jordan
Industries in consideration of the acquisition of the Telecommunication
Subsidiaries, consists of: (i) $284.0 million of cash; and (ii) the
assumption of $10.0 million of obligations of the Telecommunications
Subsidiaries. See "The Company--Company Formation."
(4) Includes estimated placement fees and expenses in connection with the Old
Offerings, fees and expenses in connection with the New Credit Agreement,
fees payable to TJC Management Corp. (an affiliate of The Jordan Company),
and rating agency, legal, accounting, printing and other transaction
expenses in connection with the Company Formation.
DIVIDEND POLICY
The Company has never declared or paid any dividends on its capital stock.
The Company is not required to pay cash dividends on the Senior Preferred
Stock until November 1, 2002. The Company intends to retain future earnings,
if any, for use in its business and does not anticipate paying any cash
dividends in the foreseeable future on the Senior Preferred Stock or on the
Common Stock. In addition, the terms of the Indentures and the terms of the
New Credit Agreement limit the amount of cash dividends the Company may pay
with respect to the Senior Preferred Stock, the Common Stock and other equity
securities both before and after that date. See "The Company," "Description of
Certain Indebtedness and Other Obligations--New Credit Agreement" and
"Description of Notes."
JTP's current operations are conducted exclusively through its subsidiaries.
As a holding company, the Company is dependent on dividends or other
intercompany transfers of funds from which to pay dividends. Although the
Company's subsidiaries are not currently restricted from dividending or
otherwise transferring funds to the Company, the terms of the permitted
indebtedness of the Company and its Restricted Subsidiaries (as defined
herein) may have the effect of limiting the ability of subsidiaries of JTP to
pay dividends to the Company.
27
<PAGE>
CAPITALIZATION
The following table sets forth as of June 30, 1997, (i) the historical
combined capitalization of the Company; and (ii) the combined capitalization
of the Company on a pro forma basis after giving effect to the Company
Formation and the Old Offerings and the application of the net proceeds
therefrom as described under "Use of Proceeds," as if each had occurred on
June 30, 1997. This table should be read in conjunction with the historical
Combined Financial Statements and the related notes thereto and the Unaudited
Pro Forma Combined Financial Statements and the related notes thereto
appearing elsewhere in this Prospectus. See "The Company--Company Formation."
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------------
HISTORICAL PRO
COMBINED FORMA
---------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Cash and cash equivalents(1) ....................... $ 3,032 $ 9,461
======== ========
Current portion of long-term debt and capital
leases............................................. $ 987 $ 987
======== ========
Long-term debt--less current portion:
New Credit Agreement(2)........................... $ -- $ 20,000
Senior Notes...................................... -- 188,511
Discount Notes.................................... -- 85,034
Intercompany notes(3)............................. 170,022 --
Sellers' notes.................................... 3,000 3,000
Capitalized leases................................ 3,000 3,000
Other long-term debt.............................. 900 900
-------- --------
Total long-term debt--excluding current portion. 176,922 300,445
-------- --------
Dura-Line Preferred Stock(4)........................ 1,875 1,875
Senior Preferred Stock(5)........................... -- 24,948
Junior Preferred Stock.............................. -- 20,000
Stockholders' equity (net capital deficiency)(6)(7). (20,694) (138,120)
-------- --------
Total capitalization............................ $158,103 $209,148
======== ========
</TABLE>
- --------
(1) Includes $0.7 million of restricted cash and cash equivalents held as
purchase price adjustments in connection with the acquisition of Bond by
Jordan Industries.
(2) On July 25, 1997, JTP Industries entered into the New Credit Agreement
which provides the Company with a revolving credit and letter of credit
facility of up to $110.0 million. See "Description of Certain Indebtedness
and Other Obligations--New Credit Agreement."
(3) See "Certain Transactions."
(4) The Company is obligated to fund the redemption of the Dura-Line Preferred
Stock in April 1998. See "Certain Transactions."
(5) A portion ($0.1 million) of the issue price of the Preferred Stock Units
offered in the Old Offerings has been allocated to the shares of Common
Stock forming a part of the units which, under GAAP, has decreased the
balance of the Senior Preferred Stock and increased the amount of
stockholders' equity reflected above.
(6) The pro forma net capital deficiency reflects adjustments for the
difference between the book value of the net assets of the
Telecommunications Subsidiaries and the Acquisition Price. See "Use of
Proceeds."
(7) Fees of $5.5 million related to the Equity Investment have been allocated
to stockholders' equity (net capital deficiency) in accordance with GAAP.
28
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION
The following table represents selected historical combined financial
information as of and for the years ended December 31, 1992, 1993, 1994, 1995
and 1996, and the six months ended June 30, 1996 and 1997. The results of
operations includes (i) for the periods prior to and ending on December 31,
1995, the results of AIM, Cambridge and Dura-Line; (ii) for the periods after
December 31, 1995 and prior to and ending on June 30, 1996, the results of
AIM, Cambridge, Dura-Line and Johnson (from the date of its acquisition in
January 1996); and (iii) for the periods after June 30, 1996, the results of
AIM, Cambridge, Dura-Line, Johnson (from the date of its acquisition in
January 1996), Diversified (from the date of its acquisition in June 1996),
Viewsonics (from the date of its acquisition in August 1996), Vitelec (from
the date of its acquisition in August 1996), Bond (from the date of its
acquisition in September 1996), Northern (from the date of its acquisition in
December 1996) and LoDan (from the date of its acquisition in May 1997) in
each case on a combined basis. The statement of operations data and the
balance sheet data as of and for the years ended December 31, 1994, 1995, and
1996 have been derived from audited financial statements included elsewhere in
this Prospectus. The statement of operations data and the balance sheet data
as of and for the year ended December 31, 1993, have been derived from the
audited financial statements of the Company which are not included in this
Prospectus. The statement of operations data and the balance sheet data as of
and for the year ended December 31, 1992 and at and for the six month periods
ended June 30, 1996 and 1997 have been derived from the unaudited financial
statements of the Company. The unaudited financial statements as of and for
the six months ended June 30, 1996 and 1997 are included elsewhere in this
Prospectus.
The historical combined financial information does not reflect the actual
results of operations, financial position or cash flows of the Company on a
stand-alone basis with its currently owned subsidiaries. As a result, the
historical combined financial information may not be indicative of the results
of operations, financial position or cash flows of the Company for the
historical periods presented had the Company in fact owned all of its current
or planned subsidiaries or had the Company in fact been organized for such
periods. See also "Risk Factors--Limited Operating History and Limited
Relevance of Historical Financial Information."
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------------------------ ----------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- -------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales.............. $55,244 $56,166 $64,690 $96,969 $132,999 $50,917 $107,802
Cost of sales excluding
depreciation.......... 31,752 32,243 39,333 61,601 82,870 29,717 66,780
Selling, general and
administrative
expenses excluding
depreciation.......... 7,046 7,929 10,228 13,508 26,857 7,349 20,053
Depreciation and
amortization.......... 6,191 5,493 5,100 5,105 6,642 2,954 4,775
Operating income
(loss)(1)............. 8,809 9,131 8,388 14,886 13,323 7,739 (1,407)
Other (income) and
expenses.............. 31 0 0 0 31 0 (19)
Interest expense (net
of interest income)... 4,608 4,612 5,774 6,399 11,674 4,328 9,178
Income (loss) before
income taxes, minority
interest and
extraordinary (loss).. 4,214 4,519 2,614 8,487 1,618 3,411 (10,566)
Provision for income
taxes................. 2,381 2,498 1,172 4,062 3,647 1,564 (3,031)
Income (loss) before
minority interest and
extraordinary (loss).. 1,833 2,021 1,442 4,425 (2,029) 1,847 (7,535)
Minority interest...... 0 3 (57) (419) (548) (349) (796)
Extraordinary (loss)... 0 0 0 0 0 0 (464)
Net income (loss)...... 1,833 2,024 1,385 4,006 (2,577) 1,498 (8,795)
OTHER OPERATING DATA:
Capital expenditures... 616 2,450 3,289 5,415 6,873 2,812 3,103
Ratio of earnings to
fixed charges(2)...... 1.9x 2.0x 1.4x 2.3x 1.1x 1.8x --
Ratio of earnings to
combined fixed charges
and preferred stock
dividends(3).......... 1.9x 1.9x 1.4x 2.2x 1.1x 1.8x --
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AT JUNE 30,
-------------------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents........... $ 431 $ 372 $ 862 $ 2,798 $ 6,385 $ 2,957 $ 3,032
Total assets........... 53,148 52,958 49,445 62,748 179,646 105,536 204,968
Total debt, excluding
current portion....... 31,209 30,453 46,368 52,009 147,186 85,143 176,922
Preferred stock........ 3,750 3,047 2,695 1,875 1,875 1,875 1,875
Stockholders' equity
(net capital
deficiency)........... 3,327 5,367 (15,163) (11,216) (11,379) (7,953) (20,694)
</TABLE>
- --------
(1) Operating income includes general, administrative and operating expenses
associated with new facility start-ups of $1.7 million for the year ended
December 31, 1996 and $0.7 million for the six months ended June 30, 1997;
non-competition payments paid to the partners of the Czech Republic joint
venture of $1.0 million for the year ended December 31, 1996 and $0.4
million for the six months ended June 30, 1997 and 1996; the Company's
payment and purchase of stock appreciation rights from the management and
prior owners of Dura-Line and AIM of $1.8 million, $1.1 million, $3.4
million for the years ended December 31, 1994, 1995 and 1996,
respectively, and $15.4 million for the six months ended June 30, 1997;
and, purchase accounting adjustments relating to inventory at Viewsonics
of $1.9 million for the year ended December 31, 1996 and $0.2 million for
the six months ended June 30, 1997.
(2) In the computation of the ratio of earnings (losses) to fixed charges,
earnings (losses) consist of income before income taxes, minority
interest, and extraordinary (loss), plus (minus) fixed charges. Fixed
charges consist of interest expense on indebtedness, plus that portion of
lease rental expense representative of the interest factor. Earnings were
insufficient to cover fixed charges by $10.6 million for the six months
ended June 30, 1997.
(3) In the computation of the ratio of earnings (losses) to combined fixed
charges and preferred stock dividends, earnings (losses) consist of income
before income taxes, minority interest, and extraordinary (loss), plus
(minus) fixed charges. Combined fixed charges and preferred stock
dividends consist of interest expense on indebtedness, preferred stock
dividend requirements of majority-owned subsidiaries, plus that portion of
lease rental expense representative of the interest factor. Earnings were
insufficient to cover combined fixed charges and preferred stock dividends
by $10.6 million for the six months ended June 30, 1997.
30
<PAGE>
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's results of operations
and of its liquidity and capital resources should be read in conjunction with
the financial statements and the related notes thereto appearing elsewhere in
this Prospectus.
BASIS OF PRESENTATION
JTP was formed to consolidate the subsidiaries of Jordan Industries that are
engaged in the manufacture and distribution of products for use in the rapidly
growing telecommunications and data communications industries. The historical
financial statements of the Company and the following discussion reflect the
results of operations and financial position of the subsidiaries on a combined
basis prior to the formation of the Company and does not reflect the actual
results of operations, financial position or cash flows of the Company on a
stand-alone basis with its currently owned subsidiaries. The historical
financial statements reflect the results of operations of the subsidiaries
from their date of acquisition by Jordan Industries. As a result, the
historical financial information is of limited relevance in understanding what
the results of operations, financial position or cash flows of the Company
would have been for the historical periods presented had the Company in fact
owned all of its current or planned subsidiaries or had JTP in fact been
organized for such periods.
ACQUISITIONS
A substantial portion of the Company's growth during the past 18 months is
the result of the acquisitions of seven of the Company's ten subsidiaries. The
Company acquired Johnson in January 1996, Diversified in June 1996, Viewsonics
in August 1996, Vitelec in August 1996, Bond in September 1996, Northern in
December 1996 and LoDan in May 1997. Each of these acquisitions has been
accounted for under the purchase method of accounting and are included in the
Company's combined financial statements from their respective dates of
acquisition. As a result of these acquisitions, JTP's combined results for
1994, 1995 and 1996 and for the six months ended June 30, 1996 and 1997 are
not directly comparable.
These acquisitions have had a significant impact on the Company's results of
operations and financial position. Results of operations have been affected by
an increase in (i) amortization of intangibles (including non-competition
agreements, which are typically amortized over a period of five years, and
goodwill) and increased inventory costs and increased depreciation resulting
from purchase accounting adjustments; and (ii) interest expense and deferred
financing and prepayment fees.
CORPORATE OVERVIEW
The Company has different performance and growth drivers for each of its
three segments.
The Company's Infrastructure Products and Equipment segment is tied closely
to the infrastructure build-outs of the emerging countries in which it has
early market positions and to the infrastructure build out of the wireless and
PCS networks. These build-outs are heavily dependent on the market conditions
and capabilities of these emerging countries and the wireless and PCS
providers themselves.
The growth and performance of the Company's Custom Cable Assembly and
Specialty Wire and Cable segment is dependent on the demand for its customer's
products and the premises wiring build-out. The Company feels it has aligned
itself with fast growing, telecommunications and datacommunications leaders.
The Electronic Connector and Component segment operates in a very niche
oriented segment of the over-all connector market.
31
<PAGE>
Overall the Company has experienced a compound annual growth rate of 25.9%
for pro forma combined net sales over the past three years. However, there can
be no assurances that such a growth rate will be sustained in the future.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Net Sales. Net sales increased $56.9 million or 112% from $50.9 million in
1996 to $107.8 million in 1997. The increase was primarily due to the
acquisition of Diversified, Viewsonics, Vitelec, Bond, Northern and LoDan, all
of which were acquired after the first quarter of 1996, and Johnson which was
acquired near the end of January 1996. Combined, these acquisitions accounted
for approximately $43.2 million or 76% of the increase in sales. The balance of
the sales increase was attributed primarily to higher sales of cable conduit
due to the addition of sales from the Company's new Mexico and China
manufacturing facilities, which began operations in late 1996.
Net sales from the Infrastructure Products and Equipment segment increased
$27.5 million or 87% from $31.8 million in 1996 to $59.3 million in 1997. This
increase was due to the acquisition of Viewsonics and Northern. Sales in this
segment were also higher due to additional sales from the Company's new cable
conduit manufacturing facilities in Mexico and China.
Net sales from the Custom Cable Assembly and Specialty Wire and Cable segment
was $26.4 million due to the acquisition of Diversified, Bond and LoDan, none
of which were owned during the same period last year.
Net sales from the Electronic Connectors and Component segment increased $3.2
million or 16% from $19.8 million in 1996 to $23.0 million in 1997 due to the
acquisition of Johnson and Vitelec.
Cost of Sales (Excluding Depreciation). Cost of sales increased $37.1 million
or 125% from $29.7 million in 1996 to $66.8 million in 1997 reflecting the
higher sales levels from the acquired companies. Cost of sales as a percent of
net sales increased from 58.4% in 1996 to 61.9% in 1997. This increase was due
primarily to the higher cost of sales of the acquired businesses which averaged
61.3% and the under absorption of manufacturing overhead costs relating to
recently opened manufacturing facilities in Mexico and China and market
development costs related to India.
Selling, General and Administrative Expenses (Excluding Depreciation).
Selling, general and administrative expenses increased $12.7 million or 173%
from $7.4 million in 1996 to $20.1 million in 1997. This increase was primarily
due to the acquisitions which accounted for $9.5 million of the increase, and
increased overhead to support the higher internal sales levels, the new
facilities in Mexico and China, and further international market development.
Selling, general and administrative expenses as a percentage of net sales
increased from 15.3% to 19.0% due to the inherent cost structure of the newly
acquired companies.
Operating Income. Operating income decreased $9.1 million from $7.7 million
in 1996 to a loss of $1.4 million in 1997. This decrease was due primarily to a
$15.4 million SAR expense relating to the Company's acquisition of Dura-Line in
1988. Excluding SAR expenses, operating income would have increased $4.6
million or 49% from $9.4 million in 1996 to $14.0 million in 1997. This
increase in operating income (excluding the SAR expense) was due to the
acquisitions, which added $5.4 million, and was partially offset by lower
operating profits in the electronic connector and components segment. Excluding
SAR expenses, operating margins would have declined from 18.6% in 1996 to 13.0%
in 1997, due to the lower operating margins of the acquired businesses, which
averaged 12.3%, the under absorbed overhead of the new China and Mexico
facilities and international market development costs not incurred in 1996.
Operating income from the Infrastructure Products and Equipment segment was
down $12.3 million from $5.0 million in 1996 to a loss of $7.2 million in 1997.
This was due primarily to the SAR expense relating to the
32
<PAGE>
Company's acquisition of Dura-Line. Operating income was also lower due to the
under absorbed overhead of the new China and Mexico facilities and
international market development costs not incurred in 1996.
Operating income from the Custom Cable Assembly and Specialty Wire and Cable
segment was $1.8 million in 1997 due to the new acquisitions.
Operating income from the Electronic Connectors and Component segment was
even with last year due to higher sales and marketing expenses which were
partly offset by the acquisition of Vitelec.
Fiscal Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net Sales. Net sales increased $36.0 million or 37% from $97.0 million in
1995 to $133.0 million in 1996. The increase in sales was due primarily to the
1996 acquisitions of Johnson, Diversified, Viewsonics, Vitelec, and Bond, which
contributed $41.9 million to 1996 net sales, partially offset by lower sales of
cable conduit of $5.9 million despite significant growth in the Company's
overseas cable conduit markets. This decrease was driven largely by JTP's de-
emphasis of its large duct product line, which was sold only in the United
Kingdom, and accounted for an $8.4 million decrease in cable conduit sales. The
Company also experienced decreases in cable conduit sales to large
telecommunications service providers (such as the RBOCs) which had slowed
capital expenditure programs due to regulatory uncertainty prior to the passage
of the Telecom Act. The Company expects these cable conduit sales to improve as
passage of the Telecom Act diminished such regulatory uncertainty and has
allowed new service providers to enter the RBOCs' markets, providing a
significant new customer base and source of growth for the Company.
Net sales from the Infrastructure Products and Equipment segment decreased
$5.9 million or 8% from $76.0 million in 1995 to $70.1 million in 1996 due to
lower sales of cable conduit products, which were partly offset by the
acquisition of Viewsonics.
Net sales from the Custom Cable Assembly and Specialty Wire and Cable segment
was $17.5 million due to the acquisition of Diversified, Bond and LoDan, none
of which were owned during the same period in the prior year.
Net sales from the Electronic Connectors and Component segment increased
$24.4 million or 116% from $20.9 million in 1995 to $45.3 million in 1996 due
to the acquisition of Johnson and Vitelec.
Costs of Sales (Excluding Depreciation). Cost of sales increased $21.3
million or 35% from $61.6 million in 1995 to $82.9 million in 1996, reflecting
the higher sales due to the 1996 acquisitions. Cost of sales as a percent of
net sales decreased from 63.5% to 62.3% due to the lower costs of sales for
cable conduit products.
Selling, General and Administrative Expenses (Excluding Depreciation).
Selling, general and administrative expenses increased $13.3 million or 99%
from $13.5 million in 1995 to $26.9 million in 1996 due primarily to the
acquisitions which accounted for $8.7 million of the increase and increased SAR
expense at AIM. As a percentage of net sales, selling, general and
administrative expenses increased from 13.9% in 1995 to 20.2% in 1996,
primarily reflecting costs incurred to establish new facilities in Mexico and
China, higher international market development costs and SAR expense.
Operating Income. Operating income decreased $1.6 million or 11% from $14.9
million in 1995 to $13.3 million in 1996. Operating margins decreased from 15%
in 1995 to 10% in 1996. The decrease is primarily attributable to costs
associated with the Company's development of new overseas markets and new
facilities in Mexico and China and SAR expense of $2.3 million associated with
the Company's acquisition of AIM in 1995. Partially offsetting the decrease
were the 1996 acquisitions, which contributed $3.8 million to operating income
in 1996. Excluding AIM's SAR expense, operating income would have increased
$0.8 million or 5% from 1995.
Operating income from the Infrastructure Products and Equipment segment
decreased $3.9 million or 36% from $11.0 million in 1995 to $7.1 million in
1996. This decrease was due primarily to the start-up of new cable
33
<PAGE>
conduit manufacturing facilities in China and Mexico and international market
development costs not incurred in 1995. In addition, this segment recorded a
purchase accounting adjustment for the inventories acquired in its acquisition
of Viewsonics, which reduced operating profits by $1.9 million.
Operating income from the Custom Cable Assembly and Specialty Wire and Cable
segment was $0.6 million in 1996 due to the new acquisitions.
Operating income from the Electronic Connectors and Component segment
increased $1.7 million or 51% from $3.9 million in 1995 to $5.6 million in 1996
as the acquisition of Johnson and Vitelec offset higher SAR expenses.
For a discussion of income taxes, see Note 12 to the Historical Combined
Financial Statements of JTP included elsewhere in this Prospectus.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net Sales. Net sales increased $32.3 million or 50% from $64.7 million in
1994 to $97.0 million in 1995. The sales increase was due to increased sales of
cable conduit of $31.2 million, as well as increased connector sales of $1.0
million. International sales of cable conduit grew $15.8 million primarily due
to increased sales from the Company's Czech Republic facility as European
countries made significant investments in the telecommunications
infrastructure. Domestic sales of conduit were also up $15.4 million as RBOCs
increased their line capacity, particularly in preparation for the 1996 Olympic
Games in Atlanta.
Net sales from the Infrastructure Products and Equipment segment increased
$31.2 million or 70% from $44.8 million in 1994 to $76.0 million in 1995. This
increase was due to higher sales of cable conduit products, which were driven
primarily by infrastructure expansion in the Czech Republic and higher domestic
sales to RBOCs.
Net sales from the Electronic Connectors and Component segment increased $1.0
million or 5% from 19.9 million in 1994 to $20.9 million in 1995.
Cost of Sales (Excluding Depreciation). Cost of sales increased $22.3 million
or 57% from $39.3 million in 1994 to $61.6 million in 1995, primarily
reflecting increased sales levels. Cost of sales as a percent of net sales
increased from 60.8% in 1994 to 63.5% in 1995 due to increased sales of high
cost products.
Selling, General and Administrative Expenses (Excluding Depreciation).
Selling, general and administrative expenses increased $3.3 million or 32% from
$10.2 million in 1994 to $13.5 million in 1995. Selling, general and
administrative expenses as a percentage of sales declined from 15.8% to 13.9%
as fixed overhead costs represented a lower percentage of the higher net sales.
Operating Income. Operating income increased $6.5 million or 77% from $8.4
million in 1994 to $14.9 million in 1995, primarily as a result of higher net
sales. Operating margin increased from 13.0% to 15.4% reflecting the
improvements in selling, general and administrative expenses as a percentage of
net sales.
Operating income from the Infrastructure Products and Equipment segment
increased $5.5 million or 98% from $5.5 million in 1994 to $11.0 million in
1995. This increase was due primarily to increased sales volume and higher
overhead absorption by the Company's domestic and international facilities.
Operating income from the Electronic Connectors and Component segment
increased $1.0 million or 36% from $2.9 million in 1994 to $3.9 in 1995. The
increase was due to higher sales volume and lower amortization costs of
intangible assets.
For a discussion of income taxes, see Note 12 to the Historical Combined
Financial Statements of JTP included elsewhere in this Prospectus.
34
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
In general, the Company requires liquidity for working capital, capital
expenditures, interest, taxes, debt repayment and its acquisition strategy. Of
primary importance is the Company's working capital requirements that increase
whenever it experiences strong incremental demand or geographical expansion.
Historically, the Company has satisfied its liquidity requirements through a
combination of funds generated from operating activities and the funds
available under its agreements with Jordan Industries.
Operating activities. Net cash used by operating activities in the first half
of 1997 was $23.3 million, compared to $1.1 million provided from operating
activities during the same period in 1996. The increase in cash requirements
was primarily the result of lower net income due to SAR payments relating to
the Company's acquisition of Dura-Line and AIM. In addition, the Company
required higher working capital to support its sales growth. Net cash provided
from operating activities was $6.3 million in 1996, compared to $8.0 million in
1995. The decrease in cash provided by operating activities was primarily
attributed to lower net income resulting from higher interest expense and
income taxes.
Net cash used by operating activities in the Infrastructure Products and
Equipment segment was $14.7 million due mainly to SAR payments and an increase
in accounts receivable. Net cash used by operating activities in the Cable
Assembly and Specialty Wire and Cable segment was $1.5 million due mainly to
increases in accounts receivable and inventories to support its sales growth.
Net cash used by operating activities in the Electronic Connectors and
Components segment was $7.1 million due mainly to SAR payments and an increase
in inventories to better accommodate customer demands.
Investing activities. Capital expenditures were $0.3 million more for the six
months ended June 30, 1997 than for the comparable period in 1996. Capital
expenditures were $6.5 million in 1996 and $5.4 million in 1995. The majority
of the expenditures have been made in the Infrastructure Products and Equipment
segment where the Company has been pursuing an aggressive international
expansion into the Czech Republic, China, Mexico, India, Malaysia and Spain.
The Company expects its capital investment requirements for 1997 to be
approximately 15% lower than 1996.
Acquisitions prior to June 30, 1997 were financed through proceeds borrowed
from Jordan Industries. The Company plans to fund future acquisitions through
its New Credit Agreement. In addition, under the terms of its Notes, the
Company is able to make restrictive investments of up to $40.0 million.
Financing activities. Prior to July 25, 1997, the Company obtained funding
for its operating activities and acquisitions from Jordan Industries. On July
25, 1997, through a series of transactions, the Company was established as
stand-alone company. It issued the Old Securities and obtained the Equity
Investment, raising approximately $306.0 million (after fees and expenses)
which was used substantially to acquire the Telecommunication Subsidiaries. See
"The Company--Company Formation" and "Use of Proceeds."
The Company's annual cash interest expense on the Senior Notes, which are due
2007, will be $18.8 million. Interest on the Senior Notes is payable semi-
annually on February 1 and August 1 of each year, commencing February 1, 1998.
Interest on the Discount Notes, which are due 2007, is non-cash pay through
August 1, 2000; cash interest is payable semi-annual beginning February 1,
2001. Dividends on the Company's Senior Preferred Stock accrue quarterly each
February 1, May 1, August 1, and November 1. Dividends are non-cash pay at the
Company's option until August 1, 2002.
Also on July 25, 1997, JTP Industries, a subsidiary of the Company, entered
into the New Credit Agreement under which JTP Industries is able to borrow up
to approximately $110.0 million to fund acquisitions and provide working
capital and for other general corporate purposes. The New Credit Agreement
provides for a revolving line of credit of $110.0 million over a term of five
years and the agreement is secured by a first priority security interest in
substantially all of JTP Industries' assets, including a pledge of all of the
stock of the Company's subsidiaries. Payments of principal and interest on
amounts borrowed under the New Credit Agreement are
35
<PAGE>
guaranteed by the Company's subsidiaries. On September 2, 1997, the Company
borrowed $20.0 million under the New Credit Agreement to fund its acquisition
of EEI.
Future funding requirements will also include the Company's agreement to
repurchase the preferred stock of Dura-Line, held by its previous owner, in
April 1998 for $1.9 million.
The Company expects its principal sources of liquidity to be from its
operating activities and funding from the New Credit Agreement, in addition to
the excess cash generated by the Old Offerings. The Company further expects
that these sources will enable it to meet its long-term cash requirements for
working capital, capital expenditures, interest, taxes, debt repayment and for
executing its acquisition strategy for at least the next 12 months.
FOREIGN CURRENCY IMPACT
The Company does not currently hedge its foreign currency exposure. The
Company's exposure to decreases in the value of foreign currency is protected
by its investment in manufacturing facilities overseas whose costs, including
labor and raw materials, are also denominated in local currency. Decreases in
the value of foreign currencies relative to the U.S. dollar have not resulted
in significant losses from foreign currency translation. However, there can be
no assurance that foreign currency fluctuations in the future would not have an
adverse effect on the Company's business, financial condition and results of
operations.
SEASONALITY AND INFLATION
The results of the Company's infrastructure products and equipment product
group are adversely affected by winter weather in certain of the geographic
markets in which it operates. The effects of seasonality have been mitigated by
the substantial growth in net sales from period to period due to the Company's
acquisitions.
The impact of inflation on the Company's operations has not been significant
to date. However, there can be no assurance that a high rate of inflation in
the future would not have an adverse effect on the Company's operating results.
36
<PAGE>
BUSINESS
GENERAL
The Company is a leading worldwide designer, manufacturer and distributor of
products to niche markets within the rapidly growing telecommunications and
data communications industries. JTP manufactures and markets its products to
over 7,500 customers throughout the world from facilities based in the United
States, China, the Czech Republic, France, India, Israel, Mexico, Russia and
the United Kingdom. The Company's product offerings serve numerous end-use
telecommunications markets and cover a broad range of applications, including,
among others: (i) infrastructure equipment, such as fiber optic cable conduit,
power conditioning systems and CATV components and transmitters used by
wireline telecommunications, CATV, cellular telephone and PCS service
providers; (ii) custom cable assemblies and specialty wire and cable used by
internetworking suppliers and OEMs in the data processing and
telecommunications industries; and (iii) electronic connectors and components
used in mobile communications, instrumentation, LANs and computer equipment.
As a result, the Company believes it is well positioned to benefit from the
significant growth taking place in global telecommunications markets. JTP
believes it has distinguished itself through its international presence, high-
quality products and outstanding customer service and field support, resulting
in strong customer relationships with major industry participants and leading
market share positions.
Due to strong industry fundamentals and JTP's solid competitive position,
the Company has achieved significant and consistent growth. Pro forma combined
net sales grew from $147.5 million in 1994 to $233.9 million in 1996,
representing a compound annual growth rate of 25.9%. The Company expects its
continued growth to result from the significant expansion in global
telecommunications markets driven by: (i) continuing deregulation, which is
allowing numerous new service providers to enter the marketplace and is
increasing the competitive pressure on existing participants to upgrade and
expand their networks; and (ii) increasing consumer demand for advanced
telecommunications services enabled by rapid technological advancement. To
capitalize on these trends, the Company has invested substantial capital in
recent years to develop its overseas manufacturing and marketing presence.
Most recently, the Company has established new manufacturing facilities in
Mexico and China that became operational in late 1996 and in India which is
expected to become operational in September 1997. In addition, JTP anticipates
establishing a local sales and/or manufacturing presence in Spain and Malaysia
by late 1997, and in Brazil by early 1998. The Company anticipates generating
significant additional revenues from such international facilities.
COMPETITIVE STRENGTHS
The Company believes several characteristics differentiate it from many of
its competitors, including:
Established Global Presence. The Company's products are sold in over 50
countries through a highly trained direct sales force and a global network of
approximately 2,800 distributors and independent manufacturing
representatives. Management believes a key competitive reason for its success
in international markets has been its commitment to establishing joint
ventures and local manufacturing facilities. JTP currently operates 28
manufacturing and distribution facilities in nine countries around the world.
The marketing and cost advantages of such investments in serving fast-growing
markets are substantial and include: (i) close customer contact; (ii) ability
to provide close field support and customer service; (iii) quick delivery
time; (iv) low labor, raw materials and transportation costs; and (v)
avoidance of significant government tariffs and restrictions on foreign
imports. The success of this strategy is evidenced by the Company's recent
selection by the Chinese government as the first approved cable conduit
supplier for China Telecom, positioning the Company to be a major participant
in the planned construction of more than 50 million phone lines in China
during the next five years. Furthermore, by entering markets ahead of major
competitors, the Company is able to achieve "first mover" advantages and
entrench itself in markets with capacity and customer relationships. In
addition, JTP believes that its international experience has allowed it to
develop a core competency in establishing effective operations overseas.
37
<PAGE>
Strong Customer Relationships. By emphasizing product quality, customer
service and field support, the Company has developed strong, long-term
relationships with many of its customers. Customers have turned to the Company
for its ability to reliably deliver small customized product orders in short
lead times as well as to provide large quantities of product under long-term
contracts. The Company's ability to work closely with many of its customers in
the design phase of end-use products further entrenches the Company with its
customer base. Examples of these relationships include the selection of JTP to
be Sprint's primary supplier of PCS power conditioning equipment over the next
four years and to be one of Cisco's four primary, long-term suppliers of cable
assemblies. The Company is also the primary supplier of cable conduit to the
RBOCs. Such strong ties to major industry participants present an opportunity
for the Company to follow such customers worldwide as they enter growing
international markets. Moreover, these relationships have contributed to the
Company's leadership positions in its niche markets. For example, the Company
estimates that it holds a 50% share of the RBOC cable conduit market and a 30%
share of the market for PCS power conditioning equipment.
Diverse and Stable Customer Base. As a result of its extensive product line
and the wide variety of end-use markets, JTP serves a broad and diverse
customer base. Customers include some of the largest and most sophisticated
suppliers of telecommunications and data communications products in the world,
such as the RBOCs, Applied Materials, Cisco, GTE, Hewlett-Packard, Lucent,
Motorola, Rostelecom, Czech Telecom, Sprint, Sun, TCI, Telewest and Time
Warner. The diversity of products, markets and customers minimizes the
Company's exposure to individual end-use technologies, economic cycles and
geographic markets, and provides a stable cash flow stream.
BUSINESS STRATEGY
The Company's goal is to be a leading single-source supplier offering the
breadth of products, services and geographical coverage necessary to meet the
needs of the worldwide telecommunications and data communications customers in
its niche markets. The Company intends to reach this goal by capitalizing on
its competitive advantages and implementing the following business strategy
through internal initiatives and the continued pursuit of numerous
opportunities for strategic acquisitions that exist within its highly
fragmented markets:
Continue International Expansion. To exploit the significant opportunities
in international markets, the Company will continue to expand its global
manufacturing and marketing presence. JTP is particularly focused on
developing nations that are making large investments in their
telecommunications infrastructures. The Company believes that such countries
offer a high growth potential and favorable competitive dynamics. The Company
has invested more than $35 million in the past several years to develop a
strong local presence in countries such as China, the Czech Republic, India,
Israel, Mexico, Russia and the United Kingdom, positioning itself for
substantial growth in these and surrounding markets. The Company established
its first emerging market greenfield manufacturing facility in the Czech
Republic in November 1993, which in 1996 generated sales of $22.6 million.
More recently, JTP opened manufacturing plants in Mexico and China in August
1996 and December 1996, respectively, and a new manufacturing facility in
India which is expected to become operational in September 1997. In addition,
the Company anticipates establishing a local sales and/or manufacturing
presence in Spain and Malaysia by late 1997, and in Brazil by early 1998.
Develop New Products and Markets. The Company will continue to focus on
designing, developing and marketing products that meet the evolving needs of
customers in the high-growth sectors of its markets to maintain its
differentiation. An example of this strategy is the Company's introduction in
March 1997 of transmitters and equipment for MMDS, a wireless television
signal technology that has emerged in recent years as a more economically
feasible alternative to traditional CATV. JTP believes that this technology is
particularly applicable in emerging international markets, such as Brazil,
China, India and Russia, where construction of a traditional cable network in
smaller cities and rural areas can be cost-prohibitive. In only four months
since the commercial introduction of this product in Russia, the Company has
received 10 contracts for an aggregate of more than $3.5 million. The Company
has also developed a widely used line of specialized two-way CATV amplifiers
and a line of microminiature coaxial connectors that meet the miniaturization
requirements of the
38
<PAGE>
wireless and cellular communications industry. In addition to internal growth,
the Company believes that significant opportunities exist in acquisitions that
enable it to broaden its product offerings, allowing it to be more of a full-
service "solutions" provider and leverage its existing customer relationships.
Develop and Exploit Synergies Among Subsidiaries. The Company will continue
to actively pursue sales, marketing and manufacturing synergies among its
subsidiaries. For example, Johnson, a domestic subsidiary of the Company,
recently began selling products through Vitelec, a foreign subsidiary of the
Company, enabling Johnson to access new international markets and allowing
Vitelec to broaden its product offerings. JTP believes that numerous similar
opportunities exist to add breadth and depth to its product offerings and
lower costs through cross-sourcing of materials and components between
subsidiaries. The Company also intends to exploit cross-selling opportunities
by leveraging the established presence of certain of its products in foreign
markets in order to introduce additional products and increase market
penetration. In addition, the Company believes that significant opportunities
exist to share its combined international experience base among its
subsidiaries to facilitate their expansion into new global markets.
39
<PAGE>
PRODUCT SEGMENTS
JTP has organized itself into three specific groups: (i) infrastructure
products and equipment; (ii) custom cable assemblies and specialty wire and
cable; and (iii) electronic connectors and components as shown in the table
below.
LOGO
40
<PAGE>
INFRASTRUCTURE PRODUCTS AND EQUIPMENT
JTP provides products and services for the construction, expansion and
maintenance of the "outside plant" portion of the telecommunications and data
communications infrastructure. Primary customers for these products and
services are local, regional and long distance telecommunication service
providers, international telecommunications service providers, cable
television operators, installers of fiber optic and coaxial cable networks,
wireless service providers and OEMs. Demand from these customers has increased
sharply in recent years due to (i) continuing deregulation, which has allowed
numerous new service providers to enter the marketplace and increased the
competitive pressure on existing participants to upgrade and expand their
networks; and (ii) increasing consumer demand for advanced telecommunications
services driven by rapid technological advancement. The Company's products
serve a number of end-use communication markets, employing a variety of
transmission technologies, including telephone, CATV, satellite, cellular and
PCS. As a result, the Company believes it is well-positioned to benefit from
growth in any one sector as well as reduce its exposure to the slowdowns in
any individual market due to continuing regulatory or technological change.
JTP differentiates itself in this product segment by providing broad lines
of innovative products, often employing proprietary technology, that meet the
specialized needs of its customers. The Company's broad international presence
also allows it to provide superior customer service and local manufacturing
capacity flexible enough to handle both large contracts and small orders. JTP
produces infrastructure products and equipment in three product categories:
(i) cable conduit; (ii) power conditioning systems; and (iii) cable television
transmission and connection equipment.
Cable Conduit
Products. The Company is one of the world's leading suppliers of specialized
telecommunications HDPE conduit systems, used to install and protect outside
plant fiber optic cables, coaxial cables and other telephone, data
transmission and electrical cable systems. These conduit systems protect
network infrastructure cables from environmental or accidental physical damage
as well as facilitate and reduce the cost of cable installation and
maintenance. JTP manufactures a wide variety of cable conduit products,
including special fire-resistant and expandable capacity conduit systems. The
majority of the Company's sales to the fiber optic and coaxial conduit market
are comprised of either patented or proprietary products. The Company's
patented SILICORE technology is a solid co-extruded polymer lubricant lining
that accounted for $61.8 million in sales of cable conduit products in 1996.
The low coefficient of friction characteristics of SILICORE allows fiber optic
and other cables to be easily "pulled" or "blown" through the conduit, thus
saving customers significant time and money during installation, repair and
upgrade procedures.
Markets. Cable conduit used specifically for the installation and protection
of fiber optic cables was first introduced in 1982. AT&T Corporation ("AT&T"),
MCI Communications Corporation ("MCI"), Sprint and other U.S. long distance
telecommunications providers used cable conduit to build their primary long-
haul infrastructure networks in the 1980s and early 1990s. More recently,
applications for cable conduit have broadened to include housing an array of
cable types in the CATV and electric power industries and to deploy fiber
optic cable for medium- and short-haul regional telephone networks.
As a result, the annual worldwide deployment of fiber optic cable is
projected by industry sources to increase from 29.0 million fiber kilometers
in 1996 to 65.7 million fiber kilometers in 2001. Consumption of fiber optic
cable in North America is projected to increase by approximately 11% per year
from the end of 1995 through 2001. The Company believes that 40% to 60% of all
fiber optic cable currently being deployed is installed in cable conduit. The
Company also believes that demand for cable conduit will grow faster than
demand for fiber optic cable because customers typically install two to six
extra cable conduits during initial infrastructure construction to accommodate
future network expansion and upgrading. Internationally, the
telecommunications cable conduit market growth rate is expected to exceed that
in the United States, as demand for cable conduit products benefits from the
rapid deployment and upgrading of the telecommunications infrastructure,
especially in emerging markets. Compound annual growth rates for consumption
of fiber optic
41
<PAGE>
cable from 1995 to 2001 are expected to be approximately 18% in Western
Europe, 41% in Eastern Europe, 22% in the Pacific Rim, 23% in Latin America
and 31% in other emerging markets. This growth is being driven primarily by
the following factors:
. Local and regional telecommunications companies have been steadily
increasing the deployment of fiber optic cable in the United States as
they expand, upgrade and replace their copper cable infrastructure with
fiber optic cable. New market entrants, such as CAPs and competitive
local exchange carriers ("CLECs"), are building local and long distance
fiber optic cable networks to compete with incumbent carriers. RBOCs are
expanding their network to enter the long distance carrier business,
where long distance carriers are building local telecommunication loops
to provide local telecommunication services. In addition to new
construction, substantial amounts of cable conduit are being deployed for
maintenance and capacity expansion.
. CATV operators are upgrading their infrastructure to increase the
capacity of their networks in order to meet consumer demand for new
entertainment and data services and to respond to increased competition
from new competitors such as the RBOCs. As a result, CATV operators
deployed approximately four million cable kilometers of fiber optic cable
worldwide in 1996, an amount that is projected by industry analysts to
exceed eight million cable kilometers a year by 2001.
. Internationally, significant growth is occurring in many developing
countries that are seeking to modernize their economies. As a result,
these countries are making significant investments in their
telecommunications infrastructures. In countries with more modern
economies, telecommunications providers are expanding and upgrading their
networks in response to new competitive pressures due to privatizations
and increased consumer demand for advanced telecommunications products.
Growth. JTP believes it is the leading provider of cable conduit systems and
it is well positioned to benefit from the overall increases in the demand for
fiber optic cable. The Company also believes that its strategic decision in
1991 to dedicate resources to expand its international manufacturing base and
sales of cable conduit products has provided it with a number of competitive
advantages and will allow it to capitalize on the increasing international
demand. As a result, the Company believes that the cable conduit manufacturing
operations it has established in China, the Czech Republic, Israel, Mexico and
the United Kingdom offer significant potential. The Company also believes it
will benefit from its operation in India when it becomes operational in
September 1997 and from planned joint ventures in Brazil, Malaysia and Spain.
Power Conditioning Systems
Products. The Company is a leading supplier of commercial power conditioning
and protection equipment used to protect sensitive equipment against sudden or
extreme increases in voltage or variable electrical power. Such power
"transients" can result from lightning, ground faults and public utility
switching and can cause extensive damage to critical equipment. JTP generates
the majority of its power conditioning sales from products used to protect
equipment on individual towers and sites in PCS and cellular phone networks.
The Company also provides products such as voltage regulators, grounding
devices, uninterruptible power supplies and isolation transformers for use in
a wide variety of critical communication, medical and industrial applications.
JTP believes that its products are the most technologically advanced on the
market, employing patented applications of silicone avalanche diode
technology. The Company also believes that it has differentiated itself though
its ability to provide full turnkey power protection solutions, excellent
product quality and superior customer service, including 24-hour repair
service.
Markets. Nearly 75% of the Company's power conditioning system sales are to
PCS service providers where up-time at individual network sites is critical.
As a result, the Company estimates that it is currently selling to over half
of the major PCS providers from the first two Federal Trade Commission ("FTC")
auctions of PCS licenses. Customers include Sprint Spectrum, the largest PCS
provider in the United States, Western Wireless and Intercell. In 1995, Sprint
signed a five-year contract with the Company to be its exclusive supplier for
power conditioning equipment. PCS markets are expanding rapidly as service
providers have undertaken major efforts
42
<PAGE>
to construct wireless networks throughout the United States following the FTC
auctions of licenses. Industry sources predict that there will be
approximately 100,000 PCS cell sites in the United States by the year 2000,
serving more than 35 million PCS subscribers (compared to about 60 million
users of cellular analog).
Growth. JTP believes that demand for its products in this segment will
continue to be driven primarily by the continued growth in PCS sites. Cellular
sites are expected to provide another developing market as cellular service
companies increasingly realize the importance of power conditioning equipment.
The worldwide cellular/PCS infrastructure equipment market is projected by
industry analysts to increase from $25.2 billion in 1996 to $49.7 billion in
2000. The Company also expects significant growth from international markets,
where PCS is still undeveloped and the Company can leverage the contacts,
experience and presence of its other subsidiaries. In addition, the Company
believes there are numerous applications of its products that could develop
into larger markets. The Company is currently pursuing opportunities such as
medical devices, "911" emergency services and airport air traffic control
equipment where up-time is critical. The Company intends to continue to
develop and introduce new products to further develop such niche applications.
Cable Television Transmission and Connection Equipment
Products. JTP is an industry leader in high-quality CATV splitters,
amplifiers and patented electronic security components. Used to insure signal
integrity, these devices are attached to the cable "drop line" at the home or
business and connect the user's television or other electronic equipment to
the cable or satellite system. The Company believes its Viewsonics brandname
is one of the strongest in the industry with a reputation for innovation,
quality design and performance that separates it from its competitors and
allows it to focus on product niches that offer higher margins. The Company
has also recently developed products for use in the "head end" transmitters
for MMDS, a wireless alternative to cable television, which the Company
believes has significant potential overseas.
Markets. The Company is a primary supplier to many of the major CATV service
providers such as TCI, Time Warner, Cox Communications, ComCast and
Continental Cablevision. JTP also sells to distributors who supply smaller
CATV service providers. Industry upgrades of the CATV infrastructure to two-
way addressable and high-channel capacity networks are fueling demand for the
Company's products. The Company intends to focus its marketing of MMDS
products in international markets where MMDS presents an economically viable
alternative to building expensive CATV infrastructures.
Growth. The Company expects that the ongoing, wide-scale upgrade by domestic
CATV operators to two-way addressable and high channel capacity networks will
require new versions of its products and generate significant new demand. The
Company intends to meet this demand by continuing to introduce new innovative
products such as two-way amplifiers and diplex filters to block out return
signals. The Company also expects significant growth internationally from its
new MMDS products. JTP has received $3.5 million in orders for its MMDS
systems from 10 municipalities in Russia, only four months after the
commercial introduction of the product. The Company is also developing a
receiver for its MMDS systems for use in consumer households, another market
that it believes holds significant potential.
CUSTOM CABLE ASSEMBLIES AND SPECIALTY WIRE AND CABLE
The Company designs, engineers and manufactures custom cable assemblies,
primarily in data communications and telecommunications industries. The
Company is also a broad line provider and value added reseller of wire and
cable for LANs and custom cable assemblies. The Company differentiates itself
in these markets by providing high-quality products and outstanding service
customized to meet the specific needs of its customers. JTP often works
closely with its customers in the product design phase. As a result, the
Company has built strong, long-term customer relationships, such as its
relationship with Cisco, which chose the Company to be one of four primary
suppliers of cable assemblies.
Products. Cable assemblies include standard and customized battery power
packs, cable and wire assemblies and wire harnesses. These products are
assembled from bulk, coaxial, fiber optic or other cables and discrete
43
<PAGE>
wire and various electronic connectors which are attached to one or more cable
ends. Used to connect electronic devices to each other and to related
equipment or power sources, the Company's products are found in a broad range
of electronic equipment, including but not limited to, computers and related
peripherals, network bridges and routers, automatic teller machines, telephone
switching equipment and devices, industrial electrical controls and medical
electronic equipment. The Company offers customers sophisticated in-house
product design and technical support capabilities, including support teams
that work closely with the customer through all stages of product planning and
production. The Company believes that this close coordination with its
customers, its adherence to strict quality control standards and its
investment in production facilities and equipment have helped attract and
retain its broad customer base.
JTP also distributes more than 2,600 different types of wire and cable,
including cable for electrical, electronic, telecommunications and data
communications applications. The principal focus of the Company's wire and
cable distribution business is to provide its customers with outstanding
service and rapid and reliable deliveries of specialty wiring and cable
products as well as a variety of value-added services. The Company utilizes a
computerized inventory control system to assist in the marketing of its wire
and cable products and coordinate purchases from suppliers with sales to
customers. As a result, the Company processes and ships more than 80% of its
orders for wire and cable on a 24-hour basis allowing it to serve the needs of
those customers that operate under a just-in-time method of inventory
procurement.
Markets. For its custom cable assembly products, the Company has developed
long-term relationships with a select group of OEMs in the data processing and
telecommunications industries including 3Com Corporation, Applied Materials,
AST Research, Inc., Cisco, Eastman Kodak Company and MCI. Industry sources
estimate that the worldwide cable assembly industry was $9.9 billion in 1995.
This market is expected to reach approximately $11.0 billion in net sales
volume in 1997 and to continue to grow at a compound annual growth rate of 10%
until 1999. These growth rates are driven primarily by growth in end-use
products and a growing trend among high-tech companies to outsource their
cable assembly needs to contract manufacturers. JTP believes the trend towards
outsourcing is fueled by OEMs seeking to: (i) consolidate their supplier base;
(ii) reduce inventories and improve inventory management; (iii) reduce
component costs; (iv) increase flexibility; and (v) improve component product
quality and technical support.
The Company sells its wire and cable products to end-users, installers
and/or OEMs of data networking equipment, including building contractors,
industrial manufacturers and educational institutions, among others. Sales
have been driven by the overall growth in the data communications network
industry (including LAN/WAN equipment). This industry has been experiencing
tremendous growth over the last several years due to advances in technology
and the proliferation of new applications, such as the Internet and intranets.
According to industry sources, the entire data communications networking
equipment industry grew from $14.4 billion in 1990 to $25 billion in 1995, and
is expected to reach almost $50 billion by 1998.
Growth. The Company expects increased demand for its products and services
to come from the continued growth in the overall data communications markets.
In addition, the Company believes that geographical expansion, internally or
through acquisition, presents an opportunity for growth. The Company believes
that its close customer relationships and reputation for quality in its cable
assembly business provide an opportunity to follow its customers as they
expand into international markets. Substantially all of the Company's wire and
cable sales in 1996 were in the Midwest region of the United States. As a
result, JTP will attempt to grow its wire and cable business through expansion
into new U.S. geographic markets, such as its opening of a new wire and cable
facility in Nashville, Tennessee in late 1996.
ELECTRONIC CONNECTORS AND COMPONENTS
The Company designs, develops, manufactures and distributes worldwide a
broad range of electronic connectors for use in growing niche markets in the
telecommunications and data communications industries. The Company has been
successful in targeting a number of markets that typically are not well served
by larger companies in the industry. The Company emphasizes its ability to
provide a high degree of service and expedited
44
<PAGE>
delivery. For example, AIM, Cambridge and Vitelec have order processing
systems that enable each to fill approximately 80% of standard electronic
connectors, components, or assembly orders within 24 hours of receipt of an
order.
Products. Electronic connectors are devices that allow an electric signal to
pass from one device to another. They are used to connect wires, cables,
printed circuit boards, flat cable and other electronic components to each
other and to related equipment. Connectors are found in virtually every
electronic product including computers, printers, modems, VCRs, radios,
medical instruments, cellular telephones and automobiles. The Company offers a
wide range of connectors, including RF and coaxial connectors, plugs, adaptors
and electronic hardware, as well as electronic network and security
components.
Markets. JTP sells its electronic connectors and components to more than
2,400 distributors in the United States and directly to OEMs such as
Cabletron, Digital Equipment Corporation, Hewlett-Packard and International
Business Machines Corporation ("IBM"). The Company has also built a network of
more than 225 distributors internationally to date. Industry sources estimate
that overall electronic connector industry sales were approximately $22.8
billion in 1996 and are projected to be $30.2 billion in 2000. Demand for
connector products has experienced substantial growth in recent years and has
achieved a compounded annual growth rate of 10% during the period from 1993 to
1996. The growth is expected to continue at an average growth rate of 6% to 9%
annually through the year 2000 due to the proliferation of electronic systems
and the development of new electronic products and applications including: (i)
the development of more complex and sophisticated electronic products in
established electronic markets such as wireless communications and personal
computers; (ii) the proliferation of computer usage through networking, server
systems and the advent of multimedia systems; (iii) the increase in global
demand, particularly in emerging markets such as China, Latin America and
India, for telecommunications infrastructure such as fixed line and mobile
telecommunications services; and (iv) the increasing utilization of
electronics systems in products in which such use has been historically absent
or limited, such as automobiles, home appliances and medical equipment. The
worldwide connector industry is highly fragmented with over 1,500 worldwide
manufacturers.
Growth. In addition to the growth it expects from the overall connector
market, the Company expects to increase sales of electronic connectors through
new product development and the development of new distribution channels
through catalog houses. For example, the Company has recently developed and
launched a line of microminiature coaxial connectors to meet the demands for
miniaturization requirements and stringent tolerances of the wireless and
cellular communications markets. The Company also believes there are
tremendous functional synergies between its electronic connector and component
subsidiaries and is already capitalizing on them in the areas of sales,
warehousing and sourcing.
MARKETING AND SUPPORT SERVICES
The Company places a high priority on identifying and responding to its
customers' requirements on a timely basis. In order to ensure that the Company
is best positioned to respond to these requirements, it has developed a sales
and marketing strategy that utilizes a highly trained direct sales force and
approximately 2,800 distributors and independent manufacturing
representatives.
The Company emphasizes close coordination with its customers in the design
and development stages of its customers' products. JTP believes this strategy
helps create demand for its products, facilitates long-term customer
relationships and allows the Company to introduce new products that meet the
specialized needs of its customers. For example, in the cable conduit
business, the Company provides network planning and development assistance at
the inception of a project, engineering and field support during the
installation of its cable conduit products and consulting support after
completion of a project in the event of repairs or upgrades. In the past
several years, the Company has also increased the scope of its marketing
initiatives, both domestically and internationally, to offer training,
sophisticated field testing support and education to end-users as to the
benefits of using its products.
45
<PAGE>
The Company's sales representatives undergo continuous training in order to
enhance both their technical expertise and sales techniques. Because sales
personnel specialize within related product groupings, they are able to
develop a high degree of technical expertise. Sales personnel are compensated
primarily on a commission basis. The Company also uses direct mailings of
brochures and catalogs as well as advertising in trade journals in the
marketing of its products. The Company supports its international operations
by providing product brochures and other information in local languages and
dialects.
The Company also emphasizes superior customer service as part of its overall
marketing strategy. With respect to the Company's electronic connectors and
components, and wire and cable products, JTP services a segment of the market
for these products that demands expedited delivery and outstanding customer
service. The Company is able to ship most of its electronic connectors and
components, and wire and cable products within 24 hours of an order being
placed. The Company has combined the customer support and sales services
functions for certain of these products to reduce the time and effort a
customer must expend to place an order.
MANUFACTURING AND INTERNATIONAL OPERATIONS
The Company currently operates 28 manufacturing and distribution facilities
in nine countries around the world. The Company's products are manufactured
and assembled at Company owned or leased facilities in the United States,
China, the Czech Republic, Mexico, Russia and the United Kingdom, through a
manufacturing joint venture in Israel, and at the facilities of contract
manufacturers in various countries including Korea, Japan, Singapore and
Taiwan. In addition, JTP established a joint venture in India in July 1996
that is expected to begin manufacturing operations in September 1997. The
Company holds a 33% interest in the Israeli joint venture and a majority
interest in the Indian joint venture. The Company derived approximately $47.0
million or 22% of its total 1996 pro forma net sales from customers outside of
the United States.
The Company believes the marketing and cost advantages of a local
manufacturing presence include (i) close customer contact; (ii) ability to
provide close field service and customer support; (iii) quick delivery time;
(iv) low labor, raw materials and transportation costs; and (v) avoidance of
significant government tariffs and restrictions on foreign imports.
Furthermore, by entering markets ahead of major competitors, the Company is
able to achieve "first mover" advantages and entrench itself in markets with
capacity and customer relationships. In addition, the Company believes that
its experience in setting up such companies to date has allowed it to develop
a core competency in evaluating new markets, creating a market presence and
establishing effective operations in foreign countries. JTP has a team of
personnel dedicated to the identification, evaluation and implementation of
operations in new international markets.
The Company employs advanced manufacturing processes in order to manufacture
quality products for customers throughout the world. The Company is committed
to the highest quality standards for its products, a standard maintained in
part by continuous improvements to its production processes and upgrades to
its manufacturing equipment. Currently, over two-thirds of the Company's
facilities are certified by the International Standards Organization ("ISO")
according to its 9000 series of quality standards or are in the process of
obtaining certification.
The Company is subject to risks generally associated with international
operations, including price and exchange controls, limitations on foreign
ownership and other restrictive actions. In addition, fluctuations in currency
exchange rates may affect JTP's financial condition and results of operations.
See "Risk Factors--Risks Associated with International Operations."
COMPETITION
The Company faces substantial competition from a large number of
distributors, suppliers and manufacturers, some of which are larger and have
greater financial resources, broader name recognition and lower costs than the
Company.
46
<PAGE>
The Company's manufacturing operations encounter competition from both
domestically manufactured products and products manufactured outside the
United States. Except for the SILICORE polymer pipe products, certain of its
CATV components and its fiber optic connector technology, the Company's
products are generally not protected by virtue of any proprietary rights such
as patents. The Company competes by providing its customers with reliable,
rapid delivery of products that are priced at competitive levels and meet
strict quality control standards.
The cable conduit market is highly competitive. In the United States, JTP
faces competition from a wide range of companies including national,
international and regional suppliers of cable conduit. In addition to other
independent manufacturers of cable conduit, the Company's competitors,
especially outside of the United States, include manufacturers that produce
pipe and tubing for other uses, such as gas and water transportation.
Competition within the industry is based primarily on quality, price,
production capacity, field support, technical capabilities, service and
reputation.
The Company's custom cable assemblies encounter competition from a broad
range of companies, several of which are much larger and have greater
financial resources than the Company. In addition to other independent
manufacturers of cable assemblies, certain of the Company's competitors
include connector manufacturers which compete primarily on the basis of
certain proprietary connector technology, as well as offshore manufacturers
which compete primarily on the basis of price. Competition within the industry
is based on quality, production capacity, breadth of product line, engineering
support capability, price, local support capability, systems support and
financial strength.
The electronic connector industry is highly fragmented, with more than 1,500
connector manufacturers competing worldwide. As a result, the Company
generally competes with different suppliers in each of the various categories
of the overall market in which the Company operates as well as with certain
large national suppliers. The Company competes within this market primarily on
the basis of quality, reliability, reputation, customer service, delivery time
and price. See "Risk Factors--Competition."
RAW MATERIALS; SUPPLIERS
The Company purchases a wide variety of raw materials for manufacturing its
products, including plastic resins such as HDPE used in manufacturing cable
conduit and in molding connector bodies and inserts, brass used in
manufacturing RF connectors, copper alloys used for contacts and precious
metals, such as gold and palladium, used in plating. All raw materials are
generally readily available throughout the world and most are purchased on the
spot market from a variety of suppliers. JTP is not dependent upon any one
source for any of the raw materials used in manufacturing its products. The
prices at which the Company purchases most of its raw materials are based upon
market prices at the time of purchase. The Company does not enter into
contractual agreements with respect to most of the raw materials it uses.
However, the Company does have a contract with its brass supplier that allows
the Company to return to the supplier, as scrap, up to 50% of the brass it
purchases. As a result, JTP only pays for the brass it actually uses. Many of
the raw materials used by the Company have historically been subject to price
fluctuations. In most cases, the Company is able to pass on to its customers
significant price fluctuations in the market prices of the raw materials used
in its products, although product price increases typically lag behind the
actual increase in raw material prices.
The Company's SILICORE technology includes a patented, solid co-extruded
polymer lubricant lining that uses a silicone-based lubricant which is
marketed and sold under the SILICORE trademark. The Company produces all of
the silicone-based lubricant used in the manufacture of its cable conduit
products.
The Company purchases the electronic connectors, components and materials
that it does not manufacture itself from a large number of suppliers. JTP
believes that the electronic connectors and components and other materials it
requires could be purchased from several domestic and international sources,
so that the Company should be able to obtain replacement sources of supply in
the event of the loss of any current supplier. Although customers often
require that materials produced by a particular supplier be used in
manufacturing their
47
<PAGE>
customized products, in the event of the loss of any such supplier, the
Company believes that customers would be likely to qualify alternative
suppliers or, if necessary, redesign their products to accommodate materials
from replacement suppliers. However, no assurance can be given that the loss
of a key supplier would not have a material adverse effect on the Company. See
"Risk Factors--Price Fluctuations of Raw Materials."
INTELLECTUAL PROPERTY
The Company relies on a combination of patent, copyright, trademark and
trade secret laws and contractual agreements to protect its proprietary
technology and know how. The Company owns and uses trademarks and brandnames
to identify itself as a source of certain goods and services, including the
DURA-LINE and SILICORE trademarks, both of which are registered in the United
States and various foreign countries, and the VIEWSONICS brandname, in which
the Company has common law rights. The Company's SILICORE technology includes
a patented solid co-extruded polymer lubricant lining that uses a silicone-
based lubricant which is marketed and sold under the SILICORE trademark. There
can be no assurance that the Company will be granted additional patents or
that the Company's patents either will be upheld as valid if ever challenged
or will prevent the development of competitive products. The Company's U.S.
patents expire between 2004 and 2010 and the U.S. patent with respect to the
SILICORE lubricant lining expires in 2007. The Company has not sought foreign
patents for most of its technologies, including technologies which have been
patented in the United States, such as the SILICORE lubricant lining, which
may adversely affect the Company's ability to protect its technologies and
products in foreign countries. The Company protects its confidential,
proprietary information as trade secrets.
Except for the SILICORE polymer pipe products, certain of JTP's CATV
components and its fiber optic connector technology, the Company's products
are generally not protected by virtue of any proprietary rights such as
patents. There can be no assurance that the steps taken by JTP to protect its
proprietary rights will be adequate to prevent misappropriation of its
technology and know-how or that the Company's competitors will not
independently develop technologies that are substantially equivalent to or
superior to the Company's technology. In addition, the laws of some foreign
countries do not protect the Company's proprietary rights to the same extent
as do the laws of the United States. In the Company's opinion, the loss of any
intellectual property asset, other than the DURA-LINE or SILICORE trademarks,
or the patent or manufacturing trade secrets covering the solid co-extruded
polymer lubricant lining used in connection with the SILICORE technology,
would not have a material adverse effect on the conduct of JTP's business.
The Company is also subject to the risk of adverse claims and litigation
alleging infringement of the proprietary rights of others. From time to time,
the Company has received notice of infringement claims from other parties.
Although the Company does not believe it infringes the valid proprietary
rights of others, there can be no assurance against future infringement claims
by third parties with respect to the Company's current or future products. The
resolution of any such infringement claims may require the Company to enter
into license arrangements or result in protracted and costly litigation,
regardless of the merits of such claims.
ENVIRONMENTAL
The Company is subject to numerous U.S. and foreign federal, state,
provincial, local and foreign laws and regulations relating to the storage,
handling, emission and discharge of materials into the environment, including
the U.S. Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), the Clean Water Act, the Clean Air Act, the Emergency Planning and
Community Right-To-Know Act and the Resource Conservation and Recovery Act.
Under CERCLA and analogous state laws a current or previous owner or operator
of real property may be liable for the costs of removal or remediaton of
hazardous or toxic substances on, under or in such property. Such laws
frequently impose cleanup liability regardless of whether the owner or
operator knew of or was responsible for the presence of such hazardous or
toxic substances and regardless of whether the release or disposal of such
substances was legal at the time it occurred. Regulations of particular
48
<PAGE>
significance to the Company's ongoing operations include those pertaining to
handling and disposal of solid and hazardous waste, discharge of process
wastewater and stormwater and release of hazardous chemicals. The Company
believes it is in substantial compliance with such laws and regulations.
The Company generally conducts a Phase I environmental survey on each
acquisition candidate prior to purchasing the company to assess the potential
for the presence of hazardous or toxic substances that may lead to cleanup
liability with respect to such properties. JTP does not currently anticipate
any material adverse effect on its results of operations, financial condition
or competitive position as a result of compliance with federal, state,
provincial, local or foreign environmental laws or regulations. However, some
risk of environmental liability and other costs is inherent in the nature of
the Company's business, and there can be no assurance that material
environmental costs will not arise. Moreover, it is possible that future
developments such as the obligation to investigate or clean up hazardous or
toxic substances at the Company's property for which indemnification is not
available, could lead to material costs of environmental compliance and
cleanup by the Company.
PROPERTIES
The Company's headquarters is located in an approximately 12,750 square foot
office space in Deerfield, Illinois that is provided by Jordan Industries
pursuant to the Transition Agreement (as defined herein). The Transition
Agreement expires in December 2007. The Company anticipates relocating its
headquarters to a new location in the near future. See "Certain Transactions--
Services Agreements."
The principal properties of JTP, the location, user/subsidiary, primary use,
square feet and ownership status thereof as of June 30, 1997, are set forth in
the table below:
<TABLE>
<CAPTION>
USER/ SQUARE OWNED/
UNITED STATES LOCATIONS SUBSIDIARY PRIMARY USE FEET LEASED
- ----------------------- ---------- ----------- ------ ------
<S> <C> <C> <C> <C>
Anaheim, CA Bond Manufacturing/ 16,000 Leased
Administration
Fremont, CA Bond Manufacturing/ 17,000 Leased
Administration
San Carlos, CA LoDan Manufacturing/ 22,500 Leased
Administration
San Carlos, CA LoDan Manufacturing 13,500 Leased
Windsor, CT Cambridge Manufacturing 9,000 Leased
Boca Raton, FL Viewsonics Administration/ 14,500 Leased
Distribution/Research
and Development
Sunrise, FL(1) AIM Manufacturing/ 28,000 Leased
Administration/
Distribution
Middlesboro, KY Dura-Line Manufacturing/ 80,000 Owned
Administration
Troy, MI Diversified Manufacturing/ 45,000 Leased
Administration/
Distribution
Waseca, MN Johnson Manufacturing/ 70,000 Sub-leased
Administration
Sparks, NV Dura-Line Manufacturing 35,000 Owned
Knoxville, TN Dura-Line Administration 10,000 Leased
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
UNITED STATES LOCATIONS USER/ SQUARE OWNED/
(CONTINUED) SUBSIDIARY PRIMARY USE FEET LEASED
- ----------------------- ---------- ----------- ------ ------
<S> <C> <C> <C> <C>
Nashville, TN Diversified Distribution/ 7,100 Leased
Sales Office
Austin, TX Bond Manufacturing/ 12,000 Leased
Administration
Liberty Lake, WA(2) Northern Manufacturing/ 22,600 Leased
Administration
<CAPTION>
INTERNATIONAL LOCATIONS
- -----------------------
<S> <C> <C> <C> <C>
Shanghai, China Dura-Line Manufacturing/ 50,000 Owned
Administration
Shanghai, China Dura-Line Sales Office/ 1,000 Leased
Administration
Shanghai, China Viewsonics Manufacturing/ 25,000 Leased
Administration
Zlin, Czech Republic Dura-Line Manufacturing/ 40,000 Owned
Administration
Paris, France Vitelec Sales Office 1,000 Leased
Goa, India Dura-Line Manufacturing/ 48,000 Owned
Administration
New Delhi, India Dura-Line Administration/ 2,000 Leased
Sales Office
Tel Aviv, Israel(3) Dura-Line Manufacturing/ 10,000 Leased
Administration
Mexico City, Mexico Dura-Line Sales Office/ 2,000 Leased
Administration
Queretaro, Mexico Dura-Line Manufacturing/ 43,000 Leased
Administration
St. Petersburg, Russia Viewsonics Manufacturing/ 10,000 Leased
Administration
Bordon, United Kingdom Vitelec Distribution/ 16,500 Owned
Administration/
Assembly
Grimsby, United Kingdom Dura-Line Manufacturing/ 35,000 Owned
Administration
</TABLE>
- --------
(1) AIM's Sunrise, Florida facility is leased from the former vice president
of AIM. The Company believes that the terms of this lease are comparable
to those which would have been obtained by the Company had this lease been
entered into with an unaffiliated third party.
(2) Northern's Liberty Lake, Washington facility is leased from a general
partnership consisting of the former owners. The Company believes that the
terms of this lease are comparable to those which would have been obtained
by the Company had this lease been entered into with an unaffiliated third
party.
(3) This facility is leased by the joint venture in which the Company
participates.
The Company also has sales representatives in field offices in Florida,
Illinois, Ohio, Oregon, Virginia and internationally in Brazil, Bulgaria,
Germany, Malaysia, Romania, Russia and Slovakia.
The Company believes that its existing leased facilities are adequate for
the operations of the Company and its subsidiaries. The Company does not
believe that any single leased facility is material to its operations and
that, if necessary, it could readily obtain a replacement facility.
50
<PAGE>
EMPLOYEES
As of June 30, 1997, JTP (including LoDan) employed an aggregate of
approximately 1,540 employees, including approximately 420 full-time salaried
employees and approximately 1,120 full and part-time hourly employees.
Approximately 80 of the Company's employees are covered by a collective
bargaining agreement which expires in 2000. The Company believes that its
relations with its employees are good.
LITIGATION
The Company is not a party to any pending legal proceeding the resolution of
which, the management of the Company believes, would have a material adverse
effect on JTP's financial condition or results of operations, nor to any other
pending legal proceedings other than ordinary, routine litigation incidental
to its business.
51
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following sets forth the names and ages of the Company's directors and
executive officers and the positions they hold as of August 1, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
- ---- --- ---------------------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Thomas H. Quinn(2).................. 50 Chairman
Dominic J. Pileggi(2)............... 45 President, Chief Executive Officer and
Director
Michael R. Elia..................... 39 Vice President and Chief Financial
Officer
William C. Ballard(1)............... 56 Director
Jonathan F. Boucher................. 40 Vice President and Director
John W. Jordan, II(2)............... 49 Director
Michael A. Wadsworth(1)............. 54 Director
David W. Zalaznick(1)(2)(3)......... 43 Director
Other Key Employees
OTHER KEY EMPLOYEES
Abram Ackerman...................... 72 President, Viewsonics
Steve Baker......................... 47 President, Northern
Ernie Glass......................... 58 President, Johnson
William McIlvene.................... 37 President, Bond
Arnie Rosenblum..................... 61 President, AIM and Cambridge
Donald J. Sitter.................... 57 President, LoDan
Charles P. Megan.................... 48 President, Dura-Line
Dean Stanton........................ 36 President, Diversified
James Young......................... 49 Managing Director, Vitelec
Timothy Gooding..................... 48 President, EEI
</TABLE>
- --------
(1) Member of the Audit Committee.
(2) Member of the Executive Committee.
(3) Member of Banking, Finance and Investment Committee.
Set forth below is a brief description of the business experience of each
director and executive officer of the Company.
MR. PILEGGI has served as the Company's President, Chief Executive Officer
and a Director since July 1997. From September 1996 to June 1997, Mr. Pileggi
served as president of the telecommunications group of Jordan Industries. From
1995 to 1996, Mr. Pileggi served as Chief Executive Officer of Casco Inc., an
independent custom molder, and from 1979 to 1995 held several senior
management positions, including divisional president of the largest division
and corporate officer of Thomas and Betts Corporation, a global manufacturer
of electrical and electronic components.
MR. ELIA has served as the Company's Vice President and Chief Financial
Officer since July 1997. From February 1997 to June 1997, Mr. Elia served as
chief financial officer of the telecommunications group of Jordan Industries.
From 1994 to 1996, Mr. Elia served as Corporate Director of Strategic Planning
and Division Vice President and Controller for Fieldcrest Cannon, Inc., a
global manufacturer of textile products. From 1983 to 1994, Mr. Elia held
several financial management positions with Insilco Corporation, a diversified
manufacturer of automotive and electronic products, including Vice President
and Chief Financial Officer of Insilco Technologies Group. Prior to joining
Insilco, Mr. Elia was with Ernst & Young LLP.
MR. BALLARD has served as a Director of the Company since July 1997. Mr.
Ballard has been of counsel to the law firm of Greenbaum, Doll & McDonald in
Louisville, Kentucky since May 1992. From 1970 to April 1992, Mr. Ballard held
various positions with Humana, Inc., an investor-owned hospital company,
including
52
<PAGE>
most recently as its Executive Vice President and as a member of its Board of
Directors. Mr. Ballard is a director of American Safety Razor Company, LG&E
Energy Corp., Mid-America Bancorp, Vencor, Inc. and United Healthcare Corp.
MR. BOUCHER has served as a Vice President and a Director of JTP since July
1997. Since 1983, Mr. Boucher has been a partner of The Jordan Company, a
private merchant banking firm. Mr. Boucher is also a director of Jordan
Industries and American Safety Razor Company as well as other privately held
companies. In January 1997, Welcome Home, Inc., a company of which Mr. Boucher
was a director until December 1996, filed a voluntary petition for bankruptcy.
MR. JORDAN has served as a Director of the Company since July 1997. Mr.
Jordan is a managing partner of The Jordan Company, a private merchant banking
firm which he founded in 1982. Mr. Jordan is also a director of Jordan
Industries, Welcome Home, Inc., American Safety Razor Company, AmeriKing,
Inc., Carmike Cinemas, Inc. and Apparel Ventures, Inc. as well as other
privately held companies. In January 1997, Welcome Home, Inc. filed a
voluntary petition for bankruptcy.
MR. QUINN has served as a Director of the Company since July 1997. Since
1988, Mr. Quinn has been President, Chief Operating Officer and a director of
Jordan Industries. From November 1985 to December 1987, Mr. Quinn was Group
Vice President and a corporate officer of Baxter International. From September
1970 to November 1985, Mr. Quinn was employed by American Hospital Supply
Corporation, where he was a Group Vice President and a corporate officer when
it was acquired by Baxter International. Mr. Quinn is also the Chairman of the
Board and Chief Executive Officer of American Safety Razor Company and
AmeriKing, Inc. as well as a director of Welcome Home, Inc. and other
privately held companies. In January 1997, Welcome Home, Inc. filed a
voluntary petition for bankruptcy.
MR. WADSWORTH has served as a Director of the Company since July 1997. Mr.
Wadsworth has served as Director of Athletics of the University of Notre Dame
since 1995 and as a member of the International Advisory Counsel to the
University of Notre Dame since 1994. From August 1989 to March 1995 Mr.
Wadsworth served as the Canadian Ambassador to Ireland. From 1984 to August
1989, Mr. Wadsworth served as Senior Vice President of U.S. operations of
Crown Life Insurance Company and a senior executive officer of its parent,
Crown, Inc.
MR. ZALAZNICK has served as a Director of the Company since July 1997. Since
1982, Mr. Zalaznick has been a managing partner of The Jordan Company, a
private merchant banking firm. Mr. Zalaznick is also a director of Jordan
Industries, Carmike Cinemas, Inc., AmeriKing, Inc., American Safety Razor
Company, Marisa Christina, Inc. and Apparel Ventures, Inc. as well as other
privately held companies.
MR. ACKERMAN founded Viewsonics and has been President since 1974. He has
been involved in ownership and management of various other electronic business
enterprises since 1957. He holds patents on and directed the design of many
proprietary products. His business involvement includes public and private
entities both domestic and foreign.
MR. BAKER has served as President of Northern since 1986. Mr. Baker was one
of the original founders of Northern in 1985. He was initially responsible for
sales in the medical market, protecting sensitive medical devices such as
Magnetic Resonance Imaging and CAT Scanning Equipment.
MR. GLASS has served as the President of Johnson since January 1996. From
1987 to 1996 Mr. Glass held various positions, including Vice President of
Operations, Vice President of Custom and Component Products and Vice President
of Finance and CFO with EF Johnson Company who designs, manufactures and
distributes radio communication equipment. Prior to 1987 Mr. Glass was
employed by General Electric Company and held various management positions
throughout North and South America.
MR. MCILVENE has served as President and Chief Executive Officer of Bond
since he founded Bond in 1988. Prior to that, he was a sales manager for Avnet
Incorporated, an electronics distributor.
53
<PAGE>
MR. ROSENBLUM has served as President of AIM and Cambridge since September
1996. From 1995 to 1996 he served as Vice President--Sales & Marketing for
Manhattan/CDT which was a consolidation of his acquired company (Cole-Flex)
and Manhattan Electric Cable by Cable Design Technologies (CDT). From 1977 to
1995 he served as Vice President, President and Partner of Cole-Flex, a
leading supplier of insulation products for the electronic OEM and
distribution wire and cable market.
MR. SITTER has been President of LoDan, a company he co-founded, since 1967.
Prior to that, he was a territory manager for Amphenol, a leader in the
connector business.
MR. MEGAN has served as President and Chief Operating Officer of Dura-Line
since January 1997. From April 1991 through December 1996, Mr. Megan was
President and Chief Operating Officer of Hudson Lock, Inc. located in Hudson,
Massachusetts which was a Jordan Industries company during that time. Prior to
1991, Mr. Megan was President and Chief Executive Officer of Grotnes
Metalforming Systems, Inc., a special machinery manufacturer serving the
automotive and aerospace markets.
MR. STANTON has served as President and Chief Executive Officer of
Diversified since January 1988. From 1985 to 1988, Mr. Stanton held several
senior management positions, including National Sales Manager for Northern
Wire & Cable, Inc., prior to starting Diversified.
MR. YOUNG has served as Chairman and Managing Director of Vitelec since
September 1986 when the company was formed. Prior to setting up Vitelec, Mr.
Young was employed by Molex Electronics Inc., a world-wide leader in the
manufacture of electrical connector systems for the electronics and allied
industries. Mr. Young served as Director of International Marketing for Molex
in Lisle, Illinois and Managing Director of Molex U.K. Operations.
MR. GOODING has been President and Chief Executive Officer of EEI since he
founded EEI in 1988. Prior to that, he worked for various companies in the
manufacture and design of tapered poles.
DIRECTOR COMPENSATION
Directors who are not employees of JTP receive $20,000 per year for serving
as a director of the Company, plus $1,000 for each meeting of the Board of
Directors or any committee thereof attended in person or by telephone. In
addition, the Company reimburses directors for their travel and other expenses
incurred in connection with attending meetings of the Board of Directors.
EXECUTIVE COMPENSATION
The Company was not organized until July 1997, and therefore had no
executive officers during 1996. The Company expects that each of Messrs.
Pileggi and Elia will receive compensation in excess of $100,000 during 1997.
The following table sets forth a summary of certain information regarding
compensation paid or accrued by Jordan Industries during 1996 to each of
Messrs. Pileggi and Quinn (collectively, the "Named Executives").
The Company anticipates adopting a plan under which it would award stock
options, restricted stock and/or stock appreciation rights to certain officers
and directors. However, the terms of such a plan have not yet been determined.
The Company may issue a maximum of 5,000 shares of Common Stock pursuant to
such a plan.
54
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
OTHER
ANNUAL
NAME AND PRINCIPAL POSITION SALARY BONUS(1) COMPENSATION
- --------------------------- -------- -------- ------------
<S> <C> <C> <C>
Dominic J. Pileggi(2)........................... $100,000 $50,000 $61,000(3)
President and Chief Executive Officer
Thomas H. Quinn(4).............................. 0 0 0
Chairman of the Board
</TABLE>
- --------
(1) The Company provides bonus compensation based on an individual's
achievement of certain specified objectives, including achieving JTP's
stated earnings before interest, taxes, depreciation and amortization.
(2) For services rendered from September 1, 1996 to December 31, 1997.
(3) Mr. Pileggi's other compensation consisted of relocation costs reimbursed
by the Company.
(4) Does not reflect compensation paid to Mr. Quinn by Jordan Industries.
PRINCIPAL STOCKHOLDERS
The table below sets forth as of July 31, 1997, certain information
regarding beneficial ownership of Common Stock held by (i) each director and
each of the Named Executives; (ii) all directors and executive officers of the
Company as a group; and (iii) each person known by the Company to own
beneficially more than 5% of the Common Stock. Each individual or entity named
has sole investment and voting power with respect to shares of Common Stock
indicated as beneficially owned by them, except where otherwise noted.
<TABLE>
<CAPTION>
AMOUNT OF BENEFICIAL
OWNERSHIP(1)
---------------------------
NUMBER OF
SHARES PERCENTAGE
------------ ----------
(ROUNDED)
<S> <C> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS:
Thomas H. Quinn.................................... 89,804.6030 9.0
Dominic J. Pileggi................................. 10,722.2222 1.0
Michael R. Elia.................................... 0 *
William C. Ballard................................. 0 *
Jonathan F. Boucher................................ 52,935.1436 5.3
John W. Jordan, II(2)(3)(4)........................ 379,349.1691 38.0
Michael A. Wadsworth............................... 0 *
David W. Zalaznick(3)(5)........................... 183,073.2676 18.3
All directors and executive officers as a group (8
persons).......................................... 715,884.3054 71.6
OTHER PRINCIPAL STOCKHOLDERS:
Leucadia Investors, Inc............................ 95,566.3378 9.6
Jordan Industries, Inc.(6)......................... 0 *
</TABLE>
- --------
*Represents less than 1% of the outstanding shares of Common Stock.
(1) Calculated pursuant to Rule 13d-3(d) under the Exchange Act. Under Rule
13d-3(d), shares not outstanding which are subject to options, warrants,
rights or conversion privileges exercisable within 60 days are deemed
outstanding for the purpose of calculating the number and percentage owned
by such person, but not deemed outstanding for the purpose of calculating
the percentage owned by each other person listed. As of July 31, 1997, JTP
had 995,000 shares of Common Stock issued and outstanding.
(2) Includes 8.9820 shares held personally and 379,340.1871 shares held by the
John W. Jordan II Revocable Trust. Does not include 2,777.5927 shares held
by Daly Jordan O'Brien, the sister of Mr. Jordan, 2,777.5927 shares held
by Elizabeth O'Brien Jordan, the mother of Mr. Jordan, or 2,777.5927
shares held by George Cook Jordan, Jr., the brother of Mr. Jordan.
(3) Does not include 898.0451 shares held by The Jordan/Zalaznick Capital
Company ("JZCC") or 31,431.5758 shares held by Mezzanine Capital & Income
Trust 2001 PLC ("MCIT PLC"), a publicly traded U.K. investment trust
advised by an affiliate of The Jordan Company (which is controlled by
Messrs. Jordan and Zalaznick). Mr. Jordan, Mr. Zalaznick and Leucadia,
Inc. are the sole partners of JZCC.
(4) Does not include 29,171.4943 shares held by The Jordan Family Trust, of
which John W. Jordan II, George Cook Jordan, Jr., and G. Robert Fisher are
the Trustees.
(5) Does not include 737.8205 shares held by Bruce Zalaznick, the brother of
Mr. Zalaznick.
(6) Jordan Industries owns all of the issued and outstanding Junior Preferred
Stock. The Junior Preferred Stock entitles Jordan Industries to 95% of the
voting power as of the date of this Prospectus. See "Description of
Capital Stock--Junior Preferred Stock." The principal address of Jordan
Industries is ArborLake Centre, Suite 550, 1751 Lake Cook Road, Deerfield,
IL 60015.
55
<PAGE>
The following table furnishes information, as of June 30, 1997, as to the
beneficial ownership of Jordan Industries' common stock by (i) each director
and executive officer of the Company, and (ii) all officers and directors of
the Company as a group.
<TABLE>
<CAPTION>
AMOUNT OF BENEFICIAL
OWNERSHIP
-----------------------
NUMBER OF PERCENTAGE
SHARES OWNED(1)
------------ ----------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS:
John W. Jordan II (2)(3)(4)............................. 41,820.9087 42.5%
David W. Zalaznick (3)(4)(5)............................ 19,965.0000 20.3%
Thomas H. Quinn......................................... 10,000.0000 10.2%
Jonathan F. Boucher..................................... 5,533.8386 5.6%
Dominic J. Pileggi...................................... 0 *
Michael R. Elia......................................... 0 *
William C. Ballard...................................... 0 *
Michael A. Wadsworth.................................... 0 *
All directors and officers as a group (8 persons)(3).... 77l,319.7473 78.5%
</TABLE>
- --------
*Represents less than 1% of the outstanding shares of common stock of Jordan
Industries.
(1) Calculated pursuant to Rule 13d-3(d) under the Exchange Act. Under Rule
13d-3(d), shares not outstanding which are subject to options, warrants,
rights or conversion privileges exercisable within 60 days are deemed
outstanding for the purpose of calculating the number and percentage owned
by such person, but not deemed outstanding for the purpose of calculating
the percentage owned by each other person listed. As of June 30, 1997,
there were 98,501.0004 shares of common stock of Jordan Industries issued
and outstanding.
(2) Includes 1 share held personally and 41,819.9087 shares held by John W.
Jordan II Revocable Trust. Does not include 309.2933 shares held by Daly
Jordan O'Brien, the sister of Mr. Jordan, 309.2933 shares held by
Elizabeth O'Brien Jordan, the mother of Mr. Jordan, or 309.2933 shares
held by George Cook Jordan, Jr., the brother of Mr. Jordan.
(3) Does not include 100 shares held by The Jordan Zalaznick Capital Company
(JZCC"). Does not include 3,500 shares of Common Stock held by Mezzanine
Capital & Income Trust 2001 PLC ("MCIT"), a publicly traded U.K.
investment trust advised by an Affiliate of The Jordan Company (controlled
by Messrs. Jordan and Zalaznick). Mr. Jordan, Mr. Zalaznick and Leucadia,
Inc. are the sole partners of JZCC. Mr. Jordan and Mr. Zalaznick own and
manage the advisor to MCIT.
(4) Does not include 3,248.3332 shares held by The Jordan Family Trust, of
which John W. Jordan II, George Cook Jordan, Jr. and G. Robert Fisher are
the trustees.
(5) Does not include 82.1697 shares held by Bruce Zalaznick, the brother of
Mr. Zalaznick.
(6) Excludes 2,541.4237 shares that are held by John W. Jordan II Revocable
Trust, but which may be purchased by Mr. Zalaznick, and must be purchased
by Mr. Zalaznick, under certain circumstances, pursuant to an agreement,
dated as of October 27, 1988, between Mr. Jordan and Mr. Zalaznick.
56
<PAGE>
CERTAIN TRANSACTIONS
The Company Formation and Proceeds From the Old Offerings. The Company was
organized in July 1997 to acquire the Telecommunications Subsidiaries and
other targeted companies focused on the manufacture and distribution of
products for use in the rapidly growing telecommunications and data
communications industries.
Prior to the formation of the Company, the Telecommunications Subsidiaries
were subsidiaries of, and therefore financed and managed by, Jordan
Industries. Financings were made by Jordan Industries pursuant to intercompany
advances and notes (the "Intercompany Notes"), which were used largely to
finance the acquisition of the Telecommunications Subsidiaries and their
businesses. At June 30, 1997, the aggregate principal amount of these
Intercompany Notes was $170.0 million. The Intercompany Notes bore interest at
rates ranging from 10% to 14.5% per annum, payable quarterly in arrears. The
Telecommunications Subsidiaries paid Jordan Industries $5.5 million, $6.2
million, $11.1 million and $8.9 million in interest under the Intercompany
Notes for the years ended December 31, 1994, 1995 and 1996, and the six months
ended June 30, 1997, respectively. Concurrent with the consummation of the Old
Offerings, the Intercompany Notes were repaid by the Telecommunication
Subsidiaries. See "The Company--Company Formation" and "Use of Proceeds."
In connection with the initial capitalization of the Company, JTP issued
2,000 shares of Junior Preferred Stock to Jordan Industries for $20.0 million
in cash and 964,500 shares of Common Stock (representing 96.5% of the
outstanding shares of Common Stock) to the Jordan Group and management of the
Company for total cash consideration of $2.0 million, or $2.07 per share. See
"The Company--Company Formation," and "Description of Capital Stock--Common
Stock."
The Company acquired the Telecommunications Subsidiaries pursuant to a
series of transactions resulting in the payment and distribution to Jordan
Industries, including the payment and discharge of the Intercompany Notes, of
approximately $284.0 million and the assumption of $10.0 million of
obligations of the Telecommunications Subsidiaries, including $8.1 million of
indebtedness and an obligation to fund the redemption of $1.9 million of
preferred stock.
Services Agreements. Prior to the consummation of the Old Offerings, the
Telecommunications Subsidiaries, as subsidiaries of Jordan Industries, were
charged by Jordan Industries (i) annual consulting fees, payable quarterly,
equal to 3.0% of the Company's cash flow (which were $1.4 million, $1.4
million, $2.2 million and $1.5 million for the years ended December 31, 1994,
1995 and 1996 and the six months ended June 30, 1997, respectively); (ii)
investment banking and sponsorship fees of up to 2.0% of the purchase price of
acquisitions or sales involving the Company or any of its subsidiaries or
their respective businesses or properties and financial advisory fees of up to
1.0% of any debt, equity or other financing, in each case, arranged with the
assistance of The Jordan Company (which were $0, $0, $2.0 million and $0 for
the years ended December 31, 1994, 1995 and 1996 and the six months ended June
30, 1997, respectively); and (iii) reimbursement for The Jordan Company's out-
of-pocket costs incurred and indemnities in connection with providing such
services. In connection with the acquisition of LoDan, the Company paid to The
Jordan Company an investment banking fee of $0.3 million following the
consummation of the Old Offerings. Concurrent with the consummation of the Old
Offerings, all management, consulting, investment banking, sponsorship,
financial advisory and similar arrangements between the Company on the one
hand and Jordan Industries, TJC Management Corp. (an affiliate of The Jordan
Company) and The Jordan Company on the other were terminated. In their place
the Company entered into five new types of agreements and arrangements.
First, the Company and each of its subsidiaries (other than certain of the
Bond and Dura-Line subsidiaries) entered into a new advisory agreement (the
"New Subsidiary Advisory Agreement") with Jordan Industries, pursuant to which
the Company and its subsidiaries will pay to Jordan Industries (i) investment
banking and sponsorship fees of up to 2.0% of the purchase price of
acquisitions, joint ventures, minority investments or sales involving the
Company and its subsidiaries or their respective businesses or properties;
(ii) financial advisory fees of up to 1.0% of any debt, equity or other
financing or refinancing involving the Company or such subsidiary, in each
case, arranged with the assistance of The Jordan Company or its affiliates;
and (iii)
57
<PAGE>
reimbursement for The Jordan Company's or Jordan Industries' out-of-pocket
costs in connection with providing such services. The New Subsidiary Advisory
Agreement will contain customary indemnities in favor of Jordan Industries,
The Jordan Company and TJC Management Corp. in connection with such services.
Pursuant to a management agreement between Jordan Industries and TJC
Management Corp. (the "New TJC Management Consulting Agreement"), Jordan
Industries will pay to TJC Management Corp. (i) annual consulting fees,
payable quarterly, equal to $3.0 million; (ii) one-half of the investment
banking, sponsorship and financing fees paid to Jordan Industries pursuant to
the New Subsidiary Advisory Agreement; and (iii) reimbursement of TJC
Management Corp.'s and The Jordan Company's out-of-pocket costs incurred in
connection with providing such services. Each of the New Subsidiary Advisory
Agreement and the New TJC Management Consulting Agreement will expire in
December 2007, but is automatically renewed for successive one-year terms,
unless either party provides written notice of termination 60 days prior to
the scheduled renewal date. In connection with the consummation of the Old
Offerings and the New Credit Agreement, the Company paid fees of approximately
$4.1 million to Jordan Industries pursuant to the New Subsidiary Advisory
Agreement. Messrs. Jordan, Boucher and Zalaznick, directors of JTP, are
partners of The Jordan Company.
Second, the Company and each of its subsidiaries (other than certain of the
Bond and Dura-Line subsidiaries) entered into a management consulting
agreement (the "New Subsidiary Consulting Agreement"), pursuant to which they
will pay to Jordan Industries annual consulting fees of 1.0% of JTP's net
sales for such services, payable quarterly, and will reimburse Jordan
Industries for its out-of-pocket costs related to its services. The New
Subsidiary Consulting Agreement will expire in December 2007, but is
automatically renewed for successive one-year terms, unless either party
provides written notice of termination 60 days prior to the scheduled renewal
date. Pursuant to the New Subsidiary Consulting Agreement, Jordan Industries
(but not Jordan Industries' affiliates) will be obligated to present all
acquisition, business and investment opportunities that relate to
manufacturing, assembly, distribution or marketing of products and services in
the telecommunications and data communications industries to the Company, and
Jordan Industries will not be permitted to pursue such opportunities or
present them to third parties unless JTP determines not to pursue such
opportunities or consents thereto. On a pro forma basis, after giving effect
to the Old Offerings and the New Subsidiary Consulting Agreement, the Company
would have paid $1.4 million, $2.0 million, $2.1 million and $1.1 million for
the years ended December 31, 1994, 1995 and 1996 and the six months ended June
30, 1997, respectively.
Third, the Company and each of its subsidiaries (other than certain of the
Bond and Dura-Line subsidiaries) and Jordan Industries entered into a services
agreement (the "JI Properties Services Agreement") with JI Properties, Inc.
("JI Properties"), a subsidiary of Jordan Industries, pursuant to which JI
Properties will provide certain real estate and other assets, transportation
and related services to JTP. Pursuant to the JI Properties Services Agreement,
the Company will be charged for its allocable portion of such services based
upon its usage of such services and its relative revenues, as compared to
Jordan Industries and its other subsidiaries. On a pro forma basis, after
giving effect to the Old Offerings and the JI Properties Services Agreement,
such charges would have been $0.7 million, $1.0 million, $1.3 million and $0.8
million for the years ended December 31, 1994, 1995 and 1996 and the six
months ended June 30, 1997, respectively. The JI Properties Services Agreement
will expire in December 2007, but is automatically renewed for successive one
year terms, unless either party provides written notice of termination 60 days
prior to the scheduled renewal date.
Fourth, Jordan Industries determined to refine the allocation of its
overhead, general and administrative charges and expenses among Jordan
Industries and its subsidiaries, including the Company, in order to more
closely match these overhead charges with the revenues and usage of corporate
overhead by Jordan Industries and its subsidiaries. On a pro forma basis,
after giving effect to the Company Formation and the corporate expenses
reallocation by Jordan Industries, and prior to any charges or payments under
the New Subsidiary Consulting Agreement, Transition Agreement, JI Properties
Services Agreement, New Subsidiary Advisory Agreement, Tax Sharing Agreement
and directors' fees, the Company's allocable portion of corporate expenses
would have been $1.0 million, $0.9 million, $2.2 million and $1.2 million for
the years ended December 31, 1994, 1995 and 1996 and the six months ended June
30, 1997, respectively, and are expected to be approximately $2.4 million for
1997, assuming no further acquisition or similar activities by the Company in
1997.
58
<PAGE>
Fifth, the Company and Jordan Industries entered into the transition
agreement (the "Transition Agreement") pursuant to which Jordan Industries
will provide office space and certain administrative and accounting services
to the Company to facilitate the transition of the Company as a stand-alone
company. The Company will reimburse Jordan Industries for services provided
pursuant to the Transition Agreement on an allocated cost basis. The
Transition Agreement will expire on December 31, 1997, but is automatically
renewed for successive one year periods (unless either party provides prior
written notice of non-renewal) and may be terminated by the Company on 90
days' written notice.
Tax Sharing Agreement. The Company and each of its subsidiaries are parties
to a tax sharing agreement (the "Tax Sharing Agreement") with Jordan
Industries and each of the other direct and indirect subsidiaries of Jordan
Industries that are consolidated with Jordan Industries for Federal income tax
purposes. Pursuant to the Tax Sharing Agreement, each of the consolidated
subsidiaries of Jordan Industries pays to Jordan Industries, on an annual
basis, an amount determined by reference to the separate return tax liability
of the subsidiary as defined in Treasury Regulation (S) 1.1552-1(a)(2)(ii).
The Company and its subsidiaries paid an aggregate of $1.6 million, $3.5
million, $1.6 million and $0 to Jordan Industries pursuant to the Tax Sharing
Agreement in the years ended December 31, 1994, 1995 and 1996 and the six
months ended June 30, 1997, respectively. These income tax payments reflected
a Federal income tax rate of approximately 34% of each subsidiary's pre-tax
income.
Upon redemption of the Junior Preferred Stock or other circumstances that
cause the Company and its subsidiaries to cease to be tax consolidated
subsidiaries of Jordan Industries, JTP and its subsidiaries will be released
from making any further payments under the Tax Sharing Agreement. While the
release will discharge the Company and its subsidiaries from making future
income tax payments to Jordan Industries, the Company and its subsidiaries
will remain contingently liable to Jordan Industries under the Tax Sharing
Agreement in respect of any increases in their separate return tax liability
for periods prior to the consummation of the Old Offerings. The Company is not
aware of any such liabilities.
Directors of the Company, John W. Jordan II, David W. Zalaznick and Thomas
H. Quinn each have an ownership interest of more than 10% of the common stock
of Jordan Industries. See "Principal Stockholders."
Common Stock Consideration. In connection with the purchase of Common Stock
by certain officers and directors of the Company, Thomas H. Quinn paid
$179,609.21, Dominic J. Pileggi paid $21,444.44, Jonathan F. Boucher paid
$105,870.29, John W. Jordan paid $758,698.31 and David W. Zalaznick paid
$366,146.54. Each of Messrs. Quinn, Pileggi, Jordan and Zalaznick borrowed
one-half of the purchase price from Jordan Industries.
Management Arrangements. In connection with the initial capitalization of
the Company, see "The Company--Company Formation," Mr. Pileggi acquired 10,000
shares (1.1% of the shares outstanding) of Common Stock for $20,740 in cash.
The Company has a five-year call option on these shares at Mr. Pileggi's
original cost, exercisable only if his employment terminates, provided that
30% of his shares will cease to be subject to the call option on September 1,
1998, an additional 10% of the shares will cease to be subject to the call
option on each of September 1, 1999 and 2000, and the remaining 50% of the
shares will cease to be subject to the call option on September 1, 2001.
Acquisition Consideration. In connection with acquiring the Company's
subsidiaries, the sellers of the subsidiaries, who usually include the
subsidiary's management, often receive sellers' notes, stock or stock
appreciation rights and special bonus plans in respect of those subsidiaries.
The Company expects to continue using such devices and incentives, when
appropriate, in making future acquisitions and providing incentives for
subsidiary management. The consideration paid to the sellers of the
subsidiaries in each case was negotiated at arms-length. For a more detailed
description of the terms of the acquisitions, see "Terms of the Acquisitions."
SAR Payments. In April 1997, the Company paid and purchased stock
appreciation rights and related interests at Dura-Line, AIM and Cambridge. At
Dura-Line, the Company paid $9.4 million to purchase Dura-Line stock
appreciation rights from the president and chief financial officer of Dura-
Line, and agreed to redeem,
59
<PAGE>
in April 1998, $1.9 million of Dura-Line preferred stock held by the president
and chief financial officer of Dura-Line. See "Description of Certain
Indebtedness and Other Obligations--Dura-Line Preferred Stock and SARs
Redemption Agreement."At AIM and Cambridge, the Company paid $3.1 million to
purchase AIM and Cambridge stock appreciation rights (based upon 20% of AIM
and Cambridge appreciation from 1989 to 1996) from the estates of the former
presidents of AIM and Cambridge. Each of these payments and purchases in
respect of the stock appreciation rights was expensed for financial reporting
purposes.
Guaranty. In connection with the acquisition of Diversified, Diversified
issued sellers' notes in the aggregate principal amount of $1.5 million. The
principal amount of the sellers' notes is guaranteed by Jordan Industries. See
"Description of Certain Indebtedness and Other Obligations--Sellers' Notes."
Directors and Officers Indemnification. JTP and each of its directors have
entered into indemnification agreements. The indemnification agreements
provide that the Company will indemnify the directors against certain
liabilities (including settlements) and expenses actually and reasonably
incurred by them in connection with any threatened or pending legal action,
proceeding or investigation (other than actions brought by or in the right of
the Company) to which any of them is, or is threatened to be, made a party by
reason of their status as a director, officer or agent of the Company, or
serving at the request of the Company in any other capacity for or on behalf
of JTP; provided that (i) such director acted in good faith and in a manner
not opposed to the best interests of the Company; (ii) with respect to any
criminal proceedings had no reasonable cause to believe his or her conduct was
unlawful; (iii) such director is not finally adjudged to be liable for
negligence or misconduct in the performance of his or her duty to the Company,
unless the court rules in light of the circumstances the director is
nevertheless entitled to indemnification; and (iv) the indemnification does
not relate to any liability arising under Section 16(b) of the Exchange Act,
or the rules or regulations promulgated thereunder. With respect to any action
brought by or in the right of the Company, directors may also be indemnified
to the extent not prohibited by applicable laws or as determined by a court of
competent jurisdiction, against expenses actually and reasonably incurred by
them in connection with such action if they acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests
of the Company.
Future Arrangements. The Company has adopted a policy to provide that future
transactions between JTP and its officers, directors and other affiliates
(including Jordan Industries) must (i) be approved by a majority of the
members of the Board of Directors and by a majority of the disinterested
members of the Board of Directors; and (ii) be on terms no less favorable to
the Company than could be obtained from unaffiliated third parties.
60
<PAGE>
TERMS OF THE ACQUISITIONS
GENERAL
Pursuing strategic acquisitions of and joint ventures with companies
involved in the manufacture and distribution of products for use in the
rapidly growing telecommunications and data communications industries is
critical to JTP's growth strategy. Often, the companies targeted for
acquisition by the Company are owned and managed by entrepreneurial
individuals who are retained by the Company to manage the acquired business
after the acquisition. In order to complete the acquisition of such companies
and to provide ongoing incentives to the continuing executives, the Company
may structure its acquisitions so that the purchase price includes a
performance-based component. The performance-based component of the purchase
price can take a variety of forms including additional purchase price
arrangements, a minority stock interest or stock appreciation rights.
An additional purchase price arrangement typically provides for a part of
the purchase price for the acquired company to be determined based on the
future performance of the acquired company as determined based on negotiated
future performance objectives. If the performance objectives are met, the
deferred purchase price payment is made.
In the future, JTP may offer the sellers and continuing executives the
opportunity to invest in a minority stock interest in the acquired company.
The Company typically offers the minority investment opportunity in the
acquired company for the fair market value of the investment at the time of
the acquisition. The Company has not issued and does not intend in the future
to issue greater than a 20% minority stock interest in any acquired company.
Alternatively, the Company may provide stock appreciation rights, as
appropriate, in connection with acquisitions as an incentive to retain
executives.
Stock appreciation rights provide for cash payments based upon the measured
appreciation of a minority percentage of the subsidiaries' stock over a period
of time. Appreciation is generally measured over three to five years by a
formula that establishes a valuation by reference to a specified multiple
multiplied by the average cash flow of the fiscal year in which the right is
exercised and the preceding fiscal year minus the purchase price of the
acquired company. The Company does not intend to grant stock appreciation
rights relating to greater than a 20% stock interest in any acquired company.
ACQUISITION HISTORY
Seven of the Company's subsidiaries were acquired by Jordan Industries
during 1996 and the first half of 1997. Following is a brief summary of the
terms of those acquisitions (purchase price amounts include costs and fees
related to such acquisitions).
Johnson. Jordan Industries purchased the net assets of Johnson on January
23, 1996 for $16.1 million in cash.
Diversified. Jordan Industries purchased the stock of Diversified on June
25, 1996 for $17.0 million consisting of $15.5 million of cash and a $1.5
million subordinated seller note. See "Description of Certain Indebtedness and
Other Obligations--Sellers' Notes." Immediately after Jordan Industries
purchased Diversified, Diversified sold 1,250 shares of its common stock
(representing 12.5% of its outstanding common stock) to the former owners and
current management of Diversified for $0.3 million. Certain sellers of
Diversified are entitled to additional payments for their stock, contingent
upon operating results (as defined in the purchase agreement). The maximum
contingent consideration to be paid is $3.2 million. The deferred purchase
price payment will be payable over the four years following the date of
Diversified's acquisition by Jordan Industries.
Viewsonics. On August 1, 1996, Jordan Industries purchased the net assets of
Viewsonics for $15.0 million in cash. The former owner of Viewsonics is
entitled to additional payments for the net assets acquired by Jordan
Industries, contingent upon operating results (as defined in the purchase
agreement). The maximum contingent
61
<PAGE>
consideration to be paid is $5.0 million. The deferred purchase price payment,
if any, will be payable over the four years following the date of Viewsonics'
acquisition by Jordan Industries.
Vitelec. On August 5, 1996, Jordan Industries purchased the stock of Vitelec
for $14.0 million in cash. In connection with the acquisition of Vitelec, the
sellers received stock appreciation rights providing them with 10% of the
increase in the value of the outstanding common stock of Vitelec from the date
of the acquisition to a date chosen by the sellers, which must be between July
2000 and July 2004. The increase in value of the common stock at any time is
measured by reference to a multiple of Vitelec's average cash flow for the
current and immediately preceding year. The contingent payment is payable over
three years from the date valuation.
Bond. On September 20, 1996, Jordan Industries purchased the Bond
Technologies Group, which consists of an 80% interest in Bond Technologies,
Inc., an 80% interest in Cable Spec, Ltd., a limited partnership, an 80%
interest in Balance Manufacturing Services of Southern California and a 51%
interest in BSM, Inc. for $8.6 million in cash. The purchase price included
cash balances that are restricted in their use. The restricted balances, which
totaled $0.7 million at March 31, 1997, are held in escrow with instructions
to pay the balances to the previous owners of Bond at a predetermined date if
certain earnings levels are achieved.
Northern. On December 31, 1996, Jordan Industries purchased the stock of
Northern for a total purchase price of $21.5 million in cash.
LoDan. On May 30, 1997, Jordan Industries purchased the assets of LoDan for
$17.0 million, consisting of $15.5 million in cash and a seller note in the
principal amount of $1.5 million. See "Description of Certain Indebtedness and
Other Obligations--Sellers' Notes."
EEI. On September 2, 1997, the Company purchased the assets of EEI for $41.5
million, consisting of $21.5 million in cash and $20.0 million of borrowings
under the New Credit Agreement.
In connection with the acquisitions of the Company's subsidiaries, as is
customary in transactions of this type, each of the sellers agreed to
indemnify JTP for certain liabilities of the acquired company for periods
prior to the closing of the acquisition. However, the indemnities are subject
to a number of exceptions, qualifications and deductibles and there can be no
assurance that, if the Company were to incur liabilities relating to any of
the acquired companies for periods prior to the closing of the acquisition,
the seller would in fact be liable to indemnify the Company, or that, even if
liable, the seller would ultimately satisfy its indemnification obligations to
the Company. As a result, there can be no assurance that the Company will not
suffer losses as a result of liabilities of the acquired companies for periods
prior to the acquisition when the companies were not owned or managed by the
Company.
62
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS AND OTHER OBLIGATIONS
The following is a summary of the material provisions of certain
indebtedness and other obligations of the Company. The New Credit Agreement
has been filed as an exhibit to the Registration Statement of which this
Prospectus forms a part.
NEW CREDIT AGREEMENT
On July 25, 1997, JTP Industries entered into the New Credit Agreement under
which JTP Industries is able to borrow up to approximately $110.0 million to
fund acquisitions and provide working capital and for other general corporate
purposes. The New Credit Agreement provides for a revolving line of credit of
$110.0 million at an interest rate of either the "base rate" of BankBoston,
N.A., as agent for the lenders, or the rate at which BankBoston's Eurodollar
Lending Office is offered Dollar deposits, over a term of four years. The New
Credit Agreement is secured by a first priority security interest in
substantially all of JTP Industries' assets, including a pledge of all of the
stock of the Company's subsidiaries. Payments of principal of and interest on
amounts borrowed under the New Credit Agreement is guaranteed by the Company's
subsidiaries. The Company may continue to make interest payments on the Notes
only for so long as no Default or Event of Default (as those terms are defined
in the New Credit Agreement) exists. Under the New Credit Agreement, neither
JTP Industries, nor any of the Company's subsidiaries can incur any
indebtedness other then current liabilities, certain unsecured indebtedness
and other specific indebtedness contemplated by the various agreements with
Jordan Industries as described in "Certain Transactions." The Company is also
subject to standard financial covenants such as leverage ratios, interest
coverage ratios and consolidated cash flow coverage ratios. See "Management
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
SELLERS' NOTES
In connection with the acquisition of Diversified, Diversified issued
subordinated promissory notes to the sellers in the aggregate principal amount
of $1.5 million. The Diversified sellers' notes bear interest at a rate of 8%
per annum and mature in 2004. One-half of the aggregate principal amount of
the Diversified sellers' notes is due in 2003 and the remaining one-half is
due in 2004. Diversified has the right to prepay the sellers' note. The
aggregate principal amount of the Diversified sellers' notes are guaranteed by
Jordan Industries.
In connection with the acquisition of LoDan, LoDan issued a subordinated
promissory note to LoDan's seller in the principal amount of $1.5 million.
This note bears interest at 8% per annum and matures in 1999. One-half of the
principal amount of the LoDan note is due in 1998 and the remaining one-half
is due in 1999.
CAPITAL LEASES
At June 30, 1997, the Company had capital leases of $3.0 million outstanding
secured by interests in certain of the Company's equipment. Interest rates on
the capital leases range from 7.7% to 10.8% and mature in installments through
2001. For a schedule of capital lease payment obligations, see Note 10 to the
Company's Combined Financial Statements.
OTHER INDEBTEDNESS
Dura-Line maintains $1.1 million in notes payable due in monthly
installments through 1999 bearing interest at rates ranging from 5.7% to 8.3%.
The notes are secured by an interest in certain of Dura-Line's equipment.
63
<PAGE>
Diversified maintains $0.1 million in notes payable due in monthly
installments through 2001 bearing interest at rates ranging from 7.7% to 9.9%.
The notes are secured by an interest in certain of Diversified's equipment.
Dura-Line has available a line of credit from a commercial lender in Prague,
Czech Republic in the amount of $0.8 million. At June 30, 1997, Dura-Line had
no outstanding borrowings under this line of credit. The line of credit bears
interest at a rate of 1.25% above the Prague Inter-Bank Offered Rate (9.75% as
of June 30, 1997). The line of credit facility is secured by the assets of
Dura-Line's Czech subsidiary and is guaranteed with a standby letter of credit
issued by Dura-Line.
SUBSIDIARY EARN-OUT AGREEMENTS
Pursuant to earn-out agreements entered into in connection with the
acquisition of certain of the Telecommunications Subsidiaries, the management
of the subsidiaries has the opportunity to earn bonuses based on the EBIT (as
defined in the agreements) growth of their respective subsidiaries for up to
four fiscal years. The cumulative maximum payout pursuant to these earn-out
agreements is approximately $8.2 million.
DURA-LINE PREFERRED STOCK AND SARS REDEMPTION AGREEMENT
Dura-Line has outstanding 187.5 shares of its 7% cumulative preferred stock
(the "Dura-Line Preferred Stock") with an aggregate liquidation preference of
$1.9 million issued to certain former common stockholders of Dura-Line. The
former stockholders were also granted SARs exercisable upon the occurrence of
certain extraordinary corporate transactions. On April 10, 1997, Dura-Line
entered into an agreement (the "Redemption Agreement") pursuant to which Dura-
Line paid the former stockholders $9.4 million in cash and gave the former
stockholders a promissory note for $4.7 million in consideration for the
former stockholders' SARs. The promissory note bears interest at the rate of
8%, is payable in annual installments and matures on April 10, 2001. Dura-Line
is required by the Redemption Agreement to redeem the remaining shares of
Dura-Line Preferred Stock on April 10, 1998 for $1.9 million. The holders of
the Dura-Line Preferred Stock agreed to forego the payment of accumulated and
unpaid dividends of $0.7 million. If prior to April 30, 1998, Jordan
Industries receives offering proceeds from an initial public offering of Dura-
Line common stock, Jordan Industries is required to pay the former
stockholders an additional $2.3 million. If Jordan Industries does not receive
proceeds from an initial public offering of Dura-Line common stock prior to
April 30, 1998, the former stockholders will receive 25% of Dura-Line's 1997
gross profit (as defined in the Redemption Agreement) in excess of $30.0
million. As consideration for signing the Redemption Agreement, the former
Stockholders will receive total non-compete payments of $0.4 million over the
13-month period beginning April 10, 1997.
64
<PAGE>
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Exchange Offer is being made by the Company to satisfy its obligations
pursuant to the Registration Rights Agreements, which require the Company to
use its best efforts to effect the Exchange Offer. See "--Registration Rights;
Liquidated Damages."
The Company is making the Exchange Offer in reliance upon the position of
the staff of the Commission set forth in certain no-action letters addressed
to other parties in other transactions. However, the Company has not sought
its own no-action letter and there can be no assurance that the staff of the
Commission would make a similar determination with respect to the Exchange
Offer as in such other circumstances. Based on these interpretations by the
staff of the Commission, the New Securities issued pursuant to the Exchange
Offer may be offered for resale, resold and otherwise transferred by holders
thereof (other than (i) any such holder that is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act; (ii) an Initial
Purchaser who acquired the Old Securities directly from the Company solely in
order to resell pursuant to Rule 144A of the Securities Act or any other
available exemption under the Securities Act; or (iii) a broker-dealer who
acquired the Old Securities as a result of market making or other trading
activities) without compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such New Securities are
acquired in the ordinary course of such holder's business and such holder is
not participating and has no arrangement or understanding with any person to
participate in a distribution (within the meaning of the Securities Act) of
such New Securities. Any Holder who tenders Old Securities in the Exchange
Offer for the purpose of participating in a distribution of the New Securities
could not rely on such interpretations by the staff of the Commission and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction, unless such
sale is made pursuant to an exemption from such requirements.
Holders of Old Securities not tendered will not have any further
registration rights and the Old Securities not exchanged will continue to be
subject to certain restrictions on transfer. Accordingly, the liquidity of the
markets for the Old Securities could be adversely affected.
NEITHER THE BOARD OF DIRECTORS OF THE COMPANY NOR THE COMPANY MAKES ANY
RECOMMENDATION TO HOLDERS OF OLD SECURITIES AS TO WHETHER TO TENDER OR REFRAIN
FROM TENDERING ALL OR ANY PORTION OF THEIR OLD SECURITIES PURSUANT TO THE
EXCHANGE OFFER. IN ADDITION, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH
RECOMMENDATION. HOLDERS OF OLD SECURITIES MUST MAKE THEIR OWN DECISION WHETHER
TO TENDER PURSUANT TO THE EXCHANGE OFFER AND, IF SO, THE AGGREGATE PRINCIPAL
AMOUNT OF OLD NOTES OR LIQUIDATION PREFERENCE OF OLD SENIOR PREFERRED STOCK TO
TENDER AFTER READING THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL AND
CONSULTING THEIR ADVISERS, IF ANY, BASED ON THEIR OWN FINANCIAL POSITION AND
REQUIREMENTS.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
In connection with the issuance of the Old Securities, the Company entered
into Registration Rights Agreements with the Initial Purchasers of the Old
Securities.
Holders of New Securities (other than as set forth below) are not entitled
to any registration rights with respect to the New Securities. Pursuant to the
Registration Rights Agreements, Holders of Old Securities are entitled to
certain registration rights. Under the Registration Rights Agreements, the
Company has agreed, for the benefit of the Holders of the Old Securities, that
it will, at its cost, (i) within 60 days after the date of the original issue
of the Old Securities file the Registration Statement with the Commission; and
(ii) within 120 days after the date of original issuance of the Old
Securities, use its best efforts to cause such Registration Statement to be
declared effective under the Securities Act. The Registration Statement of
which this Prospectus is a part constitutes the Registration Statement. If (i)
the Company is not permitted to consummate the Exchange Offer
65
<PAGE>
because the Exchange Offer is not permitted by applicable law or Commission
policy; or (ii) any Holder of Transfer Restricted Securities (as defined
herein) notifies the Company within the specified time period that (A) due to
a change in law or policy it is not entitled to participate in the Exchange
Offer, (B) due to a change in law or policy it may not resell the New
Securities acquired by it in the Exchange Offer to the public without
delivering a prospectus and the prospectus contained in the Registration
Statement is not appropriate or available for such resales by such holder or
(C) it is a broker-dealer and acquired the Old Securities directly from the
Company or an affiliate of the Company, the Company will file with the
Commission a Shelf Registration Statement to cover resales of the Transfer
Restricted Securities by the Holders thereof who satisfy certain conditions
relating to the provision of information in connection with the Shelf
Registration Statement. The Company will use its best efforts to cause the
applicable registration statement to be declared effective as promptly as
possible by the Commission. For purposes of the foregoing, "Transfer
Restricted Securities" means each Old Security, until (i) the date of which
such Transfer Restricted Security has been exchanged by a person other than a
broker-dealer for a New Security in the Exchange Offer; (ii) following the
exchange by a broker-dealer in the Exchange Offer of a Transfer Restricted
Security for a New Security, the date on which such New Security is sold to a
purchaser who receives from such broker-dealer on or prior to the date of such
sale a copy of the prospectus contained in the Registration Statement; (iii)
the date on which such Transfer Restricted Security has been effectively
registered under the Securities Act and disposed of in accordance with the
Shelf Registration Statement; or (iv) the date on which such Transfer
Restricted Security is distributed pursuant to Rule 144 under the Act.
The Registration Rights Agreements also provide that, (i) unless the
Exchange Offer would not be permitted by applicable law or Commission policy,
the Company will commence the Exchange Offer and use its best efforts to issue
on or prior to 30 business days after the date on which the Registration
Statement was declared effective by the Commission, New Securities in exchange
for all Transfer Restricted Securities tendered prior thereto in the Exchange
Offer; and (ii) if obligated to file the Shelf Registration Statement, the
Company will file the Shelf Registration Statement with the Commission on or
prior to 60 days after such filing obligation arises (and in any event by
October 23, 1997) and use its best efforts to cause the Shelf Registration
Statement to be declared effective by the Commission on or prior to 120 days
after such obligation arises. The Company shall use its best efforts to keep
such Shelf Registration Statement continuously effective, supplemented and
amended until July 25, 2000 or such shorter period that will terminate when
all the Notes or Senior Preferred Stock covered by the Shelf Registration
Statement have been sold pursuant to the Shelf Registration Statement. If (a)
the Company fails to file any of the registration statements required by the
Registration Rights Agreements on or before the date specified for such
filing; (b) any of such registration statements are not declared effective by
the Commission on or prior to the date specified for such effectiveness (the
"Effectiveness Target Date"); (c) the Company fails to consummate the Exchange
Offer within 30 business days of the Effectiveness Target Date with respect to
the Registration Statement; or (d) the Shelf Registration Statement or the
Registration Statement is declared effective but thereafter, subject to
certain exceptions, ceases to be effective or usable in connection with
resales of Transfer Restricted Securities during the periods specified in the
Registration Rights Agreements without being succeeded within 30 days by any
additional Registration Statement filed and declared effective (each such
event referred to in clauses (a) through (d) above a "Registration Default"),
then the Company will pay Liquidated Damages to each Holder of Transfer
Restricted Securities, with respect to the first 90-day period immediately
following the occurrence of such Registration Default in an amount equal to
$.05 per week for each $1,000 principal amount of Notes or each $1,000
liquidation preference of Senior Preferred Stock, as applicable, held by such
Holder. After such period, the amount of the Liquidated Damages will increase
to $.10 per week for each $1,000 principal amount of Notes or liquidation
preference of Senior Preferred Stock, as applicable, until all Registration
Defaults have been cured. Following the cure of all Registration Defaults, the
accrual of Liquidated Damages will cease.
Holders of Transfer Restricted Securities will be required to deliver
information to be used in connection with the Shelf Registration Statement and
to provide comments on the Shelf Registration Statement within the time
periods set forth in the Registration Rights Agreements in order to have their
Transfer Restricted Securities included in the Shelf Registration Statement
and benefit from the provisions regarding Liquidated Damages set forth above.
66
<PAGE>
The summary herein of certain provisions of the Registration Rights
Agreements does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all the provisions of the Registration Rights
Agreements, copies of which are filed as exhibits to the Registration
Statement of which this Prospectus constitutes a part.
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD SECURITIES
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 Old Securities which 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 , 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 is extended. The Company may extend the Exchange
Offer at any time and from time to time by giving oral or written notice to
the applicable Exchange Agent and by timely public announcement. Without
limiting the manner in which the Company may choose to make any public
announcement and subject to applicable law, the Company shall have no
obligation to publish, advertise or otherwise communicate any such public
announcement other than by issuing a release to an appropriate news agency.
During any extension of the Exchange Offer, all Old Securities previously
tendered pursuant to the Exchange Offer will remain subject to the Exchange
Offer. The Company intends to conduct the Exchange Offer in accordance with
the applicable requirements of the Exchange Act and the rules and regulations
thereunder.
As of the date of this Prospectus, $190,000,000 aggregate principal amount
of Old Notes, $120,000,000 aggregate principal amount at maturity of Old
Discount Notes and $25,000,000 aggregate liquidation preference of Old Senior
Preferred Stock is outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about , 1997, to all Holders of
Old Securities known to the Company. The Company's obligation to accept Old
Securities for exchange pursuant to the Exchange Offer is subject to certain
conditions as set forth below under "--Certain Conditions to the Exchange
Offer."
The terms of the New Securities and the Old Securities are identical in all
material respects, except for certain transfer restrictions and registration
rights relating to the Old Securities and rights to receive Liquidated
Damages. See "--Registration Rights; Liquidated Damages." The Old Notes were,
and the New Notes will be, issued under the Indentures and all such Notes are
entitled to the benefits of the Indentures. The Old Senior Preferred Stock
was, and the New Senior Preferred Stock will be, issued pursuant to the
Certificate of Designation and all of the Senior Preferred Stock is entitled
to the benefits of the Certificate of Designation.
Old Notes tendered in the Exchange Offer must be in denominations of
principal amount of $1,000 and any integral multiple thereof and Old Senior
Preferred Stock tendered in the Exchange Offer must be in denominations of
whole shares. Any Old Notes or Old Senior Preferred Stock 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.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Securities 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 amendment,
nonacceptance or termination to the Holders of the Old Notes or Old Senior
Preferred Stock as promptly as practicable. Any amendment to the Exchange
Offer will not limit the right of Holders to withdraw tendered Old Securities
prior to the Expiration Date. See "--Withdrawal Rights."
PROCEDURES FOR TENDERING OLD SECURITIES
The tender to the Company of Old Securities 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
67
<PAGE>
Transmittal. Except as set forth below, a Holder who wishes to tender Old
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 First Trust National
Association and a Holder who wishes to tender Old Senior Preferred Stock for
exchange pursuant to the Exchange Offer must transmit a properly completed and
duly executed Letter of Transmittal, to Harris Trust and Savings Bank (First
Trust National Association and Harris Trust and Savings Bank are the "Exchange
Agents" and each individually is an "Exchange Agent") at the proper address
set forth below under under "--Exchange Agents" on or prior to the Expiration
Date. In addition, either (i) certificates for such Old Notes or Old Senior
Preferred Stock must be received by the applicable Exchange Agent along with
the Letter of Transmittal; or (ii) a timely confirmation of a book-entry
transfer (a "Book-Entry Confirmation") of such Old Securities, if such
procedure is available, into the applicable 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
applicable 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 OLD NOTES OR OLD SENIOR PREFERRED STOCK, LETTERS OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF
THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED
MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF
TRANSMITTAL OR OLD NOTES OR OLD SENIOR PREFERRED STOCK SHOULD BE SENT TO THE
COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Old Securities surrendered for exchange
pursuant thereto are tendered (i) by a registered Holder of the Old Securities
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 firm which
is a member of a registered national securities exchange or a member of the
National Association of Securities Dealers, Inc. or by a commercial bank or
trust company having an office or correspondent in the United States
(collectively, "Eligible Institutions"). If Old Securities are registered in
the name of a person other than the signer of the Letter of Transmittal, the
Old Securities 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 Old Securities 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 Old Securities not properly tendered or to not
accept any particular Old Securities which acceptance might, in the judgment
of the Company or its counsel, be unlawful. The Company also reserves the
absolute right to waive any defects or irregularities or conditions of the
Exchange Offer as to any particular Old Securities either before or after the
Expiration Date (including the right to waive the ineligibility of any Holder
who seeks to tender Old Securities in the Exchange Offer). The interpretation
of the terms and conditions of the Exchange Offer as to any particular Old
Securities 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, all defects or irregularities in
connection with tenders of Old Securities for exchange must be cured within
such reasonable period of time as the Company shall determine. None of the
Company, either 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
Old Securities for exchange, nor shall any of them incur any liability for
failure to give such notification. The Exchange Agents intend to use
reasonable efforts to give notification of such defects and irregularities.
If the Letter of Transmittal is signed by a person or persons other than the
registered Holder or Holders of Old Securities, such Old Securities 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 that
appear on the Old Securities.
68
<PAGE>
If the Letter of Transmittal or any Old Securities or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of a corporation 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 New Securities acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the person receiving such New
Securities, whether or not such person is the Holder, and such person has no
arrangement with any person to participate in the distribution of the New
Securities. If any Holder or any such other person is an "affiliate," as
defined under Rule 405 of the Securities Act, of the Company, is engaged in or
intends to engage in or has an arrangement or understanding with any person to
participate in a distribution of such New Securities to be acquired pursuant
to the Exchange Offer, or acquired the Old Securities as a result of market
making or other trading activities, such Holder or any such other person (i)
could not 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 New Securities for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale
of such New Securities. 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.
ACCEPTANCE OF OLD SECURITIES FOR EXCHANGE; DELIVERY OF NEW SECURITIES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Old
Securities properly tendered and will issue the New Securities promptly after
acceptance of the Old Securities. See "--Certain Conditions to the Exchange
Offer." For purposes of the Exchange Offer, the Company shall be deemed to
have accepted properly tendered Old Securities for exchange when, as and if
the Company has given oral or written notice thereof to the applicable
Exchange Agent, with written confirmation of any oral notice to be given
promptly thereafter.
For each Old Security accepted for exchange, the Holder of such Old Security
will receive a New Security having a principal amount or liquidation
preference equal to that of the surrendered Old Security. Accordingly,
registered Holders of New Securities on the relevant record date for the first
interest payment date or dividend payment date following the consummation of
the Exchange Offer will receive interest accruing from the most recent date to
which interest has been paid on the Old Senior Notes or dividends have been
paid on the Old Senior Preferred Stock, or, if no interest has been paid on
the Old Senior Notes or no dividends have been paid on the Old Senior
Preferred Stock, from July 25, 1997. New Discount Notes will accrete from July
25, 1997. Old Securities accepted for exchange will cease to accrue interest,
accrete, or accrue dividends from and after the date of consummation of the
Exchange Offer. Holders of Old Securities whose Old Securities are accepted
for exchange will not receive any payment in respect of accrued interest or
dividends on such Old Securities otherwise payable on any interest payment
date or dividend payment date, the record date for which occurs on or after
consummation of the Exchange Offer.
In all cases, issuance of New Securities for Old Securities that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the applicable Exchange Agent of (i) certificates for such
Old Securities or a timely Book-Entry Confirmation of such Old Securities into
the applicable Exchange Agent's account at the Book-Entry Transfer Facility;
(ii) a properly completed and duly executed Letter of Transmittal; and (iii)
all other required documents. If any tendered Old Securities are not accepted
for any reason set forth in the terms and conditions of the Exchange Offer, or
if Old Securities are submitted for a greater amount than the Holder desires
to exchange, such unaccepted or nonexchanged Old Securities will be returned
without expense to the tendering Holder thereof (or, in the case of Old
Securities tendered by book-entry transfer into the applicable Exchange
Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry
procedures described below, such nonexchanged Old Securities will be credited
to an account maintained with such Book-Entry Transfer Facility) designated by
the tendering Holder as promptly as practicable after the expiration or
termination of the Exchange Offer.
69
<PAGE>
BOOK-ENTRY TRANSFER
The Exchange Agents will make requests to establish accounts with respect to
the Old Securities 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 Old Securities by causing
the Book-Entry Transfer Facility to transfer such Old Securities into the
applicable Exchange 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 Old Securities 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
applicable Exchange Agent at the address set forth below under "--Exchange
Agents" on or prior to the Expiration Date or the guaranteed delivery
procedures described below must be complied with.
GUARANTEED DELIVERY PROCEDURES
If a registered Holder of the Old Securities desires to tender such Old
Securities and the Old Securities are not immediately available, or time will
not permit such Holder's Old Securities or other required documents to reach
the applicable 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 applicable Exchange Agent has 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 of the corresponding exhibit to the Registration
Statement of which this Prospectus constitutes a part (by telegram, telex,
facsimile transmission, mail or hand delivery), setting forth the name and
address of the Holder of Old Securities and the amount of Old Securities
tendered, stating that the tender is being made thereby and guaranteeing that
within three New York Stock Exchange ("NYSE") trading days after the date of
execution of the Notice of Guaranteed Delivery, the certificates for all
physically tendered Old Securities, 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 applicable Exchange Agent; and (iii) the certificates for all physically
tendered Old Securities, 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 applicable Exchange Agent within
three NYSE trading days after the date of execution of the Notice of
Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Securities may be withdrawn at any time prior to the
Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the applicable Exchange Agent at the proper address set forth
below under "--Exchange Agents." Any such notice of withdrawal must specify
the name of the person having tendered the Old Securities to be withdrawn,
identify the Old Securities to be withdrawn (including the amount of such Old
Securities), and (where certificates for Old Securities have been transmitted)
specify the name in which such Old Securities are registered, if different
from that of the withdrawing Holder. If certificates for Old Securities have
been delivered or otherwise identified to the applicable Exchange Agent, then,
prior to the release of such certificates the withdrawing Holder must also
submit the serial numbers of the particular certificates to be withdrawn and a
signed notice of withdrawal with signatures guaranteed by an Eligible
Institution unless such Holder is an Eligible Institution. If Old Securities
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
Old Securities 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 Old Securities so withdrawn will be
deemed not to have been validly tendered for exchange for purposes of the
Exchange Offer. Any Old Securities which
70
<PAGE>
have been tendered for exchange but which are not exchanged for any reason
will be returned to the Holder thereof without cost to such Holder (or, in the
case of Old Securities tendered by book-entry transfer into the applicable
Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry transfer procedures described above, such Old Securities will be
credited to an account with such Book-Entry Transfer Facility specified by the
Holder) as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Old Securities may be
retendered by following one of the procedures described above under "--
Procedures for Tendering Old Securities" at any time on or prior to 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 New Securities in exchange
for, any Old Securities and may terminate or amend the Exchange Offer, if at
any time before the acceptance of such Old Securities for exchange or the
exchange of the New Securities for such Old Securities, 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 Old Securities 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 sole 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 sole judgment of the
Company, might result in the holders of New Securities having obligations
with respect to resales and transfers of New Securities which 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 any governmental agency or authority which 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 which 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 sole judgment of
the Company, have or may have an adverse effect on the value of the Old
Securities or the New Securities.
Holders of Old Securities will have registration rights and the right to
Liquidated Damages as described above under "--Registration Rights; Liquidated
Damages" if the Company fails to consummate the Exchange Offer.
To the Company's knowledge as of the date of this Prospectus, none of the
above events has occurred.
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
71
<PAGE>
in part at any time and from time to time in its sole discretion. The failure
by the Company 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 which may be asserted at any time and from time to time.
In addition, the Company will not accept for exchange any Old Securities
tendered, and no New Securities will be issued in exchange for any such Old
Securities, 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 Indentures under the Trust Indenture Act (as
defined herein).
EXCHANGE AGENTS
First Trust National Association has been appointed as the Exchange Agent for
the Notes and Harris Trust and Savings Bank has been appointed as the Exchange
Agent for the Senior Preferred Stock for the Exchange Offer. All executed
Letters of Transmittal and Notices of Guaranteed Delivery should be directed to
the proper Exchange Agent at the addresses 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 proper Exchange Agent addressed as follows:
For Notes:
Deliver to: First Trust National Association, Exchange Agent:
By Registered or Certified Mail, Overnight Courier or Hand:
First Trust National
Association
180 East Fifth Street
St. Paul, Minnesota 55101
Attn: Specialized Finance Corporate Trust Department
Fourth Floor
By Facsimile:
(612) 244-1537
Confirm by Telephone:
(612) 244-8162
For Senior Preferred
Stock:
Deliver to: Harris Trust and Savings Bank, Exchange Agent
By Registered or Certified Mail: By Overnight Courier or Hand:
Harris Trust and Savings Bank Harris Trust and Savings Bank
c/o Harris Trust Company of New York c/o Harris Trust Company of New York
P. O. Box 1010 77 Water Street
Wall Street Station 4th Floor
New York, NY 10268 New York, NY 10004
By Facsimile:
(212) 701-7636
Confirm by Telephone:
(212) 701-7624
72
<PAGE>
DELIVERY OF A LETTER OF TRANSMITTAL FOR NOTES TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE FOR FIRST TRUST NATIONAL ASSOCIATION OR TRANSMISSION OF
INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE FOR FIRST TRUST
NATIONAL ASSOCIATION DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF
TRANSMITTAL. DELIVERY OF A LETTER OF TRANSMITTAL FOR SENIOR PREFERRED STOCK TO
AN ADDRESS OTHER THAN AS SET FORTH ABOVE FOR HARRIS TRUST AND SAVINGS BANK OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE FOR
HARRIS TRUST AND SAVINGS BANK 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 Company will, however, pay the Exchange Agents reasonable and customary
fees for their services and will reimburse them for reasonable out-of-pocket
expenses in connection therewith. The Company will also pay brokerage houses
and other custodians, nominees and fiduciaries the reasonable out-of-pocket
expenses incurred by them in forwarding copies of this Prospectus and related
documents to the beneficial owners of Old Notes or Old Senior Preferred Stock,
and in handling tenders for their customers. The expenses to be incurred in
connection with the Exchange Offer, including the fees and expenses of the
Exchange Agents and printing, accounting, registration, and legal fees, will
be paid by the Company and are estimated to be approximately $100,000.
TRANSFER TAXES
Holders who tender their Old Securities for exchange will not be obligated
to pay any transfer taxes in connection therewith, except that holders who
instruct the Company to register New Securities in the name of, or request
that Old Securities 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 thereon.
APPRAISAL RIGHTS
HOLDERS OF OLD NOTES OR OLD SENIOR PREFERRED STOCK WILL NOT HAVE DISSENTERS'
RIGHTS OR APPRAISAL RIGHTS IN CONNECTION WITH THE EXCHANGE OFFER.
CONSEQUENCES OF NOT EXCHANGING OLD SECURITIES
Holders of Old Securities who do not exchange their Old Securities for New
Securities pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Old Securities as set forth in the legend
thereon as a consequence of the issuance of the Old Securities 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 Old Securities may not be offered or sold, unless registered
under the Securities Act, except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable state securities
laws. The Company does not currently anticipate that it will register the Old
Securities under the Securities Act. Based upon no-action letters issued by
the staff of the Commission to third parties, the Company believes the New
Securities issued pursuant to the Exchange Offer in exchange for the Old
Securities may be offered for resale, resold or otherwise transferred by a
Holder thereof (other than any (i) Holder which is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act); (ii) an
Initial Purchaser who acquired the Old Securities directly from the Company
solely in order to resell pursuant to Rule 144A of the Securities Act or any
other available exemption under the Securities Act; or (iii) a broker-dealer
who acquired the Old Securities as a result of market making or other trading
activities) without compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such New Securities are
acquired in the ordinary course of such holder's business and such holder is
not participating and has no arrangement or
73
<PAGE>
understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such New Securities. However, the Company
has not sought its own no-action letter and there can be no assurance that the
staff of the Commission would make a similar determination with respect to the
Exchange Offer as in such other circumstances. Each Holder, other than a
broker-dealer, must acknowledge that it is not engaged in, and does not intend
to engage in, a distribution of New Securities, and has no arrangement or
understanding to participate in a distribution of New Securities. 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 New Securities to be acquired pursuant to the Exchange Offer, or acquired
the Old Securities as a result of market making or other trading activities,
such Holder (i) could not rely on the relevant determinations 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 secondary
resale transaction. Each broker-dealer that receives New Securities for its
own account in exchange for Old Securities must acknowledge that such Old
Securities were acquired by such broker-dealer as a result of market-making
activities or other trading activities and that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale
of such New Securities. See "Plan of Distribution." In addition, to comply
with the securities laws of certain jurisdictions, if applicable, the New
Securities may not be offered or sold unless they have been registered or
qualified for sale in such jurisdiction or an exemption from registration or
qualification is available and is complied with. The Company has agreed to
register or qualify the sale of the New Securities in such jurisdictions only
in limited circumstances and subject to certain conditions.
ACCOUNTING TREATMENT
The exchange of the New Securities for the Old Securities will have no
impact on the Company's accounting records on the date of the exchange.
Accordingly, no gain or loss for accounting purposes will be recognized.
Expenses of the Exchange Offer and expenses related to the Old Securities will
be amortized, pro rata, over the term of the New Securities.
74
<PAGE>
DESCRIPTION OF NOTES
The Old Senior Notes were and the New Senior Notes will be issued pursuant
to an indenture (the "Senior Note Indenture"), dated as of July 25, 1997,
between the Company and First Trust National Association, as trustee (the
"Senior Note Trustee"). The Old Discount Notes were and the New Discount Notes
will be issued pursuant to an indenture (the "Discount Note Indenture" and,
together with the Senior Note Indenture, the "Indentures"), dated as of July
25, 1997, between the Company and First Trust National Association, as trustee
(the "Discount Note Trustee" and, together with the Senior Note Trustee, the
"Trustees"). The terms of the Notes include those stated in the Indentures and
those made part of the Indentures by reference to the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"), as in effect on the date of
original issuance of the Notes. The Notes are subject to all such terms, and
holders of the Notes are referred to the Indentures and the Trust Indenture
Act for a statement thereof. The following summary of certain provisions of
the Indentures does not purport to be complete and is qualified in its
entirety by reference to the Indentures, including the definitions therein of
certain terms used below.
GENERAL
Payment of, premium, if any, interest and Liquidated Damages on, the Notes
will be payable, and the Notes may be presented for registration of transfer
or exchange, at the respective offices of the Paying Agent and Registrar in
New York, New York (the "Paying Agent"). Holders of Notes must surrender their
Notes to the Paying Agent to collect principal payments, and the Company may
pay principal, interest and Liquidated Damages, if any, by check and may mail
interest checks to a holder's registered address; provided that all payments
with respect to Global Securities and Certificated Securities, the holders of
whom have given wire transfer instructions to the Company, will be required to
be made by wire transfer of immediately available funds to the accounts
specified by the holders thereof. The Paying Agent may require payment of a
sum sufficient to cover any transfer tax or similar governmental charge
payable in connection with certain transfers or exchanges. See "Transfer and
Exchange." Each Trustee will initially act as Paying Agent. The Company may
change the Paying Agent without prior notice to holders of Notes, and, under
certain circumstances, the Company or any of its subsidiaries may act as
Paying Agent under either or both Indentures.
The Company's operations are conducted exclusively through its subsidiaries.
As a consequence, JTP's ability to service its Indebtedness (including the
Notes) is dependent upon the Company's receipt of funds from its subsidiaries.
See "Risk Factors--Holding Company Structure; Dependence on Subsidiaries;
Limitations on Access to Cash Flow of the Subsidiaries."
TERMS OF THE NOTES
The Old Senior Notes and Old Discount Notes were and the New Senior Notes
and the New Discount Notes will be senior unsecured obligations of the
Company, will rank senior in right of payment to all Subordinated Indebtedness
of the Company, and will rank pari passu in right of payment with all Senior
Indebtedness of the Company. The Old Senior Notes and Old Discount Notes were
and the New Senior Notes and the New Discount Notes will effectively rank
junior to any Indebtedness of the Company's subsidiaries, including borrowings
under the New Credit Agreement. The Old Senior Notes were and the New Senior
Notes will be limited to $190,000,000 in aggregate principal amount. The
Senior Notes will bear interest at 9 7/8% per annum. Interest on each of the
Senior Notes is payable semi-annually in cash on February 1 and August 1 in
each year to holders of record of Senior Notes at the close of business on the
January 15 or July 15 next preceding the interest payment date. Interest will
initially accrue from the date of issuance and the first interest payment date
will be February 1, 1998. Interest will be computed on the basis of a 360-day
year of twelve 30-day months. The Senior Notes will mature on August 1, 2007
and will be issued in denominations of $1,000 and integral multiples thereof.
The Old Discount Notes were and the New Discount Notes will be limited to
$120,000,000 aggregate principal amount at maturity ($85,034,280 initial
Accreted Value that will fully accrete to face amount on August 1, 2000).
75
<PAGE>
The price to the public for the Discount Notes represents a yield to maturity
of 11 3/4%, computed on the basis of semiannual compounding. Although for U.S.
federal income tax purposes a significant amount of original issue discount,
taxable as ordinary income, will be recognized by a holder of Discount Notes
as such discount is amortized from the date of issuance of the Discount Notes,
no cash interest will be payable with respect to the Discount Notes prior to
August 1, 2000, except upon redemption or purchase of the Discount Notes by
the Company. Commencing August 1, 2000, interest will accrue on the Discount
Notes at the rate of 11 3/4% per annum, payable semi-annually in cash on
February 1, and August 1, in each year to holders of record of Discount Notes
at the close of business on the January 15 or July 15 next preceding the
interest payment date. Interest will be computed on the basis of a 360-day
year of twelve 30-day months. The Discount Notes will mature on August 1, 2007
and will be issued in denominations of $1,000 and integral multiples thereof.
REDEMPTION OF NOTES
Optional Redemption. The Senior Notes may not be redeemed at the option of
the Company prior to August 1, 2002 other than out of the net proceeds of one
or more Equity Offerings, as and to the extent described below. During the 12-
month period beginning August 1 of the years indicated below, the Senior Notes
will be redeemable, at the option of the Company, in whole or in part, on at
least 30 but not more than 60 days' notice to each holder of Senior Notes to
be redeemed, at the redemption prices (expressed as percentages of the
principal amount) set forth below, plus any accrued and unpaid interest and
Liquidated Damages, if any, to the redemption date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002........................................................... 104.9375%
2003........................................................... 102.4688%
2004 and thereafter............................................ 100.0000%
</TABLE>
Notwithstanding the foregoing, at any time on or prior to August 1, 2000,
the Company may (but shall not have the obligation to) redeem up to one-third
of the original aggregate principal amount of the Senior Notes, with the
proceeds of one or more Equity Offerings at a redemption price of 109.875% of
the principal amount of Senior Notes, plus any accrued and unpaid interest and
Liquidated Damages, if any, to the date of redemption; provided that at least
$126.7 million aggregate principal amount of the Senior Notes remain
outstanding immediately after any such redemption; and provided, further, that
any such redemption shall occur within 60 days of the date of the closing of
any such Equity Offering. The restrictions on optional redemptions contained
in the Senior Note Indenture do not limit the Company's right to separately
make open market, privately negotiated or other purchases of Senior Notes from
time to time.
The Discount Notes may not be redeemed at the option of the Company prior to
August 1, 2002, other than out of the net proceeds of one or more Equity
Offerings, as and to the extent described below. During the 12-month period
beginning August 1 of the years indicated below, the Discount Notes will be
redeemable at the option of the Company, in whole or in part, on at least 30
but not more than 60 days' notice to each holder of Discount Notes to be
redeemed, at the redemption prices (expressed as percentages of the Accreted
Value) set forth below, plus any accrued and unpaid interest and Liquidated
Damages, if any, from August 1, 2000 to the redemption date if such redemption
occurs after August 1, 2000:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002........................................................... 105.8750%
2003........................................................... 102.9375%
2004 and thereafter............................................ 100.0000%
</TABLE>
Notwithstanding the foregoing, at any time on or prior to August 1, 2000,
the Company may (but shall not have the obligation to) redeem up to one-third
of the original aggregate principal amount of the Discount Notes with the
proceeds of one or more Equity Offerings at a redemption price of 111.75% of
the Accreted Value of
76
<PAGE>
Discount Notes, plus any accrued and unpaid interest and Liquidated Damages,
if any, to the date of redemption, provided, that at least $80 million
aggregate principal amount of the Discount Notes remain outstanding
immediately after such redemption; and provided further, that any such
redemption shall occur within 60 days of the date of closing of any such
Equity Offering. The restrictions on optional redemptions contained in the
Discount Note Indenture do not limit the Company's right to separately make
open market, privately negotiated or other purchases of Discount Notes from
time to time.
Mandatory Redemption. Except as set forth below under "--Mandatory Offers to
Purchase Notes -- Change of Control" and "--Asset Sales," the Company is not
required to make any mandatory redemption, purchase or sinking fund payments
with respect to the Notes.
MANDATORY OFFERS TO PURCHASE NOTES
Change of Control. Upon the occurrence of a Change of Control, each holder
of Notes shall have the right to require the Company to purchase all or any
part (equal to $1,000 or an integral multiple thereof) of such holder's Notes
pursuant to an Offer (as defined herein) at a purchase price equal to 101% of
the aggregate principal amount of the Senior Notes, plus any accrued and
unpaid interest and Liquidated Damages, if any, to the date of purchase, and
101% of the Accreted Value of the Discount Notes at the date of purchase, plus
any accrued and unpaid interest and Liquidated Damages, if any, from August 1,
2000 to the date of purchase if such purchase occurs after August 1, 2000.
If there is a Change of Control, any Indebtedness outstanding under the New
Credit Agreement could be accelerated. Consequently, upon a Change of Control,
the Company expects to refinance the New Credit Agreement. Moreover, there can
be no assurance that sufficient funds will be available at the time of any
Change of Control to make any required repurchases of the Notes.
Except as described above, the Indentures do not contain provisions that
permit the holders of the Notes to require the Company to purchase or redeem
the Notes in the event of a takeover, recapitalization, spin-off, business
combination or similar restructuring or transaction, including any such
transaction involving the Company and its Affiliates.
Asset Sales. Each Indenture provides that the Company may not, and may not
permit any Restricted Subsidiary to, directly or indirectly, consummate an
Asset Sale (including the sale of any of the Capital Stock of any Restricted
Subsidiary) providing for Net Proceeds in excess of $2,500,000 unless at least
75% of the Net Proceeds from such Asset Sale are applied (in any manner
otherwise permitted by the Indenture) to one or more of the following purposes
in such combination as the Company shall elect: (a) an investment in another
asset or business in the same line of business as, or a line of business
similar to that of, the line of business of the Company and its Restricted
Subsidiaries at the time of the Asset Sale; provided, that such investment
occurs on or prior to the 365th day following the date of such Asset Sale (the
"Asset Sale Disposition Date"); (b) to reimburse the Company or its
Subsidiaries for expenditures made, and costs incurred, to repair, rebuild,
replace or restore property subject to loss, damage or taking, to the extent
that the Net Proceeds consist of insurance proceeds received on account of
such loss, damage or taking; (c) the purchase, redemption or other prepayment
or repayment of outstanding Senior Indebtedness of the Company or Indebtedness
of the Company's Restricted Subsidiaries on or prior to the 365th day
following the Asset Sale Disposition Date; or (d) an Offer expiring on or
prior to the Purchase Date (as defined herein). The Indentures also provide
that the Company may not, and may not permit any Restricted Subsidiary to,
directly or indirectly, consummate an Asset Sale unless 75% of the
consideration received therefor by the Company or such Restricted Subsidiary
is in the form of cash, cash equivalents or marketable securities; provided
that, solely for purposes of calculating such 75% of the consideration, the
amount of (x) any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet or in the notes thereto, excluding
contingent liabilities and trade payables), of the Company or any Restricted
Subsidiary (other than liabilities that are by their terms subordinated to the
Notes) that are assumed by the transferee of any such assets and (y) any notes
or other obligations received by the Company or any such Restricted Subsidiary
from such transferee that are promptly, but in no event more than 30 days
after
77
<PAGE>
receipt, converted by the Company or such Restricted Subsidiary into cash (to
the extent of the cash received), shall be deemed to be cash and cash
equivalents for purposes of this provision. Any Net Proceeds from any Asset
Sale that are not applied or invested as provided in clause (a), (b) or (c) of
this paragraph shall constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $10,000,000 under an
Indenture (such date being an "Asset Sale Trigger Date"), the Company shall
make an Offer to all holders of Notes issued pursuant to such Indenture to
purchase the maximum principal amount of Notes then outstanding under such
Indentures that may be purchased out of Excess Proceeds, at an offer price in
cash in an amount equal to, in the case of the Senior Notes, 100% of principal
amount thereof plus any accrued and unpaid interest and Liquidated Damages, if
any, to the Purchase Date, and in the case of the Discount Notes, 100% of
Accreted Value thereof, plus any accrued and unpaid Liquidated Damages, if
any, plus any accrued and unpaid interest from August 1, 2000 to the Purchase
Date if such purchase occurs after August 1, 2000 in accordance with the
procedures set forth in the Indentures. Notwithstanding the foregoing, to the
extent that any or all of the Net Proceeds of an Asset Sale are prohibited or
delayed by applicable local law from being repatriated to the United States,
the portion of such proceeds so affected will not be required to be applied as
described in this or the preceding paragraph, but may be retained for so long,
but only for so long, as the applicable local law prohibits repatriation to
the United States.
To the extent that any Excess Proceeds remain after completion of an Offer
for Notes, the Company may use such remaining amount for general corporate
purposes. If the aggregate principal amount of Notes surrendered by holders
thereof exceeds the amount of Excess Proceeds, the Trustee under the
applicable Indenture shall select the Notes to be purchased as described below
under "--Selection and Notice." Upon completion of an Asset Sale Offer, the
amount of Excess Proceeds shall be reset at zero.
Funding repurchases of Notes by the Company upon an Asset Sale will not be
permitted under the terms of the New Credit Agreement. Accordingly, the
Company would need to seek the consent of its lenders under the New Credit
Agreement in order to repurchase Notes with any Net Proceeds. See "Risk
Factors--Holding Company Structure; Dependence on Subsidiaries; Limitations on
Access to Cash Flow of the Subsidiaries."
Procedures for Offers. Within 30 days following any Change of Control or
Asset Sale Trigger Date, subject to the provisions of the Indentures, the
Company shall mail a notice to each holder of Notes at such holder's
registered address stating: (a) that an offer ("Offer") is being made pursuant
to a Change of Control or an Asset Sale, as the case may be, the length of
time the Offer shall remain open and the amount of the Change of Control Offer
or the Asset Sale Offer, as the case may be, and the maximum principal amount
of Notes that will be accepted for payment pursuant to such Offer; (b) the
purchase price, the amount of accrued and unpaid interest and Liquidated
Damages, if any, at the purchase date, and the purchase date (which shall be
no earlier than 30 days or later than 40 days from the date such notice is
mailed (the "Purchase Date")); and (c) such other information required by the
Indentures and applicable law and regulations.
On any Purchase Date, the Company will, to the extent lawful and required by
the applicable Indentures and such Offer, (1) in the case of an Offer
resulting from a Change of Control, accept for payment all Notes or portions
thereof tendered pursuant to such Offer, in the case of an Offer resulting
from an Asset Sale Trigger Date, accept for payment the maximum aggregate
principal amount of Notes or portions thereof tendered pursuant to such Offer
that can be purchased out of Excess Proceeds from such Asset Sale Trigger
Date; (2) deposit with the Paying Agent the aggregate purchase price of all
Notes or portions thereof accepted for payment and any accrued and unpaid
interest and Liquidated Damages, if any, on such Notes as of the Purchase
Date; and (3) deliver or cause to be delivered to the applicable Trustee the
Notes so accepted together with an officer's certificate stating the Notes or
portions thereof tendered to the Company. The Paying Agent shall promptly mail
to each holder of Notes so accepted payment in an amount equal to the purchase
price for such Notes and any accrued and unpaid interest and Liquidated
Damages, if any, on such Notes as of the Purchase Date, and the applicable
Trustee shall promptly authenticate and mail (or cause to be transferred by
book-entry) to such holder a new Note equal in principal amount to any
unpurchased portion of the Notes and any Note not accepted for
78
<PAGE>
payment in whole or in part shall be promptly returned to the holder, provided
that each such new Note shall be in a principal amount of $1,000 or integral
multiples thereof. The Company will publicly announce the results of the Offer
on or as soon as practicable after the Purchase Date.
The Company will comply with Rule 14e-1 under the Exchange Act and any other
securities laws and regulations to the extent such laws and regulations are
applicable to any Offer. To the extent that the provisions of any of the
securities laws or regulations conflict with provisions of the Indentures, the
Company shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under the Indentures by
virtue thereof.
Selection and Notice. In the event of a redemption or purchase of less than
all of the Notes, the Notes to be redeemed or purchased will be chosen by the
Trustee pro rata, by lot or any other method that the Trustee considers fair
and appropriate and, if the Notes are listed on any securities exchange, by a
method that complies with the requirements of such exchange, provided that, if
less than all of a holder's Note is to be redeemed or accepted for payment,
only principal amounts of $1,000 or multiples thereof may be selected for
redemption or accepted for payment. If the Company is not able to purchase all
of the Notes tendered pursuant to an Offer resulting from a Change of Control,
it will purchase Senior Notes and Discount Notes pro rata. On and after any
redemption or purchase date, interest and Liquidated Damages, if any, shall
cease to accrue on the Notes or portions thereof called for redemption or
accepted for payment. Notice of any redemption or offer to purchase will be
mailed at least 30 days but not more than 60 days before the redemption or
purchase date to each holder of Notes to be redeemed or purchased at such
holder's registered address.
RANKING
The Senior Notes and the Discount Notes will rank senior in right of payment
to all Indebtedness of the Company which, pursuant to its terms or the terms
of any agreement or instrument pursuant to which it is issued, is subordinated
in right of payment to any other Indebtedness of the Company, and will rank
pari passu in right of payment with all unsecured Indebtedness of the Company
which, pursuant to its terms or the terms of any agreement or instrument
pursuant to which it is issued, is not subordinated in right of payment to any
other Indebtedness of the Company. The Senior Notes and the Discount Notes
will be effectively subordinated to secured Indebtedness of the Company to the
extent of the assets securing such Indebtedness.
CERTAIN COVENANTS
The Indentures contain, among other things, the following covenants:
Limitation on Restricted Payments. Each Indenture provides that the Company
will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, (i) declare or pay any dividend or make any distribution on
account of the Company's or such Restricted Subsidiary's Capital Stock or
other Equity Interests (other than dividends or distributions payable in
Capital Stock or other Equity Interests (other than Disqualified Stock) of the
Company or a Restricted Subsidiary and other than dividends or distributions
payable by a Restricted Subsidiary to another Restricted Subsidiary or to the
Company); (ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company or any of its Restricted Subsidiaries (other
than any such Equity Interest purchased from the Company or any Restricted
Subsidiary for fair market value (as determined by the Board of Directors in
good faith)); (iii) voluntarily prepay Indebtedness that is subordinated to
the Notes issued under such Indentures, whether any such subordinated
indebtedness is outstanding on, or issued after, the date of original issuance
of the Notes, except as specifically permitted by the covenants of the
Indentures as described herein; or (iv) make any Restricted Investment (all
such dividends, distributions, purchases, redemptions, acquisitions,
retirements, prepayments and Restricted Investments being collectively
referred to as "Restricted Payments"), if, at the time of such Restricted
Payment:
(a) a Default or Event of Default shall have occurred and be continuing
or shall occur as a consequence thereof; or
79
<PAGE>
(b) immediately after such Restricted Payment and after giving effect
thereto on a Pro Forma Basis, the Company shall not be able to issue $1.00
of additional Indebtedness pursuant to the first sentence of the
"Limitation on Incurrence of Indebtedness" covenant; or
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made after the date of original issuance of the Notes,
without duplication, exceeds the sum of: (1) 50% of the aggregate
Consolidated Net Income (including, for this purpose, gains from Asset
Sales and, to the extent not included in Consolidated Net Income, any gain
from a sale or disposition of a Restricted Investment) of the Company (or,
in case such aggregate is a loss, 100% of such loss) for the period (taken
as one accounting period) from the beginning of the first fiscal quarter
commencing immediately after the date of original issuance of the Notes and
ended as of the Company's most recently ended fiscal quarter at the time of
such Restricted Payment, plus (2) 100% of the aggregate net cash proceeds
and the fair market value of any property or securities (as determined by
the Board of Directors in good faith) received by the Company from the
issue or sale of Capital Stock or other Equity Interests of the Company
subsequent to the date of original issuance of the Notes (other than (x)
Capital Stock or other Equity Interests issued or sold to a Restricted
Subsidiary and (y) the issuance or sale of Disqualified Stock), plus (3)
$5,000,000, plus (4) the amount by which the principal amount of and any
accrued interest on: (A) Indebtedness which is not subordinated in right of
payment to any other Indebtedness of the Company, or (B) any Indebtedness
of the Restricted Subsidiaries is reduced on the Company's consolidated
balance sheet upon the conversion or exchange subsequent to the date of
original issuance of the Notes of any such Indebtedness of the Company or
any Restricted Subsidiary (not held by the Company or any Restricted
Subsidiary) for Capital Stock or other Equity Interests (other than
Disqualified Stock) of the Company or any Restricted Subsidiaries (less the
amount of any cash, or the fair market value of any other property or
securities (as determined by the Board of Directors in good faith),
distributed by the Company or any Restricted Subsidiary (to persons other
than the Company or any other Restricted Subsidiary) upon such conversion
or exchange), plus (5) if any Non-Restricted Subsidiary is redesignated as
a Restricted Subsidiary, the value of the deemed Restricted Payment
resulting therefrom and determined in accordance with the second sentence
of the "Designation of Restricted and Non-Restricted Subsidiaries"
covenant; provided, however, that for purposes of this clause (5), the
value of any redesignated Non-Restricted Subsidiary shall be reduced by the
amount that any such redesignation replenishes or increases the amount of
Restricted Investments permitted to be made pursuant to clause (ii) of the
next sentence.
Notwithstanding the foregoing, each of the Indentures shall not prohibit as
Restricted Payments:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would
comply with all covenants of such Indenture (including, but not limited to,
the "Limitation on Restricted Payment" covenant);
(ii) making Restricted Investments at any time, and from time to time, in
an aggregate outstanding amount of $40,000,000 after the date of original
issuance of the Notes (it being understood that if any Restricted
Investment made after the date of original issuance of the Notes pursuant
to this clause (ii) is sold, transferred or otherwise conveyed to any
person other than the Company or a Restricted Subsidiary, the portion of
the net cash proceeds or fair market value of securities or properties paid
or transferred to the Company and its Restricted Subsidiaries in connection
with such sale, transfer or conveyance that relates or corresponds to the
repayment or return of the original cost of such a Restricted Investment
will replenish or increase the amount of Restricted Investments permitted
to be made pursuant to this clause (ii), so that up to $40,000,000 of
Restricted Investments may be outstanding under this clause (ii) at any
given time; provided that without otherwise limiting this clause (ii), any
Restricted Investment in a Subsidiary made pursuant to this clause (ii) is
made for fair market value (as determined by the Board of Directors in good
faith);
(iii) the repurchase, redemption or acquisition of the Company's stock
from the executives, management and employees or consultants of the Company
or its Subsidiaries pursuant to the terms of any subscription, stockholder
or other agreement or plan, up to an aggregate amount not to exceed
$5,000,000;
80
<PAGE>
(iv) any loans, advances, distributions or payments from the Company to
its Restricted Subsidiaries, or any loans, advances, distributions or
payments by a Restricted Subsidiary to the Company or to another Restricted
Subsidiary, pursuant to intercompany Indebtedness, intercompany management
agreements, intercompany tax sharing agreements, and other intercompany
agreements and obligations;
(v) the purchase, redemption, retirement or other acquisition of (a) any
Indebtedness which is not subordinated in right of payment to any other
Indebtedness of the Company, and any Indebtedness of a Restricted
Subsidiary required by its terms to be purchased, redeemed, retired or
acquired with the net proceeds from asset sales (as defined in the
instrument evidencing such Indebtedness) or upon a change of control (as
defined in the instrument evidencing such Indebtedness) and (b) the Notes
pursuant to "Change of Control," or "Asset Sales" or "Optional Redemption"
provisions of the Indentures;
(vi) dividends and redemptions in respect of the Dura-Line Preferred
Stock pursuant to the Dura-Line Agreement;
(vii) to the extent constituting Restricted Payments, payments under the
Tax Sharing Agreement, New Subsidiary Consulting Agreement, Transition
Agreement and the JI Properties Services Agreement;
(viii) to the extent constituting Restricted Payments, payments under the
New Subsidiary Advisory Agreement, provided that such payments will not be
made and shall be accrued so long as any Default or Event of Default shall
have occurred and be continuing or shall occur as a consequence thereof,
and the Company's Obligations to pay such fees under the New Subsidiary
Advisory Agreement shall be subordinated expressly to the Company's
Obligations in respect of the Notes, and (b) indemnities, expenses and
other amounts under the New Subsidiary Advisory Agreement;
(ix) the redemption, repurchase, retirement or the acquisition of any
Capital Stock or other Equity Interests of the Company or any Restricted
Subsidiary in exchange for, or out of the proceeds of, the substantially
concurrent sale (other than to a Subsidiary of the Company) of other
Capital Stock or other Equity Interests of the Company or any Restricted
Subsidiary (other than any Disqualified Stock); provided that any net cash
proceeds that are utilized for any such redemption, repurchase, retirement
or other acquisition, and any Net Income resulting therefrom, shall be
excluded from clauses (c)(1) and (c)(2) of the preceding paragraph;
(x) the defeasance, redemption or repurchase of Indebtedness with the net
cash proceeds from an issuance of permitted Refinancing Indebtedness or the
substantially concurrent sale (other than to a Subsidiary of the Company)
of Capital Stock or other Equity Interests of the Company or of a
Restricted Subsidiary (other than Disqualified Stock); provided that any
net cash proceeds that are utilized for any such defeasance, redemption or
repurchase, and any Net Income resulting therefrom, shall be excluded from
clauses (c)(1) and (c)(2) of the preceding paragraph;
(xi) payment of fees, expenses and indemnities in respect of the
Company's and its Subsidiaries' directors and such payments to Parent (and
its parent companies) in respect of their directors, provided the aggregate
amount of such fees payable to all such directors does not exceed $250,000
in any fiscal year;
(xii) Restricted Investments received in consideration for the sale,
transfer or disposition by the Company or any Restricted Subsidiary of any
business, properties or assets belonging thereto, provided, that the
Company complies with the "Asset Sale" provisions of the Indentures;
(xiii) any Restricted Investment constituting securities or instruments
of a person issued in exchange for trade or other claims against such
person in connection with a financial reorganization or restructuring of
such person;
(xiv) to the extent constituting Restricted Payments, payments and
transactions in connection with the Old Offerings or the Company Formation
as described in this Prospectus; or
(xv) any Restricted Investment constituting an equity investment in a
Receivables Subsidiary; provided, that the aggregate amount of such equity
investments do not exceed $1,000,000.
Limitation on Incurrence of Indebtedness. The Indentures provide that the
Company will not, and will not permit any Restricted Subsidiary to, issue any
Indebtedness (other than the Indebtedness represented by the
81
<PAGE>
Notes) unless the Company's Cash Flow Coverage Ratio for its four full fiscal
quarters next preceding the date such additional Indebtedness is issued would
have been at least 2.0 to 1 determined on a Pro Forma Basis.
The foregoing limitations will not apply to the issuance of:
(i) Indebtedness of the Company and/or its Restricted Subsidiaries as
measured on such date of issuance in an aggregate principal amount
outstanding on any such date of issuance not exceeding up to the greater of
(a) $110.0 million aggregate principal amount pursuant to the New Credit
Agreement and (b) an aggregate principal amount up to the sum of: (A) 85%
of the book value of the Company's and its Restricted Subsidiaries'
Receivables on a consolidated basis, and (B) 65% of the book value of the
Company's and its Restricted Subsidiaries' inventories on a consolidated
basis;
(ii) Indebtedness of the Company and its Restricted Subsidiaries pursuant
to any Receivables Financing;
(iii) Indebtedness of the Company and its Restricted Subsidiaries in
connection with leases, sale and leaseback transactions, purchase money
obligations, capital expenditures or similar financing transactions
relating to: (A) their properties, assets and rights as of the date of
original issuance of the Notes up to $20,000,000 in aggregate principal
amount, or (B) their properties, assets and rights acquired after the date
of original issuance of the Notes; provided that the aggregate principal
amount of such Indebtedness under this clause (iii)(B) does not exceed 100%
of the cost of such properties, assets and rights;
(iv) additional Indebtedness of the Company and its Restricted
Subsidiaries in an aggregate principal amount up to $25,000,000 (all or any
portion of which may be issued as additional Indebtedness under the New
Credit Agreement); and
(v) Other Permitted Indebtedness.
Limitation on Liens. The Indentures provide that the Company shall not, and
shall not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume or suffer to exist any Lien (other than
Permitted Liens) upon any property or asset now owned or hereafter acquired by
them, or any income or profits therefrom or assign or convey any right to
receive income therefrom; provided, however, that in addition to creating
Permitted Liens on its properties or assets, the Company and any of its
Restricted Subsidiaries may create any Lien upon any of their properties or
assets (including, but not limited to, any Capital Stock of its Subsidiaries)
if the Notes are equally and ratably secured.
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Indentures provide that the Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, create
or otherwise cause or suffer to exist or become effective, any encumbrance or
restriction on the ability of any Restricted Subsidiary to: (a) pay dividends
or make any other distributions on its Capital Stock or any other interest or
participation in, or measured by, its profits, owned by the Company or any
Restricted Subsidiary, or pay any Indebtedness owed to, the Company or any
Restricted Subsidiary; (b) make loans or advances to the Company; or (c)
transfer any of its properties or assets to the Company, except for such
encumbrances or restrictions existing under or by reason of:
(i) applicable law;
(ii) Indebtedness permitted (A) under the first sentence of the
"Limitation on Incurrence of Indebtedness" covenant, (B) under clauses (i),
(ii) and (iv) of the second paragraph of the "Limitation on Incurrence of
Indebtedness" covenant and clauses (i), (v), (vi), (vii), (ix), (x), (xi),
(xii) and (xiv) of the definition of Other Permitted Indebtedness, or (C)
Restricted Payments and agreements or instruments evidencing the Restricted
Payments permitted under the "Limitation on Restricted Payments" covenant;
(iii) customary provisions restricting subletting or assignment of any
lease or license of the Company or any Restricted Subsidiary;
(iv) customary provisions of any franchise, distribution or similar
agreement;
82
<PAGE>
(v) any instrument governing Indebtedness or any other encumbrance or
restriction of a person acquired by the Company or any Restricted
Subsidiary at the time of such acquisition, which encumbrance or
restriction is not applicable to any person, or the properties or assets of
any person, other than the person, or the property or assets of the person,
so acquired;
(vi) Indebtedness or other agreements existing on the date of original
issuance of the Notes;
(vii) any Refinancing Indebtedness of Indebtedness described in clauses
(i), (ii), (iii) and (iv) of the second paragraph of the "Limitation on
Incurrence of Indebtedness" covenant; and clauses (i), (v), (vi), (vii),
(ix), (x), (xi), (xii) and (xiv) of the definition of Other Permitted
Indebtedness; provided, that the encumbrances and restrictions created in
connection with such Refinancing Indebtedness are no more restrictive in
any material respect with regard to the interests of the holders of Notes
than the encumbrances and restrictions in the refinanced Indebtedness;
(viii) any restrictions, with respect to a Restricted Subsidiary, imposed
pursuant to an agreement that has been entered into for the sale or
disposition of the stock, business, assets or properties of such Restricted
Subsidiary;
(ix) the terms of any Indebtedness of the Company incurred in connection
with the "Limitation on Incurrence of Indebtedness" covenant; provided that
the terms of such Indebtedness constitute no greater encumbrance or
restriction on the ability of any Restricted Subsidiary to pay dividends or
make distributions, make loans or advances or transfer properties or assets
than is otherwise permitted by this covenant; and
(x) the terms of purchase money obligations, but only to the extent such
purchase money obligations restrict or prohibit the transfer of the
property so acquired.
Nothing contained in this covenant shall prevent the Company from entering
into any agreement or instrument providing for the incurrence of Permitted
Liens or restricting the sale or other disposition of property or assets of
the Company or any of its Restricted Subsidiaries that are subject to
Permitted Liens.
Limitation on Transactions With Affiliates. Each Indenture provides, except
as otherwise set forth in such Indenture, that neither the Company nor any of
its Restricted Subsidiaries may make any loan, advance, guarantee or capital
contribution to, or for the benefit of, or sell, lease, transfer or dispose of
any properties or assets to, or for the benefit of, or purchase or lease any
property or assets from, or enter into any or amend any contract, agreement or
understanding with, or for the benefit of, an Affiliate (each such transaction
or series of related transactions that are part of a common plan are referred
to as an "Affiliate Transaction"), except in good faith and on terms that are
no less favorable to the Company or the relevant Restricted Subsidiary than
those that would have been obtained in a comparable transaction on an arm's
length basis from an unrelated person.
Each Indenture further provides that the Company will not, and will not
permit any Restricted Subsidiary to, engage in any Affiliate Transactions
involving aggregate payments or other transfers by the Company and its
Restricted Subsidiaries in excess of $5,000,000 (including cash and non-cash
payments and benefits valued at their fair market value by the Board of
Directors in good faith) unless the Company delivers to the Trustee:
(i) a resolution of the Board of Directors stating that the Board of
Directors (including a majority of the disinterested directors, if any),
has, in good faith, determined that such Affiliate Transaction complies
with the provisions of the Indentures; and
(ii) (A) with respect to any Affiliate Transaction involving the
incurrence of Indebtedness, a written opinion of a nationally recognized
investment banking or accounting firm, experienced in the review of similar
types of transactions, (B) with respect to any Affiliate Transaction
involving the transfer of real property, fixed assets or equipment, either
directly or by a transfer of 50% or more of the Capital Stock of a
Restricted Subsidiary which holds any such real property, fixed assets or
equipment, a written appraisal from a nationally recognized appraiser,
experienced in the review of similar types of transactions or (C) with
respect to any Affiliate Transaction not otherwise described in (A) and (B)
above, or in lieu of the opinions and appraisals referred to in (A) and (B)
above, a written certification from a nationally recognized
83
<PAGE>
professional or firm experienced in evaluating similar types of
transactions, in each case, stating that the terms of such transaction are
fair to the Company or such Restricted Subsidiary, as the case may be, and
the holders of the Notes from a financial point of view.
Notwithstanding the foregoing, this Affiliate Transactions covenant will not
apply to:
(i) transactions between the Company and any Restricted Subsidiary or
between Restricted Subsidiaries;
(ii) payments under the New Subsidiary Advisory Agreement, the New
Subsidiary Consulting Agreement, the Transition Agreement, the JI
Properties Services Agreement and the Tax Sharing Agreement, provided, that
any amendments, supplements, modifications, substitutions, renewals or
replacements of the foregoing agreements are approved by a majority of the
Board of Directors (including a majority of the disinterested directors, if
any) as fair to the Company and the holders of the Notes;
(iii) any Restricted Payments permitted pursuant to the "Limitation on
Restricted Payments" covenant;
(iv) reasonable compensation paid to officers, employees or consultants
of the Company or any Subsidiary as determined in good faith by the
Company's Board of Directors or executives;
(v) transactions in connection with a Receivables Financing; or
(vi) payments and transactions in connection with the Old Offerings and
the Company Formation as described in this Prospectus.
Limitation on Guarantees of Company Indebtedness by Restricted Subsidiaries.
The Company will not permit any Restricted Subsidiary, directly or indirectly,
to guarantee any Indebtedness of the Company other than the Notes (the "Other
Company Indebtedness"), unless (A) such Restricted Subsidiary
contemporaneously executes and delivers a supplemental indenture to each
Indenture providing for a guarantee of payment of the Notes then outstanding
under such Indenture by such Restricted Subsidiary to the same extent as the
guarantee (the "Other Company Indebtedness Guarantee") of the Other Company
Indebtedness (including waiver of subrogation, if any) and (B) if the Other
Company Indebtedness guaranteed by such Restricted Subsidiary is (i) Senior
Indebtedness, the guarantee for the Notes shall be pari passu in right of
payment with the Other Company Indebtedness Guarantee; and (ii) Subordinated
Indebtedness, the guarantee of the Notes shall be senior in right of payment
to the Other Company Indebtedness Guarantee; provided that the foregoing will
not limit or restrict guarantees issued by Restricted Subsidiaries in respect
of Indebtedness of other Restricted Subsidiaries.
Each guarantee of the Senior Notes and the Discount Notes created by a
Restricted Subsidiary pursuant to the provisions described in the foregoing
paragraph shall be in form and substance satisfactory to the Trustees and
shall provide, among other things, that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or
transfer permitted by the Indentures of (a) all of the Company's Capital Stock
in such Restricted Subsidiary, or (b) the sale of all or substantially all of
the assets of the Restricted Subsidiary and upon the application of the Net
Proceeds from such sale in accordance with the requirements of the "Asset
Sales" provisions described herein; or (ii) the release or discharge of the
Other Company Indebtedness Guarantee that resulted in the creation of such
guarantee of the Notes, except a discharge or release by or as a result of
payment under such Other Company Indebtedness Guarantee.
Designation of Restricted and Non-Restricted Subsidiaries. The Indentures
provide that, subject to the exceptions described below, from and after the
date of original issuance of the Notes, the Company may designate any existing
or newly formed or acquired Subsidiary as a Non-Restricted Subsidiary;
provided that (i) either (A) the Subsidiary to be so designated has total
assets of $1,000,000 or less or (B) immediately before and after giving effect
to such designation on a Pro Forma Basis, (1) the Company could incur $1.00 of
additional Indebtedness pursuant to the first sentence of the "Limitation on
Incurrence of Indebtedness" covenant determined on a Pro Forma Basis; and (2)
no Default or Event of Default shall have occurred and be continuing, or shall
occur as a consequence thereof, and (ii) all transactions between the
Subsidiary to be so designated and its Affiliates remaining in effect are
permitted pursuant to the "Limitation on Transactions with Affiliates"
84
<PAGE>
covenant. Any investment made by the Company or any Restricted Subsidiary in a
Subsidiary which is redesignated from a Restricted Subsidiary to a Non-
Restricted Subsidiary shall be considered as having been a Restricted Payment
(to the extent not previously included as a Restricted Payment) made on the
day such Subsidiary is designated as a Non-Restricted Subsidiary in the amount
of the greater of (i) the fair market value (as determined by the Board of
Directors of the Company in good faith) of the Equity Interests of such
Subsidiary held by the Company and its Restricted Subsidiaries on such date;
and (ii) the amount of the Investments determined in accordance with GAAP made
by the Company and any of its Restricted Subsidiaries in such Subsidiary.
A Non-Restricted Subsidiary may be redesignated as a Restricted Subsidiary.
The Company may not, and may not permit any Restricted Subsidiary to, take any
action or enter into any transaction or series of transactions that would
result in a Person becoming a Restricted Subsidiary (whether through an
acquisition, the redesignation of a Non-Restricted Subsidiary or otherwise,
but not including through the creation of a new Restricted Subsidiary) unless,
immediately before and after giving effect to such action, transaction or
series of transactions on a Pro Forma Basis, (a) the Company could incur at
least $1.00 of additional Indebtedness pursuant to the first sentence of
"Limitation on Incurrence of Indebtedness" and (b) no Default or Event of
Default shall have occurred and be continuing or shall occur as a consequence
thereof.
The designation of a Subsidiary as a Restricted Subsidiary or the removal of
such designation is required to be made by a resolution adopted by a majority
of the Board of Directors of the Company stating that the Board of Directors
has made such designation in accordance with the Senior Note Indenture, and
the Company is required to deliver to the Senior Note Trustee such resolution
together with an Officers' Certificate certifying that the designation
complies with the Senior Note Indenture. Such designation will be effective as
of the date specified in the applicable resolution, which may not be before
the date the applicable Officers' Certificate is delivered to the Senior Note
Trustee.
The sale and transfer of a foreign Restricted Subsidiary to a Non-Restricted
Subsidiary and the subsequent redesignation of such foreign Restricted
Subsidiary as a Non-Restricted Subsidiary as contemplated by the definition of
"Restricted Subsidiary" will not be considered a redesignation of a Restricted
Subsidiary for purposes of this covenant.
MERGER OR CONSOLIDATION
Each Indenture provides that the Company shall not consolidate or merge with
or into, or sell, lease, convey or otherwise dispose of all or substantially
all of its assets to, any Person (any such consolidation, merger or sale being
a "Disposition") unless: (a) the successor corporation of such Disposition or
the person to which such Disposition shall have been made is a corporation
organized or existing under the laws of the United States, any state thereof
or the District of Columbia; (b) the successor corporation of such Disposition
or the corporation to which such Disposition shall have been made expressly
assumes the Obligations of the Company, pursuant to a supplemental indenture
in a form reasonably satisfactory to the Trustees, under such Indenture and
the related Notes; (c) immediately after such Disposition, no Default or Event
of Default shall exist; and (d) the corporation formed by or surviving any
such Disposition, or the corporation to which such Disposition shall have been
made, shall (i) have Consolidated Net Worth (immediately after the Disposition
but prior to giving effect on a Pro Forma Basis to any purchase accounting
adjustments or Restructuring Charges resulting from the Disposition) equal to
or greater than the Consolidated Net Worth of the Company immediately
preceding the Disposition, (ii) be permitted immediately after the Dispostion
by the terms of such Indenture to issue at least $1.00 of additional
Indebtedness determined on a Pro Forma Basis pursuant to the first sentence
under "Limitation on Incurrence of Indebtedness," and (iii) have a Cash Flow
Coverage Ratio, for the four fiscal quarters immediately preceding the
applicable Disposition, determined on a Pro Forma Basis, equal to or greater
than the actual Cash Flow Coverage Ratio of the Company for such four quarter
period. The limitations in each Indenture on the Company's ability to make a
Disposition described in this paragraph do not restrict the Company's ability
to sell less than all or substantially all of its assets, such sales being
governed by the "Asset Sales" provisions of each Indenture as described
herein.
85
<PAGE>
Prior to the consummation of any proposed Disposition, the Company shall
deliver to the Trustees an officers' certificate to the foregoing effect and
an opinion of counsel stating that the proposed Disposition and such
supplemental indenture comply with the Indentures.
PROVISION OF FINANCIAL INFORMATION TO HOLDERS OF NOTES
So long as the Notes are outstanding, whether or not the Company is subject
to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the
Company shall submit for filing with the Commission the annual reports,
quarterly reports and other documents that the Company would have been
required to file with the Commission pursuant to Section 13 or 15(d) if the
Company were subject to such reporting requirements. The Company will also
provide to all holders of Notes and file with the Trustees copies of such
annual reports, quarterly reports and other documents required to be furnished
to stockholders generally under the Exchange Act. In addition, the Company has
agreed that, for so long as any Notes remain outstanding, they will furnish to
the holders and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
Each Indenture will provide that an Event of Default is: (a) a default for
30 days in payment of interest on, or Liquidated Damages, if any, with respect
to the applicable Notes; (b) a default in payment when due at maturity, upon
redemption or otherwise, of principal or premium, if any, with respect to the
applicable Notes; (c) the failure of the Company to comply with any of its
other agreements or covenants in, or provisions of, such Indenture or the
Notes outstanding under such Indenture and the Default continues for the
period, if applicable, and after the notice specified in the next paragraph;
(d) a default by the Company or any Restricted Subsidiary under any mortgage,
indenture or instrument under which there may be issued or by which there may
be secured or evidenced any Indebtedness for money borrowed by the Company or
any Restricted Subsidiary (or the payment of which is guaranteed by the
Company or any Restricted Subsidiary), whether such Indebtedness or guarantee
now exists or shall be created hereafter, if (1) either (A) such default
results from the failure to pay principal of or interest on any such
Indebtedness at the Stated Maturity thereof or upon such Indebtedness becoming
due upon the redemption thereof or otherwise and such default continues for 30
days beyond any applicable grace period, or (B) as a result of such default
the maturity of such Indebtedness has been accelerated prior to its expressed
maturity, and (2) the principal amount of such Indebtedness, together with the
principal amount of any other such Indebtedness in default for failure to pay
principal or interest thereon, at final maturity, or, because of the
acceleration of the maturity thereof, aggregates in excess of $10,000,000; (e)
a failure by the Company or any Restricted Subsidiary to pay final judgments
(not covered by insurance) aggregating in excess of $10,000,000 which
judgments a court of competent jurisdiction does not rescind, annul or stay
within 45 days after their entry and the Default continues for the period and
after the notice specified in the next paragraph; and (f) certain events of
bankruptcy or insolvency involving the Company or any Significant Subsidiary.
In the case of any Event of Default pursuant to clause (a) or (b) above
occurring by reason of any willful action (or inactions) taken (or not taken)
by or on behalf of the Company with the intention of avoiding payment of the
premium that the Company would have to pay pursuant to a redemption of Senior
Notes as described under "--Redemption of Notes--Optional Redemption," an
equivalent premium shall also become and be immediately, due and payable to
the extent permitted by law.
A Default under clause (c) (other than an Event of Default arising under the
"Merger or Consolidation," covenant which shall be an Event of Default with
the notice but without the passage of time specified in this paragraph) or
clause (e) is not an Event of Default under either Indenture until the Trustee
for such Indenture or the holders of at least 25% in principal amount of the
Notes then outstanding under such Indenture notifies the Company of the
Default and the Company does not cure the Default within 45 days after receipt
of the notice. A Default or Event of Default under clause (f) of the preceding
paragraph will result in the Notes automatically becoming due and payable
without further action or notice.
86
<PAGE>
Upon the occurrence of an Event of Default (other than one specified in
clause (f) of the preceding paragraph), the Senior Note Trustee or the holders
of at least 25% in principal amount of the then outstanding Senior Notes may
declare all Senior Notes to be due and payable immediately and, upon such
declaration, the principal of, premium and Liquidated Damages, if any, and any
accrued and unpaid interest on, all Senior Notes shall be due and payable
immediately. Upon the occurrence of an Event of Default, the Discount Note
Trustee or the holders of at least 25% in principal amount of the Discount
Notes then outstanding may declare all Discount Notes to be due and payable
immediately and, upon such declaration, the Accreted Value of the Discount
Notes, plus any accrued and unpaid interest from August 1, 2000 to the date of
any such declaration if such declaration occurs after August 1, 2000 shall be
due and payable immediately. In the event of an Event of Default arising from
certain events of bankruptcy or insolvency (as specified in clause (f) of the
preceding paragraph), the principal of, and any accrued and unpaid interest
on, all Senior Notes and the Accreted Value of all Discount Notes, plus any
accrued and unpaid interest from August 1, 2000 to the date of any such event
if such event occurs after August 1, 2000, shall ipso facto become and be
immediately due and payable without any declaration or other act on the part
of the Trustees or any holders of Notes. The holders of a majority in
principal amount of the Notes then outstanding under an Indenture, by notice
to the Trustee for such Indenture, may rescind any declaration of acceleration
of such Notes and its consequences (if the rescission would not conflict with
any judgment or decree) if all existing Events of Default (other than the
nonpayment of principal of or interest on such Notes that shall have become
due by such declaration) shall have been cured or waived. In the event of a
declaration of acceleration of the Discount Notes because of an Event of
Default specified in clause (d) in the first paragraph of "Events of Default
and Remedies" has occurred and is continuing, such declaration of acceleration
shall be automatically annulled if the holders of the Indebtedness described
in such clause (d) have rescinded the declaration of acceleration in respect
of such Indebtedness within 30 business days thereof and if (i) the annulment
of such acceleration would not conflict with any judgment or decree of a court
of competent jurisdiction; (ii) all existing Events of Default, except non-
payment of principal or interest that shall have become due solely because of
the acceleration, have been cured or waived; and (iii) the Company has
delivered an Officers' Certificate to the Discount Note Trustee to the effect
of clauses (i) and (ii). Subject to certain limitations, holders of a majority
in principal amount of the Notes then outstanding under an Indenture may
direct the Trustee for such Indenture in its exercise of any trust or power.
Holders of the Notes may not enforce the Indentures, except as provided
therein. A Trustee may withhold from holders of Notes notice of any continuing
Default or Event of Default (except a Default or an Event of Default in
payment of principal, premium, if any, or interest) if the Trustee determines
that withholding notice is in their interest.
The holders of a majority in aggregate principal amount of the Notes then
outstanding under an Indenture may on behalf of all holders of such Notes
waive any existing Default or Event of Default under such Indenture and its
consequences, except a continuing Default in the payment of the principal of,
or premium, if any, or interest on, such Notes, which may only be waived with
the consent of each holder of the Notes affected.
The Company is required to deliver to the Trustees annually a statement
regarding compliance with the Indentures and, upon an officer of the Company
becoming aware of any Default or Event of Default, a statement specifying such
Default or Event of Default.
NO PERSONAL LIABILITY OF OFFICERS, DIRECTORS, EMPLOYEES AND STOCKHOLDERS
No officer, employee, director or stockholder of the Company shall have any
liability for any Obligations of the Company under the Notes or the
Indentures, or for any claim based on, in respect of, or by reason of, such
Obligations or the creation of any such Obligation, except, in the case of a
Subsidiary, for an express guarantee or an express creation of any Lien by
such Subsidiary of the Company's Obligations under the Notes issued in
accordance with the Indentures. Each holder of the Notes by accepting a Note
waives and releases all such liability, and such waiver and release are part
of the consideration for issuance of the Notes. The foregoing waiver may not
be effective to waive liabilities under the Federal securities laws, and the
Commission is of the view that such a waiver is against public policy.
87
<PAGE>
SATISFACTION AND DISCHARGE OF THE INDENTURES
The Company at any time may terminate all its obligations under the Notes
and the Indentures ("legal defeasance"), except for certain obligations
(including those with respect to the defeasance trust (as defined herein) and
obligations to register the transfer or exchange of the Notes, to replace
mutilated, destroyed, lost or stolen Notes and to maintain a registrar and
paying agent in respect of the Notes). The Company at any time may terminate
(1) its obligations under the "Change of Control" and "Asset Sales" provisions
described herein and the covenants described under "Certain Covenants," and
certain other covenants in the Indentures, (2) the operation of clauses (c),
(d), (e) and (f) contained in the first paragraph of the "Events of Default
and Remedies" provisions described herein and (3) the limitations contained in
clauses (c) and (d) under the "Merger or Consolidation" provisions described
herein (collectively, a "covenant defeasance option").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because
of an Event of Default with respect thereto. If the Company exercises its
covenant defeasance option, payment of the Notes shall not be accelerated
because of an Event of Default specified in clauses (c), (d), (e) or (f) in
the first paragraph under the "Events of Default and Remedies" provisions
described herein or because of the Company's failure to comply with clauses
(c) and (d) under the "Merger or Consolidation" provisions described herein.
To exercise either defeasance option with respect to the Notes outstanding
under an Indenture, the Company must irrevocably deposit in trust (the
"defeasance trust") with the Trustee for such Indenture money or U.S.
government obligations for the payment of principal of, and premium, interest
and Liquidated Damages, if any, on, such Notes to redemption or maturity, as
the case may be, and must comply with certain other conditions, including the
passage of 91 days and delivering to such Trustee an opinion of counsel to the
effect that holders of such Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such deposit and defeasance and
will be subject to federal income tax on the same amount and in the same
manner and at the same times as would have been in the case if such deposit
and defeasance had not occurred (and, in the case of legal defeasance only,
such opinion of counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable federal income tax law).
TRANSFER AND EXCHANGE
Holders of Notes may transfer or exchange their Notes in accordance with the
Indentures, but the Paying Agent may require a holder, among other things, to
furnish appropriate endorsements and transfer documents, and to pay any taxes
and fees required by law or permitted by the Indentures, in connection with
any such transfer or exchange. Neither the Company nor the Paying Agent is
required to issue, register the transfer of, or exchange (i) any Notes
selected for redemption or purchase, or (ii) any Notes for a period of 15 days
before a selection of such Notes to be redeemed or purchased or between a
record date and the next succeeding interest payment date.
The registered holder of a Note will be treated as its owner for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Subject to certain exceptions, each Indenture may be amended or supplemented
with the consent of the holders of at least a majority in principal amount of
the Notes then outstanding under such Indenture, and any existing Default or
Event of Default (other than a payment default) or compliance with any
provision may be waived with the consent of the holders of a majority in
principal amount of the Notes then outstanding under such Indenture. Without
the consent of any holder of Notes, the Company and the Trustees may amend or
supplement the Indentures or the Notes to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Notes in addition to or in place
of certificated Notes, to provide for the assumption of the Company's
obligations in the case of a Disposition, to comply with the Trust Indenture
Act, or to make any change that does not materially adversely affect the
rights of any holder of Notes.
88
<PAGE>
Without the consent of each holder of Notes affected, the Company may not
(i) reduce the principal amount of Notes whose consent is necessary to effect
an amendment to an Indenture or waiver under an Indenture; (ii) reduce the
rate of or change the interest payment time of such Notes, or alter the
redemption provisions with respect thereto (other than the provisions relating
to the covenants described above under the caption "--Mandatory Offers to
Purchase Notes--Change of Control" and "--Asset Sales") or the price at which
the Company is required to offer to purchase such Notes; (iii) reduce the
principal of or change the fixed maturity of such Notes; (iv) make such Notes
payable in money other than stated in such Notes; (v) make any change in the
provisions concerning waiver of Defaults or Events of Default by holders of
such Notes, or rights of holders of such Notes to receive payment of principal
or interest; or (vi) waive any default in the payment of principal of, or
premium, if any, or interest on, such Notes.
CONCERNING THE TRUSTEES
Each Indenture will contain certain limitations on the rights of the
applicable Trustee, if it becomes a creditor of the Company, to obtain payment
of claims in certain cases, or to realize on certain property received in
respect of any such claim as security or otherwise. Each Trustee will be
permitted to engage in other transactions; however, if it acquires any
conflicting interest (as defined in the Trust Indenture Act) it must eliminate
such conflict or resign.
The holders of a majority in principal amount of the Notes then outstanding
under an Indenture will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee
for that Indenture, subject to certain exceptions. Each Indenture provides
that if an Event of Default occurs (and has not been cured), the applicable
Trustee will be required, in the exercise of its power, to use the degree of
care of a prudent person in similar circumstances in the conduct of its own
affairs. Subject to the provisions of each Indenture, the applicable Trustee
will be under no obligation to exercise any of its rights or powers under its
Indenture at the request of any of the holders of the Notes issued under such
Indenture, unless such holders shall have offered to the Trustee security and
indemnity satisfactory to it.
CERTAIN DEFINITIONS
Set forth below are certain of the defined terms used in the Indentures.
Reference is made to the Indentures for the definition of all other terms.
"Accreted Value" means with respect to any Discount Note (i) as of any date
prior to August 1, 2000, the sum of (a) the initial offering price of the
Discount Notes, and (b) the portion of the original issue discount on such
Discount Note (which for this purpose shall be deemed to be the excess of the
principal amount over the initial offering price) that has been amortized with
respect to such Discount Note through such date, such original issue discount
to be amortized at the rate of 11 3/4% per annum (such percentage being
expressed as a percentage of the sum of the initial offering price plus
previously amortized original issue discount) using semi-annual compounding of
such rate on each August 1 and February 1, commencing from the date of
original issuance of the Discount Notes through such date, and (ii) on and
after August 1, 2000 the principal amount of such Discount Note.
"Affiliate" means any of the following: (i) any person directly or
indirectly controlling or controlled by or under direct or indirect common
control with the Company; (ii) any spouse, immediate family member or other
relative who has the same principal residence as any person described in
clause (i) above; (iii) any trust in which any such persons described in
clause (i) or (ii) above has a beneficial interest; and (iv) any corporation
or other organization of which any such persons described above collectively
own 50% or more of the equity of such entity.
"Asset Sale" means the sale, lease, conveyance or other disposition by the
Company or a Restricted Subsidiary of assets or property whether owned on the
date of original issuance of the Notes or thereafter acquired, in a single
transaction or in a series of related transactions, that are outside of the
ordinary course of
89
<PAGE>
business of the Company or such Restricted Subsidiary; provided that Asset
Sales will not include such sales, leases, conveyances or dispositions in
connection with (i) the sale or disposition of any Restricted Investment; (ii)
the sale or lease of equipment, inventory, accounts receivable or other assets
in the ordinary course of business; (iii) Receivables Financings; (iv) the
surrender or waiver of contract rights or the settlement, release or surrender
of contract, tort or other claims of any kind; (v) the grant of any license of
patents, trademarks, registration therefor and other similar intellectual
property; (vi) a transfer of assets by the Company or a Restricted Subsidiary
to any of the Company, a Restricted Subsidiary or a Non-Restricted Subsidiary;
(vii) the designation of a Restricted Subsidiary as a Non-Restricted
Subsidiary pursuant to the "Designation of Restricted and Non-Restricted
Subsidiaries" covenant, other than a Subsidiary excluded from the definition
of Restricted Subsidiary by clause (ii)(y) of such definition; (viii) the
sale, lease, conveyance or other disposition of all or substantially all of
the assets of the Company as permitted under "Merger or Consolidation;" or
(ix) Restricted Payments permitted by the "Limitations on Restricted Payments"
covenant.
"Board of Directors" means the Company's board of directors or any
authorized committee of such board of directors.
"Capital Stock" means any and all shares, interests, participations or other
equivalents (however designated) of corporate stock, including any preferred
stock.
"Cash Flow" means, for any given period and person, the sum of, without
duplication, Consolidated Net Income, plus (a) the portion of Net Income
attributable to the minority interests in its Subsidiaries, to the extent not
included in calculating Consolidated Net Income, plus (b) provision for taxes
based on income or profits to the extent such income or profits were included
in computing Consolidated Net Income, plus (c) Consolidated Interest Expense,
to the extent deducted in computing Consolidated Net Income, plus (d) the
amortization of all intangible assets, to the extent such amortization was
deducted in computing Consolidated Net Income (including, but not limited to,
inventory write-ups, goodwill, debt and financing costs, and Incentive
Arrangements), plus (e) any non-capitalized costs incurred in connection with
financings, acquisitions or dispositions (including, but not limited to,
financing and refinancing fees, including those in connection with the Old
Offerings and the Company Formation, in each case to the extent deducted in
computing Consolidated Net Income), plus (f) all depreciation and all other
non-cash charges to the extent deducted in computing Consolidated Net Income,
plus (g) interest income, to the extent such income was not included in
computing Consolidated Net Income, plus (h) all dividend payments on preferred
stock (whether or not paid in cash) to the extent deducted in computing
Consolidated Net Income, plus (i) any extraordinary or non-recurring charge or
expense arising out of the implementation of SFAS 106 or SFAS 109 to the
extent deducted in computing Consolidated Net Income, plus (j) to the extent
not covered in clause (e) above, fees paid or payable in respect of the New
TJC Management Consulting Agreement to the extent deducted in computing
Consolidated Net Income, plus (k) the net loss of any person, other than those
of a Restricted Subsidiary, to the extent deducted in computing Consolidated
Net Income, plus (1) net losses in respect of any discontinued operations as
determined in accordance with GAAP, to the extent deducted in computing
Consolidated Net Income; provided, however, that if any such calculation
includes any period during which an acquisition or sale of a person or the
incurrence or repayment of Indebtedness occurred, then such calculation for
such period shall be made on a Pro Forma Basis.
"Cash Flow Coverage Ratio" means, for any given period and person, the ratio
of: (i) Cash Flow, divided by (ii) the sum of Consolidated Interest Expense
and the amount of all dividend payments on any series of preferred stock of
such person (except for dividends paid or payable in additional shares of
Capital Stock (other than Disqualified Stock)) in each case, without
duplication; provided, however, that if any such calculation includes any
period during which an acquisition or sale of a person or the incurrence or
repayment of Indebtedness occurred, then such calculation for such period
shall be made on a Pro Forma Basis.
"Change of Control" means the occurrence of any of the following: (i) any
"person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the
Exchange Act), excluding the Jordan Stockholders, is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act, except that a person shall be deemed to have "beneficial ownership" of
all securities that such person has the right to acquire,
90
<PAGE>
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, of more than 50% of the total Voting Stock of
the Company; or (ii) the Company consolidates with, or merges with or into,
another person or sells, assigns, conveys, transfers, leases or otherwise
disposes of all or substantially all of its assets to any person, or any
person consolidates with, or merges with or into, the Company, in any such
event pursuant to a transaction in which the outstanding Voting Stock of the
Company is converted into or exchanged for cash, securities or other property,
other than any such transaction where (A) the outstanding Voting Stock of the
Company is converted into or exchanged for (1) Voting Stock (other than
Disqualified Stock) of the surviving or transferee corporation or (2) cash,
securities and other property in an amount which could be paid by the Company
as a Restricted Payment under the Indenture and (B) immediately after such
transaction no "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act), excluding the Jordan Stockholders, is the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act, except that a person shall be deemed to have "beneficial ownership" of
all securities that such person has the right to acquire, whether such right
is exercisable immediately or only after the passage of time), directly or
indirectly, of more than 50% of the total Voting Stock of the surviving or
transferee corporation; or (iii) during any consecutive two-year period,
individuals who at the beginning of such period constituted the Board of
Directors of the Company (together with any new directors whose election by
such Board of Directors or whose nomination for election by the stockholders
of the Company was approved by a vote of a majority of the directors then
still in office who are entitled to vote to elect such new director and were
either directors at the beginning of such period or persons whose election as
directors or nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Directors of the Company then
in office.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the Company's assets. Although there is a developing body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
holder of Notes to require the Company to repurchase such Notes as a result of
a sale, lease, transfer, conveyance or other disposition of less than all of
the assets of the Company and its Subsidiaries to another person may be
uncertain.
"Commission" means the Securities and Exchange Commission.
"Consolidated Interest Expense" means, for any given period and person, the
aggregate of the interest expense in respect of all Indebtedness of such
person and its Subsidiaries for such period, on a consolidated basis,
determined in accordance with GAAP (including amortization of original issue
discount on any such Indebtedness, all non-cash interest payments, the
interest portion of any deferred payment obligation and the interest component
of capital lease obligations, but excluding amortization of deferred financing
fees if such amortization would otherwise be included in interest expense);
provided, however, that for the purpose of the Cash Flow Coverage Ratio,
Consolidated Interest Expense shall be calculated on a Pro Forma Basis;
provided further, that any premiums, fees and expenses (including the
amortization thereof) payable in connection with the Offerings and the Company
Formation and the application of the net proceeds therefrom or any other
refinancing of Indebtedness will be excluded.
"Consolidated Net Income" means, for any given period and person, the
aggregate of the Net Income of such person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided,
however, that: (i) the Net Income of any person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition
shall be excluded, and (ii) Consolidated Net Income of any person will not
include, without duplication, any deduction for: (A) any increased
amortization or depreciation resulting from the write-up of assets pursuant to
Accounting Principles Board Opinion Nos. 16 and 17, as amended or supplemented
from time to time, (B) the amortization of all intangible assets (including
amortization attributable to inventory write-ups, goodwill, debt and financing
costs, and Incentive Arrangements), (C) any non-capitalized transaction costs
incurred in connection with financings, acquisitions or divestitures
(including, but not limited to, financing and refinancing fees), (D) any
extraordinary or nonrecurring charges relating to any premium or penalty paid,
write-off of deferred financing costs, or other financial recapitalization
charges in connection with redeeming or retiring any Indebtedness prior to its
stated maturity, and (E) any Restructuring Charges; provided,
91
<PAGE>
however, that for purposes of determining the Cash Flow Coverage Ratio,
Consolidated Net Income shall be calculated on a Pro Forma Basis.
"Consolidated Net Worth" with respect to any person means, as of any date,
the consolidated equity of the common stockholders of such person (excluding
the cumulated foreign currency translation adjustment), all determined on a
consolidated basis in accordance with GAAP, but without any reduction in
respect of the payment of dividends on any series of such person's preferred
stock if such dividends are paid in additional shares of Capital Stock (other
than Disqualified Stock); provided, however, that Consolidated Net Worth shall
also include, without duplication: (a) the amortization of all write-ups of
inventory; (b) the amortization of all intangible assets (including
amortization of goodwill, debt and financing costs, and Incentive
Arrangements); (c) any non-capitalized transaction costs incurred in
connection with financings, acquisitions or divestitures (including, but not
limited to, financing and refinancing fees); (d) any increased amortization or
depreciation resulting from the write-up of assets pursuant to Accounting
Principles Board Opinion Nos. 16 and 17, as amended and supplemented from time
to time; (e) any extraordinary or nonrecurring charges or expenses relating to
any premium or penalty paid, write-off of deferred financing costs, or other
financial recapitalization charges incurred in connection with redeeming or
retiring any Indebtedness prior to its stated maturity; (f) any Restructuring
Charges; and (g) any extraordinary or non-recurring charge arising out of the
implementation of SFAS 106 or SFAS 109; provided, however, that, in
determining Consolidated Net Worth for purposes of the provisions of the
Indentures relating to "Merger and Consolidation," Consolidated Net Worth
shall be calculated on a Pro Forma Basis.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) Indebtedness evidenced by (A) the
Notes and (B) the New Credit Agreement if such Indebtedness constitutes Senior
Indebtedness, irrespective of amount, and (ii) any other Senior Indebtedness
issued under a credit agreement or other credit facility (x) in an aggregate
outstanding principal amount of at least $50,000,000 (or, in the case of any
revolving credit agreement or other committed credit facility, having an
aggregate commitment of at least $50,000,000), and (y) that is specifically
designated by the Company in the instrument creating or evidencing such Senior
Indebtedness as "Designated Senior Indebtedness."
"Discount Notes" means the 11 3/4% Senior Discount Notes due 2007 of the
Company.
"Disqualified Stock" means any Capital Stock that by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is
redeemable at the option of the holder thereof, in whole or in part on, or
prior to, the maturity date of (i) the Senior Notes in the case of the Senior
Note Indenture; and (ii) the Discount Notes in the case of the Discount Note
Indenture.
"Dura-Line Agreement" means the Preferred Stock Agreement, among Dura-Line
and certain other persons, as in effect on the date of the original issuance
of the Notes.
"Equity Interests" means Capital Stock or partnership interests or warrants,
options or other rights to acquire Capital Stock or partnership interests (but
excluding (i) any debt security that is convertible into or exchangeable for
Capital Stock or partnership interests, and (ii) any other Indebtedness or
Obligations); provided, however, that Equity Interests will not include any
Incentive Arrangements or obligations or payments thereunder.
"Equity Offering" means a public or private offering by the Company and/or
its Subsidiaries for cash of Capital Stock or other Equity Interests and all
warrants, options or other rights to acquire Capital Stock, other than (i) an
offering of Disqualified Stock or (ii) Incentive Arrangements or obligations
or payments thereunder.
"GAAP" means generally accepted accounting principles, consistently applied,
as of the date of original issuance of the Notes. All financial and accounting
determinations and calculations under the Indentures will be made in
accordance with GAAP.
92
<PAGE>
"Hedging Obligations" means, with respect to any person, the Obligations of
such persons under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements; (ii) foreign exchange
contracts, currency swap agreements or similar agreements; and (iii) other
agreements or arrangements designed to protect such person against
fluctuations, or otherwise to establish financial hedges in respect of
exchange rates, currency rates or interest rates.
"Incentive Arrangements" means any earn-out agreements, stock appreciation
rights, "phantom" stock plans, employment agreements, non-competition
agreements, subscription and stockholders agreements and other incentive and
bonus plans and similar arrangements made in connection with acquisitions of
persons or businesses by the Company or any Restricted Subsidiary or the
retention of executives, officers or employees by the Company or any
Restricted Subsidiary.
"Indebtedness" means, with respect to any Person, any indebtedness, whether
or not contingent, in respect of borrowed money or evidenced by bonds, notes,
debentures or similar instruments or letters of credit (or reimbursement
agreements in respect thereof) or representing the balance deferred and unpaid
of the purchase price of any property (including pursuant to capital leases),
except any such balance that constitutes an accrued expense or a trade
payable, and any Hedging Obligations, if and to the extent such indebtedness
(other than a Hedging Obligation) would appear as a liability upon a balance
sheet of such person prepared on a consolidated basis in accordance with GAAP,
and also includes, to the extent not otherwise included, the guarantee of
items which would be included within this definition; provided, however, that
"Indebtedness" will not include any Incentive Arrangements or obligations or
payments thereunder.
"Insolvency or Liquidation Proceeding" means (i) any insolvency or
bankruptcy or similar case or proceeding, or any reorganization, receivership,
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, or (ii) any assignment for the benefit of creditors or any other
marshalling of assets and liabilities of the Company.
"Investment" means any capital contribution to, or other debt or equity
investment in, any Person.
"issue" means create, issue, assume, guarantee, incur or otherwise become
directly or indirectly liable for any Indebtedness or Capital Stock, as
applicable; provided, however, that any Indebtedness or Capital Stock of a
person existing at the time such person becomes a Restricted Subsidiary
(whether by merger, consolidation, acquisition or otherwise) shall be deemed
to be issued by such Restricted Subsidiary at the time it becomes a Restricted
Subsidiary. For this definition, the terms "issuing," "issuer," "issuance" and
"issued" have meanings correlative to the foregoing.
"Issue Date" means the date on which Notes were first issued.
"Jordan Stockholders" means John W. Jordan, II, and/or his heirs, executors
and administrators, and/or The John W. Jordan, II Revocable Trust, The Jordan
Family Trust and/or any other trust established by John W. Jordan, II whose
beneficiaries are John W. Jordan, II and/or his lineal descendants or other
relatives, as well as Jordan Industries, Inc., The Jordan Company and
Jordan/Zalaznick Capital Corporation and their respective affiliates,
principals, partners and employees, family members of any of the foregoing and
trusts for the benefit of any of the foregoing, including, without limitation,
MCIT PLC and Leucadia National Corporation and their respective Subsidiaries.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell and any filing of or
agreement to give any financing statement under the Uniform Commercial Code
(or equivalent statutes) of any jurisdiction).
"Net Income" means, with respect to any person, the net income (loss) of
such person, determined in accordance with GAAP, excluding, however, any gain
or loss, together with any related provision for taxes,
93
<PAGE>
realized in connection with any Asset Sale (including, without limitation,
dispositions pursuant to sale and leaseback transactions).
"Net Proceeds" means, with respect to any Asset Sale, the aggregate amount
of cash proceeds (including any cash received by way of deferred payment
pursuant to a note receivable issued in connection with such Asset Sale, other
than the portion of such deferred payment constituting interest, and including
any amounts received as disbursements or withdrawals from any escrow or
similar account established in connection with any such Asset Sale, but, in
either such case, only as and when so received) received by the Company or any
of its Restricted Subsidiaries in respect of such Asset Sale, net of: (i) the
cash expenses of such Asset Sale (including, without limitation, the payment
of principal, premium, if any, and interest on Indebtedness required to be
paid as a result of such Asset Sale (other than the Notes) and legal,
accounting, management, advisory and investment banking fees and sales
commissions); (ii) taxes paid or payable as a result thereof; (iii) any
portion of cash proceeds that the Company determines in good faith should be
reserved for post-closing adjustments, it being understood and agreed that on
the day that all such post-closing adjustments have been determined, the
amount (if any) by which the reserved amount in respect of such Asset Sale
exceeds the actual post-closing adjustments payable by the Company or any of
its Restricted Subsidiaries shall constitute Net Proceeds on such date; (iv)
any relocation expenses and pension, severance and shutdown costs incurred as
a result thereof; and (v) any deduction or appropriate amounts to be provided
by the Company or any of its Restricted Subsidiaries as a reserve in
accordance with GAAP against any liabilities associated with the asset
disposed of in such transaction and retained by the Company or such Restricted
Subsidiary after such sale or other disposition thereof, including, without
limitation, pension and other post-employment benefit liabilities and
liabilities related to environmental matters or against any indemnification
obligations associated with such transaction.
"New Credit Agreement" means the credit agreement, dated July 25, 1997,
entered into by certain of the Company's Restricted Subsidiaries and certain
other subsidiaries and the lenders party thereto in their capacities as
lenders thereunder and BankBoston, N.A., as agent, together with all loan
documents and instruments thereunder (including, without limitation, any
guarantee agreements and security documents), in each case as such agreements
may be amended (including any amendment and restatement thereof), supplemented
or otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including,
without limitation, increasing the amount of available borrowings thereunder,
and all Obligations with respect thereto, in each case, to the extent
permitted by the "Limitation on Incurrence of Indebtedness" covenant, or
adding Subsidiaries of the Company as additional borrowers or guarantors
thereunder) all or any portion of the Indebtedness under such agreement or any
successor or replacement agreement and whether by the same or any other agent,
lender or group of lenders.
"Non-Restricted Subsidiary" means any Subsidiary of the Company, other than
a Restricted Subsidiary.
"Notes" means the Senior Notes and/or the Discount Notes, as appropriate.
"Obligations" means, with respect to any Indebtedness, all principal,
interest, premium, penalties, fees, indemnities, expenses (including legal
fees and expenses), reimbursement obligations and other liabilities payable to
the holder of such Indebtedness under the documentation governing such
Indebtedness, and any other claims of such holder arising in respect of such
Indebtedness.
"Other Permitted Indebtedness" means:
(i) Indebtedness of the Company and its Restricted Subsidiaries existing
as of the date of original issuance of the Notes and all related
Obligations as in effect on such date (including the Notes);
(ii) Indebtedness of the Company and its Restricted Subsidiaries in
respect of bankers acceptances and letters of credit (including, without
limitation, letters of credit in respect of workers' compensation claims)
issued in the ordinary course of business, or other Indebtedness in respect
of reimbursement-type obligations regarding workers' compensation claims;
94
<PAGE>
(iii) Refinancing Indebtedness; provided that: (A) the principal amount
of such Refinancing Indebtedness shall not exceed the outstanding principal
amount of Indebtedness (including unused commitments) so extended,
refinanced, renewed, replaced, substituted or refunded plus any amounts
incurred to pay premiums, fees and expenses in connection therewith; (B)
the Refinancing Indebtedness shall have a Weighted Average Life to Maturity
equal to or greater than the Weighted Average Life to Maturity of the
Indebtedness being extended, refinanced, renewed, replaced, substituted or
refunded; and (C) in the case of Refinancing Indebtedness of Subordinated
Indebtedness, such Refinancing Indebtedness shall be subordinated to the
Notes at least to the same extent as the Subordinated Indebtedness being
extended, refinanced, renewed, replaced, substituted or refunded;
(iv) intercompany Indebtedness of and among the Company and its
Restricted Subsidiaries (excluding guarantees by Restricted Subsidiaries of
Indebtedness of the Company not issued in compliance with "Limitation on
Guarantees of Company Indebtedness by Restricted Subsidiaries" covenant);
(v) Indebtedness of the Company and its Restricted Subsidiaries incurred
in making permitted Restricted Payments under clause (iv), (v) or (viii) of
the second sentence of the "Limitation on Restricted Payments" covenant;
(vi) Indebtedness of any Non-Restricted Subsidiary created after the date
of original issuance of the Notes; provided that such Indebtedness is
nonrecourse to the Company and its Restricted Subsidiaries and neither the
Company nor any of its Restricted Subsidiaries have any Obligations with
respect to such Indebtedness;
(vii) Indebtedness of the Company and its Restricted Subsidiaries under
Hedging Obligations;
(viii) Indebtedness of the Company and its Restricted Subsidiaries
arising from the honoring by a bank or other financial institution of a
check, draft or similar instrument inadvertently (except in the case of
daylight overdrafts, which will not be, and will not be deemed to be,
inadvertent) drawn against insufficient funds in the ordinary course of
business;
(ix) Indebtedness of any person at the time it is acquired as a
Restricted Subsidiary; provided that such Indebtedness was not issued by
such person in connection with or in anticipation of such acquisition and
that such Indebtedness is nonrecourse to the Company and any other
Restricted Subsidiary and the Company and such other Restricted
Subsidiaries have no Obligations with respect to such Indebtedness;
(x) guarantees by Restricted Subsidiaries of Indebtedness of any
Restricted Subsidiary if the Indebtedness so guaranteed is permitted under
the Indentures;
(xi) guarantees by a Restricted Subsidiary of Indebtedness of the Company
if the Indebtedness so guaranteed is permitted under the Indentures and the
Notes are guaranteed by such Restricted Subsidiary to the extent required
by the "Limitation on Guaranties of Company Indebtedness by Restricted
Subsidiaries" covenant;
(xii) guarantees by the Company of Indebtedness of any Restricted
Subsidiary if the Indebtedness so guaranteed is permitted under the
Indentures;
(xiii) Indebtedness of the Company and its Restricted Subsidiaries in
connection with performance, surety, statutory, appeal or similar bonds in
the ordinary course of business; and
(xiv) Indebtedness of the Company and its Restricted Subsidiaries in
connection with agreements providing for indemnification, purchase price
adjustments and similar obligations in connection with the sale or
disposition of any of their business, properties or assets.
"Permitted Liens" means:
(a) with respect to the Company and the Restricted Subsidiaries, (1)
Liens for taxes, assessments, governmental charges or claims which are
being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted and if a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have
been made therefor; (2) statutory Liens of landlords and carriers',
warehousemen's, mechanics', suppliers', materialmen's, repairmen's or other
like Liens arising in
95
<PAGE>
the ordinary course of business and with respect to amounts not yet
delinquent or being contested in good faith by appropriate proceedings, if
a reserve or other appropriate provision, if any as shall be required in
conformity with GAAP shall have been made therefor; (3) Liens incurred on
deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social
security; (4) Liens incurred on deposits made to secure the performance of
tenders, bids, leases, statutory obligations, surety and appeal bonds,
government contracts, performance and return of money bonds and other
obligations of a like nature incurred in the ordinary course of business
(exclusive of obligations for the payment of borrowed money); (5)
easements, rights-of-way, zoning or other restrictions, minor defects or
irregularities in title and other similar charges or encumbrances not
interfering in any material respect with the business of the Company or any
of its Restricted Subsidiaries incurred in the ordinary course of business;
(6) Liens (including extensions, renewals and replacements thereof) upon
property acquired (the "Acquired Property") after the date of original
issuance of the Notes; provided that: (A) any such Lien is created solely
for the purpose of securing Indebtedness representing, or issued to
finance, refinance or refund, the cost (including the cost of construction)
of the Acquired Property, (B) the principal amount of the Indebtedness
secured by such Lien does not exceed 100% of the cost of the Acquired
Property, (C) such Lien does not extend to or cover any property other than
the Acquired Property and any improvements on such Acquired Property, and
(D) the issuance of the Indebtedness to purchase the Acquired Property is
permitted by the "Limitation on Incurrence of Indebtedness" covenant; (7)
Liens in favor of customs and revenue authorities arising as a matter of
law to secure payment of customs duties in connection with the importation
of goods; (8) judgment and attachment Liens not giving rise to an Event of
Default; (9) leases or subleases granted to others not interfering in any
material respect with the business of the Company or any of its Restricted
Subsidiaries; (10) Liens securing Indebtedness under Hedging Obligations;
(11) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual or warranty requirements of the Company
or its Restricted Subsidiaries; (12) Liens arising out of consignment or
similar arrangements for the sale of goods entered into by the Company or
its Restricted Subsidiaries in the ordinary course of business; (13) any
interest or title of a lessor in property subject to any capital lease
obligation or operating lease; (14) Liens arising from filing Uniform
Commercial Code financing statements regarding leases; (15) Liens existing
on the date of original issuance of the Notes and any extensions, renewals
or replacements thereof; (16) any Lien granted to the Trustees under the
Indentures and any substantially equivalent Lien granted to any trustee or
similar institution under any indenture for Senior Indebtedness permitted
by the terms of the Indentures; and (17) additional Liens at any one time
outstanding in respect of properties or assets the aggregate fair market
value of which does not exceed $10,000,000 (the fair market value to be
determined on the date such Lien is granted on such properties or assets);
(b) with respect to the Restricted Subsidiaries, (1) Liens securing
Restricted Subsidiaries' reimbursement Obligations with respect to letters
of credit that encumber documents and other property relating to such
letters of credit and the products and proceeds thereof; (2) Liens securing
Indebtedness issued by Restricted Subsidiaries if such Indebtedness is (A)
under the New Credit Agreement, or (B) permitted by the first sentence of
the "Limitation on Incurrence of Indebtedness" covenant, clauses (i), (ii),
(iii) or (iv) of the second sentence of the "Limitation on Incurrence of
Indebtedness" covenant, or clauses (i), (iii) (to the extent the
Indebtedness subject to such Refinancing Indebtedness was subject to Liens)
(vii), (ix) or (x) of the definition of Other Permitted Indebtedness; (3)
Liens securing intercompany Indebtedness issued by any Restricted
Subsidiary to the Company or another Restricted Subsidiary; and (4) Liens
securing guarantees by Restricted Subsidiaries of Indebtedness issued by
the Company if such guarantees are permitted by clause (xi) (but only in
respect of the property, rights and assets of the Restricted Subsidiaries
issuing such guarantees) of the definition of Other Permitted Indebtedness;
and
(c) with respect to the Company, (1) Liens securing Indebtedness issued
by the Company under the New Credit Agreement if such Indebtedness is
permitted by the "Limitation on Incurrence of Indebtedness" covenant
(including, but not limited to, Indebtedness issued by the Company under
the New Credit Agreement pursuant to clause (i) and/or clause (v) of the
second sentence of "Limitation on Incurrence of Indebtedness" covenant);
(2) Liens securing Indebtedness of the Company if such
96
<PAGE>
Indebtedness is permitted by clauses (i), (iii) (to the extent the
Indebtedness subject to such Refinancing Indebtedness was subject to Liens)
or (vii) of the definition of Other Permitted Indebtedness; (3) Liens
securing guarantees by the Company of Indebtedness issued by Restricted
Subsidiaries if such Indebtedness is permitted by the "Limitation on
Incurrence of Indebtedness" covenant (including, but not limited to,
Indebtedness issued by Restricted Subsidiaries under the New Credit
Agreement pursuant to clause (i) and/or clause (v) of the second sentence
of the "Limitation on Incurrence of Indebtedness" covenant) and if such
guarantees are permitted by clause (xii) (but only in respect of
Indebtedness issued by the Restricted Subsidiaries under the New Credit
Agreement pursuant to the "Limitation on Incurrence of Indebtedness"
covenant) of the definition of Other Permitted Indebtedness; and (4) Liens
securing the Company's reimbursement obligations with respect to letters of
credit that encumber documents and other property relating to such letters
of credit and the products and proceeds thereof; provided, however, that,
notwithstanding any of the foregoing, the Permitted Liens referred to in
clause (c) of this definition shall not include any Lien on Capital Stock
of Restricted Subsidiaries held by the Company (as distinguished from Liens
on Capital Stock of Restricted Subsidiaries held by other Restricted
Subsidiaries) other than Liens securing (A) Indebtedness of the Company
issued under the New Credit Agreement pursuant to the "Limitation on
Incurrence of Indebtedness" covenant and any permitted Refinancing
Indebtedness of such Indebtedness, and (B) guarantees by the Company of
Indebtedness issued by Restricted Subsidiaries under the Credit Agreement
or the New Credit Agreement pursuant to the "Limitation on Incurrence of
Indebtedness" covenant and any permitted Refinancing Indebtedness of such
Indebtedness.
"Pro Forma Basis" means, for purposes of determining Consolidated Net
Income, Cash Flow, and Consolidated Interest Expense in connection with the
Cash Flow Coverage Ratio (including in connection with the "Limitation on
Restricted Payments" covenant, the incurrence of Indebtedness pursuant to the
first sentence of the "Limitation on Incurrence of Indebtedness" covenant and
Consolidated Net Worth for purposes of the "Merger or Consolidation"
covenant), giving pro forma effect to (x) any acquisition or sale of a person,
business or asset, related incurrence, repayment or refinancing of
Indebtedness or other related transactions, including any related
restructuring charges in respect of restructurings, consolidations,
compensation or headcount reductions or other cost savings which would
otherwise be accounted for as an adjustment permitted by Regulation S-X under
the Securities Act or on a pro forma basis under GAAP, or (y) any incurrence,
repayment or refinancing of any Indebtedness and the application of the
proceeds therefrom, in each case, as if such acquisition or sale and related
transactions, restructurings, consolidations, cost savings, reductions,
incurrence, repayment or refinancing were realized on the first day of the
relevant period permitted by Regulation S-X under the Securities Act or on a
pro forma basis under GAAP. Furthermore, in calculating the Cash Flow Coverage
Ratio, (1) interest on outstanding Indebtedness determined on a fluctuating
basis as of the determination date and which will continue to be so determined
thereafter shall be deemed to have accrued at a fixed rate per annum equal to
the rate of interest on such Indebtedness in effect on the determination date;
(2) if interest on any Indebtedness actually incurred on the determination
date may optionally be determined at an interest rate based upon a factor of a
prime or similar rate, a eurocurrency interbank offered rate, or other rates,
then the interest rate in effect on the determination date will be deemed to
have been in effect during the relevant period; and (3) notwithstanding clause
(1) above, interest on Indebtedness determined on a fluctuating basis, to the
extent such interest is covered by agreements relating to interest rate swaps
or similar interest rate protection Hedging Obligations, shall be deemed to
accrue at the rate per annum resulting after giving effect to the operation of
such agreements.
"Receivables" means, with respect to any person or entity, all of the
following property and interests in property of such person or entity, whether
now existing or existing in the future or hereafter acquired or arising: (i)
accounts; (ii) accounts receivable (including, without limitation, all rights
to payment created by or arising from sales of goods, leases of goods or
leased or the rendition of services rendered no matter how evidenced, whether
or not earned by performance); (iii) all unpaid seller's or lessor's rights
(including, without limitation, recession, replevin, reclamation and stoppage
in transit, relating to any of the foregoing or arising therefrom); (iv) all
rights to any goods or merchandise represented by any of the foregoing
(including, without limitation, returned or repossessed goods); (v) all
reserves and credit balances with respect to any such accounts receivable or
account debtors; (vi) all letters of credit, security or guarantees for any of
the foregoing; (vii) all insurance
97
<PAGE>
policies or reports relating to any of the foregoing; (viii) all collection or
deposit accounts relating to any of the foregoing; (ix) all proceeds of any of
the foregoing; and (x) all books and records relating to any of the foregoing.
"Receivables Financing" means (i) the sale or other disposition of
Receivables arising in the ordinary course of business, or (ii) the sale or
other disposition of Receivables arising in the ordinary course of business to
a Receivables Subsidiary followed by a financing transaction in connection
with such sale or disposition of such Receivables.
"Receivables Subsidiary" means a Subsidiary of the Company that is
exclusively engaged in Receivables Financings and activities reasonably
related thereto.
"Refinancing Indebtedness" means (i) Indebtedness of the Company and its
Restricted Subsidiaries issued or given in exchange for, or the proceeds of
which are used to, extend, refinance, renew, replace, substitute or refund any
Indebtedness permitted under the Indentures or any Indebtedness issued to so
extend, refinance, renew, replace, substitute or refund such Indebtedness;
(ii) any refinancings of Indebtedness issued under the New Credit Agreement;
and (iii) any additional Indebtedness issued to pay premiums and fees in
connection with clauses (i) and (ii).
"Restricted Investment" means any Investment in any person, provided that
Restricted Investments will not include: (i) Investments in marketable
securities and other negotiable instruments to the extent permitted by the
Indentures; (ii) any Incentive Arrangements; (iii) Investments by any
Restricted Subsidiary in the Company; or (iv) Investments by the Company or
any Restricted Subsidiary in any Restricted Subsidiary (provided that any
Investment in a Restricted Subsidiary was made for fair market value (as
determined by the Board of Directors in good faith). The amount of any
Restricted Investment shall be the amount of cash and the fair market value at
the time of transfer of all other property (as determined by the Board of
Directors in good faith) initially invested or paid for such Restricted
Investment, plus all additions thereto, without any adjustments for increases
or decreases in value of, or write-ups, write-downs or write-offs with respect
to, such Restricted Investment.
"Restricted Subsidiary" means: (i) any Subsidiary of the Company existing on
the date of original issuance of the Notes, and (ii) any other Subsidiary of
the Company formed, acquired or existing after the date of original issuance
of the Notes that is designated as a "Restricted Subsidiary" by the Company
pursuant to a resolution approved by a majority of the Board of Directors;
provided, however, that the term "Restricted Subsidiary" shall not include (x)
any Restricted Subsidiary of the Company that has been redesignated by the
Company pursuant to a resolution approved by a majority of the Board of
Directors as a Non-Restricted Subsidiary in accordance with the "Designation
of Restricted and Non-Restricted Subsidiaries" covenant unless such Subsidiary
shall have subsequently been redesignated a Restricted Subsidiary or (y) any
Restricted Subsidiary of the Company that is organized under the laws of a
foreign jurisdiction and whose stock or ownership interests are sold or
transferred to a Non-Restricted Subsidiary of the Company pursuant to one or
more transactions that comply with the "Asset Sale" covenant and the
"Affiliate Transactions" covenant which is, at or after the time of such sale
or transfer, by a resolution approved by a majority of the Board of Directors,
designated a Non-Restricted Subsidiary.
"Restructuring Charges" means any charges or expenses in respect of
restructuring or consolidating any business, operations or facilities, any
compensation or headcount reduction, or any other cost savings, of any persons
or businesses either alone or together with the Company or any Restricted
Subsidiary, as permitted by GAAP or Regulation S-X under the Securities Act.
"Senior Indebtedness" means: (i) all Obligations consisting of the principal
of and premium, if any, and accrued and unpaid interest (including post-
petition interest accruing on and after the commencement of any Insolvency or
Liquidation Proceeding, whether or not such interest is allowed in such
proceeding), whether existing on the date of original issuance of the Notes or
thereafter issued, in respect of: (A) Indebtedness of the Company for money
borrowed, and (B) Indebtedness evidenced by notes, debentures, bonds or other
similar instruments for the payment of which the Company is responsible or
liable; (ii) all capitalized lease obligations
98
<PAGE>
of the Company; (iii) all Obligations of the Company: (A) for the
reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction, (B) constituting Hedging Obligations, or (C)
issued as the deferred purchase price of property and all conditional sale
Obligations of the Company and all Obligations of the Company under any title
retention agreement; (iv) all guarantees of the Company with respect to
Obligations of other persons of the type referred to in clauses (ii) and (iii)
and with respect to the payment of dividends of other persons; and (v) all
Obligations of the Company consisting of modifications, renewals, extensions,
replacements and refundings of any Obligations described in clauses (i), (ii),
(iii) or (iv) unless, in the instrument creating or evidencing the same or
pursuant to which the same is outstanding, it is provided that such
Obligations are subordinated or junior in right of payment to the Notes;
provided, however, that Senior Indebtedness shall not be deemed to include:
(1) any Obligation of the Company to any Subsidiary, (2) any liability for
federal, state, local or other taxes owed or owing by the Company, (3) any
accounts payable or other liability to trade creditors arising in the ordinary
course of business (including guarantees thereof or instruments evidencing
such liabilities), (4) any Indebtedness, guarantee or Obligation of the
Company that is contractually subordinate or junior in any respect to any
other Indebtedness, guarantee or Obligation of the Company, or (5) any
Indebtedness to the extent the same is incurred in violation of the Indenture.
Senior Indebtedness shall include all Obligations in respect of the Notes and
the Indentures.
"Senior Notes" means the 9 7/8% Senior Notes due 2007 of the Company.
"SFAS 106" means Statement of Financial Accounting Standards No. 106.
"SFAS 109" means Statement of Financial Accounting Standards No. 109.
"Significant Subsidiary" means (i) any Restricted Subsidiary of the Company
that would be a "significant subsidiary" as defined in clause (2) of the
definition of such term in Rule 1-02 of Regulation S-X under the Securities
Act and the Exchange Act, and (ii) any other Restricted Subsidiary of the
Company that is material to the business, earnings, prospects, assets or
condition, financial or otherwise, of the Company and its Restricted
Subsidiaries taken as a whole.
"Stated Maturity" means with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any such interest or principal prior to the
date originally scheduled for the payment thereof.
"Subordinated Indebtedness" means all Obligations of the type referred to in
clauses (i) through (v) of the definition of Senior Indebtedness, if it is
provided in the instrument creating or evidencing the same or pursuant to
which the same is outstanding that such Obligations are subordinate or junior
in right of payment to Senior Indebtedness.
"Subsidiary" of any person means any entity of which the Equity Interests
entitled to cast at least a majority of the votes that may be cast by all
Equity Interests having ordinary voting power for the election of directors or
other governing body of such entity are owned by such person (regardless of
whether such Equity Interests are owned directly by such person or through one
or more Subsidiaries).
"Voting Stock" means any class or classes of Capital Stock pursuant to which
the holders thereof have the general voting power under ordinary circumstances
to elect the board of directors.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the then outstanding
principal amount of such Indebtedness into (ii) the sum of the product(s)
obtained by multiplying (a) the amount of each then remaining installment,
sinking fund, serial maturity or other required payment of principal,
including payment at final maturity, in respect thereof, by (b) the number of
years (calculated to the nearest one-twelfth) which will elapse between such
date and the making of such payment.
99
<PAGE>
DESCRIPTION OF SENIOR PREFERRED STOCK
The Old Senior Preferred Stock was offered pursuant to the Old Offerings as
part of a unit (the "Preferred Stock Units") together with common stock of the
Company, $.01 par value per share (the "Common Stock"). Each Preferred Stock
Unit offered in the Old Offerings consisted of $1,000 aggregate liquidation
preference of Senior Preferred Stock and one share of Common Stock of JTP. The
Senior Preferred Stock and the Common Stock comprising each Preferred Stock
Unit are not separately tradeable until the earliest to occur of (i) August 1,
1998; (ii) such earlier date as may be determined by Jefferies; (iii) in the
event of a Change of Control, the date on which the Company mails notice
thereof to holders of the Senior Preferred Stock; (iv) in the event that the
Company elects to exchange the Senior Preferred Stock for Preferred Stock
Exchange Notes, the date on which the Company mails notice thereof to holders
of the Senior Preferred Stock; (v) in the event that the Company elects to
redeem the Senior Preferred Stock pursuant to the second paragraph set forth
under "--Redemption of Senior Preferred Stock," the date on which JTP mails
notice thereof to holders of the Senior Preferred Stock; and (vi) the date on
which the Company consummates a public offering of Common Stock (such earliest
date being the "Preferred Stock Separation Date"). It is expected that the
Preferred Stock Units will separate in connection with the Exchange Offer.
Thereafter, shares of Common Stock will continue to constitute restricted
securities and, consequently, will only be transferable if subsequently
registered under the Securities Act or an exemption from registration is
available. The Senior Preferred Stock is being registered as part of the
Exchange Offer.
SENIOR PREFERRED STOCK
The summary contained herein of certain provisions of the Senior Preferred
Stock does not purport to be complete and is qualified in its entirety by
reference to the provisions of the Certificate of Designation creating the
Senior Preferred Stock (the "Certificate of Designation"). The definitions of
certain terms used in the Certificate of Designation and in the following
summary are substantially the same as those used in the Indentures. See
"Description of Notes--Certain Definitions."
GENERAL
Subject to certain conditions, the Senior Preferred Stock is exchangeable
for Preferred Stock Exchange Notes at the option of the Company on any
dividend payment date. The Old Senior Preferred Stock is, and the New Senior
Preferred Stock when issued in the Exchange Offer will be, fully paid and non-
assessable, and the holders thereof do not have any subscription or preemptive
rights related thereto.
RANKING
The Old Senior Preferred Stock was and the New Senior Preferred Stock will,
with respect to dividend distributions and distributions upon the liquidation,
winding-up or dissolution of the Company, rank (i) senior to all classes of
Common Stock and to each series of Preferred Stock existing on the date of
this Prospectus (including the Junior Preferred Stock) and each other class of
capital stock or series of Preferred Stock issued by the Company established
after the date of this Prospectus the terms of which do not expressly provide
that such class or series will rank senior to or on a parity with the Senior
Preferred Stock as to dividend distributions and distributions upon the
liquidation, winding-up or dissolution of the Company (collectively referred
to with the Common Stock as "Junior Securities"); (ii) subject to certain
conditions, on a parity with any class of capital stock or series of Preferred
Stock issued by the Company, which is established after the date of this
Prospectus by the Board of Directors, the terms of which expressly provide
that such class or series will rank on a parity with the Senior Preferred
Stock as to dividend distributions and distributions upon the liquidation,
winding-up or dissolution of JTP (collectively referred to as "Parity
Securities"); and (iii) subject to certain conditions, junior to each class of
capital stock or series of Preferred Stock issued by the Company, which is
established after the date of this Prospectus by the Board of Directors, the
terms of which expressly provide that such class or series will rank senior to
the Senior Preferred Stock as to dividend distributions and distributions upon
liquidation, winding-up or dissolution of the Company (collectively referred
to as "Senior Securities"). In addition, creditors and stockholders of the
Company's subsidiaries will have priority over the Senior Preferred Stock with
respect to claims on the assets of such subsidiaries. The Senior Preferred
Stock will be subject to the issuance of series of Junior Securities, Parity
Securities and Senior Securities, provided that the Company may not issue any
new
100
<PAGE>
class of Parity Securities or Senior Securities without the approval of the
holders of at least 50% of the shares of Senior Preferred Stock then
outstanding, voting or consenting, as the case may be, together as one class,
except that without the approval of the holders of Senior Preferred Stock, the
Company may issue and have outstanding shares of Parity Securities issued from
time to time in exchange for, or the proceeds of which are used to redeem or
repurchase, any or all of the shares of Senior Preferred Stock or other Parity
Securities.
DIVIDENDS
Holders of Senior Preferred Stock will be entitled to receive, when, as and
if declared by the Board of Directors, out of funds legally available
therefor, dividends on the Senior Preferred Stock at a rate per annum equal to
13 1/4% of the liquidation preference per share of Senior Preferred Stock. All
dividends will be cumulative, whether or not earned or declared, on a daily
basis from the date of issuance of the Senior Preferred Stock and will be
payable on February 1, May 1, August 1 and November 1 of each year, commencing
on November 1, 1997. On or before August 1, 2002, JTP may, at its option, pay
dividends in cash or in additional fully paid and non-assessable shares of
Senior Preferred Stock having an aggregate liquidation preference equal to the
amount of such dividends. After August 1, 2002, dividends may be paid only in
cash. It is not expected that the Company will pay any dividends in cash for
any period ending on or prior to August 1, 2002. The terms of the Company's
debt instruments, including the Indentures and the New Credit Agreement
restrict the payment of cash dividends by the Company, and future agreements
may also restrict such payments. See "Risk Factors--Restrictive Covenants
Limiting the Company's Ability to Repay the Senior Notes, Discount Notes,
Senior Preferred Stock and Preferred Stock Exchange Notes," "Description of
Certain Indebtedness and Other Obligations" and "Description of Notes--Certain
Covenants." If any dividend (or portion thereof) payable on any dividend
payment date after August 1, 2002 is not declared or paid in full in cash on
such dividend payment date, the amount of such dividend that is payable and
that is not paid in cash on such date will increase at the rate of 13 1/4% per
annum from such dividend payment date until declared and paid in full.
No full dividends may be declared or paid or funds set apart for the payment
of dividends on any Parity Securities for any period unless full cumulative
dividends shall have been or contemporaneously are declared and paid in full
or declared and, if payable in cash, a sum in cash set apart for such payment
on the Senior Preferred Stock. If full dividends are not so paid, the Senior
Preferred Stock will share dividends pro rata with the Parity Securities. No
dividends may be paid or set apart for such payment on Junior Securities
(except dividends on Junior Securities in additional shares of Junior
Securities) and no Junior Securities or Parity Securities may be repurchased,
redeemed or otherwise retired nor may funds be set apart for payment with
respect thereto, if full cumulative dividends have not been paid on the Senior
Preferred Stock.
REDEMPTION OF SENIOR PREFERRED STOCK
Optional Redemption. The Senior Preferred Stock may be redeemed (subject to
contractual and other restrictions with respect thereto and to the legal
availability of funds therefor) at any time on or after August 1, 2002, in
whole or in part, at the option of the Company, at the redemption prices
(expressed as a percentage of the liquidation preference thereof) set forth
below, plus an amount in cash equal to all accumulated and unpaid dividends
(including an amount in cash equal to a prorated dividend for the period from
the dividend payment date immediately prior to the redemption date to the
redemption date), if redeemed during the 12-month period beginning August 1 of
each of the years set forth below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002........................................................... 106.6250%
2003........................................................... 104.4167%
2004........................................................... 102.2083%
2005 and thereafter............................................ 100.0000%
</TABLE>
In addition, JTP may redeem the Senior Preferred Stock in whole, but not in
part, at a redemption price equal to 113.25% of the liquidation preference
thereof, plus an amount in cash equal to all accumulated and unpaid dividends
(including an amount in cash equal to a prorated dividend for the period from
the dividend
101
<PAGE>
payment date immediately prior to the redemption date to the redemption date),
with the proceeds of an Equity Offering, provided that such redemption shall
occur within 60 days of the date of the closing of such Equity Offering.
No optional redemption may be authorized or made (i) unless prior thereto
full unpaid cumulative dividends shall have been paid or a sum set apart for
such payment on the Senior Preferred Stock; or (ii) at less than 101% of the
liquidation preference of the Senior Preferred Stock at any time when the
Company is making or purchasing shares of Senior Preferred Stock under an
Offer in accordance with the provisions of "--Change of Control."
In the event of partial redemptions of Senior Preferred Stock, the shares to
be redeemed will be determined pro rata or by lot, as determined by the
Company. The terms of the Company's debt instruments, including the Indentures
and the New Credit Agreement, restrict the ability of the Company to redeem
the Senior Preferred Stock, and future agreements may similarly restrict
redemptions of Senior Preferred Stock by JTP. See "Description of Certain
Indebtedness and Other Obligations" and "Description of Notes--Certain
Covenants."
Mandatory Redemption. On August 1, 2009, the Company will be required to
redeem (subject to contractual and other restrictions with respect thereto and
to the legal availability of funds therefor) all outstanding shares of Senior
Preferred Stock at a price equal to the then effective liquidation preference
thereof, plus an amount in cash equal to all accumulated and unpaid dividends
(including an amount in cash equal to a prorated dividend for the period from
the dividend payment date immediately prior to the redemption date to the
redemption date).
Procedure for Redemption. On and after a redemption date, unless the Company
defaults in the payment of the applicable redemption price, dividends will
cease to accrue on shares of Senior Preferred Stock called for redemption and
all rights of holders of such shares will terminate except for the right to
receive the redemption price, without interest. The Company will send a
written notice of redemption by first class mail to each holder of record of
shares of Senior Preferred Stock, not fewer than 30 days nor more than 60 days
prior to the date fixed for such redemption. Shares of Senior Preferred Stock
issued and reacquired will, upon compliance with the applicable requirements
of Delaware law, have the status of authorized but unissued shares of
Preferred Stock of the Company undesignated as to series and may with any and
all other authorized but unissued shares of Preferred Stock of the Company be
designated or redesignated and issued or reissued, as the case may be, as part
of any series of Preferred Stock of the Company, except that any issuance or
reissuance of shares of Senior Preferred Stock must be in compliance with the
Certificate of Designation.
Change of Control. Upon the occurrence of a Change of Control, each holder
of Senior Preferred Stock will have the right to require the Company to
purchase all or any part of such holder's Senior Preferred Stock pursuant to
an Offer at a purchase price equal to 101% of the liquidation preference
thereof, plus an amount in cash equal to all accumulated and unpaid dividends
per share (including an amount in cash equal to a prorated dividend for the
period from the dividend payment date immediately prior to the repurchase date
to the repurchase date). Notice of an Offer must be mailed within 30 days
following a Change of Control, must remain open for at least 30 and not more
than 40 days and must comply with the requirements of Rule 14e-1 under the
Exchange Act and any other applicable securities laws and regulations.
None of the provisions of the Certificate of Designation relating to a
purchase upon a Change of Control are waivable by the Board of Directors. The
Company could, in the future, enter into certain transactions, including
certain recapitalizations of JTP, that would not constitute a Change of
Control, but would increase the amount of indebtedness outstanding at such
time. If a Change of Control were to occur, the Company could be obligated to
offer to repurchase all of the securities issued under the Indentures and to
repay all outstanding obligations, if any, under the New Credit Agreement, and
there can be no assurance that the Company would have sufficient funds to pay
the purchase price for all shares of Senior Preferred Stock that the Company
is required to purchase. In addition, certain events that may obligate the
Company to offer to repurchase all of the securities issued under the
Indentures or to repay all outstanding obligations, if any, under the New
Credit Agreement may not constitute a Change of Control under the Certificate
of Designation.
102
<PAGE>
Except as described under "--Change of Control," the Certificate of
Designation does not contain provisions that permit the holders of Senior
Preferred Stock to require JTP to redeem the Senior Preferred Stock in the
event of a takeover, recapitalization or similar restructuring, including an
issuer recapitalization or similar transaction with management. Consequently,
the Change of Control provisions will not afford any protection in a highly
leveraged transaction, including such a transaction initiated by the Company,
management of the Company or an affiliate of the Company, if such transaction
does not result in a Change of Control. The Change of Control provisions may
not be waived by the Board of Directors without the consent of the holders of
at least a majority of the outstanding Senior Preferred Stock. See "--Voting
Rights."
In the event that the Company were required to purchase outstanding shares
of Senior Preferred Stock pursuant to an Offer, the Company expects that it
would need to seek third-party financing to the extent it does not have
available funds to meet its purchase obligations. However, there can be no
assurance that JTP would be able to obtain such financing. In addition, the
Company's ability to purchase the Senior Preferred Stock may be limited by
other then-existing borrowing agreements, including the Indentures and the New
Credit Agreement. See "Description of Notes--Certain Covenants" and
"Description of Certain Indebtedness and Other Obligations."
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding-up of
the Company, holders of Senior Preferred Stock will be entitled to be paid,
out of the assets of the Company available for distribution, the liquidation
preference per share, plus an amount in cash equal to all accumulated and
unpaid dividends thereon to the date fixed for liquidation, dissolution or
winding-up (including an amount equal to a prorated dividend for the period
from the last dividend payment date to the date fixed for liquidation,
dissolution or winding-up), before any distribution is made on any Junior
Securities, including, without limitation, the Common Stock and the Junior
Preferred Stock. If, upon any voluntary or involuntary liquidation,
dissolution or winding-up of the Company, the amounts payable with respect to
the Senior Preferred Stock and all other Parity Securities are not paid in
full, the holders of the Senior Preferred Stock and the Parity Securities will
share equally and ratably in any distribution of assets of JTP in proportion
to the full liquidation preference and accumulated and unpaid dividends to
which each is entitled. After payment of the full amount of the liquidation
preferences and accumulated and unpaid dividends to which they are entitled,
the holders of shares of Senior Preferred Stock will not be entitled to any
further participation in any distribution of assets of the Company. However,
neither the sale, conveyance, exchange or transfer (for cash, shares of stock,
securities or other consideration) of all or substantially all of the property
or assets of the Company nor the consolidation or merger of the Company with
or into one or more corporations will be deemed to be a liquidation,
dissolution or winding-up of the Company.
The Certificate of Designation does not contain any provision requiring
funds to be set aside to protect the liquidation preference of the Senior
Preferred Stock, although such liquidation preference will be substantially in
excess of the par value of such shares of Senior Preferred Stock. In addition,
the Company is not aware of any provision of Delaware law or any controlling
decision of the courts of the State of Delaware (the state of incorporation of
JTP) that requires a restriction upon the surplus of the Company solely
because the liquidation preference of the Senior Preferred Stock will exceed
its par value. Consequently, there will be no restriction upon the surplus of
the Company solely because the liquidation preference of the Senior Preferred
Stock will exceed the par value and there will be no remedies available to
holders of the Senior Preferred Stock before or after the payment of any
dividend, other than in connection with the liquidation of the Company, solely
by reason of the fact that such dividend would reduce the surplus of the
Company to an amount less than the difference between the liquidation
preference of the Senior Preferred Stock and its par value.
VOTING RIGHTS
Holders of the Senior Preferred Stock will have no voting rights with
respect to general corporate matters except as provided by law or as set forth
in the Certificate of Designation. The Certificate of Designation provides
103
<PAGE>
that (a) if (i) dividends on the Senior Preferred Stock are in arrears and
unpaid (and, in the case of dividends payable after August 1, 2002, are not
paid in cash) for four consecutive quarterly periods; (ii) the Company fails
to discharge any redemption obligation with respect to the Senior Preferred
Stock (whether or not JTP is permitted to do so by the terms of the
Indentures, the New Credit Agreement or any other obligation of the Company);
(iii) the Company fails to make an Offer to purchase all of the outstanding
shares of Senior Preferred Stock following a Change of Control (whether or not
the Company is permitted to do so by the terms of the Indentures, the New
Credit Agreement or any other obligation of the Company); (iv) a breach or
violation of the provisions described under the caption "--Certain Covenants"
occurs and the breach or violation continues for a period of 30 days or more;
or (v) a default occurs on the obligation to pay principal of, interest on or
any other payment obligation when due (a "Payment Default") at final maturity
on one or more classes of Indebtedness of JTP or any Subsidiary of the
Company, whether such Indebtedness exists on the Senior Preferred Stock Issue
Date or is incurred thereafter, having individually or in the aggregate an
outstanding principal amount of $10,000,000 or more, or any other Payment
Default occurs on one or more such classes of Indebtedness having individually
or in the aggregate an outstanding principal amount of $10,000,000 or more and
such class or classes of Indebtedness are declared due and payable prior to
their respective maturities, then the number of directors constituting the
Board of Directors will be adjusted to permit the holders of the majority of
the then outstanding Senior Preferred Stock, voting separately as a class, to
elect two directors, and (b) the approval of holders of a majority of the
outstanding shares of Senior Preferred Stock, voting as a separate class, will
be required for (i) any merger, consolidation or sale of assets of the
Company, except as permitted pursuant to the covenant entitled "Merger or
Consolidation;" and (ii) any modification of the Preferred Stock Exchange
Indenture. Each such event described in clause (a) above is referred to herein
as a "Voting Rights Triggering Event." Voting rights arising as a result of a
Voting Rights Triggering Event will continue until such time as all dividends
in arrears on the Senior Preferred Stock are paid in full (and after August 1,
2002, paid in cash) and any failure, breach or default referred to in clause
(a) is remedied.
In addition, the Certificate of Designation provides that, except as stated
above under "--Ranking," the Company will not authorize any class of Senior
Securities or Parity Securities without the affirmative vote or consent of
holders of at least a majority of the shares of Senior Preferred Stock then
outstanding, voting or consenting as the case may be, as one class. The
Certificate of Designation also provides that the Company may not amend the
Certificate of Designation so as to affect adversely the specified rights,
preferences, privileges or voting rights of holders of shares of the Senior
Preferred Stock, or authorize the issuance of any additional shares of Senior
Preferred Stock, without the affirmative vote or consent of the holders of at
least a majority of the then outstanding shares of Senior Preferred Stock,
voting or consenting, as the case may be, as one class. The Certificate of
Designation also provides that, except as set forth above, (a) the creation,
authorization or issuance of any shares of Junior Securities, Parity
Securities or Senior Securities or (b) the increase or decrease in the amount
of authorized capital stock of any class, including any Preferred Stock, shall
not require the consent of the holders of Senior Preferred Stock and shall not
be deemed to affect adversely the rights, preferences, privileges or voting
rights of holders of shares of Senior Preferred Stock.
Under Delaware law, holders of Senior Preferred Stock will be entitled to
vote as a class upon a proposed amendment to the Certificate of Incorporation,
whether or not entitled to vote thereon by the Certificate of Incorporation,
if the amendment would increase or decrease the par value of the shares of
such class, or alter or change the powers, preferences or special rights of
the shares or such class so as to affect them adversely.
CERTAIN COVENANTS
Merger or Consolidation. The Certificate of Designation provides that
without the consent of holders of a majority of the outstanding shares of
Senior Preferred Stock, voting as a separate class, the Company shall not
consolidate or merge with or into, or sell, lease, convey or otherwise dispose
of all or substantially all of its assets to, any person (any such
consolidation, merger or sale being a "Disposition") unless: (a) the successor
corporation of such Disposition or the person to which such Disposition shall
have been made is a corporation organized or existing under the laws of the
United States, any state thereof or the District of Columbia; (b) the Senior
Preferred Stock shall be converted into or exchanged for and shall become
shares of such successor,
104
<PAGE>
transferee or resulting corporation, having in respect of such successor,
transferee or resulting corporation substantially the same powers, preferences
and relative, participating, optional or other special rights, and the
qualifications, limitations or restrictions thereon, that the Senior Preferred
Stock had immediately prior to such Disposition; (c) immediately after such
Disposition, no Voting Rights Triggering Event (as defined in the Certificate
of Designation) shall have occurred and be continuing; (d) the corporation
formed by or surviving any such Disposition, or the corporation to which such
Disposition shall have been made, shall have Consolidated Net Worth
(immediately after the Disposition but prior to giving any pro forma effect to
purchase accounting adjustments or Restructuring Charges resulting from the
Disposition) equal to or greater than the Consolidated Net Worth of the
Company immediately preceding the Disposition; and (e) prior to the
consummation of any proposed Disposition, the Company shall have delivered to
the Transfer Agent an officers' certificate and an opinion of counsel to the
effect that such Disposition complies with the terms of the Certificate of
Designation and that all conditions precedent to such Disposition have been
satisfied.
Junior Payments. The Certificate of Designation provides that the Company
will not, directly or indirectly, (i) declare or pay any dividend or make any
distribution on account of any Junior Securities (other than dividends or
distributions payable in Junior Securities (other than Disqualified Stock));
(ii) purchase, redeem or otherwise acquire or retire for value any Junior
Securities; or (iii) make any Restricted Investment (all such dividends,
distributions, purchases, redemptions, acquisitions, retirements and
Restricted Investments being collectively referred to as "Junior Payments"),
if, at the time of such Junior Payment:
(a) a Voting Rights Triggering Event shall have occurred and be
continuing or would occur as a consequence thereof; or
(b) all dividends on the Senior Preferred Stock payable on dividend
payment dates after August 1, 2002, have not been declared and paid in
cash.
Notwithstanding the foregoing, the Certificate of Designation permits Junior
Payments under circumstances substantially the same as the provisions of the
Indentures relating to Restricted Payments.
Transactions with Affiliates. The provisions of the Certificate of
Designation (Section (m)(iii)) relating to transactions with Affiliates are
substantially the same as the provisions of the Indentures relating to such
matters. See "Description of Notes--Certain Covenants."
Reports. The provisions of the Certificate of Designation (Section (m)(iv))
relating to the provision of reports and information by the Company are
substantially the same as the provisions of the Indentures relating to such
matters. See "Description of Notes--Provision of Financial Information to
Holders of Notes."
EXCHANGE
The Company may at its option exchange all, but not less than all, of the
then outstanding shares of Senior Preferred Stock into Preferred Stock
Exchange Notes on any dividend payment date, provided that on the date of such
exchange: (a) there are no contractual impediments to such exchange; (b) there
are legally available funds sufficient therefor; (c) a registration statement
relating to the Preferred Stock Exchange Notes shall have been declared
effective under the Securities Act prior to such exchange and shall continue
to be in effect on the date of such exchange or the Company shall have
obtained a written opinion of counsel that an exemption from the registration
requirements of the Securities Act is available for such exchange, and that
upon receipt of such Preferred Stock Exchange Notes pursuant to such exchange
made in accordance with such exemption, the holders (assuming such holder is
not an Affiliate of the Company) thereof will not be subject to any
restrictions imposed by the Securities Act upon the resale thereof and such
exemption is relied upon by JTP for such exchange; (d) the Preferred Stock
Exchange Indenture and the trustee thereunder shall have been qualified under
the Trust Indenture Act; (e) immediately after giving effect to such exchange,
no Default or Event of Default (each as defined in the Preferred Stock
Exchange Indenture) would exist under the Preferred Stock Exchange Indenture;
and (f) the Company shall have delivered a written opinion of counsel, dated
the date of exchange, regarding the satisfaction of the conditions set forth
in clauses (a), (b), (c) and (d) and certain other matters. The Company shall
send a written notice of exchange by mail to each holder of record of shares
of Senior Preferred Stock, which notice shall state, among other things, (i)
that the Company is exercising its option to exchange the Senior
105
<PAGE>
Preferred Stock for Preferred Stock Exchange Notes pursuant to the Certificate
of Designation; and (ii) the date of exchange (the "Preferred Stock Exchange
Date"), which date shall not be less than 30 days nor more than 60 days
following the date on which such notice is mailed. On the Preferred Stock
Exchange Date, holders of outstanding shares of Senior Preferred Stock will be
entitled to receive a principal amount of Preferred Stock Exchange Notes equal
to the liquidation preference per share, plus an amount in cash equal to all
accrued and unpaid dividends (including an amount in cash equal to a prorated
dividend for the period from the dividend payment date immediately prior to
the Preferred Stock Exchange Date to the Preferred Stock Exchange Date), as
provided below.
The Preferred Stock Exchange Notes will be issued in registered form,
without coupons. Preferred Stock Exchange Notes issued in exchange for Senior
Preferred Stock will be issued in principal amounts of $1,000 and integral
multiples thereof to the extent possible, and will also be issued in principal
amounts less than $1,000 so that each holder of Senior Preferred Stock will
receive certificates representing the entire amount of Preferred Stock
Exchange Notes to which his shares of Senior Preferred Stock entitle him,
provided that the Company may, at its option, pay cash in lieu of issuing
Preferred Stock Exchange Notes in a principal amount less than $1,000. On and
after the Preferred Stock Exchange Date, dividends will cease to accrue on the
outstanding shares of Senior Preferred Stock, and all rights of the holders of
Senior Preferred Stock (except the right to receive the Preferred Stock
Exchange Notes, an amount in cash equal to the accrued and unpaid dividends to
the Preferred Stock Exchange Date and if the Company so elects, cash in lieu
of any Preferred Stock Exchange Notes which is an amount that is not an
integral multiple of $1,000) will terminate. The person entitled to receive
the Preferred Stock Exchange Notes issuable upon such exchange will be treated
for all purposes as the registered holder of such Preferred Stock Exchange
Notes.
The New Credit Agreement and the Indentures contain limitations with respect
to JTP's ability to issue the Preferred Stock Exchange Notes, and any future
credit agreements or other agreements relating to indebtedness to which the
Company becomes a party may contain similar limitations. See "Description of
Certain Indebtedness and Other Obligations" and "Description of Notes--Certain
Covenants."
The Company intends to comply with the provisions of Rule 13e-4 promulgated
pursuant to the Exchange Act in connection with any exchange, to the extent
applicable.
Registrar and Transfer Agent. Harris Trust and Savings Bank is the registrar
and transfer agent for the Senior Preferred Stock (the "Transfer Agent" and
collectively with the registrar and transfer agent for the Common Stock, the
"Transfer Agents").
DESCRIPTION OF PREFERRED STOCK EXCHANGE NOTES
The Preferred Stock Exchange Notes, if issued, will be issued under the
Exchange Note Indenture between the Company and First Trust National
Association, as trustee. The terms of the Preferred Stock Exchange Notes
include those stated in the Exchange Note Indenture and those made part of the
Exchange Note Indenture by reference to the Trust Indenture Act. The Preferred
Stock Exchange Notes will be subject to all such terms, and prospective
holders of the Preferred Stock Exchange Notes are referred to the Exchange
Note Indenture and the Trust Indenture Act for a statement of such terms. The
following summary of certain provisions of the Exchange Note Indenture does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, the Trust Indenture Act and to all of the provisions of the
Exchange Note Indenture, including the definitions of certain terms therein
and those terms made a part of the Exchange Note Indenture by reference to the
Trust Indenture Act. The definitions of certain terms used in the Exchange
Note Indenture and in the following summary are substantially the same as
those used in the Indentures. See "Description of Notes--Certain Definitions."
GENERAL
The Preferred Stock Exchange Notes, if issued, will be general unsecured
obligations of the Company, subordinated to all existing and future Senior
Indebtedness (which, for purposes of the Preferred Stock Exchange
106
<PAGE>
Notes will include Senior Subordinated Indebtedness), including the Senior
Notes, the Discount Notes and Indebtedness under the New Credit Agreement. The
Preferred Stock Exchange Notes will be issued in fully registered form only in
denominations of $1,000 and integral multiples thereof (other than as
described in "Description of Senior Preferred Stock--Exchange" or with respect
to additional Preferred Stock Exchange Notes issued in lieu of cash interest
as described herein).
Principal of, and premium, if any, and interest on the Preferred Stock
Exchange Notes will be payable, and the Preferred Stock Exchange Notes may be
presented for registration of transfer or exchange, at the office of the
Paying Agent in New York, New York. Holders of Preferred Stock Exchange Notes
must surrender their Preferred Stock Exchange Notes to the Paying Agent to
collect principal payments, and JTP may pay principal and interest by check
and may mail checks to a holder's registered address; provided that all
payments with respect to Preferred Stock Exchange Notes, the holders of which
have given wire transfer instructions to the Company, will be required to be
made by wire transfer of immediately available funds to the accounts specified
by the holders thereof. The Paying Agent may require payment of a sum
sufficient to cover any transfer tax or similar governmental charge payable in
connection with certain transfers or exchanges. See "--Other Provisions of the
Exchange Note Indenture" and "Book Entry; Delivery and Form." The Trustee will
initially act as Paying Agent and Registrar. The Company may change any Paying
Agent and Registrar without prior notice to holders of the Preferred Stock
Exchange Notes, and the Company or any of its Subsidiaries may act as Paying
Agent or Registrar.
The Preferred Stock Exchange Notes will mature on August 1, 2009. Each
Preferred Stock Exchange Note will bear interest at the rate of 13 1/4% per
annum from the Exchange Note Issue Date or from the most recent interest
payment date to which interest has been paid or provided for. Interest will be
payable semi-annually in cash (or, on or prior to August 1, 2002, in
additional Preferred Stock Exchange Notes, at the option of the Company) in
arrears on February 1 and August 1 of each year, commencing with the first
such date after the Exchange Note Issue Date. Interest on the Preferred Stock
Exchange Notes will be computed on the basis of a 360-day year of twelve 30-
day months and the actual number of days elapsed.
SUBORDINATION AND RANKING
The Preferred Stock Exchange Notes will be subordinated to the prior payment
when due of the principal of, and premium, if any, and interest on, all
existing and future Senior Indebtedness of the Company, and will rank pari
passu in right of payment to all other Subordinated Indebtedness of JTP. The
Preferred Stock Exchange Notes will also effectively rank junior to all
indebtedness of the Company's subsidiaries. As of June 30, 1997, on a pro
forma basis after giving effect to the Old Offerings and the application of
the net proceeds therefrom, the aggregate principal amount of Senior
Indebtedness of the Company and indebtedness of the Company's subsidiaries
would have been approximately $281.4 million. The Exchange Note Indenture
permits the Company and its Subsidiaries to incur additional Indebtedness,
including Senior Indebtedness, subject to certain limitations. In addition,
under the terms of the Exchange Note Indenture, JTP's Subsidiaries may incur
certain Indebtedness pursuant to agreements that may restrict the ability of
such Subsidiaries to make dividends or other intercompany transfers to the
Company necessary to service the Company's obligations, including its
obligations under the Preferred Stock Exchange Notes. Any failure by the
Company to satisfy its obligations with respect to the Preferred Stock
Exchange Notes at maturity (with respect to payments of principal) or prior
thereto (with respect to payments of interest or required repurchases) would
constitute a default under the Exchange Note Indenture and the New Credit
Agreement and could cause a default under agreements governing other
indebtedness of the Company and its Subsidiaries. See "Risk Factors--Holding
Company Structure; Dependence on Subsidiaries; Limitations on Access to Cash
Flow of the Subsidiaries," "Description of Certain Indebtedness and Other
Obligations" and "--Certain Covenants."
Upon (a) any distribution to creditors of the Company in a liquidation or
dissolution of JTP or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property; or
(b) an assignment for the benefit of creditors or any marshaling of the
Company's assets and liabilities, the holders of Senior Indebtedness will be
entitled to receive payment in full of all Obligations due in
107
<PAGE>
respect of such Senior Indebtedness (including interest after the commencement
of any such proceeding at the rate specified in the applicable Senior
Indebtedness) before holders of the Preferred Stock Exchange Notes will be
entitled to receive any payment with respect to the Preferred Stock Exchange
Notes. Until all Obligations with respect to Senior Indebtedness are paid in
full, any distribution to which holders of the Preferred Stock Exchange Notes
would be entitled shall be made to holders of Senior Indebtedness. However,
holders of the Preferred Stock Exchange Notes may receive securities that are
subordinated, at least to the same extent as the Preferred Stock Exchange
Notes are subordinated to Senior Indebtedness and any securities issued in
exchange for Senior Indebtedness.
In addition, the Company may not make any payment upon or in respect of the
Preferred Stock Exchange Notes (except in such subordinated securities) if (a)
a default in the payment of any principal, premium, if any, interest or other
Obligations with respect to any Designated Senior Indebtedness occurs and is
continuing beyond any applicable grace period (whether upon maturity, as a
result of acceleration or otherwise); or (b) any other default occurs and is
continuing with respect to any Designated Senior Indebtedness that permits
holders of such Designated Senior Indebtedness to accelerate its maturity, and
the Company and the Trustee receive a notice of such default (a "Payment
Blockage Notice") from the holders, or from the trustee, agent or other
representative of the holders, of any such Designated Senior Indebtedness.
Payments on the Preferred Stock Exchange Notes may and shall be resumed upon
the earlier of (i) the date upon which the default is cured or waived; or (ii)
in the case of a default referred to in clause (b) above, 179 days after the
date on which the applicable Payment Blockage Notice is received, unless the
maturity of any Designated Senior Indebtedness has been accelerated. No new
period of payment blockage may be commenced within 360 days after the receipt
by the Trustee of any prior Payment Blockage Notice. No nonpayment default
that existed or was continuing on the date of delivery of any Payment Blockage
Notice to the Trustee shall be, or be made, the basis for a subsequent Payment
Blockage Notice unless such default shall have been cured or waived for a
period of not less than 180 days.
The Exchange Note Indenture will further require that the Company promptly
notify holders of Senior Indebtedness if payment on the Preferred Stock
Exchange Notes is accelerated because of an Event of Default. In addition, the
subordination provisions of the Exchange Note Indenture may not be amended
without the consent of all holders of Designated Senior Indebtedness.
As a result of the subordination provisions described above, in the event of
a liquidation or insolvency, holders of the Preferred Stock Exchange Notes may
recover less ratably than other creditors of the Company.
REDEMPTION OF PREFERRED STOCK EXCHANGE NOTES
Optional Redemption. The Preferred Stock Exchange Notes may not be redeemed
at the option of the Company prior to August 1, 2002 other than out of the net
proceeds of one or more Equity Offerings, as and to the extent described
below. During the 12-month period beginning on August 1 of the years indicated
below, the Preferred Stock Exchange Notes will be redeemable, at the option of
the Company, in whole or in part, on at least 30 but not more than 60 days'
notice to each holder of Preferred Stock Exchange Notes to be redeemed, at the
redemption prices (expressed as percentages of the principal amount) set forth
below, plus any accrued and unpaid interest to the redemption date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002........................................................... 106.6250%
2003........................................................... 104.4167%
2004........................................................... 102.2083%
2005 and thereafter............................................ 100.0000%
</TABLE>
In addition, at any time, the Company may redeem the Preferred Stock
Exchange Notes in whole, but not in part, at a redemption price equal to
113.25% of the principal amount thereof, plus accrued and unpaid interest
thereon to the applicable redemption date, with the proceeds of an Equity
Offering, provided that such redemption shall occur within 60 days of the date
of the closing of such Equity Offering.
108
<PAGE>
Mandatory Redemption. Except as set forth under "--Mandatory Offer to
Purchase Preferred Stock Exchange Notes," JTP is not required to make any
mandatory redemption, purchase or sinking fund payments with respect to the
Preferred Stock Exchange Notes.
MANDATORY OFFER TO PURCHASE PREFERRED STOCK EXCHANGE NOTES
Change of Control. Upon the occurrence of a Change of Control, each holder
of Preferred Stock Exchange Notes shall have the right to require the Company
to purchase all or any part (equal to $1,000 or an integral multiple thereof)
of such holder's Preferred Stock Exchange Notes pursuant to an Offer (as
defined herein) at a purchase price in cash equal to 101% of the aggregate
principal amount thereof, plus any accrued and unpaid interest to the date of
purchase. The Company shall furnish to the Trustee, at least two Business Days
before notice of an Offer is mailed to all holders of Preferred Stock Exchange
Notes pursuant to the procedures described below under "--Procedures for
Offers," notice that the Offer is being made. Transactions constituting a
Change of Control are not limited to hostile takeover transactions not
approved by the current management of the Company. Except as described under
"--Change of Control," the Exchange Note Indenture does not contain provisions
that permit the holders of Preferred Stock Exchange Notes to require the
Company to purchase or redeem the Preferred Stock Exchange Notes in the event
of a takeover, recapitalization or similar restructuring, including an issuer
recapitalization or similar transaction with management.
Consequently, the Change of Control provisions will not afford any
protection in a highly leveraged transaction, including such a transaction
initiated by the Company, management of JTP or an affiliate of the Company, if
such transaction does not result in a Change of Control. In addition, because
the obligations of the Company with respect to the Preferred Stock Exchange
Notes are effectively subordinated to all secured Indebtedness of the Company
and all obligations of the Company's subsidiaries, existing or future secured
Indebtedness of JTP or obligations of the Company's subsidiaries may prohibit
the Company from repurchasing the Preferred Stock Exchange Notes upon a Change
of Control. Moreover, the ability of the Company to repurchase Preferred Stock
Exchange Notes following a Change of Control will be limited by the Company's
then-available resources. The Change of Control provisions may not be waived
by the Board of Directors of the Company or the Trustee without the consent of
holders of at least a majority in principal amount of the Preferred Stock
Exchange Notes. See "Description of Notes--Amendment, Supplement and Waiver."
JTP expects that prepayment of the Preferred Stock Exchange Notes following
a Change of Control would, and the exercise by holders of Preferred Stock
Exchange Notes of the right to require the Company to purchase Preferred Stock
Exchange Notes may, constitute a default under the New Credit Agreement or
other Indebtedness of the Company. The Exchange Note Indenture provides that,
prior to the mailing of the notice referred to below, but in any event within
30 days following any Change of Control, the Company covenants to (i) repay in
full and terminate all commitments under Indebtedness under the New Credit
Agreement and all other Senior Indebtedness the terms of which require
repayment upon a Change of Control or offer to repay in full and terminate all
commitments under all Indebtedness under the New Credit Agreement and all
other such Senior Indebtedness and to repay the Indebtedness owed to each
lender which has accepted such offer; or (ii) obtain the requisite consents
under the New Credit Agreement and all such other Senior Indebtedness to
permit the repurchase of the Preferred Stock Exchange Notes as provided below.
The Company shall first comply with the covenant in the immediately preceding
sentence before it shall be required to repurchase Preferred Stock Exchange
Notes pursuant to the provisions described below. JTP's failure to comply with
this covenant shall constitute an Event of Default described in clause (c) and
not in clause (b) under "--Events of Default and Remedies" below. In the event
a Change of Control occurs, the Company will likely be required to refinance
the Indebtedness outstanding under the New Credit Agreement, the Senior Notes
and the Preferred Stock Exchange Notes. If there is a Change of Control, any
Indebtedness under the New Credit Agreement could be accelerated. There can be
no assurance that sufficient funds will be available at the time of any Change
of Control to make any required repurchases of the Senior Notes and the
Preferred Stock Exchange Notes given the Company's high leverage. The
financing of the purchases of Senior Notes and Preferred Stock Exchange Notes
could additionally result in a default under the New Credit Agreement or other
indebtedness of the Company. The occurrence of a Change of Control may also
have an adverse impact on the ability of JTP to obtain additional
109
<PAGE>
financing in the future. The ability of holders of Preferred Stock Exchange
Notes to require that the Company purchase Preferred Stock Exchange Notes upon
a Change of Control may deter persons from effecting a takeover of the
Company. Except as described above with respect to a Change of Control, the
Exchange Note Indenture does not contain provisions that permit the holders of
Preferred Stock Exchange Notes to require that the Company purchase or redeem
the Preferred Stock Exchange Notes in the event of a takeover,
recapitalization or similar restructuring. See "Risk Factors--Leverage and
Coverage" and "--Holding Company Structure; Dependence on Subsidiaries;
Limitations on Access to Cash Flow of the Subsidiaries."
Procedures for Offers. Within 30 days following any Change of Control or
Asset Sale Trigger Date, subject to the provisions of the Exchange Note
Indenture, the Company shall mail to each holder of Preferred Stock Exchange
Notes at such holder's registered address a notice stating: (a) that an offer
(an "Offer") is being made pursuant to a Change of Control or an Asset Sale
Trigger Date, as the case may be, the length of time the Offer shall remain
open and the maximum principal amount of Preferred Stock Exchange Notes that
will be accepted for payment pursuant to such Offer; (b) the purchase price,
the amount of accrued and unpaid interest as of the purchase date, and the
purchase date (which shall be no earlier than 30 days and no later than 40
days from the date such notice is mailed (the "Purchase Date")); and (c) such
other information required by the Exchange Note Indenture and applicable law
and regulations.
On the Purchase Date for any Offer, the Company will, to the extent required
by the Exchange Note Indenture and such Offer, (1) in the case of an Offer
resulting from a Change of Control, accept for payment all Preferred Stock
Exchange Notes or portions thereof tendered pursuant to such Offer and, in the
case of an Offer resulting from an Asset Sale Trigger Date, accept for payment
the maximum principal amount of Preferred Stock Exchange Notes or portions
thereof tendered pursuant to such Offer that can be purchased out of the
Excess Proceeds; (2) deposit with the Paying Agent the aggregate purchase
price of all Preferred Stock Exchange Notes or portions thereof accepted for
payment and any accrued and unpaid interest on such Preferred Stock Exchange
Notes as of the Purchase Date; and (3) deliver or cause to be delivered to the
Trustee all Preferred Stock Exchange Notes tendered pursuant to the Offer. The
Paying Agent shall promptly mail to each holder the Preferred Stock Exchange
Notes or portions thereof accepted for payment an amount equal to the purchase
price for such Preferred Stock Exchange Notes plus any accrued and unpaid
interest thereon, and the Trustee shall promptly authenticate and mail (or
cause to be transferred by book-entry) to such holder of Preferred Stock
Exchange Notes accepted for payment in part a new Exchange Note equal in
principal amount to any unpurchased portion of the Preferred Stock Exchange
Notes and any Exchange Note not accepted for payment in whole or in part shall
be promptly returned to the holder thereof. JTP will publicly announce the
results of the Offer on or as soon as practicable after the Purchase Date.
The Company will comply with any tender offer rules under the Exchange Act
which may then be applicable, including Rule 14e-1, in connection with an
Offer required to be made by the Company to repurchase the Preferred Stock
Exchange Notes as a result of a Change of Control or an Asset Sale Trigger
Date. To the extent that the provisions of any securities laws or regulations
conflict with provisions of the Exchange Note Indenture, the Company shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under the Exchange Note Indenture by
virtue thereof.
Selection and Notice. In the event of a redemption or purchase of less than
all of the Preferred Stock Exchange Notes, the Preferred Stock Exchange Notes
to be redeemed or purchased will be chosen by the Trustee pro rata, by lot or
by any other method that the Trustee considers fair and appropriate and, if
the Preferred Stock Exchange Notes are listed on any securities exchange, by a
method that complies with the requirements of such exchange; provided that, if
less than all of a holder's Preferred Stock Exchange Notes are to be redeemed
or accepted for payment, only principal amounts of $1,000 or multiples thereof
may be selected for redemption or accepted for payment. On and after any
redemption or purchase date, interest shall cease to accrue on the Preferred
Stock Exchange Notes or portions thereof called for redemption or accepted for
payment. Notice of any redemption or offer to purchase will be mailed at least
30 days but not more than 60 days before the redemption or purchase date to
each holder of Preferred Stock Exchange Notes to be redeemed or purchased at
such holder's registered address.
110
<PAGE>
CERTAIN COVENANTS
The Exchange Note Indenture contains, among other things, the following
covenants:
Limitation on Restricted Payments. The Exchange Note Indenture contains
provisions relating to the making of Restricted Payments that are
substantially the same as the provisions of the Indentures relating to such
matters. See "Description of Notes--Certain Covenants."
Limitation on Transactions With Affiliates. The Exchange Note Indenture
contains provisions relating to transactions with Affiliates that are
substantially the same as the provisions of the Indentures relating to such
matters. See "Description of Notes--Certain Covenants."
MERGER OR CONSOLIDATION
The Exchange Note Indenture contains provisions relating to mergers and
consolidations that are substantially the same as the provisions of the
Indentures relating to such matters. See "Description of Notes--Certain
Covenants."
PROVISION OF FINANCIAL INFORMATION TO HOLDERS OF PREFERRED STOCK EXCHANGE
NOTES
So long as the Preferred Stock Exchange Notes are outstanding, whether or
not the Company is subject to the reporting requirements of Section 13 or
15(d) of the Exchange Act, the Company shall submit for filing with the
Commission the annual reports, quarterly reports and other documents relating
to the Company and its Restricted Subsidiaries that JTP would have been
required to file with the Commission pursuant to Section 13 or 15(d) if the
Company were subject to such reporting requirements. The Company will also
provide to all holders of Preferred Stock Exchange Notes and file with the
Trustee copies of such annual reports, quarterly reports and other documents
required to be furnished to stockholders generally under the Exchange Act.
EVENTS OF DEFAULT AND REMEDIES
The Exchange Note Indenture contains provisions relating to Events of
Default that are substantially the same as the provisions of the Indentures
relating to such matters. See "Description of Notes--Events of Default and
Remedies."
OTHER PROVISIONS OF THE EXCHANGE NOTE INDENTURE
The Exchange Note Indenture includes other provisions that are substantially
the same with respect to the Preferred Stock Exchange Notes as those with
respect to the Notes set forth under "Description of Notes--No Personal
Liability of Officers, Directors, Employees and Stockholders," "--Satisfaction
and Discharge of the Indentures," "--Transfer and Exchange," "--Amendment,
Supplement and Waiver" and "--Concerning the Trustee."
111
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following summarizes certain provisions of the Certificate of
Incorporation and the By-Laws. Such summaries do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, all
of the provisions of the Certificate of Incorporation and the By-Laws,
including the definitions therein of certain terms.
GENERAL
The authorized capital stock of the Company consists of 1,000,000 shares of
Common Stock, 1,000,000 shares of Preferred Stock, of which the Senior
Preferred Stock constitute a series, and 2,000 shares of Junior Preferred
Stock. There is currently 995,000 shares of Common Stock, 25,000 shares of
Senior Preferred Stock and 2,000 shares of Junior Preferred Stock outstanding.
All outstanding shares of Common Stock are fully paid and nonassessable.
COMMON STOCK
Each holder of shares of Common Stock is entitled to one vote per share on
all matters to be voted on by stockholders. The holders of Common Stock are
entitled to dividends and other distributions if, as and when declared by the
Board of Directors out of assets legally available therefor, subject to the
rights of holders of Preferred Stock and the restrictions, if any, imposed by
other indebtedness of the Company outstanding from time to time. See "Dividend
Policy."
Upon the liquidation, dissolution or winding up of JTP, the holders of
shares of Common Stock would be entitled to share ratably in the distribution
of all of the Company's assets after satisfaction of all its liabilities and
the payment of the liquidation preference of any outstanding shares of
Preferred Stock. The holders of Common Stock have no preemptive or other
subscription rights to purchase shares of capital stock of the Company, nor
are such holders entitled to the benefits of any sinking fund provisions.
PREFERRED STOCK
The Certificate of Incorporation authorizes the Board of Directors to create
and issue up to 1,000,000 shares of Preferred Stock in one or more series and
determine the rights and preferences of each series, to the extent permitted
by the Certificate of Incorporation and applicable law. Among other rights,
the Board of Directors may determine, without the further vote or action by
the Company's stockholders, (i) the number of shares constituting the series
and the distinctive designation of the series; (ii) the rate of dividends of
the series, and whether (and if so, on what terms and conditions) dividends
shall be cumulative (and if so, whether unpaid dividends shall compound or
accrue interest) or shall be payable in preference or in any other relation to
the dividends payable on any other class or classes of capital stock or any
other series; (iii) whether the series shall have voting rights in addition to
the voting rights provided by law and, if so, the terms and extent of such
voting rights; (iv) whether the shares of the series must or may be redeemed
and, if so, the terms and conditions of such redemption (including, without
limitation, the dates upon or after which the shares of the series must or may
be redeemed and the price or prices at which they must or may be redeemed,
which price or prices may be different in different circumstances or at
different redemption dates); (v) whether the shares of the series shall be
convertible or exchangeable and, if so, the terms and conditions of such
conversion or exchange (including without limitation the price or prices or
the rate or rates of conversion or exchange or any terms for adjustment
thereof); (vi) the amounts, if any, payable upon the shares of the series in
the event of voluntary liquidation, dissolution or winding up of the Company
in preference of shares of any other class or series and whether the shares of
the series shall be entitled to participate generally in distributions on the
Common Stock under such circumstances; (vii) the amounts, if any, payable upon
the shares of the series in the event of involuntary liquidation, dissolution
or winding up of JTP in preference of shares of any other class or series and
whether the shares of the series shall be entitled to participate generally in
distributions in the Common Stock under such
112
<PAGE>
circumstances; (viii) whether the shares of the series shall be entitled to
the benefits of a sinking fund for the redemption or purchase of the shares;
and (ix) any other relative rights, preferences, limitations and powers of the
series. Except for any difference so provided by the Board of Directors, the
shares of all series of Preferred Stock will rank on a parity with respect to
the payment of dividends and the distribution of assets upon liquidation. The
Board has designated 100,000 shares of Preferred Stock as Senior Preferred
Stock.
JUNIOR PREFERRED STOCK
Ranking. The Junior Preferred Stock ranks, with respect to dividend
distributions and distributions upon the liquidation, winding-up or
dissolution of the Company, (i) senior to the Common Stock and to each class
of capital stock or series of Preferred Stock established after the date of
this Offering Circular the terms of which do not expressly provide that such
class or series will rank senior to or on a parity with the Junior Preferred
Stock; (ii) subject to certain conditions, on a parity with any class of
capital stock or series of Preferred Stock, the terms of which expressly
provide that such class or series will rank on a parity with the Junior
Preferred Stock; and (iii) subject to certain conditions, junior to the Senior
Preferred Stock and each class of capital stock or series of Preferred Stock,
the terms of which expressly provide that such class or series will rank
senior to the Junior Preferred Stock.
Dividends. Commencing on the earlier to occur of the Mandatory Redemption
Date or the Early Redemption Date, holders of Junior Preferred Stock will be
entitled to receive, when, as and if declared by the Board of Directors, out
of funds legally available therefor, dividends on the Junior Preferred Stock
at a rate per annum equal to 10% of the liquidation preference per share of
Junior Preferred Stock. All dividends will be cumulative whether or not earned
or declared on a daily basis from the date of issuance of the Junior Preferred
Stock and will be payable quarterly in arrears on March 31, June 30, September
30 and December 31 of each year following the date dividends commence
accruing. Dividends, if and when declared, may be paid only in cash. The
Company does not anticipate paying cash dividends on the Junior Preferred
Stock should dividends become payable prior to September 30, 2002.
Mandatory Redemption. The Company will be obligated to redeem all
outstanding shares of Junior Preferred Stock (i) on August 1, 2002 (subject to
contractual and other restrictions with respect thereto and to the legal
availability of funds therefor) at a price equal to the then effective
Liquidation Value (as hereinafter defined) thereof, plus an amount in cash
equal to all accumulated and unpaid dividends (including an amount in cash
equal to a prorated dividend for the period from the dividend payment date
immediately prior to the redemption date to the redemption date), provided,
however, that if such redemption is not made because it would result in a
default or event of default under any Financing Obligation (as defined in the
Certificate of Incorporation), the Company will be obligated to make such
redemption upon the earlier of (x) the date on which such payment would no
longer result in any default or event of default under any Financing
Obligation and (y) August 1, 2010 (the "Final Redemption Date"); and (ii) the
closing of an Early Redemption Event (the "Early Redemption Date") at the
Early Redemption Price (as hereinafter defined) as of such closing; provided,
however, that if the Company fails to pay the Early Redemption Price for all
of the outstanding shares of Junior Preferred Stock upon an Early Redemption
Event because the payment thereof would result in a default or event of
default under any Financing Obligation, the Company will be obligated to make
such payment upon the earlier of (x) the date when such payment would no
longer result in any default or event of default under any Financing
Obligation, or (y) the Final Redemption Date.
Liquidation Preference. Upon any voluntary or involuntary liquidation,
dissolution or winding-up of JTP, holders of Junior Preferred Stock will be
entitled to be paid, out of the assets of the Company available for
distribution, the Liquidation Value per share, plus an amount in cash equal to
all accumulated and unpaid dividends thereon to the date fixed for
liquidation, dissolution or winding-up (including an amount equal to a
prorated dividend for the period from the last dividend payment date to the
date fixed for liquidation, dissolution or winding-up), before any
distribution is made on any Junior Securities, including, without limitation,
Common Stock.
113
<PAGE>
Voting Rights. The holders of the Junior Preferred Stock are entitled to
vote on the election of directors and on each matter which the stockholders of
the Company shall be entitled to vote, voting together with the Common Stock
as a single class, with the holders of each share of Junior Preferred Stock
being entitled to 9,500 votes for each share held, entitling the holders of
the Junior Preferred Stock to 95% of the total combined voting power of the
Common Stock and the Junior Preferred Stock.
CERTAIN DEFINITIONS
"Early Redemption Event" means any of the following which occur prior to
August 1, 2002: (i) the sale by the Company or its stockholders of shares of
Common Stock pursuant to a registration statement (other than a registration
statement on Form S-4 or S-8, or any successor form thereto) that is filed and
declared effective under the Securities Act which provides for an aggregate
public offering involving gross proceeds of at least $25,000,000; (ii) the
closing of any merger, combination, consolidation or similar business
transaction involving the Company in which the holders of Common Stock
immediately prior to such closing are not the holders, directly or indirectly,
of a majority of the ordinary voting securities of the surviving person in
such transaction immediately after such closing; (iii) the closing of any sale
or transfer by JTP of all or substantially all of its assets to an acquiring
person in which the holders of Common Stock immediately prior to such closing
are not the holders of a majority of the ordinary voting securities of the
acquiring person immediately after such closings; or (iv) the closing of any
sale by the holders of Common Stock of an amount of Common Stock that equals
or exceeds a majority of the shares of Common Stock immediately prior to such
closing to a person in which the holders of the Common Stock immediately prior
to such closing are not the holders of a majority of the ordinary voting
securities of such person immediately after such closing.
"Early Redemption Price" shall equal the sum of (i) the Liquidation Value of
the Junior Preferred Stock immediately prior to the closing of the Early
Redemption Event plus (ii) the present value of 95% of the projected Net
Income (Loss) (as defined in the Certificate of Incorporation) of the Company
for the period between such closing and August 1, 2002, with such present
value determined using a discount rate equal to the weighted average cost of
indebtedness representing borrowed money of the Company at the time of the
Early Redemption Event, provided, that the amount in this clause (ii) will not
be less than zero. The projected Net Income (Loss) will be (i) determined by
the Board of Directors in its reasonable good faith based upon the projections
of the Company's financial results which shall be calculated on the basis of
management's good faith and reasonable assumptions; and (ii) calculated
without giving effect to the Early Redemption Event and any related
refinancing, recapitalization or other transactions.
"Liquidation Value" of all of the shares of Junior Preferred Stock will be
equal to the sum of (i) $20.0 million plus (ii) (A) for the period from the
date of issuance through August 1, 2002, plus or minus 95% of the cumulative
Net Income (Loss) for such period and (B) for the period from August 1, 2002
and thereafter, the amount of any preferred dividends thereon not paid on any
dividend payment date, whether or not declared, which shall be added to the
Liquidation Value at such dividend payment date; provided that, and
notwithstanding the foregoing, upon, in connection with and after the Early
Redemption Date, the Liquidation Value of the Junior Preferred Stock shall be
the Early Redemption Price and the amount of any preferred dividends thereon
not paid on any subsequent dividend payment date, whether or not declared,
which shall be added to such Liquidation Value as of such dividend payment
date. The Liquidation Value of each share of Junior Preferred Stock will be
the result of the Liquidation Value of all of the outstanding Junior Preferred
Stock divided by the number of outstanding shares of Junior Preferred Stock.
ANTI-TAKEOVER EFFECTS OF DELAWARE LAW AND CERTIFICATE OF INCORPORATION AND BY-
LAWS
The Certificate of Incorporation and the By-Laws and Section 203 of the
Delaware General Corporation Law ("DGCL") contain certain provisions that may
make more difficult the acquisition of control of the Company by means of a
tender offer, open market purchase, proxy fight or otherwise. These provisions
are designed to encourage persons seeking to acquire control of the Company to
negotiate with the Board of
114
<PAGE>
Directors. However, these provisions could have the effect of discouraging a
prospective acquiror from making a tender offer or otherwise attempting to
obtain control of JTP. To the extent that these provisions discourage takeover
attempts, they could deprive stockholders of opportunities to realize takeover
premiums for their shares or could depress the market price of the shares.
Delaware General Corporation Law and Business Combination Provision. Section
203 of the DGCL, prohibits certain "business combination" transactions between
a corporation that has elected to be governed by such section, such as the
Company, and any "interested stockholder" for a period of three years after
the date on which the latter became an interested stockholder, unless (1)
prior to that date either the proposed business combination or the proposed
acquisition of stock resulting in its becoming an interested stockholder is
approved by the Board of Directors; (2) in the same transaction in which it
becomes an interested stockholder, the interested stockholder acquires at
least 85% of those shares of the voting stock of the corporation that are not
held by the directors, officers or certain employee stock plans; or (3) the
business combination with the interested stockholder is approved by the Board
of Directors and also approved at a stockholders' meeting by the affirmative
vote of the holders of at least two-thirds of the outstanding shares of the
corporation's voting stock other than shares held by the interested
stockholder. An "interested stockholder" is defined in Section 203 of the
DGCL, with certain exceptions, as any person that (i) is the owner of 15% or
more of the outstanding voting stock of a corporation; or (ii) is an affiliate
or associate of the corporation and was the owner of 15% or more of the
outstanding voting stock of the corporation at any time within the three-year
period immediately prior to the date on which the determination is to be made
as to such person's status as an interested stockholder.
Availability of Shares of Capital Stock for Future Issuance. The
availability for issuance of shares of Preferred Stock and Common Stock by the
Company without further action by stockholders (except as may be required by
applicable stock exchange or NASDAQ Stock Market regulations, if the shares of
Common Stock are then listed on such exchange or stock market) could be viewed
as enabling the Board of Directors to make more difficult a change in control
of the Company, including by issuing warrants or rights to acquire shares of
Preferred Stock or Common Stock to discourage or defeat unsolicited stock
accumulation programs and acquisition proposals and by issuing shares in a
private placement or public offering to dilute or deter stock ownership of
persons seeking to obtain control of the Company. JTP has no present plans to
issue any shares of Preferred Stock or Common Stock other than as offered
hereby.
Special Meetings. The Certificate of Incorporation provides that, except as
otherwise required by law, special meetings of the stockholders can only be
called by a majority of the entire Board of Directors, the Chairman of the
Board of Directors or the Chief Executive Officer of the Company. Any call for
a special meeting must specify the matters to be acted upon at the meeting.
Other Constituencies Provision. The Certificate of Incorporation provides
that, in addition to any other consideration that the Board of Directors may
lawfully take into account, in determining whether to take or refrain from
taking corporate action on any matter, including proposing any matter to the
stockholders of the Company, the Board of Directors may take into account the
long-term as well as short-term interests of the Company and its stockholders
(including the possibility that these interests may be best served by the
continued independence of the Company), customers, employees and other
constituencies of the Company and its subsidiaries, including the effect upon
communities in which JTP and its subsidiaries do business. In considering the
foregoing and other pertinent factors, the Board of Directors is not required,
in considering the best interest of the Company, to regard any particular
corporate interest of any particular group affected by such action as
controlling.
The foregoing provisions of the Certificate of Incorporation may be changed
only by the affirmative vote of the holders of two-thirds of the votes that
could be cast by the holders of all shares of capital stock of the Company
entitled to vote on such matters at a meeting duly called for such purpose.
Stockholder Proposals. The By-Laws provide that, if a stockholder desires to
submit a proposal at an annual or special stockholders' meeting or to nominate
persons for election to the Board of Directors, the stockholder
115
<PAGE>
must submit written notice to the Company at least 60 days prior to the
anniversary date of the prior meeting or within ten days after notice of a
special meeting is sent or given to stockholders by the Company. The notice
must describe the proposal or nomination and set forth the name and address
of, the number of shares of stock held of record and beneficially by, the
stockholder. Notices of stockholder proposals must set forth the reasons for
conducting such business and any material interest of the stockholder in such
business. Director nomination notices must set forth the name and address of
the nominee, arrangements between the stockholder and the nominee and other
information as would be required under Regulation 14A of the Exchange Act. The
presiding officer of the meeting may refuse to acknowledge a proposal or
nomination not made in compliance with the procedures contained in the By-
Laws.
The advance notice requirements regulating stockholder nominations and
proposals may have the effect of precluding a contest for the election of
directors or the introduction of a stockholder proposal if the established
procedures are not followed.
The foregoing provisions of the By-Laws may be changed by the stockholders
only upon the affirmative vote of the holders of two-thirds of the votes that
could be cast by the holders of all shares of capital stock of JTP entitled to
vote on such matters at a meeting duly called for such purpose.
Registrar and transfer agent. Harris Trust and Savings Bank is the registrar
and transfer agent for the Common Stock.
BOOK-ENTRY; DELIVERY AND FORM
Except as set forth in the next paragraph, the New Securities to be
exchanged as set forth herein will initially be issued in the form of one or
more registered Global New Securities (the "Global New Securities"), each of
which will be deposited on the Expiration Date with, or on behalf of, The
Depository Trust Company (the "Depositary") and registered in the name of Cede
& Co., as nominee of the Depositary (the "Global New Security Holder"). The
following are summaries of certain rules and operating procedures of the
Depositary which affect the Global New Securities.
New Securities that are issued as described below under "--Certificated New
Securities" will be issued in the form of registered definitive certificates
(the "Certificated New Securities"). Such Certificated New Securities may,
unless the Global New Security has previously been exchanged for Certificated
New Securities, be exchanged for an interest in the Global New Security
representing the principal amount of New Securities being transferred.
The Depositary has advised the Company that it is a limited-purpose trust
company created to hold securities for its participating organizations
(collectively, the "Participants" or the "Depositary's Participants") and to
facilitate the clearance and settlement of transactions in such securities
between Participants through electronic book-entry changes in accounts of its
Participants. The Depositary's Participants include securities brokers and
dealers (including the Initial Purchasers), banks and trust companies,
clearing corporations and certain other organizations. Access to the
Depositary's system is also available to other entities such as banks,
brokers, dealers and trust companies (collectively, the "Indirect
Participants" or the "Depositary's Indirect Participants) that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only through the Depositary's
Participants or the Depositary's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global New Securities, the Depositary will
credit the accounts of Participants designated by the Initial Purchasers with
portions of the Global New Securities; and (ii) ownership of the New
Securities will be shown on, and the transfer of ownership thereof will be
effected only through, records maintained by the Depositary (with respect
116
<PAGE>
to the interests of the Depositary's Participants), the Depositary's
Participants and the Depositary's Indirect Participants. The laws of some
states require that certain persons take physical delivery in definitive form
of securities that they own. Consequently, the ability to transfer New
Securities will be limited to such extent.
So long as the Global New Security Holder is the registered owner of any New
Securities, the Global New Security Holder will be considered the sole owner
of such securities. Except as provided below, owners of beneficial interests
in a Global New Security will not be entitled to have securities represented
by such Global New Security registered in their names, will not receive or be
entitled to receive physical delivery of Certificated New Securities, and will
not be considered the owners or Holders thereof under the Indentures or the
Certificate of Designation, as the case may be, for any purpose. As a result,
the ability of a person having a beneficial interest in securities represented
by a Global New Security to pledge such interest to persons or entities that
do not participate in the Depositary's system or to otherwise take actions in
respect of such interest, may be affected by the lack of a physical
certificate evidencing such interest. Accordingly, each QIB owning a
beneficial interest in a Global New Security must rely on the procedures of
the Depositary and, if such QIB is not a Participant or an Indirect
Participant, on the procedures of the Participant through which such QIB owns
its interest, to exercise any rights of a holder of such Global New Security.
Neither the Company, the Trustees nor Transfer Agents will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of Notes, Senior Preferred Stock or Common Stock, or
for maintaining, supervising or reviewing any records of the Depositary
relating to such securities.
Payments in respect of the Notes, Senior Preferred Stock or Common Stock
reistered in the name of a Global Holder on the applicable record date will be
payable by the Trustees or the Transfer Agents to or at the direction of such
Global Holder in its capacity as the registered holder. The Company, the
Trustees and the Transfer Agents may treat the persons in whose names the
Notes or shares of Senior Preferred Stock, and Common Stock including the
Global Securities, are registered as the owners thereof for the purpose of
receiving such payments and for all other purposes. Consequently, neither the
Company, the Trustees nor the Transfer Agents have or will have any
responsibility or liability for the payment of such amounts to beneficial
owners of such securities. Payments by the Depositary's Participants and the
Depositary's Indirect Participants to the beneficial owners of Notes, Senior
Preferred Stock or Common Stock will be governed by standing instructions and
customary practice and will be the responsibility of the Depositary's
Participants or the Depositary's Indirect Participants.
Certificated New Securities
Subject to certain conditions, any person having a beneficial interest in
the Global New Security may, upon request to the Trustees or Transfer Agents,
exchange such beneficial interest for New Securities in the form of
Certificated New Securities. Upon any such issuance, the Trustees or Transfer
Agents are required to register such Certificated New Securities in the name
of, and cause the same to be delivered to, such person or persons (or the
nominee of any thereof). If (i) the Company notifies the Trustees or the
Transfer Agents in writing that the Depositary is no longer willing or able to
act as a depository and the Company is unable to locate a qualified successor
within 90 days; or (ii) the Company, at its option, notifies the Trustees or
the Transfer Agents in writing that it elects to cause the issuance of the
Notes, Senior Preferred Stock or Common Stock in definitive form then, upon
surrender by the relevant Global New Security Holder of its Global New
Security, Notes, Senior Preferred Stock or Common Stock in such form will be
issued to each person that such Global New Security Holder and the Depositary
identifies as the beneficial owner of the related securities. In addition,
subject to certain conditions, any person having a beneficial interest in the
Global New Security may, upon request to the Trustees or the Transfer Agents,
exchange such beneficial interest for Notes, Senior Preferred Stock or Common
Stock in definitive form. Upon any such issuance, the Trustees or the Transfer
Agents are required to register such securities in the name of, and cause the
same to be delivered to, such person or persons (or the nominee of any
thereof). Such securities would be issued in fully registered form.
117
<PAGE>
Same-Day Settlement and Payment
The Indentures or the Certificate of Designation, as the case may be, will
require that payments in respect of the Notes or Senior Preferred Stock
represented by the Global New Securities (including principal, premium,
interest and dividends) be made by wire transfer of immediately available
funds to the accounts specified by the Global New Security Holder. With
respect to Certificated New Securities, the Company will make all payments of
principal, premium, interest and dividends by wire transfer of immediately
available funds to the accounts specified by the holders thereof or, if no
such account is specified, by mailing a check to each such holder's registered
address.
SHARES ELIGIBLE FOR FUTURE SALE
Immediately following the Old Offerings, there were 995,000 shares of Common
Stock issued and outstanding. All of such shares are "restricted securities"
within the meaning of Rule 144 and may not be publicly resold, except in
compliance with the registration requirements of the Securities Act or
pursuant to an exemption from registration, including that provided by Rule
144. This Exchange Offer does not cover the shares of Common Stock forming
part of the Preferred Stock Units; consequently, all outstanding shares of
Common Stock are, and will continue to be, restricted securities.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned "restricted" shares
for at least one year, including a person who may be deemed an affiliate of
the Company, is entitled to sell within any three-month period a number of
shares of Common Stock that does not exceed the greater of 1% of the then-
outstanding shares of Common Stock of the Company, or the average weekly
trading volume of Common Stock during the four calendar weeks preceding the
date on which notice of the sale is filed with the Commission. Sales under
Rule 144 are subject to certain restrictions relating to manner of sale,
notice and the availability of current public information about the Company. A
person who is not an "affiliate" of the Company at any time during the 90 days
preceding a sale, and who has beneficially owned shares for at least two
years, would be entitled to sell such shares under Rule 144(k) without regard
to the volume limitations, manner of sale provisions or notice or other
requirements of Rule 144. In addition, any employee, director or officer of,
or consultant to, the Company who purchased his or her shares pursuant to a
written compensatory plan or contract may be entitled to rely on the resale
provisions of Rule 701 under the Securities Act, which permit non-affiliates
to sell their Rule 701 shares without having to comply with the public
information, holding period, volume limitation or notice provisions of Rule
144, and permit affiliates to sell their Rule 701 shares without having to
comply with Rule 144's holding period restrictions, in each case commencing
October 19, 1997.
Prior to the date of this Prospectus, there has been no public market for
the Common Stock. JTP does not presently intend to apply for listing of the
Common Stock on a national securities exchange or for quotation on an
automated interdealer quotation system. As a result, it may be difficult for
holders of Common Stock to sell their shares. No prediction can be made as to
the effect, if any, that future sales of shares, or the availability of shares
for future sale, will have on the market price of the Common Stock prevailing
from time to time. Sales of substantial amounts of Common Stock, or the
perception that such sales could occur, could adversely affect the prevailing
market price of the Common Stock. See "Risk Factors--Absence of Public Market
for the New Securities and Preferred Stock Units and Common Stock;
Restrictions on Transfer."
118
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following discussion is a summary of the material United States federal
income tax considerations relevant to the purchase, ownership and disposition
of the Offered Securities by holders acquiring Offered Securities on original
issue for cash, but does not purport to be a complete analysis of all
potential tax effects. To the extent that it relates to matters of law or
legal conclusions, this summary constitutes the opinion of Mayer, Brown &
Platt. The discussion is based upon the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury regulations, Internal Revenue Service
("Service") rulings and pronouncements and judicial decisions all in effect as
of the date hereof, all of which are subject to change at any time, and any
such change may be applied retroactively in a manner that could adversely
affect a holder of the Offered Securities. See "Possible Legislative Changes."
The discussion does not address all of the federal income tax consequences
that may be relevant to a holder in light of such holder's particular
circumstances or to holders subject to special rules, such as certain
financial institutions, insurance companies, dealers in securities, foreign
corporations, nonresident alien individuals and persons holding the Offered
Securities as part of a "straddle," "hedge" or "conversion transaction."
Moreover, the effect of any applicable state, local or foreign tax laws is not
discussed. The discussion deals only with Offered Securities held as "capital
assets" within the meaning of section 1221 of the Code.
The Company has not sought and will not seek any rulings from the Service
with respect to the position of JTP discussed below. There can be no assurance
that the Service will not take a different position concerning the tax
consequences of the purchase, ownership or disposition of the Offered
Securities or that any such position would not be sustained.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH REGARD TO
THE APPLICATION OF THE TAX CONSIDERATIONS DISCUSSED BELOW TO THEIR PARTICULAR
SITUATIONS AS WELL AS THE APPLICATION OF ANY STATE, LOCAL, FOREIGN OR OTHER
TAX LAWS.
CONSEQUENCES OF EXCHANGE OFFER TO EXCHANGING AND NONEXCHANGING HOLDERS
The exchange of an Old Security for a New Security pursuant to the Exchange
Offer will not be taxable to the exchanging Holders for Federal income tax
purposes. As a result (i) an exchanging Holder will not recognize any gain or
loss on the exchange; (ii) the holding period for the New Security will
include the holding period for the Old Security; (iii) the basis of the New
Security will be the same as the basis for the Old Security; and (iv) the
original issue discount on the New Discount Notes will be the same as on the
Old Discount Notes.
The Exchange Offer will result in no Federal income tax consequences to a
nonexchanging Holder.
The treatment of interest and original issue discount described below with
respect to the Senior Notes and Discount Notes is based in part upon the
assumption that as of the date of issuance of the Old Securities, the
possibility that liquidated damages would be paid to holders of such Notes
pursuant to a Registration Default was remote. The Service may take a
different position, which could affect the timing and character of interest
income by holders of such Notes.
SENIOR NOTES
Subject to the aggregation rules described below, a holder of Senior Notes
will be required for federal income tax purposes to report stated interest on
the Senior Notes as income in accordance with the holder's method of
accounting for tax purposes. A substantial portion of the Senior Notes and
Discount Notes were purchased by investors who purchased both Senior Notes and
the Discount Notes in the Old Offerings. Therefore, certain aggregation rules
contained in the applicable Treasury Regulations (the "OID Regulations") could
be interpreted to require that Senior Notes and Discount Notes purchased by
the same investor in the Old Offerings be treated as a single debt instrument,
although the Company does not intend to aggregate the Senior Notes and
Discount Notes in such a manner. For purposes of calculating and amortizing
any original issue discount, such single debt instrument would be treated as
having a single issue price, maturity date, stated redemption price at
maturity and yield to maturity. If such aggregation rules were to apply,
Senior Notes purchased in the Old
119
<PAGE>
Offerings by investors who also purchased Discount Notes in the Old Offerings
would be treated as a portion of a debt instrument issued with original issue
discount, and would be subject to the treatment described below under "--
Discount Notes--Original Issue Discount."
DISCOUNT NOTES
Original Issue Discount. Because the Discount Notes have been issued at a
discount from their "stated redemption price at maturity," the Discount Notes
have original issue discount ("OID") for federal income tax purposes. For
federal income tax purposes, OID on a Discount Note is the excess of the
stated redemption price at maturity of the Discount Note over its issue price.
The issue price of each Discount Note is the first price at which a
substantial amount of the Discount Notes was sold for money, which was $708.62
per $1,000 of principal amount at maturity. The stated redemption price at
maturity of a Discount Note will be the sum of all payments to be made on such
Discount Note other than "qualified stated interest" payments. Qualified
stated interest is stated interest that is unconditionally payable at least
annually at a single fixed rate that appropriately takes into account the
length of the interval between payments. The interest payments on the Discount
Notes will not constitute qualified stated interest, and thus will be included
along with principal in the stated redemption price at maturity of the
Discount Notes. As a result, each Discount Note will bear OID in an amount
equal to the excess of (i) the sum of its principal amount and all stated
interest payments over (ii) its issue price.
A holder will be required to include OID in income periodically over the
term of a Discount Note before receipt of the cash or other payment
attributable to such income. In general, a holder must include in gross income
for federal income tax purposes the sum of the daily portions of OID with
respect to the Discount Notes for each day during the taxable year or portion
of a taxable year on which such holder holds the Discount Note ("Accrued
OID"). The daily portion is determined by allocating to each day of any
accrual period within a taxable year a pro rata portion of an amount equal to
the adjusted issue price of the Discount Note at the beginning of the accrual
period multiplied by the yield to maturity of the Discount Note. For purposes
of computing OID, the Company will use six-month accrual periods which end on
the days in the calendar year corresponding to the maturity date of the
Discount Notes and the date six months prior to such maturity date, with the
exception of an initial long accrual period. The adjusted issue price of a
Discount Note at the beginning of any accrual period is the issue price of the
Discount Note increased by the Accrued OID for all prior accrual periods (less
any cash payments on the Discount Notes other than qualified stated interest).
Under these rules, holders will have to include in gross income increasingly
greater amounts of OID in each successive accrual period. Each payment made
under a Discount Note (except for payments of qualified stated interest) will
be treated first as a payment of OID to the extent of OID that has accrued as
of the date of payment and has not been allocated to prior payments and second
as a payment of principal.
Optional Redemption. JTP's option to redeem the Discount Notes at any time
after August 1, 2002 should be treated as a "call option" within the meaning
of the OID Regulations. See "Description of Notes--Redemption of Notes--
Optional Redemption." As a result, the Company would be presumed under the OID
Regulations to exercise its option to redeem the Discount Notes if by
utilizing the date of exercise of a call option as the maturity date and the
amount for which the Discount Notes could be redeemed in accordance with the
terms of the redemption feature (that is, the principal amount plus redemption
premium, if any, plus accrued interest) as the stated redemption price at
maturity the yield on the Discount Notes would be lower than such yield would
be if the option was not exercised. Because the exercise by the Company of its
call option at any time after August 1, 2002 and before August 1, 2004 would
result in higher yield than if such call option were not exercised, such call
option should be presumed to not be exercised under the OID Regulations.
In addition to the option redemption described above, a holder will have the
right to tender Discount Notes to the Company for redemption should JTP
experience a Change of Control. See "Description of Notes-- Mandatory Offer to
Purchase Notes." Such additional redemption rights should not affect, and will
be treated by the Company as not affecting, the determination of the yield or
maturity of the Discount Notes.
120
<PAGE>
TAXABLE DISPOSITION OF NOTES
Generally, any sale or redemption of Notes will result in taxable gain or
loss equal to the difference between the amount of cash or other property
received (except to the extent the consideration received is attributable to
qualified stated interest not previously taken into account, which
consideration is treated as interest received) and the holder's adjusted tax
basis in the Note. A holder's adjusted tax basis for determining gain or loss
on the sale or other taxable disposition of a Note will initially equal the
cost of the Note to such holder and will be increased by any Accrued OID with
respect to any Note includable in such holder's gross income and decreased by
the amount of any cash payments received with such holder regardless of
whether such payments are denominated as interest (other than payments of
qualified stated interest). Any gain or loss upon a sale or disposition of a
Note by an original holder will generally be capital gain or loss. The
recently enacted Taxpayer Relief Act of 1997 made certain changes to the Code
with respect to taxation of capital gains of taxpayers other than
corporations. In general, the maximum tax rate for non-corporate taxpayers on
long term capital gains has been lowered to 20% from the previous 28% rate for
most capital assets (including the New Securities) held for more than 18
months. For taxpayers in the 15% regular tax bracket, the maximum tax rate on
long term capital gains is now 10%. These rate reductions are effective
retroactively to any sale made after May 6, 1997. Capital assets sold after
July 28, 1997, must be held for more than 18 months, rather than for more than
one year, in order for gain on the sale of such assets to qualify as long term
capital gain. Capital assets sold after May 6, 1997 but before July 29, 1997
qualify for the new 20% rate so long as they were held for more than one year.
Capital gain on assets sold on or after July 29, 1997, having a holding period
of more than one year but not more than 18 months will be taxed as "mid-term
gain" at a 28% rate.
PREFERRED STOCK UNITS
Allocation of Basis. Each holder of a Preferred Stock Unit will have an
aggregate tax basis in the unit equal to the amount of cash paid by the holder
of such unit. For federal income tax purposes, a holder's aggregate tax basis
in the Preferred Stock Units will be allocated between the Senior Preferred
Stock and the Common Stock represented by such units based on their relative
fair market values at the time of the issuance. The Company will determine and
provide holders with its estimate of the fair market values of the Senior
Preferred Stock and Common Stock and the holders will allocate the basis of
the Preferred Stock Units between the Senior Preferred Stock and Common Stock,
in proportion to their relative fair market values. There can be no assurance,
however, that the Service will respect the Company's determination.
Classification of Senior Preferred Stock. Although the characterization of
an instrument as debt or equity is a facts and circumstances determination
that cannot be predicted with certainty, the Senior Preferred Stock should be
treated as equity for federal income tax purposes. Accordingly, the Company
intends to treat the Senior Preferred Stock as equity for federal income tax
purposes, and the remainder of this discussion assumes that such treatment
will be respected.
Distributions on Senior Preferred Stock and Common Stock. Distributions on
Senior Preferred Stock, whether paid in cash or in additional shares of Senior
Preferred Stock, or cash distributions on the Common Stock, if any, will be
taxable as ordinary dividend income to the extent that the cash amount or the
fair market value of any Senior Preferred Stock distributed on the Senior
Preferred Stock or the cash amount distributed on the Common Stock does not
exceed JTP's current or accumulated earnings and profits (as determined for
federal income tax purposes). To the extent that the amount of such
distributions paid on the Senior Preferred Stock or Common Stock exceeds the
Company's current or accumulated earnings and profits (as determined for
federal income tax purposes), the distributions will be treated as a return of
capital, thus reducing the holder's adjusted tax basis in such Senior
Preferred Stock or Common Stock. The amount of any such excess distribution
that is greater than the holder's adjusted basis in the Senior Preferred Stock
or Common Stock will be taxed as capital gain. There can be no assurance that
the Company will have sufficient earnings and profits (as determined for
federal income tax purposes) to cause distributions on Senior Preferred Stock
or Common Stock to be treated as dividends for federal income tax purposes.
For purposes of the remainder of this discussion, the term "dividend" refers
to a distribution paid out of allocable earnings and profits, unless the
context indicates otherwise.
121
<PAGE>
A stockholder's initial tax basis in any additional shares of Senior
Preferred Stock distributed by the Company will be equal to the fair market
value of such additional shares on their date of distribution. A stockholder's
holding period for such additional shares will commence with their
distribution, and will not include his holding period for the shares of Senior
Preferred Stock with respect to which the additional shares are distributed.
To the extent that dividends are treated as ordinary income, dividends
received by corporate holders will be eligible for the 70% dividends-received
deduction under Section 243 of the Code, subject to limitations generally
applicable to the dividends-received deductions, including those contained in
Sections 246 and 246A of the Code and the corporate alternative minimum tax.
The 70% dividends-received deduction may be reduced if a holder's shares of
Senior Preferred Stock or Common Stock are debt financed. Under Section 246(c)
of the Code, the 70% dividends-received deduction will not be available with
respect to stock that is held for 45 days or less during the 90-day period
beginning on the date which is 45 days before the date on which such stock
becomes ex-dividend with respect to such dividend (90 days or less during the
180-day period beginning on the date which is 90 days before the date on which
such stock becomes ex-dividend with respect to such dividend in the case of a
dividend on preferred stock attributable to a period or periods aggregating
more than 366 days). The length of time that a holder is deemed to have held
stock for these purposes is reduced to periods during which the holder's risk
of loss with respect to the stock is diminished by reason of the existence of
certain options, contracts to sell, short sales or similar transactions.
Section 246(c) also denies the 70% dividends-received deduction to the extent
that a corporate holder is under an obligation, with respect to substantially
similar or related property, to make payments corresponding to the dividend
received. The Clinton Administration has proposed legislation which would, if
enacted, affect the availability of the dividends-received deduction for
dividends on Senior Preferred Stock or Common Stock. See "--Possible
Legislative Changes."
Under Section 1059 of the Code, the tax basis of Senior Preferred Stock or
Common Stock that has been held by a corporate shareholder for two years or
less (ending on the earliest of the date on which the Company declares,
announces or agrees to the payment of an actual or constructive dividend) is
reduced (but not below zero) by the non-taxed portion of an "extraordinary
dividend" for which a dividends-received deduction is allowed, with such
reduction treated as occurring at the beginning of the ex-dividend date of
such dividend, provided, however, that in the case of certain redemptions of
Senior Preferred Stock or Common Stock, amounts of redemption proceeds that
are treated as a dividend (as described below under "--Redemption, Sale or
Exchange of Senior Preferred Stock or Common Stock") are, to the extent they
otherwise meet the definition of "extraordinary dividend," treated as an
extraordinary dividend without regard to the period of time such stock was
held. To the extent a corporate holder's tax basis would have been reduced
below zero but for the foregoing limitation, such holder must treat such
amount as gain recognized on the sale or exchange of such Senior Preferred
Stock or Common Stock for the taxable year in which such dividend is received.
Generally, an "extraordinary dividend" is a dividend that (i) equals or
exceeds, in the case of Senior Preferred Stock, 5%, in the case of Common
Stock, 10%, of the holder's basis in such stock, (treating all dividends
having ex-dividend dates within a 85-day period as a single dividend); or (ii)
exceeds 20% of the holder's adjusted basis in the Senior Preferred Stock or
Common Stock (treating all dividends having ex-dividend dates within a 365-day
period as a single dividend). If an election is made by the holder, under
certain circumstances the fair market value of Senior Preferred Stock or
Common Stock as of the day before the ex-dividend date may be substituted for
the holder's basis in applying these tests.
Special rules exist with respect to extraordinary dividends for "qualified
preferred dividends," which are any fixed dividends payable with respect to
any share of stock which (i) provides for fixed preferred dividends payable
not less frequently than annually; and (ii) is not in arrears as to dividends
at the time the holder acquires such stock. A qualified preferred dividend
does not include any dividend payable with respect to any share if the actual
rate of return of such stock for the period the stock has been held by the
holder receiving the dividend exceeds 15%.
Redemption Premium on Senior Preferred Stock. If the redemption price of
redeemable preferred stock exceeds its issue price by more than a de minimis
amount, such excess may be treated as a constructive distribution of
additional stock on preferred stock over the term of the preferred stock using
a constant interest
122
<PAGE>
rate method similar to that described above for accruing original issue
discount. See the discussion above under "--Discount Notes--Original Issue
Discount." A preferred stock discount will generally be considered de minimis
as long as it is less than the redemption price of the preferred stock
multiplied by 1/4 of 1% multiplied by the number of years until the issuer
must redeem the preferred stock. Although not entirely clear, the Company
believes that for purposes of determining the issue price of the Senior
Preferred Stock initially issued, a Preferred Stock Unit is considered an
investment unit consisting of the Senior Preferred Stock and Common Stock, and
the issue price of the Senior Preferred Stock is determined by allocating the
issue price of a Preferred Stock Unit between the Senior Preferred Stock and
the Common Stock based on the relative fair market values of the Senior
Preferred Stock and the Common Stock. See discussion above under "--Allocation
of Basis." There can be no assurance, however, that the Service will not
challenge such allocation.
As a result of the allocation of a portion of the purchase price of the
Preferred Stock Units to the Common Stock, the Senior Preferred Stock
initially purchased by holders may have a redemption price that exceeds its
issue price by more than a de minimis amount, resulting in a constructive
distribution under the above rules. In addition, because the issue price of
the Senior Preferred Stock distributed in lieu of payments of cash dividends
will be equal to its fair market value at the time of distribution, it is
possible, depending on its fair market value at that time, that such Senior
Preferred Stock will be issued with a redemption premium large enough to be
considered a dividend under the above rules. In such event, as noted above,
holders would be required to include such premium in income as a distribution
over some period in advance of receiving the cash attributable to such income
and such Senior Preferred Stock might not trade separately, which might
adversely affect the liquidity of the Senior Preferred Stock.
In addition to the mandatory redemption feature, the Senior Preferred Stock
is also redeemable (either in whole or in part, or in whole but not in part
under certain circumstances) at the option of JTP on or after
August 1, 2002. Furthermore, each holder of the Senior Preferred Stock has the
right to require the Company to repurchase the Senior Preferred Stock upon the
occurrence of a Change of Control. Although such optional redemption or holder
put may result in constructive distributions to the holders under certain
circumstances, the Company believes that neither the optional redemption nor
the holder put of the Senior Preferred Stock will be subject to those rules.
Redemption, Sale or Exchange of Senior Preferred Stock or Common Stock. A
redemption of shares of Senior Preferred Stock in exchange for Preferred Stock
Exchange Notes or shares of Senior Preferred Stock or Common Stock for cash,
and a sale of Senior Preferred Stock or Common Stock will be taxable events.
A redemption of shares of Senior Preferred Stock or Common Stock for cash
will generally be treated as a sale or exchange if the holder does not own,
actually or constructively within the meaning of Section 318 of the Code, any
stock of the Company other than the Senior Preferred Stock. If a holder does
own, actually or constructively, such other stock (including stock redeemed),
a redemption of Senior Preferred Stock or Common Stock may be treated as a
dividend to the extent of the Company's current or accumulate earnings and
profits (as determined for federal income tax purposes). Such dividend
treatment would not be applied if the redemption is "substantially
disproportionate" with respect to the holder under Section 302(b)(2) of the
Code or is "not essentially equivalent to a dividend" with respect to a holder
under Section 302(b)(1) of the Code. A distribution to a holder will be "not
essentially equivalent to a dividend" if it results in a "meaningful
reduction" in the holder's stock interest in JTP. For these purposes, a
redemption of Senior Preferred Stock or Common Stock for cash that results in
a reduction in the proportionate interest in the Company (taking into account
any constructive ownership) of a holder whose relative stock interest in the
Company is minimal and who exercises no control over corporate affairs should
be regarded as a meaningful reduction in the holder's stock interest in the
Company.
If the redemption of the Senior Preferred Stock or Common Stock for cash is
not treated as a distribution taxable as a dividend or if the Senior Preferred
Stock or Common Stock is sold, the redemption or sale would result in capital
gain or loss equal to the difference between the amount of cash and the fair
market value of other proceeds received in such sale or redemption and the
holder's adjusted tax basis in the Senior Preferred Stock or Common Stock sold
or redeemed. For a description of the treatment of capital gain, see "--
Taxable Disposition of Notes."
123
<PAGE>
A redemption of Senior Preferred Stock in exchange for Preferred Stock
Exchange Notes will be subject to the same general rules as a redemption for
cash, except that the holder would have capital gain or loss equal to the
difference between the issue price of the Preferred Stock Exchange Notes
received and the holder's adjusted tax basis in the Senior Preferred Stock
redeemed. The issue price of the Preferred Stock Exchange Notes would be
determined in the manner described below for purposes of computing original
issue discount (if any) on the Preferred Stock Exchange Notes. See the
discussion below under "--Preferred Stock Exchange Notes--Original Issue
Discount."
If a redemption of Senior Preferred Stock or Common Stock is treated as a
distribution that is taxable as a dividend, the amount of the distribution
will be measured by the amount of cash received by the holder. The holder's
adjusted tax basis in the redeemed Senior Preferred Stock or Common Stock will
be transferred to any remaining stock holdings in the Company. If the holder
does not retain any stock ownership in the Company, the holder may lose such
basis entirely. Under the "extraordinary dividend" provision of Section 1059
of the Code, a corporate holder may, under certain circumstances, be required
to reduce its basis in its remaining shares of stock of JTP (and possibly
recognize gain upon such distribution) to the extent the holder claims the 70%
dividends-received deduction with respect to the dividend.
PREFERRED STOCK EXCHANGE NOTES
Original Issue Discount. If the Senior Preferred Stock is exchanged for
Preferred Stock Exchange Notes at a time when the stated redemption price at
maturity of the Preferred Stock Exchange Notes exceeds their issue price by
more than a de minimis amount, the Preferred Stock Exchange Notes will be
treated as having OID equal to the entire amount of such excess. OID will
generally be considered de minimis as long as it is less than the stated
redemption price at maturity of the Preferred Stock Exchange Notes multiplied
by 1/4 of 1% multiplied by the number of years to maturity. If the Preferred
Stock Exchange Notes are deemed to be traded on an established securities
market on or at any time during the 60-day period ending 30 days after their
issue date, the issue price of the Preferred Stock Exchange Notes will be
their fair market value as determined as of their issue date. Subject to
certain limitations described in the regulations, the Preferred Stock Exchange
Notes will be deemed to be traded on an established securities market if,
among other things, price quotations are readily available from dealers,
brokers or traders. Similarly, if the Senior Preferred Stock, but not the
Preferred Stock Exchange Notes issued and exchanged therefor, is deemed to be
traded on an established securities market at the time of the exchange, then
the issue price of each Preferred Stock Exchange Note should be the fair
market value of the Senior Preferred Stock exchanged therefor at the time of
the exchange. The Senior Preferred Stock will generally be deemed to be traded
on an established securities market if it appears on a system of general
circulation that provides a reasonable basis to determine fair market value
based either on recent price quotations or recent sales transactions. In the
event that neither Senior Preferred Stock nor the Preferred Stock Exchange
Notes are deemed to be traded on an established securities market, the issue
price of the Preferred Stock Exchange Notes will be their stated principal
amount or, in the event the Preferred Stock Exchange Notes do not bear
"adequate stated interest" within the meaning of Section 1274 of the Code,
their "imputed principal amount," which is generally the sum of the present
values of all payments due under the Preferred Stock Exchange Notes,
discounted from the date of payment to their issue date at the appropriate
"applicable federal rates."
The stated redemption price at maturity of the Preferred Stock Exchange
Notes would equal the total of all payments required to be made thereon, other
than payments of qualified stated interest. Qualified stated interest
generally is stated interest that is unconditionally payable in cash or
property (other than debt instruments of the issuer) at least annually at a
single fixed rate. Therefore, Preferred Stock Exchange Notes that are issued
when the Company has the option to pay interest thereon for certain periods in
additional Preferred Stock Exchange Notes should be treated as having been
issued without any qualified stated interest. Accordingly, the sum of all
interest payable pursuant to the stated interest rate on such Preferred Stock
Exchange Notes over the entire term should be treated as OID and accrued into
income under a constant yield method by the holder, and the holder should not
treat the receipt of stated interest on the Preferred Stock Exchange Notes as
interest for federal income tax purposes. See "--Discount Notes--Original
Issue Discount."
124
<PAGE>
An additional Preferred Stock Exchange Note (a "Secondary Note") issued in
payment of interest with respect to an initially issued Preferred Stock
Exchange Note (an "Initial Note") will not be considered as a payment made on
the Initial Note and will be aggregated with the Initial Note for purposes of
computing and accruing OID on the Initial Note. As between the Initial Note
and the Secondary Note, the Company will allocate the adjusted issue price of
the Initial Note between the Initial Note and the Secondary Note in proportion
to their respective principal amounts. That is, upon its issuance of a
Secondary Note with respect to an Initial Note, the Company intends to treat
the Initial Note and the Secondary Note derived from the Initial Note as
initially having the same adjusted issue price and inherent amount of OID per
dollar of principal amount. The Initial Note and the Secondary Note derived
therefrom will be treated as having the same yield to maturity. Similar
treatment will be applied when additional Preferred Stock Exchange Notes are
issued on Secondary Notes.
In the event the Preferred Stock Exchange Notes are not issued with OID,
because they are issued at a time when the Company does not have the option to
pay interest thereon in additional Preferred Stock Exchange Notes, and the
redemption price of the Preferred Stock Exchange Notes does not exceed their
issue price by more than a de minimis amount, stated interest should be
included in income by a holder in accordance with his method of accounting.
Bond Premium. If the Senior Preferred Stock is exchanged for Preferred Stock
Exchange Notes at a time when the issue price of the Preferred Stock Exchange
Notes exceeds the amount payable at the maturity date (or earlier call date,
if appropriate) of the Preferred Stock Exchange Notes, such excess will be
deductible by the holder of the Preferred Stock Exchange Notes as amortizable
bond premium over the term of the Preferred Stock Exchange Notes (taking into
account earlier call dates, as appropriate), under a yield-to-maturity
formula, only if an election by the holder under Section 171 of the Code is
made or is already in effect. An election under Section 171 is available only
if the Preferred Stock Exchange Notes are held as capital assets. This
election is revocable only with the consent of the Service and applies to all
obligations owned or subsequently acquired by the holder. To the extent the
excess is deducted as amortizable bond premium, the holder's adjusted tax
basis in the Preferred Stock Exchange Notes will be reduced.
Redemption or Sale of Preferred Stock Exchange Notes. Generally, any
redemption or sale of Preferred Stock Exchange Notes by a holder would result
in taxable gain or loss equal to the difference between the amount of cash
received (except to the extent that cash received is attributable to accrued,
but previously untaxed, interest) and the holder's tax basis in the Preferred
Stock Exchange Notes. The tax basis of a holder who receives a Preferred Stock
Exchange Note in exchange for Senior Preferred Stock will generally be equal
to the issue price of the Preferred Stock Exchange Note on the date the
Preferred Stock Exchange Note is issued plus any OID on the Preferred Stock
Exchange Note included in the holder's income prior to sale or redemption of
the Preferred Stock Exchange Note, reduced by any amortizable bond premium
applied against the holder's income prior to sale or redemption of the
Preferred Stock Exchange Note and payments other than payments of "qualified
stated interest." Such gain or loss would be capital gain or loss.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO JTP AND TO CORPORATE HOLDERS
The Discount Notes and, in certain circumstances, the Preferred Stock
Exchange Notes would constitute "applicable high yield discount obligations"
("AHYDOs") if the yield to maturity of such Discount Notes or Preferred Stock
Exchange Notes were equal to or greater than the sum of the relevant
applicable federal rate (the "AFR") plus five percentage points. The relevant
AFR for debt instruments issued in July 1997 is 6.87% compounded semi-
annually. Because the yield to maturity on the Discount Notes is 11.75%, the
yield to maturity on the Discount Notes does not equal or exceed the sum of
the AFR plus five percentage points. If the yield to maturity on the Preferred
Stock Exchange Notes were to equal or exceed the sum of the AFR plus five
percentage points, in certain circumstances, the Preferred Stock Exchange
Notes would constitute AHYDOs. Therefore, a portion of the tax deductions that
would otherwise be available to the Company in respect of the Preferred Stock
Exchange Notes would be deferred, which, in turn, would reduce the after-tax
cash flows of the Company. If the Preferred Stock Exchange Notes were to
constitute AHYDOs, the Company would not be entitled to deduct OID that
accrues with respect to such Preferred Stock Exchange Notes until amounts
attributable to OID are paid in
125
<PAGE>
cash. If the yield to maturity of the Preferred Stock Exchange Notes were to
equal or exceed the sum of the relevant AFR plus six percentage points (the
"Excess Yield"), the "disqualified portion" of the OID accruing on the
Preferred Stock Exchange Notes would be characterized as a non-deductible
dividend with respect to the Company and also may be treated as a dividend
distribution solely for purposes of the dividends-received deduction of
Sections 243, 246 and 246A of the Code with respect to holders which are
corporations. In general, the "disqualified portion" of OID for any accrual
period will be equal to the product of (i) a percentage determined by dividing
the Excess Yield by the yield to maturity; and (ii) the OID for the accrual
period. Subject to otherwise applicable limitations, such a corporate holder
would be entitled to a dividends-received deduction with respect to the
disqualified portion of the accrued OID if the Company has sufficient current
or accumulated "earnings and profits." To the extent that JTP's earnings and
profits are insufficient, any portion of the OID that otherwise would have
been recharacterized as a dividend for purposes of the dividends-received
deduction will continue to be taxed as ordinary OID income in accordance with
the rules described above in "--Discount Notes--Original Issue Discount." It
is impossible to determine at the present time whether the Preferred Stock
Exchange Notes will have a yield to maturity that equals or exceeds the sum of
the AFR plus five or six percentage points.
POSSIBLE LEGISLATIVE CHANGES
On a number of recent occasions, most recently in February, 1997, the
Clinton Administration has proposed tax law changes that, if enacted into law
substantially as proposed, would affect the tax treatment of corporate holders
of Senior Preferred Stock or Preferred Stock Exchange Notes that are treated
as AHYDOs. In particular, the Clinton Administration has proposed to eliminate
the 70% and the 80% dividends-received deduction for certain debt-like
preferred stock, effective for stock issued more than 30 days after the date
of enactment of such legislation. The Clinton Administration also has proposed
to reduce the 70% dividends-received deduction to 50% for dividends received
or accrued more than 30 days after such date of enactment, and would modify in
certain respects the holding period requirement for qualifying for the
dividends-received deductions. It cannot be predicted with certainty whether
these proposals will be introduced in Congress as proposed legislation, or if
introduced, whether, or in what form, such proposed legislation may be enacted
and, if enacted, what the effective date or dates would be. Corporate holders
of Senior Preferred Stock or Preferred Stock Exchange Notes are urged to
consult their own tax advisors regarding the possible effects of this proposed
legislation.
BACKUP WITHHOLDING
A holder may be subject, under certain circumstances, to backup withholding
at a 31% rate with respect to the Offered Securities. This withholding
generally applies only if the holder (i) fails to furnish his or her social
security or other taxpayer identification number ("TIN"); (ii) furnishes an
incorrect TIN; (iii) is notified by the Service that he or she has failed to
report properly payments of interest and dividends and the Service has
notified JTP that he or she is subject to backup withholding; or (iv) fails,
under certain circumstances, to provide a certified statement, signed under
penalty of perjury, that the TIN provided is his or her correct number and
that he or she is subject to backup withholding. Any amount withheld from
payment to a holder under the backup withholding rules is allowable as a
credit against such holder's federal income tax liability, provided that the
required information is furnished to the Service. Certain holders (including,
among others, corporations and foreign individuals who comply with certain
certification requirements) are not subject to backup withholding. Holders
should consult their tax advisors as to their qualifications for exemption
from backup withholding and the procedure for obtaining such an exemption.
INFORMATION REPORTING
The Company is required to furnish certain information to the Service and
will furnish annually record holders of the New Securities information with
respect to dividends or interest paid, or OID accruing, as the case may be, on
the New Securities during the calendar year. The information with respect to
OID accruing on the Discount Notes will be based on the adjusted issue price
of the Discount Notes and will be applicable if the holder is an original
holder of the Discount Notes who purchased the Discount Notes at the issue
price.
126
<PAGE>
Subsequent holders who purchase Discount Notes for an amount other than the
adjusted issue price and/or on a date other than the last day of an accrual
period will be required to determine for themselves the amount of OID, if any,
they are required to include in gross income for federal income tax purposes.
SUBSEQUENT PURCHASERS
The foregoing does not discuss special rules which may affect the treatment
of purchasers that acquire the Offered Securities other than through
purchasing the Offered Securities at the time of original issuance at the
issue price, including those provisions of the Code relating to the treatment
of "market discount" and "acquisition premium." For example, the market
discount provisions of the Code may require a subsequent purchaser of a Note
at a market discount to treat all or a portion of any gain recognized upon
sale or other disposition of the Note as ordinary income and to defer a
portion of any interest expense that would otherwise be deductible on any
indebtedness incurred or maintained to purchase or carry such Note until the
holder disposes of the Note in a taxable transaction.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Securities for its own account as a
result of market-making activities or other trading activities in connection
with the Exchange Offer must acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale
of such New Securities. This Prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer in connection with resales
of New Securities received in exchange for Old Securities where such Old
Securities were acquired as a result of market-making activities or other
trading activities. The Company has agreed that for a period of 120 days after
the Expiration Date, it will make available a prospectus meeting the
requirements of the Securities Act to any broker-dealer for use in connection
with any such resale. In addition, until , 1997, all dealers effecting
transactions in the New Securities may be required to deliver a prospectus.
The Company will receive no proceeds in connection with the Exchange Offer.
New Securities received by broker-dealers for their own account pursuant to
the Exchange Offer may be sold from time to time in one or more transactions
in the over-the-counter market, in negotiated transactions, through the
writing of options on the New Securities or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related
to such prevailing market prices or negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such New Securities. Any broker-dealer
that resells New Securities that were received by it for its own account
pursuant to the Exchange Offer and any broker or dealer that participates in a
distribution of such New Securities may be deemed to be an "underwriter"
within the meaning of the Securities Act and any profit on any such resale of
New Securities 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.
The Company has agreed to pay all expenses incident to the Exchange Offer
(including the reimbursement for reasonable expenses of one counsel for the
holders of the Notes and one counsel for the holders of the Preferred Stock)
other than commissions or concessions of any brokers or dealers and will
indemnify the holders of the New Securities (including any broker-dealers)
against certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the New Securities will be passed upon
for the Company by Mayer, Brown & Platt, Chicago, Illinois. Mayer, Brown &
Platt also represents Jordan Industries and The Jordan Company and its
affiliates from time to time in connection with its various acquisitions and
divestitures.
127
<PAGE>
EXPERTS
The combined financial statements of the JTP Companies as of December 31,
1995 and 1996, and for each of the three years in the period ended December
31, 1996, appearing in this Prospectus and Registration Statement, have been
audited by Ernst & Young LLP, independent auditors, as 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 which, as to 1996, is based in part on the reports of Coopers &
Lybrand LLP, independent auditors; McFarland & Alton P.S., independent
auditors; and Mellen, Smith, & Pivoz, P.C., independent auditors.
The combined financial statements of Viewsonics, Inc. and Shanghai
Viewsonics Electronic Co., Ltd. as of December 31, 1995, and for the year then
ended, appearing 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.
The combined financial statements of LoDan West, Inc. and L/D West, Inc. as
of December 31, 1996, and for the year then ended, appearing 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.
The financial statements of Engineered Endeavors, Inc. as of December 31,
1996 and 1995, and for each of the three years in the period ended December
31, 1996, appearing in this Prospectus and Registration Statement, have been
audited by Ernst & Young LLP, independent auditors, as 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.
The financial statements of E.F. Johnson Company--Components Division as of
December 31, 1994, November 26, 1995, and January 23, 1996, and for the year
ended December 31, 1994, the period ended November 26, 1995, and the period
ended January 23, 1996, appearing in this Prospectus and Registration
Statement, have been audited by Price Waterhouse, 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.
The financial statements of Diversified Wire & Cable, Inc. as of September
30, 1993, 1994, and 1995, and for the fiscal years ended September 30, 1993,
1994, and 1995, appearing in this Prospectus and Registration Statement, have
been audited by Mellen, Smith & Pivoz, P.C., 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.
The financial statements of Vitelec Electronics Limited as of December 31,
1995, and for the fiscal year then ended, appearing in this Prospectus and
registration statement, have been audited by Roberts Redman Mead, certified
accountants, 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.
The financial statements of Northern Technologies, Inc. as of December 31,
1995 and 1996, and for each of the two years in the period ended December 31,
1996, appearing in this Prospectus and Registration Statement, have been
audited by McFarland & Alton, P.S., 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.
128
<PAGE>
JORDAN TELECOMMUNICATION PRODUCTS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Unaudited Pro Forma Combined Financial Statements....................... P-1
Unaudited Pro Forma Combined Statements of Operations and Other Data for
the year ended December 31, 1996....................................... P-2
Unaudited Pro Forma Combined Statements of Operations and Other Data for
the six months ended June 30, 1997..................................... P-3
Unaudited Pro Forma Combined Balance Sheet as of June 30, 1997.......... P-6
JTP COMPANIES
Report of Independent Auditors.......................................... F-1
Independent Auditors' Report............................................ F-2
Report of Independent Accountants....................................... F-3
Independent Auditor's Report............................................ F-4
Combined Balance Sheets as of December 31, 1995 and 1996 and (unaudited)
as of June 30, 1997.................................................... F-5
Combined Statements of Operations for the three years in the period
ended December 31, 1996 and (unaudited) for the six months ended June
30, 1996 and 1997...................................................... F-6
Combined Statements of Changes in Shareholders' Equity (Net Capital
Deficiency) for the three years in the period ended December 31, 1996
and (unaudited) for the six months ended June 30, 1997................. F-7
Combined Statements of Cash Flows for the three years in the period
ended December 31, 1996 and (unaudited) for the six months ended June
30, 1996 and 1997...................................................... F-8
Notes to Combined Financial Statements.................................. F-9
E. F. JOHNSON COMPANY--COMPONENTS DIVISION (A DIVISION OF E.F. JOHNSON
COMPANY)
Report of Independent Accountants....................................... F-26
Balance Sheets as of December 31, 1994, November 26, 1995 and January
23, 1996............................................................... F-27
Statements of Operations for the year ended December 31, 1994, the
eleven months ended November 26, 1995, and the two months ended January
23, 1996............................................................... F-28
Statements of Cash Flows for the year ended December 31, 1994, the
eleven months ended November 26, 1995, and the two months ended January
23, 1996............................................................... F-29
Notes to Financial Statements........................................... F-30
DIVERSIFIED WIRE & CABLE, INC.
Independent Auditors' Report............................................ F-34
Balance Sheets as of September 30, 1993, 1994, and 1995 and (unaudited)
as of June 24, 1996.................................................... F-35
Statements of Income for the years ended September 30, 1993, 1994, and
1995 and (unaudited) for the period ended June 24, 1996................ F-36
Statements of Changes In Stockholders' Equity for the years ended
September 30, 1993, 1994, and 1995 and (unaudited) for the period ended
June 24, 1996.......................................................... F-37
Statements of Cash Flows for the years ended September 30, 1993, 1994,
and 1995 and (unaudited) for the period ended June 24, 1996............ F-38
Notes to Financial Statements........................................... F-39
VIEWSONICS, INC. AND SHANGHAI VIEWSONICS ELECTRONIC CO., LTD.
Report of Independent Auditors.......................................... F-42
Combined Balance Sheets as of December 31, 1995 and (unaudited) as of
July 31, 1996.......................................................... F-43
</TABLE>
I-1
<PAGE>
<TABLE>
<S> <C>
Combined Statements of Income for the year ended December 31, 1995 and
(unaudited) for the period ended July 31, 1996......................... F-44
Combined Statements of Stockholder's Equity for the year ended December
31, 1995 and (unaudited) for the period ended July 31, 1996............ F-45
Combined Statements of Cash Flows for the year ended December 31, 1995
and (unaudited) for the period ended July 31, 1996..................... F-46
Notes to Combined Financial Statements.................................. F-47
VITELEC ELECTRONICS LIMITED
Auditors' Report to the Shareholders of Vitelec Electronics Limited..... F-51
Profit and Loss Accounts for the years ended December 31, 1994 and 1995
and (unaudited) for the period ended August 5, 1996.................... F-52
Balances Sheets as of December 31, 1994 and 1995 and (unaudited) as of
August 5, 1996......................................................... F-53
Cash Flow Statements for the years ended December 31, 1994 and 1995 and
(unaudited) for the period ended August 5, 1996........................ F-54
Notes to the Accounts................................................... F-56
NORTHERN TECHNOLOGIES, INC.
Independent Auditor's Report............................................ F-61
Balance Sheets as of December 31, 1995 and 1996......................... F-62
Statements of Income for the years ended December 31, 1995 and 1996..... F-63
Statements of Stockholders' Equity for the fiscal years ended December
31, 1995 and 1996...................................................... F-64
Statements of Cash Flows for the years ended December 31, 1995 and 1996. F-65
Notes to Financial Statements........................................... F-66
LODAN WEST, INC. AND L/D WEST, INC.
Report of Independent Auditors.......................................... F-71
Combined Balance Sheets as of December 31, 1996 and (unaudited) as of
May 30, 1997........................................................... F-72
Combined Statements of Income and Retained Earnings for the year ended
December 31, 1996 and (unaudited) for the period ended May 30, 1997.... F-73
Combined Statements of Cash Flows for the year ended December 31, 1996
and (unaudited) for the period ended May 30, 1997...................... F-74
ENGINEERED ENDEAVORS, INC.
Report of Independent Auditors.......................................... F-78
Balance Sheets as of December 31, 1996 and 1995......................... F-79
Statements of Income for the years ended December 31, 1996, 1995 and
1994................................................................... F-80
Statements of Shareholders' Equity...................................... F-81
Statements of Cash Flows for the years ended December 31, 1996, 1995 and
1994................................................................... F-82
Notes to Financial Statements........................................... F-83
</TABLE>
I-2
<PAGE>
UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined statements of operations for the
year ended December 31, 1996, the six months ended June 30, 1997, and the
combined balance sheet as of June 30, 1997 reflect pro forma adjustments for
(a) the formation of the Company, and the acquisitions of Dura-Line, AIM,
Cambridge, Johnson, Diversified, Viewsonics, Vitelec, Bond, Northern and LoDan
from Jordan Industries and the purchase accounting and other acquisition
adjustments relating thereto, (b) the completion of the Company Formation, and
(c) the acquisition of EEI and the purchase accounting and other acquisition
adjustments relating thereto, in each case, as if they occurred at the
beginning of the relevant period or as of the relevant date. Unaudited pro
forma adjustments are based upon historical information, preliminary estimates
and certain assumptions management deems appropriate. The unaudited pro forma
combined financial data presented herein are not necessarily indicative of the
results JTP would have obtained had such events occurred at the beginning of
the period, as assumed, or of the future results of the Company. The pro forma
combined financial statements should be read in conjunction with the other
financial statements and notes thereto appearing elsewhere in this Prospectus.
P-1
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS AND OTHER DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------------
COMPANY PRO FORMA PRO
HISTORICAL(1) ADJUSTMENTS(2) ADJUSTMENTS FORMA(3)(15)
------------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales(4)............. $132,999 $102,051 $ (1,408) $233,642
Cost of sales excluding
depreciation(5)......... 82,870 65,953 (845) 147,978
Selling, general and
administrative expenses
excluding
depreciation(6)......... 26,857 17,930 2,668 47,455
Depreciation and
amortization............ 6,642 931 3,067 10,640
Other (income) and
expense(9).............. 1,083 73 120 1,276
Management fees(7)....... 2,224 0 112 2,336
-------- -------- -------- --------
Operating income (loss).. 13,323 17,164 (6,530) 23,957
Interest expense (income)
(net of interest
income)(8).............. 11,674 (40) 21,057 32,701
Other expense............ 31 44 0 75
-------- -------- -------- --------
Income (loss) before
income taxes and
minority interest....... 1,618 17,160 (27,597) (8,819)
Provision (benefit) for
income taxes(10)........ 3,647 3,081 (10,256) (3,528)
-------- -------- -------- --------
Income (loss) before
minority interest....... (2,029) 14,079 (17,341) (5,291)
Minority interest(11).... (548) 0 (372) (920)
-------- -------- -------- --------
Net income (loss)........ $ (2,577) $ 14,079 $(17,113) $ (6,211)
======== ======== ======== ========
OTHER DATA:
Capital expenditures..... $ 6,873 $ 890 $ -- $ 7,763
Cash interest expense.... 11,826 -- 9,541 21,367
Total interest
expense(12)............. 11,826 -- 19,975 31,801
Senior preferred stock
dividends............... -- -- 3,481 3,481
Ratio of earnings to
fixed charges(13)....... 1.1 --
Ratio of earnings to
combined fixed charges
and preferred stock
dividends(14)........... 1.1 --
</TABLE>
P-2
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS AND OTHER DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1997
---------------------------------------------------------
COMPANY PRO FORMA PRO
HISTORICAL(1) ADJUSTMENTS(2) ADJUSTMENTS FORMA(3)(15)
------------ -------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net sales(4)............ $107,802 $24,158 $(1,599) $130,361
Cost of sales excluding
depreciation(5)........ 66,780 16,580 (959) 82,401
Selling, general and
administrative expenses
excluding
depreciation(6)........ 20,053 2,432 1,069 23,554
Depreciation and
amortization........... 4,775 116 853 5,744
Other (income) and
expense(9)............. 16,108 0 60 16,168
Management fees(7)...... 1,493 0 (189) 1,304
-------- ------- ------- --------
Operating income (loss). (1,407) 5,030 (2,433) 1,190
Interest expense
(income) (net of
interest income)(8).... 9,178 (20) 7,046 16,204
Other (income) and
expense................ (19) (107) 0 (126)
-------- ------- ------- --------
Income (loss) before
income taxes, minority
interest and
extraordinary (loss)
items.................. (10,566) 5,157 (9,479) (14,888)
Provision (benefit) for
income taxes(10)....... (3,031) 147 (3,071) (5,955)
-------- ------- ------- --------
Income (loss) before
minority interest and
extraordinary (loss)
items.................. (7,535) 5,010 (6,408) (8,933)
Minority interest(11)... (796) 0 0 (796)
-------- ------- ------- --------
Income (loss) from
continuing operations.. $ (8,331) $ 5,010 $(6,408) $ (9,729)
======== ======= ======= ========
OTHER DATA:
Capital expenditures.... $ 3,103 $ 260 $ -- $ 3,363
Cash interest expense... 9,265 -- 1,419 10,684
Total interest
expense(12)............ 9,265 -- 6,498 15,754
Senior preferred stock
dividends.............. -- -- 1,684 1,684
Ratio of earnings to
fixed charges(13)...... -- --
Ratio of earnings to
combined fixed charges
and preferred stock
dividends(14).......... -- --
</TABLE>
- --------
(1) Historical results of operations includes: (i) for the period ending on
December 31, 1996, the results of AIM, Cambridge, Dura-Line, Johnson
(from the date of its acquisition in January 1996), Diversified (from the
date of its acquisition in June 1996), Viewsonics (from the date of its
acquisition in August 1996), Vitelec (from the date of its acquisition in
August 1996), Bond (from the date of its acquisition in September 1996),
Northern (from the date of its acquisition in December 1996); and (ii)
the historical results of operations for the six months ending on June
30, 1997 also include the results of LoDan (from the date of its
acquisition in May 1997), in each case on a combined basis.
(2) Reflects the historical results of operations of the acquired
subsidiaries from January 1 of the relevant period to the earlier of (i)
the date of acquisition, or (ii) the end of the relevant period. See
Supplemental Schedule of Pro Forma Adjustments on page P-6.
(3) Reflects the results of operations for AIM, Bond, Cambridge, Diversified,
Dura-Line, Johnson, LoDan, Northern, Viewsonics, EEI and Vitelec as if
owned from January 1 of the relevant period and the pro forma
adjustments, as if each occurred on January 1 of the relevant period.
(4) Adjustments to net sales reflect the elimination of sales relating to
Dura-Line's Retube product line, which was not acquired pursuant to the
Company Formation, of $1.4 million for the year ended December 31, 1996,
and $1.6 million for the six months ended June 30, 1997.
P-3
<PAGE>
(5) Adjustments to cost of sales excluding depreciation reflect the
elimination of costs relating to Dura-Line's Retube products line, which
was not acquired as part of the Company Formation, of $0.8 million for
the year ended December 31, 1996 and $1.0 million for the six months
ended June 30, 1997. Cost of sales excluding depreciation includes
expenses relating to purchase accounting adjustments at Viewsonics of
$1.9 million for the period ended December 31, 1996 and $.2 million for
the six months ended June 30, 1997.
(6) Adjustments to selling, general, and administrative expenses include: (i)
the elimination of selling, general and administrative expenses relating
to Dura-Line's Retube product line which was not acquired as part of the
Company Formation of $0.8 million for period ended December 31, 1996 and
$0.7 million for the six months ended June 30, 1997; and (ii) the
addition of shared general, administrative and overhead expenses of
Jordan Industries and estimated costs of the JTP Corporate Group of $3.5
million for the year ended December 31, 1996, (see "Certain
Transactions--Services Agreements") and $1.7 million for the six month
period ended June 30, 1997. Selling, general, and administrative expenses
for the period ended December 31, 1996 include expenses associated with
the Company's payment and purchase of stock appreciation rights from
AIM's prior owners of $3.4 million for the year ended December 31, 1996;
and international market development costs of $1.6 million for the period
ended December 31, 1996 and $0.7 million for the six months ended June
30, 1997.
(7) Adjustments to management fees reflect the elimination and termination of
the historical advisory and management fees paid to Jordan Industries
under the JI Agreement and the recording of management fees pursuant to
the New Advisory Agreement and JI Property Services Agreement (see
"Certain Transactions--Services Agreements").
(8) Adjustments to interest expense are to reflect interest expense as if the
Old Note Offerings and the credit line borrowings used to purchase EEI
had occurred at the beginning of the period and to reflect the
amortization of deferred financing costs resulting from the Old Note
Offering. A weighted average interest rate of 10.4% was used to calculate
the adjustment.
(9) Adjustments to other operating expenses reflect the implementation of
director fees of $0.1 million for the year ended December 31, 1996 and
for the six months ended June 30, 1997, respectively. Other operating
expenses include (a) non-competition payments paid to the partners of the
Czech Republic joint venture of $1.0 million for the period ended
December 31, 1996 and $0.4 million for the six months ended June 30,
1997, (b) the Company's payment and purchase of stock appreciation rights
from Dura-Line's management and prior owners of $15.4 million for the six
months ended June 30, 1997.
(10) The pro forma benefit for income taxes was calculated using a 40%
effective income tax rate.
(11) Certain management and prior owners of Dura-Line Czech Republic, Bond and
Diversified hold minority interests in their respective subsidiaries of
30%, 20% and 12.5%, respectively.
(12) Pro forma total interest expense excludes amortization of deferred
financing costs and debt discount of $0.9 million for the year ended
December 31, 1996 and $0.5 million for the six month period ended June
30, 1997.
(13) The ratio of earnings (losses) to fixed charges reflects the ratio of
earnings (losses) to fixed charges, with earnings (losses) consisting of
loss before taxes, minority interest, extraordinary (loss), plus (minus)
fixed charges and fixed charges consisting of interest expense on
indebtedness, amortization of financing costs and debt discount, plus
that portion of lease rental expense representative of the interest
factor.
Historical earnings (losses) were insufficient to cover fixed charges by
$10.6 million for the six months ended June 30, 1997. However, these
deficiencies reflect non-cash charges for depreciation and amortization of
goodwill and other intangibles of $4.8 million.
Pro forma earnings (losses) were insufficient to cover fixed charges by
$7.8 million and $14.9 million for the year ended December 31, 1996 and
the six months ended June 30, 1997, respectively. However, these
deficiencies reflect non-cash charges for depreciation and amortization of
goodwill and other intangibles and amortization of financing costs and
debt discount of $11.5 million and $6.2 million for the respective
periods.
P-4
<PAGE>
(14) In the computation of the ratio of earnings (losses) to combined fixed
charges and preferred stock dividends, earnings (losses) consist of loss
before income taxes, minority interest, extraordinary (loss) plus (minus)
fixed charges. Combined fixed charges and preferred stock dividends
consist of interest expense on indebtedness, amortization of financing
costs and debt discount, preferred stock dividend requirements of
majority-owned subsidiaries, plus that portion of lease rental expense
representative of the interest factor.
Historical earnings (losses) were insufficient to cover combined fixed
charges and preferred stock dividends by $10.8 million for the six months
ended June 30, 1997. However, these deficiencies reflect non-cash charges
for depreciation and amortization of goodwill and other intangibles of
$4.8 million.
Pro forma earnings (losses) were insufficient to cover combined fixed
charges and preferred stock dividends by $13.4 million and $17.7 million
for the year ended December 31, 1996 and for the six months ended June 30,
1997, respectively. However, this deficiency reflects non-cash charges for
depreciation and amortization of goodwill and other intangibles, and
amortization of financing costs and debt discount of $11.5 million and
$6.2 million for the respective periods.
(15) Management does not expect any adjustments related to uncertainties
affecting the pro forma adjustments to have a material impact on the pro
forma presentation.
P-5
<PAGE>
SUPPLEMENTAL SCHEDULE OF PRO FORMA ADJUSTMENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996(1)
-------------------------------------------------------------------------------------
TOTAL PRO
FORMA
JOHNSON VIEWSONICS DIVERSIFIED VITELEC BOND NORTHERN LODAN EEI ADJUSTMENTS
------- ---------- ----------- ------- ------ -------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $739 $8,069 $12,070 $4,123 $9,221 $26,253 $20,920 $20,656 $102,051
Cost of sales excluding
depreciation........... 370 3,211 8,536 1,541 6,295 15,865 15,266 14,869 65,953
Selling, general &
administrative expenses
excluding depreciation. 199 1,762 2,514 901 1,219 5,624 3,970 1,741 17,930
Depreciation and
amortization........... 97 65 68 69 201 195 156 80 931
Other (income) and
expense................ 0 0 75 (2) 0 0 0 0 73
---- ------ ------- ------ ------ ------- ------- ------- --------
Operating income........ 73 3,031 877 1,614 1,506 4,569 1,528 3,966 17,164
Interest expense
(income) (net of
interest income)....... 0 (13) 13 (5) 35 120 (190) (40)
Other expense........... 0 0 6 0 0 20 0 18 44
---- ------ ------- ------ ------ ------- ------- ------- --------
Income before income
taxes.................. 73 3,044 858 1,614 1,511 4,514 1,408 4,138 17,160
Provision for income
taxes.................. 29 0 343 646 604 1,244 105 110 3,081
---- ------ ------- ------ ------ ------- ------- ------- --------
Net income.............. $ 44 $3,044 $ 515 $ 968 $ 907 $ 3,270 $ 1,303 $ 4,028 $ 14,079
==== ====== ======= ====== ====== ======= ======= ======= ========
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30, 1997(1)
----------------------------
TOTAL PRO
FORMA
LODAN EEI ADJUSTMENTS
------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales...................................................................... $ 9,510 $14,648 $ 24,158
Cost of sales excluding depreciation........................................... 7,009 9,571 16,580
Selling, general & administrative expenses excluding depreciation.............. 1,414 1,018 2,432
Depreciation and amortization.................................................. 69 47 116
Other (income) and expense..................................................... 0 0 0
------- ------- --------
Operating Income............................................................... 1,018 4,012 5,030
Interest expense (income) (net of interest income)............................. 56 (76) (20)
Other expense (income)......................................................... 0 (107) (107)
------- ------- --------
Income before income taxes..................................................... 962 4,195 5,157
Provision for income taxes..................................................... 71 76 147
------- ------- --------
Income from continuing operations.............................................. $ 891 $ 4,119 $ 5,010
======= ======= ========
</TABLE>
- --------
(1) Reflects the historical results of operations of the acquired
subsidiaries from January 1 of the relevant period to the earlier of
(i) the date of acquisition, or (ii) the end of the relevant period.
P-6
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
AT JUNE 30, 1997
--------------------------------------------------------------------
COMPANY ACQUISITION PRO FORMA
HISTORICAL OFFERINGS(1) OF EEI(2) ADJUSTMENTS(3) PRO FORMA
---------- ------------ ----------- -------------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents........... $ 3,032 $ 22,045 $4,384 $(20,000) $ 9,461
Marketable securities 0 0 606 0 606
Accounts receivables--
net................... 35,546 0 2,757 0 38,303
Inventories............ 34,077 0 2,721 0 36,798
Prepaid expenses and
other current assets.. 4,878 0 65 0 4,943
-------- -------- -------- -------- --------
Total current assets. 77,533 22,045 10,533 (20,000) 90,111
Property and equipment,
net.................... 29,299 0 835 0 30,134
Intangibles, net........ 80,440 0 0 33,162 113,602
Other assets............ 17,696 9,000 (4) 157 2,500 29,353
-------- -------- -------- -------- --------
Total assets......... $204,968 $ 31,045 $ 11,525 $ 15,662 $263,200
======== ======== ======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities..... $ 38,476 0 5,687 1,500 $ 45,663
Current portion of long-
term obligations....... 987 0 0 0 987
Long-term obligations
New Credit Agreement... 0 0 0 20,000 20,000
Senior Notes........... 0 188,511 0 0 188,511
Subordinated Notes..... 0 0 0 0 0
Discount Notes......... 0 85,034 0 0 85,034
Notes Due Affiliates... 170,022 (170,022) 0 0 0
Sellers' Notes......... 3,000 0 0 0 3,000
Other Debt............. 3,900 0 0 0 3,900
-------- -------- -------- -------- --------
Total long-term
obligations......... 176,922 103,523 0 20,000 300,445
Other non-current
liabilities and
deferred income taxes.. 5,266 0 0 0 5,266
Minority interest....... 2,136 0 0 0 2,136
Dura-Line Preferred
Stock.................. 1,875 0 0 0 1,875
Senior Preferred Stock.. 0 24,948 (5) 0 0 24,948
Junior Preferred Stock.. 0 20,000 0 0 20,000
Stockholders' equity
(net capital
deficiency)............ (20,694) (117,426)(4)(5)(6) 5,838 (5,838) (138,120)
-------- -------- -------- -------- --------
Total liabilities and
stockholders'
equity.............. $204,968 $ 31,045 $ 11,525 $ 15,662 $263,200
======== ======== ======== ======== ========
</TABLE>
- -------
(1) Gives effect to the Old Offerings, the application of the net proceeds
therefrom and the Company Formation, as if all such transactions occurred
on June 30, 1997. See "Use of Proceeds" and "Certain Transactions--The
Company Formation and Proceeds from the Old Offerings."
(2) Reflects the historical balance sheet of Engineered Endeavors, Inc.
("EEI"), which was acquired by the Company in September 1997, as of June
30, 1997. See "Summary--Recent Developments."
(3) Gives effect to the acquisition of EEI and the purchase accounting and
other adjustments relating thereto, as if this transaction had occurred on
June 30, 1997.
(4) Total fees of $14.5 million relating to the Old Offerings have been
allocated to other assets, $9.0 million, and net capital deficiency of
($5.5 million), in accordance with GAAP.
(5) A portion ($0.1 million) of the issue price of the Preferred Stock Units
offered hereby has been allocated to the Common Stock forming a part of
the units which, under GAAP, has decreased the balance of the Senior
Preferred Stock and increased the amount of stockholders' equity reflected
on the balance sheet.
(6) The pro forma net capital deficiency reflects adjustments for the
difference between the book value of the net assets of the
Telecommunications Subsidiaries and the Acquisition Price. See "Use of
Proceeds."
P-7
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Boards of Directors and Shareholders
JTP Companies
We have audited the accompanying combined balance sheets of the JTP
Companies as of December 31, 1995 and 1996, and the related combined
statements of operations, changes in shareholders' equity (net capital
deficiency), and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
JTP Companies' management. Our responsibility is to express an opinion on
these financial statements based on our audits. We did not audit the financial
statements of certain combined companies whose statements reflect total assets
constituting 35% in 1996, and net sales constituting 13% in 1996, of the
related combined totals. Those statements were audited by other auditors whose
reports have been furnished to us, and our opinion, insofar as it relates to
data included for these combined companies is based solely on the reports of
the other auditors.
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, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material
respects, the combined financial position of the JTP Companies at December 31,
1995 and 1996, and the combined results of their operations and their cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Chicago, Illinois
April 25, 1997
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Diversified Wire & Cable, Inc.
Troy, Michigan
We have audited the accompanying balance sheet of Diversified Wire & Cable,
Inc. as of December 31, 1996 and the related statement of operations, changes
in stockholders' equity and cash flows for the period June 25, 1996
(Commencement of Operations) through December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion the financial statements referred to above present fairly, in
all material respects, the financial position of Diversified Wire & Cable,
Inc. as of December 31, 1996, and the results of its operations, the changes
in stockholders' equity and its cash flows for the period June 25, 1996
through December 31, 1996 in conformity with generally accepted accounting
principles.
/s/ Mellen, Smith & Pivoz, P.C.
-------------------------------------
Bingham Farms, Michigan
February 13, 1997
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder of Bond Holdings, Inc.
We have audited the consolidated balance sheet of Bond Holdings, Inc. and
Subsidiaries as of December 31, 1996, and the related consolidated statements
of income, stockholder's deficit and cash flows for the period from inception
(September 20, 1996) through December 31, 1996 (not included separately
herein). These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Bond
Holdings, Inc. and Subsidiaries as of December 31, 1996, and the consolidated
results of their operations and their cash flows for the period from inception
(September 20, 1996) through December 31, 1996, in conformity with generally
accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
-------------------------------------
Newport Beach, California
April 11, 1997
F-3
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Northern Technologies Holdings, Inc.
Deerfield, Illinois
We have audited the accompanying consolidated balance sheet of Northern
Technologies Holdings, Inc. as of December 31, 1996. This financial statement
is the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated balance sheet referred to above presents
fairly, in all material respects, the financial position of Northern
Technologies Holdings, Inc. as of December 31, 1996 in conformity with
generally accepted accounting principles.
/s/ McFarland & Alton P.S.
-------------------------------------
April 25, 1997
Spokane, Washington
F-4
<PAGE>
JTP COMPANIES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31 (UNAUDITED)
------------------ JUNE 30
ASSETS 1995 1996 1997
------ -------- -------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................... $ 2,798 $ 6,385 $ 2,302
Restricted cash............................. -- 708 730
Accounts receivable, net of allowance of
$432, $501 and $468 at December 31, 1995
and 1996 and June 30, 1997, respectively... 13,218 30,255 35,546
Inventories................................. 11,305 25,750 34,077
Prepaid expenses and other current assets... 512 4,830 4,878
-------- -------- --------
Total current assets...................... 27,833 67,928 77,533
Property, plant, and equipment, net........... 16,739 29,046 29,299
Goodwill, net................................. 7,649 71,097 80,440
Other assets, net............................. 10,527 11,575 17,696
-------- -------- --------
Total assets.............................. $ 62,748 $179,646 $204,968
======== ======== ========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
(NET CAPITAL DEFICIENCY)
------------------------------------
<S> <C> <C> <C>
Current liabilities:
Note payable................................ $ 527 $ -- $ --
Accounts payable............................ 8,745 16,799 15,651
Accrued expenses and other current
liabilities................................ 3,320 9,941 12,676
Payables to Jordan.......................... 3,171 6,794 10,149
Current portion of long-term debt........... 774 1,855 987
-------- -------- --------
Total current liabilities................. 16,537 35,389 39,463
Capital lease obligations..................... 3,397 3,234 3,000
Long-term debt................................ 1,168 2,572 3,900
Notes payable to Jordan....................... 47,444 141,380 170,022
Other noncurrent liabilities.................. 2,836 4,845 5,266
Minority interest............................. 707 1,730 2,136
7% Dura-Line cumulative preferred stock at
liquidation value of $10,000 per share:
issued and outstanding--187.5 shares......... 1,875 1,875 1,875
Shareholders' equity (net capital deficiency):
Common stock................................ 78 88 88
Additional paid-in capital.................. -- 1,990 1,990
Cumulative foreign currency translation
adjustment................................. (193) 251 (269)
Retained earnings (accumulated deficit)..... (11,101) (13,708) (22,503)
-------- -------- --------
Total shareholders' equity (net capital
deficiency).............................. (11,216) (11,379) (20,694)
-------- -------- --------
Total liabilities and shareholders' equity
(net capital deficiency)................. $ 62,748 $179,646 $204,968
======== ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE>
JTP COMPANIES
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30
-------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- -------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales....................... $64,690 $96,969 $132,999 $50,917 $107,802
Cost of sales, excluding
depreciation................... 39,333 61,601 82,870 29,717 66,780
Selling, general, and
administrative expense,
excluding depreciation......... 10,228 13,508 26,857 7,349 20,053
Depreciation.................... 1,807 2,621 4,071 1,767 2,461
Amortization of goodwill and
other intangibles.............. 3,293 2,484 2,571 1,187 2,314
Management fees and other....... 1,641 1,869 3,307 3,158 17,601
------- ------- -------- ------- --------
Operating income (loss)......... 8,388 14,886 13,323 7,739 (1,407)
Other (income) and expense:
Interest expense.............. 5,778 6,555 11,826 4,356 9,265
Interest income............... (4) (156) (152) (28) (87)
Other......................... -- -- 31 -- (19)
------- ------- -------- ------- --------
Total other expense............. 5,774 6,399 11,705 4,328 9,159
------- ------- -------- ------- --------
Income (loss) before income
taxes, minority interest, and
extraordinary (loss)........... 2,614 8,487 1,618 3,411 (10,566)
Provision (benefit) for income
taxes.......................... 1,172 4,062 3,647 1,564 (3,031)
------- ------- -------- ------- --------
Income (loss) before minority
interest and extraordinary
(loss)......................... 1,442 4,425 (2,029) 1,847 (7,535)
Minority interest............... 57 419 548 349 796
------- ------- -------- ------- --------
Income (loss) before
extraordinary (loss)........... 1,385 4,006 (2,577) 1,498 (8,331)
Extraordinary (loss)............ -- -- -- -- (464)
------- ------- -------- ------- --------
Net income (loss)............... $ 1,385 $ 4,006 $ (2,577) $ 1,498 $ (8,795)
======= ======= ======== ======= ========
</TABLE>
See accompanying notes.
F-6
<PAGE>
JTP COMPANIES
COMBINED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (NET CAPITAL
DEFICIENCY)
(DOLLARS AND NUMBERS OF SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
------------------------------------------------------------------------------------------------
DURA-LINE AIM CAMBRIDGE JOHNSON DIVERSIFIED VIEWSONICS JTPG
------------- ------------- ------------- ------------- ------------- ------------- -------------
NUMBER NUMBER NUMBER NUMBER NUMBER NUMBER NUMBER
OF OF OF OF OF OF OF
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 1994 76.0 $76 1.0 $ 1 .5 $ 1 -- $-- -- $-- -- $-- -- $--
Net income -- -- -- -- -- -- -- -- -- -- -- -- -- --
Cumulative
translation
adjustment -- -- -- -- -- -- -- -- -- -- -- -- -- --
Dividends
declared on
preferred stock
of Dura-Line -- -- -- -- -- -- -- -- -- -- -- -- -- --
Dura-Line
recapitalization -- -- -- -- -- -- -- -- -- -- -- -- -- --
---- --- --- --- --- --- --- ---- ---- ---- --- ---- --- ----
Balance at
December 31,
1994 76.0 76 1.0 1 .5 1 -- -- -- -- -- -- -- --
Net income -- -- -- -- -- -- -- -- -- -- -- -- -- --
Cumulative
translation
adjustment -- -- -- -- -- -- -- -- -- -- -- -- -- --
Dividends
declared on
preferred stock
of Dura-Line -- -- -- -- -- -- -- -- -- -- -- -- -- --
---- --- --- --- --- --- --- ---- ---- ---- --- ---- --- ----
Balance at
December 31,
1995 76.0 76 1.0 1 .5 1 -- -- -- -- -- -- -- --
Issuance of
common stock -- -- -- -- -- -- .5 -- 10.0 10 .1 -- 1.0 --
Net (loss) -- -- -- -- -- -- -- -- -- -- -- -- -- --
Cumulative
translation
adjustment -- -- -- -- -- -- -- -- -- -- -- -- --
---- --- --- --- --- --- --- ---- ---- ---- --- ---- --- ----
Balance at
December 31,
1996 76.0 76 1.0 1 .5 1 .5 -- 10.0 10 .1 -- 1.0 --
Net (loss)
(unaudited) -- -- -- -- -- -- -- -- -- -- -- -- -- --
Cumulative
translation
adjustment
(unaudited) -- -- -- -- -- -- -- -- -- -- -- -- -- --
---- --- --- --- --- --- --- ---- ---- ---- --- ---- --- ----
Balance at
June 30,
1997
(unaudited) 76.0 $76 1.0 $ 1 .5 $ 1 .5 $-- 10.0 $ 10 .1 $-- 1.0 $--
==== === === === === === === ==== ==== ==== === ==== === ====
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCK
-------------------------------------------------------------------------
ADDITIONAL
PAID-IN
BOND NORTHERN CAPITAL CUMULATIVE TOTAL
------------- ------------- ----------- FOREIGN RETAINED SHAREHOL'
NUMBER NUMBER CURRENCY EARNINGS EQUITY
OF OF TRANSLATION (ACCUMULATED (NET CAPL
SHARES AMOUNT SHARES AMOUNT DIVERSIFIED ADJUSTMENT DEFICIT) DEFICIE)
------ ------ ------ ------ ----------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 1994 -- $-- -- $-- $ -- $(427) $ 5,714 $ 5,35
Net income -- -- -- -- -- -- 1,385 1,35
Cumulative
translation
adjustment -- -- -- -- -- 248 -- 28
Dividends
declared on
preferred stock
of Dura-Line -- -- -- -- -- -- (139) (1)
Dura-Line
recapitalization -- -- -- -- -- -- (22,022) (22,0)
--- ---- --- ---- ------ ----- -------- -------
Balance at
December 31,
1994 -- -- -- -- -- (179) (15,062) (15,1)
Net income -- -- -- -- -- -- 4,006 4,06
Cumulative
translation
adjustment -- -- -- -- -- (14) -- ()
Dividends
declared on
preferred stock
of Dura-Line -- -- -- -- -- -- (45) ()
--- ---- --- ---- ------ ----- -------- -------
Balance at
December 31,
1995 -- -- -- -- -- (193) (11,101) (11,2)
Issuance of
common stock .1 -- 1.0 -- 1,990 -- -- 2,00
Net (loss) -- -- -- -- -- -- (2,577) (2,5)
Cumulative
translation
adjustment -- -- -- -- -- 414 -- 44
--- ---- --- ---- ------ ----- -------- -------
Balance at
December 31,
1996 .1 -- 1.0 -- 1,990 251 (13,708) (11,3)
Net (loss)
(unaudited) -- -- -- -- -- -- (8,795) (8,7)
Cumulative
translation
adjustment
(unaudited) -- -- -- -- -- (520) -- (5)
--- ---- --- ---- ------ ----- -------- -------
Balance at
June 30,
1997
(unaudited) .1 $-- 1.0 $-- $1,990 $(269) $(22,503) $(20,6)
=== ==== === ==== ====== ===== ======== =======
</TABLE>
See accompanying notes.
F-7
<PAGE>
JTP COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS
YEAR ENDED DECEMBER 31 ENDED JUNE 30,
------------------------- ----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss)................ $ 1,385 $ 4,006 $(2,577) $ 1,498 $(8,795)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation and amortization.. 5,100 5,105 6,642 2,954 4,774
Benefit from deferred income
taxes......................... (491) (538) (1,188) (267) (5,694)
Minority interest.............. 57 419 548 252 700
Changes in operating assets and
liabilities:
Accounts receivable............ (2,558) (3,182) 1,103 1,194 (3,567)
Inventories.................... (1,776) (2,475) 54 (543) (4,429)
Prepaid expenses and other
current assets................ 173 (156) (943) 471 61
Noncurrent assets.............. (340) (1,026) 287 (1,922) (1,028)
Accounts payable, accrued
expenses, and other current
liabilities................... 2,664 4,559 (4,607) (3,201) (3,062)
Noncurrent liabilities......... 1,219 1,366 3,285 (81) 3,800
Payables to Jordan............. 355 (115) 3,668 773 (3,355)
Other.......................... (55) (7) 41 0 62
------- ------- ------- ------- -------
Net cash provided by operating
activities...................... 5,733 7,956 6,313 1,128 (13,823)
CASH FLOWS FROM INVESTING
ACTIVITIES
Capital expenditures........... (3,277) (5,400) (6,523) (2,812) (3,103)
Acquisitions, net of cash
acquired (Note 1)............. -- -- (89,858) (31,665) (15,003)
Acquisition of Dura-Line common
stock and other............... (2,252) (3,332) -- -- --
------- ------- ------- ------- -------
Net cash used in investing
activities.................. (5,529) (8,732) (96,381) (34,477) (18,106)
CASH FLOWS FROM FINANCING
ACTIVITIES
Repayment of long-term debt...... (876) (1,427) (1,698) (600) (1,395)
Net advances from Jordan......... 334 2,673 93,936 34,115 28,642
Other borrowings................. 828 1,466 857 -- 121
Proceeds from issuance of
Diversified common stock........ -- -- 250 -- --
------- ------- ------- ------- -------
Net cash provided by financing
activities...................... 286 2,712 93,345 33,515 27,368
Effect of exchange rate changes
on cash and cash equivalents.... -- -- 310 (7) 478
------- ------- ------- ------- -------
Net increase in cash and cash
equivalents..................... 490 1,936 3,587 159 (4,083)
Cash and cash equivalents at
beginning of period............. 372 862 2,798 2,798 6,385
------- ------- ------- ------- -------
Cash and cash equivalents at end
of period....................... $ 862 $ 2,798 $ 6,385 $ 2,957 $ 2,302
======= ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid during the period for:
Interest....................... $ 1,342 $ 2,423 $ 1,198 $ 400 $ 357
======= ======= ======= ======= =======
Income taxes, net.............. $ 1,730 $ 4,265 $ 2,103 $ 902 $ 579
======= ======= ======= ======= =======
Noncash investing activities:
Capital leases................. $ -- $ 3,867 $ 686 $ 349 $ 571
======= ======= ======= ======= =======
</TABLE>
See accompanying notes.
F-8
<PAGE>
JTP COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
The unaudited combined financial statements have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in annual combined
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the JTP Companies believe these disclosures are adequate
to make the information presented not misleading. In the opinion of
management, all adjustments necessary for a fair presentation for the periods
presented have been reflected and are of a formal recurring nature.
Results of operations for the six months ended June 30, 1996 and 1997 are
not necessarily indicative of the results that may be achieved for the entire
years ended December 31, 1996 and 1997, respectively.
The accompanying combined financial statements include the accounts of Dura-
Line Corporation and Subsidiaries (Dura-Line); AIM Electronics Corporation
(AIM); Cambridge Products Corporation (Cambridge); Johnson Components, Inc.
(Johnson); Diversified Wire & Cable, Inc. (Diversified); Viewsonics, Inc. and
Subsidiary (Viewsonics); Jordan Telecommunications Product Group, Inc., and
Subsidiaries (JTPG); Bond Holdings, Inc. and Subsidiaries (Bond); and Northern
Technologies Holdings, Inc. and Subsidiary (Northern); collectively the JTP
Companies. All of the JTP Companies are wholly owned subsidiaries of Jordan
Industries, Inc. (Jordan) except for Diversified which is 87.5% owned by
Jordan. All significant intercompany balances and transactions have been
eliminated in combination.
Dura-Line is a leading manufacturer and supplier of high density
polyethylene (HDPE) plastic ducts used to install, house, and protect fiber-
optic, coaxial, and other cables. Dura-Line also manufactures other plastic
piping for potable water and heating systems. The company is headquartered in
Knoxville, Tennessee, and operates manufacturing facilities in the United
States, the United Kingdom, the Czech Republic, Mexico, Israel, China, and
India and sells its products principally to telecommunications and cable
television companies.
AIM is an importer and manufacturer of electronic connectors, adapters,
switches, tools, custom cable assemblies, and other electronic hardware
products for telecommunications and data communications networks sold to the
commercial and consumer electronics markets. AIM's products, excluding custom
cable assemblies, are primarily manufactured in Asia.
Cambridge is a domestic manufacturer of high-quality electronic connectors,
plugs, adapters, and other accessories. Cambridge also designs and markets
specialty radio-frequency coaxial electronic connectors for radio, mobile
communications, television, and computer equipment.
Johnson is a high-quality, fully-integrated domestic manufacturer of radio-
frequency coaxial connectors and electronic hardware. Johnson specializes in
manufacturing miniature and subminiature radio-frequency connectors used
primarily in telecommunication, computer, and other OEM applications which
require high frequency ranges.
Diversified is a broad-line provider and value-added reseller of wire,
cable, and custom cable assemblies. Diversified's products are used in local-
area-networks, custom cable assemblies, electrical applications, sound and
security applications, and various other OEM and miscellaneous applications.
F-9
<PAGE>
JTP COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Viewsonics designs, manufactures, and markets branded cable television
components, electronic network components, and electronic security components
primarily for the home connection portion of the cable television
infrastructure. Viewsonics' products are primarily manufactured by its wholly
owned subsidiary, Shanghai Viewsonics Electronic Co., Ltd., located in
Shanghai, China.
JTPG, a wholly owned subsidiary of Jordan, through its wholly owned
subsidiary, Jordan Telecommunications Product Group-Europe, Inc. (JTPGE),
purchased the stock of Vitelec Electronics Ltd. (Vitelec) on August 5, 1996.
JTPG and JTPGE have no operations.
Vitelec, located in Hampshire, England, is an importer, packager, and master
distributor of radio-frequency connectors, plugs, jacks, sockets, adapters,
and terminators sold to the commercial and consumer electronics markets.
Vitelec's radio-frequency products are manufactured for them in Asia. Vitelec
also distributes local-area-network and wide-area-network cabling, connectors,
converters, and accessories for data communication networks.
Bond was incorporated as a holding company in August 1996 to acquire the
Bond Technologies Group. The Bond Technologies Group consists of: an 80%
interest in Bond Technologies, Inc., which was organized and incorporated
under the laws of the state of California in 1988 and has manufacturing plants
in Anaheim and Fremont, California; an 80% interest in Cable Spec, Ltd. (dba
Bond Technologies, Ltd.), a limited partnership organized under the laws of
the state of Texas in July 1995 and which has a manufacturing plant in Austin,
Texas; and an 80% interest in Balance Manufacturing Services of Southern
California, Inc., and a 51% interest in BSM, Inc., which were incorporated in
the state of California in 1995 and 1994, respectively. Balance Manufacturing
Services of Southern California, Inc. and BSM, Inc. function as the sales
representatives for Bond Technologies Group in southern California and
northern California, respectively.
Bond designs, engineers, and manufactures high-quality custom electronic
cables and connector subassemblies for original equipment manufacturers in the
data and telecommunication segments of the electronics industry. Current sales
are predominantly within the United States.
Northern was incorporated as a holding company in December 1996 to acquire
Northern Technologies, Inc. Northern Technologies, Inc. designs, manufactures,
and markets power conditioning and power protection equipment primarily for
telecommunications applications. The company also offers a variety of other
products including voltage regulators, uninteruptable power supplies,
isolation transformers, and grounding devices to protect any power-critical
application.
DURA-LINE SUBSIDIARIES/INVESTMENT IN AFFILIATE
On December 9, 1988, Dura-Line Limited, a wholly owned subsidiary of Dura-
Line, was incorporated in the United Kingdom to manufacture and supply HDPE
plastic conduit systems to the United Kingdom and European markets. Dura-Line
Limited began operations in March 1989.
On April 29, 1993, Dura-Line (Israel) Ltd., a joint venture between Dura-
Line and two Israeli companies, was established in Israel to manufacture and
supply HDPE plastic conduit systems to the Middle East market. Dura-Line
(Israel) Ltd., 33 1/3% owned by Dura-Line, commenced operations in December
1993.
On July 23, 1993, Dura-Line CT s.r.o, a limited liability company, was
established in the Czech Republic to manufacture and supply HDPE plastic
conduit systems to the Central European markets. Dura-Line CT's net profits
and losses are split 70% to Dura-Line and 30% to the former shareholders of
Compuplast-Technology, A.S. The company commenced operations in November 1993.
On February 21, 1995, Dura-Line Mexico S.A. de C.V., a wholly owned
subsidiary of Dura-Line, was incorporated in Mexico to manufacture and supply
HDPE plastic conduit systems to Central and South American markets. Dura-Line
Mexico S.A. de C.V. began operations in August 1996.
F-10
<PAGE>
JTP COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
On December 28, 1995, Dura-Line Shanghai Plastics Company, Ltd., a
Contractual Cooperative Joint Venture with a Chinese company, was established
to manufacture and supply HDPE plastic conduit systems to China and other Asia
markets. Dura-Line owns 100% of the equity in Dura-Line Shanghai Plastics and
began operations in October 1996.
On August 19, 1996, Bharti Dura-Line Private Ltd., a joint venture with
Bharti Telecom, was incorporated in India to manufacture and supply HDPE
plastic conduit systems to India and neighboring countries. Dura-Line owns 50%
plus one share of the joint venture and as of December 31, 1996, has not
commenced operations.
COMMON STOCK
Common stock consists of the following:
<TABLE>
<CAPTION>
PAR VALUE
(IN DOLLARS SHARES SHARES SHARES
PER SHARE) AUTHORIZED ISSUED OUTSTANDING
----------- ---------- ------ -----------
<S> <C> <C> <C> <C>
December 31, 1995
Dura-Line........................... $1.00 100,000 76,000 76,000
Aim................................. 1.00 1,000 1,000 1,000
Cambridge........................... 1.00 30,000 500 500
December 31, 1996
Dura-Line........................... 1.00 100,000 76,000 76,000
Aim................................. 1.00 1,000 1,000 1,000
Cambridge........................... 1.00 30,000 500 500
Johnson............................. 1.00 10,000 500 500
Diversified......................... 1.00 10,000 10,000 10,000
Viewsonics.......................... 1.00 10,000 100 100
JTPG................................ .01 1,000 1,000 1,000
Bond................................ 1.00 10,000 100 100
Northern............................ .01 100,000 1,000 1,000
</TABLE>
ACQUISITIONS
On January 23, 1996, Johnson Components Holdings, Inc. ("JCH"), a holding
company incorporated in January 1996 by Jordan, purchased the net assets of
Johnson Components, Inc. and, concurrent with the acquisition, JCH changed its
name to Johnson Components, Inc. (Johnson). The purchase price of $16,121,
including costs incurred directly related to the transaction, was allocated to
working capital of $1,616, property, plant, and equipment of $4,660, and
noncompete agreements of $1,050, and resulted in an excess purchase price over
net identifiable assets of $8,795. The acquisition was financed by Johnson
through borrowings from Jordan.
On June 25, 1996, Diversified Wire & Cable Holdings, Inc. ("DWCH"), a
holding company incorporated in June 1996 by Jordan, purchased the stock of
Diversified Wire & Cable, Inc. and, concurrent with the acquisition, DWCH
changed its name to Diversified Wire & Cable, Inc. (Diversified). The purchase
price of $17,044, including costs incurred directly related to the
transaction, was allocated to working capital of $534, property, plant, and
equipment of $607, noncompete agreements of $500, other assets of $27, capital
leases of $194, and resulted in an excess purchase price over net identifiable
assets of $15,570. The acquisition was financed by Diversified through
borrowings from Jordan and a $1,500 subordinated seller note. Immediately
after the acquisition, Diversified sold 1,250 shares of its common stock to
the former owners and current members of Diversified management for $250.
Certain sellers of Diversified Wire & Cable, Inc. are entitled to additional
payments for their stock, contingent upon operating results of Diversified, as
defined in the purchase agreement. The maximum contingent consideration to be
paid is $3,200.
F-11
<PAGE>
JTP COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
On August 1, 1996, Viewsonics Holdings, Inc. ("VHI"), a holding company
incorporated in July 1996 by Jordan, purchased the net assets of Viewsonics,
Inc. and, concurrent with the acquisition, VHI changed its name to Viewsonics,
Inc. (Viewsonics). The purchase price of $15,000, including costs incurred
directly related to the transaction, was allocated to working capital of
$6,378, property, plant, and equipment of $446, and resulted in an excess
purchase price over net identifiable assets of $8,176. The acquisition was
financed by Viewsonics through borrowings from Jordan.
The former owner of Viewsonics, Inc. is entitled to additional payments for
the net assets acquired by Viewsonics, contingent upon operating results as
defined in the purchase agreement. The maximum contingent consideration to be
paid is $5,000.
JTPG, a wholly owned subsidiary of Jordan, through its wholly owned
subsidiary, Jordan Telecommunications Product Group-Europe, Inc. (JTPGE),
purchased the stock of Vitelec Electronics Ltd. (Vitelec) on August 5, 1996.
The purchase price of $14,040, including costs incurred directly related to
the transaction, was allocated to working capital of $962, property, plant,
and equipment of $1,054, and resulted in an excess purchase price over net
identifiable assets of $12,024. The acquisition was financed by JTPG through
borrowings from Jordan.
On September 20, 1996, Bond Holdings, Inc., a holding company incorporated
in August 1996 by Jordan, purchased Bond Technologies Group. The purchase
price of $8,629, which included costs incurred directly related to the
transaction, was allocated to working capital of $2,099, property, plant, and
equipment of $902, noncompete agreements of $800, other assets of $54, debt
assumed of $53, and resulted in an excess purchase price over net identifiable
assets of $4,827. The acquisition was financed by Bond through borrowings from
Jordan.
The purchase price included cash balances that are restricted in their use.
The restricted balances, which total $708 as of December 31, 1996, are held in
an escrow account with instructions that the balances be paid to the previous
owners of Bond's underlying companies at a predetermined date if certain
earnings levels are achieved. Based on current projections, Bond does not
anticipate paying the sellers. However, it is at least reasonably possible
that this estimate may change in the near term which would result in Bond
having to pay the sellers up to the entire amount of the restricted cash.
On December 31, 1996, Northern Technologies Holdings, Inc. (Northern), a
holding company incorporated in December 1996 by Jordan, purchased 100% of the
stock of Northern Technologies, Inc. The purchase price of $21,500, including
estimated costs incurred directly related to the transaction, was allocated to
working capital of $5,082, property, plant, and equipment of $887,
noncompetition agreements of $500, long-term assets of $234, long-term
liabilities of $188, and resulted in an excess purchase price over net
identifiable assets of $14,985. Northern has agreed to purchase raw materials
during 1997 at the current market price of $2,271 as of December 31, 1996. The
acquisition was financed by Northern through borrowings from Jordan.
Unaudited annual pro forma information with respect to the JTP Companies as
if the 1996 acquisitions had occurred on January 1, 1995 and 1996, is as
follows:
<TABLE>
<CAPTION>
(UNAUDITED)
YEAR ENDED DECEMBER 31
-----------------------
1995 1996
----------- -----------
<S> <C> <C>
Net sales........................................ $ 178,678 $ 193,474
Income before income taxes and minority interest. 11,370 7,669
Net income....................................... 7,013 3,132
</TABLE>
F-12
<PAGE>
JTP COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The JTP Companies consolidate all majority-owned subsidiaries and limited
partnerships where the specific JTP Company is the general partner with a
controlling interest. Investments in 20%- to 50%-owned affiliates are
accounted for using the equity method. All significant intercompany balances
and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
All highly liquid debt instruments purchased with an initial maturity of
three months or less are considered to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market. Inventories are
primarily valued at either average or first in, first out (FIFO) cost.
Depreciation and Amortization
Property, Plant, and Equipment--Depreciation and amortization of property,
plant, and equipment is calculated using estimated useful lives, or over the
lives of the underlying leases, if less, using straight-line or accelerated
methods. The useful lives of plant and equipment for the purpose of computing
book depreciation are as follows:
<TABLE>
<S> <C>
Machinery and equipment........................................ 3-10 years
Buildings and improvements..................................... 7-35 years
Furniture and fixtures......................................... 5-10 years
</TABLE>
Goodwill--Goodwill is being amortized on the straight-line basis principally
over 40 years. At December 31, 1995 and 1996, goodwill is net of accumulated
amortization of $1,683 and $2,715, respectively.
Foreign Currency Translation
In accordance with Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translation," assets and liabilities of Dura-Line's,
Viewsonics', and JTPG's foreign operations are translated from foreign
currencies into U.S. dollars at year-end rates while income and expenses are
translated at the weighted-average exchange rates for the year. Gains or
losses resulting from the translations of foreign currency financial
statements are deferred and classified as a separate component of
shareholders' equity.
Long-Lived Assets
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
requires, among other things, that companies consider whether indicators of
impairment of long-lived assets held for use are present, that if such
indicators are present the companies determine whether the sum of the
estimated undiscounted future cash flows attributable to such assets is less
than their carrying amounts, and if so, the companies recognize an impairment
loss based on the excess of the carrying amount of the assets over their fair
value.
Accordingly, the JTP Companies evaluated the ongoing value of their
property, plant, and equipment and other long-lived assets as of December 31,
1996. From this evaluation, the JTP Companies determined that there were no
indications of impairment significant enough to warrant recognition of an
impairment loss, and as such, no impairment loss has been recognized for the
year ended December 31, 1996.
F-13
<PAGE>
JTP COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Income Taxes
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," provides that deferred tax assets and liabilities be determined based
on the difference between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. A valuation allowance is provided when it
is more likely than not that some portion of the deferred tax assets arising
from temporary differences and net operating losses will not be realized.
Dura-Line and JTPG have not provided for income taxes on undistributed
earnings of foreign subsidiaries to the extent the undistributed earnings are
considered to be permanently reinvested.
Risk and Uncertainties
The JTP Companies operate in seven countries. In each country, the business
is subject to varying degrees of risk and uncertainty. The JTP Companies
insure their business and assets in each country against insurable risks in a
manner that they deem appropriate. Because of their diversity, the JTP
Companies believe that the risk of loss from noninsurable events in their
businesses in any one country would not have a material adverse effect on
their operations as a whole.
AIM, Viewsonics, and Bond are economically dependent on a limited number of
suppliers, some of which are located in Asia. If these suppliers become unable
to meet materials requirements, sales could be adversely affected. However,
AIM, Viewsonics, and Bond management believe that sufficient inventory levels
are maintained, and alternative sources of supply would be available, to
prevent a materially adverse impact on the respective results of operations.
Dura-Line's domestic employees represent approximately 50% of Dura-Line's
total worldwide employment as of December 31, 1996. Approximately 36% of Dura-
Line's domestic employees, or approximately 18% of Dura-Line's total
employees, are subject to a collective bargaining agreement which expired on
April 18, 1997. Negotiations for a new agreement are currently under way.
Plastic resins are Dura-Line's principal raw materials. The price of plastic
resins is subject to worldwide market forces of supply and demand. Prices can
be volatile, and fluctuations influence Dura-Line's financial results.
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.
Fair Value of Financial Instruments
The JTP Companies' financial instruments include cash equivalents, trade
accounts receivable, accounts payable, accrued expenses, and notes payable to
Jordan. The fair values of all financial instruments were not materially
different from their carrying values at December 31, 1995 and 1996.
Research and Development Costs
Research and development costs are expensed as incurred.
F-14
<PAGE>
JTP COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
3. INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
DECEMBER 31 (UNAUDITED)
--------------- JUNE 30,
1995 1996 1997
------- ------- -----------
<S> <C> <C> <C>
Raw materials................................. $ 7,425 $10,738 $12,963
Work in process............................... 144 1,559 2,243
Finished goods................................ 3,736 13,453 18,871
------- ------- -------
$11,305 $25,750 $34,077
======= ======= =======
</TABLE>
4. OTHER ASSETS
Stock appreciation rights agreements, customer lists, noncompete agreements,
trade names, and supplier relations are amortized on the straight-line basis
over their estimated useful lives, ranging from one to twenty years. At
December 31, 1995 and 1996, these items are shown net of accumulated
amortization of $15,733 and $21,484, respectively.
Other assets consist of:
<TABLE>
<CAPTION>
DECEMBER 31
---------------
1995 1996
------- -------
<S> <C> <C>
Customer lists............................................ $ 1,679 $ 1,478
Noncompete agreements..................................... 4,136 5,720
Trade names............................................... 1,632 1,778
Supplier relations........................................ 1,220 1,129
Deferred taxes............................................ -- 438
Other..................................................... 1,860 1,032
------- -------
$10,527 $11,575
======= =======
</TABLE>
5. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment, at cost, consists of:
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1995 1996
-------- --------
<S> <C> <C>
Land.................................................. $ 842 $ 899
Machinery and equipment............................... 18,520 31,447
Buildings and improvements............................ 7,331 8,378
Furniture and fixtures................................ 965 3,395
Leasehold improvements................................ -- 621
-------- --------
27,658 44,740
Accumulated depreciation and amortization............. (10,919) (15,694)
-------- --------
$ 16,739 $ 29,046
======== ========
</TABLE>
F-15
<PAGE>
JTP COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued liabilities consist of:
<TABLE>
<CAPTION>
DECEMBER 31
-------------
1995 1996
------ ------
<S> <C> <C>
Accrued vacation........................................... $ 84 $ 445
Accrued bonuses............................................ 1,004 --
Accrued income taxes....................................... 1,404 1,829
Accrued warranties......................................... -- 220
Accrued commissions........................................ 59 356
Accrued payroll and payroll taxes.......................... 218 1,414
Accrued royalties.......................................... 501 941
Accrued stock appreciation rights (Note 15)................ -- 2,922
Accrued legal and accounting fees.......................... -- 145
Accrued other expenses..................................... 50 1,622
Deferred taxes............................................. -- 47
------ ------
$3,320 $9,941
====== ======
</TABLE>
7. OPERATING LEASES
Certain land, buildings, and equipment are leased under noncancelable
operating leases. Certain leases for facilities contain renewal options and
require additional payments for maintenance charges and are subject to
periodic escalation charges.
Total minimum rental commitments under noncancelable operating leases at
December 31, 1996 are:
<TABLE>
<S> <C>
1997.............................................................. $ 1,339
1998.............................................................. 1,473
1999.............................................................. 1,165
2000.............................................................. 989
2001.............................................................. 794
Thereafter........................................................ 6,037
-------
$11,797
=======
</TABLE>
Northern rents its current facility from a partnership in which an officer
of Northern is a partner. The lease calls for monthly rental payments of
approximately $9, with annual 5% increases effective each January. The lease
expires in 2002.
Rental expense amounted to $301, $399, and $897 for 1994, 1995, and 1996,
respectively.
8. BENEFIT PLANS
Certain JTP Companies participate in the Jordan Industries, Inc. 401(k)
Savings Plan (401(k) Plan), a defined-contribution benefit plan for salaried
and hourly employees. In order to participate in the 401(k) Plan, employees
must be at least 21 years old and have worked at least 1,000 hours during the
first 12 months of employment. Each employee may contribute from 1% to 15% of
such employee's before-tax wages into the 401(k) Plan.
F-16
<PAGE>
JTP COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
9. LINE OF CREDIT
Dura-Line has available a line of credit from ABN AMRO Bank N.V. of Prague,
Czech Republic in the amount of $800. At December 31, 1996, Dura-Line had no
outstanding borrowings on this line of credit. At December 31, 1995, Dura-Line
had outstanding borrowings on this line of credit of $527. The line of credit
carries an interest rate of 1.25% above PRIBOR (Prague Inter-Bank Offered
Rate); the applicable rate was 12.5% at December 31, 1995. The facility is
secured by the assets of Dura-Line CT s.r.o. and is guaranteed with a standby
letter of credit issued by Dura-Line.
10. DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
DECEMBER 31 (UNAUDITED)
----------------- JUNE 30,
1995 1996 1997
------- -------- ----------- ---
<S> <C> <C> <C> <C>
Notes payable (A)...................... $ 1,232 $ 3,623 $ 3,000
Capital lease obligations (B).......... 4,107 4,038 3,900
Notes due to Jordan (C)................ 47,444 141,380 170,022
------- -------- --------
52,783 149,041 177,909
Current portion........................ (774) (1,855) (987)
------- -------- --------
$52,009 $147,186 $176,922
======= ======== ========
</TABLE>
Aggregate maturities of long-term debt at December 31, 1996, excluding notes
due to Jordan, are as follows:
<TABLE>
<S> <C>
1997............................................................... $1,855
1998............................................................... 998
1999............................................................... 1,958
2000............................................................... 1,298
2001............................................................... 52
Thereafter......................................................... 1,500
------
$7,661
======
</TABLE>
- --------
(A) Dura-Line maintains $1,141 in notes payable due in monthly installments
through 1999 and bearing interest at rates ranging from 5.7% to 8.3%. The
notes are secured by equipment.
Diversified maintains $125 in notes payable due in monthly installments
through 2001 and bearing interest at rates ranging from 7.7% to 9.9%. The
notes are secured by equipment.
Diversified maintains $1,500 in notes payable to the sellers. The notes
accrue interest at an annual rate of 8%, which is payable annually. One-
half of the principal is due in 2003 with the remaining one-half due in
2004. Diversified has the right to prepay the principal. The notes are
subordinated to any indebtedness to Jordan or an affiliate.
Vitelec has a $857 note payable to an officer of Vitelec. The note is non-
interest-bearing and is due in 1997. Interest has not been imputed on the
note due to its very short term. The note is unsecured.
F-17
<PAGE>
JTP COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(B) Interest rates on capital leases range from 7.7% to 10.8% and mature in
installments through 2001. Leases are secured by the underlying assets.
The future minimum lease payments as of December 31, 1996 under capital
leases consist of the following:
<TABLE>
<S> <C>
1997.............................................................. $1,199
1998.............................................................. 1,140
1999.............................................................. 1,122
2000.............................................................. 1,383
2001.............................................................. 53
------
4,897
Amount representing interest...................................... (859)
------
Present value of future minimum lease payments.................... $4,038
======
</TABLE>
The present value of the future minimum lease payments approximates the book
value of property, plant, and equipment under capital leases at December
31, 1996.
(C) The JTP Companies maintained notes payable to Jordan. The notes were
interest bearing at rates ranging from 10% and 14.5%, were due upon
demand, and were secured by all the assets of the respective JTP
Companies. At December 31, 1996, these notes were classified as long-term,
as it was Jordan's intention not to demand payment on these notes prior to
January 1, 1998. Subsequently, concurrent with Jordan's sale of the JTP
Companies on July 25, 1997 to Jordan Telecommunication Products, Inc.
(JTP), these notes were repaid by JTP using a portion of the proceeds from
the Offerings (Note 20). Therefore, these notes have been classified as
long-term obligations at June 30, 1997.
11. DURA-LINE RECAPITALIZATION AGREEMENT WITH JORDAN
On April 1, 1994, Dura-Line declared a common stock dividend in the amount
of $22,022. The dividend was paid by forgiving a $5,487 note receivable from
Jordan and entering into a $16,535 demand promissory note payable to Jordan.
12. INCOME TAXES
Income before income taxes and minority interest consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31
----------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
From U.S. operations.............................. $2,753 $9,003 $1,513
From foreign operations........................... (139) (516) 105
------ ------ ------
Total income before income taxes and minority
interest......................................... $2,614 $8,487 $1,618
====== ====== ======
</TABLE>
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31
----------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Current:
Federal......................................... $1,375 $3,744 $2,374
Foreign......................................... 230 654 2,311
State and local................................. 58 202 150
------ ------ ------
1,663 4,600 4,835
Deferred
Federal......................................... (480) (500) (1,100)
Foreign......................................... -- -- --
State and local................................. (11) (38) (88)
------ ------ ------
(491) (538) (1,188)
------ ------ ------
Total provision for income taxes.............. $1,172 $4,062 $3,647
====== ====== ======
</TABLE>
F-18
<PAGE>
JTP COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Deferred income taxes consist of:
<TABLE>
<CAPTION>
DECEMBER 31
--------------
1995 1996
------ ------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation and amortization................... $1,248 $1,689
Equity investment in Dura-Line (Israel) Ltd................... 130 86
Foreign currency translation adjustment....................... -- 43
Insurance proceeds receivable................................. -- 90
Other......................................................... 13 31
------ ------
1,391 1,939
Deferred tax assets:
Accrued stock appreciation rights............................. 1,028 2,273
U.S. net operating loss carryforwards......................... 3,367 3,748
Foreign net operating loss carryforwards...................... -- 224
Uniform capitalization of inventory........................... 85 187
Book over tax depreciation and amortization................... -- 659
Accrued vacation.............................................. 31 179
Accrued warranties............................................ -- 138
Accrued bonuses............................................... 361 --
Foreign currency translation adjustment....................... 209 --
Other......................................................... 59 209
------ ------
5,140 7,617
Valuation allowance for deferred tax assets..................... (3,165) (3,903)
------ ------
Net deferred tax assets......................................... $ 584 $1,775
====== ======
</TABLE>
The increase in the valuation allowance during 1995 and 1996 was $190 and
$738, respectively.
The JTP Companies are included in the consolidated income tax returns of
Jordan, but have computed their provisions for income taxes on a separate
return basis in accordance with Statement of Financial Accounting Standards
No. 109. A tax-sharing agreement exists between the JTP Companies and Jordan
under which the JTP Companies receive benefit for net operating losses against
taxable income of profitable entities included in the consolidated tax group.
At December 31, 1995 and 1996, the JTP Companies have U.S. net operating loss
carryforwards under the tax-sharing agreement of $2,758 and $2,493,
respectively. The U.S. net operating loss carryforwards expire in various
years from 2005 to 2011. The foreign net operating loss of $617 can be carried
forward indefinitely.
F-19
<PAGE>
JTP COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
The provision for income taxes differs from the amount of income tax
provision computed by applying the United States federal income tax rate to
income before income taxes and minority interest. A reconciliation of the
differences is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31
---------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Computed statutory tax provision........................ $ 889 $2,886 $ 550
Increase (decrease) resulting from:
Nondeductible depreciation and amortization........... 62 88 109
Higher effective income taxes of other countries...... 55 66 448
State and local taxes................................. 6 302 96
Foreign subsidiary losses without a current-year tax
benefit.............................................. 36 811 1,630
U.S. losses without a current-year tax benefit........ 118 72 527
Adjustments to prior-year tax liabilities............. -- -- 400
Other, net............................................ 6 (163) (113)
------ ------ ------
Provision for income taxes.............................. $1,172 $4,062 $3,647
====== ====== ======
</TABLE>
13. RELATED PARTY TRANSACTIONS
Jordan provides consulting services to the JTP Companies in exchange for
annual fees which are payable in accordance with terms stipulated in the
management consulting agreement between the JTP Companies and Jordan.
Management fees paid by the JTP Companies for such services amounted to
$1,356, $1,399, and $2,224 for the years ended December 31, 1994, 1995 and
1996, respectively, and amounted to $983 and $1,493 for the six months ended
June 30, 1996 and 1997, respectively.
Northern had $397 due from an officer as of December 31, 1996. The amount
was repaid subsequent to year-end.
On a monthly basis, the JTP Companies are charged interest on their notes
payable to Jordan (see Note 10). Interest expense amounted to $5,491, $6,235,
and $11,063 for the years ended December 31, 1994, 1995, and 1996,
respectively, and amounted to $4,104 and $8,908 for the six months ended June
30, 1996 and 1997, respectively.
14. ACQUISITION OF DURA-LINE COMMON STOCK
In March 1992, Dura-Line entered into an agreement whereby it acquired
24,000 shares of its common stock in exchange for 375 shares of preferred
stock. One-half of the preferred shares (187.5 shares) have been redeemed at
the liquidation value of $1,875. An additional $1,875, representing the
remaining one-half of the preferred shares (187.5 shares), has been recorded
as preferred stock which carries a cumulative dividend of 7% per annum. There
was $621 of preferred stock dividends in arrears at December 31, 1996. No
dividends can be paid on Dura-Line's common stock until the dividends in
arrears are paid.
In conjunction with the exchange, the selling shareholders entered into
covenants not to compete for $2,679. The agreements call for Dura-Line to pay
this amount over a five-year period which began in 1992. At December 31, 1995
and 1996, approximately $325 and $81 remains to be paid on these agreements,
respectively.
The selling shareholders were also granted stock appreciation rights
totaling $5,952 as part of the noncompete agreements. This amount was
capitalized and is being amortized over the five year term of the related
noncompete agreements. $3,162 and $2,418 of these stock appreciation rights
remain unamortized as of December 31, 1995 and 1996, respectively (Note 4).
Dura-Line paid $2,056 and $1,660 in 1995 and 1994, respectively, to the
selling shareholders for these stock appreciation rights, with the amounts
paid in 1995 representing the final amounts due under these agreements.
F-20
<PAGE>
JTP COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Additionally, the former shareholders were granted stock appreciation rights
exercisable in full or in part on the occurrence of the disposition by merger
or otherwise, in one or more transactions of: (a) more than 50% of the voting
power and/or value of the capital stock of the subsidiary, or (b) all or
substantially all the business or assets of the subsidiary. The value of the
stock appreciation rights is based on the ultimate sales price of the stock or
assets of Dura-Line and is essentially 15% of the ultimate sales price of the
stock or assets sold, less $15,625. No liability has been recorded relative to
these rights as of December 31, 1996.
On April 10, 1997, Dura-Line paid the former shareholders pursuant to an
agreement (The Redemption Agreement), as if Dura-Line was sold for $110,000.
The former shareholders received $9,438 in cash and a deferred payment of
$4,719 over five years at 8% interest. The Redemption Agreement also requires
that the $1,875 of remaining preferred stock be redeemed one year from the
date of the agreement.
If at any time prior to April 30, 1998, Jordan has received offering
proceeds from the registration of any shares of common stock of Dura-Line (the
IPO), Jordan will pay the former shareholders an additional $2,250.
If Jordan has not received proceeds from the IPO, the former shareholders
will receive a special bonus of 25% of Dura-Line's 1997 gross profit (as
defined) in excess of $30,000.
As consideration for the signing of the Redemption Agreement, the former
shareholders will receive total non-compete payments of $352 payable over the
next 13 months.
15. STOCK APPRECIATION RIGHTS
In connection with Jordan's acquisitions of AIM and Cambridge in 1989, the
seller of these companies was granted stock appreciation rights in respect of
the appreciation of these companies. The formula used to value these rights is
calculated by determining 20% of a multiple of average cash flow of these
companies for the two years preceding the date when these rights are exercised
less the indebtedness of these companies. Payment of these rights is amortized
over five years, such that one-third is payable upon exercise, and two-thirds
is payable in five equal installments over five years. $2,849 was accrued for
these rights in accordance with the terms of the rights agreements at December
31, 1995, and has been included in other noncurrent liabilities.
The seller passed away during the third quarter of 1996, and the seller's
estate has exercised these rights. The total amount owed under these rights
was approximately $6,260 at the date of exercise. Pursuant to the rights
agreement, one-third of the liability ($2,087) was due upon exercise, and the
remaining liability ($4,173) is to be paid in five equal annual installments
of approximately $835. The $2,087 liability plus the first installment payment
of $835, or $2,922 in total, is included in accrued liabilities at December
31, 1996 (Note 6). The noncurrent portion of the liability of $3,338 is
included in other noncurrent liabilities at December 31, 1996.
16. CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the JTP Companies to
concentration of credit risk consist principally of cash and cash equivalents
and accounts receivable. The JTP Companies place cash and cash equivalents
with high-quality financial institutions which are principally federally
insured up to prescribed limits.
The JTP Companies closely monitor the credit quality of their customers and
maintain allowances for potential credit losses which, historically, have been
within the range of managements' expectations.
17. RESTRICTED SUBSIDIARIES
The JTP Companies are subsidiaries of Jordan and are "Restricted
Subsidiaries" of Jordan under the JII Indentures relating to the Senior Notes
and Senior Subordinated Discount Debentures of Jordan (the JII Indentures).
The Senior Notes and Senior Subordinated Discount Debentures balances at
December 31, 1996, were $275,000 and $111,092, respectively. As a result,
certain covenants in the JII Indentures are applicable to
F-21
<PAGE>
JTP COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
the JTP Companies and their subsidiaries and will limit their ability to make
dividends, distributions, and investments in entities that are not "Restricted
Subsidiaries," incur indebtedness, grant liens, enter into affiliate
transactions, and enter into agreements which limit the JTP Companies', and
their subsidiaries', ability to make dividends and distributions and make
asset sales. The JII indentures are also collateralized by all of the assets
of the JTP Companies.
18. SEGMENT DATA
The JTP Companies manufacture and supply a diversity of products in three
primary business segments within the telecommunications and datacommunications
industry. The segments and products are discussed below:
INFRASTRUCTURE PRODUCTS AND EQUIPMENT
Infrastructure Products and Equipment is made up of three operating units:
Dura-Line Corporation and Subsidiaries (Dura-Line), Viewsonics, Inc. and
Subsidiary (Viewsonics) and Northern Technologies Holdings, Inc. and
Subsidiary (Northern). The businesses in this segment manufacture cable
conduit, amplifiers and splitters, and power conditioning systems.
Dura-Line's businesses manufacture high-density polyethylene (HDPE) plastic
ducts used to install, house, and protect fiber-optic, coaxial, and other
cables. The company also manufactures other plastic piping for potable water
and heating systems. The majority of Dura-Line's sales are comprised of either
patented or proprietary products. The company markets products with its
patented silicone-based lining under the same SILICORE. The permanent low
coefficient of friction characteristic of SILICORE allows fiber optic and
other cables to be easily pulled or blown through the conduit, saving
significant time and money during installation, repair, and upgrade
procedures. The company manufactures several different types of SILICORE
products including ribbed, corrugated, smoothwall, aerial and preinstalled
fiber optic cable, coaxial cable, and service wire.
Dura-Line has cable conduit manufacturing operations in the United States,
China, the Czech Republic, Mexico, and the United Kingdom and manufacturing
joint ventures in Israel and India. Over the past three years, international
sales have been increasing as a percent of Dura-Line's sales and in 1996 were
approximately 48% of revenues.
Viewsonics designs, manufactures, and markets broad band electronic network
infrastructure components and patented electronic security components,
primarily for the "drop" or home connection portion of the CATV network. The
company currently sells 50% of its CATV electronic network infrastructure
components directly to multisystem CATV operators and 50% of its products to
distributors. Foreign sales accounted for approximately 24% of Viewsonics
sales in 1996.
On December 31, 1996, Jordan, through its wholly owned subsidiary Northern,
acquired Northern Technologies, Inc., which designs, manufactures, and markets
power conditioning and power protection equipment primarily for
telecommunications applications. The company offers a variety of products
including voltage regulators, uninteruptable power supplies (UPSs), isolation
transformers, and grounding devices to protect any critical application. No
results of operations from Northern are included in this segment; however,
total assets do reflect the result of this acquisition.
ELECTRONIC CONNECTORS AND COMPONENTS
Electronic Connectors and Components consists of three operating units, AIM
Electronics Corporation (AIM), Cambridge Products Corporation (Cambridge), and
Johnson Components, Inc. (Johnson), which
F-22
<PAGE>
JTP COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
manufacture and distribute a wide variety of electronic connectors including
RF and coaxial connectors, plugs, adapters, and electronic hardware, as well
as electronic network and security components for use in the
telecommunications and datacommunications industries.
AIM is supplier of electronic connectors and related electronic components.
The company imports and produces a large variety of electronic connectors,
adapters, plugs, jacks, switches, tools, cable assemblies, and other
electronic hardware products for datacommunications and telecommunications
networks. The company sells it products in the commercial and consumer
electronics market throughout the world, directly and through a network of
manufacturers' representatives. The company markets over 3,000 of its products
under the house label AIM. The company markets its cable assemblies under the
name Prestige.
Cambridge is a domestic manufacturer of high-quality electronic connectors,
plugs, adapters, and other accessories. The company also designs and markets
specialty radio-frequency coaxial electronic connectors for radio, mobile
communications, television, and computer equipment.
Johnson manufacturers RF coaxial connectors and electronic hardware. The
company is a vertically integrated manufacturer specializing in miniature and
subminiature RF connectors used primarily in telecommunications,
datacommunications, and other OEM applications that require miniaturization
and high frequency ranges, including the wireless telecommunications industry.
Approximately 98% of the company's RF coaxial connectors are made of brass, a
lower cost alternative to stainless steel that offers comparable performance
characteristics.
CUSTOM CABLE ASSEMBLIES AND SPECIALTY WIRE AND CABLE
Custom Cable Assemblies and Specialty Wire and Cable includes two operating
units, Bond Holdings, Inc. (Bond) and Diversified Wire & Cable, Inc.
(Diversified), which design, engineer, manufacture, and distribute high-
quality custom electronic cables and connector subassemblies for
datacommunications and telecommunications customers. Bond designs, engineers,
and manufactures high-quality custom electronic cable assemblies and connector
subassemblies for original equipment manufacturers (OEMs) in the data and
telecommunications segment of the electronics industry.
The company's products are manufactured to customers' specifications and are
used to connect electronic devices to each other and related equipment.
Similar to other custom cable assembly manufacturers, Bond derived
approximately 34% of its sales from two customers.
Diversified is a broad-line provider and value-added reseller of wire,
cable, and customer cable assemblies. The company's products are used in
local-area-networks (LANs), custom cable assemblies, electrical applications,
sound and security applications, and various other OEM and miscellaneous
applications. The company processes and ships over 80% of its orders for wire
and cable on a 24-hour basis and 100% of its orders for wire and cable within
one week. In late 1996, the company opened a facility in Nashville, Tennessee,
to expand its geographical coverage and improve its proximity to customers.
Intersegment sales exist between AIM and Cambridge. These sales are
eliminated in combination and are not presented in segment disclosures. Export
sales are not significant on a combined basis. No single customer accounts for
10% or more of a segment of combined net sales.
Operating income by business segment is defined as net sales less operating
costs and expenses, excluding interest and income taxes.
F-23
<PAGE>
JTP COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Identifiable assets are those used by each segment in its operations.
Summary financial information by business segment included in the financial
statements of the JTP Companies is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
NET SALES
Infrastructure Products and Equipment.................. $44,800 $76,033 $ 75,179
Electronic Connectors and Components................... 19,890 20,936 40,275
Custom Cable Assemblies and Specialty Wire and Cable... -- -- 17,545
------- ------- --------
$64,690 $96,969 $132,999
======= ======= ========
OPERATING INCOME
Infrastructure Products and Equipment.................. $ 5,540 $11,004 $ 7,099
Electronic Connectors and Components................... 2,848 3,882 5,577
Custom Cable Assemblies and Specialty Wire and Cable... -- -- 647
------- ------- --------
$ 8,388 $14,886 $ 13,323
======= ======= ========
DEPRECIATION AND AMORTIZATION
Infrastructure Products and Equipment.................. $ 2,845 $ 3,766 $ 3,836
Electronic Connectors and Components................... 2,255 1,339 2,321
Custom Cable Assemblies and Specialty Wire and Cable... -- -- 485
------- ------- --------
$ 5,100 $ 5,105 $ 6,642
======= ======= ========
CAPITAL EXPENDITURES
Infrastructure Products and Equipment.................. $ 3,184 $ 5,200 $ 5,543
Electronic Connectors and Components................... 93 200 849
Custom Cable Assemblies and Specialty Wire and Cable... -- -- 131
------- ------- --------
$ 3,277 $ 5,400 $ 6,523
======= ======= ========
IDENTIFIABLE ASSETS
Infrastructure Products and Equipment.................. $30,581 $44,378 $ 89,984
Electronic Connectors and Components................... 18,864 18,370 54,872
Custom Cable Assemblies and Specialty Wire and Cable... -- -- 34,790
------- ------- --------
$49,445 $62,748 $179,646
======= ======= ========
</TABLE>
F-24
<PAGE>
JTP COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Summary financial information by geographic area included in the financial
statements of the JTP Companies is as follows:
<TABLE>
<CAPTION>
1994 UNITED STATES EUROPE COMBINED
- ---- ------------- ------- --------
<S> <C> <C> <C>
Net sales........................................ $50,850 $13,840 $64,690
Operating income................................. 6,462 1,926 8,388
Identifiable assets.............................. 39,242 10,203 49,445
</TABLE>
<TABLE>
<CAPTION>
1995 UNITED STATES EUROPE COMBINED
- ---- ------------- ------- --------
<S> <C> <C> <C>
Net sales........................................ $66,914 $30,055 $96,969
Operating income................................. 10,588 4,298 14,886
Identifiable assets.............................. 40,743 22,005 62,748
</TABLE>
<TABLE>
<CAPTION>
1996 UNITED STATES EUROPE SOUTH AMERICA ASIA COMBINED
- ---- ------------- ------- ------------- ------ --------
<S> <C> <C> <C> <C> <C>
Net sales.................. $ 97,369 $34,152 $1,137 $ 341 $132,999
Operating income........... 7,751 6,587 (725) (290) 13,323
Identifiable assets........ 136,339 35,055 3,879 4,373 179,646
</TABLE>
Production facilities are located in the United States, the United Kingdom,
Israel, the Czech Republic, Mexico, India, and China. The operations in India
were incorporated in 1996 and have not yet begun production.
19. SUBSEQUENT EVENT
Dura-Line's Reno, Nevada, production facility flooded on January 1, 1997.
Uninsured property damage and lost production totaled approximately $400 and
will be recorded as an extraordinary charge in 1997.
20. SUBSEQUENT EVENTS (UNAUDITED)
Acquisition of LoDan West, Inc.
On May 30, 1997, Jordan Industries purchased the assets of LoDan West, Inc.
which designs, engineers and manufactures high-quality custom electronic cable
assemblies, sub-assemblies and electro-mechanical assemblies to original
equipment manufacturers in the data and telecommunications markets of the
electronics industry.
The purchase price of $17,000, including estimated costs incurred directly
related to the transaction, was allocated to working capital of $5,066,
property, plant and equipment of $783, noncompetition agreement of $250,
noncurrent assets of $41, and resulted in an excess purchase price over net
identifiable assets of $10,860. The acquisition was financed with cash.
Acquisition of Engineered Endeavors, Inc.
On September 2, 1997, Jordan Telecommunication Products, Inc. (JTP)
purchased the assets of Engineered Endeavors, Inc. (EEI), a turnkey provider
of antenna support systems for the wireless communications industry. EEI
designs complete structures, manufactures monopole antenna mount platforms,
custom bell and clock towers, and accessories. The company also distributes
ancillary products used in the construction of cellular and personal
communication system (PCS) towers.
The purchase price of $41,500, including estimated costs incurred directly
related to the transaction, was preliminarily allocated to working capital of
$2,068, property, plant, and equipment of $799, noncompetition agreement of
$2,500, noncurrent assets of $14, and resulted in an excess purchase price
over net identifiable assets of $36,119. The acquisition was financed with
$21,500 of cash and $20,000 of borrowings from JTP's new credit agreement.
(See below)
F-25
<PAGE>
JTP COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Formation of Jordan Telecommunication Products, Inc.
Jordan Telecommunication Products, Inc. (JTP) was formed on July 21, 1997 by
its management, the stockholders of Jordan, and certain of their affiliates in
order to combine a group of companies that are focused on the manufacture and
distribution of products for use in the rapidly growing telecommunications
industry. In connection with its initial capitalization, JTP issued 2,000
shares of Junior Preferred Stock to Jordan for $20 million and 964,500 shares
of Common Stock to JTP's management and the stockholders of Jordan for $2
million.
Holders of the Junior Preferred Stock are entitled to vote on each matter
which the stockholders are entitled to vote, including the election of
directors, voting together with the Common Stock as a single class. The
holders of Junior Preferred Stock are entitled to 9,500 votes for each share
held and, therefore, hold 95% of the combined voting power of the Common Stock
and Junior Preferred Stock.
Commencing on the earlier of August 1, 2002 or the Early Redemption Date, as
defined, holders of the Junior Preferred Stock will be entitled to receive
dividends at 10% per annum of the liquidation value per share. All dividends
are cumulative, whether or not earned or declared, and are payable quarterly
in arrears on March 31, June 30, September 30, and December 31 of each year
following the date dividends commence accruing.
The Junior Preferred Stock has a liquidation value ("Liquidation Value"), in
the aggregate, equal to the sum of (i) $20 million; plus (ii)(A) for the
period from the date of issuance to August 1, 2002, plus or minus 95% of the
cumulative net income (loss) of JTP for such period and (B) for the period
subsequent to August 1, 2002, the amount of any preferred dividends thereon
not paid on any dividend payment date, whether or not declared, which shall be
added to the Liquidation Value at such dividend payment date.
The Junior Preferred Stock is mandatorily redeemable on August 1, 2002,
subject to certain restrictions, as defined in the certificate of designation,
at the then Liquidation Value.
Certain events, including the redemption of the Junior Preferred Stock,
could result in a change in control of JTP. Management cannot determine the
accounting impact of a change in control resulting from the redemption of the
Junior Preferred Stock until the form of the transaction(s) resulting in the
redemption are known.
The Offerings
On July 25, 1997, JTP issued and sold $190,000 of 9.875% Senior Notes due
August 1, 2007 ("Senior Notes"), $120,000 principal amount at maturity
($85,034 initial accreted value) of 11.75% Senior Discount Notes due August 1,
2007 ("Senior Discount Notes"), and twenty-five thousand units, each
consisting of (i) $1 aggregate liquidation preference of 13.25% Senior
Exchangeable Preferred Stock due August 1, 2009 ("Senior Preferred Stock"),
and (ii) one share of Common Stock (the transactions described above are
hereafter referred to as the Offerings).
The Senior Notes bear interest at a rate of 9.875% per annum, payable semi-
annually in cash in arrears on February 1 and August 1 of each year,
commencing on February 1, 1998. The Senior Discount Notes will accrete at a
rate of 11.75%, compounded semi-annually, to par by August 1, 2000.,
Commencing August 1, 2000, the Senior Discount Notes bear interest at a rate
of 11.75% per annum, payable semi-annually in cash in arrears on February 1
and August 1 of each year, commencing on February 1, 2001.
F-26
<PAGE>
JTP COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONCLUDED)
(DOLLARS IN THOUSANDS)
The indentures governing the Senior Notes and the Senior Discount Notes
contain certain covenants which limit JTP's ability to (i) incur additional
indebtedness; (ii) make restricted payments; (iii) enter into certain
transactions with affiliates; (iv) create certain liens; (v) sell certain
assets; and (vi) merge, consolidate or sell substantially all of JTP's assets.
Dividends on the Senior Preferred Stock are payable on February 1, May 1,
August 1, and November 1 of each year at a rate of 13.25% per annum of the
liquidation preference. The Senior Preferred Stock is mandatorily redeemable
on August 1, 2009 at a redemption price equal to 100% of the liquidation
preference on the date of redemption, plus accrued and unpaid dividends.
Sale of the JTP Companies
Concurrent with the Offerings, Jordan sold the JTP Companies to JTP
Industries, Inc., a wholly-owned subsidiary of JTP, for aggregate
consideration of $294 million, which includes the repayment of the notes
payable to Jordan by the JTP Companies (Note 10). The acquisition was financed
by JTP with a portion of the net proceeds of the Offerings.
Since JTP and the JTP Companies are under the common control of Jordan, the
acquisition will be accounted for similar to a pooling-of-interests. As such,
the assets and liabilities of the JTP Companies will be carried over to JTP at
historical book value, with the excess of the purchase price over book value
recorded as a charge to stockholders equity.
New Credit Agreement
On July 25, 1997, JTP Industries, Inc. entered into a credit agreement (New
Credit Agreement) with certain parties thereto, and BankBoston, N.A., as
agent, under which JTP Industries, Inc. is able to borrow up to approximately
$110,000 in the form of a revolving credit facility over a term of four years.
Interest on borrowings is at BankBoston's base rate, as defined, or the rate
at which BankBoston's eurodollar lending office is offered dollar deposits.
The New Credit Agreement is secured by a first priority security interest in
substantially all of JTP Industries' assets, including a pledge of all of the
stock of JTP Industries' subsidiaries.
F-27
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
E.F. Johnson Company
In our opinion, the accompanying balance sheets and the related statements
of operations and of cash flows present fairly, in all material respects, the
financial position of E.F. Johnson Company--Components Division (a division of
E.F. Johnson Company) as of December 31, 1994, November 26, 1995 and January
23, 1996, and the results of its operations and its cash flows for the year
ended December 31, 1994, the eleven month period ended November 26, 1995 and
the two month period ended January 23, 1996 in conformity with generally
accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Minneapolis, Minnesota
August 28, 1996
F-28
<PAGE>
E.F. JOHNSON COMPANY--COMPONENTS DIVISION
(A DIVISION OF E.F. JOHNSON COMPANY)
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 26, JANUARY 23,
1994 1995 1996
------------ ------------ -----------
ASSETS
------
<S> <C> <C> <C>
Current assets:
Accounts receivable.................... $1,554 $1,579 $1,420
Inventory.............................. 2,297 2,191 2,421
Deferred tax asset..................... 191 226 198
------ ------ ------
Total current assets................. 4,042 3,996 4,039
Machinery and equipment, net............. 3,591 3,264 3,336
------ ------ ------
Total assets......................... $7,633 $7,260 $7,375
====== ====== ======
<CAPTION>
LIABILITIES AND DIVISION EQUITY
-------------------------------
<S> <C> <C> <C>
Current liabilities:
Accounts payable....................... $ 673 $ 844 $1,337
Accrued compensation and benefits...... 411 647 639
Accrued commissions payable............ 72 68 59
Other liabilities...................... 118 174 190
------ ------ ------
Total current liabilities............ 1,274 1,733 2,225
Deferred tax liability................... 1,038 873 846
Commitments (Note 7)
Division equity.......................... 5,321 4,654 4,304
------ ------ ------
Total liabilities and Division
equity.............................. $7,633 $7,260 $7,375
====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-29
<PAGE>
E.F. JOHNSON COMPANY--COMPONENTS DIVISION
(A DIVISION OF E.F. JOHNSON COMPANY)
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ELEVEN TWO MONTHS
YEAR ENDED MONTHS ENDED ENDED
DECEMBER 31, NOVEMBER 26, JANUARY 23,
1994 1995 1996
------------ ------------ -----------
<S> <C> <C> <C>
Net sales:
Third party customers................... $13,801 $14,001 $2,245
To Parent............................... 2,367 2,158 195
------- ------- ------
16,168 16,159 2,440
------- ------- ------
Cost of sales:
Third party customers................... 8,844 8,641 1,424
To Parent............................... 1,539 1,403 127
------- ------- ------
10,383 10,044 1,551
------- ------- ------
Gross margin.......................... 5,785 6,115 889
------- ------- ------
Operating expenses:
Selling and marketing................... 1,666 1,750 267
Engineering............................. 498 483 84
Allocations from Parent company......... 667 591 106
------- ------- ------
Total operating expenses.............. 2,831 2,824 457
------- ------- ------
Operating income.......................... 2,954 3,291 432
Interest expense.......................... 237 -- --
------- ------- ------
Income before income taxes................ 2,717 3,291 432
Provision for income taxes................ (1,034) (1,251) (165)
------- ------- ------
Net income................................ $ 1,683 $ 2,040 $ 267
======= ======= ======
</TABLE>
See accompanying notes to financial statements.
F-30
<PAGE>
E.F. JOHNSON COMPANY--COMPONENTS DIVISION
(A DIVISION OF E.F. JOHNSON COMPANY)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ELEVEN MONTHS TWO MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, NOVEMBER 26, JANUARY 23,
1994 1995 1996
------------ ------------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................ $ 1,683 $ 2,040 $ 267
Adjustments to reconcile net income to
net cash provided (used) by operating
activities:
Depreciation........................ 910 958 183
Deferred income taxes............... 53 (200) 1
Loss on sale of property............ 2 -- --
Changes in components of working
capital:
(Increase) decrease in
receivables...................... (485) (25) 159
Decrease (increase) in
inventories...................... 347 106 (230)
Increase in accounts payable...... 355 171 493
(Decrease) increase in accrued
liabilities...................... (99) 288 (1)
------- ------- -----
Net cash provided by operating
activities..................... 2,766 3,338 872
------- ------- -----
Cash flows from investing activities:
Capital expenditures.................. (507) (656) (261)
Proceeds from sale of property........ 13 25 6
------- ------- -----
Net cash used by investing
activities..................... (494) (631) (255)
------- ------- -----
Cash flows from financing activities:
Decrease in advances from Parent...... (4,041) -- --
Investment by (distributions to)
Parent, net.......................... 1,769 (2,707) (617)
------- ------- -----
Net cash used by financing
activities..................... (2,272) (2,707) (617)
------- ------- -----
Net change in cash...................... -- -- --
Cash--beginning of period............... -- -- --
------- ------- -----
Cash--end of period..................... $ -- $ -- $ --
======= ======= =====
</TABLE>
See accompanying notes to financial statements.
F-31
<PAGE>
E.F. JOHNSON COMPANY--COMPONENTS DIVISION
(A DIVISION OF E.F. JOHNSON COMPANY)
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
E.F. Johnson Company--Components Division (the Division) is a division of
E.F. Johnson Company (the Parent). The Division manufactures RF connectors,
cable assemblies, electronic circuit hardware, spacers and test plugs and
jacks, as well as components designed to specific customer requirements.
Basis of Presentation
These financial statements present the assets, liabilities and results of
operations of the Division. The Parent's year end is December 31. The
financial statements as of and for the eleven month period ended November 25,
1995 were prepared for purposes of a letter of intent entered into in
conjunction with the sale of the Division (see Note 7). The financial
statements as of and for the two month period ended January 23, 1996 were
prepared to present the Division's results of operations subsequent to the
signing of the letter of intent and through the sale transaction closing date.
Costs related to functions performed by the Parent and certain other costs
which are attributable to the Division are allocated to the Division by the
Parent. Costs related to these functions, as further described at Note 5,
include computer support, legal, insurance, human resources, financial and
other administrative services.
The Division is part of a consolidated group and as such has extensive
dealings with related entities. Management considers that the intercompany
charges, including the allocation of common costs from the Parent,
appropriately reflect the cost of services provided. However, the terms of
transactions were determined between related parties and may, therefore,
differ from terms which would have occurred between wholly unrelated parties
and may also differ from the costs which would have been incurred had the
Division operated as a completely autonomous entity.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The Division's financial instruments consist primarily of inventories,
short-term trade receivables and payables for which the current carrying
amounts approximate fair market value.
Inventories
Inventories are stated at the lower of cost or market, cost being determined
by the first-in, first-out (FIFO) method.
Machinery and Equipment
Machinery and equipment are stated at cost less accumulated depreciation.
Depreciation is provided using the straight-line method over estimated useful
lives which range from three to seven years.
F-32
<PAGE>
E.F. JOHNSON COMPANY--COMPONENTS DIVISION
(A DIVISION OF E.F. JOHNSON COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
Revenue Recognition
Revenue is recognized upon shipment of products. Rebates are granted to
certain distributors based on contractual formulas which consider the annual
sales volume to the distributors of Division product. Estimates of such
rebates are recorded as a reduction of sales at the time the product is
shipped by the Division.
Income Taxes
The Company is included in the consolidated federal income tax return filed
by the Parent. There is no tax sharing agreement between the Division and its
Parent. For financial statement purposes, the tax provision was computed as if
the Company filed a separate tax return using the liability method under
Financial Accounting Standard No. 109, "Accounting for Income Taxes." Income
taxes payable are recorded as a component of the investment by/distributions
to Parent in division equity.
Retirement Benefits
The Parent has a defined contribution qualified retirement savings and
profit sharing plan which covers all of its employees. The Company's profit
sharing contributions are discretionary. No profit sharing contributions were
authorized for 1994 and 1995. The Division's contributions to the retirement
savings plan during the year ended December 31, 1994, the eleven month period
ended November 26, 1995 and the two month period ended January 23, 1996 were
$45, $48 and $5, respectively.
Concentration of Credit Risk and Major Customers
Financial instruments which potentially subject the Division to
concentrations of credit risk consist principally of trade accounts
receivables; however, this risk is limited by the large number of customers in
the Division's customer base. Sales to Parent accounted for 15%, 13% and 8% of
net sales during the year ended December 31, 1994, the eleven month period
ended November 26, 1995 and the two month period ended January 23, 1996,
respectively.
NOTE 2--INVENTORY
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 26, JANUARY 23,
1994 1995 1996
------------ ------------ -----------
<S> <C> <C> <C>
Finished goods...................... $ 954 $ 901 $ 989
Work in process..................... 849 847 926
Raw materials....................... 494 443 506
------ ------ ------
Total inventories............... $2,297 $2,191 $2,421
====== ====== ======
</TABLE>
NOTE 3--MACHINERY AND EQUIPMENT
Machinery and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 26, JANUARY 23,
1994 1995 1996
------------ ------------ -----------
<S> <C> <C> <C>
Machinery and equipment............ $5,297 $5,828 $6,193
Furniture and fixtures............. 362 326 315
Construction in process............ -- 115 13
------ ------ ------
5,659 6,269 6,521
Less: Accumulated depreciation..... (2,068) (3,005) (3,185)
------ ------ ------
Total machinery and equipment,
net........................... $3,591 $3,264 $3,336
====== ====== ======
</TABLE>
F-33
<PAGE>
E.F. JOHNSON COMPANY--COMPONENTS DIVISION
(A DIVISION OF E.F. JOHNSON COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
NOTE 4--DIVISION EQUITY
Division equity consists of the following:
<TABLE>
<S> <C>
Balance at December 31, 1993...................................... $1,869
Net income...................................................... 1,683
Investment by Parent, net....................................... 1,769
------
Balance at December 31, 1994...................................... 5,321
Net income...................................................... 2,040
Distributions to Parent, net.................................... (2,707)
------
Balance at November 26, 1995...................................... 4,654
Net income...................................................... 267
Distributions to Parent, net.................................... (617)
------
Balance at January 23, 1996....................................... $4,304
======
</TABLE>
Investments by/distributions to Parent represent the change in net assets of
the Division, net of income during each respective period.
NOTE 5--ALLOCATED COSTS
Services provided to the Division by the Parent include expenses incurred
and paid by the Parent on the Division's behalf, charges for periodic Parent
services provided at rates which management considers to reflect the
incremental cost of providing these services, and allocations of costs based
upon utilization of shared services by the Division. In addition, interest
expense was charged on advances from Parent at the Parent's average borrowing
rate. Management considers that these allocations are reasonable given the
services provided. Costs related to functions performed by the Parent and
certain other costs which are attributable to the Division are allocated to
the Division by the Parent as follows:
<TABLE>
<CAPTION>
ELEVEN TWO MONTHS
YEAR ENDED MONTHS ENDED ENDED
DECEMBER 31, NOVEMBER 26, JANUARY 23,
1994 1995 1996
------------ ------------ -----------
<S> <C> <C> <C>
Operating expenses:
Management compensation.......... $202 $241 $ 40
Computer support................. 65 47 11
Legal services................... 5 8 2
Insurance........................ 34 24 3
Finance, human resources and
other administrative support
services........................ 361 271 50
---- ---- ----
$667 $591 $106
==== ==== ====
</TABLE>
F-34
<PAGE>
E.F. JOHNSON COMPANY--COMPONENTS DIVISION
(A DIVISION OF E.F. JOHNSON COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
(IN THOUSANDS)
NOTE 6--INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
ELEVEN TWO
YEAR ENDED MONTHS ENDED MONTHS ENDED
DECEMBER 31, NOVEMBER 26, JANUARY 23,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Current:
Federal.......................... $ 826 $1,222 $138
State............................ 155 229 26
------ ------ ----
981 1,451 164
Deferred........................... 53 (200) 1
------ ------ ----
$1,034 $1,251 $165
====== ====== ====
</TABLE>
The Company's effective income tax rate varies from the federal statutory
tax rate as follows:
<TABLE>
<CAPTION>
ELEVEN TWO
YEAR ENDED MONTHS ENDED MONTHS ENDED
DECEMBER 31, NOVEMBER 26, JANUARY 23,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Federal statutory tax rate........ 34.0% 34.0% 34.0%
Increase in tax rate resulting
from:
State taxes, net of federal tax
benefit........................ 4.0 4.0 4.0
Other, net...................... 0.1 -- 0.2
---- ---- ----
Effective tax rate................ 38.1% 38.0% 38.2%
==== ==== ====
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of asset and liabilities for financial reporting
and income tax purposes. Significant components of the Division's deferred tax
assets and liabilities consist of the following:
<TABLE>
<CAPTION>
ELEVEN TWO
YEAR ENDED MONTHS ENDED MONTHS ENDED
DECEMBER 31, NOVEMBER 26, JANUARY 23,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Deferred income tax assets:
Inventory....................... $ 80 $ 66 $ 70
Accruals........................ 111 160 128
------- ----- -----
191 226 198
Deferred income tax liabilities: (1,038) (873) (846)
------- ----- -----
Machinery and equipment......... $ (847) $(647) $(648)
======= ===== =====
</TABLE>
NOTE 7--SUBSEQUENT EVENT
During 1995, the Company entered into a letter of intent to sell the
Division's assets. The transaction was completed on January 23, 1996.
Prior to the sale of the Division's assets, substantially all assets of the
Division were pledged as collateral under the parent's revolving credit
facility and bank term debt agreement. Concurrent with the sale, the Division
obtained a release of its assets as collateral under the bank agreements.
F-35
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Diversified Wire & Cable, Inc.
Troy, Michigan
We have audited the accompanying balance sheets of Diversified Wire & Cable,
Inc. as of September 30, 1993, 1994 and 1995, and the related statements of
income and changes in stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Diversified Wire & Cable,
Inc. as of September 30, 1993, 1994 and 1995, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Mellen, Smith & Pivoz
Bingham Farms, Michigan
March 23, 1996
F-36
<PAGE>
DIVERSIFIED WIRE & CABLE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, (UNAUDITED)
--------------------------------- JUNE 24,
ASSETS 1993 1994 1995 1996
------ ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Current assets
Cash and money market.......... $ 48,630 $ 137,297 $ 420,698 $ 21,944
Accounts receivable--Trade
(Less allowance for doubtful
accounts of $37,000 in 1993,
$50,000 in 1994, $25,000 in
1995 and $33,700 in 1996)
(Note 2)...................... 1,904,348 1,814,852 3,353,281 3,249,772
Current portion of note
receivable--Employee (Note 8). -- 17,848 19,640 18,611
Inventory (Notes 1, 2 and 3)... 747,935 1,577,551 1,783,598 2,001,119
Prepaid expenses............... 9,803 28,920 33,070 56,905
Corporate taxes recoverable
(Note 1)...................... 59,568 -- -- 258,613
---------- ---------- ---------- ----------
Total current assets......... 2,770,284 3,576,468 5,610,287 5,606,964
---------- ---------- ---------- ----------
Property and equipment (Notes 1,
2 and 3)
Furniture, fixtures and
equipment..................... 330,911 404,764 518,941 641,152
Transportation equipment....... 157,309 181,814 281,508 262,523
Leasehold improvements......... 12,563 25,144 87,300 87,300
---------- ---------- ---------- ----------
500,783 611,722 887,749 990,975
Less--Accumulated depreciation. 295,745 366,890 451,065 491,304
---------- ---------- ---------- ----------
Net property and equipment... 205,038 244,832 436,684 499,671
---------- ---------- ---------- ----------
Other assets
Long-term portion of note
receivable--Employee (Note 8). -- 26,684 12,461
Deposits....................... 12,225 16,677 23,933 22,529
Closing costs (Net of
amortization) (Note 1)........ -- 13,333 8,333 4,583
---------- ---------- ---------- ----------
Total other assets........... 12,225 56,694 44,727 27,112
---------- ---------- ---------- ----------
Total assets................. $2,987,547 $3,877,994 $6,091,698 $6,133,747
========== ========== ========== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS'
EQUITY
-----------------------------
<S> <C> <C> <C> <C>
Current liabilities
Short-term debt (Note 2)....... $ 775,000 $ 820,443 $2,365,443 $2,274,263
Current portion of long-term
debt (Note 3)................. 61,863 240,855 68,795 87,213
Accounts payable............... 1,108,741 1,984,502 1,881,641 1,719,638
Accrued expenses............... -- -- -- 67,241
Accrued payroll................ 139,037 186,572 247,724 683,592
Accrued and withheld payroll
taxes......................... 136,780 15,743 105,286 49,627
Corporate taxes payable........ 19,500 283,868 278,608 --
Sales tax payable.............. 19,020 25,244 30,113 20,760
---------- ---------- ---------- ----------
Total liabilities............ 2,259,941 3,557,227 4,977,610 4,902,334
---------- ---------- ---------- ----------
Long-term liabilities
Long-term debt--Net of current
portion (Note 3).............. 50,277 264,151 77,402 107,256
Notes payable--Officers (Note
5)............................ 18,988 2,696 1,276 --
---------- ---------- ---------- ----------
Total long-term liabilities.. 69,265 266,847 78,678 107,256
---------- ---------- ---------- ----------
Total liabilities............ 2,329,206 3,824,074 5,056,288 5,009,590
---------- ---------- ---------- ----------
Stockholders' equity (Notes 9 and
10)
Common stock--$1 par value;
Authorized--50,000 shares;
Issued and Outstanding--32,105
shares in 1993, and 24,605
shares in 1994, 1995 and 1996. 32,105 24,605 24,605 24,605
Additional paid-in capital..... 15,395 372,500 372,500 372,500
Retained earnings (deficit).... 610,841 (343,185) 638,305 727,052
---------- ---------- ---------- ----------
Total stockholders' equity... 658,341 53,920 1,035,410 1,124,157
---------- ---------- ---------- ----------
Total liabilities and
stockholders' equity........ $2,987,547 $3,877,994 $6,091,698 $6,133,747
========== ========== ========== ==========
</TABLE>
See auditors' report and notes to financial statements.
F-37
<PAGE>
DIVERSIFIED WIRE & CABLE, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------- (UNAUDITED)
1993 1994 1995 PERIOD
----------- ----------- ----------- ENDED JUNE 24,
AMOUNT AMOUNT AMOUNT 1996
----------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
Sales.................... $13,784,785 $17,057,119 $25,167,605 $17,929,559
Cost of goods sold....... 9,183,254 11,645,756 17,338,618 12,109,997
----------- ----------- ----------- -----------
Gross profit............. 4,601,531 5,411,363 7,828,987 5,819,562
Operating expenses....... 4,515,553 4,475,342 6,178,747 5,575,514
----------- ----------- ----------- -----------
Operating income......... 85,978 936,021 1,650,240 244,048
----------- ----------- ----------- -----------
Other income (expense)
Interest income........ 284 2,638 7,303 (155,168)
Interest expense....... (36,404) (71,952) (155,329) 7,472
Gain (Loss) on disposal
of fixed assets....... (4,605) (9,128) 1,776 (6,305)
----------- ----------- ----------- -----------
Total other income
(expense)........... (40,725) (78,442) (146,250) (154,001)
----------- ----------- ----------- -----------
Income before provision
for income tax.......... 45,253 857,579 1,503,990 90,047
Provision for income tax. 17,000 337,000 522,500 1,300
----------- ----------- ----------- -----------
Net income............... $ 28,253 $ 520,579 $ 981,490 $ 88,747
=========== =========== =========== ===========
</TABLE>
See auditors' report and notes to financial statements.
F-38
<PAGE>
DIVERSIFIED WIRE & CABLE, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995 AND (UNAUDITED) FOR THE PERIOD
ENDED JUNE 24, 1996
<TABLE>
<CAPTION>
RETAINED
COMMON PAID IN EARNINGS
STOCK CAPITAL (DEFICIT) TOTAL
-------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Beginning stockholders' equity--
October 1, 1992................. $ 32,105 $ 15,395 $ 582,588 $ 630,088
Add: Net income for the year
ended September 30, 1993........ -- -- 28,253 28,253
-------- -------- ----------- -----------
Ending stockholders' equity--
September 30, 1993.............. 32,105 15,395 610,841 658,341
Less: Stock redemption (Note 9).. (10,000) (15,395) (1,474,605) (1,500,000)
Add: Stock issuance (Note 10).... 2,500 372,500 -- 375,000
Add: Net income for the year
ended September 30, 1994........ -- -- 520,579 520,579
-------- -------- ----------- -----------
Ending stockholders' equity--
September 30, 1994.............. 24,605 372,500 (343,185) 53,920
Add: Net income for the year
ended September 30, 1995........ -- -- 981,490 981,490
-------- -------- ----------- -----------
Ending stockholders' equity--
September 30, 1995.............. 24,605 372,500 638,305 1,035,410
Add: Net income for the period
ended June 24, 1996 (Unaudited). -- -- 88,747 88,747
-------- -------- ----------- -----------
Ending stockholders' equity--June
24, 1996 (Unaudited)............ $ 24,605 $372,500 $ 727,052 $ 1,124,157
======== ======== =========== ===========
</TABLE>
See auditors' report and notes to financial statements.
F-39
<PAGE>
DIVERSIFIED WIRE & CABLE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(UNAUDITED)
YEAR ENDED SEPTEMBER 30, PERIOD ENDED
--------------------------------- JUNE 24,
1993 1994 1995 1996
-------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income.................. $ 28,253 $ 520,579 $ 981,490 $ 88,747
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and
amortization............. 81,077 96,459 101,835 96,385
Recognition of bad debt... 51,272 45,785 16,179 8,700
(Gain) Loss on disposal of
fixed asset.............. 4,605 9,128 (1,776) 6,305
(Increase) Decrease in:
Accounts receivable..... (328,741) 43,711 (1,554,608) 96,609
Inventory............... (258,407) (829,616) (206,047) (217,521)
Prepaid expenses........ (770) (19,117) (4,150) (23,835)
Corporate taxes
recoverable............ (17,568) 59,568 -- (258,613)
Increase (Decrease) in:
Accounts payable........ 208,348 875,761 (102,861) (162,003)
Accrued expenses........ 173,659 (73,502) 150,695 447,450
Corporate taxes payable. (1,500) 264,368 (5,260) (278,608)
Sales tax payable....... 6,900 6,224 4,869 (9,353)
-------- ----------- ---------- ---------
Net cash provided
(used) by operating
activities........... (52,872) 999,348 (619,634) (205,737)
-------- ----------- ---------- ---------
Cash flows from investing
activities:
Purchases of property and
equipment.................. (128,946) (99,602) (291,910) (122,854)
Payment of security
deposits................... (795) (4,452) (7,256) --
(Increase) Decrease in note
receivable--Employee....... -- (44,532) 12,430 13,490
Proceeds from sale of fixed
asset...................... 36,500 -- 5,000 6,000
Decrease in other assets.... -- -- -- 1,404
(Increase) in other note
receivable................. -- -- -- (1,800)
-------- ----------- ---------- ---------
Net cash (used) by
investing activities. (93,241) (148,586) (281,736) (103,760)
-------- ----------- ---------- ---------
Cash flows from financing
activities:
Increase in short-term
debt--Net.................. 125,000 45,443 1,545,000 (91,180)
Proceeds from long-term
debt....................... 86,236 525,487 94,636 60,000
Payments on long-term debt.. (68,934) (176,733) (453,445) (56,801)
Payment of closing costs.... -- (15,000) --
Decrease in notes payable--
Officers................... (37,012) (16,292) (1,420) (1,276)
Issuance of capital stock... -- 375,000 --
Redemption of capital stock. -- (1,500,000) --
-------- ----------- ---------- ---------
Net cash provided
(used) by financing
activities........... 105,290 (762,095) 1,184,771 (89,257)
-------- ----------- ---------- ---------
Net increase (decrease) in
cash and cash equivalents.... (40,823) 88,667 283,401 (398,754)
Cash and cash equivalents--
Beginning of year............ 89,453 48,630 137,297 420,698
-------- ----------- ---------- ---------
Cash and cash equivalents--End
of year...................... $ 48,630 $ 137,297 $ 420,698 $ 21,944
======== =========== ========== =========
Supplemental disclosures of
cash flow information
Cash paid during the year
for:
Interest.................. $ 36,404 $ 63,534 $ 148,634 $ 156,779
======== =========== ========== =========
Income taxes.............. $ 35,000 $ 50,000 $ 554,066 $ 467,521
======== =========== ========== =========
Supplemental schedule of non-
cash investing and financing
transactions
Long-term debt incurred for
the acquisition of fixed
assets..................... $ 55,301 $ 67,551 $ -- $ --
======== =========== ========== =========
Debt retired in
consideration of sale of
fixed asset................ $ -- $ 23,439 $ -- $ --
======== =========== ========== =========
</TABLE>
See auditors' report and notes to financial statements.
F-40
<PAGE>
DIVERSIFIED WIRE & CABLE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed in
the preparation of these financial statements.
The unaudited financial statements have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in annual financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes these disclosures are adequate to make the information
presented not misleading. In the opinion of management, all adjustments
necessary for a fair presentation for the period presented have been reflected
and are of a formal recurring nature.
Results of operations for the period from October 1, 1995 to June 24, 1996
are not necessarily indicative of the results that may be achieved for the
entire fiscal year ending September 30, 1996.
Nature of Operations
The Company is engaged in the acquisition and sale of electrical and
electronic wiring and cable throughout the United States of America. The
Company began operations on February 2, 1988.
Inventory Valuation
Inventory is valued at the lower of cost (first-in, first-out) or market.
Manufacturing and goods available for sale inventory consisted of the
following:
<TABLE>
<CAPTION>
(UNAUDITED)
1993 1994 1995 1996
-------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Goods available for sale...... $747,935 $1,577,551 $1,778,542 $2,001,119
Work-in-process............... -- -- 1,081 --
Raw materials................. -- -- 3,975 --
-------- ---------- ---------- ----------
$747,935 $1,577,551 $1,783,598 $2,001,119
======== ========== ========== ==========
</TABLE>
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed
primarily using an accelerated method. Amortization of closing costs is
computed on a straight-line basis over three years. Depreciation and
amortization expense amounted to $81,077, $96,459 and $101,835 for the years
ended September 30, 1993, 1994 and 1995, respectively.
Income Taxes
The provision for income tax is based upon pre-tax accounting income as
adjusted for certain expenses which are not deductible for income tax
purposes.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
F-41
<PAGE>
DIVERSIFIED WIRE & CABLE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
NOTE 2--SHORT-TERM DEBT
The Company has available a revolving credit line up to $3,000,000, with
Comerica Bank. Outstanding debt under the line of credit amounted to $775,000,
$820,443 and $2,365,443 for the years ended September 30, 1993, 1994 and 1995,
respectively and is payable on demand. Interest on outstanding indebtedness is
payable at a rate of one-half percent over the bank's prime rate. The debt is
secured by accounts receivable, inventory and equipment.
NOTE 3--LONG-TERM DEBT
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------
1993 1994 1995
------- -------- --------
<S> <C> <C> <C>
Notes payable--Comerica Bank, payable in monthly
installments currently totalling $7,068, including
interest at rates ranging from 6.75% to 9.92%.
Secured by equipment............................... $47,018 $ 88,434 $146,197
Notes repaid at September 30, 1995.................. 65,122 416,572 --
------- -------- --------
112,140 505,006 146,197
Less current portion................................ 61,863 240,855 68,795
------- -------- --------
Long-term portion................................... $50,277 $264,151 $ 77,402
======= ======== ========
</TABLE>
The aggregate maturities of long-term debt are as follows for the years
ending September 30:
<TABLE>
<S> <C>
1996............................ $ 68,795
1997............................ 55,199
1998............................ 22,203
--------
$146,197
========
</TABLE>
NOTE 4--COMMITMENTS AND CONTINGENT LIABILITIES
The Company conducts its operations from facilities that are leased under
non-cancelable operating leases expiring in April, 1999 and August, 1998.
There is an option to renew the first lease for an additional three years.
Included in the financial statements is rent expense of $57,000, $101,341 and
$141,467 for the years ended September 30, 1993, 1994 and 1995, respectively.
The future minimum rental payments required under the above operating leases
for the years ending September 30, are as follows:
<TABLE>
<S> <C>
1996............................ $244,140
1997............................ $244,140
1998............................ $234,444
1999............................ $ 63,893
</TABLE>
At September 30, 1995, the Company is the guarantor of a loan in the amount
of $301,761 for a shareholder.
F-42
<PAGE>
DIVERSIFIED WIRE & CABLE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--NOTES PAYABLE--OFFICERS
Notes Payable--Officers are unsecured loans with repayment terms undefined.
Interest accrues at 10% per annum and is paid annually. These notes are
subordinated to the Comerica Bank line of credit (See Note 2).
NOTE 6--RETIREMENT PLAN
The Company has adopted a plan under Internal Revenue Code Section 401(k)
which allows an employee to elect to defer a portion of his compensation. This
plan covers substantially all employees.
NOTE 7--CONCENTRATION OF CREDIT RISK
The Company places its cash deposits primarily with one financial
institution. From time to time the amount on deposit at that institution
exceeds the maximum federally insured amount.
NOTE 8--NOTE RECEIVABLE--EMPLOYEE
The note receivable represents a loan to an employee with interest accrued
at 7% per annum on the unpaid balance. The outstanding balances at September
30, 1993, 1994 and 1995 were $0, $44,532 and $32,101, respectively, with
monthly payments of $1,637. The note is secured by the employee's residence.
NOTE 9--STOCK REDEMPTION
On June 9, 1994, the Company redeemed 10,000 shares of stock from a retiring
stockholder.
NOTE 10--STOCK ISSUANCE
Effective June 9, 1994 the Company issued 2,500 shares of stock for
$375,000.
NOTE 11--LETTERS OF CREDIT
At September 30, 1995, the Company had outstanding a $41,500 letter of
credit to secure the Company's potential liability under its self insured
medical plan.
F-43
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Boards of Directors
Viewsonics, Inc. and
Shanghai Viewsonics Electronic Co., Ltd.
We have audited the accompanying combined balance sheet of Viewsonics, Inc.
and Shanghai Viewsonics Electronic Co., Ltd. as of December 31, 1995, and the
related combined statements of income, stockholder's equity, and cash flows
for the year then ended. These financial statements are the responsibility of
the Companies' management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Viewsonics, Inc.
and Shanghai Viewsonics Electronic Co., Ltd. at December 31, 1995, and the
combined results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Chicago, Illinois
April 10, 1996
F-44
<PAGE>
VIEWSONICS, INC. AND SHANGHAI VIEWSONICS ELECTRONIC CO., LTD.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER JULY 31
31 1995 1996
---------- -----------
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash................................................... $ 484,884 $ 620,932
Accounts receivable, less allowance of $9,161.......... 1,218,410 1,488,355
Accounts receivable from related entity................ 75,305 36,277
Inventories............................................ 2,567,198 5,678,514
Other current assets................................... 18,051 --
---------- ----------
Total current assets................................. 4,363,848 7,824,028
Property, equipment, and leasehold improvements--Net..... 456,666 445,713
Other assets............................................. 12,516 14,529
---------- ----------
$4,833,030 $8,284,270
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
Current liabilities:
Accounts payable....................................... $ 442,938 $ 820,332
Accrued expenses....................................... 398,259 429,884
---------- ----------
Total current liabilities............................ 841,197 1,250,216
Stockholder's equity:
Common stock........................................... 501 501
Additional paid-in capital............................. 614,499 614,499
Retained earnings...................................... 3,372,658 6,416,446
Foreign currency translation adjustment................ 4,175 2,608
---------- ----------
Total stockholder's equity........................... 3,991,833 7,034,054
---------- ----------
$4,833,030 $8,284,270
========== ==========
</TABLE>
See accompanying notes.
F-45
<PAGE>
VIEWSONICS, INC. AND SHANGHAI VIEWSONICS ELECTRONIC CO., LTD.
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(UNAUDITED)
YEAR ENDED PERIOD ENDED
DECEMBER 31 JULY 31
1995 1996
----------- ------------
<S> <C> <C>
Net sales.............................................. $10,997,478 $8,069,407
Cost of sales.......................................... 4,867,307 3,276,123
----------- ----------
Gross profit........................................... 6,130,171 4,793,284
Selling, general, and administrative expenses.......... 2,974,998 1,762,562
----------- ----------
Operating income....................................... 3,155,173 3,030,722
Interest income........................................ 48,938 13,066
----------- ----------
Net income............................................. $ 3,204,111 $3,043,788
=========== ==========
</TABLE>
See accompanying notes.
F-46
<PAGE>
VIEWSONICS, INC. AND SHANGHAI VIEWSONICS ELECTRONIC CO., LTD.
COMBINED STATEMENT OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
FOREIGN
ADDITIONAL CURRENCY
COMMON PAID-IN RETAINED TRANSLATION STOCKHOLDER'S
STOCK CAPITAL EARNINGS ADJUSTMENT EQUITY
------ ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1994................... $501 $304,499 $ 4,069,643 $ 4,849 $ 4,379,492
Capital contribution.... -- 310,000 -- -- 310,000
Cash dividends paid..... -- -- (3,901,096) -- (3,901,096)
Foreign currency
translation adjustment. -- -- -- (674) (674)
Net income.............. -- -- 3,204,111 -- 3,204,111
---- -------- ----------- ------- -----------
Balance at December 31,
1995................... 501 614,499 3,372,658 4,175 3,991,833
Foreign currency
translation adjustment
(unaudited)............ -- -- -- (1,567) (1,567)
Net income (unaudited).. -- -- 3,043,788 -- 3,043,788
---- -------- ----------- ------- -----------
Balance at July 31, 1996
(unaudited)............ $501 $614,499 $ 6,416,446 $ 2,608 $ 7,034,054
==== ======== =========== ======= ===========
</TABLE>
See accompanying notes.
F-47
<PAGE>
VIEWSONICS, INC. AND SHANGHAI VIEWSONICS ELECTRONIC CO., LTD.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(UNAUDITED)
YEAR ENDED PERIOD
DECEMBER ENDED
31, JULY 31,
1995 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income......................................... $ 3,204,111 $ 3,043,788
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................... 148,387 86,559
Provision for bad debts.......................... 4,711 --
Changes in operating assets and liabilities:
Accounts receivable............................ (251,571) (269,945)
Accounts receivable from related entity........ (75,305) 39,078
Inventories.................................... (989,526) (3,111,316)
Other current assets........................... (9,460) 18,051
Other assets................................... 5,687 (2,013)
Accounts payable............................... 106,596 377,394
Accrued expenses............................... 204,491 31,625
----------- -----------
Net cash provided by operating activities.... 2,348,121 213,221
Cash flows from investing activities
Purchases of property, equipment, and leasehold
improvements...................................... (184,716) (75,606)
----------- -----------
Net cash used for investing activities....... (184,716) (75,606)
Cash flows from financing activities
Capital contribution............................... 310,000 --
Dividends paid..................................... (3,901,096) --
----------- -----------
Net cash used for financing activities............. (3,591,096) --
Effect of exchange rate changes on cash............ (674) (1,567)
----------- -----------
(Decrease) increase in cash........................ (1,428,365) 136,048
Cash at beginning of period........................ 1,913,249 484,884
----------- -----------
Cash at end of period.............................. $ 484,884 $ 620,932
=========== ===========
</TABLE>
See accompanying notes.
F-48
<PAGE>
VIEWSONICS, INC. AND SHANGHAI VIEWSONICS ELECTRONIC CO., LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Viewsonics, Inc. (VSI) and Shanghai Viewsonics Electronic Co., Ltd. (SVECL),
collectively referred to as the "Companies," are commonly controlled. VSI
designs, manufactures, and markets branded cable television electronic network
component and security electronic network component products primarily to
customers located throughout the United States.
VSI is economically dependent on SVECL, an affiliate located in Shanghai,
China, which sells 100% of its production to VSI. Although there are a limited
number of manufacturers of the products currently purchased from SVECL, VSI
management believes that other suppliers could provide similar products.
However, the time required to locate and qualify other suppliers, and the
nature of their terms (which would likely not be comparable to those currently
in place) could cause a delay in filling orders and may be financially
disruptive to VSI.
The unaudited combined financial statements have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in annual combined
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Companies believe these disclosures are adequate to
make the information presented not misleading. In the opinion of management,
all adjustments necessary for a fair presentation for the period presented
have been reflected and are of a formal recurring nature.
Results of operations for the period from January 1, 1996 to July 31, 1996
are not necessarily indicative of the results that may be achieved for the
entire year ending December 31, 1996.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Combination
The combined financial statements include the accounts of VSI and SVECL.
Significant intercompany accounts and transactions have been eliminated in the
combined financial statements.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined by
the first in, first out (FIFO) method.
Property, Equipment, and Leasehold Improvements
Property and equipment are stated at cost, less accumulated depreciation.
Provisions for depreciation of property and equipment are determined using the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are stated at cost, less accumulated amortization. Leasehold
improvements are amortized on a straight-line basis over the shorter of the
lease term or the life of the respective asset.
Research and Development Cost
Research and development costs related to both present and future products
are expensed as incurred.
F-49
<PAGE>
VIEWSONICS, INC. AND SHANGHAI VIEWSONICS ELECTRONIC CO., LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Advertising Costs
Advertising costs are expensed as incurred.
Income Taxes
VSI is taxed as an S corporation under applicable provisions of the Internal
Revenue Code and, therefore, is generally not liable for federal and certain
state income taxes, as the income of VSI is included in the taxable income of
its stockholder.
SVECL is governed by the Income Tax Law of the People's Republic of China
(the PRC) concerning Enterprises with Foreign Investment and Foreign
Enterprises and various local income tax laws of the PRC (the FIE Income Tax
Laws). Pursuant to the FIE Income Tax Laws, the income of SVECL is fully
exempted from income tax for two years commencing from the first profitable
year of operations, followed by a 50% exemption for the next three years,
after which the income of SVECL will be taxable at a rate which is currently
27%.
No income tax provision has been recorded, as SVECL incurred a loss for the
year ended December 31, 1995 and has incurred losses since its inception.
Financial Instruments
Cash and trade receivables may subject the Companies to credit risk. VSI
holds cash at highly rated financial institutions which are federally insured
up to prescribed limits. Cash balances may exceed the federally insured limits
at any given time.
During 1995, VSI's two largest customers accounted for approximately 27% of
sales. These same customers accounted for approximately 36% of VSI's December
31, 1995 accounts receivable. VSI closely monitors the credit quality of its
customers and maintains an allowance for potential credit losses which,
historically, have been within the range of management's expectations.
Foreign Currency Translation
The accounts of SVECL are translated into U.S. dollars from the functional
local currency in accordance with Statement of Financial Accounting Standards
(SFAS) No. 52.
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.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER 31, JULY 31,
1995 1996
------------ -----------
<S> <C> <C>
Raw materials................................... $ 371,929 $ 734,094
Work in process................................. 77,971 153,895
Finished goods.................................. 2,857,513 5,640,007
Inventory obsolescence reserve.................. (740,215) (849,482)
---------- ----------
$2,567,198 $5,678,514
========== ==========
</TABLE>
F-50
<PAGE>
VIEWSONICS, INC. AND SHANGHAI VIEWSONICS ELECTRONIC CO., LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS
Property, equipment, and leasehold improvements consist of the following as
of December 31, 1995:
<TABLE>
<S> <C>
Equipment....................................................... $698,984
Furniture and fixtures.......................................... 127,506
Vehicles........................................................ 51,176
Leasehold improvements.......................................... 51,102
--------
928,768
Less: Accumulated depreciation and amortization................. 472,102
--------
$456,666
========
</TABLE>
5. STOCKHOLDER'S EQUITY
Common Stock and Additional Paid-in Capital
<TABLE>
<S> <C>
VSI
Common stock; $1 par value; 1,000 shares authorized; 501 shares
issued and outstanding......................................... $ 501
Additional paid-in capital...................................... 4,499
SVECL
Additional paid-in capital (registered capital)................. 610,000
--------
$615,000
========
</TABLE>
SVECL was registered on August 16, 1993 under the Laws of the PRC on
enterprises operated exclusively with foreign capital. The tenure of the
Company is for a period of 30 years.
The registered capital of the Company is $610,000. Since SVECL is a "Limited
Liability Company" under PRC Law, it does not issue stock of any class.
Retained Earnings
As stipulated in the relevant regulations applicable to wholly foreign-owned
investment enterprises established in PRC, SVECL is required to appropriate
10% of its profit after tax, after offsetting accumulated deficit, determined
in accordance with the PRC's accounting principles and financial regulations,
to the general reserve fund until such reserve reaches 50% of the registered
capital of SVECL. The general reserve fund would not be available for
distribution as dividends.
SVECL has not generated any profit as of December 31, 1995 and, accordingly,
there were no profit distributions or appropriations to the general reserve
fund.
6. COMMITMENTS
The Companies lease manufacturing, office, and storage facilities and
certain equipment under noncancelable operating leases expiring in various
years through 2000. The leases require the Companies to pay real estate taxes
and maintenance costs.
F-51
<PAGE>
VIEWSONICS, INC. AND SHANGHAI VIEWSONICS ELECTRONIC CO., LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Commitments for future minimum payments under noncancelable leases are as
follows as of December 31, 1995:
<TABLE>
<S> <C>
1996..................................... $260,692
1997..................................... 262,774
1998..................................... 356,066
1999..................................... 11,193
2000..................................... 1,106
</TABLE>
Rental expense for the year ended December 31, 1995 was approximately
$239,000.
7. FOREIGN CURRENCY
In April 1995, the National Foreign Exchange Training Center is Shanghai
(the exchange center) commenced operations. Enterprises operating in the PRC
can enter into exchange transactions at the exchange center through the Bank
of China or other authorized institutions. Payments for imported materials are
subject to the availability of foreign currency, which depends on the foreign
currency denominated earnings of the enterprises, or must be arranged through
the exchange center. Approval for exchange at the exchange center is granted
to enterprises in the PRC for valid reasons such as purchases of imported
materials and remittance of earnings. While conversion of Renminbi into United
States dollars or other foreign currencies can generally be effected at the
exchange center, there is no guarantee that it can be effected at all times.
SVECL has not had and does not believe it will have any difficulty in
exchanging its currency (Renminbi) for U.S. dollars at the rate of exchange
quoted by the People's Bank of China.
F-52
<PAGE>
AUDITORS' REPORT TO THE SHAREHOLDERS OF VITELEC ELECTRONICS LIMITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 1995
US GAAP EDITION
We have audited this special edition of the financial statements on pages F-
52 to F-60 which have been amended for US GAAP and which have been prepared
under the historical cost convention and the accounting policies set out on
page F-56.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
The company's directors are responsible for the preparation of financial
statements. It is our responsibility to form an independent opinion, based on
our audit, on those statements and to report our opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with United States Generally Accepted
Auditing Standards. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements.
It also includes an assessment of the significant estimates and judgments made
by the directors in the preparation of the financial statements, and of
whether the accounting policies are appropriate to the company's circumstances
consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion the financial statements give a true and fair view of the
state of the company's affairs at 31st December 1995 and of its result for the
year then ended and have been properly prepared in accordance with the
provisions of the Companies Act 1985 applicable to medium and small companies.
/s/ Roberts Redman Mead
Certified
Accountants
Registered Auditors
4 Lenten Street
Alton
Hampshire GU34 1HG.
Date: 20th June 1996
F-53
<PAGE>
VITELEC ELECTRONICS LIMITED
PROFIT AND LOSS ACCOUNTS
<TABLE>
<CAPTION>
(UNAUDITED)
FOR THE
FOR THE YEAR ENDED PERIOD ENDED
DECEMBER 31, AUGUST 5,
----------------------------------- ---------------
1994 1995 1996
NOTES (Pounds) (Pounds) (Pounds)
----- ----------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Turnover................ 2 3,084,444 4,472,275 2,406,016
Cost of sales........... 1,396,059 2,195,746 972,477
----------------- ----------------- ---------------
Gross profit............ 1,688,385 2,276,529 1,433,539
Administration costs.... 679,908 1,145,919 617,918
----------------- ----------------- ---------------
Operating profit........ 3/4 1,008,477 1,130,610 815,621
Interest receivable
(payable).............. 5 22,593 56,012 (286)
----------------- ----------------- ---------------
Profit on Ordinary
Activities Before
Taxation............... 1,031,070 1,186,622 815,335
Tax on ordinary
activities............. 6 338,825 390,968 262,844
----------------- ----------------- ---------------
Profit for the year..... 692,245 795,654 552,491
Dividends............... 7 75,000 75,000 2,000,000
----------------- ----------------- ---------------
Retained profit (loss)
for the period......... 617,245 720,654 (1,447,509)
Retained profit brought
forward................ 883,418 1,500,663 2,221,317
----------------- ----------------- ---------------
Retained profit carried
forward................ (Pounds)1,500,663 (Pounds)2,221,317 (Pounds)773,808
================= ================= ===============
</TABLE>
CONTINUING OPERATIONS
None of the company's activities were acquired or discontinued during the
above two financial years.
CRS3 PRIMARY STATEMENT OF RECOGNISED GAINS AND LOSSES MADE DURING THE YEAR
The Company made no recognised gains or losses in 1994 or in 1995 other than
the profit/(loss) for the year.
F-54
<PAGE>
VITELEC ELECTRONICS LIMITED
BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF 31ST DECEMBER (UNAUDITED) AS OF
--------------------------------------------------------- AUGUST 5,
1994 1995 1996
---------------------------- ---------------------------- -----------------
NOTES (Pounds) (Pounds) (Pounds) (Pounds) (Pounds)
----- --------- ----------------- --------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Fixed assets............
Tangible assets....... 8 520,325 493,294 676,000
Current assets
Stocks................ 9 565,257 472,859 645,000
Debtors............... 10 935,694 1,011,952 705,000
Cash at bank and in
hand................. 687,448 1,639,383 281,000
--------- --------- -----------------
2,188,399 3,124,194 1,631,000
Creditors--amounts
falling due within one
year................... 11 (807,971) (996,081) (1,133,102)
--------- --------- -----------------
Net current assets...... 1,380,428 2,128,113 497,102
----------------- ----------------- -----------------
Net assets.............. (Pounds)1,900,753 (Pounds)2,621,407 (Pounds)1,173,898
================= ================= =================
Financed by:
Capital and reserves
Called up share
capital.............. 12 100,000 100,000 100,000
Share premium......... 13 300,090 300,090 300,090
Profit and loss
account.............. 14 1,500,663 2,221,317 773,808
----------------- ----------------- -----------------
(Pounds)1,900,753 (Pounds)2,621,407 (Pounds)1,173,898
================= ================= =================
</TABLE>
Approved by the Board of Directors on 29th January 1996
/s/ J Young
_____________________________________
J Young
/s/ H J Wells
_____________________________________
H J Wells
F-55
<PAGE>
VITELEC ELECTRONICS LIMITED
CASH FLOW STATEMENTS
<TABLE>
<CAPTION>
(UNAUDITED) FOR
THE PERIOD ENDED
FOR THE YEAR ENDED DECEMBER 31 AUGUST 5
-------------------------------------------- ------------------
1995
1994 --------------------------- 1996
(Pounds) (Pounds) (Pounds) (Pounds)
--------------- ---------- --------------- ------------------
<S> <C> <C> <C> <C>
Operating activities
Cash received from
customers............ 3,461,521 4,372,239 3,250,770
Cash paid to
suppliers............ (2,832,159) (2,451,306) (1,822,552)
Cash paid for salaries
and wages............ (298,320) (543,602) (404,169)
--------------- ---------- ------------------
Net cash inflow from
operating
activities......... 331,042 1,377,331 1,024,049
--------------- ------------------
Returns on investments &
servicing of finance
Interest received..... 22,593 56,021 --
Interest paid......... -- -- (286)
Dividends paid........ (75,000) (75,000) (2,000,000)
--------------- ---------- ------------------
Net cash outflow
from returns on
investments and
servicing of
finance............ (52,407) (18,988) (2,000,286)
--------------- ------------------
Taxation
UK Corporation tax
paid................. (146,964) (333,924) (199,440)
--------------- ------------------
Investing activities
Sale of fixed assets.. 5,000 12,290 20,000
Acquisition of fixed
assets............... (88,872) (84,774) (202,706)
--------------- ---------- ------------------
Net cash outflow
from investing
activities......... (83,872) (72,484) (182,706)
--------------- --------------- ------------------
Net cash inflow
(outflow) before
financing.......... 47,799 951,935 (1,358,383)
Financing
Issue of share
capital.............. 400,000 -- --
--------------- ---------- ------------------
Net cash inflow from
financing.......... 400,000 -- --
--------------- --------------- ------------------
Increase (Decrease)
in cash and cash
equivalents........ (Pounds)447,799 (Pounds)951,935 (Pounds)(1,358,383)
=============== =============== ==================
</TABLE>
F-56
<PAGE>
VITELEC ELECTRONICS LIMITED
NOTES TO THE CASH FLOW STATEMENTS
<TABLE>
<CAPTION>
(UNAUDITED) FOR
THE PERIOD ENDED
FOR THE YEAR ENDED 31ST DECEMBER AUGUST 5,
---------------------------------- -----------------
1994 1995 1996
(Pounds) (Pounds) (Pounds)
--------------- ----------------- -----------------
<S> <C> <C> <C>
Reconciliation of
operating profit to
net cash inflow from
operating activities
Operating profit..... 1,008,477 1,130,610 815,621
Depreciation charges. 44,057 95,708 57,163
Profit (loss) on sale
of tangible fixed
assets.............. 1,105 3,226 (120,567)
Increase/decrease in
stocks.............. (411,473) 92,398 (172,141)
Increase/decrease in
debtors............. (513,521) (76,258) 306,952
Increase/decrease in
creditors........... 202,397 131,647 137,021
--------------- ----------------- -----------------
Net cash flow from
operating
activities........ (Pounds)331,042 (Pounds)1,377,331 (Pounds)1,024,049
=============== ================= =================
Analysis of changes in
cash and cash
equivalents during the
year
At 1st January 1995.. 239,649 687,448 1,639,383
Net cash inflow
(outflow)........... 447,799 951,935 (1,358,383)
--------------- ----------------- -----------------
At 31st December
1995................ (Pounds)687,448 (Pounds)1,639,383 (Pounds)281,000
=============== ================= =================
</TABLE>
<TABLE>
<CAPTION>
CHANGE
1994 1995 IN YEAR
(Pounds) (Pounds) (Pounds)
-------- --------- --------
<S> <C> <C> <C>
Analysis of the balances of cash and cash
equivalents as shown in the balance sheet
Cash at bank and in hand........................ 687,448 1,639,383 951,935
======= ========= =======
</TABLE>
F-57
<PAGE>
VITELEC ELECTRONICS LIMITED
NOTES TO THE ACCOUNTS
1. ACCOUNTING POLICIES
The unaudited financial statements have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in annual financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although Vitelec
believes these disclosures are adequate to make the information presented not
misleading. In the opinion of management, all adjustments necessary for a fair
presentation for the period presented have been reflected and are of a formal
recurring nature.
Results of operations for the period from January 1, 1996 to August 5, 1996
are not necessarily indicative of the results that may be achieved for the
entire year ending December 31, 1996.
1.1 Accounting conventions
The financial statements have been prepared in accordance with the Companies
Act 1985 as amended and with applicable Accounting Standards.
1.2 Turnover
This represents the invoiced amount of goods sold and services provided,
excluding value added tax.
1.3 Depreciation of tangible assets
Provision is made for depreciation on all tangible assets, other than
freehold land, at rates calculated to write off the cost of each asset over
its expected useful life as follows:
<TABLE>
<S> <C>
Freehold buildings...................... 4% per annum on cost
Leasehold buildings..................... evenly over the term of the lease
Office equipment........................ 25% on the reducing balance
Plant and machinery..................... 25% on the reducing balance
Motor vehicles.......................... 25% on the reducing balance
</TABLE>
1.4 Stocks
Stock and work in progress are valued at the lower of cost and net
realisable value, after making due allowance for obsolete and slow moving
items.
1.5 Research and development
Expenditure on research and development is written off as incurred.
1.6 Deferred taxation
Provision is made by the liability method for all timing differences which
are expected to be reversed in the foreseeable future.
1.7 Foreign currencies
Transactions in foreign currencies are recorded at the rate of exchange at
the time of the transaction.
Assets and liabilities denominated in foreign currencies are translated at
the rate of exchange ruling at the balance sheet date.
All exchange differences are taken to the profit and loss account in the
year in which they arise.
F-58
<PAGE>
VITELEC ELECTRONICS LIMITED
NOTES TO THE ACCOUNTS--(CONTINUED)
2. TURNOVER
An analysis of turnover by geographical market is given below:
<TABLE>
<CAPTION>
1994 1995
(Pounds) (Pounds)
----------------- -----------------
<S> <C> <C>
United Kingdom........................ 2,360,647 3,569,080
European Economic Community........... 377,083 519,811
Rest of the World..................... 346,714 383,384
----------------- -----------------
(Pounds)3,084,444 (Pounds)4,472,275
================= =================
</TABLE>
3. OPERATING PROFIT
This is stated after charging (crediting):
<TABLE>
<CAPTION>
1994 1995
(Pounds) (Pounds)
-------- --------
<S> <C> <C>
Staff costs (see note 4)................................ 309,266 591,806
Auditors' remuneration.................................. 3,000 4,800
Depreciation............................................ 44,057 95,708
Adjustment on disposal of fixed assets.................. 1,105 3,226
</TABLE>
4. EMPLOYEE INFORMATION
4.1 Staff costs:
<TABLE>
<CAPTION>
1994 1995
(Pounds) (Pounds)
--------------- ---------------
<S> <C> <C>
Wages and salaries........................ 256,183 484,232
Social security costs..................... 25,235 48,535
Other pension costs....................... 6,000 6,000
--------------- ---------------
(Pounds)306,266 (Pounds)591,806
=============== ===============
</TABLE>
4.2 The average weekly number of employees during the year was made up as
follows:
<TABLE>
<CAPTION>
1994 1995
NO. NO.
---- ----
<S> <C> <C>
Office and management........................................... 8 17
Packaging and Assembly.......................................... 3 4
--- ---
11 21
=== ===
</TABLE>
<TABLE>
<CAPTION>
1994 1995
(Pounds) (Pounds)
-------------- --------------
<S> <C> <C>
4.3 Directors' remuneration..................... (Pounds)46,667 (Pounds)80,000
============== ==============
</TABLE>
4.4 Directors' emoluments:
<TABLE>
<CAPTION>
1994 1995
(Pounds) (Pounds)
-------------- --------------
<S> <C> <C>
Fees and salaries......................... 46,667 80,000
Pension contributions..................... 6,000 6,000
-------------- --------------
(Pounds)52,667 (Pounds)86,000
============== ==============
Further details, excluding pension
contributions:
Chairman (also Highest paid director)... 46,667 80,000
============== ==============
</TABLE>
F-59
<PAGE>
VITELEC ELECTRONICS LIMITED
NOTES TO THE ACCOUNTS--(CONTINUED)
5. INTEREST RECEIVABLE
<TABLE>
<CAPTION>
1994 1995
(Pounds) (Pounds)
-------------- --------------
<S> <C> <C>
Bank interest............................... 22,593 56,012
-------------- --------------
(Pounds)22,593 (Pounds)56,012
============== ==============
</TABLE>
6. TAXATION
6.1 The tax charge on the Profit on ordinary activities for the year was as
follows:
<TABLE>
<CAPTION>
1994 1995
(Pounds) (Pounds)
--------------- ---------------
<S> <C> <C>
U.K. corporation tax at 32% (1994--
32%)................................. 343,230 400,274
--------------- ---------------
343,230 400,274
Taxation (over)/underprovided in
previous years:
Corporation tax..................... (4,405) (9,306)
--------------- ---------------
(Pounds)338,825 (Pounds)390,968
=============== ===============
</TABLE>
6.2 The company is a close company within the terms of section 414 of the
Income and Corporation Taxes Act 1988.
7. DIVIDENDS
<TABLE>
<CAPTION>
1994 1995
(Pounds) (Pounds)
-------- --------
<S> <C> <C>
Interim dividend paid:
75p per share......................................... 75,000 75,000
====== ======
</TABLE>
8. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
LAND AND OFFICE PLANT AND
BUILDINGS EQUIPMENT EQUIPMENT MOTOR VEHICLES TOTAL
(Pounds) (Pounds) (Pounds) (Pounds) (Pounds)
--------------- --------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Cost:
At 1st January 1995... 329,001 233,584 17,890 96,722 677,197
Additions............. -- 30,133 4,501 50,140 84,774
Disposals............. (10,000) -- -- (35,609) (45,609)
--------------- --------------- ------------- -------------- ---------------
At 31st December 1995. 319,001 263,717 22,391 111,253 716,362
--------------- --------------- ------------- -------------- ---------------
Depreciation:
At 1st January 1995... 29,790 78,235 11,780 39,957 159,762
Charge for year....... 8,707 59,455 2,652 22,585 93,399
Disposals............. (3,096) -- -- (26,997) (30,093)
--------------- --------------- ------------- -------------- ---------------
At 31st December 1995. 35,401 137,690 14,432 35,545 223,068
--------------- --------------- ------------- -------------- ---------------
Net book value at 31st
December 1995........... (Pounds)283,600 (Pounds)126,027 (Pounds)7,959 (Pounds)75,708 (Pounds)493,294
=============== =============== ============= ============== ===============
Net book value at 31st
December 1994........... (Pounds)299,211 (Pounds)155,349 (Pounds)6,110 (Pounds)56,765 (Pounds)517,435
=============== =============== ============= ============== ===============
</TABLE>
The net book values of land and building comprises:
<TABLE>
<CAPTION>
1994 1995
(Pounds) (Pounds)
-------- --------
<S> <C> <C>
Freehold................................................ 291,875 283,600
Short leasehold......................................... 7,336 --
======= =======
</TABLE>
F-60
<PAGE>
VITELEC ELECTRONICS LIMITED
NOTES TO THE ACCOUNTS--(CONTINUED)
9. STOCKS
<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER 31 AUGUST 5,
------------------------------- ---------------
1994 1995 1996
(Pounds) (Pounds) (Pounds)
--------------- --------------- ---------------
<S> <C> <C> <C>
The amounts attributable to
the different categories are
as follows:
Finished goods................ 565,257 472,859 645,000
--------------- --------------- ---------------
(Pounds)565,257 (Pounds)472,859 (Pounds)645,000
=============== =============== ===============
</TABLE>
10. DEBTORS
<TABLE>
<CAPTION>
1994 1995
(Pounds) (Pounds)
--------------- -----------------
<S> <C> <C>
Trade debtors........................... 888,723 988,759
Social security and other taxes......... 31,157 --
Prepayments............................. 15,814 23,193
--------------- -----------------
(Pounds)935,694 (Pounds)1,011,952
=============== =================
</TABLE>
11. CREDITORS--AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
1994 1995
(Pounds) (Pounds)
--------------- ---------------
<S> <C> <C>
Trade creditors........................... 389,036 383,933
Corporation tax........................... 343,230 400,274
Other taxes and social security costs..... 16,144 64,348
Directors' current accounts............... -- 67,500
Other creditors........................... 13,242 33,747
Accruals.................................. 46,319 46,279
--------------- ---------------
(Pounds)807,971 (Pounds)996,081
=============== ===============
</TABLE>
12. SHARE CAPITAL
<TABLE>
<CAPTION>
ALLOTTED, ISSUED
AND FULLY PAID
-----------------
AUTHORISED 1994 1995
(Pounds) (Pounds) (Pounds)
---------- -------- --------
<S> <C> <C> <C>
100,000 Ordinary shares of (Pounds)1 each... 200,000 100,000 100,000
</TABLE>
13. SHARE PREMIUM ACCOUNT
<TABLE>
<CAPTION>
1994 1995
(Pounds) (Pounds)
--------------- ---------------
<S> <C> <C>
Balance as at 1st January................ -- 300,090
Premium on issue of 10 ordinary shares... 399,990 --
Bonus issue on ordinary shares........... (99,900) --
--------------- ---------------
At 31st December......................... (Pounds)300,090 (Pounds)300,090
=============== ===============
</TABLE>
F-61
<PAGE>
VITELEC ELECTRONICS LIMITED
NOTES TO THE ACCOUNTS--(CONTINUED)
14. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS FUNDS
<TABLE>
<CAPTION>
1994 1995
(Pounds) (Pounds)
----------------- -----------------
<S> <C> <C>
Profit/(loss) for the year after
taxation......................... 692,245 795,654
Dividends paid & proposed......... (75,000) (75,000)
Transfer (to)/from reserves....... -- --
----------------- -----------------
617,245 720,654
Opening shareholders' funds....... 1,283,508 1,900,753
----------------- -----------------
Closing shareholders' funds....... (Pounds)1,900,753 (Pounds)2,621,407
================= =================
</TABLE>
15. COMMITMENTS AND CONTINGENT LIABILITIES
Capital Commitments
The company has contracted to spend approximately (Pounds)185,000 on a new
building due to be completed in March 1996.
Contingent Liabilities
There are contingent liabilities at 31st December 1995 in respect of the
following:--
<TABLE>
<S> <C>
Customs & Excise guarantee................................. (Pounds)60,000
</TABLE>
F-62
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Northern Technologies, Inc.
Liberty Lake, Washington
We have audited the accompany balance sheets of Northern Technologies, Inc.
as of December 31, 1995 and 1996, and the related statements of income,
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Northern Technologies,
Inc. as of December 31, 1995 and 1996, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ McFarland & Alton Ps
Spokane, Washington
February 7, 1997
F-63
<PAGE>
NORTHERN TECHNOLOGIES, INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
ASSETS 1995 1996
------ ---------- -----------
<S> <C> <C>
Current Assets
Cash.................................................. $ 282 $ 3,816
Accounts receivable, less allowance for doubtful
accounts 1995 $-0-;
1996 $47,035 (Note 5)................................ 1,530,189 9,359,929
Note receivable, current.............................. 1,199 --
Other receivables (Note 10)........................... -- 561,741
Inventory (Notes 2 and 5)............................. 1,420,868 1,936,048
Prepaid expenses...................................... 54,840 54,047
Income taxes receivable............................... 247,846 --
---------- -----------
Total current assets................................ 3,255,224 11,915,581
---------- -----------
Property and equipment, at cost
Machinery and equipment............................... 394,033 427,672
Office furniture and equipment........................ 507,586 592,675
Leasehold improvements................................ 281,929 281,929
---------- -----------
1,183,548 1,302,276
Less accumulated depreciation......................... 556,314 713,953
---------- -----------
627,234 588,323
---------- -----------
Other assets
Notes receivable...................................... 5,442 --
Covenant not to compete (Note 3)...................... 16,666 --
Cash value of life insurance.......................... 46,560 43,443
Deferred income taxes (Note 4)........................ 150,515 190,113
---------- -----------
219,183 233,556
---------- -----------
$4,101,641 $12,737,460
========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities
Excess of outstanding checks over bank balance........ $ 389,640 $ 85,127
Note payable (Note 5)................................. 559,500 --
Accounts payable and accrued expenses................. 491,026 6,367,940
Employee profit sharing plan payable (Note 6)......... 172,024 212,731
Income taxes payable.................................. -- 105,277
Estimated warranty liability, current................. 16,354 63,312
Deferred warranty revenue, current.................... 126,782 156,240
---------- -----------
Total current liabilities........................... 1,755,326 6,990,627
---------- -----------
Noncurrent liabilities, less current portion
Estimated warranty liability.......................... 32,988 126,623
Deferred warranty revenue............................. 114,573 61,453
---------- -----------
147,561 188,076
---------- -----------
Commitments and contingencies
(Notes 7, 11, 12, and 13)
Stockholders' equity
Common stock, $.01 par value, 2,000,000 shares
authorized and 1,817,831 shares issued............... 17,678 18,178
Additional paid-in capital............................ 447,248 577,748
Retained earnings..................................... 2,427,801 5,697,732
---------- -----------
2,892,727 6,293,658
Less cost of shares purchased for the Treasury 1995,
856,756 shares;
1996, 876,399 shares................................. 693,973 734,901
---------- -----------
2,198,754 5,558,757
---------- -----------
$4,101,641 $12,737,460
========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-64
<PAGE>
NORTHERN TECHNOLOGIES, INC.
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
---------- -----------
<S> <C> <C>
Net sales............................................... $9,531,781 $26,171,026
Cost of sales........................................... 3,656,257 15,936,250
---------- -----------
Gross profit........................................ 5,875,524 10,234,776
Other operating revenue................................. 82,621 82,384
---------- -----------
5,958,145 10,317,160
---------- -----------
Selling, general, and administrative expenses:
Selling............................................... 2,834,184 3,122,088
General and administrative............................ 2,067,101 2,162,861
Research and development.............................. 293,736 463,015
---------- -----------
5,195,021 5,747,964
---------- -----------
Income from operations.............................. 763,124 4,569,196
Financial expense, net (Note 8)......................... 39,820 55,180
---------- -----------
Income from operations before taxes................. 723,304 4,514,016
Federal income taxes (Note 4)........................... 245,588 1,244,085
---------- -----------
Net income.......................................... $ 477,716 $ 3,269,931
========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-65
<PAGE>
NORTHERN TECHNOLOGIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
COMMON ADDITIONAL
STOCK PAID-IN RETAINED TREASURY
ISSUED CAPITAL EARNINGS STOCK TOTAL
------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Balance, December 31,
1994..................... $17,678 $447,248 $1,950,085 $(687,158) $1,727,853
Purchase of 1,172 shares
of treasury stock...... -- -- -- (6,815) (6,815)
Net income.............. -- -- 477,716 -- 477,716
------- -------- ---------- --------- ----------
Balance, December 31,
1995..................... 17,678 447,248 2,427,801 (693,973) 2,198,754
------- -------- ---------- --------- ----------
Net income.............. -- -- 3,269,931 -- 3,269,931
Exercise of employee
stock options (Note 7). 500 130,500 -- -- 131,000
Purchase of 19,643
shares of treasury
stock.................. -- -- -- (40,928) (40,928)
------- -------- ---------- --------- ----------
500 130,500 3,269,931 (40,928) 3,360,003
------- -------- ---------- --------- ----------
Balance, December 31,
1996..................... $18,178 $577,748 $5,697,732 $(734,901) $5,558,757
======= ======== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-66
<PAGE>
NORTHERN TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
-------- ----------
<S> <C> <C>
Cash flows from operating activities
Net income............................................. $477,716 $3,269,931
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization........................ 155,702 194,483
Provision for doubtful accounts...................... -- 47,035
(Gain) loss on sale of fixed assets.................. (8,671) 5,622
Deferred income taxes................................ (47,764) (39,598)
(Increase) decrease in:
Receivable and prepaid expenses.................... 448,856 (8,437,723)
Inventory.......................................... (46,742) (515,180)
Income taxes receivable............................ (247,846) 247,846
Increase (decrease) in:
Accounts payable and accrued expenses.............. (237,107) 5,876,914
Employee profit sharing plan payable............... 7,024 40,707
Income tax payable................................. (347,412) 105,277
Estimated warranty liability....................... 33,367 140,593
Deferred warranty revenue.......................... 33,418 (23,662)
-------- ----------
Net cash provided by operating activities........ 220,541 912,245
-------- ----------
Cash flows from investing activities
Proceeds from sale of property and equipment........... 9,495 --
Principal payments received on note receivable......... 560 6,641
Change in cash value of life insurance................. (15,233) 3,117
Purchase of property and equipment..................... (323,206) (144,528)
-------- ----------
Net cash used by investing activities............ (328,384) (134,770)
-------- ----------
Cash flows from financing activities
Net proceeds from issuance of common stock............. -- 131,000
Excess of outstanding checks over bank balance......... 13,457 (304,513)
Net payments on revolving credit agreement............. 59,500 (559,500)
Purchase of common stock for Treasury.................. (6,815) (40,928)
-------- ----------
Net cash provided (used) by financing activities. 66,142 (773,941)
-------- ----------
Net increase (decrease) in cash.................. (41,701) 3,534
Cash at beginning of year................................ 41,983 282
-------- ----------
Cash at end of year...................................... $ 282 $ 3,816
======== ==========
Supplemental disclosures of cash flows information
Interest paid during the year.......................... $ 31,090 $ 34,643
======== ==========
Taxes paid during the year............................. $888,610 $ 930,560
======== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-67
<PAGE>
NORTHERN TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Northern Technologies, Inc., the Company, is an Idaho corporation engaged in
the manufacture and sale of power surge protection equipment. Its facilities
are located in Liberty Lake, Washington. The Company incorporated under the
laws of the state of Idaho on February 1, 1985. Effective December 31, 1996,
one hundred percent of the outstanding stock is owned by Northern Technologies
Holdings, Inc. The Company continues as a wholly-owned subsidiary of Northern
Technologies Holdings, Inc. operating under the name Northern Technologies,
Inc.
The accounting policies relative to the carrying value of property and
equipment and other assets are indicated in the captions on the balance
sheets. Other significant accounting policies are as follows:
Valuation of accounts receivable:
The Company uses the allowance method of recognizing uncollectible accounts.
Inventories:
Inventories are stated at the lower of average cost (first-in, first-out) or
market. Cost is determined on the full absorption method.
Depreciation:
Depreciation is provided principally by using accelerated methods for both
book and tax purposes over the estimated useful lives of the depreciable
assets in years prior to 1996. In 1996, depreciation is provided on asset
additions using a straight-line method over the estimated useful life of the
asset. The use of accelerated methods of depreciation does not depart
materially from generally accepted accounting principles.
Warranty:
The Company provides a one to three year warranty on sales of surge
protectors and an optional extended one to three year warranty policy. The
warranties cover any defects in material and workmanship.
Reclassifications:
Certain items in the 1995 financial statements have been reclassified to
conform with the current year presentation.
Income taxes:
Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and deferred tax
liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets relate primarily to
accrued vacation, estimated warranty claims, and deferred warranty revenue.
Deferred tax assets are reduced by a valuation allowance when, in the opinion
of management, it is more likely than not that some portion or all of the
deferred tax will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment.
Fair value of financial instruments:
The Company's financial instruments consist of cash, excess of outstanding
checks over bank balance, and a note payable. The carrying amount approximates
fair value due to the short maturity of these instruments.
F-68
<PAGE>
NORTHERN TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Accounting estimates:
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Significant estimates in the financial statements include the provision for
the estimated warranty liability and the depreciation of property and
equipment.
NOTE 2. INVENTORIES
The components of inventories at December 31, 1995 and 1996, are as follows:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Finished goods...................................... $ 274,296 $ 383,224
Work in process..................................... 98,870 205,471
Raw materials....................................... 1,047,702 1,347,353
---------- ----------
$1,420,868 $1,936,048
========== ==========
</TABLE>
NOTE 3. COVENANT NOT TO COMPETE
The covenant not to compete is the result of an agreement with a terminated
employee. The covenant is being amortized over three years using the straight-
line method. The covenant not to compete is as follows at December 31:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Covenant not to compete............................... $ 50,000 $ 50,000
Amortization.......................................... (33,334) (50,000)
-------- --------
$ 16,666 $ --
======== ========
</TABLE>
NOTE 4. INCOME TAXES
The components of the net deferred tax asset recorded in the accompanying
balance sheets at December 31, 1995 and 1996, are:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Accrued vacation..................................... $ 19,954 $ 16,310
Bad debt reserve..................................... -- 15,992
Estimated warranty liability......................... 16,776 64,578
Deferred warranty revenue............................ 82,061 74,015
Uniform capitalization............................... 22,657 11,885
Covenant not to compete.............................. 9,067 13,601
-------- --------
Total deferred tax assets.......................... $150,515 $196,381
======== ========
Deferred tax liabilities:
Tax depreciation greater than book................... $ -- $ 6,268
-------- --------
Total deferred tax liabilities..................... $ -- $ 6,268
======== ========
Net deferred tax asset............................. $150,515 $190,113
======== ========
</TABLE>
F-69
<PAGE>
NORTHERN TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The components of the provision for income tax for the years ended December
31, 1995 and 1996, are:
<TABLE>
<CAPTION>
1995 1996
-------- ----------
<S> <C> <C>
Deferred federal income tax........................ $(47,764) $ (39,598)
Current year provision............................. 293,352 1,283,683
-------- ----------
$245,588 $1,244,085
======== ==========
</TABLE>
The income tax provision (benefit) differs from the amount of income tax
determined by applying the federal income tax rate to pretax income from
continuing operations for the years ended December 31, 1995 and 1996, due to
the following:
<TABLE>
<CAPTION>
1995 1996
-------- ----------
<S> <C> <C>
Computed expected tax expense...................... $245,923 $1,534,765
Increase (decrease) in income taxes resulting from:
Deductible compensation from exercise of stock
options......................................... -- (307,583)
Nondeductible expenses........................... 17,679 21,627
Prior year under (over) accrual.................. (4,799) 2,435
Research and development credit.................. (13,215) (7,159)
-------- ----------
$245,588 $1,244,085
======== ==========
</TABLE>
NOTE 5. NOTE PAYABLE
Note payable is as follows at December 31:
<TABLE>
<CAPTION>
1995 1996
-------- ----
<S> <C> <C>
Operating line of credit with U.S. Bank with interest at
U.S. Bank of Washington, National Association's prime
borrower rate (8.25% at December 31, 1996). The line is
collateralized by accounts receivable and inventory. The
total line of credit available is $3,000,000 at December
31, 1996................................................ $559,500 $--
</TABLE>
NOTE 6. EMPLOYEE PROFIT SHARING PLAN AND TRUST
In 1990 the Company rolled over its contributory, trusteed, stock bonus plan
into an IRS qualified 401(k) plan covering all full time employees with one
year or more of service. The Company's contribution, payable in cash, is
limited to 15% of participants' base salary. Participants' interest become
fully vested after 6 years and may be withdrawn upon termination, or upon
attaining age 65, whichever occurs first. The Company's contribution to the
plan aggregated $206,878 for 1995 and $222,012 in 1996.
NOTE 7. STOCK OPTION
During 1994 a stock option agreement was reached between the Company and a
corporate officer whereby the Company agreed to sell up to fifty thousand
shares of common stock to the employee at a price of $2.62 per share. All
options were exercised during 1996.
F-70
<PAGE>
NORTHERN TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8. FINANCIAL (INCOME) EXPENSE, NET
The components of financial (income) expense are as follows for the years
ended December 31:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Interest income.......................................... $ (760) $ --
Interest expense......................................... 31,090 34,643
Service charge expense................................... 9,490 20,537
------- -------
Financial expense, net............................... $39,820 $55,180
======= =======
</TABLE>
NOTE 9. ENGINEERING--RESEARCH AND DEVELOPMENT
Company-funded research and development costs are expensed as incurred.
Total research and development costs charged to expense for the years ended
December 31, 1995 and 1996, are $293,736 and $463,015, respectively.
NOTE 10. RELATED PARTY TRANSACTIONS
Since November 1992, Northern Technologies, Inc. has rented its current
premises from Sigma Partners, a partnership owned, in part, by an officer of
Northern Technologies, Inc. The 1996 monthly lease expense was $8,885. The
lease calls for annual 5% increases effective each January. Rent paid to Sigma
Partners for the years ended December 31, 1995 and 1996, was $103,044 and
$108,678, respectively.
Included in other receivables was $397,421 due from an officer of the
Company. This amount was repaid subsequent to year end.
NOTE 11. OPERATING LEASES
The Company leases its facility on a ten year lease from Sigma Partners (see
Note 10). The lease expires on October 31, 2002. Additionally, the Company
rents certain office equipment under a five-year operating lease. The
following is a schedule by years of future minimum rental payments required
under operating leases as of December 31, 1996.
<TABLE>
<S> <C>
Years ending December 31:
1997.......................... $115,977
1998.......................... 121,575
1999.......................... 127,452
2000.......................... 133,623
2001.......................... 140,103
Later years................... 125,013
--------
Total minimum lease payments
required................... $763,743
--------
</TABLE>
For the years ended December 31, 1995 and 1996, rent expense paid by the
Company totaled $106,914 and $118,892, respectively.
NOTE 12. COMMITMENT
The Company has agreed to purchase raw materials during 1997 at the current
market price of $2,271,235 as of December 31, 1996.
F-71
<PAGE>
NORTHERN TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13. CONCENTRATIONS
Major customers:
During the years ended December 31, 1995 and 1996, the Company recognized
sales to the following major customers exceeding ten percent of net sales:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------------
NET SALES ACCOUNTS RECEIVABLE
---------------------- ---------------------
PERCENT OF PERCENT OF
AMOUNT TOTAL AMOUNT TOTAL
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Company A............... $1,065,036 11.17 $ 519 .03
Company B............... 1,011,552 10.61 13,241 .87
Other customers......... 7,455,193 78.22 1,516,429 99.10
----------- ------ ---------- ------
$9,531,781 100.00 $1,530,189 100.00
=========== ====== ========== ======
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-------------------------------------------- --- --- ---
NET SALES ACCOUNTS RECEIVABLE
---------------------- --------------------- --- ---
PERCENT OF PERCENT OF
AMOUNT TOTAL AMOUNT TOTAL
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Company A............... $14,399,263 55.02 $6,762,771 72.25
Other customers......... 11,771,763 44.98 2,597,158 27.75
----------- ------ ---------- ------
$26,171,026 100.00 $9,359,929 100.00
=========== ====== ========== ======
</TABLE>
F-72
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Boards of Directors
LoDan West, Inc. and L/D West, Inc.
We have audited the accompanying combined balance sheet of LoDan West, Inc.
and L/D West, Inc. as of December 31, 1996, and the related combined
statements of income and retained earnings and cash flows for the year ended
December 31, 1996. These financial statements are the responsibility of the
Companies' management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of LoDan West, Inc.
and L/D West, Inc. as of December 31, 1996, and the combined results of their
operations and their cash flows for the year ended December 31, 1996, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Chicago, Illinois
May 7, 1997
F-73
<PAGE>
LODAN WEST, INC. AND L/D WEST, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER 31, MAY 30,
ASSETS 1996 1997
------ ------------ -----------
<S> <C> <C>
Current assets:
Cash................................................ $ 55,195 $ 306,998
Accounts receivable, less allowance for doubtful
accounts of $22,000 as of May 30, 1997 and December
31, 1996........................................... 1,632,694 1,679,387
Inventories......................................... 3,136,055 3,897,588
Prepaid expenses and other.......................... 162,626 118,924
---------- ----------
Total current assets.............................. 4,986,570 6,002,897
Property and equipment--Net........................... 716,314 783,442
Other noncurrent assets............................... 43,771 41,355
---------- ----------
Total assets...................................... $5,746,655 $6,827,694
========== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable.................................... $ 668,548 $1,063,236
Accrued expenses and other.......................... 156,125 190,941
Revolving credit facility........................... 1,060,000 870,000
Current portion of note payable..................... 142,860 344,238
---------- ----------
Total current liabilities......................... 2,027,533 2,468,415
Note payable, less current portion.................... 250,798 --
Stockholders' equity:
Common stock........................................ 689,379 689,379
Retained earnings................................... 2,778,945 3,669,900
---------- ----------
Total stockholders' equity........................ 3,468,324 4,359,279
---------- ----------
Total liabilities and stockholders' equity........ $5,746,655 $6,827,694
========== ==========
</TABLE>
See accompanying notes.
F-74
<PAGE>
LODAN WEST, INC. AND L/D WEST, INC.
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
(UNAUDITED)
YEAR ENDED PERIOD ENDED
DECEMBER MAY 30,
31, 1996 1997
----------- ------------
<S> <C> <C>
Net sales............................................. $20,919,895 $9,510,300
Cost of sales......................................... 15,351,339 7,052,948
----------- ----------
Gross profit.......................................... 5,568,556 2,457,352
Selling, general, and administrative expenses......... 4,040,105 1,439,105
----------- ----------
Operating income...................................... 1,528,451 1,018,247
Other (expense):
Interest expense.................................... (120,257) (56,093)
----------- ----------
Income before income taxes............................ 1,408,194 962,154
Provision for income taxes............................ 104,803 71,199
----------- ----------
Net income............................................ 1,303,391 890,955
Retained earnings--Beginning of period................ 1,675,554 2,778,945
Dividends paid........................................ (200,000) --
----------- ----------
Retained earnings--End of period...................... $ 2,778,945 $3,669,900
=========== ==========
</TABLE>
See accompanying notes.
F-75
<PAGE>
LODAN WEST, INC. AND L/D WEST, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(UNAUDITED)
YEAR ENDED PERIOD ENDED
DECEMBER 31, MAY 30,
1996 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net income......................................... $1,303,391 $890,955
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................... 156,328 74,416
Changes in operating assets and liabilities:
Accounts receivable............................ 164,816 (46,693)
Inventories.................................... 43,814 (761,533)
Prepaid expenses and other..................... (71,340) 43,702
Accounts payable............................... (1,378,061) 394,688
Accrued expenses and other..................... 12,285 34,816
Other noncurrent assets........................ (12,870) 2,416
---------- --------
Net cash provided by operating activities.... 218,363 632,767
Cash flows from investing activities.................
Purchases of property and equipment................ (310,941) (141,544)
---------- --------
Net cash used in investing activities........ (310,941) (141,544)
Cash flows from financing activities.................
Borrowings from (payments on) revolving credit
facility.......................................... 137,000 (190,000)
Proceeds from debt issuance--Note payable.......... 500,000 --
Payments on notes payable.......................... (335,733) (49,420)
Payments on notes payable to related parties....... (45,000) --
Dividends paid..................................... (200,000) --
---------- --------
Net cash provided by financing activities.... 56,267 (239,420)
---------- --------
(Decrease) increase in cash.......................... (36,311) 251,803
Cash at beginning of period.......................... 91,506 55,195
---------- --------
Cash at end of period................................ $ 55,195 $306,998
========== ========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest......................................... $ 120,257 $ 56,093
========== ========
Income taxes..................................... $ 117,416 $ 75,123
========== ========
</TABLE>
See accompanying notes.
F-76
<PAGE>
LODAN WEST, INC. AND L/D WEST, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
LoDan West, Inc. (LoDan West) and L/D West, Inc. (L/D West) (LoDan West and
L/D West are collectively referred to hereafter as the Companies) are each
wholly owned by related individuals. LoDan West assembles and distributes
electro-mechanical connectors and cable interconnection systems. L/D West
distributes components used in the assembly of electro-mechanical connectors
and cable interconnection systems. The Companies conduct business from two
manufacturing and distribution centers located in San Carlos, California.
The accompanying combined financial statements include the accounts of LoDan
West and L/D West. Transactions and accounts existing between the Companies
have been eliminated in the combined financial statements.
The Companies grant credit to customers in the electronics industry
throughout the United States, but primarily in northern California.
Consequently, the Companies' ability to collect amounts due is affected by
economic conditions in the electronics industry.
Net sales to two customers accounted for approximately 47% of the Companies'
total net sales for the year ended December 31, 1996. At December 31, 1996,
amounts due from these customers comprised approximately 58% of the Companies'
accounts receivable balance.
The unaudited combined financial statements have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in annual combined
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Companies believe these disclosures are adequate to
make the information presented not misleading. In the opinion of management,
all adjustments necessary for a fair presentation for the period presented
have been reflected and are of a normal recurring nature.
Results of operations for the period from January 1, 1997 to May 30, 1997
are not necessarily indicative of the results that may be achieved for the
entire year ended December 31, 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Inventories
Inventories are stated at the lower of cost or market. Cost is determined by
the first in, first out (FIFO) method.
Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets. Leasehold improvements are amortized using the
straight-line method over the shorter of the lease term or their estimated
productive lives. Amortization of leasehold improvements is included in
depreciation expense.
The useful lives of property and equipment for the purpose of computing book
depreciation are as follows:
<TABLE>
<S> <C>
Machinery and equipment..................................... 7 years
Computer equipment.......................................... 5 years
Furniture and fixtures...................................... 7 years
Vehicles.................................................... 5 years
Leasehold improvements...................................... Life of lease
</TABLE>
INCOME TAXES
LoDan West has elected to have its income taxed as an S corporation under
applicable provisions of the Internal Revenue Code and, therefore, is
generally not subject to federal income taxes. The Company is subject to
certain state income taxes.
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.
F-77
<PAGE>
LODAN WEST, INC. AND L/D WEST, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER 31, MAY 30,
1996 1997
------------ -----------
<S> <C> <C>
Raw materials.................................... $1,842,295 $2,919,611
Work in process.................................. 471,214 658,000
Finished goods................................... 822,546 319,977
---------- ----------
$3,136,055 $3,897,588
========== ==========
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Machinery and equipment...................................... $ 697,741
Computer equipment........................................... 244,544
Furniture and fixtures....................................... 172,333
Vehicles..................................................... 59,272
Leasehold improvements....................................... 28,202
---------
1,202,092
Less: Accumulated depreciation and amortization.............. (485,778)
---------
$ 716,314
=========
</TABLE>
5. INDEBTEDNESS
LoDan West is party to a Loan and Security Agreement (Agreement) with a
bank. Under the terms of the Agreement, the Company may borrow up to the
lesser of $1,750,000 or the borrowing base, as defined, under a revolving
credit arrangement. Borrowings bear interest at the bank's base rate plus 1%
(9.25% at December 31, 1996), are collateralized by substantially all of LoDan
West's assets, and are guaranteed by the stockholder. The Agreement expires 30
days after written notice is provided by either party. LoDan West had $196,000
of additional borrowings available under the Agreement at December 31, 1996.
The Agreement includes various financial covenants, including annual
limitations on purchases of property and equipment, and minimum ratios of cash
flow to fixed charges, liabilities to net worth, and quick ratio, all as
defined.
In April 1997, the Agreement was amended to change the interest rate on
borrowings to the bank's base rate plus 0.75%, remove the guarantee from the
stockholder, and modify certain of the financial covenants.
LoDan West also has a note payable to a bank in monthly installments of
$11,905, plus accrued interest at 8.1% per annum, through September 1999. The
outstanding principal balance was $393,658 at December 31, 1996.
F-78
<PAGE>
LODAN WEST, INC. AND L/D WEST, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
6. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Current:
Federal income taxes....................................... $ 66,119
State income taxes......................................... 38,684
--------
$104,803
========
</TABLE>
7. COMMON STOCK
Common stock consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
LoDan West, Inc.
Common stock; no par value; 1,000,000 shares authorized;
1,000 shares issued and outstanding...................... $679,379
L/D West, Inc.
Common stock; no par value; 1,000,000 shares authorized;
100,000 shares issued and outstanding...................... 10,000
--------
$689,379
========
</TABLE>
8. LEASES
The Companies rent office and warehouse space under noncancelable operating
lease agreements that expire June 2001 and August 2005. These agreements
provide for annual increases to monthly rent payments based on increases in
the Consumer Price Index.
Minimum future lease payments under these agreements are as follows at
December 31, 1996:
<TABLE>
<S> <C>
1997.......................... $ 484,380
1998.......................... 484,380
1999.......................... 484,380
2000.......................... 484,380
2001.......................... 410,670
Thereafter.................... 1,235,520
----------
$3,583,710
==========
</TABLE>
9. BENEFIT PLANS
LoDan West has a profit-sharing plan which covers all employees who have
satisfied certain eligibility requirements. LoDan West's contributions to its
profit-sharing trust fund are based solely on management's discretion. Profit-
sharing contributions for 1996 were $94,974.
LoDan West also maintains a 401(k) defined-contribution benefit plan which
covers all employees who have satisfied certain eligibility requirements.
Employer matching contributions into this plan were $5,026 in 1996.
F-79
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Engineered Endeavors, Inc.
We have audited the accompanying balance sheets of Engineered Endeavors,
Inc. as of December 31, 1995 and 1996, and the related statements of income,
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Engineered Endeavors, Inc.
at December 31, 1995 and 1996 and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
Ernst & Young LLP
August 19, 1997
F-80
<PAGE>
ENGINEERED ENDEAVORS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31 (UNAUDITED)
--------------------- JUNE 30
1995 1996 1997
---------- ---------- -----------
ASSETS:
-------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.................. $2,281,122 $1,888,069 $ 4,384,384
Marketable securities...................... 523,377 613,235 605,667
Accounts receivable........................ 881,127 4,074,843 2,756,609
Inventories................................ 779,845 1,818,059 2,721,136
Prepaid expenses and other current assets.. 16,898 45,303 22,676
Related party note receivable, current
portion................................... 13,260 40,565 42,006
---------- ---------- -----------
4,495,629 8,480,074 10,532,478
Property and equipment:
Furniture and fixtures..................... 61,566 122,164 148,059
Equipment.................................. 468,536 576,761 883,314
Leasehold improvements..................... 118,462 -- 28,620
Vehicles................................... -- 26,596 26,596
---------- ---------- -----------
648,564 725,521 1,086,589
Less allowance for depreciation.............. 197,883 225,252 251,285
---------- ---------- -----------
450,681 500,269 835,304
Other non-current assets:
Deposits................................... 7,030 11,975 15,735
Related party note receivable.............. 6,985 162,046 140,677
---------- ---------- -----------
14,015 174,021 156,412
---------- ---------- -----------
Total assets............................. $4,960,325 $9,154,364 $11,524,194
========== ========== ===========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
Current liabilities:
Accounts payable........................... $ 592,125 $3,263,466 $ 3,064,349
Accrued compensation and related
liabilities............................... 49,658 83,350 75,756
Accrued profit sharing..................... 35,694 67,755 24,000
Deferred revenue........................... 508,000 1,600,000 2,331,432
Other current liabilities.................. 39,628 244,334 191,001
---------- ---------- -----------
1,225,105 5,258,905 5,686,538
Shareholders' equity:
Common stock, 3,000 shares authorized,
1,200 shares issued and outstanding at
December 31, 1996 and 1995 and 1,412
shares issued and outstanding at June 30,
1997, no par.............................. 500 500 730,679
Unrealized gains on available-for-sale
securities................................ 94,839 113,552 113,552
Retained earnings.......................... 3,639,881 3,781,407 4,993,425
---------- ---------- -----------
Total shareholders' equity............... 3,735,220 3,895,459 5,837,656
---------- ---------- -----------
Total liabilities and shareholders'
equity.................................. $4,960,325 $9,154,364 $11,524,194
========== ========== ===========
</TABLE>
See accompanying notes.
F-81
<PAGE>
ENGINEERED ENDEAVORS, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS
YEAR ENDED DECEMBER 31 ENDED
----------------------------------- JUNE 30,
1994 1995 1996 1997
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales......................... $6,737,520 $12,459,352 $20,655,899 $14,648,365
Cost of sales................. 4,662,036 8,890,660 14,868,653 9,571,072
---------- ----------- ----------- -----------
2,075,484 3,568,692 5,787,246 5,077,293
Selling, general and
administrative expenses...... 874,702 1,057,822 1,821,681 1,064,882
---------- ----------- ----------- -----------
Operating income.............. 1,200,782 2,510,870 3,965,565 4,012,411
Other income and (expense):
Investment income........... 25,675 98,198 190,302 75,826
Other, net.................. (21,310) 8,324 (18,341) 106,613
---------- ----------- ----------- -----------
Income before income taxes.... 1,205,147 2,617,392 4,137,526 4,194,850
Income tax provision.......... 497,668 9,318 110,000 76,000
---------- ----------- ----------- -----------
Net income.................... $ 707,479 $ 2,608,074 $ 4,027,526 $ 4,118,850
========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-82
<PAGE>
ENGINEERED ENDEAVORS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
GAINS ON
COMMON STOCK AVAILABLE-
--------------- FOR-SALE RETAINED
SHARES AMOUNT SECURITIES EARNINGS TOTAL
------ -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994.. 1,200 $ 500 $ 619,328 $ 619,828
Adjustment to beginning
balance for change in
accounting method........ -- -- $ 6,236 6,236
Net income................ -- -- -- 707,479 707,479
Adjustment to unrealized
gains on securities
available-for-sale....... -- -- 7,608 7,608
----- -------- -------- ---------- ----------
Balance at December 31,
1994....................... 1,200 500 13,844 1,326,807 1,341,151
Net income................ -- -- -- 2,608,074 2,608,074
Dividends declared........ -- -- -- (295,000) (295,000)
Adjustment to unrealized
gains on securities
available-for-sale....... -- -- 80,995 80,995
----- -------- -------- ---------- ----------
Balance at December 31,
1995....................... 1,200 500 94,839 3,639,881 3,735,220
Net income................ -- -- -- 4,027,526 4,027,526
Dividends declared........ -- -- -- (3,886,000) (3,886,000)
Adjustment to unrealized
gains on securities
available-for-sale....... -- -- 18,713 18,713
----- -------- -------- ---------- ----------
Balance at December 31,
1996....................... 1,200 $ 500 $113,552 $3,781,407 $3,895,459
Net income (unaudited).... -- -- -- 4,118,850 4,118,850
Dividends declared
(unaudited).............. -- -- -- (2,906,832) (2,906,832)
Issuance of common stock
(unaudited).............. 212 730,179 -- -- 730,179
----- -------- -------- ---------- ----------
Balance at June 30, 1997
(unaudited)................ 1,412 $730,679 $113,552 $4,993,425 $5,837,656
===== ======== ======== ========== ==========
</TABLE>
See accompanying notes.
F-83
<PAGE>
ENGINEERED ENDEAVORS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 SIX MONTHS
----------------------------------- ENDED JUNE 30
1994 1995 1996 1997
---------- ---------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income................. $ 707,479 $2,608,074 $ 4,027,526 $4,118,850
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation............. 45,167 86,954 114,521 53,258
Write-off of property and
equipment............... -- -- 38,885 31,661
Realized gain on sale of
available-for-sale
securities.............. (1,931) (34,788) (71,542) (68,450)
Change in operating assets
and liabilities:
Accounts receivable...... 12,840 (118,097) (3,193,716) 1,318,234
Inventory................ (229,038) (430,638) (1,038,214) (903,077)
Prepaids and other
assets.................. (65,010) 55,711 (33,350) 22,627
Accounts payable......... 269,495 (67,460) 2,671,341 (199,117)
Accrued expenses......... 77,770 (19,253) 270,459 (104,682)
Deferred revenue......... -- 508,000 1,092,000 731,432
Federal income taxes
payable, refund claims.. 301,898 (327,465) -- --
Deferred taxes........... 11,046 (225,002) -- --
---------- ---------- ----------- ----------
Net cash provided from
operating activities...... 1,129,716 2,036,036 3,877,910 5,000,736
INVESTING ACTIVITIES
Purchases of property and
equipment, net............ (62,854) (342,847) (202,994) (392,729)
Related party loans and
advances.................. (240,000) (125,000) (883,445) --
Related party loan and
advance repayments........ 12,385 378,358 701,079 19,928
Purchases of available-for-
sale securities........... (355,412) (236,605) (430,497) (20,000)
Sales of available-for-sale
securities................ 54,753 239,783 430,894 65,033
---------- ---------- ----------- ----------
Net cash used in investing
activities................ (591,128) (86,311) (384,963) (327,768)
FINANCING ACTIVITIES
Dividends paid............. -- (295,000) (3,886,000) (2,906,832)
Issuance of common stock... -- -- -- 730,179
Principal payments on debt. (20,680) (8,759) -- --
---------- ---------- ----------- ----------
Net cash used in financing
activities................ (20,680) (303,759) (3,886,000) (2,176,653)
---------- ---------- ----------- ----------
Net (decrease) increase in
cash...................... 517,908 1,645,966 (393,053) 2,496,315
Cash at beginning of
period.................... 117,248 635,156 2,281,122 1,888,069
---------- ---------- ----------- ----------
Cash at end of period...... $ 635,156 $2,281,122 $ 1,888,069 $4,384,384
========== ========== =========== ==========
</TABLE>
See accompanying notes.
F-84
<PAGE>
ENGINEERED ENDEAVORS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
BUSINESS AND CONCENTRATION OF CREDIT RISK
Engineered Endeavors, Inc. (the "Company") designs and supplies antenna
support systems which are marketed directly to customers in the wireless
telecommunications industry throughout the United States. Consequently, the
Company's ability to sell its products and collect its receivables are
dependent upon the wireless telecommunication industry. The Company performs
periodic credit evaluations of its customers financial conditions and
generally does not require collateral.
The unaudited financial statements have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in annual financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that these disclosures are adequate to make the information
presented not misleading. In the opinion of management, all adjustments
necessary for a fair presentation for the period presented have been reflected
and are of a normal recurring nature.
Results of operations for the period from January 1, 1997 to June 30, 1997
are not necessarily indicative of the results that may have be achieved for
the entire year ended December 31, 1997.
At December 31, 1995 and 1996, three customers comprised 51.9% and 62.6%,
respectfully, of trade accounts receivable. Customers comprising more than 10%
of the Company's total sales are summarized below for the years then ended:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
-----------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Cellular One of Ohio.................................... 19.6% 25.4% 12.9%
Bell South.............................................. 0.7% 18.5% 23.4%
Andrew Denton........................................... 17.2% 17.8% 5.9%
----- ----- -----
37.5% 61.7% 42.2%
===== ===== =====
</TABLE>
CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with an initial
maturity of three months or less at the time of purchase.
INVENTORIES
Inventories, which consist principally of raw materials and work-in-process,
are stated at the lower of cost or market using the first-in, first-out (FIFO)
method.
MARKETABLE SECURITIES
Marketable securities consist principally of common stock and are classified
as available-for-sale. Available for sale securities are carried at fair
value, with the unrealized gains and losses reported in a separate component
of shareholders' equity. Realized gains and losses and declines in value
judged to be other than temporary on available for sale securities are
included in investment income. The cost of securities sold is based on the
specific identification method. Interest and dividends on securities
classified as available-for-sale are included in investment income.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided using
straight-line or accelerated methods over the estimated useful lives as
follows:
<TABLE>
<S> <C>
Furniture and fixtures ..................................... 5 to 10 years
Equipment................................................... 5 to 10 years
Leasehold improvements...................................... 5 years
Vehicles.................................................... 5 years
</TABLE>
F-85
<PAGE>
ENGINEERED ENDEAVORS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Leasehold improvements and assets under capital leases are amortized using
the straight line method over the lower of the lease term or their estimated
productive lives. Amortization of leasehold improvements and capital leased
assets is included in depreciation expense.
REVENUE RECOGNITION
The Company recognizes revenue from the sale of products at the time of
shipment to a customer designated location. Deferred revenue relates to
customer prepayments on orders with delayed shipment dates.
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.
FAIR VALUE OF FINANCIAL INSTUMENTS
The Company's financial instruments include marketable securities, trade
accounts receivable, accounts payable and accured expenses. The fair values of
financial instruments approximate their carrying values.
INCOME TAXES
Effective January 1, 1995, the Company elected, by unanimous consent of its
shareholders, to be taxed under Subchapter S of the Internal Revenue Code.
Under these provisions, the Company does not pay federal or state corporate
income taxes on its income. Instead, the shareholders are liable for
individual federal and state income taxes on their respective shares of the
Company's income. The Company is subject, however, to a potential built-in
gains tax on the recognition of certain gains or income items which had
accrued as of the Company's conversion date to S corporation status.
ADOPTION OF SFAFS NO. 121
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of. SFAS No. 121
requires, among other things, that the Company consider whether indicators of
impairment of long-lived assets held for use are present, that if such
indicators are present the Company determines whether the sum of the estimated
nondiscounted future cash flows attributable to such assets is less than their
carrying amount, and if so, that the Company recognizes an impairment loss
based on the excess of the carrying amount of the assets over the fair value.
The Company adopted the provisions of SFAS No. 121 in the fourth quarter of
1995. Accordingly, the Company evaluated the ongoing value of its property and
equipment, and the other long-lived assets at that time. From this evaluation,
the Company determined that there were no indications of impairment.
2. MARKETABLE SECURITIES
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities. During 1994, the Company adopted
the provisions of this new standard for investments held as of or acquired
after January 1, 1994. The cumulative effect as of January 1, 1994 of adopting
SFAS No. 115 resulted in an increase to shareholders' equity of $6,236 for
unrealized gains on securities classified as available-for-sale previously
carried at cost.
F-86
<PAGE>
ENGINEERED ENDEAVORS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. MARKETABLE SECURITIES (CONTINUED)
The following is a summary of available-for-sale securities:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------- ---------- ---------- --------
<S> <C> <C> <C> <C>
December 31, 1996 Equity securities..... $499,684 $132,048 $18,497 $613,235
======== ======== ======= ========
December 31, 1995 Equity securities..... $428,538 $116,178 $21,339 $523,377
======== ======== ======= ========
</TABLE>
3. BANK LINE OF CREDIT
The Company has a $750,000 line of credit with Key Bank available for short
term borrowings. Amounts outstanding under the line bear interest at the
bank's prime lending rate and is secured by inventory, accounts receivable and
equipment. There were no amounts outstanding under this line at December 31,
1995 or 1996.
4. INCOME TAXES
As a result of its election under Subchapter S of the Internal Revenue Code,
no provision was made for federal or state income taxes for the year ended
December 31, 1996 and for the year ended December 31, 1995 other than for
federal income taxes on built in gains recognized in 1995. At December 31,
1995, the amount of tax expense related to built-in gains was $180,320. A
provision was made for local income taxes for 1996, 1995 and 1994.
A deferred tax liability carry-over from December 31, 1994 existed in the
amount of $225,002 that resulted from timing differences while a C
Corporation. This amount was eliminated on the approval date, May 1, 1995, in
accordance with SFAS No. 109.
Significant components of the provision for income taxes attributable to
operations are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994 1995 1996
-------- --------- --------
<S> <C> <C> <C>
Current:
Federal........................................... $406,622 $(44,682) $ --
State and local................................... 80,000 54,000 110,000
-------- --------- --------
Total current....................................... 486,622 9,318 110,000
Deferred............................................ 11,046 -- --
-------- --------- --------
Income tax expense.................................. $497,668 $ 9,318 $110,000
======== ========= ========
</TABLE>
The provision for income taxes in 1994 differs from the amount of income tax
provision computed by applying the federal income tax rate before income
taxes. A reconciliation of the differences for the year ended December 31,
1994 is as follows:
<TABLE>
<S> <C>
Computed statutory tax provision................................. $409,750
Increase (decrease) resulting from:
State and local taxes, net of federal benefit.................. 58,178
Other, net..................................................... 29,740
--------
Income tax provision............................................. $497,668
========
</TABLE>
Income tax payments amounted to $123,463, $618,199 and $71,911 in 1994, 1995
and 1996, respectfully.
F-87
<PAGE>
ENGINEERED ENDEAVORS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. PROFIT SHARING PLANS
The Company maintains a profit sharing 401(k) plan covering substantially
all employees who are at least 21 years old and have completed at least one
year of service. The Company's contribution to the profit sharing plan is
discretionary, but in no event will it exceed 15% of the annual salaries of
those employees eligible for participation in the plan. Profit sharing
contributions for the year ended December 31, 1994, 1995 and 1996 were
approximately $49,900, $35,700 and $50,000, respectively.
Effective January 1, 1995, the plan was amended allowing the Company's
employees to make contributions from 1% to 15% of their annual compensation.
The Company makes a matching contribution equal to 50% of electing employees'
deferrals. Matching contributions for the year ended December 31, 1995, and
1996 was $7,400 and $11,700, respectively.
6. RELATED PARTY TRANSACTIONS
On December 1, 1996, the Company entered into an operating lease for its
corporate headquarters and manufacturing facility with Timeless Enterprises,
Inc. ("Timeless"), a related corporation. The lease is for a term of five
years with monthly rental expense of $22,625 plus real estate taxes, repairs
and maintenance, and insurance. The Company has an option to renew the lease
upon expiration for an additional five year term.
On October 1, 1996 the Company entered into a lease of equipment with
Timeless. This is an operating lease with a term of 36 months and monthly
lease payments in the amount of $4,588 plus applicable taxes, as of December
31, 1996. Monthly lease costs may increase as additional equipment is accepted
for use by the Company.
Future obligations over the terms of the leases, as of December 31, 1996,
are:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31 AMOUNT
----------- ----------
<S> <C>
1997....................................................... $ 331,770
1998....................................................... 331,150
1999....................................................... 320,380
2000....................................................... 272,500
2001....................................................... 271,500
----------
$1,527,300
==========
</TABLE>
Rent expense under related party operating leases for 1994, 1995 and 1996
amounted to $87,000, $192,000 and $227,403, respectively.
In addition, the Company is a guarantor on loan obligations between Timeless
and lenders which approximated $3,188,000 at December 31, 1996.
In connection with relocation to new facilities and abandonment of an
operating lease with Timeless, during 1996 the Company wrote-off all related
lease hold improvements and accrued future rental payments related to the
leased property. These expenses amounted to approximately $200,000 and are
included in selling, general and administrative expenses.
F-88
<PAGE>
ENGINEERED ENDEAVORS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
6. RELATED PARTY TRANSACTIONS (CONTINUED)
Related party notes receivable consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
------- --------
<S> <C> <C>
Timeless Enterprises, Inc.(1)........................... $20,245 $ --
Timeless Enterprises, Inc.(2)........................... -- 202,612
------- --------
$20,245 $202,612
======= ========
</TABLE>
(1) This note, in the original principal amount of $60,000, carried interest
at a fixed rate of 7% with a term of 60 months and monthly principal and
interest payments of $1,188 that began in November 1992. The loan was
repaid in full in June 1996.
(2) This note, dated May 24, 1996, bears interest at a fixed rate of 7% with a
term of 60 months. Monthly principal and interest payments of $4,455 began
in July 1996.
7. SUBSEQUENT EVENT
In June 1997, the Company signed a non-binding letter of intent to sell the
assets of the Company together with certain liabilities to Jordan Industries,
Inc. for approximately $40 million plus future considerations. The financial
statements do not reflect either the estimated gain or any expenses incurred
or expected to be incurred related to the sale of the Company. The sale is
expected to close during the third quarter of 1997.
F-89
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. 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 AS
OF WHICH INFORMATION IS GIVEN IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING
SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM
IT IS UNLAWFUL TO MAKE SUCH SOLICITATION.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................................................... 1
Risk Factors.............................................................. 16
The Company............................................................... 24
Use of Proceeds........................................................... 27
Dividend Policy........................................................... 27
Capitalization............................................................ 28
Selected Historical Financial
Information.............................................................. 29
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 31
Business.................................................................. 37
Management................................................................ 52
Principal Stockholders.................................................... 55
Certain Transactions...................................................... 57
Terms of the Acquisitions................................................. 61
Description of Certain Indebtedness and Other Obligations................. 62
The Exchange Offer........................................................ 65
Description of Notes...................................................... 75
Description of Senior Preferred Stock..................................... 100
Description of Preferred Stock Exchange Notes............................. 106
Description of Capital Stock.............................................. 112
Book-Entry; Delivery and Form............................................. 116
Shares Eligible for Future Sale........................................... 118
Certain Federal Income Tax Considerations................................. 119
Plan of Distribution...................................................... 127
Legal Matters............................................................. 127
Experts................................................................... 128
Index to Financial Statements............................................. I-1
</TABLE>
UNTIL . (90 DAYS AFTER THE DATE OF THIS PROSPECTUS) DEALERS AFFECTING TRANSAC-
TIONS IN THE NEW SECURITIES, WHETHER OR NOT PARTICIPATING IN THE EXCHANGE OF-
FER, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS OBLIGATION 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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
JORDAN
TELECOMMUNICATION
PRODUCTS, INC.
$190,000,000
9 7/8% SERIES B SENIOR NOTES DUE 2007
$120,000,000
11 3/4% SERIES B SENIOR DISCOUNT NOTES DUE 2007
$25,000,000
13 1/4% SERIES B SENIOR EXCHANGEABLE
PREFERRED STOCK DUE 2009
---------------
PROSPECTUS
---------------
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) The Delaware General Corporation Law (Section 145) gives Delaware
corporations broad powers to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
by reason of the fact that the person is or was a director, officer, employee
or agent of the registrant, or is or was serving at the request of the
registrant as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such
action, suit or proceeding, so long as such person acted in good faith and in
a manner such person reasonably believed to be in or not opposed to the best
interests of the registrant. For actions or suits by or in the right of the
registrant, no indemnification is permitted in respect of any claim, issue or
matter as to which such person is adjudged to be liable to the registrant,
unless, and only to the extent that, the Delaware Court of Chancery or the
court in which such action or suit was brought determines upon application
that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
deems proper.
Section 145 also authorizes the registrant to buy directors' and officers'
liability insurance and gives a director, officer, employee or agent of the
registrant who has been successful on the merits or otherwise in defense of
any action, suit or proceeding of a type referred to in the preceding
paragraph the right to be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by such person in connection therewith.
Any indemnification (unless ordered by a court) will be made by the registrant
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because the person has met the applicable standard of conduct
set forth above. Such determination shall be made (1) by a majority vote of
the directors who are not parties to such action, suit or proceeding, even
though less than a quorum, or (2) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion, or (3)
by the stockholders, Such indemnification is not exclusive of any other rights
to which those indemnified may be entitled under any by-laws, agreement, vote
of stockholders or otherwise.
(b) The Certificate of Incorporation of the registrant requires, and the By-
Laws of the registrant provides for, indemnification of directors, officers,
employees and agents to the full extent permitted by law.
(c) The Purchase Agreement and the Registration Rights Agreements (which are
included as Exhibits 1 and 4.11-4.13 to this registration statement) provide
for the indemnification under certain circumstances of the registrant, its
directors and certain of its officers by the Initial Purchasers.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
A list of Exhibits filed herewith is contained on the Exhibit Index and is
incorporated herein by reference.
(b) Financial Statement Schedules:
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted
because they are not required, amounts which would otherwise be required to be
shown with respect to any item are not material, are inapplicable, or the
required information has already been provided elsewhere in the registration
statement.
II-1
<PAGE>
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus file
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(d) The registrant has not entered into any arrangement or understanding
with any person to distribute the securities to be received in the Exchange
Offer and to the best of the registrant's information and belief, each person
participating in the Exchange Offer is acquiring the securities in its
ordinary course of business and has no arrangement or understanding with any
person to participate in the distribution of the securities to be received in
the Exchange Offer. In this regard, the registrant will make each person
participating in the Exchange Offer aware (through the Exchange Offer
Prospectus or otherwise) that if the Exchange Offer is being registered for
the purpose of secondary resales, any securityholder using the exchange offer
to participate in a distribution of the securities to be acquired in the
registered exchange offer (1) could not rely on the staff position enunciated
in Exxon Capital Holdings Corporation (available April 13, 1989) or similar
letters and (2) must comply with registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction. The registrant acknowledges that such a secondary resale
transaction should be covered by an effective registration statement
containing the selling securityholder information required by Item 507 of
Regulation S-K.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CHICAGO,
STATE OF ILLINOIS, ON OCTOBER 22, 1997.
Jordan Telecommunication Products,
Inc.
/s/ Dominic J. Pileggi
By___________________________________
Dominic J. Pileggi
President, Chief Executive Officer
and Director
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON OCTOBER 22, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
* Chairman and a Director
___________________________________________
Thomas H. Quinn
* President, Chief Executive Officer and a
___________________________________________ Director (Principal Executive Officer)
Dominic J. Pileggi
* Vice President and Chief Financial Officer
___________________________________________ (Principal Financial and Accounting
Michael R. Elia Officer)
* Vice President and a Director
___________________________________________
Jonathan F. Boucher
* Director
___________________________________________
William C. Ballard
* Director
___________________________________________
John W. Jordan II
* Director
___________________________________________
David W. Zalaznick
* Director
___________________________________________
Michael A. Wadsworth
</TABLE>
/s/ Dominic J. Pileggi
*By_____________________________
Dominic J. Pileggi as
Name:
Attorney-in-Fact
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION SEQ. #
------- ----------- ------
<C> <S> <C>
1 Purchase Agreement, dated July 21, 1997, by and among Jordan *
Telecommunication Products, Inc., Jefferies & Company, Inc.,
Donaldson, Lufkin & Jenrette Securities Corporation and Smith
Barney Inc.
3.1 Certificate of Incorporation of Jordan Telecommunication *
Products, Inc.
3.2 Bylaws of Jordan Telecommunication Products, Inc. *
4.1 Series A and Series B 9 7/8% Senior Notes due 2007 Indenture, *
dated July 25, 1997, between Jordan Telecommunication
Products, Inc. and First Trust National Association, as
Trustee
4.2 Series A and Series B 11 3/4% Senior Discount Notes due 2007 *
Indenture, dated July 25, 1997, between Jordan
Telecommunication Products, Inc. and First Trust National
Association, as Trustee
4.3 Series A and Series B 13 1/4% Subordinated Preferred Stock
Exchange Notes due 2009 Indenture, dated July 25, 1997,
between Jordan Telecommunication Products, Inc. and First
Trust National Association, as Trustee
4.4 Global Series A 9 7/8% Senior Note due 2007 *
4.5 Form of Global Series B 9 7/8% Senior Note due 2007 (included *
in Exhibit 4.1)
4.6 Global Series A 11 3/4% Senior Discount Note due 2007 *
4.7 Form of Global 11 3/4% Series B Senior Discount Note due 2007 *
(included in Exhibit 4.2)
4.8 Global Series A 13 1/4% Senior Exchangeable Preferred Stock *
due 2009 Certificate
4.9 Form of Global Series B 13 1/4% Senior Exchangeable Preferred
Stock due 2009 Certificate
4.10 Form of Global Series A and Series B 13 1/4% Subordinated
Preferred Stock Exchange Notes (included in Exhibit 4.3)
4.11 $190,000,000 9 7/8% Series A Senior Notes due 2007 *
Registration Rights Agreement, dated July 25, 1997, by and
among Jordan Telecommunication Products, Inc., Jefferies &
Company, Inc., Donaldson, Lufkin & Jenrette Securities
Corporation and Smith Barney Inc.
4.12 $120,000,000 11 3/4% Series A Senior Discount Notes due 2007 *
Registration Rights Agreement, dated July 25, 1997, between
Jordan Telecommunication Products, Inc. and Jefferies &
Company, Inc.
4.13 $25,000,000 13 1/4% Series A Senior Exchangeable Preferred *
Stock due 2009 Registration Rights Agreement, dated July 25,
1997, between Jordan Telecommunications Products, Inc. and
Jefferies & Company, Inc.
4.14 Subscription Agreement, dated July 21, 1997, by and among *
Jordan Telecommunication Products, Inc. and the investors
listed thereto
4.15 Management Subscription Agreement, dated July 21, 1997, *
between Jordan Telecommunication Products, Inc. and Dominic
Pileggi
4.16 Stockholders Agreement, dated July 21, 1997, by and among *
Jordan Telecommunication Products, Inc. and the Stockholders
listed thereto
5 Opinion of Mayer, Brown & Platt
8 Tax Opinion (included in the opinion filed as Exhibit 5)
10.1 Revolving Credit Agreement, dated July 25, 1997, by and among *
JTP Industries, Inc., the lenders listed thereto and
BankBoston, N.A., as Agent
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION SEQ. #
------- ----------- ------
<C> <S> <C>
10.2 Tax Sharing Agreement, dated June 29, 1994 and Additional
Subsidiary Agreement dated July 25, 1997 by and among the
signatories thereto
10.3 Properties Services Agreement, dated July 25, 1997, by and *
among JI Properties, Inc. and Jordan Industries, Inc. and the
other signatories thereto
10.4 Transition Agreement, dated July 25, 1997, between Jordan *
Telecommunication Products, Inc. and Jordan Industries, Inc.
10.5 New Subsidiary Advisory Agreement, dated July 25, 1997, by *
and among Jordan Telecommunication Products, Inc. and Jordan
Industries, Inc. and the other signatories thereto
10.6 New Subsidiary Consulting Agreement, dated July 25, 1997, by *
and among Jordan Telecommunication Products, Inc. and Jordan
Industries, Inc. and the other signatories thereto
10.7 Form of Indemnification Agreement, dated July 25, 1997, *
between Jordan Telecommunication Products, Inc. and its
directors
12 Statement re: Computation of Ratios *
21 Subsidiaries of Jordan Telecommunication Products, Inc. *
(included in Exhibit 1)
23.1 Consent of Mayer, Brown & Platt (included in the opinion
filed as Exhibit 5)
23.2 Consent of Ernst & Young LLP
23.3 Consent of Mellon, Smith & Pivoz, P.C.
23.4 Consent of Coopers & Lybrand LLP
23.5 Consent of McFarland & Alton P.S.
23.6 Consent of Price Waterhouse LLP
23.7 Consent of Roberts Redman Mead
24 Power of Attorney (included on the signature page in Part II *
of the Registration Statement)
25.1 Statement of Eligibility of Trustee for 9 7/8% Senior Notes *
due 2007, 11 3/4% Discount Notes due 2007 and 13 1/4%
Subordinated Preferred Stock Exchange Notes due 2009
27 Financial Data Schedule *
99.1 Form of Letter of Transmittal for Notes *
99.2 Form of Letter of Transmittal for Senior Preferred Stock *
</TABLE>
- --------
*Previously filed
<PAGE>
Exhibit 4.3
================================================================================
Jordan Telecommunication Products, Inc.
------------------------------------------------------
SERIES A AND SERIES B
13 1/4% SUBORDINATED PREFERRED STOCK EXCHANGE NOTES DUE 2009
------------------------------------------------------
INDENTURE
DATED AS OF __________, 199_
----------------------
FIRST TRUST NATIONAL ASSOCIATION
Trustee
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
<S> <C>
SECTION 1.1 DEFINITIONS................................................. 1
-----------
SECTION 1.2 OTHER DEFINITIONS........................................... 22
-----------------
SECTION 1.3 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT........... 22
-------------------------------------------------
SECTION 1.4 RULES OF CONSTRUCTION....................................... 22
---------------------
ARTICLE 2
THE SUBORDINATED EXCHANGE NOTES
SECTION 2.1 FORM AND DATING............................................. 23
---------------
SECTION 2.2 EXECUTION AND AUTHENTICATION................................ 24
----------------------------
SECTION 2.3 REGISTRAR AND PAYING AGENT.................................. 25
--------------------------
SECTION 2.4 PAYING AGENT TO HOLD MONEY IN TRUST......................... 26
-----------------------------------
SECTION 2.5 HOLDER LISTS................................................ 26
------------
SECTION 2.6 TRANSFER AND EXCHANGE....................................... 27
---------------------
SECTION 2.7 REPLACEMENT SUBORDINATED EXCHANGE NOTES..................... 37
---------------------------------------
SECTION 2.8 OUTSTANDING SUBORDINATED EXCHANGE NOTES..................... 38
---------------------------------------
SECTION 2.9 TREASURY SUBORDINATED EXCHANGE NOTES........................ 38
------------------------------------
SECTION 2.10 TEMPORARY SUBORDINATED EXCHANGE NOTES....................... 39
-------------------------------------
SECTION 2.11 CANCELLATION................................................ 39
------------
SECTION 2.12 DEFAULTED INTEREST.......................................... 40
------------------
SECTION 2.13 RECORD DATE................................................. 40
-----------
SECTION 2.14 CUSIP NUMBER................................................ 40
------------
ARTICLE 3
OPTIONAL REDEMPTION AND
MANDATORY OFFERS TO PURCHASE
SECTION 3.1 NOTICES TO TRUSTEE.......................................... 41
------------------
SECTION 3.2 SELECTION OF SUBORDINATED EXCHANGE NOTES TO BE REDEEMED
-------------------------------------------------------
OR PURCHASED................................................ 42
------------
SECTION 3.3 NOTICE OF REDEMPTION........................................ 43
--------------------
SECTION 3.4 EFFECT OF NOTICE OF REDEMPTION.............................. 44
------------------------------
SECTION 3.5 DEPOSIT OF REDEMPTION PRICE................................. 45
---------------------------
SECTION 3.6 SUBORDINATED EXCHANGE NOTES REDEEMED IN PART................ 45
--------------------------------------------
SECTION 3.7 OPTIONAL REDEMPTION PROVISIONS.............................. 46
------------------------------
SECTION 3.8 MANDATORY PURCHASE PROVISIONS............................... 46
-----------------------------
ARTICLE 4
COVENANTS
SECTION 4.1 PAYMENT OF SUBORDINATED EXCHANGE NOTES...................... 49
--------------------------------------
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 4.2 SEC REPORTS................................................. 50
-----------
SECTION 4.3 COMPLIANCE CERTIFICATE...................................... 52
----------------------
SECTION 4.4 STAY, EXTENSION AND USURY LAWS.............................. 53
------------------------------
SECTION 4.5 LIMITATION ON RESTRICTED PAYMENTS........................... 53
---------------------------------
SECTION 4.6 CORPORATE EXISTENCE......................................... 58
-------------------
SECTION 4.7 LIMITATION ON TRANSACTIONS WITH AFFILIATES.................. 58
------------------------------------------
SECTION 4.8 COMPLIANCE WITH LAWS, TAXES................................. 60
---------------------------
SECTION 4.9 MAINTENANCE OF OFFICE OR AGENCIES........................... 60
---------------------------------
SECTION 4.10 CHANGE OF CONTROL........................................... 61
-----------------
SECTION 4.11 LIMITATION ON ASSET SALES................................... 62
-------------------------
SECTION 4.12 DESIGNATION OF RESTRICTED AND NON-RESTRICTED SUBSIDIARIES... 64
---------------------------------------------------------
ARTICLE 5
SUCCESSORS
SECTION 5.1 MERGER OR CONSOLIDATION..................................... 66
-----------------------
SECTION 5.2 SUCCESSOR CORPORATION SUBSTITUTED........................... 67
---------------------------------
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.1 EVENTS OF DEFAULT........................................... 67
-----------------
SECTION 6.2 ACCELERATION................................................ 70
------------
SECTION 6.3 OTHER REMEDIES.............................................. 71
--------------
SECTION 6.4 WAIVER OF PAST DEFAULTS..................................... 71
-----------------------
SECTION 6.5 CONTROL BY MAJORITY......................................... 72
-------------------
SECTION 6.6 LIMITATION ON SUITS......................................... 72
-------------------
SECTION 6.7 RIGHTS OF HOLDERS TO RECEIVE PAYMENT........................ 72
------------------------------------
SECTION 6.8 COLLECTION SUIT BY TRUSTEE.................................. 73
--------------------------
SECTION 6.9 TRUSTEE MAY FILE PROOFS OF CLAIM............................ 73
--------------------------------
SECTION 6.10 PRIORITIES.................................................. 74
----------
SECTION 6.11 UNDERTAKING FOR COSTS....................................... 74
---------------------
ARTICLE 7
TRUSTEE
SECTION 7.1 DUTIES OF TRUSTEE........................................... 75
-----------------
SECTION 7.2 RIGHTS OF TRUSTEE........................................... 76
-----------------
SECTION 7.3 INDIVIDUAL RIGHTS OF TRUSTEE................................ 77
----------------------------
SECTION 7.4 TRUSTEE'S DISCLAIMER........................................ 77
--------------------
SECTION 7.5 NOTICE TO HOLDERS OF DEFAULTS AND EVENTS OF DEFAULT......... 78
---------------------------------------------------
SECTION 7.6 REPORTS BY TRUSTEE TO HOLDERS............................... 78
-----------------------------
SECTION 7.7 COMPENSATION AND INDEMNITY.................................. 79
--------------------------
SECTION 7.8 REPLACEMENT OF TRUSTEE...................................... 80
----------------------
SECTION 7.9 SUCCESSOR TRUSTEE BY MERGER, ETC............................ 81
--------------------------------
SECTION 7.10 ELIGIBILITY; DISQUALIFICATION............................... 81
-----------------------------
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY....... 82
-----------------------------------------------------
ARTICLE 8
DISCHARGE OF INDENTURE
SECTION 8.1 DISCHARGE OF LIABILITY ON SUBORDINATED EXCHANGE NOTES;
------------------------------------------------------
DEFEASANCE.................................................. 82
----------
SECTION 8.2 CONDITIONS TO DEFEASANCE.................................... 83
------------------------
SECTION 8.3 APPLICATION OF TRUST MONEY.................................. 85
--------------------------
SECTION 8.4 REPAYMENT TO THE COMPANY.................................... 86
------------------------
SECTION 8.5 INDEMNITY FOR GOVERNMENT OBLIGATIONS........................ 86
------------------------------------
SECTION 8.6 REINSTATEMENT............................................... 86
-------------
ARTICLE 9
AMENDMENTS
SECTION 9.1 AMENDMENTS AND SUPPLEMENTS PERMITTED WITHOUT CONSENT OF
-------------------------------------------------------
HOLDERS..................................................... 87
-------
SECTION 9.2 AMENDMENTS AND SUPPLEMENTS REQUIRING CONSENT OF HOLDERS..... 88
-------------------------------------------------------
SECTION 9.3 COMPLIANCE WITH TIA......................................... 89
-------------------
SECTION 9.4 REVOCATION AND EFFECT OF CONSENTS........................... 89
---------------------------------
SECTION 9.5 NOTATION ON OR EXCHANGE OF SUBORDINATED EXCHANGE NOTES...... 90
------------------------------------------------------
SECTION 9.6 TRUSTEE PROTECTED........................................... 90
-----------------
SECTION 9.7 AMENDMENTS AND SUPPLEMENTS REQUIRING CONSENT OF HOLDERS
-------------------------------------------------------
OF SENIOR INDEBTEDNESS...................................... 91
----------------------
ARTICLE 10
SUBORDINATION
SECTION 10.1 AGREEMENT TO SUBORDINATE.................................... 91
------------------------
SECTION 10.2 LIQUIDATION; DISSOLUTION; BANKRUPTCY........................ 92
------------------------------------
SECTION 10.3 DEFAULT ON SENIOR INDEBTEDNESS.............................. 93
------------------------------
SECTION 10.4 ACCELERATION OF THE SUBORDINATED EXCHANGE NOTES............. 94
-----------------------------------------------
SECTION 10.5 WHEN DISTRIBUTION MUST BE PAID OVER......................... 94
-----------------------------------
SECTION 10.6 NOTICE...................................................... 95
------
SECTION 10.7 SUBROGATION................................................. 96
-----------
SECTION 10.8 RELATIVE RIGHTS............................................. 96
---------------
SECTION 10.9 THE COMPANY AND HOLDERS MAY NOT IMPAIR SUBORDINATION........ 97
----------------------------------------------------
SECTION 10.10 DISTRIBUTION OR NOTICE TO REPRESENTATIVE.................... 99
----------------------------------------
SECTION 10.11 RIGHTS OF TRUSTEE AND PAYING AGENT.......................... 99
----------------------------------
SECTION 10.12 AUTHORIZATION TO EFFECT SUBORDINATION....................... 100
-------------------------------------
SECTION 10.13 PAYMENT..................................................... 100
-------
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 11
MISCELLANEOUS
SECTION 11.1 TRUST INDENTURE ACT CONTROLS................................ 101
----------------------------
SECTION 11.2 NOTICES..................................................... 101
-------
SECTION 11.3 COMMUNICATION BY HOLDERS WITH OTHER HOLDERS................. 102
-------------------------------------------
SECTION 11.4 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.......... 102
--------------------------------------------------
SECTION 11.5 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION............... 103
---------------------------------------------
SECTION 11.6 RULES BY TRUSTEE AND AGENTS................................. 103
---------------------------
SECTION 11.7 LEGAL HOLIDAYS.............................................. 104
--------------
SECTION 11.8 NO RECOURSE AGAINST OTHERS.................................. 104
--------------------------
SECTION 11.9 COUNTERPARTS................................................ 104
------------
SECTION 11.10 VARIABLE PROVISIONS......................................... 104
-------------------
SECTION 11.11 GOVERNING LAW............................................... 105
-------------
SECTION 11.12 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS............... 105
---------------------------------------------
SECTION 11.13 SUCCESSORS.................................................. 105
----------
SECTION 11.14 SEVERABILITY................................................ 105
------------
SECTION 11.15 TABLE OF CONTENTS, HEADINGS, ETC............................ 105
--------------------------------
SECTION 11.16 THIRD PARTY BENEFICIARIES................................... 105
-------------------------
</TABLE>
EXHIBIT A FORM OF SUBORDINATED EXCHANGE NOTE
EXHIBIT B CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION
OF TRANSFER OF SUBORDINATED EXCHANGE NOTES
EXHIBIT C FORM OF CERTIFICATE TO BE DELIVERED BY INSTITUTIONAL
ACCREDITED INVESTORS
iv
<PAGE>
This Indenture, dated as of ___________, 199_, is between Jordan
Telecommunication Products, Inc., a Delaware corporation (the "Company"), and
-------
First Trust National Association, as trustee (the "Trustee").
-------
Each party agrees as follows for the benefit of the other party and for
the equal and ratable benefit of the holders of the Company's 13 1/4% Series A
Subordinated Preferred Stock Exchange Notes due 2009 (the "Series A
--------
Subordinated Exchange Notes") and the Company's 13 1/4% Series B Subordinated
- ---------------------------
Preferred Stock Exchange Notes due 2009 (the "Series B Subordinated Exchange
------------------------------
Notes" and, together with the Series A Subordinated Exchange Notes, the
- -----
"Subordinated Exchange Notes"):
- ----------------------------
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1 DEFINITIONS.
-----------
"Affiliate" means any of the following: (i) any Person directly or
---------
indirectly controlling or controlled by or under direct or indirect common
control with the Company, (ii) any spouse, immediate family member or other
relative who has the same principal residence as any Person described in clause
(i) above, (iii) any trust in which any such Persons described in clause (i) or
(ii) above has a beneficial interest, and (iv) any corporation or other
organization of which any such Persons described above collectively own 50% or
more of the equity of such entity.
"Agent" means any Registrar, Paying Agent or co-registrar.
-----
"Asset Sale" means the sale, lease, conveyance or other disposition by the
----------
Company or a Restricted Subsidiary of assets or property whether owned on the
date of original issuance of the Senior Preferred Stock or thereafter acquired,
in a single transaction or in a series of related transactions, that are outside
of the ordinary course of business of the Company or such Restricted Subsidiary;
provided that Asset Sales will not include such sales, leases, conveyances or
- --------
dispositions in connection with (i) the sale or disposition of any Restrict-
<PAGE>
ed Investment, (ii) the sale or lease of equipment, inventory, accounts
receivable or other assets in the ordinary course of business, (iii) Receivables
Financings, (iv) the surrender or waiver of contract rights or the settlement,
release or surrender of contract, tort or other claims of any kind, (v) the
grant of any license of patents, trademarks, registration therefor and other
similar intellectual property, (vi) a transfer of assets by the Company or a
Restricted Subsidiary to any of the Company, a Restricted Subsidiary or a
Non-Restricted Subsidiary, (vii) the designation of a Restricted Subsidiary as
a Non-Restricted Subsidiary pursuant to Section 4.16, other than a Subsidiary
excluded from the definition of Restricted Subsidiary by clause (ii)(B) of such
definition, (viii) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of the Company as permitted under Section 5.1,
or (ix) Restricted Payments permitted by Section 4.5.
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state
--------------
law for the relief of debtors.
"Board of Directors" means the Company's board of directors or any
------------------
authorized committee of such board of directors.
"Business Day" means any day other than a Legal Holiday.
------------
"Capital Stock" means any and all shares, interests, participations or
-------------
other equivalents (however designated) of corporate stock, including any
preferred stock.
"Cash Flow" means, for any given period and Person, the sum of, without
---------
duplication, Consolidated Net Income, plus (a) the portion of Net Income
attributable to the minority interests in its Subsidiaries, to the extent not
included in calculating Consolidated Net Income, plus (b) provision for taxes
based on income or profits to the extent such income or profits were included in
computing Consolidated Net Income, plus (c) Consolidated Interest Expense, to
the extent deducted in computing Consolidated Net Income, plus (d) the
amortization of all intangible assets, to the extent such amortization was
deducted in computing Consolidated Net Income (including, but not limited to,
inventory write-ups, goodwill, debt and
2
<PAGE>
financing costs, and Incentive Arrangements), plus (e) any non-capitalized
transaction costs incurred in connection with financings, acquisitions or
dispositions (including, but not limited to, financing and refinancing fees,
including those in connection with the Offering and the Company Formation, in
each case, to the extent deducted in computing Consolidated Net Income), plus
(f) all depreciation and all other non-cash charges, to the extent deducted in
computing Consolidated Net Income, plus (g) interest income, to the extent such
income was not included in computing Consolidated Net Income, plus (h) all
dividend payments on preferred stock (whether or not paid in cash) to the extent
deducted in computing Consolidated Net Income, plus (i) any extraordinary or
non-recurring charge or expense arising out of the implementation of SFAS 106 or
SFAS 109 to the extent deducted in computing Consolidated Net Income, plus (j)
to the extent not covered in clause (e) above, fees paid or payable in respect
of the New TJC Management Consulting Agreement to the extent deducted in
computing Consolidated Net Income, plus (k) the net loss of any Person, other
than those of a Restricted Subsidiary, to the extent deducted in computing
Consolidated Net Income, plus (1) net losses in respect of any discontinued
operations as determined in accordance with GAAP, to the extent deducted in
computing Consolidated Net Income; provided, however, that if any such
-------- -------
calculation includes any period during which an acquisition or sale of a Person
or the incurrence or repayment of Indebtedness occurred, then such calculation
for such period shall be made on a Pro Forma Basis.
"Cash Flow Coverage Ratio" means, for any given period and Person, the
------------------------
ratio of: (i) Cash Flow, divided by (ii) the sum of Consolidated Interest
Expense and the amount of all dividend payments on any series of preferred
stock of such Person (except for dividends paid or payable in additional shares
of Capital Stock (other than Disqualified Stock)), in each case, without
duplication; provided, however, that if any such calculation includes any period
-------- -------
during which an acquisition or sale of a Person or the incurrence or repayment
of Indebtedness occurred, then such calculation for such period shall be made on
a Pro Forma Basis.
"Change of Control" means the occurrence of any of the following: (i) any
-----------------
"person" or "group" (as such terms
3
<PAGE>
are used in Sections 13(d) and 14(d) of the Exchange Act), excluding the Jordan
Stockholders, is or becomes the "beneficial owner" (as defined in Rules 13d-3
and 13d-5 under the Exchange Act, except that a Person shall be deemed to have
"beneficial ownership" of all securities that such Person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of more than 50% of the total Voting Stock of
the Company; or (ii) the Company consolidates with, or merges with or into,
another Person or sells, assigns, conveys, transfers, leases or otherwise
disposes of all or substantially all of its assets to any Person, or any Person
consolidates with, or merges with or into, the Company, in any such event
pursuant to a transaction in which the outstanding Voting Stock of the Company
is converted into or exchanged for cash, securities or other property, other
than any such transaction where (A) the outstanding Voting Stock of the Company
is converted into or exchanged for (1) Voting Stock (other than Disqualified
Stock) of the surviving or transferee corporation or (2) cash, securities and
other property in an amount which could be paid by the Company as a Restricted
Payment under the Indenture and (B) immediately after such transaction no
"person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the
Exchange Act), excluding the Jordan Stockholders, is the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person
shall be deemed to have "beneficial ownership" of all securities that such
Person has the right to acquire, whether such right is exercisable immediately
or only after the passage of time), directly or indirectly, of more than 50% of
the total Voting Stock of the surviving or transferee corporation; or (iii)
during any consecutive two-year period, individuals who at the beginning of such
period constituted the Board of Directors of the Company (together with any new
directors whose election by such Board of Directors or whose nomination for
election by the stockholders of the Company was approved by a vote of a majority
of the directors then still in office who are entitled to vote to elect such new
director and were either directors at the beginning of such period or Persons
whose election as directors or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors of the Company then in office.
4
<PAGE>
"Claim" means any and all rights to payment under or in respect of any
-----
Subordinated Exchange Note or this Indenture or any related agreements or
arrangements, all rights, remedies, demands, causes of action and claims of
every type and description at any time held or asserted by, or arising in favor
of, any Holder against the Company or any of its Subsidiaries or any Affiliate,
or any of their assets, on account of any breach of any promise, obligation,
agreement, indemnity, representation, warranty or covenant in a Subordinated
Exchange Note or this Indenture or any related agreements or arrangements or in
any manner arising out of, or relating to, the offer, sale or purchase of a
Subordinated Exchange Note or the transactions contemplated by this Indenture or
by related agreements or the performance or nonperformance or the payment or
nonpayment thereof, whether based on contract, tort, duty imposed by law or any
other theory, legal or equitable and whether for rescission, indemnification,
contribution or damages (including without limitation, (a) any claim substituted
for, or equivalent to, any of the foregoing, and (b) any judgment with respect
to any of the foregoing).
"Commission" means the Securities and Exchange Commission.
----------
"Company" means Jordan Telecommunication Products, Inc., a Delaware
-------
corporation.
"Company Formation" means the formation of the Company by the Company's
-----------------
management and stockholders of Jordan Industries, Inc. and certain of their
affiliates in connection with an overall recapitalization and refinancing of
Jordan Industries, Inc.
"Consolidated Interest Expense" means, for any given period and Person, the
-----------------------------
aggregate of the interest expense in respect of all Indebtedness of such Person
and its Subsidiaries for such period, on a consolidated basis, determined in
accordance with GAAP (including amortization of original issue discount on any
such Indebtedness, all non-cash interest payments, the interest portion of any
deferred payment obligation and the interest component of capital lease
obligations, but excluding amortization of deferred financing fees if such
amortization would otherwise be included in interest expense); provided,
--------
however, that for the purpose of the Cash Flow Cover-
- -------
5
<PAGE>
age Ratio, Consolidated Interest Expense shall be calculated on a Pro Forma
Basis; provided further, that any premiums, fees and expenses (including the
-------- -------
amortization thereof) payable in connection with the Offering and the Company
Formation and the application of the net proceeds therefrom or any other
refinancing of Indebtedness will be excluded.
"Consolidated Net Income" means, for any given period and Person, the
-----------------------
aggregate of the Net Income of such Person and its Subsidiaries for such period,
on a consolidated basis, determined in accordance with GAAP; provided, however,
-------- -------
that: (i) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded, and (ii) Consolidated Net Income of any Person will not include,
without duplication, any deduction for: (A) any increased amortization or
depreciation resulting from the write-up of assets pursuant to Accounting
Principles Board Opinion Mos. 16 and 17, as amended or supplemented from time to
time, (B) the amortization of all intangible assets (including amortization
attributable to inventory write-ups, goodwill, debt and financing costs, and
Incentive Arrangements), (C) any non-capitalized transaction costs incurred in
connection with financings, acquisitions or divestitures (including, but not
limited to, financing and refinancing fees), (D) any extraordinary or
nonrecurring charges relating to any premium or penalty paid, write-off of
deferred financing costs, or other financial recapitalization charges in
connection with redeeming or retiring any Indebtedness prior to its stated
maturity, and (E) any Restructuring Charges; provided, however, that for
-------- -------
purposes of determining the Cash Flow Coverage Ratio, Consolidated Net Income
shall be calculated on a Pro Forma Basis.
"Consolidated Net Worth" with respect to any Person means, as of any date,
----------------------
the consolidated equity of the common stockholders of such Person (excluding the
accumulated foreign currency translation adjustment), all determined on a
consolidated basis in accordance with GAAP, but without any reduction in respect
of the payment of dividends on any series of such Person's preferred stock if
such dividends are paid in additional shares of Capital Stock (other than
Disqualified Stock); provided, however, that Consolidated Net Worth shall also
-------- -------
include, without duplication: (a) the amortization of all write-
6
<PAGE>
ups of inventory, (b) the amortization of all intangible assets (including
amortization of goodwill, debt and financing costs, and Incentive Arrangements),
(c) any non-capitalized transaction costs incurred in connection with
financings, acquisitions or divestitures (including, but not limited to,
financing and refinancing fees), (d) any increased amortization or depreciation
resulting from the write-up of assets pursuant to Accounting Principles Board
Opinion Nos. 16 and 17, as amended and supplemented from time to time, (e) any
extraordinary or nonrecurring charges or expenses relating to any premium or
penalty paid, write-off of deferred financing costs, or other financial
recapitalization charges incurred in connection with redeeming or retiring any
Indebtedness prior to its stated maturity, (f) any Restructuring Charges, and
(g) any extraordinary or non-recurring charge arising out of the implementation
of SFAS 106 or SFAS 109; provided, however, that in determining Consolidated
-------- -------
Net Worth for purposes of Section 5.1, Consolidated Net Worth shall be
calculated on a Pro Forma Basis.
"Credit Agent" means the agent under the New Credit Agreement, as the case
------------
may be, or such other Person as may be designated as such by the Company from
time to time by notifying the Trustee.
"Default" means any event that is, or after notice or passage of time or
-------
both would be, an Event of Default.
"Definitive Subordinated Exchange Notes" means Subordinated Exchange Notes
--------------------------------------
that are in the form of Exhibit A attached hereto (but without including the
text referred to in footnotes 1 and 2 thereto).
"Depositary" means, with respect to the Subordinated Exchange Notes
----------
issuable or issued in whole or in part in global form, the Person specified in
Section 2.3 hereof as the Depositary with respect to the Subordinated Exchange
Notes, until a successor shall have been appointed and become such pursuant to
Section 2.6 of this Indenture, and, thereafter, "Depositary" shall mean or
include such successor.
"Designated Senior Indebtedness" means (i) Indebtedness evidenced by (A)
------------------------------
the Senior Notes and the Discount Notes and (B) the New Credit Agreement if such
Indebtedness constitutes Senior Indebtedness, irrespective of
7
<PAGE>
amount, and (ii) any other Senior Indebtedness issued under a credit agreement
or other credit facility (x) in an aggregate outstanding principal amount of at
least $50,000,000 (or, in the case of any revolving credit agreement or other
committed credit facility, having an aggregate commitment of at least
$50,000,000) and (y) that is specifically designated by the Company in the
instrument creating or evidencing such Senior Indebtedness as "Designated Senior
Indebtedness."
"Discount Notes" means the 11 3/4% Senior Discount Notes due 2007 of the
--------------
Company.
"Discount Notes Indenture" means the indenture, dated July 25, 1997,
------------------------
between the Company and First Trust National Association, as trustee, relating
to the Discount Notes, as such indenture may be amended or supplemented from
time to time.
"Disqualified Stock" means any Capital Stock that by its terms (or by the
------------------
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof, in whole or in part on, or prior to, the
maturity date of the Subordinated Exchange Notes.
"Dura-Line Agreement" means the Preferred Stock Agreement among Dura-Line
-------------------
Corporation and certain other persons, as in effect on the date of the original
issuance of the Senior Notes and the Discount Notes.
"Dura-Line Preferred Stock" means the 187.5 shares outstanding of Dura-Line
-------------------------
Corporation's 7% cumulative preferred stock with an aggregate liquidation
preference of $1.9 million issued to former common stockholders of Dura-Line
Corporation.
"Equity Interests" means Capital Stock or partnership interests or
----------------
warrants, options or other rights to acquire Capital Stock or partnership
interests (but excluding (i) any debt security that is convertible into or
exchangeable for, Capital Stock or partnership interests, and (ii) any other
Indebtedness or Obligation) provided, however, that Equity Interests will not
-------- -------
include
8
<PAGE>
any Incentive Arrangements or obligations or payments thereunder.
"Equity Offering" means a public or private offering by the Company and/or
---------------
its Subsidiaries for cash of Capital Stock or other Equity Interests and all
warrants, options or other rights to acquire Capital Stock, other than (i) an
offering of Disqualified Stock or (ii) Incentive Arrangements or obligations or
payments thereunder.
"Exchange Notes" means the Series A Subordinated Exchange Notes and the
--------------
Series B Subordinated Exchange Notes.
"Exchange Offer" means the offer by the Company to Holders to exchange
--------------
Series B Subordinated Exchange Notes for Series A Subordinated Exchange Notes.
"GAAP" means generally accepted accounting principles, consistently
----
applied, as of the date of original issuance of the Subordinated Exchange Notes.
All financial and accounting determinations and calculations under the
Indenture will be made in accordance with GAAP.
"Global Subordinated Exchange Note" means a Subordinated Exchange Note that
---------------------------------
contains the paragraph referred to in footnote 1 and the additional schedule
referred to in footnote 2 to the form of the Subordinated Exchange Note attached
hereto as Exhibit A.
"Hedging Obligations" means, with respect to any Person, the Obligations of
-------------------
such Persons under (i) inter est rate swap agreements, interest rate cap
agreements and interest rate collar agreements, (ii) foreign exchange contracts,
currency swap agreements or similar agreements, and (iii) other agreements or
arrangements designed to protect such Person against fluctuations, or otherwise
to establish financial hedges in respect of exchange rates, currency rates or
interest rates.
"Holder" means a Person in whose name a Subordinated Exchange Note is
------
registered.
"Incentive Arrangements" means any earn-out agreements, stock appreciation
----------------------
rights, "phantom" stock plans, employment agreements, non-competition
agreements, subscription and stockholders agreements and other incentive
9
<PAGE>
and bonus plans and similar arrangements made in connection with acquisitions
of Persons or businesses by the Company or any Restricted Subsidiary or the
retention of executives, officers or employees by the Company or any Restricted
Subsidiary.
"Indebtedness" means, with respect to any Person, any indebtedness, whether
------------
or not contingent, in respect of borrowed money or evidenced by bonds, notes,
debentures or similar instruments or letters of credit (or reimbursement
agreements in respect thereof) or representing the balance deferred and unpaid
of the purchase price of any property (including pursuant to capital leases),
except any such balance that constitutes an accrued expense or a trade payable,
and any Hedging Obligations, if and to the extent such indebtedness (other than
a Hedging Obligation) would appear as a liability upon a balance sheet of such
Person prepared on a consolidated basis in accordance with GAAP, and also
includes, to the extent not otherwise included, the guarantee of items which
would be included within this definition; provided, however, that "Indebtedness"
-------- -------
will not include any Incentive Arrangements or obligations or payments
thereunder.
"Indenture" means this Indenture, as amended or supplemented from time to
---------
time.
"Insolvency or Liquidation Proceeding" means (i) any insolvency or
------------------------------------
bankruptcy or similar case or proceeding, or any reorganization, receivership,
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, or (ii) any assignment for the benefit of creditors or any other
marshalling of assets and liabilities of the Company.
"Investment" means any capital contribution to, or other debt or equity
----------
investment in, any Person.
"issue" means create, issue, assume, guarantee, incur or otherwise become
-----
directly or indirectly liable for any Indebtedness or Capital Stock, as
applicable; provided, however, that any Indebtedness or Capital Stock of a
-------- -------
Person existing at the time such Person becomes a Restricted Subsidiary (whether
by merger, consolidation, acquisition or otherwise) shall be deemed to be issued
by such Restricted Subsidiary at the time it becomes a
10
<PAGE>
Restricted Subsidiary. For this definition, the terms "issuing," "issuer,"
"issuance" and "issued" have meanings correlative to the foregoing.
"Jordan Stockholders" means John W. Jordan, II, and/or his heirs, executors
-------------------
and administrators, The John W. Jordan, II Revocable Trust, The Jordan Family
Trust and/or any other trust established by John W. Jordan, II whose
beneficiaries are John W. Jordan, II and/or his lineal descendants or other
relatives, Jordan Industries, Inc., The Jordan Company and Jordan/Zalaznick
Capital Corporation and their respective affiliates, principals, partners and
employees, family members of any of the foregoing and trusts for the benefit of
any of the fore going, including, without limitation, MCIT PLC and Leucadia
National Corporation and their respective Subsidiaries.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
-------------
institutions in the City of New York, the city in which the principal corporate
trust office of the Trustee is located or at a place of payment are authorized
by law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue
for the intervening period.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
----
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell and any filing of or
agreement to give any financing statement under the Uniform Commercial Code (or
equivalent statutes) of any jurisdiction).
"Liquidated Damages" means all liquidated damages then owing pursuant to
------------------
Section 4 of the Registration Rights Agreement.
"Net Income" means, with respect to any Person, the net income (loss) of
----------
such Person, determined in accordance with GAAP, excluding, however, any gain
or loss, together with any related provision for taxes, realized
11
<PAGE>
in connection with any Asset Sale (including, without limitation, dispositions
pursuant to sale and leaseback transactions).
"Net Proceeds" means, with respect to any Asset Sale, the aggregate amount
------------
of cash proceeds (including any cash received by way of deferred payment
pursuant to a note receivable issued in connection with such Asset Sale, other
than the portion of such deferred payment constituting interest, and including
any amounts received as disbursements or withdrawals from any escrow or similar
account established in connection with any such Asset Sale, but, in either such
case, only as and when so received) received by the Company or any of its
Restrict ed Subsidiaries in respect of such Asset Sale, net of: (i) the cash
expenses of such Asset Sale (including, without limitation, the payment of
principal, premium, if any, and interest on, Indebtedness required to be paid as
a result of such Asset Sale (other than the Subordinated Exchange Notes),
accounting, management, advisory and in vestment banking fees and sales
commissions), (ii) taxes paid or payable as a result thereof, (iii) any portion
of cash proceeds that the Company determines in good faith should be reserved
for post-closing adjustments, it being understood and agreed that on the day
that all such post-closing adjustments have been determined, the amount (if any)
by which the reserved amount in respect of such Asset Sale exceeds the actual
postclosing adjustments payable by the Company or any of its Restricted Subsid-
iaries shall constitute Net Proceeds on such date, (iv) any relocation expenses
and pension, severance and shut down costs incurred as a result thereof, and (v)
any deduction or appropriate amounts to be provided by the Company or any of its
Restricted Subsidiaries as a re serve in accordance with GAAP against any
liabilities associated with the asset disposed of in such transaction and
retained by the Company or such Restricted Subsidiary after such sale or other
disposition thereof, including, without limitation, pension and other post-
employment benefit liabilities and liabilities related to environ mental matters
or against any indemnification obligations associated with such transaction.
"New Credit Agreement" means the credit agreement, dated the date hereof,
--------------------
entered into by certain of the Company's Restricted Subsidiaries and certain
other subsidiaries and the lenders party thereto in their capaci-
12
<PAGE>
ties as lenders thereunder and BankBoston N.A., as agent, together with all loan
documents and instruments thereunder (including, without limitation, any
guarantee agreements, including the guarantee by the Company, and security
documents), in each case as such agreements may be amended (including any
amendment and restatement there of), supplemented or otherwise modified from
time to time, including any agreement extending the maturity of, refinancing,
replacing or otherwise restructuring (including, without limitation, increasing
the amount of available borrowings thereunder, and all Obligations with respect
thereto, in each case, to the extent permitted by Section 4.7 of each of the
Senior Notes Indenture and the Discount Notes Indenture, or adding Subsidiaries
of the Company as additional borrowers or guarantors thereunder) all or any
portion of the Indebtedness under such agreement or any successor or
replacement agreement and whether by the same or any other agent, lender or
group of lenders.
"New Subsidiary Advisory Agreement" means the advisory agreement, dated
---------------------------------
July 25, 1997, between the Company and each of its Subsidiaries and Jordan
Industries, as in effect on the date of the original issuance of the Senior
Notes and Discount Notes.
"New Subsidiary Consulting Agreement" means the management consulting
-----------------------------------
agreement, dated July 25, 1997, between the Company and each of its
Subsidiaries and Jordan Industries, as in effect on the date of the original
issuance of the Senior Notes and Discount Notes.
"New TJC Management Consulting Agreement" means the Management Consulting
---------------------------------------
Agreement, dated as of July 25, 1997, between the Company and TJC Management
Corporation, as in effect on the date of original issuance of the Senior Notes
and Discount Notes.
"Non-Restricted Subsidiary" means any Subsidiary of the Company, other than
-------------------------
a Restricted Subsidiary.
"Obligations" means, with respect to any Indebtedness, all principal,
-----------
interest, premium, penalties, fees, indemnities, expenses (including legal fees
and expenses), reimbursement obligations and other liabilities payable to the
holder of such Indebtedness under the documentation governing such Indebtedness,
and any other
13
<PAGE>
claims of such holder arising in respect of such Indebtedness.
"Offering" means the offer and sale of, among other securities, the Senior
--------
Notes and Discount Notes as contemplated by the Offering Circular.
"Offering Circular" means the Offering Circular, dated July 21, 1997,
-----------------
relating to the Company's offering and placement of, among other securities, the
Senior Notes and Discount Notes.
"Officer" means, with respect to any Person, the Chairman of the Board, the
-------
Chief Executive Officer, the President, the Chief Operating Officer, the Chief
Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the
Secretary or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on behalf of the Company
---------------------
by two Officers of the Company, one of whom must be the principal executive
officer, the principal financial officer, the treasurer or the principal
accounting officer of the Company, that meets the requirements of Section 10.4
hereof.
"Opinion of Counsel" means an opinion from legal counsel who is reasonably
------------------
acceptable to the Trustee, that meets the requirements of Section 10.5 hereof.
The counsel may be an employee of or counsel to the Company, any Subsidiary of
the Company or the Trustee.
"Person" means any individual, corporation, partnership, joint venture,
------
limited liability company, association, joint stock company, trust,
unincorporated organization or government or any agency or political subdivi-
sion thereof.
"Post-Petition Interest" means, with respect to any Senior Indebtedness,
----------------------
all interest accrued or accruing on such Senior Indebtedness after the
commencement of any Insolvency or Liquidation Proceeding 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 Senior Indebtedness, whether or not, pursuant to applicable law
or otherwise, the claim for such interest is
14
<PAGE>
allowed as a claim in such Insolvency or Liquidation Proceeding.
"Pro Forma Basis" means, for purposes of determining Consolidated Net
---------------
Income, Cash Flow and Consolidated Interest Expense in connection with the Cash
Flow Cover age Ratio (including in connection with Section 4.5, the incurrence
of Indebtedness pursuant to Section 4.7(a) of each of the Senior Notes Indenture
and the Discount Notes Indenture and Consolidated Net Worth for purposes of
Section 5.1), giving pro forma effect to (x) any acquisition or sale of a
Person, business or asset, related incurrence, repayment or refinancing of
Indebtedness or other related transactions, including any related re structuring
charges in respect of restructurings, consolidations, compensation or headcount
reductions or other cost savings which would otherwise be accounted for as an
adjustment permitted by Regulation S-X under the Securities Act or on a pro
forma basis under GAAP, or (y) any incurrence, repayment or refinancing of any
Indebtedness and the application of the proceeds therefrom, in each case, as if
such acquisition or sale and related transactions, restructurings,
consolidations, cost savings, reductions, incurrence, repayment or refinancing
were realized on the first day of the relevant period permit ted by Regulation
S-X under, the Securities Act or on a pro forma basis under GAAP. Furthermore,
in calculating the Cash Flow Coverage Ratio, (1) interest on outstanding
Indebtedness determined on a fluctuating basis as of the determination date and
which will continue to be so determined thereafter shall be deemed to have
accrued at a fixed rate per annum equal to the rate of interest on such
Indebtedness in effect on the determination date; (2) if interest on any
Indebtedness actually incurred on the determination date may optionally be
determined at an interest rate based upon a factor of a prime or similar rate, a
eurocurrency interbank offered rate, or other rates, then the interest rate in
effect on the determination date will be deemed to have been in effect during
the relevant period; and (3) notwithstanding clause (1) above, interest on
Indebtedness determined on a fluctuating basis, to the extent such interest is
covered by agreements relating to interest rate swaps or similar interest rate
protection Hedging Obligations, shall be deemed to accrue at the rate per annum
resulting after giving effect to the operation of such agreements.
15
<PAGE>
"Properties Services Agreement" means the services agreement, dated July
-----------------------------
25, 1997, between the Company and Jordan Industries, Inc., as in effect on the
date of original issuance of the Senior Notes and the Discount Notes.
"Purchaser" means Jefferies & Company, Inc.
---------
"Receivables" means, with respect to any Person, all of the following
-----------
property and interests in property of such Person, whether now existing or
existing in the future or hereafter acquired or arising: (i) accounts, (ii)
accounts receivable (including, without limitation, all rights to payment
created by or arising from sales of goods, leases of goods or leased or the
rendition of services rendered no matter how evidenced, whether or not earned by
performance), (iii) all unpaid seller's or lessor's rights (including, without
limitation, recession, replevin, reclamation and stoppage in transit, relating
to any of the foregoing or arising therefrom), (iv) all rights to any goods or
merchandise represented by any of the foregoing (including, without limitation,
returned or repossessed goods), (v) all reserves and credit balances with
respect to any such accounts receivable or account debtors, (vi) all letters of
credit, security or guarantees for any of the foregoing, (vii) all insurance
policies or reports relating to any of the foregoing, (viii) all collection or
deposit accounts relating to any of the foregoing, (ix) all proceeds of any of
the foregoing, and (x) all books and records relating to any of the foregoing.
"Receivables Financing" means (i) the sale or other disposition of
---------------------
Receivables arising in the ordinary course of business, or (ii) the sale or
other disposition of Receivables arising in the ordinary course of business to a
Receivables Subsidiary followed by a financing transaction in connection with
such sale or disposition of such Receivables.
"Receivables Subsidiary" means a Subsidiary of the Company that is
----------------------
exclusively engaged in Receivables Financings and activities reasonably related
thereto.
"Refinancing Indebtedness" means (i) Indebtedness of the Company and its
------------------------
Restricted Subsidiaries issued or given in exchange for, or the proceeds of
which are used
16
<PAGE>
to, extend, refinance, renew, replace, substitute or refund any Indebtedness
permitted under this Indenture or any Indebtedness issued to so extend,
refinance, renew, replace, substitute or refund such Indebtedness, (ii) any
refinancings of Indebtedness issued under the New Credit Agreement, and (iii)
any additional Indebtedness issued to pay premiums and fees in connection with
clauses (i) and (ii).
"Registration Rights Agreement" means the Registration Rights Agreement,
-----------------------------
dated as of July 25, 1997, by and among the Company and the Purchaser, with
respect to the 13 1/4% Senior Exchangeable Preferred Stock, with respect to
which agreement the Holders are third party beneficiaries.
"Representative" means with respect to any Senior Indebtedness, the
--------------
indenture trustee or other trustee, agent or other representative(s), if any, of
holders of such Senior Indebtedness.
"Restricted Investment" means any Investment in any Person, provided that
--------------------- --------
Restricted Investments will not include: (i) Investments in marketable
securities and other negotiable instruments to the extent permitted by Section
4.5(b)(ii) of this Indenture; (ii) any Incentive Arrangements; (iii) Investments
by any Restricted Subsidiary in the Company; or (iv) Investments by the Company
or any Restricted Subsidiary in any Restricted Subsidiary (provided that any
--------
Investment in a Restricted Subsidiary was made for fair market value (as
determined by the Board of Directors in good faith). The amount of any
Restricted Investment shall be the amount of cash and the fair market value at
the time of transfer of all other property (as determined by the Board of
Directors in good faith) initially invested or paid for such Restricted
Investment, plus all additions thereto, without any adjustments for increases or
decreases in value of, or write-ups, write-downs or write-offs with respect to,
such Restricted Investment.
"Restricted Subsidiary" means: (i) any Subsidiary of the Company existing
---------------------
on the date of original issuance of the Senior Notes, and (ii) any other
Subsidiary of the Company formed, acquired or existing after the date of
original issuance of the Senior Notes and the Discount Notes that is designated
as a "Restricted Subsidiary" by
17
<PAGE>
the Company pursuant to a resolution approved by a majority of the Board of
Directors, provided, however, that the term "Restricted Subsidiary" shall not
-------- -------
include (A) any Restricted Subsidiary of the Company that has been redesignated
by the Company pursuant to a resolution approved by a majority of the Board of
Directors as a Non-Restricted Subsidiary in accordance with Section 4.12 unless
such Subsidiary shall have subsequently been redesignated a Restricted
Subsidiary or (B) any Restricted Subsidiary of the Company that is organized
under the laws of a foreign jurisdiction and whose stock or owner ship interests
are sold or transferred to a Non-Restricted Subsidiary of the Company pursuant
to one or more transactions that comply with Sections 4.7 and 4.11 which is, at
or after the time of such sale or transfer, by a resolution approved by a
majority of the Board of Directors, designated a Non-Restricted Subsidiary.
"Restructuring Charges" means any charges or expenses in respect of
---------------------
restructuring or consolidating any business, operations or facilities, any
compensation or headcount reduction, or any other cost savings, of any Persons
or businesses either alone or together with the Company or any Restricted
Subsidiary, as permitted by GAAP or Regulation S-X under the Securities Act.
"SEC" means the Securities and Exchange Commission.
---
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Senior Indebtedness" means: (i) all Obligations (including any interest
-------------------
accruing subsequent to the filing of a petition of bankruptcy at the rate
provided for in the documentation with respect thereto, whether or not such
interest is an allowed claim under applicable law) on any Indebtedness of the
Company, whether outstanding on the date of issuance of the Senior Notes and the
Discount Notes or thereafter created, incurred or assumed, of the following
types: (A) all Indebtedness of the Company (including without limitation the
Senior Notes and the Discount Notes) for money borrowed, and (B) all
Indebtedness evidenced by notes, debentures, bonds or other similar instruments
for the payment of which the Company is responsible or liable; (ii) all
capitalized lease obligations of the Company; (iii) all Obligations of the
Company: (A) for the reimbursement of any obligor
18
<PAGE>
on any letter of credit, banker's acceptance or similar credit transaction, (B)
constituting Hedging Obligations, or (C) issued as the deferred purchase price
of property and all conditional sale Obligations of the Company and all
Obligations of the Company under any title retention agreement; (iv) all
guarantees of the Company with respect to Obligations of other Persons of the
type referred to in clauses (ii) and (iii) and with respect to the payment of
dividends of other Persons; and (v) all Obligations of the Company consisting of
modifications, renewals, extensions, replacements and refundings of any
Obligations described in clauses (i), (ii), (iii) or (iv) unless, in the
instrument creating or evidencing the same or pursuant to which the same is
outstanding, it is expressly provided that such Obligations are subordinated or
junior in right of payment to the Senior Notes and the Discount Notes; provided,
however, that Senior Indebtedness shall not be deemed to include: (1) any
Obligation of the Company to any Subsidiary, (2) any liability for federal,
state, local or other taxes owed or owing by the Company, (3) any accounts
payable or other liability to trade creditors arising in the ordinary course of
business (including guarantees thereof or instruments evidencing such
liabilities), (4) any Indebtedness, guarantee or Obligation of the Company that
is contractually subordinated or junior in any respect to any other In-
debtedness, guarantee or Obligation of the Company, or (5) any Indebtedness to
the extent the same is incurred in violation of the Indenture. Senior
Indebtedness shall include all Obligations in respect of the Senior Notes and
the Discount Notes and the Senior Notes Indenture and the Discount Notes
Indenture.
"Senior Notes" means the 9% Senior Notes due 2007 of the Company.
------------
"Senior Notes Indenture" means the indenture, dated July 25, 1997, between
----------------------
the Company and First Trust National Association, as trustee, relating to the
Senior Notes, as such indenture may be amended or supplemented from time to
time.
"Senior Preferred Stock" means the 13 1/4% Series A and Series B Senior
----------------------
Exchangeable Preferred Stock due 2009 of the Company.
19
<PAGE>
"Series A Notes" means the Company's 13 1/4% Series A Subordinated
--------------
Preferred Stock Exchange Notes due 2009.
"Series B Notes" means the Company's 13 1/4% Series B Subordinated
--------------
Preferred Stock Exchange Notes due 2009.
"SFAS 106" means Statement of Financial Accounting Standards No. 106.
--------
"SFAS 109" means Statement of Financial Accounting Standards No. 109.
--------
"Significant Subsidiary" means (i) any Restricted Subsidiary of the Company
----------------------
that would be a "significant subsidiary" as defined in clause (2) of the
definition of such term in Rule 1-02 of Regulation S-X under the Securities Act
and the Exchange Act, and (ii) any other Restricted Subsidiary of the Company
that is material to the business, earnings, prospects, assets or condition,
financial or otherwise, of the Company and its Restricted Subsidiaries, taken as
a whole.
"Subordinated Indebtedness" means all Obligations of the type referred to
-------------------------
in clauses (i) through (v) of the definition of Senior Indebtedness, if the
instrument creating or evidencing the same, or pursuant to which the same is
outstanding, designates such Obligations as subordinated or junior in right of
payment to Senior Indebtedness.
"Stated Maturity" means with respect to any installment of interest or
---------------
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" of any Person means any entity of which the Equity Interests
----------
entitled to cast at least a majority of the votes that may be cast by all Equity
Interests having ordinary voting power for the election of directors or other
governing body of such entity are owned by such Person (regardless of whether
such Equity Interests are owned directly by such Person or through one or more
Subsidiaries).
20
<PAGE>
"Tax Sharing Agreement" means the tax sharing agreement between the Company
---------------------
and each of its Subsidiaries and Jordan Industries, Inc. and each of the other
direct and indirect Subsidiaries of Jordan Industries, Inc. that are
consolidated with Jordan Industries, Inc. for Federal income tax purposes, as in
effect on the date of original issuance of the Senior Notes and the Discount
Notes.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code (S)(S) 77aaa-
---
77bbbb), as amended, as in effect on the date of original issuance of the Senior
Notes and the Discount Notes.
"Transition Agreement" means the transition agreement, dated as of July 25,
--------------------
1997, between the Company and Jordan Industries, as in effect on the date of
original issuance of the Senior Notes and the Discount Notes.
"Transfer Restricted Subordinated Exchange Notes" means securities that
-----------------------------------------------
bear or are required to bear the legend set forth in Section 2.6.
"Trustee" means First Trust National Association until a successor replaces
-------
it in accordance with the applicable provisions of this Indenture, and
thereafter means the successor.
"Trust Officer" means the chairman of the board, the president or any other
-------------
officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"U.S. Government Obligations" means direct obligations of the United States
---------------------------
of America for the payment of which the full faith and credit of the United
States of America is pledged, provided that no U.S. Government Obligation shall
--------
be callable at the issuer's option.
"Voting Stock" means any class or classes of Capital Stock pursuant to
------------
which the holders thereof have the general voting power under ordinary
circumstances to elect the board of directors.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
---------------------------------
at any date, the number of years obtained by dividing (i) the then outstanding
principal amount of such Indebtedness into (ii) the sum
21
<PAGE>
of the product(s) obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
<TABLE>
<CAPTION>
SECTION 2 OTHER DEFINITIONS.
------------------
<S> <C>
Defined in
Term Section
"Affiliate Transaction............................................. 4.8
"Asset Sale Disposition Date"...................................... 4.11
"Asset Sale Trigger Date".......................................... 4.11
"covenant defeasance option"....................................... 8.1
"Disposition"...................................................... 5.1
"DTC".............................................................. 2.3
"Event of Default"................................................. 6.1
"Excess Proceeds".................................................. 4.11
"legal defeasance option".......................................... 8.1
"Notice of Default"................................................ 6.1
"Offer"............................................................ 3.8
"Paying Agent"..................................................... 2.3
"Purchase Date".................................................... 3.8
"Registrar"........................................................ 2.3
"Restricted Payments".............................................. 4.5
"Successor Corporation"............................................ 5.1
"Trustee Expenses"................................................. 6.8
</TABLE>
SECTION 3 INCORPORATION BY REFERENCE OF TRUST
-----------------------------------
INDENTURE ACT.
-------------
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in, and made a part of, this Indenture. Any terms
incorporated by reference in this Indenture that are defined by the TIA, defined
by TIA reference to another statute or defined by SEC rule under the TIA have
the meanings so assigned to them therein.
SECTION 4 RULES OF CONSTRUCTION.
---------------------
Unless the context otherwise requires:
22
<PAGE>
(1) a term has the meaning assigned to it herein;
(2) an accounting term not otherwise defined herein has the
meaning assigned to it under GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural
include the singular; and
(5) provisions apply to successive events and transactions.
ARTICLE 2
THE SUBORDINATED EXCHANGE NOTES
SECTION 1 FORM AND DATING.
---------------
The Subordinated Exchange Notes and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit A, which is part of
this Indenture. The Subordinated Exchange Notes may have notations, legends or
endorsements required by law, stock exchange rule or usage. Each Subordinated
Exchange Note shall be dated the date of its authentication. The Subordinated
Exchange Notes shall be in denominations of $1,000 and integral multiples
thereof.
The terms and provisions contained in the Subordinated Exchange Notes
shall constitute, and are hereby expressly made, a part of this Indenture and,
to the extent applicable, the Company and the Trustee, by their execution and
delivery of this Indenture, expressly agree to such terms and provisions and to
be bound thereby.
Each Global Subordinated Exchange Note shall represent such of the
outstanding Subordinated Exchange Notes as shall be specified therein and each
shall provide that it shall represent the aggregate amount of outstanding
Subordinated Exchange Notes from time to time endorsed thereon and that the
aggregate amount of outstanding Subordinated Exchange Notes represented thereby
may from time to time be reduced or increased, as appropriate, to
23
<PAGE>
reflect exchanges and redemptions. Any endorsement of a Global Subordinated
Exchange Note to reflect the amount of any increase or decrease in the amount of
outstanding Subordinated Exchange Notes represented thereby shall be made by the
Trustee or the Subordinated Exchange Note Custodian, at the direction of the
Trustee, in accordance with instructions given by the Holder thereof as required
by Section 2.6.
SECTION 2 EXECUTION AND AUTHENTICATION.
----------------------------
One Officer shall sign the Subordinated Exchange Notes for the Company by
manual or facsimile signature. The Company's seal shall be reproduced on the
Subordinated Exchange Notes and may be in facsimile form.
If an Officer whose signature is on an Subordinated Exchange Note no longer
holds that office at the time an Subordinated Exchange Note is authenticated,
the Subordinated Exchange Note shall nevertheless be valid.
A Subordinated Exchange Note shall not be valid until authenticated by the
manual signature of an authorized signatory of the Trustee, and the Trustee's
signature shall be conclusive evidence that the Subordinated Exchange Note has
been authenticated under this Indenture. The form of Trustee's certificate of
authentication to be borne by the Subordinated Exchange Notes shall be
substantially as set forth in Exhibit A.
---------
The Trustee shall, upon a written order of the Company signed by two
Officers directing the Trustee to authenticate the Subordinated Exchange Notes
and certifying that all conditions precedent to the issuance of the
Subordinated Exchange Notes contained herein have been complied with,
authenticate Subordinated Exchange Notes for original issuance up to an
aggregate principal amount stated in paragraph 4 of the Subordinated Exchange
Notes (the aggregate principal amount of outstanding Subordinated Exchange
Notes may not exceed that amount at any time, except as provided in Section
2.7).
The Trustee may appoint an authenticating agent acceptable to the Company
to authenticate Subordinated Exchange Notes. Unless limited by the terms of
such appointment, an authenticating agent may authenticate Subordinated Exchange
Notes whenever the Trustee may do
24
<PAGE>
so. Each reference in this Indenture to authentication by the Trustee includes
authentication by such agent. An authenticating agent has the same rights as an
Agent to deal with the Company or an Affiliate of the Company.
SECTION 3 REGISTRAR AND PAYING AGENT.
--------------------------
The Company shall maintain an office or agency (the "Registrar") where
---------
Subordinated Exchange Notes may be presented for registration of transfer or for
exchange and an office or agency (the "Paying Agent") where Subordinated
------------
Exchange Notes may be presented for payment. The Registrar shall keep a register
of the Subordinated Exchange Notes and of their transfer and exchange. The
Company may appoint one or more co-registrars and one or more additional paying
agents. The term "Registrar" includes any co-registrar, and the term "Paying
--------- ------
Agent" includes any additional paying agent. The Company may change any Paying
- -----
Agent or Registrar without prior notice to any Holder. The Company shall notify
in writing the Trustee and the Trustee shall notify the Holders in writing of
the name and address of any Agent not a party to this Indenture. If the Company
fails to appoint or maintain another entity as Registrar or Paying Agent, the
Trustee shall act as such. The Company shall enter into an appropriate agency
agreement with any Agent not a party to this Indenture, and such agreement shall
incorporate the TIA's provisions and implement the provisions of this Indenture
that relate to such Agent.
The Company initially appoints The Depository Trust Company ("DTC") to act
---
as Depositary with respect to the Global Subordinated Exchange Notes.
The Company initially appoints the Trustee as Registrar, Paying Agent and
agent for service of notices and demands in connection with the Subordinated
Exchange Notes and as Subordinated Exchange Note Custodian with respect to the
Global Subordinated Exchange Notes. The Company or any of its Subsidiaries may
act as Paying Agent, Registrar or co-registrar. If the Company fails to appoint
or maintain a Registrar and Paying Agent, the Trustee shall act as such, and
shall be entitled to appropriate compensation in accordance with Section 7.7.
25
<PAGE>
SECTION 4 PAYING AGENT TO HOLD MONEY IN TRUST.
-----------------------------------
The Company shall require each Paying Agent other than the Trustee to agree
in writing that the Paying Agent will hold in trust for the Holders' benefit or
the Trustee all money the Paying Agent holds for redemption or purchase of the
Subordinated Exchange Notes or for the payment of principal of, or premium, if
any, or interest on, or Liquidated Damages, if any, with respect to the
Subordinated Exchange Notes, and will promptly notify the Trustee of any Default
by the Company in providing the Paying Agent with sufficient funds to (i)
purchase Subordinated Exchange Notes tendered pursuant to an Offer arising
under Section 4.10, (ii) redeem Subordinated Exchange Notes called for
redemption, or (iii) make any payment of principal, premium, interest or
Liquidated Damages due on the Subordinated Exchange Notes. While any such
Default continues, the Trustee may require the Paying Agent to pay all money it
holds to the Trustee and to account for any funds disbursed. The Company at any
time may require the Paying Agent to pay all money it holds to the Trustee and
to account for any funds disbursed. Upon payment over to the Trustee, the
Paying Agent (if other than the Company or any of its Subsidiaries) shall have
no further liability for the money it delivered to the Trustee. If the Company
or any of its Subsidiaries acts as Paying Agent, it shall segregate and hold in
a separate trust fund for the Holders' benefit or the Trustee all money it holds
as Paying Agent.
SECTION 5 HOLDER LISTS.
------------
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA section 312(a). If the Trustee
is not the Registrar, the Company shall furnish to the Trustee at least seven
Business Days before each interest payment date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require that sets forth the names and addresses of, and
the aggregate principal amount of Subordinated Exchange Notes held by, each
Holder, and the Company shall otherwise comply with section 312(a) of the TIA.
26
<PAGE>
SECTION 6 TRANSFER AND EXCHANGE.
---------------------
(a) Transfer and Exchange of Definitive Subordinated Exchange
---------------------------------------------------------
Notes. When Definitive Subordinated Exchange Notes are presented by a Holder
- -----
to the Registrar with a request:
(x) to register the transfer of the Definitive Subordinated
Exchange Notes; or
(y) to exchange such Definitive Subordinated Exchange Notes for an
equal principal amount of Definitive Subordinated Exchange
Notes of other authorized denominations,
the Registrar shall register the transfer or make the exchange as requested if
its requirements for such transactions are met; provided, however, that the
-------- -------
Definitive Subordinated Exchange Notes presented or surrendered for register of
transfer or exchange:
(i) shall be duly endorsed or accompanied by a written
instruction of transfer in form satisfactory to the Registrar duly
executed by such Holder or by his attorney, duly authorized in writing;
and
(ii) in the case of a Definitive Subordinated Exchange Note
that is a Transfer Restricted Subordinated Exchange Note, such request
shall be accompanied by the following additional information and documents,
as applicable:
(A) if such Transfer Restricted Subordinated Exchange Note is
being delivered to the Registrar by a Holder for
registration in the name of such Holder, without
transfer, a certification to that effect from such Hold-
er (in substantially the form of Exhibit B hereto); or
---------
(B) if such Transfer Restricted Subordinated Exchange Note is
being transferred (1) to a "qualified institutional
buyer" (as defined in Rule 144A under the Securities Act)
in
27
<PAGE>
accordance with Rule 144A under the Securities Act or (2)
pursuant to an exemption from registration in accordance
with Rule 144 under the Securities Act (and based on an
opinion of counsel if the Company so requests) or (3)
pursuant to an effective registration statement under
the Securities Act, a certification to that effect from
such Holder (in substantially the form of Exhibit B
hereto); or ---------
(C) if such Transfer Restricted Subordinated Exchange Note is
being transferred to an institutional "accredited
investor," within the meaning of Rule 501(a)(1), (2), (3)
or (7) under the Securities Act pursuant to a private
placement exemption from the registration requirements of
the Securities Act (and based on an opinion of counsel
if the Company so requests), a certification to that
effect from such Holder (in substantially the form of
Exhibit B hereto) and a certification from the applicable
---------
transferee (in substantially the form of Exhibit C
---------
hereto); or
(D) if such Transfer Restricted Subordinated Exchange Note is
being transferred in reliance on another exemption from
the registration requirements of the Securities Act (and
based on an opinion of counsel if the Company so
requests), a certification to that effect from such
Holder (in substantially the form of Exhibit B hereto).
---------
(b) Transfer of a Definitive Subordinated Exchange Note for a
---------------------------------------------------------
Beneficial Interest in a Global Subordinated Exchange Note. A Definitive
- ----------------------------------------------------------
Subordinated Exchange Note may not be exchanged for a beneficial interest in a
Global Subordinated Exchange Note except upon satisfaction of the requirements
set forth below.
28
<PAGE>
Upon receipt by the Trustee of a Definitive Subordinated Exchange Note, duly
endorsed or accompanied by appropriate instruments of transfer, in form
satisfactory to the Trustee, together with:
(i) if such Definitive Subordinated Exchange Note is a Transfer
Restricted Subordinated Exchange Note, a certification from the Holder
thereof (in substantially the form of Exhibit B hereto) to the effect that
such Definitive Subordinated Exchange Note is being transferred by such
Holder to a "qualified institutional buyer" (as defined in Rule 144A under
the Securities Act) in accordance with Rule 144A under the Securities Act;
and
(ii) whether or not such Definitive Subordinated Exchange Note is a
Transfer Restricted Subordinated Exchange Note, written instructions from
the Holder thereof directing the Trustee to make, or to direct the
Subordinated Exchange Note Custodian to make, an endorsement on the Global
Subordinated Exchange Note to reflect an increase in the aggregate
principal amount of the Subordinated Exchange Notes represented by the
Global Subordinated Exchange Note,
the Trustee shall cancel such Definitive Subordinated Exchange Note in
accordance with Section 2.11 and cause, or direct the Subordinated Exchange Note
Custodian to cause, in accordance with the standing instructions and procedures
existing between the Depositary and the Subordinated Exchange Note Custodian,
the aggregate principal amount of Subordinated Exchange Notes represented by
the Global Subordinated Exchange Note to be increased accordingly. If no Global
Subordinated Exchange Notes are then outstanding, the Company shall issue and,
upon receipt of an authentication order in accordance with Section 2.2, the
Trustee shall authenticate a new Global Subordinated Exchange Note in the
appropriate principal amount.
(c) Transfer and Exchange of Global Subordinated Exchange Notes. The
-----------------------------------------------------------
transfer and exchange of Global Subordinated Exchange Notes or beneficial inter-
ests therein shall be effected through the Depositary, in accordance with this
Indenture and the procedures of the
29
<PAGE>
Depositary therefor, which shall include restrictions on transfer comparable to
those set forth herein to the extent required by the Securities Act.
(d) Transfer of a Beneficial Interest in a Global Subordinated
----------------------------------------------------------
Exchange Note for a Definitive Subordinated Exchange Note.
- ----------------------------------------------------------
(i) Any Person having a beneficial interest in a Global
Subordinated Exchange Note may upon request exchange such beneficial interest
for a Definitive Subordinated Exchange Note. Upon receipt by the Trustee of
written instructions or such other form of instructions as is customary for the
Depositary, from the Depositary or its nominee on behalf of any Person having a
beneficial interest in a Global Subordinated Exchange Note, and, in the case of
a Transfer Restricted Subordinated Exchange Note, the following additional
information and documents (all of which may be submitted by facsimile):
(A) if such beneficial interest is being transferred to the
Person designated by the Depositary as being the bene-
ficial owner, a certification to that effect from such
Person (in substantially the form of Exhibit B hereto);
---------
or
(B) if such beneficial interest is being transferred (1) to a
"qualified institutional buyer" (as defined in Rule 144A
under the Securities Act) in accordance with Rule 144A
under the Securities Act or (2) pursuant to an exemption
from registration in accordance with Rule 144 under the
Securities Act (and based on an opinion of counsel if
the Company so re quests) or (3) pursuant to an effec-
tive registration statement under the Securities Act, a
certification to that effect from the transferor (in
substantially the form of
Exhibit B hereto); or
---------
30
<PAGE>
(C) if such beneficial interest is being transferred to an
institutional "accredited investor," within the meaning of Rule
501(a)(1), (2), (3) or (7) under the Securities Act pursuant to a
private placement exemption from the registration requirements of
the Securities Act (and based on an opinion of counsel if the
Company so requests), a certification to that effect from such
Holder (in substantially the form of Exhibit B hereto) and a
---------
certification from the applicable transferee (in substantially
the form of Exhibit C hereto); or
---------
(D) if such beneficial interest is being transferred in reliance on
another exemption from the registration requirements of the
Securities Act (and based on an opinion of counsel if the Company
so requests), a certification to that effect from such Holder (in
substantially the form of Exhibit B hereto).
---------
The Trustee or the Subordinated Exchange Note Custodian, at the
direction of the Trustee, shall, in accordance with the standing
instructions and procedures existing between the Depositary and the
Subordinated Exchange Note Custodian, cause the aggregate principal
amount of Global Subordinated Exchange Notes to be reduced accordingly
and, following such reduction, the Company shall execute and, upon
receipt of an authentication order in accordance with Section 2.2
hereof, the Trustee shall authenticate and deliver to the transferee a
Definitive Subordinated Exchange Note in the appropriate principal
amount.
(ii) Definitive Subordinated Exchange Notes issued in exchange for a
beneficial interest in a Global Subordinated Exchange Note pursuant to this
Section 2.6(d) shall be registered in such
31
<PAGE>
names and in such authorized denominations as the Depositary, pursuant to
instructions from its direct or indirect participants or otherwise, shall
instruct the Trustee. The Trustee shall deliver in accordance with the
standard procedures of the Depositary such Definitive Subordinated Exchange
Notes to the Persons in whose names such Subordinated Exchange Notes are
so registered.
(e) Restrictions on Transfer and Exchange of Global Subordinated
------------------------------------------------------------
Exchange Notes. Notwithstanding any other provision of this Indenture (other
- --------------
than the provisions set forth in subsection (f) of this Section 2.6), a Global
Subordinated Exchange Note may not be transferred as a whole except by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or by the Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary.
(f) Authentication of Definitive Subordinated Exchange Notes in
-----------------------------------------------------------
Absence of Depositary. If at any time:
- ---------------------
(i) the Depositary for the Subordinated Exchange Notes notifies
the Company that the Depositary is unwilling or unable to continue as
Depositary for the Global Subordinated Exchange Notes and a successor
Depositary for the Global Subordinated Exchange Notes is not appointed by
the Company within 90 days after delivery of such notice; or
(ii) The Company, at its sole discretion, notifies the Trustee
in writing that it elects to cause the issuance of Definitive Subordinated
Exchange Notes under this Indenture,
then the Company shall execute, and the Trustee shall, upon receipt of an
authentication order in accordance with Section 2.2, authenticate and deliver,
Definitive Subordinated Exchange Notes in an aggregate principal amount equal to
the principal amount of the Global Subordinated Exchange Notes in exchange for
such Global Subordinated Exchange Notes and registered in such names as the
Depositary shall instruct the Trustee or the Company in writing.
32
<PAGE>
(g) Legends.
-------
(i) Except for any Transfer Restricted Subordinated Exchange Note
sold or transferred (including any Transfer Restricted Subordinated Exchange
Note represented by a Global Subordinated Exchange Note) as described in (ii)
below, each Subordinated Exchange Note certificate evidencing Global
Subordinated Exchange Notes and Definitive Subordinated Exchange Notes (and all
Subordinated Exchange Notes issued in exchange therefor or substitution
thereof) shall bear legends in substantially the following form:
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED
IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED
STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THE SECURITY
--------------
EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE
SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF
THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE
SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A)
SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1)(a)
INSIDE THE UNITED STATES TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS
A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A,
(b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, OR (c) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN
OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), (2) TO THE COMPANY OR (3)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND
EACH SUBSEQUENT HOLDER
33
<PAGE>
IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED
HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE."
(ii) Upon any sale or transfer of a Transfer Restricted Subordinated
Exchange Note (including any Transfer Restricted Subordinated Exchange Note
represented by a Global Subordinated Exchange Note) pursuant to an effective
registration statement under the Securities Act, pursuant to Rule 144 under the
Securities Act or pursuant to an opinion of counsel reasonably satisfactory to
the Company and the Registrar that no legend is required:
(A) in the case of any Transfer Restricted Subordinated Exchange Note
that is a Definitive Subordinated Exchange Note, the Registrar
shall permit the Holder thereof to exchange such Transfer
Restricted Subordinated Exchange Note for a Definitive
Subordinated Exchange Note that does not bear the legend set forth
in (i) above and rescind any restriction on the transfer of such
Transfer Restricted Subordinated Exchange Note; and
(B) in the case of any Transfer Restricted Subordinated Exchange Note
represented by a Global Subordinated Exchange Note, such Transfer
Restricted Subordinated Exchange Note shall not be required to
bear the legend set forth in (i) above if all other interests in
such Global Subordinated Exchange Note have been or are
concurrently being sold or transferred pursuant to Rule 144 under
the Securities Act or pursuant to an effective registration
statement under the Securities Act, but such Transfer Restricted
Subordinated Exchange Note shall continue to be subject to the
provisions of Section 2.6(c); provided, however, that with respect
-------- -------
to any request for an exchange of a Transfer
34
<PAGE>
Restricted Subordinated Exchange Note that is represented by a
Global Subordinated Exchange Note for a Definitive Subordinated
Exchange Note that does not bear the legend set forth in (i)
above, which request is made in reliance upon Rule 144, the Holder
thereof shall certify in writing to the Registrar that such
request is being made pursuant to Rule 144 (such certification to
be substantially in the form of Exhibit B hereto).
---------
(iii) Notwithstanding the foregoing, upon consummation of the
Exchange Offer, the Company shall issue and, upon receipt of an
authentication order in accordance with Section 2.2, the Trustee shall
authenticate, Series B Subordinated Exchange Notes in exchange for Series A
Subordinated Exchange Notes accepted for exchange in the Exchange Offer,
which Series B Subordinated Exchange Notes shall not bear the legend set
forth in (i) above, and the Registrar shall rescind any restriction on the
transfer of such Subordinated Exchange Notes, in each case unless the
Holder of such Series A Subordinated Exchange Notes is either (A) a broker-
dealer, (B) a Person participating in the distribution of the Series A
Subordinated Exchange Notes or (C) a Person who is an affiliate (as defined
in Rule 144A) of the Company. The Company shall identify to the Trustee
such Holders of the Subordinated Exchange Notes in a written certification
signed by an Officer of the Company and, absent certification from the
Company to such effect, the Trustee shall assume that there are no such
Holders.
(h) Cancellation and/or Adjustment of Global Subordinated Exchange
--------------------------------------------------------------
Notes. At such time as all beneficial interests in Global Subordinated Exchange
- -----
Notes have been exchanged for Definitive Subordinated Exchange Notes, redeemed,
repurchased or cancelled, all Global Subordinated Exchange Notes shall be
returned to or retained and cancelled by the Trustee in accordance with Section
2.11. At any time prior to such cancellation, if any beneficial interest in a
Global Subordinated Exchange Note is exchanged for Definitive Subordinated
Exchange Notes, redeemed, repurchased or cancelled, the principal
35
<PAGE>
amount of Subordinated Exchange Notes represented by such Global Subordinated
Exchange Note shall be reduced accordingly and an endorsement shall be made on
such Global Subordinated Exchange Note, by the Trustee or the Subordinated
Exchange Notes Custodian, at the direction of the Trustee, to reflect such
reduction.
(i) General Provisions Relating to Transfers and Exchanges.
------------------------------------------------------
(i) To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate Definitive
Subordinated Exchange Notes and Global Subordinated Exchange Notes at the
Registrar's request.
(ii) No service charge shall be made to a Holder for any
registration of transfer or "exchange, but the Company may require payment
of a sum sufficient to cover any transfer tax or similar governmental
charge payable in connection therewith (other than any such transfer taxes
or similar governmental charge payable upon exchange or transfer pursuant
to Sections 3.7, 4.10, 4.11 and 9.5).
(iii) Neither the Company nor the Registrar shall be required
to register the transfer of or exchange any Subordinated Exchange Note
selected for redemption in whole or in part, except the unredeemed portion
of any Subordinated Exchange Note being redeemed in part.
(iv) All Definitive Subordinated Exchange Notes and Global
Subordinated Exchange Notes issued upon any registration of transfer or
exchange of Definitive Subordinated Exchange Notes or Global Subordinated
Exchange Notes in accordance with this Indenture (including any increase in
the aggregate principal amount of the Subordinated Exchange Notes
represented by the Global Subordinated Exchange Note pursuant to subsection
(b) above) shall be the valid obligations of the Company, evidencing the
same debt, and entitled to the same benefits under this Indenture, as the
Definitive Subordinated Exchange Notes or Global Subordinated Exchange
Notes surrendered upon such registration of transfer or exchange.
36
<PAGE>
(v) The Company shall not be required to issue Subordinated
Exchange Notes and the Registrar shall not be required to register the
transfer of or to exchange Subordinated Exchange Notes during a period
beginning at the opening of business 15 days before the day of any
selection of Subordinated Exchange Notes for redemption under Section 3.2
and ending at the close of business on the day of selection, or to
register the transfer of or to exchange a Subordinated Exchange Note
between a record date and the next succeeding interest payment date.
(vi) Prior to due presentment for the registration of a
transfer of any Subordinated Exchange Note, the Trustee, any Agent and the
Company may deem and treat the Person in whose name any Subordinated
Exchange Note is registered as the absolute owner of such Subordinated
Exchange Note for the purpose of receiving payment of principal of,
premium, if any, accrued and unpaid interest, and Liquidated Damages, if
any, on such Subordinated Exchange Notes, and neither the Trustee, any
Agent nor the Company shall be affected by notice to the contrary.
(vii) The Trustee shall authenticate Definitive Subordinated
Exchange Notes and Global Subordinated Exchange Notes in accordance with
the provisions of Section 2.2.
SECTION 7 REPLACEMENT SUBORDINATED EXCHANGE NOTES.
---------------------------------------
If any mutilated Subordinated Exchange Note is surrendered to the Trustee,
or the Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Subordinated Exchange Note, the Company shall
issue and the Trustee, upon the Company's written order signed by two Officers,
shall authenticate a replacement Subordinated Exchange Note if the Trustee's
requirements are met. If the Trustee or the Company requires it, the Holder
must supply an indemnity bond that is sufficient in the judgment of the Trustee
and the Company to protect the Company, the Trustee, any Agent or any
authenticating agent from any loss that any of them may suffer if a Subordinated
Exchange Note is replaced. The Company and the Trustee may charge for their
expenses in replacing a Subordinated
37
<PAGE>
Exchange Note. Every replacement Subordinated Exchange Note is an additional
Obligation of the Company.
SECTION 8 OUTSTANDING SUBORDINATED EXCHANGE NOTES.
---------------------------------------
The Subordinated Exchange Notes outstanding at any time are all the
Subordinated Exchange Notes the Trustee has authenticated except for those it
has cancelled, those delivered to it for cancellation, those representing
reductions in the interest in a Global Subordinated Exchange Note effected by
the Trustee in accordance with the provisions hereof, and those described in
this Section as not outstanding.
If a Subordinated Exchange Note is replaced pursuant to Section 2.7, it
ceases to be outstanding unless the Trustee receives proof satisfactory to it
that a bona fide purchaser holds the replaced Subordinated Exchange Note.
If the entire principal of, and premium, if any, and accrued interest on
any Subordinated Exchange Note is considered paid under Section 4.1, it ceases
to be outstanding and interest and Liquidated Damages on it cease to accrue.
Subject to Section 2.9, a Subordinated Exchange Note does not cease to be
outstanding because the Company or an Affiliate holds the Subordinated Exchange
Note.
SECTION 9 TREASURY SUBORDINATED EXCHANGE NOTES.
------------------------------------
In determining whether the Holders of the required principal amount of
Subordinated Exchange Notes have concurred in any direction, waiver or consent,
Subordinated Exchange Notes owned by the Company or an Affiliate shall be
considered as though not outstanding, except that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Subordinated Exchange Notes that a Trust
Officer of the Trustee knows are so owned shall be so disregarded.
Notwithstanding the foregoing, Subordinated Exchange Notes that the Company or
an Affiliate offers to purchase or acquires pursuant to an Offer, exchange
offer, tender offer or otherwise shall not be deemed to be owned by the Company
or an Affiliate until
38
<PAGE>
legal title to such Subordinated Exchange Notes passes to the Company or such
Affiliate, as the case may be.
SECTION 10 TEMPORARY SUBORDINATED EXCHANGE NOTES.
-------------------------------------
Until Definitive Subordinated Exchange Notes are ready for delivery, the
Company may prepare and the Trustee shall authenticate temporary Subordinated
Exchange Notes. Temporary Subordinated Exchange Notes shall be substantially in
the form of Definitive Subordinated Exchange Notes but may have variations that
the Company considers appropriate for temporary Subordinated Exchange Notes.
Without unreasonable delay, the Company shall prepare and the Trustee, upon
receipt of the Company's written order signed by two Officers which shall
specify the amount of temporary Subordinated Exchange Notes to be authenticated
and the date on which the temporary Subordinated Exchange Notes are to be
authenticated, shall authenticate Definitive Subordinated Exchange Notes and
deliver them in exchange for temporary Subordinated Exchange Notes. Until such
exchange, Holders of temporary Subordinated Exchange Notes shall be entitled to
the same rights, benefits and privileges as Definitive Subordinated Exchange
Notes.
SECTION 11 CANCELLATION.
------------
The Company at any time may deliver Subordinated Exchange Notes to the
Trustee for cancellation. The Registrar and the Paying Agent shall forward to
the Trustee any Subordinated Exchange Notes surrendered to them for registration
of transfer, exchange, replacement, payment (including all Subordinated Exchange
Notes called for redemption and all Subordinated Exchange Notes accepted for
payment pursuant to an Offer) or cancellation, and the Trustee shall cancel all
such Subordinated Exchange Notes and shall destroy all cancelled Subordinated
Exchange Notes (subject to the Exchange Act's record retention requirements) and
deliver a certificate of their destruction to the Company unless by written
order, signed by two Officers of the Company, the Company shall direct that
cancelled Subordinated Exchange Notes be returned to it. The Company may not
issue new Subordinated Exchange Notes to replace any Subordinated Exchange
Notes that have been cancelled by the Trustee or that have been delivered to the
Trustee for cancellation. If the Company or an Affiliate acquires any
Subordinated
39
<PAGE>
Exchange Notes (other than by redemption or pursuant to an Offer), such
acquisition shall not operate as a redemption or satisfaction of the
Indebtedness represented by such Subordinated Exchange Notes unless and until
such Subordinated Exchange Notes are delivered to the Trustee for cancellation.
SECTION 12 DEFAULTED INTEREST.
------------------
If the Company defaults in a payment of interest on the Subordinated
Exchange Notes, it shall pay the defaulted interest in any lawful manner plus,
to the extent lawful, interest payable on the defaulted interest, to Holders on
a subsequent special record date, in each case at the rate provided in the
Subordinated Exchange Notes. The Company shall fix or cause to be fixed each
such special record date and payment date. As early as practicable prior to
the special record date, the Company (or the Trustee, in the name of and at the
expense of the Company) shall mail a notice that states the special record date,
the related payment date and the amount of interest to be paid.
SECTION 13 RECORD DATE.
-----------
The record date for purposes of determining the identity of Holders of
Subordinated Exchange Notes entitled to vote or consent to any action by vote
or consent authorized or permitted under this Indenture shall be determined as
provided for in section 316(c) of the TIA.
SECTION 14 CUSIP NUMBER.
------------
A "CUSIP" number shall be printed on the Subordinated Exchange Notes, and
the Trustee shall use the CUSIP number in notices of redemption, purchase or
exchange as a convenience to Holders, provided that any such notice may state
--------
that no representation is made as to the correctness or accuracy of the CUSIP
number printed in the notice or on the Subordinated Exchange Notes and that
reliance may be placed only on the other identification numbers printed on the
Subordinated Exchange Notes. The Company shall promptly notify the Trustee of
any change in the CUSIP number.
40
<PAGE>
ARTICLE 3
OPTIONAL REDEMPTION AND
MANDATORY OFFERS TO PURCHASE
SECTION 1 NOTICES TO TRUSTEE.
------------------
If the Company elects to redeem Subordinated Exchange Notes pursuant
to Section 3.7, it shall furnish to the Trustee, at least 40 days prior to the
redemption date and at least 10 days prior to the date that notice of the
redemption is to be mailed by the Company to Holders, an Officers' Certificate
stating that the Company has elected to redeem Subordinated Exchange Notes
pursuant to Section 3.7(a) or 3.7(b), as the case may be, the date notice of
redemption is to be mailed to Holders, the redemption date, the aggregate
principal amount of Subordinated Exchange Notes to be redeemed, the redemption
price for such Subordinated Exchange Notes and the amount of accrued and unpaid
interest on and Liquidated Damages, if any, with respect to such Subordinated
Exchange Notes as of the redemption date. If the Trustee is not the Registrar,
the Company shall, concurrently with delivery of its notice to the Trustee of a
redemption, cause the Registrar to deliver to the Trustee a certificate (upon
which the Trustee may rely) setting forth the name of, and the aggregate
principal amount of Subordinated Exchange Notes held by, each Holder.
If the Company is required to offer to purchase Subordinated Exchange
Notes pursuant to Section 4.10 or 4.11, it shall furnish to the Trustee, at
least 2 Business Days before notice of the Offer is to be mailed to Holders, an
Officers' Certificate setting forth that the Offer is being made pursuant to
Section 4.10 or 4.11, as the case may be, the Purchase Date, the maximum
principal amount of Subordinated Exchange Notes the Company is offering to
purchase pursuant to the Offer, the purchase price for such Subordinated
Exchange Notes, and the amount of accrued and unpaid interest on and Liquidated
Damages, if any, with respect to such Subordinated Exchange Notes as of the
Purchase Date.
The Company will also provide the Trustee with any additional
information that the Trustee reasonably requests in connection with any
redemption or Offer.
41
<PAGE>
SECTION 2 SELECTION OF SUBORDINATED EXCHANGE NOTES TO BE REDEEMED OR
----------------------------------------------------------
PURCHASED.
---------
If less than all outstanding Subordinated Exchange Notes are to be
redeemed or if less than all Subordinated Exchange Notes tendered pursuant to an
Offer are to be accepted for payment, the Trustee shall select the outstanding
Subordinated Exchange Notes to be redeemed or accepted for payment pro rata, by
lot or by a method that complies with the requirements of any stock exchange on
which the Subordinated Exchange Notes are listed and that the Trustee considers
fair and appropriate. If the Company elects to mail notice of a redemption to
Holders, the Trustee shall at least 5 business days prior to the date notice of
redemption is to be mailed, (i) select the Subordinated Exchange Notes to be
redeemed from Subordinated Exchange Notes outstanding not previously called for
redemption and (ii) notify the Company of the names of each Holder of
Subordinated Exchange Notes selected for redemption, the principal amount of
Subordinated Exchange Notes held by each such Holder and the principal amount of
such Holder's Subordinated Exchange Notes that are to be redeemed. If less than
all Subordinated Exchange Notes tendered pursuant to an Offer on the Purchase
Date are to be accepted for payment, the Trustee shall select on or promptly
after the Purchase Date the Subordinated Exchange Notes to be accepted for
payment. The Trustee shall select for redemption or purchase Subordinated
Exchange Notes or portions of Subordinated Exchange Notes in principal amounts
of $1,000 or integral multiples of $1,000; except that if all of the
Subordinated Exchange Notes of a Holder are selected for redemption or purchase,
the aggregate principal amount of the Subordinated Exchange Notes held by such
Holder, even if not a multiple of $1,000, shall be redeemed or purchased. Except
as provided in the preceding sentence, provisions of this Indenture that apply
to Subordinated Exchange Notes called for redemption or tendered pursuant to an
offer also apply to portions of Subordinated Exchange Notes called for
redemption or tendered pursuant to an Offer. The Trustee shall notify the
Company promptly of the Subordinated Exchange Notes or portions of Subordinated
Exchange Notes to be called for redemption or selected for purchase.
42
<PAGE>
SECTION 3 NOTICE OF REDEMPTION.
--------------------
At least 30 days but not more than 60 days before a redemption date,
the Company shall mail a notice of redemption to each Holder of Subordinated
Exchange Notes or portions thereof that are to be redeemed.
The notice shall identify the Subordinated Exchange Notes or portions
thereof to be redeemed and shall state:
(1) the redemption date;
(2) the redemption price for the Exchange Notes and separately
stating the amount of unpaid and accrued interest on, and
Liquidated Damages, if any, with respect to, such
Subordinated Exchange Notes as of the date of redemption;
(3) if any Subordinated Exchange Note is being redeemed in part,
the portion of the principal amount of such Subordinated
Exchange Notes to be redeemed and that, after the redemption
date, upon surrender of such Subordinated Exchange Note, a new
Subordinated Exchange Note or Subordinated Exchange Notes in
principal amount equal to the unredeemed portion will be
issued;
(4) the name and address of the Paying Agent;
(5) that Subordinated Exchange Notes called for redemption must be
surrendered to the Paying Agent to collect the redemption
price for, and any accrued and unpaid interest on, and
Liquidated Damages, if any, with respect to, such Subordinated
Exchange Notes;
(6) that, unless the Company defaults in making such redemption
payment, interest on Subordinated Exchange Notes called for
redemption ceases to accrue on and after the redemption date;
(7) the paragraph of the Subordinated Exchange Notes pursuant to
which the Subordinated
43
<PAGE>
Exchange Notes called for redemption are being redeemed; and
(8) the CUSIP number; provided that no representation is made as
--------
to the correctness or accuracy of the CUSIP number listed in
such notice and printed on the Subordinated Exchange Notes.
At the Company's request, the Trustee shall (at the Company's expense)
give the notice of redemption in the Company's name at least 30 but not more
than 60 days before a redemption; provided, however, that the Company shall
-------- -------
deliver to the Trustee, at least 45 days prior to the redemption date and at
least 10 days prior to the date that notice of the redemption is to be mailed to
Holders, an Officers' Certificate that (i) requests the Trustee to give notice
of the redemption to Holders, (ii) sets forth the information to be provided to
Holders in the notice of redemption, as set forth in the preceding paragraph,
(iii) states that the Company has elected to redeem Subordinated Exchange Notes
pursuant to Section 3.7(a) or 3.7(b), as the case may be, and (iv) sets forth
the aggregate principal amount of Subordinated Exchange Notes to be redeemed and
the amount of accrued and unpaid interest and Liquidated Damages, if any,
thereon as of the redemption date. If the Trustee is not the Registrar, the
Company shall, concurrently with any such request, cause the Registrar to
deliver to the Trustee a certificate (upon which the Trustee may rely) setting
forth the name of, the address of, and the aggregate principal amount of
Subordinated Exchange Notes held by, each Holder.
SECTION 4 EFFECT OF NOTICE OF REDEMPTION.
------------------------------
Once notice of redemption is mailed, Subordinated Exchange Notes
called for redemption become due and payable on the redemption date at the price
set forth in the Subordinated Exchange Note. Upon surrender to the Trustee or
Paying Agent, such Subordinated Exchange Notes called for redemption shall be
paid at the redemption price (which shall include accrued interest thereon to
the redemption date) but installments of interest, the maturity of which is on
or prior to the redemption date, shall be payable to Holders of record at the
close of business on the relevant record dates.
44
<PAGE>
SECTION 5 DEPOSIT OF REDEMPTION PRICE.
---------------------------
On or prior to any redemption date, the Company shall deposit with the
Trustee or with the Paying Agent money sufficient to pay the redemption price
of, and accrued interest on, and Liquidated Damages, if any, with respect to,
all Subordinated Exchange Notes to be redeemed on that date. The Trustee or
the Paying Agent shall return to the Company any money that the Company
deposited with the Trustee or the Paying Agent in excess of the amounts
necessary to pay the redemption price of, and accrued interest on, and
Liquidated Damages, if any, with respect to, all Subordinated Exchange Notes to
be redeemed.
If the Company complies with the preceding paragraph, interest on the
Subordinated Exchange Notes to be redeemed will cease to accrue on such
Subordinated Exchange Notes on the applicable redemption date, whether or not
such Subordinated Exchange Notes are presented for payment. If a Subordinated
Exchange Note is redeemed on or after an interest record date but on or prior to
the related interest payment date, then any accrued and unpaid interest and
Liquidated Damages, if any, shall be paid to the Person in whose name such
Subordinated Exchange Note was registered at the close of business on such
record date. If any Subordinated Exchange Note called for redemption shall not
be so paid upon surrender for redemption because of the failure of the Company
to comply with the preceding paragraph, interest will be paid on the unpaid
principal, premium, if any, interest and Liquidated Damages, if any, from the
redemption date until such principal, premium and interest and Liquidated
Damages, if any, is paid, at the rate of interest provided in the Subordinated
Exchange Notes and Section 4.1.
SECTION 6 SUBORDINATED EXCHANGE NOTES REDEEMED IN PART.
--------------------------------------------
Upon surrender of a Subordinated Exchange Note that is redeemed in
part, the Company shall issue and the Trustee shall authenticate for the Holder
at the Company's expense a new Subordinated Exchange Note equal in principal
amount to the unredeemed portion of the Subordinated Exchange Note surrendered.
45
<PAGE>
SECTION 7 OPTIONAL REDEMPTION PROVISIONS.
------------------------------
(a) Except as provided in Section 3.7(b), the Subordinated Exchange
Notes may not be redeemed at the option of the Company prior to August 1, 2002,
other than out of the net proceeds of one or more Equity Offerings, as and to
the extent described in this Indenture. During the twelve (12) month period
beginning on August 1 of the years indicated below, the Subordinated Exchange
Notes will be redeemable at the option of the Company, in whole or in part, on
at least 30 but not more than 60 days' notice to each Holder of Subordinated
Exchange Notes to be redeemed, at the redemption prices (expressed as
percentages of the principal amount) set forth below, plus any accrued and
unpaid interest and Liquidated Damages, if any, to the redemption date:
<TABLE>
Year Percentage
---- ----------
<S> <C>
2002 ....................... 106.6250%
2003 ....................... 104.4167%
2004 ....................... 102.2083%
2005 and thereafter ........ 100.0000%
</TABLE>
(b) Notwithstanding the foregoing, at any time the Company may
redeem the Subordinated Exchange Notes in whole, but not in part, at a
redemption price of 113.25% of the principal amount thereof, plus any accrued
and unpaid interest and Liquidated Damages, if any, to the applicable date of
redemption with the proceeds of an Equity Offering; provided, that such
--------
redemption shall occur within 60 days of the date of the closing of such Equity
Offering.
SECTION 8 MANDATORY PURCHASE PROVISIONS.
-----------------------------
(a) Within 30 days following any Change of Control or Asset Sale
Trigger Date, the Company shall mail a notice to each Holder at such Holder's
registered address stating (i) that an offer ("Offer") is being made pursuant to
-----
Section 4.10 or Section 4.11, as the case may be, the length of time the Offer
shall remain open, the amount of the Offer and the maximum aggregate principal
amount of Subordinated Exchange Notes that will be accepted for payment
pursuant to such Offer; (ii) the
46
<PAGE>
purchase price for the Subordinated Exchange Notes (as set forth in Section 4.10
or Section 4.11, as the case may be), the amount of accrued and unpaid interest
on, and Liquidated Damages, if any, with respect to, such Subordinated Exchange
Notes as of the purchase date, and the purchase date (which shall be no earlier
than 30 days or later than 40 days from the date such notice is mailed (the
"Purchase Date")); (iii) that any Subordinated Exchange Note not accepted for
-------------
payment will continue to accrue interest and Liquidated Damages, if any; (iv)
that, unless the Company fails to deposit with the Paying Agent on the Purchase
Date an amount sufficient to purchase all Subordinated Exchange Notes accepted
for payment, interest shall cease to accrue on such Subordinated Exchange Notes
after the Purchase Date; (v) that Holders electing to tender any Subordinated
Exchange Note or portion thereof will be required to surrender their
Subordinated Exchange Note, with a form entitled "Option of Holder to Elect
Purchase" completed, to the Paying Agent at the address specified in the notice
prior to the close of business on the Business Day preceding the Purchase Date,
provided that Holders electing to tender only a portion of any Subordinated
- --------
Exchange Note must tender a principal amount of $1,000 or integral multiples
thereof, (vi) that Holders will be entitled to withdraw their election to tender
Subordinated Exchange Notes, if the Paying Agent receives, not later than the
close of business on the third Business Day preceding the Purchase Date, a
telegram, telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of Subordinated Exchange Notes delivered for
purchase, and a statement that such Holder is withdrawing his election to have
such Subordinated Exchange Note purchased; and (vii) that Holders whose
Subordinated Exchange Notes are accepted for payment in part will be issued new
Subordinated Exchange Notes equal in principal amount to the unpurchased portion
of Subordinated Exchange Notes surrendered; provided that only Subordinated
--------
Exchange Notes in a principal amount of $1,000 or integral multiples thereof
will be accepted for payment in part.
(b) On any Purchase Date, the Company shall, to the extent lawful
and required by this Indenture and such Offer, (i) in the case of an Offer
resulting from a Change of Control, accept for payment all Subordinated Exchange
Notes or portions thereof tendered pursuant to
47
<PAGE>
such Offer and, in the case of an Offer resulting from an Asset Sale Trigger
Date, accept for payment the maximum aggregate principal amount of Subordinated
Exchange Notes or portions thereof tendered pursuant to such Offer that can be
purchased out of Excess Proceeds from such Asset Sale Trigger Date, (ii) deposit
with the Paying Agent the aggregate purchase price of all Subordinated Exchange
Notes or portions thereof accepted for payment and any accrued and unpaid
interest and Liquidated Damages, if any, on such Subordinated Exchange Notes as
of the Purchase Date, and (iii) deliver or cause to be delivered to the Trustee
all Subordinated Exchange Notes so accepted together with an Officers'
Certificate stating the Subordinated Exchange Notes or portions thereof tendered
to the Company.
(c) With respect to any Offer, if less than all of the Subordinated
Exchange Notes tendered pursuant to an Offer are to be purchased by the Company,
the Trustee shall select on the Purchase Date the Subordinated Exchange Notes
or portions thereof to be accepted for payment pursuant to Section 3.2.
(d) Promptly after consummation of an Offer, (i) the Paying Agent
shall mail (or cause to be transferred by book entry) to each Holder of
Subordinated Exchange Notes or portions thereof accepted for payment an amount
equal to the purchase price for, plus any accrued and unpaid interest on, and
Liquidated Damages, if any, with respect to, such Subordinated Exchange Notes as
of the Purchase Date, (ii) with respect to any tendered Subordinated Exchange
Note not accepted for payment in whole or in part, the Trustee shall return such
Subordinated Exchange Note to the Holder thereof, and (iii) with respect to any
Subordinated Exchange Note accepted for payment in part, the Trustee shall
authenticate and mail to each such Holder a new Subordinated Exchange Note equal
in principal amount to the unpurchased portion of the tendered Subordinated
Exchange Note, provided that each such new Subordinated Exchange Note shall be
--------
in a principal amount of $1,000 or integral multiples thereof.
(e) The Company will publicly announce the results of the Offer on
or as soon as practicable after the Purchase Date.
48
<PAGE>
(f) The Company shall comply with Rule 14e-1 under the Exchange Act
and any other securities laws and regulations to the extent such laws and
regulations are applicable to any Offer. To the extent that the provisions of
any of the securities laws or regulations conflict with provisions of this
Indenture, the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under this
Indenture by virtue thereof.
(g) With respect to any Offer, if the Company deposits prior to
10:00 a.m. New York City time with the Paying Agent on the Purchase Date an
amount in available funds sufficient to purchase all Subordinated Exchange Notes
accepted for payment, interest shall cease to accrue on such Subordinated
Exchange Notes after the Purchase Date; provided, however, that if the Company
-------- -------
fails to deposit such amount on the Purchase Date, interest shall continue to
accrue on such Subordinated Exchange Notes until such deposit is made.
ARTICLE 4
COVENANTS
SECTION 1 PAYMENT OF SUBORDINATED EXCHANGE NOTES.
--------------------------------------
The Company shall pay the principal of, and premium, if any, and accrued
and unpaid interest on the Subordinated Exchange Notes on the dates and in the
manner provided in the Subordinated Exchange Notes. Holders of Subordinated
Exchange Notes must surrender their Subordinated Exchange Notes to the Paying
Agent to collect principal payments. Principal of, premium, if any, and accrued
and unpaid interest, and Liquidated Damages, if any, shall be considered paid on
the date due if the Paying Agent (other than the Company or any of its
Subsidiaries), the Global Subordinated Exchange Note Holder or each Holder that
has specified an account, holds, as of 10:00 a.m. New York City time, money the
Company deposited in immediately available funds designated for and sufficient
to pay in cash all principal, premium, if any, and accrued and unpaid interest
on, and Liquidated Damages, if any, then due; provided that, to the extent that
--------
the Holders have not specified accounts, such amounts shall be considered paid
on the date due if the Company mails a check for such amounts on such date. The
49
<PAGE>
Paying Agent shall return to the Company, no later than five days following the
date of payment, any money (including accrued interest) that exceeds the amount
of principal, premium, if any, accrued and unpaid interest, and Liquidated
Damages, if any, paid on the Subordinated Exchange Notes. The Company shall pay
all Liquidated Damages, if any, in the same manner on the dates and in the
amounts set forth in the Registration Rights Agreement. If any Liquidated
Damages become payable, the Company shall not later than three Business Days
prior to the date that any payment of Liquidated Damages is due (i) deliver an
Officers' Certificate to the Trustee setting forth the amount of Liquidated
Damages payable to Holders and (ii) instruct the Paying Agent to pay such amount
of Liquidated Damages to Holders entitled to receive such Liquidated Damages.
To the extent lawful, the Company shall pay interest (including Post-
Petition Interest) on (i) overdue principal and premium at the then applicable
interest rate on the Subordinated Exchange Notes, compounded semiannually and
(ii) overdue installments of interest (without regard to any applicable grace
period) at the same rate as set forth in clause (i), compounded semiannually.
To the extent any payment on the Subordinated Exchange Notes, whether by
or on behalf of the Company, as proceeds of security or enforcement of any right
of setoff or otherwise, is declared to be fraudulent or preferential, set aside
or required to be paid to a trustee, receiver or other similar party under any
bankruptcy, insolvency, receivership or similar law, then if such payment is
recovered by, or paid over to, such trustee, receiver or other similar party,
the Subordinated Exchange Notes or part thereof originally intended to be
satisfied by such payment shall be deemed to be reinstated and outstanding as if
such payment had not occurred.
SECTION 2 SEC REPORTS.
-----------
(a) The Company shall file with the Trustee, within 15 days after it
files them with the SEC, copies of the annual reports and of the information,
documents and other reports (or copies of such portions of any of the foregoing
as the SEC may by rules and regulations prescribe) that the Company is required
to file with the
50
<PAGE>
SEC pursuant to Section 13 or 15(d) of the Exchange Act. If the Company is not
subject to the requirements of Section 13 or 15(d) of the Exchange Act, the
Company shall file with the Trustee, within 15 days after it would have been
required to file with the SEC, financial statements, including any notes thereto
(and with respect to annual reports, an auditor's report by a firm of
established national reputation), and a "Management's Discussion and Analysis of
Financial Condition and Results of Operations," both comparable to that which
the Company would have been required to include in such annual reports,
information, documents or other reports if the Company were subject to the
requirements of Section 13 or 15(d) of the Exchange Act. Subsequent to the
qualification of this Indenture under the TIA, the Company also shall comply
with the provisions of section 314(a) of the TIA.
(b) If the Company is required to furnish annual or quarterly
reports to its stockholders pursuant to the Exchange Act, the Company shall
cause any annual report furnished to its stockholders generally and any
quarterly or other financial reports it furnishes to its stockholders generally
to be filed with the Trustee and the Company shall mail to the Holders at their
addresses appearing in the register of Subordinated Exchange Notes maintained by
the Registrar. If the Company is not required to furnish annual or quarterly
reports to its stockholders pursuant to the Exchange Act, the Company shall
cause its financial statements referred to in Section 4.2(a), including any
notes thereto (and with respect to annual reports, an auditors' report by a firm
of established national reputation), and a "Management's Discussion and Analysis
of Financial Condition and Results of Operations," to be so mailed to the
Holders within 120 days after the end of each of the Company's fiscal years and
within 60 days after the end of each of the first three fiscal quarters of each
year. The Company shall cause to be disclosed in a statement accompanying any
annual report or comparable information as of the date of the most recent
financial statements in each such report or comparable information the amount
available for payments pursuant to Section 4.5. As of the date hereof, the
Company's fiscal year ends on December 31.
(c) If the Company is not subject to the requirements of Section 13
or 15(d) of the Exchange Act,
51
<PAGE>
for so long as any Subordinated Exchange Notes remain outstanding, the Company
shall furnish to the Holders, securities analysts and prospective investors,
upon their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act.
(d) Notwithstanding anything herein to the contrary, the Trustee
shall have no duty to review such documents for purposes of determining their
compliance with any provision of this Indenture.
SECTION 3 COMPLIANCE CERTIFICATE.
----------------------
The Company shall deliver to the Trustee, within 120 days after the end of
each fiscal year of the Company, an Officers' Certificate stating that a review
of the activities of the Company and its Subsidiaries during the preceding
fiscal year has been made under the supervision of the signing Officers with a
view to determine whether the Company has kept, observed, performed and
fulfilled its obligations under this Indenture, and further stating, as to each
such Officer signing such certificate, that, to the best of his or her
knowledge, the Company has kept, observed, performed and fulfilled each and
every covenant contained in this Indenture and is not in default in the
performance or observance of any of the terms, provisions and conditions hereof
(or, if a Default or Event of Default shall have occurred, describing all such
Defaults or Events of Default of which he or she may have knowledge and what
action the Company has taken or proposes to take with respect thereto) and that,
to the best of his or her knowledge no event has occurred and remains in
existence by reason of which payments on account of the principal of, premium,
if any, and accrued and unpaid interest on, and Liquidated Damages, if any, with
respect to the Subordinated Exchange Notes are prohibited or if such event has
occurred, a description of the event and what action the Company is taking or
proposes to take with respect thereto.
So long as not contrary to the then current recommendations of the American
Institute of Certified Public Accountants, the financial statements delivered
pursuant to Section 4.2 shall be accompanied by a written statement of the
Company's independent public accountants (who shall be a firm of established
national reputation reasonably satisfactory to the Trustee) that in making the
52
<PAGE>
examination necessary for certification of such financial statements nothing has
come to their attention that would lead them to believe that the Company has
violated any provisions of Section 4.1, 4.5, 4.6, 4.7, 4.8, 4.9, 4.10, 4.11 or
4.12 or of Sections 4.7, 4.9, 4.11 or 4.15 of each of the Senior Notes Indenture
and the Discount Notes Indenture, or of Article 5 or, if any such violation has
occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.
The Company shall, so long as any of the Subordinated Exchange Notes are
outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware
of any Default or Event of Default, an Officers' Certificate specifying such
Default or Event of Default and what action the Company is taking or proposes to
take with respect thereto.
SECTION 4 STAY, EXTENSION AND USURY LAWS.
------------------------------
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, that might affect the covenants
or the performance of this Indenture; and the Company (to the extent it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not, by resort to any such law, hinder, delay or
impede the execution of any power herein granted to the Trustee, but will suffer
and permit the execution of every such power as though no such law has been
enacted.
SECTION 5 LIMITATION ON RESTRICTED PAYMENTS.
---------------------------------
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, (i) declare or pay any dividend or make
any distribution on account of the Company's or such Restricted Subsidiary's
Capital Stock or other Equity Interests (other than dividends or distributions
payable in Capital Stock or other Equity Interests (other than Disqualified
Stock) of the Company or a Restricted Subsidiary and other than dividends or
distributions payable
53
<PAGE>
by a Restricted Subsidiary to another Restricted Subsidiary or to the Company);
(ii) purchase, redeem or otherwise acquire or retire for value any Equity
Interests of the Company or any of its Restricted Subsidiaries (other than any
such Equity Interest purchased from the Company or any Restricted Subsidiary for
fair market value (as determined by the Board of Directors in good faith));
(iii) voluntarily prepay Subordinated Indebtedness, whether any such
Subordinated Indebtedness is outstanding on, or issued after, the date of
original issuance of the Senior Notes and Discount Notes, except as specifically
permitted by the covenants of this Indenture; or (iv) make any Restricted
Investment (all such dividends, distributions, purchases, redemptions,
acquisitions, retirements, prepayments and Restricted Investments being
collectively referred to as "Restricted Payments"), if, at the time of such
-------------------
Restricted Payment:
(A) a Default or Event of Default shall have occurred and be
continuing or shall occur as a consequence thereof; or
(B) immediately after such Restricted Payment and after giving
effect thereto on a Pro Forma Basis, the Company shall not be
able to issue $1.00 of additional Indebtedness pursuant to
Section 4.7(a) of each of the Senior Notes Indenture and the
Discount Notes Indenture; or
(C) such Restricted Payment, together with the aggregate of all
other Restricted Payments made after the date of original
issuance of the Senior Notes and Discount Notes, without
duplication, exceeds the sum of: (1) 50% of the aggregate
Consolidated Net Income (including, for this purpose, gains from
Asset Sales and, to the extent not included in Consolidated Net
Income, any gain from a sale or disposition of a Restricted
Investment) of the Company (or, in case such aggregate is a
loss, 100% of such loss) for the period (taken as one accounting
period) from the beginning of the first fiscal quarter
commencing immediately after the date of original issuance of
the Senior Notes and Discount
54
<PAGE>
Notes and ended as of the Company's most recently ended fiscal
quarter at the time of such Restricted Payment, plus (2) 100% of
the aggregate net cash proceeds and the fair market value of any
property or securities (as determined by the Board of Directors
in good faith) received by the Company from the issue or sale of
Capital Stock or other Equity Interests of the Company subsequent
to the date of original issuance of the Senior Notes and Discount
Notes (other than (x) Capital Stock or other Equity Interests
issued or sold to a Restricted Subsidiary and (y) the issuance or
sale of Disqualified Stock), plus (3) $5,000,000, plus (4) the
amount by which the principal amount of and any accrued interest
on either (A) Senior Indebtedness of the Company, or (B) any
Indebtedness of the Restricted Subsidiaries is reduced on the
Company's consolidated balance sheet upon the conversion or
exchange subsequent to the date of original issuance of the
Senior Notes and Discount Notes of any such Indebtedness of the
Company or any Restricted Subsidiary (not held by the Company or
any Restricted Subsidiary) for Capital Stock or other Equity
Interests (other than Disqualified Stock) of the Company or any
Restricted Subsidiaries (less the amount of any cash, or the fair
market value of any other property or securities (as determined
by the Board of Directors in good faith), distributed by the
Company or any Restricted Subsidiary (to Persons other than the
Company or any other Restricted Subsidiary) upon such conversion
or exchange), plus (5) if any Non-Restricted Subsidiary is
redesignated as a Restricted Subsidiary, the value of the deemed
Restricted Payment resulting therefrom and determined in
accordance with the second sentence of Section 4.12; provided,
--------
however, that for purposes of this clause (5), the value of any
-------
redesignated Non-Restricted Subsidiary shall be reduced by the
amount that any such redes-
55
<PAGE>
ignation replenishes or increases the amount of Restricted
Investments permitted to be made pursuant to Section 4.5(b)(ii).
(b) Notwithstanding Section 4.5(a), the following Restricted
Payments may be made: (i) the payment of any dividend within 60 days after the
date of declaration thereof, if at said date of declaration such payment would
comply with all the provisions hereof (including, but not limited to, this
Section 4.5); (ii) making Restricted Investments at any time, and from time to
time, in an aggregate outstanding amount of $40,000,000 after the date of
original issuance of the Senior Notes and Discount Notes (it being understood
that if any Restricted Investment made after the date of original issuance of
the Senior Notes and Discount Notes pursuant to this Section 4.5(b)(ii) is sold,
transferred or otherwise conveyed to any Person other than the Company or a
Restricted Subsidiary, the portion of the net cash proceeds or fair market value
of securities or properties paid or transferred to the Company and its
Restricted Subsidiaries in connection with such sale, transfer or conveyance
that relates or corresponds to the repayment or return of the original cost of
such a Restricted Investment will replenish or increase the amount of Restricted
Investments permitted to be made pursuant to this clause (ii), so that up to
$40,000,000 of Restricted Investments may be outstanding under this Section
4.5(b)(ii) at any given time; provided that without otherwise limiting this
--------
clause (ii) any Restricted Investment in a Restricted Subsidiary made pursuant
to this Section 4.5(b)(ii) is made for fair market value (as determined by the
Board of Directors in good faith); (iii) the repurchase, redemption or
acquisition of the Company's stock from the executives, management and employees
or consultants of the Company or its Subsidiaries pursuant to the terms of any
subscription, stockholder or other agreement or plan, up to an aggregate amount
not to exceed $5,000,000; (iv) any loans, advances, distributions or payments
from the Company to its Restricted Subsidiaries, or any loans, advances,
distributions or payments by a Restricted Subsidiary to the Company or to
another Restricted Subsidiary, pursuant to intercompany Indebtedness,
intercompany management agreements, intercompany tax sharing agreements and
other intercompany agreements and obligations; (v) the purchase, redemption,
retirement or other acquisition of (A) any Senior Indebtedness of the Company
56
<PAGE>
and any Indebtedness of a Restricted Subsidiary required by its terms to be
purchased, redeemed, retired or acquired with the net proceeds from asset sales
(as defined in the instrument evidencing such Indebtedness) or upon a change of
control (as defined in the instrument evidencing such Indebtedness) and (B) the
Subordinated Exchange Notes pursuant to Sections 3.7, 4.10 and 4.11; (vi)
dividends and redemptions in respect of the Dura-Line Preferred Stock pursuant
to the Dura-Line Agreement; (vii) to the extent constituting Restricted
Payments, payments under the Tax Sharing Agreement, New Subsidiary Consulting
Agreement, Transition Agreement and the Properties Services Agreement; (viii) to
the extent constituting Restricted Payments, (A) payments under the New
Subsidiary Advisory Agreement, provided that such payments will not be made and
--------
shall be accrued so long as any Default or Event of Default shall have occurred
and be continuing or shall occur as a consequence thereof, and the Company's
Obligations to pay such fees under the New Subsidiary Advisory Agreement shall
be subordinated expressly to the Company's Obligations in respect of the
Subordinated Exchange Notes, and (B) indemnities, expenses and other amounts
under the New Subsidiary Advisory Agreement; (ix) the redemption, repurchase,
retirement or the acquisition of any Capital Stock or other Equity Interests of
the Company or any Restricted Subsidiary in exchange for, or out of the proceeds
of, the substantially concurrent sale (other than to a Subsidiary of the
Company) of other Capital Stock or other Equity Interests of the Company or any
Restricted Subsidiary (other than any Disqualified Stock); provided that any net
--------
cash proceeds that are utilized for any such redemption, repurchase, retirement
or other acquisition, and any Net Income resulting therefrom, shall be excluded
from this Section 4.5(a)(iv)(c) (1) and (c)(2); (x) the defeasance, redemption
or repurchase of Indebtedness with the net cash proceeds from an issuance of
permitted Refinancing Indebtedness or the substantially concurrent sale (other
than to a Subsidiary of the Company) of Capital Stock or other Equity Interests
of the Company or any Restricted Subsidiary (other than Disqualified Stock);
provided that any net cash proceeds that are utilized for any such defeasance,
- --------
redemption or repurchase, and any Net Income resulting therefrom, shall be
excluded from this Section 4.5(a)(iv)(c)(1) and (c)(2); (xi) payments of fees,
expenses and indemnities in respect of the Company's and its Subsidiaries'
directors and such payments to Jordan
57
<PAGE>
Industries, Inc., an Illinois corporation and corporate parent of the Company,
in respect of their directors, provided that the aggregate amount of such fees
--------
payable to all such directors does not exceed $250,000 in any fiscal year; (xii)
Restricted Investments received in consideration for the sale, transfer or
disposition by the Company or any Restricted Subsidiary of any business,
properties or assets belonging thereto, provided that the Company complies with
--------
Section 4.11; (xiii) any Restricted Investment constituting securities or
instruments of a Person issued in exchange for trade or other claims against
such Person in connection with a financial reorganization or restructuring of
such Person; (xiv) to the extent constituting Restricted Payments, payments and
transactions in connection with the Offering or the Company Formation; or (xv)
any Restricted Investment constituting an equity investment in a Receivables
Subsidiary, provided that the aggregate amount of such equity investments does
--------
not exceed $1,000,000.
SECTION 6 CORPORATE EXISTENCE.
-------------------
Subject to Section 4.11 and Article 5, the Company shall do or cause to be
done all things necessary to preserve and keep in full force and effect its
corporate existence and the corporate, partnership or other existence of each of
its Restricted Subsidiaries in accordance with the respective organizational
documents of each of its Restricted Subsidiaries and the rights (charter and
statutory), licenses and franchises of the Company and each of its Restricted
Subsidiaries; provided, however, that the Company shall not be required to
-------- -------
preserve any such right, license or franchise, or the corporate, partnership or
other existence of any Restricted Subsidiary, if the Board of Directors shall
determine that the preservation thereof is no longer desirable in the conduct of
the business of the Company and its Restricted Subsidiaries taken as a whole,
and that the loss thereof is not adverse in any material respect to the Holders.
58
<PAGE>
SECTION 7 LIMITATION ON TRANSACTIONS WITH
-------------------------------
AFFILIATES.
----------
(a) Except as otherwise set forth herein, neither the Company nor
any of its Restricted Subsidiaries shall make any loan, advance, guarantee or
capital contribution to, or for the benefit of, or sell, lease, transfer or
dispose of any properties or assets to, or for the benefit of, or purchase or
lease any property or assets from, or enter into or amend any contract,
agreement or understanding with, or for the benefit of, an Affiliate (each such
transaction or series of related transactions that are part of a common plan, an
"Affiliate Transaction"), except in good faith and on terms that are no less
---------------------
favorable to the Company or the relevant Restricted Subsidiary than those that
would have been obtained in a comparable transaction on an arm's length basis
from an unrelated Person.
(b) The Company shall not, and shall not permit any Restricted
Subsidiary to, engage in any Affiliate Transactions involving aggregate
payments or other transfers by the Company and its Restricted Subsidiaries in
excess of $5,000,000 (including cash and non-cash payments and benefits valued
at their fair market value by the Board of Directors in good faith), unless the
Company delivers to the Trustee: (i) a resolution of the Board of Directors
stating that the Board of Directors (including a majority of the disinterested
directors, if any) has, in good faith, determined that such Affiliate
Transaction complies with the provisions of this Indenture; and (ii)(A) with
respect to any Affiliate Transaction involving the incurrence of Indebtedness,
a written opinion of a nationally recognized investment banking or accounting
firm experienced in the review of similar types of transactions, (B) with
respect to any Affiliate Transaction involving the transfer of real property,
fixed assets or equipment, either directly or by a transfer of 50% or more of
the Capital Stock of a Restricted Subsidiary which holds any such real property,
fixed assets or equipment, a written appraisal from a nationally recognized
appraiser experienced in the review of similar types of transactions or (C) with
respect to any Affiliate Transaction not otherwise described in (A) or (B)
above, or in lieu of the opinions and appraisals referred to in (A) and (B)
above, a written certification from a nationally recognized professional or firm
experienced in
59
<PAGE>
evaluating similar types of transactions, in each case, stating that the terms
of such transaction are fair to the Company or such Restricted Subsidiary, as
the case may be, and the Holders of the Subordinated Exchange Notes from a
financial point of view.
(c) Notwithstanding Sections 4.7(a) and (b), this Section 4.7 shall
not apply to: (i) transactions between the Company and any Restricted Subsidiary
or between Restricted Subsidiaries; (ii) payments expressly due under the New
Subsidiary Advisory Agreement, the New Subsidiary Consulting Agreement, the
Transition Agreement, the Properties Services Agreement and the Tax Sharing
Agreement; provided that any amendments, supplements, modifications,
--------
substitutions, renewals or replacements of the foregoing agreements are
approved by a majority of the Board of Directors (including a majority of
disinterested directors, if any) as fair to the Company and the Holders of the
Subordinated Exchange Notes; (iii) any Restricted Payments permitted pursuant to
Section 4.5; (iv) reasonable compensation paid to officers, employees or
consultants of the Company or any Subsidiary as determined in good faith by the
Company's Board of Directors or executives; (v) transactions in connection with
a Receivables Financing; or (vi) payments and transactions in connection with
the Offering and the Company Formation.
SECTION 8 COMPLIANCE WITH LAWS, TAXES.
---------------------------
The Company shall, and shall cause each of its Restricted Subsidiaries to,
comply with all statutes, laws, ordinances, or government rules and regulations
to which it is subject, the non-compliance with which would materially adversely
affect the business, prospects, earnings, properties, assets or condition,
financial or otherwise, of the Company and its Restricted Subsidiaries taken as
a whole.
The Company shall, and shall cause each of its Restricted Subsidiaries to,
pay prior to delinquency all taxes, assessments and governmental levies, except
those contested in good faith by appropriate proceedings.
60
<PAGE>
SECTION 9 MAINTENANCE OF OFFICE OR AGENCIES.
---------------------------------
The Company shall maintain in the Borough of Manhattan, the City of
New York an office or an agency (which may be an office of any Agent) where
Subordinated Exchange Notes may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Company in respect of the
Subordinated Exchange Notes and this Indenture may be served. The Company shall
give prompt written notice to the Trustee of any change in the location of such
office or agency. If at any time the Company shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the Corporate Trust Office.
The Company may also from time to time designate one or more other
offices or agencies where the Subordinated Exchange Notes may be presented or
surrendered for any or all such purposes and may from time to time rescind such
designations; provided, however, that no such designation or rescission shall in
-------- -------
any manner relieve the Company of its obligation to maintain an office or agency
in the Borough of Manhattan, the City of New York for such purposes. The
Company shall give prompt written notice to the Trustee of any such designation
or rescission and of any change in the location of any such other office or
agency.
The Company hereby designates the Corporate Trust Office of the
Trustee located at First Trust National Association, 100 Wall Street, 20th
Floor, New York, New York 10005, as one such office or agency of the Company in
accordance with Section 2.3.
SECTION 10 CHANGE OF CONTROL.
-----------------
(a) Upon the occurrence of a Change of Control, each Holder of
Subordinated Exchange Notes shall have the right to require the Company to
purchase all or any part (equal to $1,000 or an integral multiple there-of) of
such Holder's Subordinated Exchange Notes pursuant to an Offer at a purchase
price in cash equal to 101% of the aggregate principal amount thereof, plus any
accrued and unpaid interest and Liquidated Damages, if any, to the date of
purchase.
61
<PAGE>
(b) Prior to the mailing of the notice referred to in Section
3.8(a), but in any event within 30 days following any Change of Control, the
Company shall (i) repay in full and terminate all commitments under Indebtedness
under the New Credit Agreement and all other Senior Indebtedness the terms of
which require repayment upon a Change of Control or offer to repay in full and
terminate all commitments under all Indebtedness under the New Credit Agreement
and all such other Senior Indebtedness and to repay the Indebtedness owed to
each lender which has accepted such offer or (ii) obtain the requisite consents
under the New Credit Agreement and all such other Senior Indebtedness to permit
the repurchase of the Subordinated Exchange Notes as provided in Section 3.8(b).
The Company shall first comply with Section 4.13(b)(ii) before it shall be
required to repurchase Subordinated Exchange Notes pursuant to the provisions in
Section 3.8. The Company's failure to comply with this Section 4.10(b) shall
constitute an Event of Default described in clause (iii) and not in clause (ii)
under Section 6.1(a).
(c) In the event of a Change of Control, the Company shall not offer
to purchase or redeem any Subordinated Indebtedness required or entitled by its
terms to be redeemed or purchased until the Change of Control Offer for the
Subordinated Exchange Notes has been consummated and all Subordinated Exchange
Notes tendered pursuant to such Offer have been accepted for payment.
SECTION 11 LIMITATION ON ASSET SALES.
-------------------------
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, consummate an Asset Sale (including the
sale of any of the Capital Stock of any Restricted Subsidiary) providing for Net
Proceeds in excess of $2,500,000 unless at least 75% of the Net Proceeds from
such Asset Sale are applied (in any manner otherwise permitted by this
Indenture)to one or more of the following purposes in such combination as the
Company shall elect: (i) an investment in another asset or business in the same
line of business as, or a line of business similar to that of, the line of
business of the Company and its Restricted Subsidiaries at the time of the Asset
Sale; provided that such investment occurs on or prior to the 365th day
--------
following the date of such Asset Sale (the "Asset Sale Disposition
----------------------
62
<PAGE>
Date"), (ii) to reimburse the Company or its Subsidiaries for expenditures made,
- ----
and costs incurred, to repair, rebuild, replace or restore property subject to
loss, damage or taking, to the extent that the Net Proceeds consist of insurance
proceeds received on account of such loss, damage or taking, (iii) the purchase,
redemption or other prepayment or repayment of outstanding Senior Indebtedness
of the Company or Indebtedness of the Company's Restricted Subsidiaries on or
prior to the 365th day following the Asset Sale Disposition Date or (iv) an
Offer expiring on or prior to the Purchase Date.
(b) The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, consummate an Asset Sale unless at least
75% of the consideration thereof received by the Company or such Restricted
Subsidiary is in the form of cash, cash equivalents or marketable securities;
provided that, solely for purposes of calculating such 75% of the consideration,
- --------
the amount of (i) any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet or in the notes thereto, excluding
contingent liabilities and trade payables), of the Company or any Restricted
Subsidiary (other than liabilities that are by their terms subordinated to the
Subordinated Exchange Notes) that are assumed by the transferee of any such
assets and (ii) any notes or other obligations received by the Company or any
such Restricted Subsidiary from such transferee that are promptly, but in no
event more than 30 days after receipt, converted by the Company or such
Restricted Subsidiary into cash (to the extent of the cash received), shall be
deemed to be cash and cash equivalents for purposes of this provision. Any Net
Proceeds from any Asset Sale that are not applied or invested as provided in
Section 4.11(a) shall constitute "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds exceeds $10,000,000
(such date being an "Asset Sale Trigger Date"), subject to Section 10 hereof,
-----------------------
the Company shall make an Offer to all Holders of Subordinated Exchange Notes
to purchase the maximum principal amount of the Subordinated Exchange Notes then
outstanding that may be purchased out of Excess Proceeds, at an offer price in
cash in an amount equal to 100% of the principal amount thereof plus any accrued
and unpaid interest and Liqui-
63
<PAGE>
dated Damages, if any, to the Purchase Date in accordance with the procedures
set forth in this Indenture.
(d) To the extent that any Excess Proceeds remain after completion of
an Offer for Subordinated Exchange Notes, the Company may use such remaining
amount for general corporate purposes.
(e) If the aggregate principal amount of Subordinated Exchange Notes
surrendered by Holders there-of exceeds the amount of Excess Proceeds, the
Trustee shall select the Subordinated Exchange Notes to be purchased on a pro
rata basis, by lot or by a method that complies with the requirements of any
stock exchange on which the Subordinated Exchange Notes are listed and that the
Trustee considers fair and appropriate.
(f) Upon completion of an Offer related to an Asset Sale, the amount
of Excess Proceeds shall be reset at zero.
(g) Notwithstanding the foregoing, to the extent that any or all of
the Net Proceeds of an Asset Sale is prohibited or delayed by applicable local
law from being repatriated to the United States, the portion of such Net
Proceeds so affected will not be required to be applied pursuant to Section
4.11, but may be retained for so long, but only for so long, as the applicable
local law prohibits repatriation to the United States. The Company will promptly
take all reasonable actions required by the applicable local law to permit such
repatriation, and once such repatriation of any affected Net Proceeds is not
prohibited under applicable local law, such repatriation will be immediately
effected and such repatriated Net Proceeds will be applied in the manner set
forth above as if such Asset Sale had occurred on the date of repatriation.
SECTION 12 DESIGNATION OF RESTRICTED AND NON-RESTRICTED SUBSIDIARIES.
---------------------------------------------------------
(a) From and after the date of original issuance of the Senior Notes
and the Discount Notes, the Company may designate any existing or newly formed
or acquired Subsidiary as a Non-Restricted Subsidiary, provided that (i) either
--------
(A) the Subsidiary to be so designated has total assets of $1,000,000 or less or
(B)
64
<PAGE>
immediately before and after giving effect to such designation on a Pro Forma
Basis, (1) the Company could incur $1.00 of additional Indebtedness pursuant to
Section 4.7(a) of each of the Senior Notes Indenture and the Discount Notes
Indenture determined on a Pro Forma Basis; and (2) no Default or Event of
Default shall have occurred and be continuing, or shall occur as a consequence
thereof, and (ii) all transactions between the Subsidiary to be so designated
and its Affiliates remaining in effect are permitted pursuant to Section 4.8.
Any Investment made by the Company or any Restricted Subsidiary in a Subsidiary
which is redesignated from a Restricted Subsidiary to a Non-Restricted
Subsidiary shall be considered as having been a Restricted Payment (to the
extent not previously included as a Restricted Payment) made on the day such
Subsidiary is designated as a Non-Restricted Subsidiary in the amount of the
greater of (i) the fair market value (as determined by the Board of Directors of
the Company in good faith) of the Equity Interests of such Subsidiary held by
the Company and its Restricted Subsidiaries on such date, and (ii) the amount of
the Investments determined in accordance with GAAP made by the Company and any
of its Restricted Subsidiaries in such Subsidiary.
(b) A Non-Restricted Subsidiary may be redesignated as a Restricted
Subsidiary. The Company shall not, and shall not permit any Restricted
Subsidiary to, take any action or enter into any transaction or series of
transactions that would result in a Person becoming a Restricted Subsidiary
(whether through an acquisition, the redesignation of a Non-Restricted
Subsidiary or otherwise, but not including through the creation of a new
Restricted Subsidiary) unless, immediately before and after giving effect to
such action, transaction or series of transactions on a Pro Forma Basis, (i) the
Company could incur at least $1.00 of additional Indebtedness pursuant to
Section 4.7(a) of each of the Senior Notes Indenture and the Discount Notes
Indenture and (ii) no Default or Event of Default shall have occurred and be
continuing or shall occur as a consequence thereof.
(c) The designation of a Subsidiary as a Restricted Subsidiary or the
removal of such designation is required to be made by a resolution adopted by a
majority of the Board of Directors of the Company stating that the Board of
Directors has made such designation in
65
<PAGE>
accordance with this Indenture, and the Company is required to deliver to the
Trustee such resolution together with an Officers' Certificate certifying that
the designation complies with this Indenture. Such designation shall be
effective as of the date specified in the applicable resolution, which may not
be before the date the applicable Officers' Certificate is delivered to the
Trustee.
(d) The sale and transfer of all of the Equity Interests in a foreign
Restricted Subsidiary to a Non-Restricted Subsidiary and the subsequent
redesignation of such foreign Restricted Subsidiary as a Non-Restricted
Subsidiary as contemplated by the definition of "Restricted Subsidiary" will
not be considered a redesignation of a Restricted Subsidiary for purposes of
this Section 4.12.
ARTICLE 5
SUCCESSORS
SECTION 1 MERGER OR CONSOLIDATION.
-----------------------
(a) The Company shall not consolidate or merge with or into, or sell,
lease, convey or otherwise dispose of all or substantially all of its assets to,
any Person(any such consolidation, merger or sale being a "Disposition") unless
-----------
(i) the successor corporation of such Disposition or the Person to which such
Disposition shall have been made is a corporation organized or existing under
the laws of the United States, any state thereof or the District of Columbia;
(ii) the successor corporation of such Disposition or the corporation to which
such Disposition shall have been made expressly assumes the Obligations of the
Company, pursuant to a supplemental indenture in a form reasonably satisfactory
to the Trustee, under the Indenture and the Subordinated Exchange Notes; (iii)
immediately after such Disposition, no Default or Event of Default shall exist;
and (iv) the corporation formed by or surviving any such Disposition, or the
corporation to which such Disposition shall have been made, shall (A) have
Consolidated Net Worth (immediately after the Disposition but prior to giving
effect on a Pro Forma Basis to any purchase accounting adjustments or
Restructuring Charges resulting from the Disposition) equal to or greater than
the Consolidated Net Worth of
66
<PAGE>
the Company immediately preceding the Disposition, (B) be permitted immediately
after the Disposition by the terms of this Indenture to issue at least $1.00 of
additional Indebtedness determined on a Pro Forma Basis pursuant to Section
4.7(a) of each of the Senior Notes Indenture and the Discount Notes Indenture,
and (C) have a Cash Flow Coverage Ratio, for the four fiscal quarters
immediately preceding the applicable Disposition, determined on a Pro Forma
Basis, equal to or greater than the actual Cash Flow Coverage Ratio of the
Company for such four quarter period. The limitations in this Section 5.1(a) on
the Company's ability to make a Disposition do not restrict the Company's
ability to sell less than all or substantially all of its assets, such sales
being governed by Section 4.11.
(b) Prior to the consummation of any proposed Disposition, the
Company shall deliver to the Trustee an Officers' Certificate to the foregoing
effect and an Opinion of Counsel stating that the proposed Disposition and such
supplemental indenture comply with this Indenture.
SECTION 2 SUCCESSOR CORPORATION SUBSTITUTED.
---------------------------------
Upon any Disposition, the Successor Corporation resulting from such
Disposition shall succeed to, and be substituted for, and may exercise every
right and power of, the Company under this Indenture with the same effect as if
such Successor has been named as the Company herein; provided, however, that
-------- -------
neither the Company nor any Successor Corporation shall be released from its
Obligation to pay the principal of, premium, if any, and accrued and unpaid
interest on, and Liquidated Damages, if any, with respect to the Subordinated
Exchange Notes.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 1 EVENTS OF DEFAULT.
-----------------
(a) An Event of Default is:
(i) a default for 30 days in payment of interest on, or
Liquidated Damages, if any, with respect to, the Subordinated Exchange Notes;
67
<PAGE>
(ii) a default in payment when due at maturity, upon
redemption or otherwise, of principal or premium, if any, with respect to, the
Subordinated Exchange Notes;
(iii) the failure of the Company to comply with any of its
other agreements or covenants in, or provisions of, this Indenture or the
Subordinated Exchange Notes outstanding and the Default continues for the
period, if applicable, and after the notice specified in Section 6.1(b);
(iv) a default by the Company or any Restricted Subsidiary
under any mortgage, indenture or instrument under which there may be issued or
by which there may be secured or evidenced any Indebtedness for money borrowed
by the Company or any Restricted Subsidiary (or the payment of which is
guaranteed by the Company or any Restricted Subsidiary), whether such
Indebtedness or guarantee now exists or shall be created hereafter, if (A)
either (1) such default results from the failure to pay principal of or interest
on any such Indebtedness at the Stated Maturity thereof or upon such
Indebtedness becoming due upon the redemption thereof or otherwise and such
default continues for 30 days beyond any applicable grace period or (2) as a
result of such default the maturity of such Indebtedness has been accelerated
prior to its expressed maturity, and (B) the principal amount of such
Indebtedness, together with the principal amount of any other such Indebtedness
in default for failure to pay principal or interest thereon, at final maturity,
or because of the acceleration of the maturity thereof, aggregates in excess of
$10,000,000;
(v) a failure by the Company or any Restricted Subsidiary to
pay final judgments (not covered by insurance) aggregating in excess of
$10,000,000 which judgments a court of competent jurisdiction does not rescind,
annual or stay within 45 days after their entry and the Default continues for
the period and after the notice specified in Section 6.1(b);
68
<PAGE>
(vi) in existence when the Company or any Significant
Subsidiary pursuant to or within the meaning of any Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief against it
in an involuntary case,
(C) consents to the appointment of a Custodian of it or for
all or substantially all of its property, or
(D) makes a general assignment for the benefit of its
creditors; and
(vii) in existence when a court of competent jurisdiction
enters an order or decree under any Bankruptcy Law that:
(A) is for relief against the Company or any Significant
Subsidiary in an in voluntary case,
(B) appoints a Custodian of the Company or any Significant
Subsidiary or for all or substantially all of the
property of the Company or any Significant Subsidiary,
or
(C) orders the liquidation of the Company or any Significant
Subsidiary,
and any such order or decree remains unstayed and in effect for
60 days.
(b) A Default or Event of Default under Section 6.1(a)(iii) (other
than an Event of Default arising under Section 5.1 which shall be an Event of
Default with the notice but without the passage of time specified in this
Section 6.1(b)) or Section 6.1(a)(v) is not an Event of Default under this
Indenture until the Trustee or the Holders of at least 25% in principal amount
of the Subordinated Exchange Notes then outstanding notify the Company of the
Default and the Company does not cure the Default within 45 days after receipt
of the notice. The
69
<PAGE>
notice must specify the Default, demand that it be remedied, and state that the
notice is a "Notice of Default."
-----------------
(c) In the case of any Event of Default pursuant to Section 6.1(a)
or Section 6.1(b) occurring by reason of any willful action (or inaction) taken
(or not taken) by or on behalf of the Company with the intention of avoiding
payment of the premium that the Company would have to pay if the Company then
had elected to redeem the Subordinated Exchange Notes pursuant to paragraph 5 of
the Subordinated Exchange Notes, an equivalent premium shall also become and be
immediately due and payable to the extent permitted by law, anything in this
Indenture or in the Subordinated Exchange Notes contained to the contrary
notwithstanding.
(d) The Trustee shall not be charged with knowledge of any Default or
Event of Default unless written notice thereof shall have been given to a Trust
Officer at the Corporate Trust Office of the Trustee by the Company or any other
Person.
SECTION 2 ACCELERATION.
------------
(a) Upon the occurrence of an Event of Default (other than an Event
of Default under Section 6.1(a)(vi) or (vii)), the Trustee or the Holders of at
least 25% in principal amount of the then outstanding Subordinated Exchange
Notes may declare all Subordinated Exchange Notes to be due and payable
immediately and, upon such declaration, the principal of, premium, if any, and
any accrued and unpaid interest on, and Liquidated Damages, if any, with respect
to all Subordinated Exchange Notes shall be due and payable immediately;
provided, however, that if an Event of Default arises under Section 6.1(a)(vi)
- -------- -------
or (vii), the principal of, and any accrued and unpaid interest on, all
Subordinated Exchange Notes, shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
Holders of Subordinated Exchange Notes.
(b) The Holders of a majority in principal amount of the
Subordinated Exchange Notes then outstanding, by notice to the Trustee, may
rescind any declaration of acceleration of such Subordinated Exchange Notes and
its consequences (if the rescission would not con-
70
<PAGE>
flict with any judgment or decree) if all existing Events of Default (other than
the nonpayment of principal of or interest on such Subordinated Exchange Notes
that shall have become due by such declaration) shall have been cured or waived.
(c) If there has been a declaration of acceleration of the
Subordinated Exchange Notes because an Event of Default under Section 6.1(a)(iv)
has occurred and is continuing, such declaration of acceleration shall be
automatically annulled if the holders of the Indebtedness described in Section
6.1(a)(iv) have rescinded the declaration of acceleration in respect of such
Indebtedness within 30 Business Days thereof and if (i) the annulment of such
acceleration would not conflict with any judgment or decree of a court of
competent jurisdiction, (ii) all existing Events of Default, except non-payment
of principal or interest that shall have become due solely because of the
acceleration, have been cured or waived, and (iii) the Company has delivered an
Officers' Certificate to the Trustee to the effect of clauses (i) and (ii)
above.
SECTION 3 OTHER REMEDIES.
--------------
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy to collect the payment of principal of, premium, if
any, or any accrued and unpaid interest on, or Liquidated Damages, if any, with
respect to the Subordinated Exchange Notes or to enforce the performance of any
provision of the Subordinated Exchange Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Subordinated Exchange Notes or does not produce any of them in the
proceeding. A delay or omission by the Trustee or any Holder in exercising any
right or remedy accruing upon an Event of Default shall not impair the right or
remedy or constitute a waiver of or acquiescence in the Event of Default. All
remedies are cumulative to the extent permitted by law.
SECTION 4 WAIVER OF PAST DEFAULTS.
-----------------------
71
<PAGE>
The holders of a majority in aggregate principal amount of the
Subordinated Exchange Notes then outstanding by notice to the Trustee may on
behalf of all Holders of Subordinated Exchange Notes waive any existing Default
or Event of Default under this Indenture and its consequences, except a
continuing Default in the payment of the principal of, premium, if any, and
interest on, and Liquidated Damages, if any, with respect to such Subordinated
Exchange Notes, which may only be waived with the consent of each Holder of
Subordinated Exchange Notes affected. Upon any such waiver, such Default shall
cease to exist, and any Event of Default arising therefrom shall be deemed to
have been cured for every purpose of this Indenture; provided that no such
--------
waiver shall extend to any subsequent or other Default or impair any right
consequent thereon.
SECTION 5 CONTROL BY MAJORITY.
-------------------
Subject to Section 7.1(e), the Holders of a majority in principal
amount of the then outstanding Subordinated Exchange Notes may 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 it by this Indenture.
However, the Trustee may refuse to follow any direction that conflicts with law
or this Indenture, that the Trustee determines may be unduly prejudicial to the
rights of other Holders or would involve the Trustee in personal liability.
SECTION 6 LIMITATION ON SUITS.
-------------------
A Holder may pursue a remedy with respect to this Indenture or the
Subordinated Exchange Notes only if (i) the Holder gives to the Trustee notice
of a continuing Event of Default; (ii) the Holders of at least 25% in principal
amount of the then outstanding Subordinated Exchange Notes make a request to the
Trustee to pursue the remedy; (iii) such Holder or Holders offer to the Trustee
indemnity satisfactory to the Trustee against any loss, liability or expense;
(iv) the Trustee does not comply with the request within 60 days after receipt
of the request and the offer of indemnity; and (v) during such 60-day period the
Holders of a majority in principal amount of the then outstanding Subordinated
Exchange Notes do not give the Trustee a direction inconsistent with the
request.
72
<PAGE>
A Holder may not use this Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over another Holder.
Holders of the Subordinated Exchange Notes may not enforce this
Indenture, except as provided herein.
SECTION 7 RIGHTS OF HOLDERS TO RECEIVE PAYMENT.
------------------------------------
Notwithstanding any other provision of this Indenture, the right of
any Holder to receive payment of principal of, premium, if any, and any accrued
and unpaid interest on, and Liquidated Damages, if any, with respect to a
Subordinated Exchange Note, on or after a respective due date expressed in the
Subordinated Exchange Note, or to bring suit for the enforcement of any such
payment on or after such respective date, shall not be impaired or affected
without the consent of the Holder.
SECTION 8 COLLECTION SUIT BY TRUSTEE.
--------------------------
If an Event of Default specified in Section 6.1(a)(i) or (ii) occurs
and is continuing, the Trustee is authorized to recover judgment in its own name
and as trustee of an express trust against the Company for (i) the principal,
premium and Liquidated Damages, if any, and interest remaining unpaid on the
Subordinated Exchange Notes, (ii) interest on overdue principal and premium, if
any, and, to the extent lawful, interest, and (iii) such further amount as shall
be sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel ("Trustee Expenses").
----------------
SECTION 9 TRUSTEE MAY FILE PROOFS OF CLAIM.
--------------------------------
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable to have the claims of the Trustee
(including any claim for Trustee Expenses) and the Holders allowed in any
Insolvency or Liquidation Proceeding or other judicial proceeding relative to
the Company (or any other obligor upon the Subordinated Exchange Notes), its
creditors or its property and shall be entitled and empowered to collect,
receive and distribute to Holders any money or other property payable or
deliverable on any such claims
73
<PAGE>
and each Holder authorizes any Custodian in any such Insolvency or Liquidation
Proceeding or other judicial proceeding to make such payments to the Trustee,
and if the Trustee shall consent to the making of such payments directly to the
Holders any such Custodian is hereby authorized to make such payments directly
to the Holders, and to pay to the Trustee any amount due to it hereunder for
Trustee Expenses, and any other amounts due the Trustee under Section 7.7. To
the extent that the payment of any such Trustee Expenses, and any other amounts
due the Trustee under Section 7.7 out of the estate in any such proceeding,
shall be denied for any reason, payment of the same shall be secured by a Lien
on, and shall be paid out of, any and all distributions, dividends, money,
securities and other properties which the Holders may be entitled to receive in
such proceeding, whether in liquidation or under any plan of reorganization or
arrangement or otherwise. Nothing herein contained shall be deemed to authorize
the Trustee to authorize or consent to or accept or adopt on behalf of any
Holder any plan of reorganization, arrangement, adjustment or composition
affecting the Subordinated Exchange Notes or the rights of any Holder, or to
authorize the Trustee to vote in respect of the claim of any Holder in any
Insolvency or Liquidation Proceeding.
SECTION 10 PRIORITIES.
----------
If the Trustee collects any money pursuant to this Article, it shall
pay out the money in the following order:
First: to the Trustee for amounts due under Section 7.7;
Second: to Holders for amounts due and unpaid on the Subordinated
Exchange Notes for principal, premium and Liquidated
Damages, if any, and interest, ratably, without preference
or priority of any kind, according to the amounts due and
payable on the Subordinated Exchange Notes for principal,
premium and Liquidated Damages, if any, and interest,
respectively; and
Third: to the Company or to such party as a court of competent
jurisdiction shall direct.
74
<PAGE>
The Trustee may fix a record date and payment date for any payment to
Holders.
SECTION 11 UNDERTAKING FOR COSTS.
---------------------
In any suit for the enforcement of any right or remedy under this Indenture
or in any suit against the Trustee for any action taken or omitted by it as a
Trustee, a court in its discretion may require the filing by any party litigant
in the suit of an undertaking to pay the costs of the suit, and the court in its
discretion may assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in the suit, having due regard to the merits and good
faith of the claims or defenses made by the party litigant. This Section does
not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.7,
or a suit by Holders of more than 10% in principal amount of the then
outstanding Subordinated Exchange Notes.
ARTICLE 7
TRUSTEE
SECTION 1 DUTIES OF TRUSTEE.
-----------------
(a) If an Event of Default occurs (and has not been cured) the
Trustee shall (i) exercise the rights and powers vested in it by this Indenture,
and (ii) use the same degree of care and skill in exercising such rights and
powers as a prudent man would exercise or use under the circumstances in the
conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Trustee's duties shall be determined solely by the
express provisions of this Indenture and the Trustee need perform only
those duties that are specifically set forth in this Indenture and no
others, and no implied covenants or obligations shall be read into this
Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the
75
<PAGE>
truth of the statements and the correctness of the opinions expressed
therein, upon certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture. However, the Trustee
shall examine the certificates and opinions to determine whether they
conform to this Indenture's requirements.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own wilful
misconduct, except that:
(i) this paragraph does not limit the effect of Section 7.1(b);
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer, unless it is proved that the Trustee
was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction it
receives pursuant to Section 6.5.
(d) Whether or not expressly so provided, every provision of this
Indenture that in any way relates to the Trustee is subject to paragraphs (a),
(b), (c) and (e) of this Section.
(e) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee shall be under
no obligation to exercise any of its rights and powers under this Indenture at
the request of any Holders unless such Holders shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
(f) The Trustee shall not be liable for interest on any money it
receives except as the Trustee may agree in writing with the Company. Money the
Trustee holds in trust need not be segregated from other funds except to the
extent required by law.
SECTION 2 RIGHTS OF TRUSTEE.
-----------------
76
<PAGE>
(a) The Trustee may rely on any document it believes to be genuine
and to have been signed or presented by the proper Person. The Trustee shall
not be obligated to investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
reasonably require an Officers' Certificate or an Opinion of Counsel, or both.
The Trustee shall not be liable for any action it takes or omits to take in good
faith in reliance on such Officers' Certificate or Opinion of Counsel. The
Trustee may consult with counsel and advice of such counsel or any Opinion of
Counsel shall be full and complete authorization and protection in respect of
any action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon.
(c) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any Agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take, except to the extent that such action or omission to act constitutes
negligence or wilful misconduct on the part of the Trustee.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer.
(f) Except with respect to Section 4.1, the Trustee shall have no duty
to inquire as to the performance by the Company with respect to the covenants
contained in Article 4. In addition, the Trustee shall not be deemed to have
knowledge of a Default or Event of Default except (i) any Default or Event of
Default occurring pursuant to Sections 4.1, 6.1(a)(i) or 6.1(a)(ii), or (ii)
any Default or Event of Default of which the Trustee shall have received written
notification or obtained actual knowledge.
SECTION 3 INDIVIDUAL RIGHTS OF TRUSTEE.
----------------------------
The Trustee in its individual or any other capacity may become the
owner or pledgee of Subordinated Exchange
77
<PAGE>
Notes and may otherwise deal with the Company or an Affiliate with the same
rights it would have if it were not Trustee. However, if the Trustee acquires
any conflicting interest it must eliminate such conflict within 90 days, apply
to the Commission for permission to continue as Trustee or resign. Any Agent
may do the same with like rights. The Trustee is also subject to Sections 7.10
and 7.11.
SECTION 4 TRUSTEE'S DISCLAIMER.
--------------------
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture or the Subordinated Exchange
Notes, it shall not be accountable for the Company's use of the proceeds from
the Subordinated Exchange Notes or for any money paid to the Company or upon the
Company's direction under any provisions hereof, it shall not be responsible for
the use or application of any money any Paying Agent other than the Trustee
receives, and it shall not be responsible for any statement or recital herein or
any statement in the Subordinated Exchange Notes or any other document furnished
or issued in connection with the sale of the Subordinated Exchange Notes or
pursuant to this Indenture, other than its certificate of authentication.
SECTION 5 NOTICE TO HOLDERS OF DEFAULTS AND EVENTS OF DEFAULT.
---------------------------------------------------
If a Default or Event of Default occurs and is continuing and if it is
actually known to the Trustee, the Trustee shall mail to Holders a notice of the
Default or Event of Default within 90 days after it occurs. Except in the case
of a Default or Event of Default in payment on any Subordinated Exchange Note
(including any failure to redeem Subordinated Exchange Notes called for
redemption or any failure to purchase Subordinated Exchange Notes tendered
pursuant to an Offer that are required to be purchased by the terms of this
Indenture), the Trustee may withhold the notice if and so long as a committee of
its Trust Officers in good faith determines that withholding the notice is in
the Holders' interests.
SECTION 6 REPORTS BY TRUSTEE TO HOLDERS.
-----------------------------
Within 60 days after each May 15 beginning with May 15, 1998, the
Trustee shall mail to Holders a brief
78
<PAGE>
report dated as of such reporting date that complies with section 313(a) of the
TIA (but if no event described in section 313(a) of the TIA has occurred within
the twelve months preceding the reporting date, no report need be transmitted).
The Trustee also shall comply with section 313(b)(2) of the TIA. The Trustee
shall also transmit by mail all reports as required by section 313(c) of the
TIA.
Commencing at the time this Indenture is qualified under the TIA, a
copy of each report at the time of its mailing to Holders shall be filed with
the SEC and each national securities exchange on which the Subordinated Exchange
Notes are listed. The Company shall notify the Trustee when the Subordinated
Exchange Notes are listed on any national securities exchange.
SECTION 7 COMPENSATION AND INDEMNITY.
--------------------------
The Company shall pay to the Trustee (in its capacities as Trustee,
Paying Agent and/or Registrar) from time to time reasonable compensation for its
services hereunder. The Trustee's compensation shall not be limited by any law
on compensation of a trustee of an express trust. The Company shall reimburse
the Trustee upon request for all reasonable disbursements, advances, fees and
expenses it incurs or makes in addition to the compensation for its services.
Such expenses shall include the reasonable compensation, disbursements and
expenses of the Trustee's agents and counsel.
The Company shall indemnify and hold harmless the Trustee (in its
capacities as Trustee, Paying Agent and/or Registrar) against any and all
losses, liabilities or expenses the Trustee incurs arising out of or in
connection with the acceptance or administration of its duties under this
Indenture, except as set forth below. The Trustee shall notify the Company
promptly of any claim for which it may seek indemnity. Failure by the Trustee
to so notify the Company shall not relieve the Company of its Obligations
hereunder. The Company shall defend the claim and the Trustee shall reasonably
cooperate in the defense. The Trustee may have separate counsel and the
Company shall pay the reasonable fees and expenses of such counsel. The Company
need not pay for any settlement made without its consent, which consent shall
not be unreasonably withheld.
79
<PAGE>
The Company's Obligations under this Section 7.7 shall survive the
satisfaction and discharge of this Indenture.
The Company need not reimburse any expense or indemnify against any
loss or liability the Trustee incurs through negligence or bad faith.
To secure the Company's payment of its Obligations in this Section,
the Trustee shall have a Lien prior to the Subordinated Exchange Notes on all
money or property the Trustee holds or collects. Such Lien shall survive the
satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.1(a)(vii) or (viii) occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents
and counsel) are intended to constitute administrative expenses under any
Bankruptcy Law.
SECTION 8 REPLACEMENT OF TRUSTEE.
----------------------
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section.
The Trustee may resign and be discharged from the trust hereby created
by so notifying the Company. The Holders of a majority in principal amount of
the then outstanding Subordinated Exchange Notes may remove the Trustee by so
notifying the Trustee and the Company. The Company may remove the Trustee if:
(i) the Trustee fails to comply with Section 7.10;
(ii) the Trustee is adjudged a bankrupt or an insolvent or an
order for relief is entered with respect to the Trustee under any
Bankruptcy Law;
(iii) a Custodian or public officer takes charge of the Trustee
or its property; or
80
<PAGE>
(iv) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee, provided that the Holders of a majority in principal amount of the then
--------
outstanding Subordinated Exchange Notes may appoint a successor Trustee to
replace any successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 10% in principal amount of the then outstanding Subordinated
Exchange Notes may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Holder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
appointment to Holders. The retiring Trustee shall promptly transfer all
property it holds as Trustee to the successor Trustee, provided all sums owing
--------
to the retiring Trustee hereunder have been paid and subject to the Lien
provided for in Section 7.7. Notwithstanding replacement of the Trustee
pursuant to this Section 7.8, the Company's obligations under Section 7.7 shall
continue for the retiring Trustee's benefit with respect to expenses and
liabilities it incurred prior to being replaced.
SECTION 9 SUCCESSOR TRUSTEE BY MERGER, ETC.
--------------------------------
If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation,
the succes-
81
<PAGE>
sor corporation without any further act shall be the successor Trustee.
SECTION 10 ELIGIBILITY; DISQUALIFICATION.
-----------------------------
The Trustee shall at all times (i) be a corporation organized and
doing business under the laws of the United States of America, of any state
thereof, or the District of Columbia authorized under such laws to exercise
corporate trustee power, (ii) be subject to supervision or examination by
federal or state authority, (iii) have a combined capital and surplus of at
least $25,000,000, or be a member of a bank holding company which has a combined
capital and surplus of at least $100,000,000, as set forth in its most recent
published annual report of condition, and (iv) satisfy the requirements of
sections 310(a)(1), (2) and (5) of the TIA. The Trustee is subject to section
310(b) of the TIA.
SECTION 11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY.
-----------------------------------------------------
The Trustee is subject to section 311(a) of the TIA, excluding any
creditor relationship listed in section 311(b) of the TIA. A Trustee who has
resigned or been removed shall be subject to section 311(a) of the TIA to the
extent indicated therein.
ARTICLE 8
DISCHARGE OF INDENTURE
SECTION 1 DISCHARGE OF LIABILITY ON SUBORDINATED EXCHANGE NOTES; DEFEASANCE.
-----------------------------------------------------------------
(a) When (i) the Company delivers to the Trustee all outstanding
Subordinated Exchange Notes (other than Subordinated Exchange Notes replaced
pursuant to Section 2.7) for cancellation, or (ii) all outstanding Subordinated
Exchange Notes have become due and payable and the Company irrevocably deposits
with the Trustee funds sufficient to pay at maturity all outstanding
Subordinated Exchange Notes, including interest, premium and Liquidated Damages
thereon (other than Subordinated Exchange Notes replaced pursuant to Section
2.7), and if in either case the Company pays all other sums payable under this
Indenture by the Company, then this Indenture
82
<PAGE>
shall, subject to Sections 8.1(c) and 8.6, cease to be of further effect.
(b) Subject to Sections 8.1(c), 8.2 and 8.6, the Company at any time
may terminate (i) all its obligations under the Subordinated Exchange Notes and
this Indenture ("legal defeasance option") or (ii) its obligations under
-----------------------
Sections 4.2, 4.3, 4.5, 4.6, 4.7, 4.8, 4.9, 4.10, 4.11 and 4.12 and the
operation of Sections 5.1(a)(iii), 5.1(a)(iv), or 6.1(a)(iii) through (a)(vi)
("covenant defeasance option"). The Company may exercise its legal defeasance
--------------------------
option notwithstanding its prior exercise of its covenant defeasance option.
If the Company exercises its legal defeasance option, payment of the
Subordinated Exchange Notes may not be accelerated because of an Event of
Default. If the Company exercises its covenant defeasance option, payment of
the Subordinated Exchange Notes shall not be accelerated because of an Event of
Default specified in 6.1(a)(iii) through (a)(vi) or because of the Company's
failure to comply with Section 5.1(a)(iii) and 5.1(a)(iv).
Upon satisfaction of the conditions set forth herein and upon the
Company's request (and at the Company's expense), the Trustee shall acknowledge
in writing the discharge of those obligations that the Company has terminated.
(c) Notwithstanding clauses (a) and (b) above, the Company's
obligations in Sections 2.3, 2.4, 2.5, 2.6, 2.7, 4.1, 4.4, 7.7, 7.8, 8.4, 8.5
and 8.6, and the Trustee's and the Paying Agent's obligations in Section 8.4
shall survive until the Subordinated Exchange Notes have been paid in full.
Thereafter, the Company's obligations in Sections 7.7 and 8.5 and the
Company's, the Trustee's and the Paying Agent's obligations in Section 8.4 shall
survive.
SECTION 2 CONDITIONS TO DEFEASANCE.
------------------------
The Company may exercise its legal defeasance option or its covenant
defeasance option only if:
(1) the Company irrevocably deposits in trust (the "defeasance
trust") with the Trustee
83
<PAGE>
money or U.S. Government Obligations sufficient for the payment
in full of the principal of, premium, if any, and any accrued
and unpaid interest on, and Liquidated Damages, if any, with
respect to the Subordinated Exchange Notes then outstanding, as
of the maturity date, the redemption date or the Purchase Date,
as the case may be;
(2) the Company delivers to the Trustee a certificate from a
nationally recognized firm of independent accountants expressing
their opinion that the payments of principal and interest when
due and without reinvestment of the deposited U.S. Government
Obligations plus any deposited money without investment will
provide cash at such times and in such amounts as will be
sufficient to pay when due principal of, premium, if any, and
any accrued and unpaid interest on, and Liquidated Damages, if
any, with respect to all the Subordinated Exchange Notes to
maturity or redemption, as the case may be;
(3) since the Company's irrevocable deposit provided for in Section
8.2(l), 91 days have passed;
(4) no Default has occurred and is continuing on the date of such
deposit and after giving effect to it;
(5) the deposit does not constitute a default under any other
agreement binding on the Company;
(6) the Company delivers to the Trustee an Opinion of Counsel to the
effect that the trust resulting from the deposit does not
constitute, or is qualified as, a regulated investment company
under the Investment Company Act of 1940, as amended;
(7) in the case of the legal defeasance option, the Company shall
have delivered to
84
<PAGE>
the Trustee an Opinion of Counsel stating that (i) the Company
has received from, or there has been published by, the Internal
Revenue Service a ruling or (ii) under applicable federal income
tax law, in either case, to the effect that, and based thereon
such Opinion of Counsel shall confirm that, the Holders will not
recognize income, gain or loss for federal income tax purposes
as a result of such deposit and defeasance and will be subject
to federal income tax on the same amount, in the same manner and
at the same times as would have been the case if such defeasance
had not occurred;
(8) in the case of the covenant defeasance option, the Company shall
have delivered to the Trustee an Opinion of Counsel to the
effect that the Holders will not recognize income, gain or loss
for federal income tax purposes as a result of such deposit and
covenant defeasance and will be subject to federal income tax on
the same amount, in the same manner and at the same times as
would have been the case if such covenant defeasance had not
occurred (and, in the case of legal defeasance only, such
opinion of counsel must be based on a ruling of the Internal
Revenue Service or other change in applicable federal income tax
law); and
(9) the Company delivers to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions
precedent to the defeasance and discharge of the Subordinated
Exchange Notes contemplated by this Article 8 have been
satisfied.
Before or after a deposit, the Company may make arrangements
satisfactory to the Trustee for the redemption or purchase of Subordinated
Exchange Notes at a future date in accordance with Article 3.
SECTION 3 APPLICATION OF TRUST MONEY.
--------------------------
85
<PAGE>
The Trustee shall hold in trust money or U.S. Government Obligations
deposited with it pursuant to this Article 8. It shall apply the deposited money
and the money from U.S. Government Obligations through the Paying Agent and in
accordance with this Indenture to the payment of principal of, premium, if any,
and any accrued and unpaid interest on, and Liquidated Damages, if any, with
respect to the Subordinated Exchange Notes.
SECTION 4 REPAYMENT TO THE COMPANY.
------------------------
After the Subordinated Exchange Notes have been paid in full, the
Trustee and the Paying Agent shall promptly turn over to the Company any excess
money or securities they hold.
The Trustee and the Paying Agent shall pay to the Company upon written
request by the Company any money they hold for the payment of principal,
premium, interest or Liquidated Damages that remains unclaimed for 1 year after
the date upon which such payment shall have become due; provided, however, that
-------- -------
the Company shall have either caused notice of such payment to be mailed to each
Holder entitled thereto no less than 30 days prior to such repayment or within
such period shall have published such notice in a financial newspaper of
widespread circulation published in The City of New York (including, without
limitation, The Wall Street Journal). After payment to the Company, Holders
entitled to the money must look to the Company for payment as general creditors
unless an applicable abandoned property law designates another Person, and all
liability of the Trustee and such Paying Agent with respect to such money shall
cease.
SECTION 5 INDEMNITY FOR GOVERNMENT OBLIGATIONS.
------------------------------------
The Company shall pay and shall indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against deposited U.S.
Government Obligations or the principal and interest received on such U.S.
Government Obligations.
SECTION 6 REINSTATEMENT.
-------------
If the Trustee or Paying Agent is unable to apply any money or U.S.
Government Obligations in accordance with this Article 8 by reason of any legal
proceeding or
86
<PAGE>
by reason of any order or judgment of any court or governmental authority
enjoining, restraining or otherwise prohibiting such application, the Company's
obligations under this Indenture and the Subordinated Exchange Notes shall be
revived and reinstated as though no deposit had occurred pursuant to this
Article 8 until such time as the Trustee or Paying Agent is permitted to apply
all such money or U.S. Government Obligations in accordance with this Article 8;
provided, however, that, if the Company has made any payment of principal of,
- -------- -------
premium, if any, and any accrued and unpaid interest on, and Liquidated
Damages, if any, with respect to any Subordinated Exchange Notes because of the
reinstatement of its Obligations, the Company shall be subrogated to the
Holders' rights to receive such payment from the money or U.S. Government
Obligations the Trustee or Paying Agent holds.
ARTICLE 9
AMENDMENTS
SECTION 1 AMENDMENTS AND SUPPLEMENTS PERMITTED WITHOUT CONSENT OF HOLDERS.
---------------------------------------------------------------
Notwithstanding Section 9.2, the Company and the Trustee may amend or
supplement this Indenture or the Subordinated Exchange Notes without the consent
of any Holder (a) to cure any ambiguity, defect or inconsistency; (b) to
provide for uncertificated Subordinated Exchange Notes in addition to or in
place of certificated Subordinated Exchange Notes; (c) to provide for the
assumption of the Company's Obligations in the event of a Disposition pursuant
to Article 5; (d) to comply with the SEC's requirements to effect or maintain
the qualification of this Indenture under the TIA; (e) to provide for
additional Guarantees with respect to the Subordinated Exchange Notes; or (f) to
make any change that does not materially adversely affect any Holder's legal
rights under this Indenture.
Upon the Company's request, after receipt by the Trustee of a
resolution of the Board of Directors authorizing the execution of any amended
or supplemental indenture and the documents described in Section 9.6, the
Trustee shall join with the Company in the execution of any amended or
supplemental indenture authorized or permitted by the terms of this Indenture
and to make any
87
<PAGE>
further appropriate agreements and stipulations that may be contained in any
such amended or supplemental indenture, but the Trustee shall not be obligated
to enter into an amended or supplemental indenture that affects its own rights,
duties or immunities under this Indenture or otherwise.
SECTION 2 AMENDMENTS AND SUPPLEMENTS REQUIRING CONSENT OF HOLDERS.
-------------------------------------------------------
Subject to Section 6.7, the Company and the Trustee may amend or
supplement this Indenture or the Subordinated Exchange Notes with the written
consent of the Holders of at least a majority in principal amount of the then
outstanding Subordinated Exchange Notes (including consents obtained in
connection with a tender offer or exchange offer for the Subordinated Exchange
Notes). Subject to Sections 6.4 and 6.7, the Holders of a majority in principal
amount of the Subordinated Exchange Notes then outstanding (including consents
obtained in connection with a tender offer or exchange offer for the
Subordinated Exchange Notes) may also waive any existing Default or Event of
Default (other than a payment Default) and its consequences or compliance in a
particular instance by the Company with any provision of this Indenture or the
Subordinated Exchange Notes.
Upon the Company's request and after receipt by the Trustee of a
resolution of the Board of Directors authorizing the execution of any
supplemental indenture, evidence of the Holders' consent, and the documents
described in Section 9.6, the Trustee shall join with the Company in the
execution of such amended or supplemental indenture unless such amended or
supplemental indenture affects the Trustee's own rights, duties or immunities
under this Indenture or otherwise, in which case the Trustee may in its
discretion, but shall not be obligated to, enter into such amended or
supplemental indenture.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment or waiver, but
it shall be sufficient if such consent approves the substance thereof
After an amendment or waiver under this Section becomes effective, the
Company shall mail to each Holder affected thereby a notice briefly describing
the amend-
88
<PAGE>
ment, supplement or waiver. Any failure of the Company to mail such notice, or
any defect therein, shall not, however, in any way impair or affect the validity
of any such amended or supplemental indenture or waiver. Without the consent of
each Holder affected, an amendment, supplement or waiver under this Section may
not (1) reduce the principal amount of Subordinated Exchange Notes whose Holders
must consent to an amendment, supplement or waiver; (2) reduce the rate of or
change the time for payment of interest, including default interest as set forth
in Section 4.1, or Liquidated Damages on any Subordinated Exchange Note or alter
the redemption or purchase provisions with respect thereto or the price at which
the Company is required to offer to purchase any Subordinated Exchange Note; (3)
reduce the principal of or change the fixed maturity of any Subordinated
Exchange Note; (4) make any Subordinated Exchange Note payable in money other
than that stated in the Subordinated Exchange Note; (5) make any change in
Section 6.4 or 6.7 or in this sentence of this Section 9.2; or (6) waive a
default in the payment of the principal of, or premium, if any, or any accrued
and unpaid interest on, or Liquidated Damages, if any, with respect to, or
redemption or purchase payment with respect to, any Subordinated Exchange Note
(except a rescission of acceleration of the Subordinated Exchange Notes by the
Holders of at least a majority in aggregate principal amount of the then
outstanding Subordinated Exchange Notes and a waiver of the payment default that
resulted from such acceleration).
SECTION 3 COMPLIANCE WITH TIA.
-------------------
Every amendment or supplement to this Indenture or the Subordinated
Exchange Notes shall be set forth in an amended supplemental indenture that
complies with the TIA as then in effect.
SECTION 4 REVOCATION AND EFFECT OF CONSENTS.
---------------------------------
Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder of a Subordinated Exchange Note is a continuing consent by the
Holder and every subsequent Holder of a Subordinated Exchange Note or portion of
a Subordinated Exchange Note that evidences the same Indebtedness as the
consenting Holder's Subordinated Exchange Note, even if notation of the consent
is not made on any Subordinated Exchange Note. However, any
89
<PAGE>
such Holder or subsequent Holder may revoke the consent as to his or her
Subordinated Exchange Note or portion of a Subordinated Exchange Note if the
Trustee receives the notice of revocation before the date on which the Trustee
receives an Officers' Certificate certifying that the Holders of the requisite
principal amount of Subordinated Exchange Notes have consented to the amendment
or waiver.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders of Subordinated Exchange Notes entitled
to consent to any amendment or waiver. If a record date is fixed, then,
notwithstanding the provisions of the immediately preceding paragraph, those
Persons who were Holders of Subordinated Exchange Notes at such record date (or
their duly designated proxies), and only those Persons, shall be entitled to
consent to such amendment or waiver or to revoke any consent previously given,
whether or not such Persons continue to be Holders of Subordinated Exchange
Notes after such record date. No consent shall be valid or effective for more
than 90 days after such record date unless consents from Holders of the
principal amount of Subordinated Exchange Notes required hereunder for such
amendment or waiver to be effective shall have also been given and not revoked
within such 90-day period.
After an amendment or waiver becomes effective it shall bind every
Holder, unless it is of the type described in any of clauses (1) through (6) of
Section 9.2. In such case, the amendment or waiver shall bind each Holder who
has consented to it and every subsequent Holder of a Subordinated Exchange Note
that evidences the same debt as the consenting Holder's Subordinated Exchange
Note.
SECTION 5 NOTATION ON OR EXCHANGE OF SUBORDINATED EXCHANGE NOTES.
------------------------------------------------------
The Trustee may (at the Company's expense) place an appropriate
notation about an amendment, supplement or waiver on any Senior Note thereafter
authenticated. The Company in exchange for all Subordinated Exchange Notes may
issue and the Trustee shall authenticate new Subordinated Exchange Notes that
reflect the amendment, supplement or waiver.
90
<PAGE>
Failure to make the appropriate notation or issue a new Subordinated
Exchange Note shall not affect the validity and effect of such amendment,
supplement or waiver.
SECTION 6 TRUSTEE PROTECTED.
-----------------
The Trustee shall sign any amendment or supplemental indenture authorized
pursuant to this Article 9 if the amendment does not adversely affect the
rights, duties, liabilities or immunities of the Trustee. If it does, the
Trustee may, but need not, sign it. In signing such amendment or supplemental
indenture, the Trustee shall be entitled to receive and, subject to Section 7.1,
shall be fully protected in relying upon, an Officers' Certificate and Opinion
of Counsel as conclusive evidence that such amendment or supplemental indenture
is authorized or permitted by this Indenture, that it is not inconsistent
herewith, and that it will be valid and binding upon the Company in accordance
with its terms. The Company may not sign an amendment or supplemental indenture
until the Board of Directors approves it.
SECTION 7 AMENDMENTS AND SUPPLEMENTS REQUIRING CONSENT OF HOLDERS OF SENIOR
-----------------------------------------------------------------
INDEBTEDNESS.
------------
No amendment or modification to Article 10, this Section 9.7 or Section
11.6 may be made to this Indenture without the consent of holders of at least a
majority of the outstanding principal amount of each class of Designated Senior
Indebtedness that would be adversely affect ed by such amendment or modification
(the Senior Notes and the Discount Notes, Senior Indebtedness issued under the
New Credit Agreement, and any other Designated Senior Indebtedness shall each be
a separate class); provided, however, that if some but not all classes of
-------- -------
Designated Senior Indebtedness consent to any such amendment or modification,
such amendment or modification shall be effective with respect to each
consenting class.
ARTICLE 10
SUBORDINATION
SECTION 1 AGREEMENT TO SUBORDINATE.
-------------------------
The Company agrees, and each Holder by accepting a Subordinated Exchange
Note agrees, any provision of this
91
<PAGE>
Indenture or Subordinated Exchange Notes to the contrary notwithstanding, that
all Obligations owned under and in respect of Subordinated Exchange Notes are
subordinated in right of payment, to the extent and in the manner provided in
this Article, to the prior payment in full in cash of all Obligations owed under
and in respect of all Senior Indebtedness, and that the subordination is for the
benefit of all holders of all Senior Indebtedness, whether outstanding on the
date of original Issuance of the Subordinated Exchange Notes or immediately
thereafter.
For this Article 10, a distribution may consist of cash, securities or
other property, by set-off or other wise.
SECTION 2 LIQUIDATION; DISSOLUTION; BANKRUPTCY.
------------------------------------
(a) Upon any payment or distribution of assets of any kind or
character, whether in cash, property or securities, to creditors in any
Insolvency or Liquidation Proceeding with respect to the Company, no payment or
distribution shall be made on the account of the Subordinated Exchange Notes
until all amounts due or to become due under or with respect to any Senior
Indebtedness (including any Post-Petition Interest) shall first be paid in cash
in full. Upon any such Insolvency or Liquidation Proceedings any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, to which the Holders or the Trustee would be entitled
except for the provisions hereof shall be paid by the Company or by any
receiver, trustee in bankruptcy, liquidating trustee, agent or other Person
making such payment or distribution, or by the Holders or by the Trustee if
received by them, directly to the holders of Senior Indebtedness (pro rata to
such holders on the basis of the amounts of Senior Indebtedness such holders
hold) or their Representative or Representatives, as their interests may appear,
for application to the payment of Senior Indebtedness remaining unpaid until
all such Senior Indebtedness has been paid in full in cash, after giving effect
to any concurrent payment, distribution or provision therefor to or for the
holders of Senior Indebtedness.
(b) A disposition or the liquidation or dissolution of the company
following a Disposition to another
92
<PAGE>
Person upon the terms and conditions provided in Article 5 shall not be deemed a
dissolution, winding-up liquidation or reorganization for the purposes of this
Section if such Disposition complies with the Conditions stated in Article 5.
SECTION 3 DEFAULT ON SENIOR INDEBTEDNESS.
------------------------------
(a) Upon and during the continuation of any default in the payment of
principal of, or premium, if any, or interest on, any Senior Indebtedness, or
any Obligation owing under or in respect of Senior Indebted ness, or if any
event of default other than a payment default with respect to any Senior
Indebtedness shall have occurred and be continuing and shall have resulted in
such Senior Indebtedness becoming or being declared due and payable prior to the
date on which it would otherwise have become due and payable, or
(b) If any event of default other than as described in Section
10.3(a) with respect to any Designated Senior Indebtedness shall have occurred
and be continuing permitting the holders of such Designated Senior Indebtedness
(or their Representative) to declare such Designated Senior Indebtedness due
and payable prior to the date on which it would otherwise have become due and
payable,
then no Payment shall be made by or on behalf of the Company on account of the
of the Subordinated Exchange Notes in case of:
(i) any payment or nonpayment event of default specified in 10.3(a)
unless and until such event of default shall have been cured or waived in
writing in accordance with the instruments governing such Designated Senior
Indebtedness or such acceleration shall have been rescinded or annulled, or
(ii) any nonpayment of default specified in 10.3(b), during the period
(a "Payment Blockage Period") commencing on the date the Company and the
Trustee receive written notice (a "Payment Notice") of such event of
default (which notice shall be binding on the Trustee and the Holders as to
the occurrence of such an event of default from any holders of Designated
Senior Indebtedness or a
93
<PAGE>
Representative of such holders) and ending on the earliest of:
(A) 179 days after such date,
(B) the date, if any, on which such Designated Senior
Indebtedness to which such default relates is paid in full
or such default is cured or waived in writing in accordance
with the instruments governing such Designated Senior
Indebtedness by the holders of such Designated Senior
Indebtedness, and
(C) the date on which the Trustee receives written notice from
the holders of Designated Senior Indebtedness (or a
Representative of such holders) that commenced the Payment
Blockage Period gives written notice that the Payment
Blockage Period has been terminated.
During any consecutive 360-day period, the aggregate of all Payment Blockage
Periods shall not exceed 179 days and there shall be a period of at least 181
consecutive days in each consecutive 360-day period when no Payment Blockage
Period is in effect. For all purposes of this Section 10.3, no event of default
that existed or was continuing with respect to the Senior Indebtedness with
respect to which notice commencing a Payment Blockage Period was given on the
date such Payment Blockage Period commenced shall be, or be made, the basis for
the commencement of any subsequent Payment Blockage Period unless such event of
default is cured or waived for a period of not less than 90 consecutive days.
SECTION 4 ACCELERATION OF THE SUBORDINATED EXCHANGE NOTES.
-----------------------------------------------
If payment of the Subordinated Exchange Notes is accelerated because of an
Event of Default, the Company shall promptly notify the Credit Agent and each
holder of Senior Indebtedness of the acceleration.
SECTION 5 WHEN DISTRIBUTION MUST BE PAID OVER.
-----------------------------------
94
<PAGE>
If the Company shall make any payment to the Trustee on account of the
principal of, or premium, if any, or interest on, the Subordinated Exchange
Notes, or any other Obligation in respect of the Subordinated Exchange Notes, or
the Holders shall receive from any source any payment on account of the
principal of, or premium, if any, or interest on, the Subordinated Exchange
Notes or any Obligation in respect of the Subordinated Exchange Notes, at a time
when such payment is prohibited by this Article 10, the Trustee or such Holders
shall hold such payment in trust for the benefit of, and shall be paid forthwith
over and delivered to, the holders of Senior Indebtedness (pro rata as to each
of such holders on the basis of the respective amounts of Senior Indebtedness
they hold) or their Representative or the trustee under the indenture or other
agreement (if any) pursuant to which Senior Indebtedness may have been Issued,
as their respective interests may appear, for application to the payment of all
Senior Indebtedness remaining unpaid to the extent necessary to pay all Senior
Indebtedness in full in cash in accordance with its terms, after giving effect
to any concurrent payment or distribution to or for the holders of Senior
Indebtedness.
With respect to the holders of Senior Indebtedness, the Trustee undertakes
to perform only such obligations on its part as are specifically set forth in
this Article 10, and no implied covenants or obligations with respect to the
holders of Senior Indebtedness shall be read into this Indenture against the
Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the
holders if the Trustee shall pay over or distribute to or on behalf of Holders
or the Company or any other Person money or assets to which any holders of
Senior Indebtedness shall be entitled by virtue of this Article 10, except if
such payment is made at a time when a Trust Officer has knowledge that the
terms of this article 10 prohibit such payment.
SECTION 6 NOTICE.
------
Neither the Trustee nor the paying Agent shall at any tine be charged with
the knowledge of the existence of any facts that would prohibit the making of
any payment to or by the Trustee or Paying Agent under this Article 10, unless
and until the Trustee or Paying Agent shall be received written notice thereof
form the Company
95
<PAGE>
or one or more holders of senior Indebtedness or a Representative of any
holders of Senior Indebtedness; and, prior to the receipt of any such written
notice, the Trustee or Paying Agent shall be entitled to assume conclusively
that no such facts exist. The Trustee shall be entitled to rely on the delivery
to it of written notice by a Person representing itself to be a holder of Senior
Indebtedness (or a representative thereof) to establish that such notice has
been given.
The Company shall promptly notify the Trustee and the Paying Agent in
writing of any facts it knows that would cause a payment of principal of, or
premium, if any, or interest on, the Subordinated Exchange Notes or any other
Obligation in respect of the Subordinated Exchange Notes to violate this Article
10, but failure to give such notice shall not affect the subordination of the
Subordinated Exchange Notes to the Senior Indebtedness provided in this Article
10 or the rights of holders of Senior Indebtedness under this Article 10.
SECTION 7 SUBROGATION.
-----------
After all Senior Indebtedness is paid in full in cash and until the
Subordinated Exchange Notes are paid in full, Holders shall be subrogated
(equally and ratably with all other Indebtedness pari passu with the
Subordinated Exchange Notes) to the rights of holders of Senior Indebtedness to
receive distributions applicable to Senior Indebtedness to the extent that
distributions otherwise payable to the Holders have been applied to the payment
of Senior Indebtedness. A distribution made under this Article 10 to the holders
of Senior Indebted ness that otherwise would have been to Holders is not, as
between the Company and Holders, a payment by the Company on the Senior
Indebtedness.
SECTION 8 RELATIVE RIGHTS.
---------------
This Article 10 defines the rights of Holders and holders of Senior
Indebtedness. Nothing in this Indenture shall:
(1) impair, as between the Company and Holders, the Company's
Obligations, which are absolute and unconditional, to pay
principal of, and premium, if
96
<PAGE>
any, and interest on, the Subordinated Exchange Notes in
accordance with their terms;
(2) affect the relative rights of Holders and the Company's creditors
other than their rights in relation to holders of Senior
Indebtedness; or
(3) prevent the Trustee or any Holder from exercising its available
remedies upon a Default or Event of Default, subject to the
rights of holders and owners of Senior Indebtedness to receive
distributions and payments otherwise payable to Holders.
Nothing contained in this Article 10 or else where in this Indenture
or in any Security is intended to or shall impair, as between the Company and
the Holders, the obligations of the Company, which are absolute and
unconditional to pay to the Holders the principal of, and premium, if any, and
interest on, the Subordinated Exchange Notes as and when the same shall become
due and payable in accordance with their terms, or is intended to or shall
affect the relative rights of the Holders and creditors of the Company other
than the holders of the Senior Indebtedness, nor shall anything herein or
therein prevent the Trustee or any Holder from exercising all remedies otherwise
permitted by applicable law upon Default under this Indenture, subject to the
rights, if any, under this Article 10 of the holders of such Senior
Indebtedness.
The failure to make a payment on account of principal of, or interest
on, the Subordinated Exchange Notes by reason of any provisions of this Article
10 shall not be construed as preventing the occurrence of any Event of Default
under Section 6.1.
97
<PAGE>
SECTION 9 THE COMPANY AND HOLDERS MAY NOT IMPAIR SUBORDINATION.
----------------------------------------------------
(a) No right of any holder of Senior Indebtedness to enforce the
subordination as herein provided shall at any time in any way be prejudiced or
impaired by any act or failure to act on the Company's part or by any
noncompliance by the Company with the terms, provisions and covenants of this
Indenture or the Subordinated Exchange Notes or any other agreement regardless
of any knowledge thereof with which any such holder may have or be otherwise
charged.
(b) Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Indebtedness, or any of them, may, at any time
and from time to time, without the consent of or notice to the Holders, without
incurring any liabilities to any Holder and without impairing or releasing the
subordination and other benefits provided in this Indenture or the Holder's
obligations to the holders of Senior Indebtedness, even if any Holder's right of
reimbursement or subrogation or other right or remedy is affected, impaired or
extinguished thereby, do any one or more of the following:
(i) change the manner, place or terms of payment or change or
extend the time of payment of, or renew, exchange, amend, increase or
alter, the terms of any Senior Indebtedness, any security therefor or
guarantee thereof or any liability of any obligor thereon (including any
guarantor) to such holder, or any liability Issued in respect thereof or
otherwise amend, renew, exchange, extend, modify, increase or supplement in
any manner any Senior Indebtedness or any instrument evidencing or
guaranteeing or securing the same or any agreement under which Senior
Indebtedness is outstanding:
(ii) sell, exchange, release, surrender, realize upon, enforce
or otherwise deal with in any manner and in any order any property pledged,
mortgaged or otherwise securing Senior Indebtedness or any liability of
any obligor thereon, to such holder, or any liability Issued in respect
thereof;
(iii) settle or compromise any Senior Indebtedness or any other
liability of any obligor of
98
<PAGE>
the Senior Indebtedness to such holder or any security therefor or any
liability Issued in respect thereof and apply any sums by whomsoever paid
and however realized to any liability (including, without limitation,
Senior Indebtedness) in any manner or order; and
(iv) fail to take or to record or otherwise perfect, for any
reason or for no reason, any lien or security interest securing Senior
Indebtedness by whomsoever granted, exercise or delay in or refrain from
exercising any right or remedy against any obligor or any guarantor or any
other Person, elect any remedy and otherwise deal freely with any obligor
and any security for the Senior Indebtedness or any liability of any
obligor to such holder or any liability Issued in respect thereof.
(c) Each Holder by accepting a Subordinated Exchange Note agrees not
to compromise, release, forgive or otherwise discharge the Obligations of the
Company with respect to his or her Subordinated Exchange Note unless holders of
a majority of the outstanding amount of each class of Senior Indebtedness (as
described in Section 9.7) consent to such compromise, release, forgiveness or
other discharge.
SECTION 10 DISTRIBUTION OR NOTICE TO REPRESENTATIVE.
----------------------------------------
Whenever a distribution is to be made or a notice given to holders of
Senior Indebtedness, the distribution may be made and the notice to their
Representative, if any.
If any payment or distribution of the Company assets is required to be made
to holders of Senior Indebtedness pursuant to this Article 10, the Trustee and
the Holders shall be entitled to rely upon any order or decree of any court of
competent jurisdiction, or upon any certificate of a Representative of Senior
Indebtedness or a Custodian, in ascertaining the holders of Senior Indebtedness
entitled to participate in any such payment or distribution, the amount payable
to be paid or distributed filed to holders of Senior Indebtedness and all other
facts pertinent thereto or to this Article 10.
99
<PAGE>
SECTION 11 RIGHTS OF TRUSTEE AND PAYING AGENT.
----------------------------------
The Trustee or Paying Agent may continue to make payments on the
Subordinated Exchange Notes unless at least three Business Days prior to any
payment date it has received written notice of facts that would cause a payment
of principal of, or premium, if any, or interest on, the Subordinated Exchange
Notes to violate this Article. Only the Company, a Representative of Senior
Indebtedness, or a holder of Senior Indebtedness that has not Representative may
give such notice.
To the extent permitted by the TIA, the Trustee in its individual or any
other capacity may hold Indebted ness (including Senior Indebtedness) with the
same rights it would have if it were not Trustee. Any Agent may do the same with
like rights.
SECTION 12 AUTHORIZATION TO EFFECT SUBORDINATION.
-------------------------------------
Each Holder of a Security by its acceptance thereof authorizes and directs
the Trustee on its behalf to take such action as may be necessary or appropriate
to effectuate the subordination as provided in this Article 10, and appoints
the Trustee his attorney-in-fact for any and all such purposes, (including,
without limitation, the timely filing of a claim for the unpaid balance of the
Security such Holder holds in the form required in any Insolvency or Liquidation
Proceeding and causing such claim to be approved).
If a proper claim or proof of debt in the form required in such proceeding
is not filed by or on behalf of all Holders prior to 30 days before the
expiration of the time to file such claims or proofs, then the holders or a
Representative of any Senior Indebtedness are hereby authorized, and shall have
the right (without any duty), to file an appropriate claim for and on behalf of
such Holders.
SECTION 13 PAYMENT.
-------
A payment on account of or with respect to any Security shall include,
without limitation, any direct or indirect payment of principal, premium or
interest with respect to or in connection with any optional redemption or
purchase provisions, any direct or indirect payment
100
<PAGE>
payable by reason of any other Indebtedness or Obligation being subordinated to
the Subordinated Exchange Notes, and any direct or indirect payment or recovery
on any Claim as a Holder relating to or arising out of this Indenture or any
Security, or the Issuance of any Security, or the transactions contemplated by
this Indenture or referred to herein.
ARTICLE 11
MISCELLANEOUS
SECTION 1 TRUST INDENTURE ACT CONTROLS.
----------------------------
If any provision of this Indenture limits, qualifies, or conflicts with
the duties imposed by operation of section 318(c) of the TIA, the imposed duties
shall control.
SECTION 2 NOTICES.
-------
Any notice or communication by the Company or the Trustee to the other is
duly given if in writing and delivered in person, mailed by registered or
certified mail, postage prepaid, return receipt requested or delivered by
telecopier or overnight air courier guaranteeing next day delivery to the
other's address:
If to the Company:
Jordan Telecommunication Products
Group, Inc.
ArborLake Centre, Suite 550
1751 Lake Cook Road
Deerfield, Illinois 60015
Attention: Chief Financial Officer
Telecopier No.: (847) 945-9645
with a copy to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603-3441
Attention: Philip J. Niehoff, Esq.
Telecopier No.: (312) 701-7711
101
<PAGE>
If to the Trustee:
First Trust National Association
180 East Fifth Street
St. Paul, Minnesota 55101
Attention: Rick Prokosch
Telecopier No.: (612) 244-0711
The Company or the Trustee by notice to the other may designate additional
or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders) shall be
deemed to have been duly given: at the time delivered by hand, if personally
delivered; the date receipt is acknowledged, if mailed by registered or
certified mail; when answered back, if telecopied; and the next Business Day
after timely delivery to the courier, if sent by overnight air courier
guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first-class mail
to his or her address shown on the register kept by the Registrar. Failure to
mail a notice or communication to a Holder or any defect in it shall not affect
its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above within
the time prescribed, it is duly given, whether or not the addressee receives it.
If the Company mails a notice or communication to Holders, it shall mail a
copy to the Trustee and each Agent at the same time.
SECTION 3 COMMUNICATION BY HOLDERS WITH OTHER HOLDERS.
-------------------------------------------
Holders may communicate pursuant to section 312(b) of the TIA with other
Holders with respect to their rights under this Indenture or the Subordinated
Exchange Notes. The Company, the Trustee, the Registrar and any other Person
shall have the protection of section 312(c) of the TIA.
102
<PAGE>
SECTION 4 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
--------------------------------------------------
Upon any request or application by the Company to the Trustee to take any
action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate (which shall include the statements set
forth in Section 11.5) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
(b) an Opinion of Counsel (which shall include the statements set
forth in Section 11.5) stating that, in the opinion of such counsel, all such
conditions precedent provided for in this Indenture relating to the proposed
action have been complied with.
SECTION 5 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
---------------------------------------------
Each certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture (other than a certificate provided
pursuant to section 314(a)(4) of the TIA) shall include:
(1) a statement that the Person making such certificate or opinion
has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained
in such certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he has made such
examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(4) a statement as to whether, in such Person's opinion, such
condition or covenant has been complied with.
103
<PAGE>
SECTION 6 RULES BY TRUSTEE AND AGENTS.
---------------------------
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
SECTION 7 LEGAL HOLIDAYS.
--------------
If a payment date is a Legal Holiday at a place of payment, payment may be
made at that place on the next succeeding day that is not a Legal Holiday, and
no interest shall accrue for the intervening period.
SECTION 8 NO RECOURSE AGAINST OTHERS.
--------------------------
No officer, employee, director, stockholder or Subsidiary of the Company
shall have any liability for any Obligations of the Company under the
Subordinated Exchange Notes or this Indenture, or for any claim based on, in
respect of, or by reason of, such Obligations or the creation of any such
Obligation, except, in the case of a Subsidiary, for an express guarantee or an
express creation of any Lien by such Subsidiary of the Company's Obligations
under the Subordinated Exchange Notes. Each Holder by accepting a Subordinated
Exchange Note waives and releases all such liability, and such waiver and
release is part of the consideration for the issuance of the Subordinated
Exchange Notes. The foregoing waiver may not be effective to waive liabilities
under the Federal securities law and the Commission is of the view that such a
waiver is against public policy.
SECTION 9 COUNTERPARTS.
------------
This Indenture may be executed in any number of counterparts and by the
parties hereto in separate counterparts, each of which when so executed shall
be deemed to be an original and all of which taken together shall constitute one
and the same agreement.
SECTION 10 VARIABLE PROVISIONS.
-------------------
The Company initially appoints the Trustee as Paying Agent, Registrar and
authenticating agent.
104
<PAGE>
The first compliance certificate to be delivered by the Company to the
Trustee pursuant to Section 4.3 shall be for the fiscal year ending on December
31, 1997
SECTION 11 GOVERNING LAW.
-------------
The internal laws of the State of New York shall govern this Indenture and
the Subordinated Exchange Notes, without regard to the conflict of laws
provisions thereof.
SECTION 12 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
---------------------------------------------
This Indenture may not be used to interpret another indenture, loan or debt
agreement of the Company or any of its Subsidiaries, and no other indenture,
loan or debt agreement may be used to interpret this Indenture.
SECTION 13 SUCCESSORS.
----------
All agreements of the Company in this Indenture and the Subordinated
Exchange Notes shall bind its successor. All agreements of the Trustee in this
Indenture shall bind its successor.
SECTION 14 SEVERABILITY.
------------
If any provision in this Indenture or in the Subordinated Exchange Notes
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
SECTION 15 TABLE OF CONTENTS, HEADINGS, ETC.
--------------------------------
The Table of Contents, Cross-Reference Table and headings of the Articles
and Sections of this Indenture have been inserted for convenience of reference
only, are not to be considered a part hereof, and shall in no way modify or
restrict any of the terms or provisions hereof.
SECTION 16 THIRD PARTY BENEFICIARIES.
-------------------------
Holders of Senior Indebtedness are third party beneficiaries of, and any
of them (or their Representative) shall have the right to enforce the provisions
of this Indenture that benefit such holders.
105
<PAGE>
[NEXT PAGE IS THE SIGNATURE PAGE]
106
<PAGE>
Dated as of ________, ____
JORDAN TELECOMMUNICATION PRODUCTS, INC.
By:
-------------------------------------------
Name: Dominic J. Pileggi
Title: President and Chief
Executive Officer
Dated as of ________, ____
FIRST TRUST NATIONAL ASSOCIATION
as Trustee
By:
-------------------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
(Face of Subordinated Exchange Note)
13 1/4% Series [A/B] Subordinated Preferred Stock
Exchange Note due 2009
No. $
CUSIP No.
JORDAN TELECOMMUNICATION PRODUCTS, INC.
promises to pay to
or registered assigns,
the principal sum of
Dollars on August 1, 2009.
Interest Payment Dates: February 1 and August 1.
Record Dates: January 15 and July 15.
Dated: ________ __, ____
JORDAN TELECOMMUNICATION
PRODUCTS, INC.
By:
----------------------------
Name:
Title:
Trustee's Certificate of Authentication
Dated: _______ __, ____
This is one of the [Global]
Subordinated Exchange Notes referred to in the
within-mentioned Indenture:
FIRST TRUST NATIONAL ASSOCIATION,
as Trustee
By:
--------------------------
(Authorized Signatory)
A-1
<PAGE>
[Unless and until it is exchanged in whole or in part for Subordinated
Exchange Notes in definitive form, this Subordinated Exchange Note may not be
transferred except as a whole by the Depositary to a nominee of the Depositary
or by a nominee of the Depositary to the Depositary or another nominee of the
Depositary or by the Depositary or any such nominee to a successor Depositary or
a nominee of such successor Depositary. The Depository Trust Company shall act
as the Depositary until a successor shall be appointed by the Company and the
Registrar. Unless this certificate is presented by an authorized representative
of The Depository Trust Company (55 Water Street, New York, New York) ("DTC"),
---
to the issuer or its agent for registration of transfer, exchange or payment,
and any certificate issued is registered in the name of Cede & Co. or such other
name as may be requested by an authorized representative of DTC (and any payment
is made to Cede & Co. or such other entity as may be requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHER WISE BY OR TO ANY Person IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.]/1/
THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN
A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES
SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THE SECURITY EVIDENCED
--------------
HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF
THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE
RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES
ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED
HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY MAY BE
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1)(a) INSIDE THE UNITED
STATES TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, OR (c) IN
ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO
REQUESTS), (2) TO THE COMPANY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES
LAWS OF ANY
- --------------------
/1/ This paragraph should be included only if the Senior Note is issued in
global form.
A-2
<PAGE>
STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND
(B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY
ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE
RESTRICTIONS SET FORTH IN (A) ABOVE.
Additional provisions of this Subordinated Exchange Note are set forth on
the other side of this Subordinated Exchange Note.
A-3
<PAGE>
(Back of Subordinated Exchange Note)
13 1/4% SERIES [A/B] SUBORDINATED PREFERRED STOCK
EXCHANGE NOTE DUE 2009
1. Interest. Jordan Telecommunication Products, Inc. (the "Company")
-------
promises to pay interest on the principal amount of the Subordinated Exchange
Notes at the rate and in the manner specified below. Interest on the
Subordinated Exchange Notes will accrue at 13 1/4% per annum from the date this
Subordinated Exchange Note is issued until maturity. The Company will pay
Liquidated Damages pursuant to Section 5 of the Registration Rights Agreement
referred to below. Interest and Liquidated Damages, if any, will be payable
semiannually in cash in arrears on February 1 and August 1 of each year, or if
any such day is not a Business Day on the next succeeding Business Day (each, an
"Interest Payment Date"). Interest on the Subordinated Exchange Notes will
---------------------
accrue from the most recent date on which interest has been paid or, if no
interest has been paid, from the date of original issuance. The Company shall
pay interest on overdue principal and premium, if any, from time to time on
demand at the interest rate then in effect and shall pay interest on overdue
installments of interest (without regard to any applicable grace periods) from
time to time on demand at the same rate to the extent lawful. Interest will be
computed on the basis of a 360-day year of twelve 30-day months.
2. Method of Payment. The Company will pay interest on the Subordinated
Exchange Notes (except defaulted interest) to the Persons who are registered
holders of Subordinated Exchange Notes at the close of business on the record
date for the next Interest Payment Date even if such Subordinated Exchange
Notes are cancelled after such record date and on or before such Interest
Payment Date. Holders must surrender Subordinated Exchange Notes to a Paying
Agent to collect principal payments on such Subordinated Exchange Notes. The
Company will pay principal, premium, if any, interest and Liquidated Damages, if
any, in money of the United States that at the time of payment is legal tender
for payment of public and private debts. The Company will pay principal,
premium, if any, interest and Liquidated Damages, if any, by wire transfer of
immediately available funds to the accounts specified by the Holders or, if no
such account is specified, by mailing a check to each such Holder's registered
address; provided that payment by wire transfer of immediately available funds
--------
will be required with respect to principal, premium, if any, interest and
A-4
<PAGE>
Liquidated Damages, if any, on all Global Subordinated Exchange Notes.
3. Paying Agent and Registrar. First Trust National Association (the
"Trustee") will initially act as the Paying Agent and Registrar. The Company
-------
may appoint additional paying agents or co-registrars, and change the Paying
Agent, any additional paying agent, the Registrar or any co-registrar without
prior notice to any Holder. The Company or any of its Subsidiaries may act in
any such capacity.
4. Indenture. The Company issued the Subordinated Exchange Notes under an
Indenture dated as of _________, 199__ (the "Indenture"), among the Company and
the Trustee. The terms of the Subordinated Exchange Notes include those stated
in the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S. Code (S)(S) 77aaa-77bbbb) as in effect on the
date of the original issuance of the Subordinated Exchange Notes (the "Trust
-----
Indenture Act"). The Subordinated Exchange Notes are subject to, and qualified
- -------------
by, all such terms, certain of which are summarized herein, and Holders are
referred to the Indenture and the Trust Indenture Act for a statement of such
terms (all capitalized terms not defined herein shall have the meanings assigned
them in the Indenture). The Subordinated Exchange Notes are general unsecured
obligations of the Company subordinated to all existing and future Senior
Indebtedness, including the Senior Notes, the Discount Notes and Indebtedness
under the New Credit Agreement, and are limited to $25,000,000 in aggregate
principal amount.
5. Optional Redemption. (a) Except as described in paragraph 5(b) below,
the Subordinated Exchange Notes may not be redeemed at the option of the Company
prior to August 1, 2002, other than out of the net proceeds of one or more
Equity Offerings, as and to the extent described in the Indenture. During the
twelve (12) month period beginning August 1 of the years indicated below, the
Subordinated Exchange Notes will be redeemable, at the option of the Company, in
whole or in part, on at least 30 but not more than 60 days' notice to each
Holder of Subordinated Exchange Notes to be redeemed, at the redemption prices
(expressed as percentages of the principal amount) set forth below, plus any
accrued and unpaid interest and Liquidated Damages, if any, to the date of
redemption:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2002................................... 106.6250%
2003................................... 104.4167%
2004................................... 102.2083%
</TABLE>
A-5
<PAGE>
<TABLE>
<S> <C>
2005 and thereafter.................... 100.0000%
</TABLE>
(b) Notwithstanding the foregoing, at any time, the Company may
redeem the Subordinated Exchange Notes in whole, but not in part, at a
redemption price of 113.25% of the principal amount thereof, plus any accrued
and unpaid interest and Liquidated Damages, if any, to the applicable date of
redemption with the proceeds of an Equity Offering; provided, that such
--------
redemption shall occur within 60 days of the date of the closing of such Equity
Offering.
6. Mandatory Redemption. Subject to the Company's obligation to make
an offer to purchase Subordinated Exchange Notes under certain circumstances
pursuant to Sections 4.13 and 4.14 of the Indenture (as described in paragraph
7 below), the Company is not required to make any mandatory redemption, purchase
or sinking fund payments with respect to the Subordinated Exchange Notes.
7. Mandatory Offers to Purchase Subordinated Exchange Notes. (a)
Upon the occurrence of a Change of Control, each Holder of Subordinated Exchange
Notes shall have the right to require the Company to purchase all or any part
(equal to $1,000 or an integral multiple thereof) of such Holder's Subordinated
Exchange Notes pursuant to an Offer (as defined herein) at a purchase price
equal to 101% of the aggregate principal amount thereof, plus any accrued and
unpaid interest and Liquidated Damages, if any, to the date of purchase.
(b) If the Company or any Restricted Subsidiary consummates one or
more Asset Sales and does not use all of the Net Proceeds from such Asset Sales
as provided in the Indenture, the Company will be required, under certain
circumstances, to utilize the Excess Proceeds from such Asset Sales to make an
Offer (as defined herein) to purchase Subordinated Exchange Notes at a purchase
price equal to 100% of the principal amount of the Subordinated Exchange Notes,
plus any accrued and unpaid interest and Liquidated Damages, if any, to the date
of purchase. If the Excess Proceeds are insufficient to purchase all
Subordinated Exchange Notes tendered pursuant to any Asset Sale Offer, the
Trustee shall select the Subordinated Exchange Notes to be purchased in
accordance with the terms of the Indenture.
(c) Holders may tender all or, subject to paragraph 8 below, any
portion of their Subordinated Exchange Notes in a Change of Control Offer or
Asset Sale Offer (collectively, an "Offer") by completing the form below
-----
entitled "OPTION OF HOLDER TO ELECT PURCHASE."
A-6
<PAGE>
(d) The Company shall comply with Rule 14e-1 under the Exchange Act
and any other securities laws and regulations to the extent such laws and
regulations are applicable to any Offer. To the extent that the provisions of
any of such securities laws or regulations conflict with provisions of this
Indenture, the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under this
Indenture by virtue thereof.
8. Notice of Redemption or Purchase. Notice of an optional
redemption or an Offer will be mailed to each Holder at its registered address
at least 30 days but not more than 60 days before the date of redemption or
purchase. Subordinated Exchange Notes may be redeemed or purchased in part, but
only in whole multiples of $1,000 unless all Subordinated Exchange Notes held by
a Holder are to be redeemed or purchased. On or after any date on which
Subordinated Exchange Notes are redeemed or purchased, interest ceases to accrue
on the Subordinated Exchange Notes or portions thereof called for redemption or
accepted for purchase on such date.
9. Denominations, Transfer, Exchange. The Subordinated Exchange
Notes are in registered form without coupons in denominations of $1,000 and
integral multiples thereof. The transfer of Subordinated Exchange Notes may be
registered and Subordinated Exchange Notes may be exchanged as provided in the
Indenture. Holders seeking to transfer or exchange their Subordinated Exchange
Notes may be required, among other things, to furnish appropriate endorsements
and transfer documents and to pay any taxes and fees required by law or
permitted by the Indenture. The Paying Agent need not exchange or register the
transfer of any Subordinated Exchange Note or portion of a Subordinated
Exchange Note selected for redemption or tendered pursuant to an Offer. Also, it
need not exchange or register the transfer of any Subordinated Exchange Notes
for a period of 15 Business Days before a selection of Subordinated Exchange
Notes to be redeemed or purchased or between a record date and the next
succeeding Interest Payment Date.
10. Persons Deemed Owners. The registered Holder of a Subordinated
Exchange Note may be treated as its owner for all purposes.
11. Amendments and Waivers. Subject to certain exceptions, the
Indenture or the Subordinated Exchange Notes may be amended or supplemented with
the consent of the Holders of at least a majority in principal amount of the
then outstanding Subordinated Exchange Notes, and any existing
A-7
<PAGE>
Default (except a payment Default) may be waived with the consent of the Holders
of a majority in principal amount of the then outstanding Subordinated Exchange
Notes. Without the consent of any Holder, the Indenture or the Subordinated
Exchange Notes may be amended to: cure any ambiguity, defect or inconsistency;
provide for uncertificated Subordinated Exchange Notes in addition to or in
place of certificated Subordinated Exchange Notes; provide for the assumption of
the Company's obligations in the event of a merger or consolidation of the
Company in which the Company is not the surviving corporation or a sale of
substantially all of the Company's assets to such other corporation; comply with
the Securities and Exchange Commission's requirements to effect or maintain the
qualification of the Indenture under the Trust Indenture Act; provide for
additional Guarantees with respect to the Subordinated Exchange Notes; or, make
any change that does not materially adversely affect any Holder's rights under
the Indenture.
12. Defaults and Remedies. Events of Default include: default for 30
days in payment of interest on, or Liquidated Damages, if any, with respect to,
the Subordinated Exchange Notes; default in payment when due of principal or
premium, if any, with respect to the Subordinated Exchange Notes; failure by the
Company for 45 days after notice to it to comply with any of its other
agreements or covenants in, or provisions of, the Indenture or the Subordinated
Exchange Notes; certain judicial findings of unenforceability or invalidity as
to any guarantee of the Subordinated Exchange Notes or the disaffirmance or
denial by any guarantor of its guarantee of the Subordinated Exchange Notes; and
certain events of bankruptcy or insolvency involving the Company or any
Restricted Subsidiary that is a Significant Subsidiary. If an Event of Default
occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the Subordinated Exchange Notes may declare all the
Subordinated Exchange Notes to be immediately due and payable in an amount equal
to the principal of, premium, if any, and any accrued and unpaid interest on,
and Liquidated Damages, if any, with respect to such Subordinated Exchange
Notes; provided, however, that in the case of an Event of Default arising from
-------- -------
certain events of bankruptcy or insolvency, the principal of, premium, if any,
and any accrued and unpaid interest on, and Liquidated Damages, if any, with
respect to the Subordinated Exchange Notes becomes due and payable immediately
without further action or notice. Subject to certain exceptions, Holders of a
majority in principal amount of the then outstanding Subordinated Exchange Notes
may direct the Trustee in its exercise of any trust or power, provided that the
--------
Trustee will be under no obligation to exercise any of its rights or powers
under the Indenture
A-8
<PAGE>
at the request of Holders unless such Holders have offered to the Trustee
security and indemnity satisfactory to it. Holders may not enforce the Indenture
or the Subordinated Exchange Notes except as provided in the Indenture. The
Trustee may withhold from Holders notice of any continuing default (except a
payment Default) if it determines that withholding notice is in their interests.
The Company must furnish an annual compliance certificate to the Trustee.
13. Trustee Dealings with the Company. The Trustee, in its
individual or any other capacity, may make loans to, accept deposits from, and
perform services for the Company or any Affiliate, and may otherwise deal with
the Company or any Affiliate, as if it were not Trustee.
14. No Recourse Against Others. No officer, employee, director,
stockholder or Subsidiary of the Company shall have any liability for any
Obligations of the Company under the Subordinated Exchange Notes or the
Indenture, or for any claim based on, in respect of, or by reason of, such
Obligations or the creation of any such Obligation, except, in the case of a
Subsidiary, for an express guarantee or an express creation of any Lien by such
Subsidiary of the Company's Obligations under the Subordinated Exchange Notes.
Each Holder by accepting a Subordinated Exchange Note waives and releases all
such liability, and such waiver and release is part of the consideration for the
issuance of the Subordinated Exchange Notes. The foregoing waiver may not be
effective to waive liabilities under the Federal securities law and the
Commission is of the view that such a waiver is against public policy.
15. Holders' Compliance with Registration Rights Agreement. Each
Holder of a Subordinated Exchange Note, by his acceptance thereof, acknowledges
and agrees to the provisions of the Registration Rights Agreement, dated as of
July 25, 1997, among the Company and the parties named on the signature page
thereof (the "Registration Rights Agreement"), including but not limited to the
-----------------------------
obligations of the Holders with respect to a registration and the
indemnification of the Company and the Purchaser (as defined therein) to the
extent provided therein.
16. Successor Substituted. Upon the consolidation or merger by the
Company with or into another corporation, or upon the sale, lease, conveyance or
other disposition of all or substantially all of its assets to another
corporation, in accordance with the Indenture, the corporation surviving any
such merger or consolidation (if not the Company) or the corporation to which
such assets were sold or transferred to shall succeed to, and be substituted
for, and may exercise
A-9
<PAGE>
every right and power of the Company under the Indenture with the same effect as
if such surviving or other corporation had been named as the Company in the
Indenture.
17. Governing Law. This Subordinated Exchange Note shall be governed
by and construed in accordance with the internal laws of the State of New York
without regard to the conflict of laws provisions thereof.
18. Authentication. This Subordinated Exchange Note shall not be
valid until authenticated by the manual signature of the Trustee or an
authenticating agent.
19. Abbreviations. Customary abbreviations may be used in the name
of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
20. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Subordinated Exchange Notes and have directed
the Trustee to use CUSIP numbers in notices of redemption as a convenience to
Holders. No representation is made as to the accuracy of such numbers either as
printed on the Subordinated Exchange Notes or as contained in any notice of
redemption and reliance may be placed only on the other identification numbers
printed on the Subordinated Exchange Notes.
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture and/or the Registration Rights Agreement,
which has in it the text of this Subordinated Exchange Note in larger type.
Request may be made to:
Jordan Telecommunication Products, Inc.
ArborLake Centre, Suite 550
1751 Lake Cook Road
Deerfield, Illinois 60015
Attention: Chief Financial Officer
A-10
<PAGE>
ASSIGNMENT FORM
To assign this Subordinated Exchange Note, fill in the form below:
(I) or (we) assign and transfer this Subordinated Exchange Note to:
_____________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
_____________________________________________
_____________________________________________
_____________________________________________
(Print or type assignee's name,
address and zip code)
and irrevocably appoint ______________________________________________________
__________________________ as agent to transfer this Subordinated Exchange Note
on the books of the Company. The agent may substitute another to act for him.
Date: Your Signature:
---------------- --------------------------
(Sign exactly as your name appears on
the other side of this Subordinated
Exchange Note)
Signature Guarantee:
- --------------------------------
A-11
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you elect to have this Subordinated Exchange Note purchased by the
Company pursuant to Section 4.13 of the Indenture, check the box: [_]
If you elect to have this Subordinated Exchange Note purchased by the
Company pursuant to Section 4.14 of the Indenture, check the box: [_]
If you elect to have only part of this Subordinated Exchange Note purchased
by the Company pursuant to Section 4.13 or 4.14 of the Indenture, state the
amount (multiples of $1000 only):
$
-------------------
Date: Your Signature:
------------------ ------------------------
(Sign exactly as your name appears on
the other side of this Subordinated
Exchange Note)
Signature Guarantee:
- -------------------------------------
Signature Guarantee:
- -------------------------------------
A-12
<PAGE>
SCHEDULE OF EXCHANGES OF DEFINITIVE
SUBORDINATED EXCHANGE NOTES/2/
The following exchanges of a part of this Global Subordinated Exchange
Note for Definitive Subordinated Ex change Notes have been made:
<TABLE>
<CAPTION>
Principal Amount of this
Amount of decrease in Amount of increase in Global Subordinated Signature of
Principal Amount of Principal Amount of Exchange Note authorized officer of
this Global Subordinated this Global Subordinated following such decrease Trustee or Senior
Date of Exchange Exchange Note Exchange Note (or increase) Note Custodian
- ------------------ ------------------------ ------------------------ ------------------------- --------------------
<S> <C> <C> <C> <C>
</TABLE>
- ----------------------
/2/ This should be included only if the Subordinated Exchange Note is issued in
global form.
A-13
<PAGE>
EXHIBIT B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR
REGISTRATION OF TRANSFER OF SUBORDINATED EXCHANGE NOTES
______________, ______
Re: 13 1/4% Series [A/B] Subordinated Preferred Stock Exchange Notes due
2009 of Jordan Telecommunication Products, Inc.
This Certificate relates to $______ principal amount of Subordinated Exchange
Notes held in * _____ book-entry or * _____ definitive form by _____ (the
"Transferor").
----------
The Transferor*:
[_] has requested the Trustee by written order to deliver in exchange
for its beneficial interest in the Global Subordinated Exchange Note held by the
Depositary an Subordinated Exchange Note or Subordinated Exchange Notes in
definitive, registered form equal to its beneficial interest in such Global
Subordinated Exchange Note (or the portion thereof indicated above); or
[_] has requested the Trustee by written order to exchange or
register the transfer of a Subordinated Exchange Note or Subordinated Exchange
Notes.
In connection with such request and in respect of each such
Subordinated Exchange Note, the Transferor does hereby certify that the
Transferor is familiar with the Indenture relating to the above captioned
Subordinated Exchange Notes and that the transfer of this Subordinated Exchange
Note does not require registration under the Securities Act (as defined below)
because:*
[_] Such Subordinated Exchange Note is being acquired for the
Transferor's own account without transfer (in satisfaction of Section
2.6(a)(ii)(A) or Section 2.6(d)(i)(A) of the Indenture).
[_] Such Subordinated Exchange Note is being transferred to a
"qualified institutional buyer" (as defined in Rule 144A under the Securities
Act of 1933, as amended (the "Securities Act"), in reliance on Rule 144A.
--------------
- -----------------------
* Check applicable box.
B-1
<PAGE>
[_] Such Subordinated Exchange Note is being transferred (i) in
accordance with Rule 144 under the Securities Act (and based on an opinion of
counsel if the Company so requests) or (ii) pursuant to an effective
registration statement under the Securities Act.
[_] Such Subordinated Exchange Note is being transferred to an
institutional accredited investor within the meaning of Rule 501(a)(1), (2), (3)
or (7) under the Securities Act pursuant to a private placement exemption from
the registration requirements of the Securities Act (and based on an opinion of
counsel if the Company so requests together with a certification in
substantially the form of Exhibit C to the Indenture).
[_] Such Subordinated Exchange Note is being transferred in reliance
on and in compliance with another exemption from the registration requirements
of the Securities Act (and based on an opinion of counsel if the Company so
requests).
-------------------------------
[INSERT NAME OF TRANSFEROR]
By:
--------------------------------
Name:
Title:
Address:
B-2
<PAGE>
EXHIBIT C
FORM OF CERTIFICATE TO BE DELIVERED BY
INSTITUTIONAL ACCREDITED INVESTORS
___________, _____
,as Registrar
- -----------------
Attention: Corporate Trust Department
Ladies and Gentlemen:
In connection with our proposed purchase of certain 13 1/4% Series
[A/B] Subordinated Preferred Stock Exchange Notes due 2009 (the "Subordinated
------------
Preferred Stock Exchange Notes") of Jordan Telecommunication Products, Inc., a
- ------------------------------
Delaware corporation (the "Company"), we represent that:
-------
(i) we are an "accredited investor" within the meaning of Rule
501(a)(1), (2), (3) or (7) under the Securities Act (an "Institutional
-------------
Accredited Investor"), or an entity in which all of the equity owners are
-------------------
Institutional Accredited Investors;
(ii) any purchase of Subordinated Exchange Notes will be for our own
account or for the account of one or more other Institutional Accredited
Investors as to which we exercise sole investment discretion;
(iii) we have such knowledge and experience in financial and business
matters that we are capable of evaluating the merits and risks of
purchasing Subordinated Exchange Notes and we and any accounts for which
we are acting are able to bear the economic risks of our or their
investment;
(iv) we are not acquiring Subordinated Exchange Notes with a view to
any distribution thereof in a transaction that would violate the Securities
Act or the securities laws of any State of the United States or any other
applicable jurisdiction; provided that the disposition of our property and
--------
the property of any accounts for which we are acting as fiduciary shall
remain at all times within our control; and
(v) we acknowledge that we have had access to such financial and
other information, and have been afforded the opportunity to ask such
questions of
C-1
<PAGE>
representatives of the Company and receive answers thereto, as we deem
necessary in connection with our decision to purchase Subordinated Exchange
Notes.
We understand that the Subordinated Exchange Notes have not been registered
under the Securities Act, and we agree, on our own behalf and on behalf of each
account for which we acquire any Subordinated Exchange Notes, that such Subordi-
nated Exchange Notes my be offered, resold, pledged or otherwise transferred
only (i) to a person whom we reason ably believe to be a qualified institutional
buyer (as defined in Rule 144A under the Securities Act) in a transaction
meeting the requirements of Rule 144A, in a transaction meeting the requirements
of Rule 144 under the Securities Act, (ii) to the Company or (iii) pursuant to
an effective registration statement, and, in each case, in accordance with any
applicable securities laws of any State of the United States or any other
applicable jurisdiction. We understand that the registrar will not be required
to accept for registration of transfer any Subordinated Exchange Notes, except
upon presentation of evidence satisfactory to the Company that the foregoing
restrictions on transfer have been complied with. We further understand that the
Subordinated Exchange Notes purchased by us will be in the form of definitive
physical certificates and that such certificates will bear a legend reflecting
the substance of this paragraph. We further agree to provide to any person
acquiring any of the Subordinated Exchange Notes from us a notice advising such
person that resales of the Subordinated Exchange Notes are restricted as stated
herein.
We acknowledge that you, the Company and others will rely upon our
confirmations, acknowledgements and agreements set forth herein, and we agree to
notify you promptly in writing if any of our representations or warranties
herein ceases to be accurate and complete.
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS
THEREOF.
Very truly yours,
[Name of Transferor]
By:
Name:
Title:
C-2
<PAGE>
Address:
C-3
<PAGE>
Exhibit 5
---------
October 21, 1997
Jordan Telecommunication Products, Inc.
1751 Lake Cook Road, Suite 550
Deerfield, IL 60015
Re: $190 million 9 7/8% Series B Senior Notes due 2007, $120 million
----------------------------------------------------------------
11 3/4% Series B Senior Discount Notes due 2007 and $25 million 13 1/4%
- -----------------------------------------------------------------------
Series B Senior Exchangeable Preferred Stock due 2009
- -----------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Jordan Telecommunication Products, Inc., a
Delaware corporation (the "Company"), in connection with the registration under
the Securities Act of 1933, as amended (the "Act") of an exchange offer (the
"Exchange Offer") relating to $190 million principal amount of Series A 9 7/8%
Senior Notes due 2007 (the "Series A Senior Notes"), $120 million principal
amount at maturity of Series A 11 3/4% Senior Discount Notes due 2007 (the
"Series A Discount Notes") and $25 million liquidation preference of Series A 13
1/4% Senior Exchangeable Preferred Stock due 2009 (the "Series A Preferred
Stock"). The Series A Senior Notes and the Series A Discount Notes were each
issued under indentures (the "Indentures") between the Company and First Trust
National Association, as trustee. The Series A Preferred Stock was issued under
a Certificate of Designation. We have also participated in the preparation and
filing with the Securities and Exchange Commission under the Act of a
registration statement on Form S-4 (the "Registration Statement") relating to
$190 million principal amount of Series B 9 7/8 Senior Notes due 2007 (the
"Series B Senior Notes"), $120 million principal amount at maturity of Series B
11 3/4 Discount Notes due 2007 (the "Series B Discount Notes") and $25 million
liquidation preference of Series B Senior Exchangeable Preferred Stock due 2009,
including such additional shares of such stock as may be issued in lieu of cash
dividends (the "Series B Preferred Stock"), with respect to the proposed
Exchange Offer for the Series A Senior Notes, Series A Discount Notes and Series
A Preferred Stock, respectively. In this
<PAGE>
Jordan Telecommunication Products, Inc.
October 21, 1997
Page 2
connection, we have examined such corporate and other records, instruments,
certificates and documents as we considered necessary to enable us to express
this opinion.
Based on the foregoing, it is our opinion that, upon completion of the
Exchange Offer, (i) the Series B Senior Notes and the Series B Discount Notes
will have been duly authorized for issuance and, when each series of Series B
Senior Notes or Series B Discount Notes is duly executed, authenticated, issued
and delivered, such series will constitute valid and legally binding obligations
of the Company entitled to the benefits of the Indentures, subject to
bankruptcy, insolvency, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditor's rights and to general equity
principles (whether considered in a proceeding at law or in equity) and (ii) the
Series B Preferred Stock will have been duly authorized for issuance and, upon
issuance and delivery, will be fully paid and non-assessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to us under the caption "Legal Matters." We
further confirm our opinion as to certain matters set forth in the section
"Certain Federal Income Tax Considerations" and consent to the reference to us
under such section.
Very truly yours,
/s/ Mayer Brown & Platt
-------------------------------
MAYER, BROWN & PLATT
<PAGE>
Exhibit 10.2
ADDITIONAL SUBSIDIARY AGREEMENT
-------------------------------
Jordan Telecommunication Products, Inc., a Delaware corporation, hereby
agrees to be bound by the terms and provisions of that certain Tax Sharing
Agreement dated as of June 29, 1994 (the "Tax Agreement") by and among Jordan
Industries, Inc., an Illinois corporation, and certain of its subsidiaries, a
copy of which is attached hereto as Exhibit A, and agrees that, effective as of
July 25, 1997, it shall be an additional Subsidiary under and as defined in the
Tax Agreement (pursuant to the provisions of Paragraph 5 thereof) and shall be
entitled to all the rights, and subject to all the duties and obligations, of a
Subsidiary thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Additional
Subsidiary Agreement to be executed this 25th day of July, 1997.
JORDAN TELECOMMUNICATION PRODUCTS, INC.
By:/s/ Thomas H. Quinn
-------------------------------------
Thomas H. Quinn
Authorized Officer
JORDAN INDUSTRIES, INC.
By:/s/ Gordon L. Nelson
-------------------------------------
Gordon L. Nelson
Vice President
10
<PAGE>
EXHIBIT A
---------
TAX SHARING AGREEMENT
---------------------
THIS Agreement is made and entered into this 29th day of June, 1994, by and
among Jordan Industries, Inc., an Illinois corporation (the "Company"), and each
corporation, other than the Company, which is a signatory to this Agreement
(hereinafter such other corporations shall collectively be referred to as the
"Subsidiaries" and individually referred to as a "Subsidiary").
WITNESSETH:
----------
WHEREAS, the Company owns directly or indirectly capital stock of each of
the Subsidiaries which represents at least 80 percent of the vote and value of
each of the Subsidiaries and may, therefore, include the income and expense of
each of the Subsidiaries in the Company's consolidated federal income tax
returns; and
WHEREAS, the parties hereto desire to consolidate such returns upon the
terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein set forth, the parties hereto do hereby agree as follow:
1. Filing and Preparation of Future Returns. Each of the Subsidiaries
agrees to consent to joining with the Company and its consolidated subsidiaries
(the Company and each of the Subsidiaries being herein referred to as the
"Group") in the
1
<PAGE>
filing of the consolidated federal income tax returns for any taxable year for
which a consolidated return can be filed and each taxable year thereafter, in
accordance with applicable income tax laws and regulations. The Company agrees
that it will prepare and file in a timely manner all federal income tax returns
required to be filed on behalf of the Company and its consolidated subsidiaries
and will pay the taxes shown to be due thereon.
2. Estimated Tax Payments; Tax Benefit Reimbursements.
(a) On or before the 10th day prior to the due date of any estimated tax
payment on account of the consolidated tax liability of the Group for a taxable
year, each of the Subsidiaries shall pay to the Company an amount equal to such
Subsidiary's separate return tax liability as defined in Treasury Regulations
(S)1.1552-1(a)(2)(ii) (the "Separate Return Tax Liability") multiplied by a
fraction the numerator of which equals one and the denominator of which equals
the total number of estimated tax payments to be made on account of the
consolidated tax liability of the Group for such taxable year. If the estimated
tax payment of the Group is based upon the prior taxable year's consolidation
tax liability, such Subsidiary's payment under this Paragraph 2(a) shall be
determined by using its Separate Return Tax Liability for such prior year, and
if such estimated tax payment is based under this Paragraph 2(a) shall be
determined by using its estimated separate return tax liability for such current
year.
2
<PAGE>
(b) In the event that the sum of any estimated payments made by any
Subsidiary in a taxable year under Paragraph 2(a) exceeds such Subsidiary's
final Separate Return Tax Liability for such taxable year, the Company shall pay
to such Subsidiary the amount of such excess on a periodic basis as determined
by the Company. In the Event that the final Separate Return Tax Liability of
such Subsidiary for a taxable year exceeds the sum of any payments based on
estimated amounts made by such Subsidiary under Paragraph 2(a) for such taxable
year, such Subsidiary shall pay such excess to the Company on or before the date
15 days prior to the due date for the filing of the consolidated federal income
tax return to which such excess relates.
(c) In addition to any amounts which may be payable by the Company to any
Subsidiary under Paragraph 2(b), the Company shall also reimburse such
Subsidiary for the amount by which the Group's income taxes are reduced as a
result of the consolidation of such Subsidiary in the Group's income tax return,
such reimbursement to be made on a periodic basis as determined by the Company.
Any loss or credit utilized by the Group pursuant to this Paragraph 2(c) shall
not be available for purposes of calculating the Separate Return Tax Liability
of a member.
In the event the computation of such Subsidiary's income tax liability
under Paragraph 2(a) above shall reflect that such Subsidiary incurred a loss
for any year that is not utilized by the Group, and that such Subsidiary would
have been due a Federal
3
<PAGE>
income as fund as a result of certain loss carryback provisions of the Internal
Revenue Code or any other provisions of the Internal Revenue Code, then the
Company shall pay to such subsidiary an amount equal to the actual income tax
refund attributable to the Subsidiary when received by the Company.
(d) Notwithstanding anything in this agreement, the Internal Revenue Code
of 1986, as amended (the "Code"), or regulations promulgated thereunder to the
contrary, the Company shall determine the order i which losses incur by each of
the Subsidiaries reduce the Group's income taxed for purposed of Paragraph 2(c)
hereof. The losses of each of the Subsidiaries that do not reduce the taxable
income of the Group shall be carried forward and each of the Subsidiaries shall
be reimbursed for such losses as determined by the Company. Each of the
Subsidiaries agrees that the decision of the Company with respect to the amount
and the date of payment for such reimbursement shall be conclusive.
(e) Any payments or reimbursements hereunder shall be computed by the
independent public accountants of the Company, in accordance with generally
accepted accounting principles and applicable tax laws, rules and regulations.
3. Adjustments to Liability. The Company and each Subsidiary agree that
in the event there should be any factual circumstance, or any application,
either retroactively or prospectively, of any federal income tax laws or
revision of the federal income tax laws, which results in a redetermination of
4
<PAGE>
the Separate Return Tax Liability of any Subsidiary, the payment under Paragraph
2 shall be adjusted to account for such redetermination. It is intended that the
adjustment referred to in this paragraph shall relate to those items which are
given recognition in the Group's consolidated tax returns or are approved or
adjusted by the Internal Revenue Service in their audit of said returns, and
which therefore have been recognized or given effect by the computation of the
consolidated income tax of the Group and the income tax computed on the separate
return basis of each Subsidiary.
4. Other Taxes. In the event there shall be imposed on any of the
Company or any of the Subsidiaries any foreign, federal, state or local tax to
which principles of consolidated taxation may be applied and practical, each of
the Company and each of the Subsidiaries agree that this agreement shall also be
applicable with respect to such taxes. For purposes of this agreement, the term
taxes shall include, but is not limited to, all net income, capital gains, gross
income, gross receipts, sales, use, transfer, franchise, profits, license,
capital, payroll, excise, value added or other taxes and any related interest or
governmental charge.
5. Additional Subsidiaries. If at any time after the date upon which
this agreement is executed, any party to this agreement acquires or creates one
or more subsidiary corporations that are includible corporations of the Group,
either the Company or a Subsidiary shall cause such subsidiary corporation to be
5
<PAGE>
subject to this agreement and all references to either Group or a Subsidiary
herein shall thereafter be interpreted to refer to the Company, the Subsidiaries
and such subsidiary or subsidiaries, or to a Subsidiary and such subsidiary or
subsidiaries, respectfully. The parties hereto agree that this agreement shall
only govern the allocation of income taxes among the Company and each Subsidiary
for each taxable year, or portions thereof, in which each respective Subsidiary
is included in a consolidated income tax return filed by the Company and that no
party to this agreement shall have any rights or obligations under this
agreement to any other party to this agreement subsequent to such party's
disaffiliation from the Group, as defined in the Code.
6. Successors and Assigns. This agreement shall be binding on and inure
to the benefit of any successor, by merger, acquisition of assets or otherwise,
to any of the parties hereto (including but not limited to any successor of the
Company or a Subsidiary succeeding to the tax attributes of each under Section
381 of the Code), to the same extent as if such successor had been an original
party to this agreement.
7. Termination. This agreement shall continue in effect until terminated
by written agreement between all the parties hereto.
8. Entire Agreement. This agreement constitutes the entire agreement
between the parties hereto pertaining to the subject matter hereof and
supersedes and cancels any and all such previous written or oral agreements
between the parties hereto.
6
<PAGE>
9. Governing Law. This Agreement shall be governed by the internal laws
of the state of Illinois.
IN WITNESS WHEREOF, the parties hereto have executed this agreement on the
day and year first above written.
JORDAN INDUSTRIES, INC. DACCO, INCORPORATED
By: ________________________ By: ________________________
DETROIT TRANSMISSION PRODUCTS BORG MANUFACTURING
CO.
By: ________________________ By: ________________________
TRANSMISSION PARTS WAREHOUSE, ABC TRANSMISSION PARTS
INC. WAREHOUSE, INC.
By: ________________________ By: ________________________
NASHVILLE TRANSMISSION PARTS DACCO/DETROIT OF FLORIDA, INC.
INC.
By: ________________________ By: ________________________
DACCO/DETROIT OF MINNESOTA, INC. DACCO/DETROIT OF COLORADO,
INC.
By: ________________________ By: ________________________
DACCO/DETROIT OF INDIANA, INC. DACCO/DETROIT OF MISSOURI,
INC.
CO.
By: ________________________ By: ________________________
7
<PAGE>
DACCO/DETROIT OF NORTH CAROLINA, DACCO/DETROIT OF MEMPHIS,
INC. INC.
By: ________________________ By: ________________________
DACCO/DETROIT OF NEBRASKA, INC. DACCO/DETROIT OF ALABAMA,
INC.
By: ________________________ By: ________________________
DACCO/DETROIT OF NEW JERSEY, DACCO/DETROIT OF MICHIGAN,
INC. INC.
By: ________________________ By: ________________________
DACCO/DETROIT OF ARIZONA, INC. DACCO/DETROIT OF OKLAHOMA,
INC.
By: ________________________ By: ________________________
DACCO/DETROIT OF TEXAS, INC. DACCO/DETROIT OF SOUTH
CAROLINA, INC.
By: ________________________ By: ________________________
RIVERSIDE BOOK AND BIBLE HOUSE, PARSONS PRECISION PRODUCTS,
INCORPORATED INC.
By: ________________________ By: ________________________
WORLD BIBLE PUBLISHERS, INC. JII, INC.
By: ________________________ By: ________________________
THE IMPERIAL ELECTRIC COMPANY THE SCOTT MOTORS COMPANY
8
<PAGE>
By: ________________________ By: ________________________
GEAR RESEARCH, INC. HUDSON LOCK, INC.
By: ________________________ By: ________________________
HUDSON LOCK DE PUERTO RICO AIM ELECTRONICS CORPORATION
INCORPORATED
By: ________________________ By: ________________________
SATE-LITE MANUFACTURING COMPANY DURA-LINE CORPORATION
By: ________________________ By: ________________________
JI AVIATION, INC. WELCOME HOME, INC.
By: ________________________ By: ________________________
JHRC, INC. J2, INC.
By: ________________________ By: ________________________
VALMARK INDUSTRIES, INC. PAMCO PRINTED TAPE & LABEL
CO., INC.
By: ________________________ By: ________________________
JI FINANCE COMPANY BEEMAK PLASTICS, INC.
By: ________________________ By: ________________________
CAMBRIDGE PRODUCTS CORPORATION JII/SALES PROMOTION
ASSOCIATES, INC.
By: ________________________ By: ________________________
9
<PAGE>
EXHIBIT 23.2
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report, dated April 25, 1997, on the combined balance sheets of the
JTP Companies as of December 31, 1995 and 1996, and the related combined
statements of operations, changes in shareholders' equity (net capital
deficiency), and cash flows for each of the three years in the period ended
December 31, 1996; our report, dated April 10, 1996, on the combined balance
sheet of Viewsonics, Inc. and Shanghai Viewsonics Electronic Co., Ltd. as of
December 31, 1995, and the related combined statements of income, stockholder's
equity, and cash flows for the year then ended; our report, dated May 7, 1997,
on the combined balance sheet of LoDan West, Inc. and L/D West, Inc. as of
December 31, 1996, and the related combined statements of income and retained
earnings, and cash flows for the year ended December 31, 1996; our report, dated
August 19, 1997, on the balance sheets of Engineered Endeavors, Inc. as of
December 31, 1995 and 1996, and the related statements of income, shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 1996; included in Amendment No. 1 to the Registration Statement (Form S-4
No. 333-34585) and related Prospectus of Jordan Telecommunication Products, Inc.
for the registration of $190,000,000 of 9 7/8% Series B Senior Notes due 2007,
$120,000,000 of 11 3/4% Series B Senior Discount Notes due 2007, $25,000,000 of
13 1/4% Series B Senior Exchangable Preferred Stock due 2009, and $25,000,000 of
13 1/4% Series B Subordinated Preferred Stock Exchange Notes due 2009.
/s/ Ernst & Young LLP
Chicago, Illinois
October 21, 1997
<PAGE>
[MELLEN, SMITH & PIVOZ, P.C. - Letterhead]
[MS&P - Logo]
Exhibit 23.3
CONSENT OF MELLEN, SMITH & PIVOZ, P.C., INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report, dated February 13, 1997, on the balance sheet of Diversified
Wire & Cable, Inc. as of December 31, 1996, and the related statement of
operations, changes in shareholders' equity, and cash flows for the period June
25, 1996 to December 31, 1996; and our report dated March 23, 1996 on the
balance sheets of Diversified Wire & Cable, Inc. as of September 30, 1993, 1994,
and 1995, and the related statements of operations and retained earnings and
cash flows for the years then ended, in the First Amended Registration Statement
(Form S-4 No. 333-34585) and related Prospectus of Jordan Telecommunication
Products, Inc. for the registration of $190,000,000 of 9 7/8% Series B Senior
Notes due 2007, $120,000,000 of 11 3/4% Series B Senior Discount Notes due 2007,
$25,000,000 of 13 1/4% Series B Senior Exchangeable Preferred Stock due 2009 and
$25,000,000 of 13 1/4% Series B Subordinated Preferred Stock Exchange Notes due
2009.
/s/ Mellen, Smith & Pivoz
Mellen, Smith & Pivoz, P.C.
Bingham Farms, Michigan
October 21, 1997
<PAGE>
Exhibit 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 (File No.
333-34585) of our report dated April 11, 1997, on our audit of the financial
statements of Bond Holdings, Inc. We also consent to the reference to our firm
under the caption "Experts".
/s/ Coopers & Lybrand L.L.P
Newport Beach, California
October 20, 1997
<PAGE>
Exhibit 23.5
Consent Of McFarland & Alton PS, Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report, dated April 25, 1997, on the consolidated balance sheet of
Northern Technologies Holdings, Inc. as of December 31, 1996 and our report,
dated February 7, 1997 on the balance sheets of Northern Technologies, Inc. as
of December 31, 1995 and 1996, and the related statements of income,
stockholders' equity, and cash flows for the years then ended, in Amendment
No. 1 to the Registration Statement (Form S-4 No. 333-34585) and related
Prospectus of Jordan Telecommunication Products, Inc. for the registration of
$190,000,000 of 9 7/8% Series B Senior Notes due 2007, $120,000,000 of 11 3/4%
Series B Senior Discount Notes due 2007, $25,000,000 of 13 1/4% Series B Senior
Exchangeable Preferred Stock due 2009, and $25,000,000 of 13 1/4% Series B
Subordinated Preferred Stock Exchange Notes due 2009.
/s/ McFarland & Alton PS
Spokane, Washington
October 20, 1997
<PAGE>
Exhibit 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 (333-34585) of Jordan Telecommunication
Products, Inc. of our report dated August 28, 1996 relating to the financial
statements of E.F. Johnson Company - Components Division which appears in such
Prospectus. We also consent to the references to us under the headings
"Experts".
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Minneapolis, Minnesota
October 21, 1997
