<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 23, 1999
REGISTRATION NO. 333-76057
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
---------------------
RUSSELL-STANLEY HOLDINGS, INC.
(EXACT NAME OF REGISTRANT ISSUER AS SPECIFIED IN ITS CHARTER--
SEE INSIDE FACING PAGE FOR TABLE OF ADDITIONAL REGISTRANT GUARANTORS)
<TABLE>
<S> <C> <C>
DELAWARE 3412 22-3525626
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
685 ROUTE 202/206
BRIDGEWATER, NJ 08807
(908) 203-9500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT ISSUER'S PRINCIPAL EXECUTIVE OFFICES)
DANIEL W. MILLER
RUSSELL-STANLEY HOLDINGS, INC.
685 ROUTE 202/206
BRIDGEWATER, NJ 08807
(908) 203-9500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------------
WITH A COPY TO:
STEPHAN J. FEDER, ESQ.
SIMPSON THACHER & BARTLETT
425 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 455-2000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act Registration number of the earlier effective
Registration Statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities
Registration Statement number of the earlier effective Registration Statement
for the same offering. / /
------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
------------------------
TABLE OF ADDITIONAL REGISTRANT GUARANTORS
<TABLE>
<CAPTION>
STATE OR OTHER
JURISDICTION OF I.R.S. EMPLOYER
EXACT NAME OF REGISTRANT GUARANTOR INCORPORATION OR IDENTIFICATION
AS SPECIFIED IN ITS CHARTER ORGANIZATION NUMBER
- ----------------------------------------------- -------------------- ----------------
<S> <C> <C> <C>
Russell-Stanley Corp. New Jersey 22-1505645
Container Management Services, Inc. South Carolina 57-0941972
New England Container Co., Inc. Rhode Island 05-0268961
Russell-Stanley, Inc. Illinois 22-2623485
RSLPCO, Inc. Delaware 22-3611710
Russell-Stanley, L.P. Texas 22-3611707
<CAPTION>
ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
EXACT NAME OF REGISTRANT GUARANTOR NUMBER, INCLUDING AREA CODE, OF REGISTRANT
AS SPECIFIED IN ITS CHARTER GUARANTOR'S PRINCIPAL EXECUTIVE OFFICES
- ----------------------------------------------- -----------------------------------------------
<S> <C>
Russell-Stanley Corp. 685 Route 202/206
Bridgewater, NJ 08807 (908-203-9500)
Container Management Services, Inc. 685 Route 202/206
Bridgewater, NJ 08807 (908-203-9500)
New England Container Co., Inc. 685 Route 202/206
Bridgewater, NJ 08807 (908-203-9500)
Russell-Stanley, Inc. 685 Route 202/206
Bridgewater, NJ 08807 (908-203-9500)
RSLPCO, Inc. 685 Route 202/206
Bridgewater, NJ 08807 (908-203-9500)
Russell-Stanley, L.P. 685 Route 202/206
Bridgewater, NJ 08807 (908-203-9500)
</TABLE>
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 23, 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PRELIMINARY PROSPECTUS
$150,000,000
[LOGO]
RUSSELL-STANLEY HOLDINGS, INC.
Offer to Exchange All Outstanding
10 7/8% Senior Subordinated Notes due 2009
for 10 7/8% Senior Subordinated Notes due 2009
Which We Have Registered Under the Securities Act of 1933
---------------------
- We will exchange an aggregate of up to $150,000,000 principal amount of
10 7/8% Senior Subordinated Notes due 2009 validly tendered and not
validly withdrawn for an equal principal amount of 10 7/8% Senior
Subordinated Notes due 2009 which we have registered under the Securities
Act of 1933 and which are freely tradeable. As of the date of this
prospectus, there is $150,000,000 aggregate principal amount of the
unregistered notes outstanding.
- The exchange notes will be substantially identical to the outstanding
notes, except that because we have registered the exchange notes, they
will be freely tradeable, will not bear legends restricting their
transfer, will not be subject to any additional obligations regarding
registration under the Securities Act of 1933 and will not be subject to
special interest payments.
- The exchange notes will be issued under and entitled to the benefits of
the same indenture that authorized the issuance of the outstanding notes.
Consequently, both series will be treated as a single class of debt
securities under the indenture.
- The guarantees of the outstanding notes are, and the guarantees of the
exchange notes will be full, unconditional, joint and several.
- The outstanding notes and the guarantees of the outstanding notes are, and
the exchange notes and the guarantees of the exchange notes will be,
senior subordinated indebtedness. As of May 31, 1999, we and the
guarantors had approximately $34.4 million of senior indebtedness
outstanding.
- You may withdraw tenders of outstanding notes at any time prior to the
expiration of the exchange offer.
- The exchange offer expires at 5:00 p.m., New York City time, on
, 1999, unless extended. We do not currently intend to extend
the expiration date.
- The exchange of outstanding notes for exchange notes in the exchange offer
will not be a taxable event for U.S. federal income tax purposes.
- We will not receive any proceeds from the exchange offer.
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 10 OF THIS
PROSPECTUS BEFORE PARTICIPATING IN THE EXCHANGE OFFER.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE EXCHANGE NOTES OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Where You Can Find More Information............ i
Prospectus Summary............................. 1
Risk Factors................................... 10
Use of Proceeds................................ 19
The Exchange Offer............................. 20
Description of Notes........................... 31
Certain U.S. Federal Income Tax Consequences of
the Exchange Offer........................... 72
Plan of Distribution........................... 73
Capitalization................................. 74
Unaudited Pro Forma Consolidated Financial
Data......................................... 75
Selected Historical Consolidated Financial and
Other Data................................... 81
<CAPTION>
PAGE
---------
<S> <C>
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 84
Business....................................... 95
Management..................................... 106
Ownership of Common Stock...................... 114
Certain Relationships and Related Party
Transactions................................. 116
Description of Senior Credit Facility.......... 117
Legal Matters.................................. 118
Experts........................................ 118
Index to Financial Statements.................. F-1
</TABLE>
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-4 under the Securities Act of 1933 with respect to the
exchange notes being offered by this prospectus. This prospectus, which forms a
part of the registration statement, does not contain all of the information set
forth in, or filed as an exhibit to, the registration statement. For further
information with respect to Russell-Stanley and the exchange notes, we refer you
to the registration statement. While we believe that we have provided all
material information regarding the contracts and other documents described in
this prospectus, the information we have provided is not necessarily complete.
Where these contracts and other documents are filed as exhibits to the
registration statement, our descriptions are qualified by the exhibits.
We are not currently subject to the informational requirements of the
Securities Exchange Act of 1934. Upon completion of the exchange offer, we will
be subject to the informational requirements of the Securities Exchange Act of
1934 and, as a result, will file periodic reports and other information with the
Securities and Exchange Commission. The registration statement and periodic
reports and other information can be inspected and copied at the Public
Reference Section of the Securities and Exchange Commission located at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C., 20549 and at
regional public reference facilities maintained by the Securities and Exchange
Commission located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and Seven World Trade Center, Suite 1300, New York, New
York 10048. You can obtain copies of this material, including copies of all or
any portion of the registration statement, from the Public Reference Section of
the Securities and Exchange Commission at prescribed rates. You may also access
this material electronically by means of the Securities and Exchange
Commission's home page on the Internet (http://www.sec.gov).
In addition, whether or not required by the Securities and Exchange
Commission, so long as any outstanding notes are outstanding, beginning with the
quarter ended June 30, 1999 we will furnish to those holding any outstanding
notes, within the time periods specified in the Securities and Exchange
Commission's rules and regulations:
- all quarterly and annual financial information that would be required to
be contained in a filing with the Securities and Exchange Commission on
Forms 10-Q and 10-K if we were required to file these Forms, including a
"Management's Discussion and Analysis of Financial
i
<PAGE>
Condition and Results of Operations" and, with respect to the annual
information only, a report on the annual financial statements by our
independent auditors; and
- all current reports that we would be required to file with the Securities
and Exchange Commission on Form 8-K if we were required to file these
reports.
In addition, whether or not required by the Securities and Exchange
Commission, we will file a copy of all of the information and reports referred
to above with the Securities and Exchange Commission for public availability
within the time periods specified in the Securities and Exchange Commission's
rules and regulations, unless the Securities and Exchange Commission will not
accept the filing, and we will make the information available to securities
analysts and prospective investors upon request.
------------------------
We operate in an industry in which it is difficult to obtain precise
industry and market information. Although we have obtained some industry data
from third party sources that we believe to be reliable, in many cases, we have
based certain statements contained in this prospectus regarding our industry and
our position in the industry on certain assumptions concerning our customers and
competitors. These assumptions are based on our experience in the industry and
our own investigation of market conditions. We cannot assure you as to the
accuracy of any such assumptions, and such assumptions may not be indicative of
our position in our industry.
------------------------
"CMS," "Delcon" and "Russell-Stanley" are trademarks of ours.
ii
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY CONTAINS BASIC INFORMATION ABOUT RUSSELL-STANLEY
HOLDINGS, INC. AND ITS SUBSIDIARIES AND THIS EXCHANGE OFFER. BECAUSE IT IS JUST
A SUMMARY, IT MAY NOT CONTAIN ALL THE INFORMATION THAT MAY BE IMPORTANT TO YOU.
YOU SHOULD READ THIS ENTIRE PROSPECTUS, INCLUDING THE FINANCIAL DATA AND RELATED
NOTES, IN ITS ENTIRETY.
RUSSELL-STANLEY
GENERAL
We are a leading manufacturer and marketer of plastic and steel industrial
containers and a leading provider of related container services in the United
States and Canada. Our container manufacturing division manufactures and sells
new plastic and steel rigid industrial containers. Our services division
- leases plastic rigid industrial containers,
- provides plastic container fleet management services,
- reconditions and sells steel drums and
- retrieves and recycles empty industrial containers.
Our container manufacturing and services divisions together have over 1,500
active customers in the agricultural chemical, food product, lubricant,
pharmaceutical and specialty chemical industries.
We believe that our container manufacturing division offers one of the
broadest lines of 5- to 70-gallon plastic rigid industrial containers in the
United States and Canada and enjoys the largest share in the U.S. plastic drum
market as well as one of the leading shares in the Canadian plastic drum market.
Our container manufacturing division also offers a broad line of the widely used
55-gallon steel drum and, we believe, enjoys one of the leading shares in the
Northeast, Gulf Coast and Canadian steel drum markets.
Our services division is an innovator and, we believe, the leader in the
United States and Canada in the businesses of leasing plastic containers on a
per use or round-trip basis and providing plastic container fleet management
services. In our container leasing business, we lease a container to our
customer for filling and shipping to the end-user. We then retrieve the
container directly from the end-user and prepare it for re-use. Container fleet
management involves the same services, but uses containers owned by the
customer. We believe that our services division is also the leading
reconditioner of steel drums in the Northeast. The addition of container
services to our historical manufacturing business enables us to serve a wider
range of our customers' evolving industrial container requirements and is an
important aspect of our strategy to retain and enhance our leading market
position as our customers increasingly look to rely on fewer suppliers.
We currently operate twelve plastic drum manufacturing plants, three steel
drum manufacturing plants and six container services plants throughout the
United States and Canada, enabling us to be strategically located near our major
customers. We sell, lease and service plastic containers in most markets in the
United States and in most of the major industrial regions in Canada. We sell new
steel drums in the Northeast, the Gulf Coast, parts of the Midwest and Ontario,
Canada, regions where there is a high concentration of purchasers of steel
drums, and we sell reconditioned steel drums in the Northeast.
RECENT ACQUISITIONS
The rigid industrial container industry has been undergoing consolidation
for a number of years and remains fragmented. We believe that the industry will
evolve to support a few participants who
1
<PAGE>
are able to provide a broad range of containers and related container services.
As a result, we began pursuing, and in July 1997 began consummating, several
acquisitions in furtherance of our goal to become the preeminent provider of
rigid industrial containers and related container services in the United States
and Canada. We acquired Container Management Services in July 1997, Hunter Drums
Limited in October 1997, the plastics division of Smurfit Packaging Corporation
in November 1997 and New England Container in July 1998. We discuss each of the
businesses we acquired under "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Introduction."
COMPETITIVE STRENGTHS
We believe the following competitive strengths are the primary factors
contributing to our leading position in the marketplace:
- We are a leading industry player with strong market positions.
- We have a broad offering of quality products and services.
- We focus on maintaining a competitive cost structure.
- We have a high quality and diverse customer base.
- We have an experienced management team and a strong principal equity
investor.
We discuss each of these competitive strengths under "Business--Competitive
Strengths."
BUSINESS STRATEGY
Our goal is to become the preeminent provider of rigid industrial containers
and related container services in the United States and Canada. In this effort,
we intend to:
- Continue to broaden our product and service offering and geographic reach.
- Continue to improve our cost structure.
- Pursue selective acquisitions.
We discuss each of these strategies under "Business--Business Strategy."
VESTAR
Russell-Stanley was incorporated in 1950 as a steel drum manufacturer and
was acquired in June 1989 by affiliates of Vestar Capital Partners.
Vestar, headquartered in New York with an office in Denver, Colorado,
manages over $1 billion in private equity capital. Founded in 1988, Vestar
focuses on management buyouts, recapitalizations and growth equity investments
and to date has completed 26 investments with an aggregate value of almost $5
billion.
* * *
Russell-Stanley is incorporated in Delaware. The address of our principal
executive office is 685 Route 202/206, Bridgewater, New Jersey 08807, and our
telephone number is (908) 203-9500. We invite you to visit our web site at
http://www.russell-stanley.com. Information on our web site is not part of this
prospectus.
2
<PAGE>
SUMMARY OF TERMS OF THE EXCHANGE OFFER
On February 10, 1999, we completed the private offering of the outstanding
notes.
We and our subsidiaries which guarantee the outstanding notes entered into
an exchange and registration rights agreement with the initial purchasers in the
private offering in which we and those subsidiaries agreed to deliver to you
this prospectus and to complete the exchange offer within 255 days after the
date of original issuance of the outstanding notes.
<TABLE>
<S> <C>
The Exchange Offer.................. We are offering to exchange up to $150.0 million
aggregate principal amount of exchange notes for up
to $150.0 million aggregate principal amount of
outstanding notes. Outstanding notes may be exchanged
only in integral multiples of $1,000. The exchange
notes will be substantially identical to the
outstanding notes, except that because we have
registered the exchange notes they:
- will be freely tradeable;
- will not bear legends restricting their transfer;
- will not be subject to any additional obligations
regarding registration under the Securities Act of
1933; and
- will not be subject to the special interest
payments described in "Description of
Notes--Registration Covenant; Exchange Offer."
The exchange notes will be issued under and entitled
to the benefits of the same indenture that authorized
the issuance of the outstanding notes. Consequently,
both series will be treated as a single class of debt
securities under the indenture.
Resales............................. Based on interpretations of the staff of the
Securities and Exchange Commission set forth in
no-action letters issued to unrelated third parties,
we believe that the exchange notes may be offered for
resale, resold and otherwise transferred by you
without compliance with the registration and
prospectus delivery provisions of the Securities Act
of 1933, if:
- you are acquiring the exchange notes in the
ordinary course of your business;
- you have not engaged in, do not intend to engage
in, and have no arrangement or understanding with any
person to participate in, a distribution of the
exchange notes; and
- you are not an affiliate of Russell-Stanley within
the meaning of Rule 405 under the Securities Act of
1933.
If you do not meet these requirements, you will need
to comply with the registration and prospectus
delivery requirements of the Securities Act of 1933
in connection
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
with the resale of exchange notes, unless an
exemption to these requirements is applicable. Each
participating broker-dealer that receives exchange
notes for its own account in exchange for outstanding
notes acquired as a result of market-making or
trading activity must acknowledge that it will
deliver a prospectus in connection with any resale of
the exchange notes. See "Plan of Distribution."
Expiration Date; Withdrawal
of Tender........................... The exchange offer expires at 5:00 p.m., New York
City time, on , 1999 unless we extend the
expiration date. We do not currently intend to extend
the expiration date. You may withdraw tenders of
outstanding notes at any time prior to the expiration
of the exchange offer.
Certain Conditions to the Exchange
Offer............................... The exchange offer is subject to conditions, which we
may waive if, in our reasonable determination, one or
more conditions have not been satisfied. We currently
expect that each of the conditions will be satisfied
and that no waivers will be necessary. Please read
the section captioned "The Exchange Offer--Certain
Conditions to the Exchange Offer" of this prospectus
for more information regarding the conditions to the
exchange offer.
Procedures for Tendering Outstanding
Notes............................... If you wish to accept the exchange offer, you must
complete, sign and date the accompanying letter of
transmittal, or a facsimile of the letter of
transmittal, according to the instructions contained
in this prospectus and the letter of transmittal. You
must also mail or otherwise deliver the letter of
transmittal, or a facsimile of the letter of
transmittal, together with the outstanding notes and
any other required documents to the exchange agent at
the address set forth on the cover page of the letter
of transmittal. If you hold outstanding notes through
The Depository Trust Company and wish to participate
in the exchange offer, you must comply with the
Automated Tender Offer Program procedures of The
Depository Trust Company, by which you will agree to
be bound by the letter of transmittal.
Terms and Conditions of the Letter
of Transmittal...................... By signing, or agreeing to be bound by, the letter of
transmittal, you will represent to us that:
- any exchange notes that you receive will be
acquired in the ordinary course of your business;
- you have no arrangement or understanding with any
person or entity to participate in, and do not
intend to engage in, a distribution of the exchange
notes;
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
- if you are a broker-dealer that will receive
exchange notes for your own account in exchange for
outstanding notes that you have acquired as a
result of market-making or trading activities, that
you will deliver a prospectus, as required by law,
in connection with any resale of those exchange
notes;
- you are not an affiliate, as defined in Rule 405 of
the Securities Act of 1933, of Russell-Stanley or, if
you are an affiliate, that you will comply with
applicable registration and prospectus delivery
requirements of the Securities Act of 1933; and
- if you are a person in the United Kingdom, that
your ordinary activities involve you in acquiring,
holding, managing or disposing of investments, as
principal or agent, for the purposes of your
business.
Special Procedures for Beneficial
Owners.............................. If you are a beneficial owner of outstanding notes
which are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee, and
you wish to tender those outstanding notes in the
exchange offer, you should promptly contact the
person in whose name your outstanding notes are
registered and instruct them to tender on your
behalf. If you wish to tender on your own behalf, you
must, prior to completing and executing the letter of
transmittal and delivering your outstanding notes,
either make appropriate arrangements to register
ownership of the outstanding notes in your name or
obtain a properly completed bond power from the
person in whose name your oustanding notes are
registered. The transfer of registered ownership may
take considerable time and may not be able to be
completed prior to the expiration date.
Guaranteed Delivery Procedures...... If you wish to tender your outstanding notes and,
prior to the expiration date, you cannot:
- deliver your outstanding notes, the letter of
transmittal or any other documents required by the
letter of transmittal; or
- comply with the applicable procedures under the
Depository Trust Company's Automated Tender Offer
Program,
then you must tender your outstanding notes according
to the guaranteed delivery procedures which we
explain in this prospectus under the caption "The
Exchange Offer--Guaranteed Delivery Procedures."
Effect on Holders of
Outstanding Notes................... As a result of this exchange offer, we will have
fulfilled a covenant contained in the exchange and
registration rights agreement among us and our
subsidiaries which
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
guarantee the outstanding notes and the initial
purchases in the private offering through which we
issued the outstanding notes. Accordingly, there will
be no increase in the interest rate on the
outstanding notes. If you do not tender your
outstanding notes in the exchange offer, you will
continue to be entitled to all the rights and
limitations that apply to the outstanding notes under
the indenture.
Consequence of Failure to
Exchange............................ If you do not exchange your outstanding notes for
exchange notes in the exchange offer, your
outstanding notes will continue to be subject to
restrictions on transfer. In general, outstanding
notes may not be offered or sold unless registered
under the Securities Act of 1933, except pursuant to
an exemption from, or in a transaction not subject
to, the Securities Act of 1933 and applicable state
securities laws. We do not currently anticipate that
we will register the outstanding notes under the
Securities Act of 1933. In addition, the tender of
outstanding notes in the exchange offer will reduce
the principal amount of the outstanding notes
outstanding, which may have an adverse effect upon,
and increase the volatility of, the market price of
the outstanding notes due to a reduction in
liquidity. See "Risk Factors--If you do not exchange
your outstanding notes, they will continue to be
subject to restrictions on transfer and may suffer
from reduced liquidity."
Certain U.S. Federal Income Tax
Considerations...................... The exchange of outstanding notes for exchange notes
in the exchange offer will not be a taxable event for
U.S. federal income tax purposes. See "Certain U.S.
Federal Income Tax Consequences of the Exchange
Offer."
Use of Proceeds..................... We will not receive any cash proceeds from the
issuance of exchange notes.
Exchange Agent...................... The Bank of New York is the exchange agent for the
exchange offer. The address and telephone number of
the exchange agent are set forth in the section
captioned "Exchange Offer--Exchange Agent" of this
prospectus.
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
SUMMARY OF TERMS OF THE EXCHANGE NOTES
Issuer.............................. Russell-Stanley Holdings, Inc.
Notes Offered....................... $150.0 million aggregate principal amount of 10 7/8%
Senior Subordinated Notes due 2009.
Maturity............................ February 15, 2009.
Interest............................ Annual rate: 10.875%.
Payment frequency: every six months on February 15
and August 15.
Interest on the exchange notes will accrue from the
last interest payment date on which interest was paid
on the outstanding notes or, if no interest was paid
on the outstanding notes, from the date the
outstanding notes were originally issued.
Sinking Fund........................ None.
Ranking and Guarantees.............. The exchange notes will rank junior to all of our
existing and future senior indebtedness and will rank
senior in right of payment to all of our future
indebtedness that is expressly subordinated to the
outstanding notes. See "Description of
Notes--Subordination."
All of our existing and future domestic restricted
subsidiaries will fully, unconditionally, jointly and
severally guarantee our obligation to pay principal,
premium, if any, and interest on the exchange notes.
Generally, our restricted subsidiaries are
subsidiaries that are subject to the restrictions
contained in the indenture. Currently, all of our
subsidiaries are restricted subsidiaries. However,
one of our subsidiaries is not a domestic subsidiary
and is not a guarantor.
If we cannot make payments on the exchange notes when
they are due, the guarantors must make them instead.
The obligations of each guarantor will, however, be
limited as necessary to prevent that guarantor's
guarantee from constituting a fraudulent conveyance
under applicable law. In addition, one or more of our
guarantors may not have the funds or resources to
satisfy our obligations in the event they are called
upon to do so. The guarantees will rank junior in
right of payment to all existing and future senior
indebtedness of the guarantors and will rank senior
in right of payment to all of their future
indebtedness that is expressly subordinated to the
guarantees. See "Description of Notes--Subsidiary
Guarantees."
At May 31, 1999, we and our guarantors had
approximately $34.4 million of senior indebtedness
outstanding.
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
No payments in respect of the exchange notes are
required to be made from assets of our non-guarantor
subsidiary unless those assets are transferred to us
or a guarantor. In the event of a bankruptcy,
liquidation or reorganization of our non-guarantor
subsidiary, holders of its liabilities, including its
trade creditors, will generally be entitled to
payment of their claims from the assets of that
subsidiary before any assets are made available for
distribution to us. At May 31, 1999, the total
liabilities, including trade payables, of our
non-guarantor subsidiary were approximately $17.0
million.
Optional Redemption................. We may redeem some or all of the exchange notes at
our option at any time on or after February 15, 2004,
at the redemption prices listed in the "Description
of Notes-- Optional Redemption."
In addition, on or before February 15, 2002, we may,
at our option, use the net proceeds from one or more
public equity offerings to redeem up to 35% of the
aggregate principal amount of the outstanding notes
and exchange notes originally issued at the price
listed in the "Description of Notes--Optional
Redemption."
Mandatory Offer to Repurchase....... If we experience specific kinds of changes of control
or asset sales, we must offer to repurchase the
exchange notes at the prices listed in the
"Description of Notes-- Repurchase at the Option of
Those Holding Notes-- Change of Control" and "--Asset
Sales." However, we may not have sufficient funds to
repurchase the outstanding notes if a change of
control or sale of assets occurs.
Basic Covenants of Indenture........ We issued the outstanding notes and will issue the
exchange notes under an indenture with The Bank of
New York. The indenture will limit our ability and
the ability of our restricted subsidiaries to:
- incur more debt;
- pay dividends, redeem stock or make other
distributions;
- issue capital stock;
- make restricted investments;
- use assets as security in other transactions;
- enter into transactions with affiliates;
- enter into sale and leaseback transactions; and
- merge or consolidate.
These covenants are subject to a number of important
qualifications and limitations. See "Description of
Notes-- Certain Covenants."
</TABLE>
8
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL AND OTHER DATA
In reviewing this summary historical and pro forma consolidated financial
and other data, you should refer to the information under the headings
"Unaudited Pro Forma Consolidated Financial Data," "Selected Historical
Consolidated Financial and Other Data" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
PRO FORMA
----------------------------------
FISCAL YEAR ENDED FISCAL YEAR
DECEMBER 31, THREE MONTHS ENDED THREE MONTHS
------------------------------- ENDED DECEMBER 31, ENDED
(DOLLARS IN MILLIONS) 1996 1997 1998 MARCH 31, 1999 1998 MARCH 31, 1999
--------- --------- --------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales:
Containers............................. $ 141.9 $ 161.1 $ 227.4 $ 56.0 $ 227.4 $ 56.0
Services............................... -- 15.2 46.6 14.9 57.1 14.9
--------- --------- --------- ------- ------- -------
Total net sales...................... 141.9 176.3 274.0 70.9 284.5 70.9
Cost of sales............................ 103.6 133.6 213.2 52.9 220.7 52.9
--------- --------- --------- ------- ------- -------
Gross profit............................. 38.3 42.7 60.8 18.0 63.8 18.0
Selling, general and administrative
expenses............................... 24.3 26.8 42.9 12.6 45.2 12.6
Non-recurring charges.................... -- -- 6.2 -- 6.2 --
--------- --------- --------- ------- ------- -------
Income from operations................... 14.0 15.9 11.7 5.4 12.4 5.4
Other (income) expense, net.............. 0.3 0.2 0.5 0.1 0.5 0.1
Interest expense......................... 7.5 8.8 16.0 4.6 20.5 5.4
--------- --------- --------- ------- ------- -------
Income (loss) before income taxes and
extraordinary items.................... 6.2 6.9 (4.8) 0.7 (8.6) (0.1)
Provision (benefit) for income taxes..... 2.5 2.9 (.5) 0.4 (2.7) 0.1
--------- --------- --------- ------- ------- -------
Income (loss) before extraordinary
items.................................. $ 3.7 $ 4.0 $ (4.3) $ 0.3 $ (5.9) $ (0.2)
--------- --------- --------- ------- ------- -------
--------- --------- --------- ------- ------- -------
OTHER FINANCIAL DATA:
Cash flows from (used in):
Operating activities................... $ 4.4 $ 17.7 $ 30.8 $ (8.0) $ 30.1 (8.5)
Investing activities................... (3.3) (140.3) (41.2) (7.4) (38.1) (7.4)
Financing activities................... (1.3) 122.5 11.0 15.5 8.8 15.5
EBITDA................................... 19.6 25.8 37.8 12.1 39.1 12.1
EBITDA margin............................ 13.8% 14.6% 13.8% 17.1% 13.7% 17.1%
Adjusted EBITDA.......................... $ 19.9 $ 26.2 $ 44.9 $ 12.3 $ 46.2 12.3
Adjusted EBITDA margin................... 14.0% 14.9% 16.4% 17.3% 16.2% 17.3%
Capital expenditures..................... $ 3.3 $ 9.9 $ 28.7 $ 7.4 $ 29.1 7.4
Depreciation and amortization............ 5.9 10.1 26.6 6.8 27.2 6.8
Ratio of earnings to fixed charges....... 1.8x 1.8x -- -- -- --
Pro forma ratios of Adjusted EBITDA to
interest expense....................... 2.3x 2.3x
Pro forma ratio of total debt to Adjusted
EBITDA................................. 3.9x
BALANCE SHEET DATA:
Working capital.......................... $ 12.9 $ 28.7
Property, plant and equipment, net....... 92.6 93.7
Total assets............................. 258.3 270.8
Total debt............................... 171.6 193.3
Total stockholders' equity (deficit):
Additional paid-in capital............. 70.2 70.2
Other.................................. (36.7) (36.9)
--------- -------
Total................................ 33.5 33.3
</TABLE>
9
<PAGE>
RISK FACTORS
BEFORE YOU PARTICIPATE IN THE EXCHANGE OFFER YOU SHOULD BE AWARE THAT THERE
ARE VARIOUS RISKS, INCLUDING THOSE DESCRIBED BELOW. YOU SHOULD CONSIDER
CAREFULLY THESE RISK FACTORS TOGETHER WITH ALL OF THE OTHER INFORMATION INCLUDED
IN THIS PROSPECTUS BEFORE YOU DECIDE TO PARTICIPATE IN THE EXCHANGE OFFER. ALL
MATERIAL RISKS THAT WE ARE AWARE OF RELATING TO YOUR PARTICIPATION IN THE
EXCHANGE OFFER AND AN INVESTMENT IN THE EXCHANGE NOTES ARE DISCLOSED BELOW.
IF YOU DO NOT EXCHANGE YOUR OUTSTANDING NOTES, THEY WILL CONTINUE TO BE SUBJECT
TO RESTRICTIONS ON TRANSFER AND MAY SUFFER FROM REDUCED LIQUIDITY.
As a result of the restrictions on the outstanding notes and the adverse
consequences that may result from a failure to exchange outstanding notes, a
failure to exchange your outstanding notes may make it more difficult for you to
sell your outstanding notes.
If you do not exchange your outstanding notes for exchange notes, your
outstanding notes will continue to be subject to restrictions on transfer. In
general, outstanding notes may not be offered or sold unless registered under
the Securities Act of 1933, except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act of 1933 and applicable state
securities laws. We do not currently anticipate that we will register the
outstanding notes under the Securities Act of 1933. In addition, the tender of
outstanding notes in the exchange offer will reduce the principal amount of the
outstanding notes outstanding, which may have an adverse effect upon, and
increase the volatility of, the market price of the outstanding notes due to a
reduction in liquidity.
IF AN ACTIVE TRADING MARKET DOES NOT DEVELOP FOR THE NOTES, IT WOULD HAVE A
MATERIAL ADVERSE EFFECT ON THE MARKET PRICE AND LIQUIDITY OF THE NOTES.
A liquid market for the exchange notes or outstanding notes may not develop.
The outstanding notes and exchange notes constitute a new class of securities
for which there is no established trading market. We do not intend to list the
outstanding notes or exchange notes on any national securities exchange or to
seek their quotation on any automated dealer quotation system. Although the
underwriters from the offering of the outstanding notes have informed us that
they intend to make a market in the outstanding notes and exchange notes, they
are not obligated to do so, and they may cease market-making activities at any
time without notice. The liquidity of a market for the outstanding notes and
exchange notes will depend upon a number of factors, including the number of
those holding the outstanding notes and exchange notes and the interest of
securities dealers in making a market in the outstanding notes and exchange
notes.
If the outstanding notes and exchange notes are traded, they may trade at a
discount from the initial offering price of the outstanding notes, depending
upon prevailing interest rates, the market for similar securities, our
performance and other factors. However, declines in the liquidity and market
price of the outstanding notes or exchange notes may also occur independent of
our financial performance or prospects.
WE MAY NOT BE PERMITTED, AND WE MAY NOT HAVE SUFFICIENT FUNDS, TO PURCHASE THE
OUTSTANDING NOTES OR EXCHANGE NOTES UPON A CHANGE OF CONTROL AS REQUIRED BY THE
INDENTURE.
Upon the occurrence of specific change of control events, we will be
required to offer to purchase all outstanding notes and exchange notes. However,
a change of control will also constitute an event of default under our senior
credit facility that would permit the lenders to accelerate the debt under the
facility. In addition, our senior credit facility will restrict our purchase of
the outstanding notes and exchange notes upon a change of control. As a result,
prior to purchasing the outstanding notes and exchange notes upon a change of
control, we must either repay the indebtedness under our senior credit facility
or obtain the consent of the lenders under the facility. If we do not repay our
senior credit facility or obtain the required consent, we will be prohibited
from offering to purchase the outstanding notes and exchange notes.
10
<PAGE>
The source of funds for any purchase of the outstanding notes and exchange
notes would be our available cash or cash generated from other sources,
including borrowings, sales of assets, sales of equity or funds provided by an
existing or new controlling person. We cannot assure you that any of these
sources will be available. Upon the occurrence of a change of control event, we
may seek to refinance the indebtedness outstanding under our senior credit
facility and the outstanding notes and exchange notes. However, it is possible
that we will not be able to complete this refinancing on commercially reasonable
terms or at all. In that event, we would not have the funds necessary to finance
the required change of control offer. See "Description of Notes-- Repurchase at
the Option of Those Holding Notes--Change of Control."
VESTAR MAY CAUSE US TO ACT, OR NOT ACT, IN WAYS THAT MAY NOT BE IN YOUR
INTEREST.
We cannot assure you that the interests of Vestar, our controlling
stockholder, will not conflict with your interests in holding the outstanding
notes or the exchange notes. For example, Vestar, as an equity holder, may have
an incentive to increase the value of its equity investment or cause us to
distribute funds by dividend or otherwise at the expense of our ability to make
payments on the outstanding notes and exchange notes. Vestar has the power to
elect all of our directors, appoint new management and approve any action
requiring the approval of our stockholders, including adopting amendments to our
certificate of incorporation and approving mergers or sales of all or
substantially all of our assets. In addition, the directors elected by Vestar
have the authority to make decisions affecting our capital structure, including
the incurrence of additional indebtedness, the issuance of additional capital
stock, the implementation of stock repurchase programs and the declaration of
dividends. Ten of our twenty directors are affiliates of, or otherwise
associated with, Vestar. See "Management," "Certain Relationships and Related
Party Transactions" and "Ownership of Common Stock."
THE SUBSTANTIAL AMOUNT OF GOODWILL ON OUR BALANCE SHEET COULD CAUSE OUR EARNINGS
TO BE OVERSTATED.
As of March 31, 1999, our balance sheet has an amount called "goodwill" that
represents 40% of total assets and 3.2 times stockholders' equity. Goodwill is
recorded when we pay more for a business than the fair value of the tangible and
separately measurable intangible net assets. GAAP requires us to amortize this
and all other intangible assets over the period benefited. We have determined
that period to be no less than 40 years.
If it turns out that the period should have been shorter, earnings reported
in periods right after the acquisition would be overstated. Then in later years,
we'll be burdened by a continuing charge against earnings, without the benefit
to income we thought we would get when we agreed on the purchase price. Earnings
in later years might also be significantly worse if we determine then that the
remaining balance of goodwill is impaired.
We reviewed all of the factors and related future cash flows which we
considered in agreeing on a purchase price. We concluded that the future cash
flows related to goodwill will continue indefinitely, and there is no persuasive
evidence that any material portion will dissipate over a period shorter than 40
years.
OUR SUBSTANTIAL INDEBTEDNESS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
FINANCIAL HEALTH AND PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE
OUTSTANDING NOTES AND EXCHANGE NOTES.
As of May 31, 1999, we and our subsidiaries had total indebtedness of
approximately $192.9 million, approximately $44.0 million of which was senior
indebtedness, and our debt to equity ratio was 5.9x. The annualized debt service
on this indebtedness is approximately $20.6 million. Subject to the restrictions
contained in our indebtedness agreements, we expect to incur additional
indebtedness, including senior indebtedness under our senior credit facility,
from time to time to finance acquisitions, for capital expenditures, to fund
working capital and for general
11
<PAGE>
business purposes. As of May 31, 1999, approximately $55.7 million was available
for borrowing as additional senior debt under our senior credit facility.
For the year ended December 31, 1998 and the three months ended March 31,
1999, our earnings were insufficient to cover our fixed charges. See "Unaudited
Pro Forma Consolidated Financial Data" and "Selected Historical Consolidated
Financial and Other Data."
Our substantial indebtedness could have important consequences to you. For
example, it could:
- make it more difficult for us to satisfy or refinance our obligations with
respect to the outstanding notes and exchange notes and our other
indebtedness;
- require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, which would have the effect of
reducing the availability of our cash flow to fund working capital,
capital expenditures, acquisitions or other general corporate purposes;
- impair our ability to obtain additional financing for, among other things,
working capital, capital expenditures, acquisitions or other general
corporate purposes, or prevent us from obtaining financing to repurchase
the outstanding notes and exchange notes from you upon a change of
control;
- make us less attractive to prospective or existing customers or less
attractive to potential acquisition targets; and
- limit our flexibility to adjust to changing business and market
conditions, and make us more vulnerable to a downturn in general economic
conditions as compared to our competitors that have less debt.
In addition, our failure to comply with the financial and other restrictive
covenants contained in our indebtedness agreements could result in an event of
default under that indebtedness, which if not cured or waived, could have a
material adverse effect on us. If we cannot meet or refinance our obligations
when they are due, we may have to sell assets, reduce capital expenditures or
take other actions which could have a material adverse effect on us.
We cannot assure you that our business will generate sufficient cash flow
from operations or that future borrowings will be available to us under our
senior credit facility or otherwise in an amount sufficient to enable us to pay
our indebtedness, including the outstanding notes or exchange notes, or to fund
our other liquidity needs. In addition, we may need to refinance all or a
portion of our indebtedness, including the outstanding notes and exchange notes,
on or before maturity. We cannot assure you that we will be able to refinance
any of our indebtedness, including our senior credit facility and the
outstanding notes and exchange notes, on commercially reasonable terms or at
all.
See "Description of Notes--Repurchase at the Option of Those Holding
Notes--Change of Control" and "Description of Senior Credit Facility."
AS A RESULT OF THE SUBORDINATION PROVISIONS OF THE OUTSTANDING NOTES AND
EXCHANGE NOTES, YOU MAY NOT RECEIVE PAYMENT ON YOUR NOTES IF WE ARE INVOLVED IN
A BANKRUPTCY OR SIMILAR PROCEEDING.
Payments on the outstanding notes and exchange notes and on the guarantees
of the notes are subordinated. As a result, upon any distribution to our
creditors in a bankruptcy or similar proceeding, those holding our senior debt
will be entitled to be paid in full before any payment may be made with respect
to the outstanding notes or exchange notes. Similarly, upon any distribution to
the creditors of a guarantor in a bankruptcy or similar proceeding those holding
the guarantor's senior debt will be entitled to be paid in full before any
payment may be made with respect to its guarantee of the outstanding notes or
exchange notes.
12
<PAGE>
In the event of a bankruptcy or similar proceeding relating to us or the
guarantors, you will participate on an equal basis with trade creditors and all
others holding senior subordinated indebtedness of our company and the
guarantors. However, because the indenture requires that amounts otherwise
payable to you in a bankruptcy or similar preceding be paid instead to those
holding senior debt until they are paid in full, you may receive less, ratably,
than those holding trade payables and other senior subordinated debt in any
bankruptcy or similar preceding. In addition, any acceleration of the
indebtedness under our senior credit facility will, and acceleration of our
other indebtedness may, constitute an event of default under the indenture. If
an event of default exists under our senior credit facility or other senior
indebtedness, the indenture may restrict payments on the outstanding notes and
exchange notes until those holding the other indebtedness are paid in full or
the default is cured or waived or has otherwise ceased to exist.
As of May 31, 1999, our and our guarantors' senior debt was approximately
$34.4 million. In addition, approximately $55.7 million is available for
borrowing as additional senior debt under our senior credit facility. We will be
permitted to borrow substantial additional indebtedness, including senior debt,
in the future under the terms of the indenture.
The outstanding notes and exchange notes will not be secured by any of our
assets. Our obligations under our senior credit facility, however, will be
secured by a first priority pledge of and security interest in substantially all
of our assets and the assets of our domestic subsidiaries. If we were to become
insolvent or liquidated, or if payment under our senior credit facility were
accelerated, the lenders under our senior credit facility will be entitled to
exercise the remedies available to a secured lender under applicable law.
Accordingly, those lenders will have a prior claim with respect to our assets
securing the indebtedness under our senior credit facility. See "Description of
Senior Credit Facility" and "Description of Notes--Subordination."
IF WE DO NOT RECEIVE DIVIDENDS OR OTHER DISTRIBUTIONS FROM OUR SUBSIDIARIES, WE
MAY NOT BE ABLE TO MAKE PAYMENTS ON THE OUTSTANDING NOTES OR EXCHANGE NOTES.
Substantially all of our properties are owned by, and substantially all of
our operations are conducted through, our subsidiaries. As a result, we depend
on dividends and other payments from our subsidiaries to satisfy our financial
obligations and make payments to our investors. The ability of our subsidiaries
to pay dividends and make other payments to us is subject to restrictions. In a
bankruptcy, liquidation or reorganization or similar proceeding relating to a
subsidiary, the creditors of that subsidiary will generally be entitled to be
paid in full before any distribution may be made to us. In addition, under our
senior credit facility, our subsidiaries are restricted in their ability to make
distributions to us. The ability of a subsidiary to pay dividends to us is also
limited by the laws of its jurisdiction of organization which limit the amount
of funds available for the payment of dividends. In the event of bankruptcy
proceedings affecting a subsidiary, to the extent we are recognized as a
creditor of that subsidiary, our claim would still be subordinate to any
security interest in or other lien on any assets of that subsidiary and to any
of its debt and other obligations that are senior to the payment of the
outstanding notes and exchange notes.
COVENANT RESTRICTIONS MAY ADVERSELY LIMIT OUR ABILITY TO OPERATE OUR BUSINESS.
The indenture and our senior credit facility restrict, and indebtedness that
we have in the future may also restrict, among other things, our ability to
incur additional indebtedness, sell assets, create liens or other encumbrances,
make restricted payments, pay dividends and merge or consolidate, all of which
could affect our ability to operate our business and may limit our ability to
take advantage of potential business opportunities as they arise. See
"Description of Senior Credit Facility" and "Description of Notes--Certain
Covenants."
13
<PAGE>
ASSETS OF OUR NON-GUARANTOR SUBSIDIARIES MAY NOT BE AVAILABLE TO MAKE PAYMENTS
ON THE OUTSTANDING NOTES OR EXCHANGE NOTES.
No payments are required to be made from assets of subsidiaries which do not
guarantee the outstanding notes and exchange notes unless those assets are
transferred, by dividend or otherwise, to us or a subsidiary guarantor. One of
our existing subsidiaries, Hunter Drums Limited, a Canadian corporation, will
not be a guarantor of the outstanding notes or exchange notes. Some of our
future subsidiaries also may not be guarantors of the outstanding notes or
exchange notes.
In the event of a bankruptcy, liquidation or reorganization of any of the
non-guarantor subsidiaries, holders of the indebtedness of these non-guarantor
subsidiaries, including their trade creditors, will generally be entitled to
payment of their claims from the assets of those subsidiaries before any assets
are made available for distribution to us. As of May 31, 1999, Hunter Drums
Limited had total liabilities, including trade payables, of approximately $17.0
million.
Hunter Drums generated approximately 13.1% of our consolidated revenues in
the fiscal year ended December 31, 1998 and 13.1% of our consolidated revenues
in the quarter ended March 31, 1999. Hunter Drums also held approximately 11.4%
of our consolidated assets as of March 31, 1999. See "Note 21--Guarantor
Subsidiaries" in our financial statements included at the back of this
prospectus.
COMPETITION COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR OPERATIONS.
The markets for our products and services are competitive, and competition
from current and future competitors could reduce unit volumes and selling prices
and have a material adverse effect on our results of operations. We believe
competition is based primarily on price, service and quality. Price competition
may require us to match competitors' prices to retain business or market share.
Some of our competitors are larger and have greater financial and other
resources than we do, and we cannot assure you that we will continue to be able
to compete successfully with them. We also face competition in a number of our
product lines from producers of other types of industrial containers. See
"Business--Competition."
IF WE CANNOT OBTAIN THE FUNDS TO MAKE THE SIGNIFICANT CAPITAL EXPENDITURES THAT
OUR BUSINESS WILL REQUIRE, WE MAY NOT BE ABLE TO MAINTAIN OUR CURRENT LEVEL OF
OPERATIONS OR GROW OUR BUSINESS.
We will have to make substantial capital expenditures to maintain our
current level of operations and to fund the growth of our operations. If we are
unable to obtain the funds for capital expenditures, or if our growth strategy
or current level of business requires more capital than anticipated, it could
have a material adverse effect on the growth of our operations as well as our
current level of business. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
WE MAY NOT BE ABLE TO OBTAIN RAW MATERIALS AT ALL OR AT PRICES THAT ALLOW US TO
MAINTAIN A POSITIVE CASH FLOW.
We generally do not have long-term supply contracts with our suppliers, and
our purchases of raw materials are subject to market prices. We generally pass
changes in the prices of raw materials to our customers over a period of time.
We cannot always do so, however, and we cannot assure you that we will be able
to pass through any future raw material price increases. Any limitation on our
ability to pass through any future raw material price increases could have a
material adverse effect on our results of operations.
14
<PAGE>
We rely on a limited number of suppliers of high molecular weight, high
density polyethylene resin, also known as HDPE, the principal raw material of
our plastic drums. Should we need to secure alternative suppliers, only a small
number of alternative suppliers exist. Any significant interruption in the
supply of HDPE resin would have a material adverse effect on our results of
operations.
In addition, we obtain from foreign suppliers a significant portion of our
cold-rolled steel, the principal raw material of our steel drums. Foreign
suppliers of cold-rolled steel have been accused by domestic producers of
exporting steel to the United States at artificially low prices. As a result,
the Commerce Department has recently imposed anti-dumping duties on steel
imported from Japan, Brazil and other countries and negotiated a voluntary
reduction in steel imports from Russia. Additionally, the U.S. Congress is
considering imposing limits on the amount of steel that may be imported into the
United States which would result in significant reductions in steel imports.
These measures could result in a substantial increase in our cost of cold-rolled
steel, which could have a material adverse effect on our results of operations.
See "Business--Raw Materials."
OUR ACQUISITION STRATEGY MAY NOT BE SUCCESSFUL.
Our ability to grow by acquisition, an important component of our growth
strategy, is dependent upon, and may be limited by, the availability of suitable
acquisition candidates and capital, and the restrictions contained in the
indenture and our other indebtedness agreements. In addition, growth by
acquisition involves risks that could have a material adverse effect on our
results of operations, including difficulties in integrating the operations and
personnel of acquired companies and the potential loss of key employees and
customers of acquired companies. While we have experience in identifying and
integrating acquisitions, we cannot assure you that we will be able to identify
suitable acquisition candidates, obtain the capital necessary to pursue our
growth strategy, consummate acquisitions on satisfactory terms or, if any of
these acquisitions are consummated, satisfactorily integrate acquired
businesses. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
INCREASING USAGE OF IBCS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR RESULTS OF
OPERATIONS.
The unavailability or unwillingness of a manufacturer to supply us with
rigid intermediate bulk containers, or IBCs, on commercially reasonable terms or
at all would restrict our ability to offer plastic container leasing services to
our customers which could have a material adverse effect on our results of
operations. In addition, the inability of a manufacturer to supply IBCs in a
timely fashion, or to satisfy our quality standards, could cause us to miss the
delivery date requirements of our customers for those items, which could result
in a cancellation of orders, refusal to accept delivery or a reduction in prices
and, as a result, could have a material adverse effect on our results of
operations. Currently, we do not manufacture IBCs; however, we purchase IBCs
which our services division leases to our customers. Our IBC suppliers are also
our competitors in some of our product lines. We do not have long-term contracts
for the supply of IBCs with these manufacturers and compete with other companies
for production capacity. Should we need to secure alternative suppliers, only a
small number of alternative suppliers exist.
Currently we are evaluating options for obtaining the capacity to
manufacture IBCs. We may decide not to pursue this capacity in the near future
or at all. The combination of competitive pricing pressure and the fact that we
do not manufacture the IBCs leased by our services division results in IBC
leasing contributing a lower gross profit as a percentage of net sales as
compared to plastic drum leasing. To the extent that customers of our services
division convert to IBCs, it could result in a material erosion of our gross
profit as a percentage of sales, which could have a material adverse effect on
our results of operations. In addition, a decrease in the demand for plastic and
steel drums resulting from the increasing usage of IBCs could have a material
adverse effect on the
15
<PAGE>
net sales of our container manufacturing division, which could have a material
adverse effect on our results of operations.
A SIGNIFICANT ECONOMIC DOWNTURN, PARTICULARLY ONE AFFECTING THE CHEMICAL
INDUSTRY, COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS.
Our results of operations are affected by the level of economic activity in
the industries served by our customers, which in turn may be affected by the
level of economic activity in the U.S. and foreign markets which they serve.
Accordingly, a decline in the level of economic activity in these industries as
a result of a decline in the level of economic activity in the U.S. or foreign
markets which they serve or otherwise may have a material adverse effect on our
results of operations. We derive a significant percentage of our net sales from
customers who serve the chemical industry. As a result, a decline in the level
of economic activity in the U.S. or foreign chemical industry in particular
could have a material adverse effect on our results of operations. In addition,
because we operate with little or no backlog, changes in economic activity,
positive and negative, affect our results of operations more quickly than these
changes would affect the results of operations of a company that operates with a
backlog. As a result, our results of operations, including our cash flow, are
subject to a greater degree of volatility and could deteriorate more rapidly
than a company that operates with a backlog.
THE TERMINATION OF OUR LICENSE WITH MAUSER COULD HAVE A MATERIAL ADVERSE EFFECT
ON OUR RESULTS OF OPERATIONS.
Since 1985, we have licensed manufacturing technology for the L-1/LR-1
plastic drum from Mauser-Werke GmbH, a privately held German corporation with
significant operations in Europe, and we purchase equipment from Mauser for use
in the manufacture of the L-1. Mauser can terminate our licenses if we fail to
comply with the covenants contained in the licenses, including our obligations
to make royalty payments. This termination would have a material adverse effect
on our results of operations. We do not believe, however, that any of these
circumstances currently exist, and our payment obligations under the licenses
are not material. See "Business--Intellectual Property."
THE GRAND JURY INVESTIGATION OF THE PLASTIC DRUM INDUSTRY COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS.
In November 1995, the Antitrust Division of the United States Department of
Justice served us with an information subpoena in connection with an ongoing
grand jury investigation into possible price-fixing in the plastic drum industry
between 1991 and 1995. We responded to the information subpoena in a timely
fashion. We do not know the current status of, or the identity of the subjects
of, the investigation. We cannot assure you that the Antitrust Division will not
institute proceedings against us in the future as a result of this
investigation. If the Antitrust Division does institute proceedings against us
and we are found to have engaged in price-fixing, we could be subject to
monetary fines as well as the payment of damages in related civil litigation
that may follow. We also could be prohibited from participating in government
contracts. Whether or not we are found to have engaged in price-fixing, we may
incur substantial costs in defending against the proceedings and any related
civil litigation.
THE LOSS OF KEY PERSONNEL COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR RESULTS OF
OPERATIONS.
Our success depends largely upon the abilities and experience of particular
key management personnel. If we lose the services of one or more of our key
personnel, it could have a material adverse effect on our business and results
of operations. We generally do not have non-compete
16
<PAGE>
agreements with key personnel. In addition, we generally do not maintain key-man
life insurance policies on our executives. See "Management" and "Ownership of
Common Stock."
EMPLOYEE SLOWDOWNS, STRIKES OR SIMILAR ACTIONS COULD HAVE A MATERIAL ADVERSE
EFFECT ON THE RESULTS OF OUR OPERATIONS.
Approximately 29% of our employees are represented under collective
bargaining agreements which expire during the period extending from August 1999
to June 2002. Unions represent employees at nine of our 21 facilities. While we
believe that our relations with our unionized employees are good, a prolonged
labor dispute could have a material adverse effect on our business and results
of operations. See "Business--Employees."
OUR NONCOMPLIANCE WITH GOVERNING REGULATIONS COULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR FINANCIAL CONDITION, RESULTS OF OPERATIONS OR CASH FLOWS.
Compliance with governing regulations may make it necessary for us to incur
substantial costs and could have a material adverse effect on our financial
condition, results of operations or cash flows. Our operations are subject to
federal, state and local transportation laws and regulations and United Nations
international shipping guidelines which require that plastic and steel
containers used in interstate and international commerce satisfy specified
performance requirements. We believe that our products are in substantial
compliance with the terms of all applicable transportation laws, regulations and
guidelines as currently interpreted. While historically the costs of compliance
with these laws and regulations have not had a material adverse effect on our
consolidated financial condition, results of operations or cash flows, we cannot
predict with certainty the future costs of compliance because of continually
changing compliance standards and technology. We expect that future regulations
and changes in the text or interpretation of existing laws and regulations may
subject our operations to increasingly stringent standards.
IF OUR INSURANCE COVERAGE FOR PRODUCT LIABILITY PROVES TO BE INADEQUATE, IT
COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR FINANCIAL CONDITION.
Our business entails risks of product liability. We maintain $50 million of
insurance coverage for product liability claims. Although we believe this
coverage is adequate, we cannot assure you that coverage under insurance
policies will be adequate to cover product liability claims against us. In
addition, product liability insurance could become more expensive and difficult
to maintain and in the future may not be available on commercially reasonable
terms or at all. The amount and scope of any insurance coverage may be
inadequate in the event that a product liability claim is successfully asserted
against us.
ENVIRONMENTAL LAWS AND REGULATIONS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
FINANCIAL CONDITION, RESULTS OF OPERATIONS OR CASH FLOWS.
The costs of compliance with environmental laws and regulations could be
significant and could have a material adverse effect on our financial condition,
results of operations or cash flows. Our operations are subject to federal,
state, local and Canadian environmental laws and regulations. These laws and
regulations impose limitations on the discharge of pollutants into the
environment and establish standards for the handling, generation, emission,
release, discharge, treatment, storage and disposal of regulated materials,
substances and wastes and the remediation of environmental contamination. See
"Business--Environmental Matters."
We cannot predict with certainty the future costs of environmental
compliance because of continually changing compliance standards and technology.
We expect that future regulations and changes in the text or interpretation of
existing environmental laws and regulations may subject our
17
<PAGE>
operations to increasingly stringent standards. Compliance with environmental
requirements may make it necessary, at costs which may be substantial, for us to
retrofit existing facilities with additional pollution-control equipment and to
undertake new measures in connection with the storage, transportation, treatment
and disposal of by-products and wastes. In addition, we may become obligated in
the future to incur costs associated with investigation and/or remediation of
contamination at our facilities or at other locations.
The U.S. Environmental Protection Agency has confirmed the presence of
certain contaminants, including dioxin, in and along the Woonasquatucket River
in Rhode Island. Prior to 1970, New England Container operated a facility in
North Providence, Rhode Island along the Woonasquatucket River at a site where
contaminants have been found. Recent press reports identify New England
Container as a business that may have contributed to the contamination. We are
not aware that any party has been formally identified by the EPA as a
potentially responsible party. Despite the fact that New England Container no
longer operates the facility, and did not operate the facility at the time we
acquired the outstanding capital stock of New England Container in July 1998,
New England Container could incur liability under federal and state
environmental laws and/or as a result of civil litigation. We believe that any
resulting liability is subject to a contractual indemnity from Vincent J.
Buonanno, one of our directors and the former owner of New England Container.
However, this indemnity is subject to a $2.0 million limit. We currently are
unable to estimate the likelihood or extent of any liability; however, this
matter may result in liability to New England Container that could have a
material adverse effect on Russell-Stanley's financial condition and results of
operations.
IF WE OR OUR VENDORS, UTILITIES OR CUSTOMERS ARE NOT YEAR 2000 COMPLIANT, IT
COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR RESULT OF OPERATIONS.
As has been widely reported, many computer systems process dates based on
two digits for the year of transaction and may be unable to process dates in the
year 2000 and beyond. As a result, our systems and our hardware with embedded
applications may not function properly. In addition, the systems and hardware of
our vendors, utilities and customers may not function properly. These failures
could result in:
- our inability to order raw materials,
- the malfunctioning of our manufacturing or service processes,
- our inability to properly bill and collect payments from our customers
and/or
- errors or omissions in accounting and financial data, any of which could
have a material adverse effect on our results of operations and financial
condition.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Year 2000 Compliance."
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. All statements other
than statements of historical facts included in this prospectus, including
statements we make under "Prospectus Summary," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business," may
constitute forward-looking statements. We have based these forward-looking
statements on our current expectations and projections about future events.
Although we believe that our assumptions made in connection with the
forward-looking statements are reasonable, we cannot assure you that our
assumptions and expectations will prove to have been correct. Important factors
that could cause our actual results to differ from our expectations are
disclosed above under "Risk Factors."
18
<PAGE>
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the exchange
notes. The net proceeds from the issuance and sale of the outstanding notes,
which we estimate were approximately $144.0 million after deduction of
underwriting discounts and other expenses, was applied towards the repayment of
outstanding principal and interest under our former senior credit agreement.
We used the net proceeds from the sale of the outstanding notes to repay
indebtedness that bore interest at a lower weighted average rate. While our
interest expense has increased as a result, this refinancing was part of a
larger refinancing that provides us with increased borrowing capacity to fund
our growth. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
New York Life Insurance Company, one of our 5% stockholders, and New York
Life Insurance and Annuity Corporation, an affiliate of New York Life Insurance
Company, were lenders under our former senior credit agreement and received a
portion of the net proceeds from the offering of the outstanding notes that were
used to repay indebtedness under our former senior credit agreement. See
"Certain Relationships and Related Party Transactions."
19
<PAGE>
THE EXCHANGE OFFER
GENERAL
We are offering, 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, to exchange up to $150.0 million aggregate
principal amount of exchange notes for a like aggregate principal amount of
outstanding notes properly tendered on or prior to the expiration date and not
withdrawn as permitted by the procedures described below. We are making the
exchange offer with respect to all of the outstanding notes.
The exchange notes will be substantially identical to the outstanding notes,
except that because we have registered the exchange notes they:
- will be freely tradeable;
- will not bear legends restricting their transfer;
- will not be subject to any additional obligations regarding registration
under the Securities Act of 1933; and
- will not be subject to the special interest payments described in
"Description of Notes-- Registration Covenant; Exchange Offer."
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The outstanding notes were issued on February 10, 1999 in a transaction
exempt from the registration requirements of the Securities Act of 1933.
Accordingly, the outstanding notes may not be reoffered, resold, or otherwise
transferred unless registered under the Securities Act of 1933 or an applicable
exemption from the registration and prospectus delivery requirements of the
Securities Act of 1933 is available.
In connection with the issuance and sale of the outstanding notes, we
entered into an exchange and registration rights agreement with the initial
purchasers of the outstanding notes, in which we and our subsidiaries
guaranteeing the outstanding notes agreed:
- to use our reasonable best efforts to file with the Securities and
Exchange Commission, within 75 days of February 10, 1999, a registration
statement under the Securities Act of 1933 relating to this exchange
offer;
- to use our reasonable best efforts to cause the registration statement to
become effective as soon as practicable, but no later than 225 days after
February 10, 1999; and
- to commence the exchange offer promptly after the exchange offer
registration statement has become effective, hold the offer open for at
least 30 days and exchange the exchange notes for all outstanding notes
validly tendered and not withdrawn before the expiration of the offer.
We are making this exchange offer in order to satisfy our obligations with
respect to the exchange and registration rights agreement. A copy of the
exchange and registration rights agreement has been filed as an exhibit to the
registration statement of which this Prospectus is a part.
Other than pursuant to the exchange and registration rights agreement, we
are not required to file any registration statement to register any outstanding
notes which remain outstanding. If you hold outstanding notes and do not tender
your outstanding notes or your outstanding notes are tendered but not accepted,
you will have to rely on exemptions to registration requirements under the
securities laws, including the Securities Act of 1933, if you wish to sell your
outstanding notes.
20
<PAGE>
If we fail to comply with the obligations described above under the exchange
and registration rights agreement, we will be required to pay you additional
interest. Please read the section captioned "Description of Notes--Registration
Covenant; Exchange Offer" for more details regarding the exchange and
registration rights agreement.
If you wish to exchange your outstanding notes for transferable exchange
notes in the exchange offer, you will be required to represent to us that, among
other things:
- any exchange notes that you receive will be acquired in the ordinary
course of your business;
- you have no arrangement or understanding with any person or entity to
participate in, and do not intend to engage in, a distribution of the
exchange notes;
- if you are a broker-dealer that will receive exchange notes for your own
account in exchange for outstanding notes that you have acquired as a
result of market-making or trading activities, that you will deliver a
prospectus, as required by law, in connection with any resale of those
exchange notes;
- you are not an affiliate, as defined in Rule 405 of the Securities Act of
1933, of Russell-Stanley or, if you are an affiliate, that you will comply
with applicable registration and prospectus delivery requirements of the
Securities Act of 1933; and
- if you are a person in the United Kingdom, that your ordinary activities
involve you in acquiring, holding, managing or disposing of investments,
as principal or agent, for the purposes of your business.
RESALE OF EXCHANGE NOTES
Based on interpretations of the staff of the Securities and Exchange
Commission set forth in no-action letters issued to unrelated third parties, we
believe that the exchange notes may be offered for resale, resold and otherwise
transferred by you without compliance with the registration and prospectus
delivery provisions of the Securities Act of 1933, if:
- you are acquiring the exchange notes in the ordinary course of your
business;
- you have not engaged in, do not intend to engage in, and have no
arrangement or understanding with any person to participate in, a
distribution of the exchange notes; and
- you are not an affiliate of Russell-Stanley within the meaning of Rule 405
under the Securities Act of 1933.
See "K-III Communications Corporation," SEC No-Action Letter, available May
14, 1993; "Mary Kay Cosmetics, Inc.," SEC No-Action Letter, available June 5,
1991; "Morgan Stanley & Co., Incorporated," SEC No-Action Letter, available June
5, 1991; and "Exxon Capital Holdings Corporation," SEC No-Action Letter,
available May 13, 1988.
If you do not meet these requirements:
- you cannot rely on the position of the staff of the Securities and
Exchange Commission enunciated in "Exxon Capital Holdings Corporation" or
similar interpretive letters; and
- you must comply with the registration and prospectus delivery requirements
of the Securities Act of 1933 in connection with a secondary resale
transaction, unless an exemption to these requirements is applicable.
This prospectus may be used for an offer to resell, resale or other
retransfer of exchange notes only as specifically set forth in this prospectus.
With regard to broker-dealers, only broker-dealers
21
<PAGE>
that acquired outstanding notes as a result of market-making or trading activity
may participate in the exchange offer. Each broker-dealer that receives exchange
notes for its own account in exchange for outstanding notes acquired as a result
of market-making or trading activity must acknowledge that it will deliver a
prospectus in connection with any resale of the exchange notes. Please read the
section captioned "Plan of Distribution" for more details regarding the transfer
of exchange notes.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, we will accept for exchange any outstanding
notes properly tendered and not withdrawn prior to the expiration date. We will
issue $1,000 principal amount of exchange notes in exchange for each $1,000
principal amount of outstanding notes surrendered under the exchange offer.
Outstanding notes may be tendered only in integral multiples of $1,000.
The exchange notes will be issued under and entitled to the benefits of the
same indenture that authorized the issuance of the outstanding notes.
Consequently, both series will be treated as a single class of debt securities
under the indenture.
The exchange offer is not conditioned upon any minimum aggregate principal
amount of outstanding notes being tendered for exchange.
As of the date of this prospectus, $150.0 million aggregate principal amount
of the outstanding notes is outstanding. This prospectus and the letter of
transmittal are being sent to all registered holders of outstanding notes. There
will be no fixed record date for determining those who are registered holders of
outstanding notes entitled to participate in the exchange offer.
We intend to conduct the exchange offer in accordance with the provisions of
the exchange and registration rights agreement, the applicable requirements of
the Securities Act of 1933 and the Securities Exchange Act of 1934 and the rules
and regulations of the Securities and Exchange Commission. Outstanding notes
that are not tendered for exchange will remain outstanding and continue to
accrue interest and will be entitled to the rights and benefits relating to the
outstanding notes under the indenture and the exchange and registration rights
agreement.
We will be deemed to have accepted for exchange properly tendered
outstanding notes when we have given oral or written notice of the acceptance to
the exchange agent. The exchange agent will act as your agent for the purposes
of receiving the exchange notes from us and delivering exchange notes to you.
Subject to the terms of the exchange and registration rights agreement, we
expressly reserve the right to amend or terminate the exchange offer, and not to
accept for exchange any outstanding notes not previously accepted for exchange,
upon the occurrence of any of the conditions specified below under the caption
"--Certain Conditions to the Exchange Offer."
If you tender outstanding notes in the exchange offer, you will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the letter of transmittal, transfer taxes with respect to the exchange of
outstanding notes. We will pay all charges and expenses, other than specific
applicable taxes described below, in connection with the exchange offer. It is
important that you read the section labeled "--Fees and Expenses" below for more
details regarding fees and expenses incurred in the exchange offer.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The exchange offer will expire at 5:00 p.m., New York City time on
, 1999, unless in our sole discretion, we extend it.
22
<PAGE>
In order to extend the exchange offer, we will notify the exchange agent
orally or in writing of any extension. We will notify registered holders of
outstanding notes of the extension no later than 9:00 a.m., New York City time,
on the business day after the previously scheduled expiration date.
We reserve the right, in our sole discretion:
- to delay accepting for exchange any outstanding notes;
- to extend the exchange offer or to terminate the exchange offer and to
refuse to accept outstanding notes not previously accepted if any of the
conditions set forth below under "--Certain Conditions to the Exchange
Offer" have not been satisfied, by giving oral or written notice of the
delay, extension or termination to the exchange agent; or
- subject to the terms of the exchange and registration rights agreement, to
amend the terms of the exchange offer in any manner.
Any delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice of the delay to
registered holders of the outstanding notes. If we amend the exchange offer in a
manner that we determine to constitute a material change, we will promptly
disclose the amendment in a manner reasonably calculated to inform you of the
amendment.
Without limiting the manner in which we may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the exchange offer, we have no obligation to publish, advertise, or otherwise
communicate those public announcements, other than by making a timely release to
a financial news service.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Despite any other term of the exchange offer, we will not be required to
accept for exchange, or exchange any exchange notes for, any outstanding notes,
and we may terminate the exchange offer as provided in this prospectus before
accepting any outstanding notes for exchange if in our reasonable judgment:
- any action or proceeding is instituted or threatened in any court or by or
before any governmental agency or regulatory authority, or any injunction,
order or decree is issued with respect to the exchange offer which, in our
sole judgment, might materially impair our ability to proceed with the
exchange offer or have a material adverse effect on the contemplated
benefits of the exchange offer to us; or
- any change or any development involving a prospective change shall have
occurred or been threatened in our business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects that is or may be adverse to us, or we shall have become aware
of facts that have or may have adverse significance with respect to the
value of the outstanding notes or the exchange notes or that may
materially impair the contemplated benefits of the exchange offer to us;
or
- any law, rule or regulation or applicable interpretations of the staff of
the Securities and Exchange Commission is issued or promulgated which, in
our good faith determination, do not permit us to effect the exchange
offer; or
- any governmental approval has not been obtained, which approval we, in our
sole discretion, deem necessary for the consummation of the exchange
offer; or
- there shall have been proposed, adopted or enacted any law, statute, rule
or regulation or an amendment to any existing law, statute, rule or
regulation which, in our sole judgment, might
23
<PAGE>
materially impair our ability to proceed with the exchange offer or have a
material adverse effect on the contemplated benefits of the exchange offer
to us; or
- there shall occur a change in the current interpretation by the staff of
the Securities and Exchange Commission which permits the outstanding notes
to be offered for resale, resold and otherwise transferred by holders who
are not affiliates of ours within the meaning of Rule 405 under the
Securities Act without compliance with the registration and prospectus
delivery provisions of the Securities Act provided that the notes are
acquired in the ordinary course of the holders' business and the holders
have no arrangement with any person to participate in the distribution of
the outstanding notes.
In addition, we will not be obligated to accept for exchange your
outstanding notes if you have not made to us:
- the representations described under "--Purpose and Effect of the Exchange
Offer," "--Procedures for Tendering" and "Plan of Distribution;" and
- those other representations as may be reasonably necessary under
applicable Securities and Exchange Commission rules, regulations or
interpretations to make available to us an appropriate form for
registration of the exchange notes under the Securities Act of 1933.
We expressly reserve the right, at any time or at various times, to extend
the period of time during which the exchange offer is open. Consequently, we may
delay acceptance of any outstanding notes by giving oral or written notice of an
extension. During an extension, all outstanding notes previously tendered will
remain subject to the exchange offer, and we may accept them for exchange. We
will return any outstanding notes that we do not accept for exchange for any
reason without expense as promptly as practicable after the expiration or
termination of the exchange offer.
We expressly reserve the right to amend or terminate the exchange offer, and
to reject for exchange any outstanding notes not previously accepted for
exchange, upon the occurrence of any of the conditions of the exchange offer
specified above. We will give oral or written notice of any amendment or
termination as promptly as practicable.
These conditions are for our sole benefit, and we may assert them regardless
of the circumstances that may give rise to them or waive them in whole or in
part at any or at various times in our sole discretion if we reasonably
determine that one or more conditions have not been satisfied. If we fail at any
time to exercise any of the rights above, this failure will not constitute a
waiver of those rights. Each of those rights will be deemed an ongoing right
that we may assert at any time or at various times.
In addition, we will not accept for exchange any outstanding notes tendered,
and will not issue exchange notes in exchange for any outstanding notes, if any
stop order is threatened or in effect with respect to the registration statement
of which this prospectus constitutes a part or the qualification of the
indenture under the Trust Indenture Act of 1939.
PROCEDURES FOR TENDERING
Only a registered holder of outstanding notes may tender outstanding notes
in the exchange offer. If you are a registered holder of outstanding notes, to
tender in the exchange offer, you must:
- complete, sign and date the letter of transmittal, or a facsimile of the
letter of transmittal; have the signature on the letter of transmittal
guaranteed if the letter of transmittal so requires; and mail or deliver
the letter of transmittal or facsimile to the exchange agent prior to the
expiration date; or
24
<PAGE>
- comply with The Depository Trust Company's Automated Tender Offer Program
procedures described below.
In addition, with respect to delivery of the outstanding notes, either:
- the exchange agent must receive the outstanding notes along with the
letter of transmittal; or
- the exchange agent must receive confirmation of book-entry transfer of the
outstanding notes into the exchange agent's account at The Depository
Trust Company according to the procedure for book-entry transfer described
below or a properly transmitted agent's message; or
- you must comply with the guaranteed delivery procedures described below.
If you physically deliver the letter of transmittal and other required
documents, the exchange agent must receive them at the address set forth below
under "--Exchange Agent" prior to the expiration date.
If you tender your outstanding notes and do not withdraw your tender prior
to the expiration date, your tender will constitute an agreement between you and
us in accordance with the terms and subject to the conditions set forth in this
prospectus and in the letter of transmittal.
The method of delivery of outstanding notes, the letter of transmittal and
all other required documents to the exchange agent is at your election and risk.
Rather than mail these items, we recommend that you use an overnight or hand
delivery service. In all cases, you should allow sufficient time to assure
delivery to the exchange agent before the expiration date. You should not send
the letter of transmittal or outstanding notes to us. You may request your
broker, dealer, commercial bank, trust company or other nominee to effect the
above transactions for you.
If your outstanding notes are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and you wish to tender, you
should contact that party promptly and instruct it to tender on your behalf. If
your outstanding notes are registered in the name of a nominee and you wish to
tender on your own behalf, you must, prior to completing and executing the
letter of transmittal and delivering outstanding notes, either:
- make appropriate arrangements to register ownership of the outstanding
notes in your name; or
- obtain a properly completed bond power from the nominee. The bond power
must be signed by the nominee as its name appears on the outstanding
notes, and an eligible institution must guarantee the signature on the
bond power.
The transfer of registered ownership may take considerable time and may not
be completed prior to the expiration date.
Your signature on a letter of transmittal or a notice of withdrawal
described below must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or another eligible institution within the meaning of Rule 17Ad-15
under the Securities Exchange Act of 1934, unless you:
- are the registered owner of the outstanding notes, and you have not
completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the letter of transmittal; or
- are an eligible institution.
25
<PAGE>
If the letter of transmittal or any outstanding notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, those persons should so indicate when signing. They must also submit
evidence satisfactory to us of their authority to deliver the letter of
transmittal.
The exchange agent and The Depository Trust Company have confirmed that any
financial institution that is a participant in The Depository Trust Company's
system may use The Depository Trust Company's Automated Tender Offer Program to
tender. If you are a participant in the program, you may, instead of physically
completing and signing the letter of transmittal and delivering it to the
exchange agent, transmit your acceptance of the exchange offer electronically.
You may do so by causing The Depository Trust Company to transfer the
outstanding notes to the exchange agent in accordance with its procedures for
transfer. The Depository Trust Company will then send an agent's message to the
exchange agent. An agent's message is a message transmitted by The Depository
Trust Company, received by the exchange agent and forming part of the book-entry
confirmation, to the effect that:
- The Depository Trust Company has received an express acknowledgment from a
participant in its Automated Tender Offer Program that is tendering
outstanding notes that are the subject of the book-entry confirmation;
- the participant has received and agrees to be bound by the terms of the
letter of transmittal; alternatively, in the case of an agent's message
relating to guaranteed delivery, that the participant has received and
agrees to be bound by the applicable notice of guaranteed delivery; and
- the agreement may be enforced against the participant.
We will determine in our sole discretion all questions as to the validity,
form, eligibility, time of receipt, acceptance of tendered outstanding notes and
withdrawal of tendered outstanding notes. Our determination will be final and
binding. We reserve the absolute right to reject any outstanding notes not
properly tendered or any outstanding notes our acceptance of which would, in the
opinion of our counsel, be unlawful. We also reserve the right to waive any
defects, irregularities or conditions of tender as to particular outstanding
notes. Our interpretation of the terms and conditions of the exchange offer,
including the instructions in the letter of transmittal, will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of outstanding notes must be cured within the time that
we shall determine. Although we intend to notify you of defects or
irregularities with respect to tenders of outstanding notes, neither we, the
exchange agent nor any other person will incur any liability for failure to give
that notification. Tenders of outstanding notes will not be deemed made until
the defects or irregularities have been cured or waived. Any outstanding notes
received by the exchange agent that are not properly tendered and as to which
the defects or irregularities have not been cured or waived will be returned by
the exchange agent without cost to the person that tendered, unless otherwise
provided in the letter of transmittal, as soon as practicable following the
expiration date.
In all cases, we will issue exchange notes for outstanding notes that we
have accepted for exchange under the exchange offer only after the exchange
agent timely receives:
- outstanding notes or a timely book-entry confirmation of the outstanding
notes into the exchange agent's account at The Depository Trust Company;
and
- a properly completed and duly executed letter of transmittal and all other
required documents or a properly transmitted agent's message.
26
<PAGE>
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The letter of transmittal contains, among other things, the following terms
and conditions, which are part of the exchange offer.
The party tendering outstanding notes for exchange exchanges, assigns and
transfers the outstanding notes to us and irrevocably constitutes and appoints
the exchange agent as the transferor's agent and attorney-in-fact to cause the
outstanding notes to be assigned, transferred and exchanged. The transferor
represents and warrants that it has full power and authority to tender,
exchange, assign and transfer the outstanding notes and to acquire exchange
notes issuable upon the exchange of the tendered outstanding notes, and that,
when the outstanding notes are accepted for exchange, we will acquire good and
unencumbered title to the tendered outstanding notes, free and clear of all
liens, restrictions, charges and encumbrances and not subject to any adverse
claim. The transferor also warrants that it will, upon request, execute and
deliver any additional documents deemed by the exchange agent or us to be
necessary or desirable to complete the exchange, assignment and transfer of
tendered outstanding notes or transfer ownership of the outstanding notes on the
account books maintained by a book-entry transfer facility. The transferor
further agrees that acceptance of any tendered outstanding notes by us and the
issuance of exchange notes in exchange for outstanding notes will constitute
performance in full by us and our subsidiaries guaranteeing the outstanding
notes of our obligations under the exchange and registration rights agreement
described above under "--Purpose and Effect of the Exchange Offer". All
authority conferred by the transferor will survive the death or incapacity of
the transferor and every obligation of the transferor shall be binding upon the
heirs, legal representatives, successors, assigns, executors and administrators
of the transferor.
By agreeing to be bound by the letter of transmittal, you will represent to
us that:
- any exchange notes that you receive will be acquired in the ordinary
course of your business;
- you have no arrangement or understanding with any person or entity to
participate in, and do not intend to engage in, a distribution of the
exchange notes;
- if you are a broker-dealer that will receive exchange notes for your own
account in exchange for outstanding notes that you have acquired as a
result of market-making or trading activities, that you will deliver a
prospectus, as required by law, in connection with any resale of those
exchange notes;
- you are not an affiliate, as defined in Rule 405 of the Securities Act of
1933, of Russell-Stanley or, if you are an affiliate, that you will comply
with applicable registration and prospectus delivery requirements of the
Securities Act of 1933; and
- if you are a person in the United Kingdom, that your ordinary activities
involve you in acquiring, holding, managing or disposing of investments,
as principal or agent, for the purposes of your business.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect
to the outstanding notes at The Depository Trust Company for purposes of the
exchange offer promptly after the date of this prospectus. If you are a
financial institution participating in The Depository Trust Company's system,
you may make book-entry delivery of outstanding notes by causing The Depository
Trust Company to transfer the outstanding notes into the exchange agent's
account at The Depository Trust Company in accordance with The Depository Trust
Company's procedures for transfer. If you are unable to deliver confirmation of
the book-entry tender of your outstanding notes
27
<PAGE>
into the exchange agent's account at The Depository Trust Company or other
documents required by the letter of transmittal to the exchange agent on or
prior to the expiration date, you must tender your outstanding notes according
to the guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
If you wish to tender outstanding notes but your outstanding notes are not
immediately available or you cannot deliver your outstanding notes, the letter
of transmittal or any other required documents to the exchange agent or comply
with the applicable procedures under The Depository Trust Company's Automated
Tender Offer Program prior to the expiration date you may still tender your
outstanding notes in the exchange offer if:
- you make the tender through an eligible institution;
- prior to the expiration date, the exchange agent receives from the
eligible institution either a properly completed and duly executed notice
of guaranteed delivery by facsimile transmission, mail or hand delivery or
a properly transmitted agent's message and notice of guaranteed delivery
setting forth your name and address, the registered number(s) of the
outstanding notes, if applicable, and the principal amount of outstanding
notes tendered, stating that the tender of the outstanding notes is being
made and guaranteeing that, within three New York Stock Exchange trading
days after the expiration date, the letter of transmittal or facsimile of
the letter of transmittal together with the outstanding notes or a
book-entry confirmation, and any other documents required by the letter of
transmittal will be deposited by the eligible institution with the
exchange agent; and
- the exchange agent receives a properly completed and executed letter of
transmittal or facsimile of the letter of transmittal, as well as all
tendered outstanding notes in proper form for transfer or a book-entry
confirmation, and all other documents required by the letter of
transmittal, within three New York Stock Exchange trading days after the
expiration date.
Upon request to the exchange agent, a notice of guaranteed delivery will be
sent to you.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, you may withdraw your
tender at any time prior to the expiration date.
For a withdrawal to be effective:
- the exchange agent must receive a written notice, including telegram,
telex, facsimile transmission or letter of withdrawal at one of the
addresses set forth below under "--Exchange Agent", or
- you must comply with the appropriate procedures of The Depository Trust
Company's Automated Tender Offer Program system.
A notice of withdrawal must:
- specify the name of the person who tendered the outstanding notes to be
withdrawn;
- identify the outstanding notes to be withdrawn, including the principal
amount of the outstanding notes; and
- where certificates for outstanding notes have been transmitted, specify
the name in which the outstanding notes were registered.
28
<PAGE>
If certificates for outstanding notes have been delivered or otherwise
identified to the exchange agent, then, prior to the release of those
certificates, you 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 you are an eligible institution.
If you have tendered outstanding notes 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 Depository Trust Company to be credited
with the withdrawn outstanding notes and otherwise comply with the procedures of
the facility. We will determine all questions as to the validity, form and
eligibility, including time of receipt of the notices of withdrawal, and our
determination shall be final and binding on all parties. We will deem any
outstanding notes properly withdrawn not to have been validity tendered for
exchange for purposes of the exchange offer. We will return any outstanding
notes that you have tendered for exchange but that are not exchanged for any
reason to you without cost as soon as practicable after withdrawal, rejection of
tender or termination of the exchange offer. In the case of outstanding notes
being tendered by book-entry transfer into the exchange agent's account at The
Depository Trust Company according to the procedures described above, these
outstanding notes will be credited to an account maintained with The Depository
Trust Company for outstanding notes as soon as practicable after withdrawal,
rejection of tender or termination of the exchange offer. Properly withdrawn
outstanding notes may be re-tendered at any time on or prior to the expiration
date.
EXCHANGE AGENT
The Bank of New York has been appointed as exchange agent for the exchange
offer. You should direct questions and requests for assistance, requests for
additional copies of this prospectus or of the letter of transmittal and
requests for the notice of guaranteed delivery to the exchange agent addressed
as follows:
<TABLE>
<S> <C>
FOR DELIVERY BY REGISTERED OR CERTIFIED MAIL: FOR OVERNIGHT DELIVERY ONLY OR BY HAND:
The Bank of New York The Bank of New York
101 Barclay Street 101 Barclay Street
New York, New York 10286 New York, New York 10286
Attn: Reorganization Unit Attn: Reorganization Unit
</TABLE>
BY FACSIMILE TRANSMISSION (FOR ELIGIBLE INSTITUTIONS ONLY):
The Bank of New York
(212) 815-6339
Attn: Reorganization Unit
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. The principal solicitation
is being made by mail; however, we may make additional solicitation by
telegraph, telephone or in person by our officers and regular employees and
those of our affiliates.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to broker-dealers or others soliciting
acceptances of the exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for its services and reimburse it for its related
reasonable out-of-pocket expenses.
29
<PAGE>
We will pay the cash expenses to be incurred in connection with the exchange
offer. The expenses are estimated in the aggregate to be approximately $450,000.
They include:
- registration fees of the Securities and Exchange Commission;
- fees and expenses of the exchange agent and trustee;
- accounting and legal fees and printing costs; and
- related fees and expenses.
We will pay all transfer taxes, if any, applicable to the exchange of
outstanding notes under the exchange offer. If you tender outstanding notes,
however, you will be required to pay any transfer taxes whether imposed on the
registered holder of the outstanding notes, or any other person if:
- certificates representing outstanding notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be
issued in the name of, any person other than the registered holder of
outstanding notes tendered;
- tendered outstanding notes are registered in the name of any person other
than the person signing the letter of transmittal; or
- a transfer tax is imposed for any reason other than the exchange of
outstanding notes under the exchange offer. If satisfactory evidence of
payment of the taxes is not submitted with the letter of transmittal, the
amount of the transfer taxes will be billed to the person tendering.
CONSEQUENCES OF FAILURE TO EXCHANGE
As a result of the restrictions on the outstanding notes and the adverse
consequences that may result from a failure to exchange outstanding notes, a
failure to exchange your outstanding notes may make it more difficult for you to
sell your outstanding notes.
If you do not exchange your outstanding notes for exchange notes, your
outstanding notes will continue to be subject to restrictions on transfer. In
general, outstanding notes may not be offered or sold unless registered under
the Securities Act of 1933, except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act of 1933 and applicable state
securities laws. We do not currently anticipate that we will register the
outstanding notes under the Securities Act of 1933. In addition, the tender of
outstanding notes in the exchange offer will reduce the principal amount of the
outstanding notes outstanding, which may have an adverse effect upon, and
increase the volatility of, the market price of the outstanding notes due to a
reduction in liquidity.
ACCOUNTING TREATMENT
We will record the exchange notes in our accounting records at the same
carrying value as the outstanding notes as reflected in our accounting records
on the date of exchange. Accordingly, we will not recognize any gain or loss for
accounting purposes in connection with the exchange offer. We will capitalize
the expenses of the exchange offer and amortize them over the life of the
related debt.
OTHER
Participation in the exchange offer is voluntary, and you should carefully
consider whether to accept. You are urged to consult your financial and tax
advisors in making your own decision on what action to take.
We may in the future seek to acquire untendered outstanding notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. We have no present plans to acquire any outstanding notes that are
not tendered in the exchange offer or to file a registration statement to permit
resales of any untendered outstanding notes.
30
<PAGE>
DESCRIPTION OF NOTES
All capitalized terms used in this description are defined within this
description or under the subheading "Certain Definitions." In this description,
the word "Holdings" refers only to Russell-Stanley Holdings, Inc. and not to any
of its subsidiaries.
The outstanding notes were issued and the exchange notes will be issued
under an indenture among Holdings, the Guarantors and The Bank of New York, as
trustee. Upon the issuance of the exchange notes, the indenture will be subject
to and governed by the Trust Indenture Act of 1939. All references to the Notes
are to the outstanding notes and the exchange notes collectively. The terms of
the Notes include those stated in the indenture and those made part of the
indenture by reference to the Trust Indenture Act of 1939.
The following description is a summary of the material provisions of the
indenture. It does not restate that agreement in its entirety. We urge you to
read the indenture because it, and not this description, defines your rights as
holders of the Notes. The indenture is an exhibit to the registration statement
of which this prospectus is a part.
BRIEF DESCRIPTION OF THE NOTES AND THE GUARANTEES
THE NOTES
The Notes:
- are general unsecured obligations of Holdings;
- are subordinated in right of payment to all existing and future Senior
Debt of Holdings;
- are senior in right of payment to any future subordinated Indebtedness of
Holdings; and
- are fully, unconditionally, jointly and severally guaranteed by the
Guarantors.
THE GUARANTEES
The Notes are guaranteed by the following subsidiaries of Holdings:
Russell-Stanley Corp., Container Management Services, New England Container,
Russell-Stanley, Inc., RSLPCO, Inc. and Russell-Stanley, L.P.
The Guarantees of the Notes:
- are general unsecured obligations of each Guarantor;
- are subordinated in right of payment to all existing and future Senior
Debt of each Guarantor; and
- are senior in right of payment to any future subordinated Indebtedness of
each Guarantor.
At May 31, 1999, Holdings and the Guarantors had total Senior Debt
outstanding of approximately $34.4 million. As indicated above and as discussed
in detail below under the subheading "Subordination," payments on the Notes and
under the Guarantees are subordinated to the payment of Senior Debt. The
indenture permits us and the Guarantors to incur additional Senior Debt.
Currently, all of our subsidiaries are "Restricted Subsidiaries." However,
under the circumstances described below under the subheading "Certain
Covenants--Designation of Restricted and Unrestricted Subsidiaries," we will be
permitted to designate certain of our subsidiaries as "Unrestricted
Subsidiaries." Unrestricted Subsidiaries are not subject to many of the
restrictive covenants in the indenture. Unrestricted Subsidiaries do not
guarantee the Notes.
31
<PAGE>
Not all of our subsidiaries guarantee the Notes. In the event of a
bankruptcy, liquidation or reorganization of any of these non-guarantor
subsidiaries, these non-guarantor subsidiaries will pay the holders of their
debt and their trade creditors before they will be able to distribute any of
their assets to us. At May 31, 1999, the total liabilities (including trade
payables) of our non-guarantor subsidiary were $17.0 million. Our non-guarantor
subsidiary generated approximately 13.1% of our consolidated revenues in the
year ended December 31, 1998 and approximately 13.1% of our consolidated
revenues in the quarter ended March 31, 1999. Our non-guarantor subsidiary also
held approximately 11.4% of our consolidated assets as of March 31, 1999. See
"Note 21-- Guarantor Subsidiaries" to our consolidated financial statements
included at the back of this prospectus for more detail about the division of
our consolidated revenues and assets between our guarantor and non-guarantor
subsidiaries.
PRINCIPAL, MATURITY AND INTEREST
Holdings may issue Notes with a maximum aggregate principal amount of $225.0
million under the indenture, of which $150.0 million aggregate principal amount
of outstanding notes were issued on February 10, 1999. The form and terms of the
exchange notes will be substantially identical to the form and terms of the
outstanding notes, except that the exchange notes:
- will be freely tradeable as a result of their registration under the
Securities Act of 1933,
- will not bear legends restricting their transfer, will not be subject to
any additional obligations regarding registration under the Securities Act
of 1933 and
- will not be subject to the special interest payments described in
"--Registration Covenant; Exchange Offer."
The exchange notes will be issued under and entitled to the benefits of the
same indenture that authorized the issuance of the outstanding notes.
Consequently, both series will be treated as a single class of debt securities
under the indenture. The Notes will mature on February 15, 2009.
Interest on the Notes will accrue at the rate of 10.875% per annum and will
be payable semi-annually in arrears on February 15 and August 15, commencing on
August 15, 1999. Holdings will make each interest payment to the Holders of
record of the Notes on the immediately preceding February 1 and August 1.
Interest on the Notes will accrue from the date of original issuance or, if
interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
METHODS OF RECEIVING PAYMENTS ON THE NOTES
If a Holder has given wire transfer instructions to Holdings, Holdings will
make all principal, premium and interest payments on the Notes in accordance
with those instructions. All other payments on the Notes will be made at the
office or agency of the paying agent and registrar within the City and State of
New York unless Holdings elects to make interest payments by check mailed to the
Holders at their address set forth in the register of Holders.
PAYING AGENT AND REGISTRAR FOR THE NOTES
The trustee will initially act as paying agent and registrar. Holdings may
change the paying agent or registrar without prior notice to the Holders of the
Notes, and Holdings or any of its subsidiaries may act as paying agent or
registrar.
32
<PAGE>
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the indenture.
The registrar and the trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents, and Holdings may
require a Holder to pay any taxes and fees required by law or permitted by the
indenture. Holdings is not required to transfer or exchange any Note selected
for redemption. Also, Holdings is not required to transfer or exchange any Note
for a period of 15 days before a selection of Notes to be redeemed. The
registered Holder of a Note will be treated as the owner of it for all purposes.
FORM, DENOMINATION AND BOOK-ENTRY PROCEDURES
Holdings will issue the exchange notes only in fully registered form,
without interest coupons, in denominations of $1,000 and integral multiples of
$1,000. Holdings will not issue Notes in bearer form. The exchange notes will
initially be represented by one or more global notes that will be deposited
with, or on behalf of, The Depository Trust Company and registered in the name
of Cede & Co., as nominee of DTC, on behalf of the acquirers of exchange notes
represented thereby for credit to the respective accounts of the acquirers, or
to such other accounts as they may direct, at DTC, or Morgan Guaranty Trust
Company of New York, Brussels Office, as operator of the Euroclear System, or
Cedel Bank, societe anonyme. See "The Exchange Offer--Book-Entry Transfer."
Transfers of beneficial interests in the global notes will be subject to the
applicable rules and procedures of DTC and its direct or indirect participants,
including, if applicable, those of Euroclear and CEDEL, which may change from
time to time. Except as set forth below, the global notes may be transferred, in
whole and not in part, only to another nominee of DTC or to a successor of DTC
or its nominee. You may not exchange your beneficial interest in the global
notes for Notes in certificated form except in the limited circumstances
described below under "--Exchanges of Global Notes for Certificated Notes."
EXCHANGES OF GLOBAL NOTES FOR CERTIFICATED NOTES
You may not exchange your beneficial interest in a global note for a Note in
certificated form unless:
(1) DTC (a) notifies Holdings that it is unwilling or unable to continue as
depositary for the global note or (b) has ceased to be a clearing agency
registered under the Securities Exchange Act of 1934, and in either case
Holdings thereupon fails to appoint a successor depositary; or
(2) Holdings, at its option, notifies the trustee in writing that it is
electing to issue the Notes in certificated form; or
(3) an Event of Default shall have occurred and be continuing with respect
to the Notes.
In all cases, certificated Notes delivered in exchange for any global note
or beneficial interests therein will be registered in the names, and issued in
any approved denominations, requested by or on behalf of the depositary in
accordance with its customary procedures. Any certificated Notes issued in
exchange for an interest in a global note will bear the legend restricting
transfers that is borne by the global note. This type of exchange will be
effected through Deposit/Withdraw at Custodian system and an appropriate
adjustment will be made in the records of the registrar to reflect a decrease in
the principal amount of the relevant global note.
33
<PAGE>
CERTAIN BOOK-ENTRY PROCEDURES
The description of the operations and procedures of DTC, Euroclear and CEDEL
that follows is provided solely as a matter of convenience. These operations and
procedures are solely within their control and are subject to changes by them
from time to time. Holdings takes no responsibility for these operations and
procedures and urges you to contact the system or their participants directly to
discuss these matters.
DTC has advised Holdings as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a clearing corporation within the meaning of the Uniform
Commercial Code and a Clearing Agency registered under Section 17A of the
Securities Exchange Act of 1934. DTC was created to hold securities for its
participants and facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry changes in
accounts of its participants, thereby eliminating the need for physical transfer
and delivery of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and may include
certain other organizations. Indirect access to the DTC system is available to
other entities such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a participant, either directly
or indirectly.
DTC has advised Holdings that its current practice, upon the issuance of the
global notes, is to credit, on its internal system, the respective principal
amount of the individual beneficial interests represented by the global notes to
the accounts with DTC of the participants through which the interests are to be
held. Ownership of beneficial interests in the global notes will be shown on,
and the transfer of that ownership will be effected only through, records
maintained by DTC or its nominees with respect to interests of participants.
AS LONG AS DTC, OR ITS NOMINEE, IS THE REGISTERED HOLDER OF A GLOBAL NOTE,
DTC OR ITS NOMINEE, AS THE CASE MAY BE, WILL BE CONSIDERED THE SOLE OWNER AND
HOLDER OF THE NOTES REPRESENTED BY THE GLOBAL NOTE FOR ALL PURPOSES UNDER THE
INDENTURE AND THE NOTES. Except in the limited circumstances described above
under "--Exchanges of Global Notes for Certificated Notes," you will not be
entitled to have any portions of a global note registered in your name, will not
receive or be entitled to receive physical delivery of Notes in definitive form
and will not be considered the owner or Holder of a global note or any Note
represented thereby under the indenture or the Notes.
You may hold your interests in the global notes directly through DTC, if you
are a participant in its system, or indirectly through organizations which are
participants in its system, including Euroclear and CEDEL. All interests in a
global note, including those held through Euroclear or CEDEL, will be subject to
the procedures and requirements of DTC. Those interests held through Euroclear
or CEDEL will also be subject to the procedures and requirements of their
respective systems.
The laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, your ability to
transfer your beneficial interests in a global note to these persons may be
limited to that extent. Because DTC can act only on behalf of its participants,
which in turn act on behalf of indirect participants and certain banks, your
ability to pledge your interests in a global note to persons or entities that do
not participate in the DTC system, or otherwise take actions in respect of such
interests, may be affected by the lack of a physical certificate.
Holdings will make payments of the principal of, premium, if any, and
interest on global notes to DTC or its nominee as the registered owner of the
global notes. Neither Holdings nor the trustee nor any of their respective
agents will have any responsibility or liability for any aspect of the
34
<PAGE>
records relating to or payments made on account of beneficial ownership
interests in the global notes or for maintaining, supervising or reviewing any
records relating to beneficial ownership interests.
Holdings expects that DTC or its nominee, upon receipt of any payment of
principal or interest in respect of a global note representing any Notes held by
it or its nominee, will immediately credit participants' accounts with payments
in amounts proportionate to their respective beneficial interests in the
principal amount of the global note for these Notes as shown on the records of
DTC or its nominee. Holdings also expects that payments by participants to
owners of beneficial interests in the global note held through such participants
will be governed by standing instructions and customary practices, as is now the
case with securities held for the accounts of customers registered in street
name. Such payment will be the responsibility of the participants.
Except for trades involving only Euroclear and CEDEL participants, interests
in a global note will trade in DTC's same day settlement system, and secondary
market trading activity will therefore settle in immediately available funds,
subject in all cases to the rules and procedures of DTC and its participants.
Transfers between participants in DTC will be effected in accordance with DTC's
procedures and will be settled in same-day funds. Transfers between participants
in Euroclear and CEDEL will be effected in the ordinary way in accordance with
their respective rules and operating procedures.
Subject to compliance with the transfer and exchange provisions applicable
to the Notes described below, cross-market transfers between DTC participants,
on the one hand, and Euroclear or CEDEL participants, on the other hand, will be
effected by DTC in accordance with DTC's rules on behalf of Euroclear or CEDEL,
as the case may be, by its respective depositary; however, such cross-market
transactions will require delivery of instructions to Euroclear or CEDEL, as the
case may be, by the counterparty in such system in accordance with the rules and
procedures and within the established deadlines (Brussels time) of such system.
Euroclear or CEDEL, as the case may be, will, if the transaction meets it
settlement requirements, deliver instructions to its respective depository to
take action to effect final settlement on its behalf by delivering or receiving
interests in the relevant global note in DTC, and making or receiving payment in
accordance with normal procedures for same-day funds settlement applicable to
DTC. Euroclear participants and CEDEL participants may not deliver instructions
directly to the depositories for Euroclear or CEDEL.
Because of time zone differences, the securities account of Euroclear or
CEDEL participant purchasing an interest in a global note from a DTC participant
will be credited, and any such crediting will be reported to the relevant
Euroclear or CEDEL participant, during the securities settlement processing day,
which must be a business day for Euroclear and CEDEL, immediately following the
DTC settlement date. Cash received in Euroclear or CEDEL as a result of sales of
interests in a global note by or through a Euroclear or CEDEL participant to a
DTC participant will be received with value on the DTC settlement date but will
be available in the relevant Euroclear or CEDEL cash account only as of the
business day for Euroclear or CEDEL following the DTC settlement date.
DTC has advised Holdings that it will take any action permitted to be taken
by a holder of Notes, including the presentation of Notes for exchange as
described below and the conversion of Notes, only at the direction of one or
more participants to whose account with DTC interests in the global notes are
credited and only in respect of the portion of the aggregate principal amount of
the Notes as to which such participant or participants has or have given such
direction. However, if there is an Event of Default under the Notes, the global
notes will be exchanged for Notes in certificated form and distributed to DTC's
participants.
Although DTC, Euroclear and CEDEL have agreed to the procedures described
above in order to facilitate transfers of beneficial ownership interests in the
global notes among participants of
35
<PAGE>
DTC, they are under no obligation to perform or continue to perform these
procedures, and these procedures may be discontinued at any time. None of
Holdings, the trustee or any of their respective agents will have any
responsibility for the performance by DTC, Euroclear and CEDEL, their
participants or indirect participants of their respective obligations under the
rules and procedures governing their operations, including maintaining,
supervising or reviewing the records relating to, or payments made on account
of, beneficial ownership interests in global notes.
DTC management is aware that some computer applications, systems and the
like for processing data that are dependent upon calendar dates, including dates
before, on, and after January 1, 2000, may encounter year 2000 problems. DTC has
informed its participants and other members of the financial community that it
has developed and is implementing a program so that its systems, as they relate
to the timely payment of distributions, including principal and income payments,
to securityholders, book-entry deliveries and settlement of trades within DTC,
continue to function appropriately. This program includes a technical assessment
and a remediation plan, each of which is complete. Additionally, DTC's plan
includes a testing phase, which is expected to be completed within appropriate
time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including issuers and their agents, as well as third party
vendors from whom DTC licenses software and hardware, and third party vendors on
whom DTC relies for information or the provision of services, including
telecommunication and electrical utility service providers, among others. DTC
has informed the industry that it is contacting, and will continue to contact,
third party vendors from whom DTC acquires services to impress upon them the
importance of such services being Year 2000 compliant and determine the extent
of their efforts for year 2000 remediation and, as appropriate, testing of their
services. In addition, DTC is in the process of developing contingency plans as
it deems appropriate.
According to DTC, this information with respect to DTC has been provided to
the industry for informational purposes only and is not intended to serve as a
representation, warranty, or contract modification of any kind.
REGISTRATION COVENANT; EXCHANGE OFFER
In connection with the issuance and sale of the outstanding notes, we
entered into an exchange and registration rights agreement with the initial
purchasers of the outstanding notes, in which we and our subsidiaries
guaranteeing the outstanding notes agreed:
- to use our reasonable best efforts to file with the Securities and
Exchange Commission, within 75 days of February 10, 1999, a registration
statement under the Securities Act of 1933 relating to this exchange
offer;
- to use our reasonable best efforts to cause the registration statement to
become effective as soon as practicable, but no later than 225 days after
February 10, 1999; and
- to commence the exchange offer promptly after the exchange offer
registration statement has become effective, hold the offer open for at
least 30 days and exchange the exchange notes for all outstanding notes
validly tendered and not withdrawn before the expiration of the offer.
We are making this exchange offer in order to satisfy our obligations with
respect to the exchange and registration rights agreement. A copy of the
exchange and registration rights agreement has been filed as an exhibit to the
registration statement of which this Prospectus is a part.
Under existing Securities and Exchange Commission interpretations, the
exchange notes will in general be freely transferable after the exchange offer
without further registration under the
36
<PAGE>
Securities Act of 1933, except that broker-dealers receiving exchange notes in
the exchange offer will be subject to a prospectus delivery requirement with
respect to resales of those exchange notes. The Securities and Exchange
Commission has taken the position that broker-dealers receiving exchange notes
may fulfill their prospectus delivery requirements with respect to the exchange
notes, other than a resale of an unsold allotment from the original sale of the
outstanding notes, by delivery of this prospectus. Under the exchange and
registration rights agreement, Holdings is required to allow broker-dealers
receiving exchange notes and other persons, if any, subject to similar
prospectus delivery requirements to use this prospectus in connection with the
resale of exchange notes. The registration statement of which this prospectus is
a part will be kept effective for a period of 180 days after the exchange offer
has been consummated in order to permit resales of exchange notes acquired by
broker-dealers in after-market transactions. Each Holder of outstanding notes
who wishes to exchange outstanding notes for exchange notes in the exchange
offer will be required to represent that any exchange notes to be received by it
will be acquired in the ordinary course of its business, that at the time of the
commencement of the exchange offer it has no arrangement with any person to
participate in the distribution of the exchange notes within the meaning of the
Securities Act of 1933 and that it is not an affiliate of Holdings.
However, if:
(1) on or before the date of consummation of the exchange offer, the
existing Securities and Exchange Commission interpretations are changed
such that the exchange notes would not in general be freely transferable;
or
(2) the exchange offer has not been consummated within 255 days following
the time of delivery of the outstanding notes; or
(3) the exchange offer is not available to any holder of the outstanding
notes,
Holdings will, in lieu of (or, in the case of clause (3), in addition to)
effecting registration of exchange notes, use its reasonable best efforts to
cause a registration statement under the Securities Act of 1933 relating to a
shelf registration of the outstanding notes for resale by holders or, in the
case of clause (3), of the outstanding notes held by the initial purchasers of
the outstanding notes for resale by the initial purchasers to become effective
and to remain effective until two years following the effective date of this
registration statement or such shorter period that will terminate when all the
securities covered by the shelf registration statement have been sold pursuant
to the shelf registration statement.
Holdings will, in the event of the resale registration, provide to the
Holder or Holders of the applicable outstanding notes copies of the prospectus
that is a part of the shelf registration statement filed in connection with the
resale registration, notify such Holder or Holders when such shelf registration
statement for the applicable outstanding notes has become effective and take
certain other actions as are required to permit unrestricted resales of the
applicable outstanding notes. A Holder of outstanding notes that sells
outstanding notes pursuant to the resale registration generally would be
required to be named as a selling securityholder in the related prospectus and
to deliver a prospectus to purchasers, will be subject to the civil liability
provisions under the Securities Act of 1933 in connection with its sales and
will be bound by the provisions of the exchange and registration rights
agreement that are applicable to such a Holder, including certain
indemnification obligations.
In the event that:
(1) the exchange offer has not been consummated within 30 business days
after the effective date of the registration statement of which this
prospectus is a part; or
37
<PAGE>
(2) any registration statement required by the exchange and registration
rights agreement is filed and declared effective but shall cease to be
effective (except as specifically permitted therein) without being
succeeded immediately by an additional registration statement filed and
declared effective,
then the annual interest rate on the applicable outstanding notes will increase,
for the period from the occurrence of that event until that event is cured and
no other event identified in clause (1) or (2) has occurred by 0.50% during the
first 90-day period following the occurrence of that event, and the rate will
increase by an additional 0.50% during each subsequent 90-day period, up to a
maximum increase of 1.0%. When this event is cured and no other event identified
in clause (1) or (2) has occurred, the interest rate will be reduced to its
initial rate.
While we have summarized all the material provisions of the exchange and
registration rights agreement, this summary is subject to, and is qualified in
its entirety by reference to, all the provisions of the exchange and
registration rights agreement, a copy of which has been filed as an exhibit to
the registration statement of which this prospectus is a part.
SUBSIDIARY GUARANTEES
The Guarantors will fully, unconditionally, jointly and severally guarantee
Holdings' obligations under the Notes. Each Subsidiary Guarantee will be
subordinated to the prior payment in full of all Senior Debt of that Guarantor.
The obligations of each Guarantor under its Subsidiary Guarantee will be limited
as necessary to prevent that Subsidiary Guarantee from constituting a fraudulent
conveyance under applicable law.
A Guarantor may not sell or otherwise dispose of all or substantially all of
its assets, or consolidate with or merge with or into (whether or not such
Guarantor is the surviving Person), another Person unless:
(1) immediately after giving effect to that transaction, no Default or Event
of Default exists; and
(2) either:
(a) the Person acquiring the property in any such sale or disposition or
the Person formed by or surviving any such consolidation or merger
(if other than the Guarantor) assumes all the obligations of that
Guarantor pursuant to a supplemental indenture reasonably
satisfactory to the trustee; or
(b) the Net Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of the indenture.
The Subsidiary Guarantee of a Guarantor will be released:
(1) in connection with any sale or other disposition of all or substantially
all of the assets of such Guarantor (including by way of merger or
consolidation), if Holdings applies the Net Proceeds of that sale or
other disposition in accordance with the applicable provisions of the
indenture; or
(2) in connection with any sale of all of the capital stock of a Guarantor,
if Holdings applies the Net Proceeds of that sale in accordance with the
applicable provisions of the indenture; or
(3) if Holdings designates any Restricted Subsidiary that is a Guarantor as
an Unrestricted Subsidiary in accordance with the indenture.
See "--Repurchase at the Option of Those Holding Notes--Asset Sales."
38
<PAGE>
SUBORDINATION
The payment of principal, premium and interest, if any, on the Notes will be
subordinated to the prior payment in full in cash of all Senior Debt of
Holdings.
The holders of Senior Debt will be entitled to receive payment in full in
cash of all Obligations due in respect of Senior Debt (including interest after
the commencement of any such proceeding at the rate specified in the applicable
Senior Debt) before the Holders of Notes will be entitled to receive any payment
with respect to the Notes (except that Holders of Notes may receive and retain
Permitted Junior Securities and payments made from the trust described under
"--Legal Defeasance and Covenant Defeasance"), in the event of any distribution
to creditors of Holdings:
(1) in a liquidation or dissolution of Holdings;
(2) in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to Holdings or its property;
(3) in an assignment for the benefit of creditors; or
(4) in any marshaling of Holdings' assets and liabilities.
Holdings also may not make any payment in respect of the Notes (except in
Permitted Junior Securities or from the trust described under "--Legal
Defeasance and Covenant Defeasance") if:
(1) a payment default on Designated Senior Debt occurs and is continuing
beyond any applicable grace period; or
(2) any other default occurs and is continuing on Designated Senior Debt
that permits holders of the Designated Senior Debt to accelerate its
maturity and the Trustee receives a notice of such default from Holdings
or the holders of any Designated Senior Debt.
Payments on the Notes may and shall be resumed:
(1) in the case of a payment default, upon the date on which such default is
cured or waived; and
(2) in case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived or 179 days after the date on which
the applicable payment blockage notice is received, unless the maturity
of any Designated Senior Debt has been accelerated.
No new payment blockage notice may be delivered unless and until 360 days
have elapsed since the effectiveness of the immediately 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.
Holdings must promptly notify holders of Senior Debt if payment of the Notes
is accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the event of
a bankruptcy, liquidation or reorganization of Holdings, Holders of the Notes
may recover less ratably than creditors of Holdings who are holders of Senior
Debt. See "Risk Factors--As a result of the subordination provisions of the
outstanding notes and exchange notes, you may not receive payment on your notes
if we are involved in a bankruptcy or similar proceeding."
39
<PAGE>
OPTIONAL REDEMPTION
On or before February 15, 2002, Holdings may on any one or more occasions
redeem up to 35% of the aggregate principal amount of Notes originally issued
under the indenture at a redemption price of 110.875% of the principal amount
thereof, plus accrued and unpaid interest to the redemption date, with the net
cash proceeds of one or more Public Equity Offerings; provided that
(1) at least 65% of the aggregate principal amount of Notes originally
issued remains outstanding immediately after the occurrence of such
redemption (excluding Notes held by Holdings and its Subsidiaries); and
(2) the redemption must occur within 90 days of the date of the closing of
such Public Equity Offering.
Except pursuant to the preceding paragraph, the Notes will not be redeemable
at Holdings' option prior to February 15, 2004.
On or after February 15, 2004, Holdings may redeem all or a part of the
Notes upon not less than 30 nor more than 90 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below plus
accrued and unpaid interest thereon, if any, to the applicable redemption date,
if redeemed during the twelve-month period beginning on February 15 of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ----------------------------------------------------------------------------------------------------- -----------
<S> <C>
2004................................................................................................. 105.438%
2005................................................................................................. 103.625%
2006................................................................................................. 101.813%
2007 and thereafter.................................................................................. 100.000%
</TABLE>
REPURCHASE AT THE OPTION OF THOSE HOLDING NOTES
CHANGE OF CONTROL
If a Change of Control occurs, each Holder of Notes will have the right to
require Holdings to repurchase all or any part (equal to $1,000 or an integral
multiple thereof) of that Holder's Notes pursuant to the change of control
offer. In the change of control offer, Holdings will offer a change of control
payment in cash equal to 101% of the aggregate principal amount of Notes
repurchased plus accrued and unpaid interest thereon, if any, to the date of
purchase. Within 30 days following any Change of Control, Holdings will mail a
notice to each Holder describing the transaction or transactions that constitute
the Change of Control and offering to repurchase Notes on the change of control
payment date specified in such notice, pursuant to the procedures required by
the indenture and described in such notice. Holdings will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Notes as a result of a
Change of Control.
On the change of control payment date, Holdings will, to the extent lawful:
(1) accept for payment all Notes or portions thereof properly tendered
pursuant to the change of control offer;
(2) deposit with the paying agent an amount equal to the change of control
payment in respect of all Notes or portions thereof so tendered; and
(3) deliver or cause to be delivered to the trustee the Notes so accepted
together with an officers' certificate stating the aggregate principal
amount of Notes or portions thereof being purchased by Holdings.
40
<PAGE>
The paying agent will promptly mail to each Holder of Notes so tendered the
change of control payment for such Notes, and the trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof.
Subject to the third succeeding paragraph, the provisions described above
that require Holdings to make a change of control offer following a Change of
Control will be applicable regardless of whether or not any other provisions of
the indenture are applicable. Except as described above with respect to a Change
of Control, the indenture does not contain provisions that permit the Holders of
the Notes to require that Holdings repurchase or redeem the Notes in the event
of a takeover, recapitalization or similar transaction.
Holdings' outstanding Senior Debt currently prohibits Holdings from
purchasing any Notes, and also provides that certain change of control events
with respect to Holdings would constitute a default under the agreements
governing the Senior Debt. Any future credit agreements or other agreements
relating to Senior Debt to which Holdings becomes a party may contain similar
restrictions and provisions. In the event a Change of Control occurs at a time
when Holdings is prohibited from purchasing Notes, Holdings could seek the
consent of its senior lenders to the purchase of Notes or could attempt to
refinance the borrowings that contain the prohibition. If Holdings does not
obtain such a consent or repay such borrowings, Holdings will remain prohibited
from purchasing Notes. In such case, Holdings' failure to purchase tendered
Notes would constitute an Event of Default under the indenture which would, in
turn, constitute a default under such Senior Debt. In such circumstances, the
subordination provisions in the indenture would likely restrict payments to the
Holders of Notes.
Holdings will not be required to make a change of control offer upon a
Change of Control if a third party makes the change of control offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the indenture applicable to a change of control offer made by Holdings and
purchases all Notes validly tendered and not withdrawn under such change of
control offer.
Notwithstanding the foregoing, Holdings shall not be required to make a
change of control offer, as provided above, if, in connection with or in
contemplation of any Change of Control, it has made an alternate offer to
purchase any and all Notes validly tendered at a cash price equal to or higher
than the change of control payment and has purchased all Notes properly tendered
in accordance with the terms of the alternate offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of all or substantially all of
the assets of Holdings and its Subsidiaries taken as a whole. Although there is
a limited 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 Holdings to repurchase
such Notes as a result of a sale, lease, transfer, conveyance or other
disposition of less than all of the assets of Holdings and its Subsidiaries
taken as a whole to another Person or group may be uncertain.
ASSET SALES
Holdings will not, and will not permit any of its Restricted Subsidiaries
to, consummate an Asset Sale unless:
(1) Holdings (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair
market value of the assets or Equity Interests issued or sold or
otherwise disposed of;
41
<PAGE>
(2) such fair market value is determined by Holdings' Board of Directors and
evidenced by a resolution of the Board of Directors set forth in an
officers' certificate delivered to the trustee; and
(3) at least 75% of the consideration therefor received by Holdings or such
Restricted Subsidiary is in the form of cash or Cash Equivalents. For
purposes of this provision, each of the following shall be deemed to be
cash:
(a) any liabilities (as shown on Holdings' or such Restricted
Subsidiary's most recent balance sheet), of Holdings or any
Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Notes or any
Subsidiary Guarantee) that are assumed by the transferee of any such
assets pursuant to a customary novation agreement that releases
Holdings or such Restricted Subsidiary from further liability; and
(b) any securities, notes or other obligations received by Holdings or
any such Restricted Subsidiary from such transferee that are
contemporaneously (subject to ordinary settlement periods) converted
by Holdings or such Restricted Subsidiary into cash (to the extent of
the cash received in that conversion).
Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
Holdings may apply such Net Proceeds at its option:
(1) to repay Senior Debt;
(2) to acquire all or substantially all of the assets of, or a majority of
the Voting Stock of, another Permitted Business;
(3) to make a capital expenditure; or
(4) to acquire other long-term assets that are used or useful in a Permitted
Business.
Pending the final application of any such Net Proceeds, Holdings may temporarily
reduce revolving credit borrowings or otherwise invest such Net Proceeds in any
manner that is not prohibited by the indenture.
When the aggregate amount of Net Proceeds from Asset Sales that are not
applied or invested as provided in the preceding paragraph exceeds $10.0
million, Holdings will make an offer to all Holders of Notes and all holders of
other Indebtedness that is PARI PASSU with the Notes containing provisions
similar to those set forth in the indenture with respect to offers to purchase
or redeem with the proceeds of sales of assets to purchase the maximum principal
amount of Notes and such other PARI PASSU Indebtedness that may be purchased out
of the excess proceeds. The offer price in any asset sale offer will be equal to
100% of principal amount plus accrued and unpaid interest, if any, to the date
of purchase, and will be payable in cash. If any excess proceeds remain after
consummation of an asset sale offer, Holdings may use such excess proceeds for
any purpose not otherwise prohibited by the indenture. If the aggregate
principal amount of Notes and such other PARI PASSU Indebtedness tendered into
such asset sale offer exceeds the amount of excess proceeds, the trustee shall
select the Notes and such other PARI PASSU Indebtedness to be purchased on a pro
rata basis. Upon completion of each asset sale offer, the amount of excess
proceeds shall be reset at zero.
Notwithstanding the immediately preceding paragraphs, Holdings and its
Restricted Subsidiaries will be permitted to consummate an Asset Sale without
complying with such paragraphs to the extent that:
- at least 75% of the consideration for such Asset Sale constitutes
long-term assets that are used or useful in a Permitted Business
("Qualified Proceeds") and/or Cash Equivalents and
42
<PAGE>
- such Asset Sale is for fair market value; PROVIDED that any consideration
not constituting long-term assets that are used or useful in a Permitted
Business received by Holdings or any of its Restricted Subsidiaries in
connection with any Asset Sale permitted to be consummated under this
paragraph shall constitute excess proceeds subject to the provisions of
the preceding paragraphs.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, the trustee
will select Notes for redemption as follows:
(1) if the Notes are listed, in compliance with the requirements of the
principal national securities exchange on which the Notes are listed; or
(2) if the Notes are not so listed, on a pro rata basis, by lot or by such
method as the trustee shall deem fair and appropriate.
No Notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each Holder of Notes to be redeemed at its registered
address. Notices of redemption may not be conditional.
If any Note is to be redeemed in part only, the notice of redemption that
relates to that Note shall state the portion of the principal amount thereof to
be redeemed. A new Note in principal amount equal to the unredeemed portion of
the original Note will be issued in the name of the Holder thereof upon
cancellation of the original Note. Notes called for redemption become due on the
date fixed for redemption. On and after the redemption date, interest ceases to
accrue on Notes or portions of them called for redemption.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
Holdings will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or distribution on
account of Holdings' or any of its Restricted Subsidiaries' Equity
Interests (including, without limitation, any payment in connection with
any merger or consolidation involving Holdings or any of its Restricted
Subsidiaries) or to the direct or indirect holders of Holdings' or any of
its Restricted Subsidiaries' Equity Interests in their capacity as such
(other than dividends or distributions payable solely in Equity Interests
(other than Disqualified Stock) of Holdings or dividends or distributions
payable to Holdings or a Restricted Subsidiary of Holdings);
(2) purchase, redeem or otherwise acquire or retire for value (including,
without limitation, in connection with any merger or consolidation
involving Holdings) any Equity Interests of Holdings or any direct or
indirect parent of Holdings or any Restricted Subsidiary of Holdings
(other than any such Equity Interests owned by Holdings or any Restricted
Subsidiary of Holdings);
(3) make any payment on or with respect to, or purchase, redeem, defease or
otherwise acquire or retire for value any Indebtedness that is
subordinated to the Notes (other than the Notes), except a payment of
interest or principal at the Stated Maturity thereof or as a mandatory
sinking fund payment; or
(4) make any Restricted Investment (all such payments and other actions set
forth in clauses (1) through (4) being collectively referred to as
"Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
43
<PAGE>
(1) no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof; and
(2) Holdings would, at the time of such Restricted Payment and after giving
pro forma effect thereto as if such Restricted Payment had been made at
the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the
covenant described below under the caption "--Incurrence of Indebtedness
and Issuance of Preferred Stock"; and
(3) such Restricted Payment, together with the aggregate amount of all other
Restricted Payments made by Holdings and its Restricted Subsidiaries
after the date of the indenture (excluding Restricted Payments permitted
by clauses (2), (3), (5), (7) and (8) of the next succeeding paragraph),
is less than the sum, without duplication, of
(a) 50% of the Consolidated Net Income of Holdings for the period (taken
as one accounting period) from January 1, 1999 to the end of
Holdings' most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such period is a
deficit, less 100% of such deficit), plus
(b) 100% of the aggregate net cash proceeds received by Holdings since
the date of the indenture as a contribution to its common equity
capital or from the issue or sale of Equity Interests of Holdings
(other than Disqualified Stock) or from the issue or sale of
convertible or exchangeable Disqualified Stock or convertible or
exchangeable debt securities of Holdings that have been converted
into or exchanged for such Equity Interests (other than Equity
Interests (or Disqualified Stock or debt securities) sold to a
Subsidiary of Holdings), plus
(c) to the extent that any Restricted Investment that was made after the
date of the indenture is sold for cash or otherwise liquidated or
repaid for cash, the lesser of (without duplication of amounts
included in Consolidated Net Income at any time after the date of the
indenture) (i) the cash return of capital with respect to such
Restricted Investment (less the cost of disposition, if any) and (ii)
the initial amount of such Restricted Investment.
The preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of declaration
thereof, if at the date of declaration such payment would have complied
with the provisions of the indenture;
(2) the redemption, repurchase, retirement, defeasance or other acquisition
of any PARI PASSU or subordinated Indebtedness of Holdings or any
Guarantor or of any Equity Interests of Holdings or any Restricted
Subsidiary in exchange for, or out of the net cash proceeds of the
substantially concurrent sale (other than to a Restricted Subsidiary of
Holdings) of, Equity Interests of Holdings (other than Disqualified
Stock); PROVIDED that the amount of any such net cash proceeds that are
utilized for any such redemption, repurchase, retirement, defeasance or
other acquisition shall be excluded from clause (3) (b) of the preceding
paragraph;
(3) the defeasance, redemption, repurchase or other acquisition of
subordinated Indebtedness of Holdings or any Guarantor with the net cash
proceeds from an incurrence of Permitted Refinancing Indebtedness;
(4) the payment of any dividend by a Restricted Subsidiary of Holdings to
the holders of all of its common Equity Interests on a pro rata basis;
44
<PAGE>
(5) the repurchase of Equity Interests deemed to occur upon the exercise of
stock options if such Equity Interests represent a portion of the
exercise price thereof;
(6) the repurchase, redemption or other acquisition or retirement for value
of any Equity Interests of Holdings or any Restricted Subsidiary of
Holdings held by (A) any director of Holdings or member of Holdings' (or
any of its Restricted Subsidiaries') management pursuant to any
management equity subscription agreement or stock option agreement in
effect as of the date of the indenture or (B) any employee of Holdings or
any of its Subsidiaries upon the retirement of any such employee;
provided that the aggregate price paid for all such repurchased,
redeemed, acquired or retired Equity Interests shall not exceed $2.5
million in any twelve-month period;
(7) the defeasance, redemption or repurchase of any Disqualified Stock of
Holdings or any Restricted Subsidiary in exchange for, or out of the
substantially concurrent sale (other than to Holdings or a Subsidiary of
Holdings) of Disqualified Stock of Holdings or such Restricted
Subsidiary, respectively; PROVIDED that: (A) the aggregate liquidation
preference of such Disqualified Stock does not exceed the aggregate
liquidation preference of the Disqualified Stock so extended, refinance,
renewed, replaced, defeased or refunded (plus the amount of reasonable
expenses incurred in connection therewith); (B) such Disqualified Stock
has a final maturity date later than the final maturity date of, and has
a Weighted Average Life to Maturity equal to or greater than the Weighted
Average Life to Maturity of the Notes; and (C) such Disqualified Stock is
incurred either by Holdings or by the Restricted Subsidiary who is the
obligor on the Disqualified Stock being extended, refinanced, renewed,
replaced, defeased or refunded;
(8) the making of loans by Holdings or any of its Restricted Subsidiaries to
officers or directors of Holdings; PROVIDED that the aggregate
outstanding amount of such loans shall not exceed, at any time, $2.0
million; and
(9) so long as no Default or Event of Default is continuing or would be
caused thereby, the defeasance, redemption or repurchase of any preferred
stock or Disqualified Stock issued in connection with the acquisition of
assets or a Permitted Business; PROVIDED that the aggregate amount of
such Defeasance, redemption or repurchase payments shall not exceed $5.0
million.
The amount of all Restricted Payments (other than cash) and proceeds
received in exchange for Asset Sales (other than cash) shall be the fair market
value on the date of the Restricted Payment or date of receipt of proceeds of
the asset(s) or securities proposed to be transferred or issued by Holdings or
such Restricted Subsidiary, as the case may be, pursuant to the Restricted
Payment. The fair market value of any assets or securities that are required to
be valued by this covenant shall be determined by the Board of Directors whose
resolution with respect thereto shall be delivered to the trustee. The Board of
Directors' determination must be based upon an opinion or appraisal issued by an
accounting, appraisal or investment banking firm of national standing if the
fair market value exceeds $5.0 million. Not later than the date of making any
Restricted Payment, Holdings shall deliver to the trustee an officers'
certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by this "Restricted Payments"
covenant were computed, together with a copy of any fairness opinion or
appraisal required by the indenture. Accrual of interest, accretion or
amortization of original issue discount, the payment of interest on any
Indebtedness in the form of additional Indebtedness with the same terms and the
payment of dividends on Disqualified Stock in the form of additional shares of
the same class of Disqualified Stock will not be deemed to be a Restricted
Payment for purposes of this covenant; PROVIDED in each such case, that the
amount thereof is included in Fixed Charges of Holdings as accrued.
45
<PAGE>
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
Holdings will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise (collectively,
"incur"), with respect to any Indebtedness (including Acquired Debt), and
Holdings will not issue any Disqualified Stock and will not permit any of its
Restricted Subsidiaries to issue any shares of preferred stock; PROVIDED that
Holdings and any Restricted Subsidiary may incur Indebtedness (including
Acquired Debt), and Holdings may issue Disqualified Stock, if the Fixed Charge
Coverage Ratio for Holdings' most recently ended four full fiscal quarters for
which internal financial statements are available immediately preceding the date
on which such additional Indebtedness is incurred or such Disqualified Stock is
issued would have been at least 2.0 to 1, determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom), as if the
additional Indebtedness had been incurred, or the Disqualified Stock had been
issued, as the case may be, at the beginning of such four-quarter period.
The first paragraph of this covenant will not prohibit the incurrence of any
of the following items of Indebtedness (collectively, "Permitted Debt"):
(1) the incurrence by Holdings and any Restricted Subsidiary of Indebtedness
and letters of credit under our senior credit facility (with letters of
credit being deemed to have a principal amount equal to the maximum
potential liability of Holdings and its Restricted Subsidiaries
thereunder) in an aggregate principal amount at any one time not to
exceed $100.0 million less the aggregate amount of all Net Proceeds of
Asset Sales applied by Holdings or any of its Subsidiaries since the date
of the indenture to repay Indebtedness under our senior credit facility
pursuant to the covenant described above under the caption "--Repurchase
at the Option of Those Holding Notes--Asset Sales";
(2) the incurrence by Holdings and the Restricted Subsidiaries of
Indebtedness represented by the outstanding notes, Existing Indebtedness,
the exchange notes and the Subsidiary Guarantees thereof;
(3) the incurrence by Holdings or any of its Restricted Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case, incurred for the
purpose of financing all or any part of the purchase price or cost of
construction or improvement of property, plant or equipment used in the
business of Holdings or such Restricted Subsidiary, in an aggregate
principal amount not to exceed $5.0 million at any time outstanding;
(4) the incurrence by Holdings or any of its Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds
of which are used to refund, refinance or replace, Indebtedness (other
than intercompany Indebtedness) that was permitted by the indenture to be
incurred under the first paragraph of this covenant or clause (2) of this
paragraph;
(5) the incurrence by Holdings or any of its Restricted Subsidiaries of
intercompany Indebtedness between or among Holdings and any of its
Restricted Subsidiaries; provided that:
(a) if Holdings or any Guarantor is the obligor on such Indebtedness,
such Indebtedness must be expressly subordinated to the prior payment
in full in cash of all Obligations with respect to the Notes, in the
case of Holdings, or the Subsidiary Guarantee of such Guarantor, in
the case of a Guarantor; and
(b) (i) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other than
Holdings or a Restricted Subsidiary thereof and (ii) any sale or
other transfer of any such Indebtedness to a Person that is
46
<PAGE>
not either Holdings or a Restricted Subsidiary thereof; shall be
deemed, in each case, to constitute an incurrence of such
Indebtedness by Holdings or such Restricted Subsidiary, as the case
may be, that was not permitted by this clause (5);
(6) the incurrence by Holdings or any of its Restricted Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or
hedging interest rate risk with respect to any floating rate Indebtedness
that is permitted by the terms of the indenture to be outstanding or
foreign currency exchange rate risk;
(7) the guarantee by Holdings or any of the Restricted Subsidiaries of
Indebtedness of Holdings or a Restricted Subsidiary of Holdings that was
permitted to be incurred by another provision of this covenant;
(8) indebtedness incurred in respect of workers' compensation claims,
self-insurance obligations, performance, surety and similar bonds and
completion guarantees provided by Holdings or a Guarantor in the ordinary
course of business;
(9) Indebtedness arising from guarantees of Indebtedness of Holdings or any
Subsidiary or the agreements of Holdings or a Restricted Subsidiary
providing for indemnification, adjustment of purchase price or similar
obligations, in each case, incurred or assumed in connection with the
disposition of any business, assets or Capital Stock of a Restricted
Subsidiary, or other guarantees of Indebtedness incurred by any person
acquiring all or any portion of such business, assets or Capital Stock of
a Restricted Subsidiary for the purpose of financing such acquisition;
PROVIDED that the maximum aggregate liability in respect of all such
Indebtedness shall at no time exceed the gross proceeds actually received
by Holdings and its Restricted Subsidiaries in connection with such
disposition;
(10) Indebtedness of a Receivables Subsidiary that is non-recourse to
Holdings or any other Restricted Subsidiary of Holdings (other than
Standard Securitization Undertakings) incurred in connection with a
Qualified Receivables Transaction;
(11) the incurrence by Holdings or any of its Restricted Subsidiaries of
additional Indebtedness in an aggregate principal amount (or accreted
value, as applicable) at any time outstanding not to exceed $20.0
million; and
(12) the accrual of interest, accretion or amortization of original issue
discount, the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms, and the payment of dividends
on Disqualified Stock in the form of additional shares of the same class
of Disqualified Stock; PROVIDED in each such case, that the amount
thereof is included in Fixed Charges of Holdings as accrued.
For purposes of determining compliance with this "Incurrence of Indebtedness
and Issuance of Preferred Stock" covenant, in the event that an item of proposed
Indebtedness meets the criteria of more than one of the categories of Permitted
Debt described in clauses (1) through (12) above, or is entitled to be incurred
pursuant to the first paragraph of this covenant, Holdings will be permitted to
classify such item of Indebtedness on the date of its incurrence in any manner
that complies with this covenant.
NO SENIOR SUBORDINATED DEBT
Holdings will not incur, create, issue, assume, guarantee or otherwise
become liable for any Indebtedness that is subordinate or junior in right of
payment to any Senior Debt of Holdings and senior in any respect in right of
payment to the Notes. No Guarantor will incur, create, issue, assume, guarantee
or otherwise become liable for any Indebtedness that is subordinate or junior in
right of payment to any Senior Debt of such Guarantor and senior in any respect
in right of payment to such Guarantor's Subsidiary Guarantee.
47
<PAGE>
LIENS
Holdings will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create, incur, assume or suffer to exist any Lien of
any kind securing Indebtedness, Attributable Debt or trade payables on any asset
now owned or hereafter acquired, except Liens solely on the assets of
Unrestricted Subsidiaries and Permitted Liens, unless all payments due under the
indenture and the Notes are secured on an equal and ratable basis with the
Indebtedness so secured until such time as such is no longer secured by a Lien;
PROVIDED that if such Indebtedness is by its terms expressly subordinated to the
Notes or any Subsidiary Guarantee, the Lien securing such Indebtedness shall be
subordinate and junior to the Lien securing the Notes and the Subsidiary
Guarantees with the same relative priority as such subordinate or junior
Indebtedness shall have with respect to the Notes and the Subsidiary Guarantees.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
Holdings will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create or permit to exist or become effective any
encumbrance or restriction on the ability of any Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock to
Holdings or any of Holdings' Restricted Subsidiaries, or with respect to
any other interest or participation in, or measured by, its profits, or
pay any indebtedness owed to Holdings or any of Holdings' Restricted
Subsidiaries;
(2) make loans or advances to Holdings or any of Holdings' Restricted
Subsidiaries; or
(3) transfer any of its properties or assets to Holdings or any of Holdings'
Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) our senior credit facility and Existing Indebtedness, in each case, as
in effect on the date of the indenture and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements
or refinancings thereof, PROVIDED that such amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacement
or refinancings are no more restrictive, taken as a whole, with respect
to such dividend and other payment restrictions than those contained in
our senior credit facility or such Existing Indebtedness, as in effect on
the date of the indenture;
(2) the indenture, the outstanding notes and the exchange notes;
(3) applicable law;
(4) any instrument governing Indebtedness or Capital Stock of a Person
acquired by Holdings or any of its Restricted Subsidiaries as in effect
at the time of such acquisition (except to the extent such Indebtedness
was incurred in connection with or in contemplation of such acquisition),
which encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired; PROVIDED that, in the case
of Indebtedness, such Indebtedness was permitted by the terms of the
indenture to be incurred;
(5) customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices;
(6) purchase money obligations for property acquired in the ordinary course
of business that impose restrictions on the property so acquired of the
nature described in clause (3) of the preceding paragraph;
48
<PAGE>
(7) any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions by such Restricted Subsidiary
pending its sale or other disposition;
(8) Permitted Refinancing Indebtedness; PROVIDED that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being refinanced;
(9) Liens securing Indebtedness otherwise permitted to be incurred pursuant
to the provisions of the covenant described above under the caption
"--Liens" that limit the right of Holdings or any of its Restricted
Subsidiaries to dispose of the assets subject to such Lien;
(10) provisions with respect to the disposition or distribution of assets or
property in joint venture agreements and other similar agreements entered
into in the ordinary course of business;
(11) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of
business;
(12) any other security agreement, installment or document relating to
Senior Debt hereafter in effect; PROVIDED that such encumbrances or
restrictions are customary in connection with such documents and that the
terms and conditions of such encumbrances or restrictions are, in the
aggregate, no more restrictive or adverse to the holders of the Notes
than those encumbrances or restrictions imposed in connection with our
senior credit facility as in effect on February 10, 1999; and
(13) any agreement relating to a sale and leaseback transaction or Capital
Lease Obligation, in each case, otherwise permitted by the indenture, but
only on the property subject to such transaction or lease and only to the
extent that such restrictions or encumbrances are customary with respect
to a sale and leaseback transaction or capital lease.
MERGER, CONSOLIDATION, OR SALE OF ASSETS
Holdings may not, directly or indirectly:
(1) consolidate or merge with or into another Person (whether or not
Holdings is the surviving corporation); or
(2) sell, assign, lease, transfer, convey or otherwise dispose of all or
substantially all of Holdings' properties or assets (determined on a
consolidated basis for Holdings and its Restricted Subsidiaries), in one
or more related transactions, to another Person; unless:
(1) either: (a) Holdings is the surviving corporation; or (b) the Person
formed by or surviving any such consolidation or merger (if other
than Holdings) or to which such sale, assignment, transfer,
conveyance or other disposition shall have been made is a corporation
organized or existing under the laws of the United States, any state
thereof or the District of Columbia;
(2) the Person formed by or surviving any such consolidation or merger
(if other than Holdings) or the Person to which such sale,
assignment, transfer, conveyance or other disposition shall have been
made assumes all the obligations of Holdings under the Notes, the
indenture and the exchange and registration rights agreement pursuant
to agreements reasonably satisfactory to the trustee;
(3) immediately after such transaction no Default or Event of Default
exists (including, without limitation, after giving effect to any
Liens incurred, assumed or granted in connection with or in respect
of such transaction); and
49
<PAGE>
(4) Holdings or the Person formed by or surviving any such consolidation
or merger (if other than Holdings):
(a) will have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth
of Holdings immediately preceding the transaction; and
(b) will, on the date of such transaction after giving pro forma
effect thereto and any related financing transactions as if the
same had occurred at the beginning of the applicable four-quarter
period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of the covenant described above
under the caption "--Incurrence of Indebtedness and Issuance of
Preferred Stock."
This "Merger, Consolidation, or Sale of Assets" covenant will not apply to a
sale, assignment, transfer, conveyance or other disposition of assets between or
among Holdings and any of its Wholly Owned Subsidiaries, and Holdings may merge
with an Affiliate incorporated or organized solely for the purpose of
reincorporating or reorganizing Holdings in another jurisdiction to realize tax
or other benefits without complying with the provisions of clauses (3) or (4)
above.
TRANSACTIONS WITH AFFILIATES
Holdings will not, and will not permit any of its Restricted Subsidiaries
to, make any payment to, or sell, lease, transfer or otherwise dispose of any of
its properties or assets to, or purchase any property or assets from, or enter
into or make or amend any transaction, contract, agreement, understanding, loan,
advance or guarantee with, or for the benefit of, any Affiliate, unless:
(1) such affiliate transaction is on terms that are no less favorable to
Holdings or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction by Holdings or such Restricted
Subsidiary with an unrelated Person; and
(2) Holdings delivers to the trustee:
(a) with respect to any affiliate transaction or series of related
affiliate transactions involving aggregate consideration in excess of
$1.0 million, a resolution of the Board of Directors set forth in an
officers' certificate certifying that such affiliate transaction
complies with this covenant and that such affiliate transaction has
been approved by a majority of the disinterested members of the Board
of Directors; and
(b) with respect to any affiliate transaction or series of related
affiliate transactions involving aggregate consideration in excess of
$5.0 million, an opinion as to the fairness to the Holders of such
affiliate transaction from a financial point of view issued by an
accounting, appraisal or investment banking firm of national
standing.
The following items shall not be deemed to be affiliate transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) any employment agreement entered into by Holdings or any of its
Restricted Subsidiaries in the ordinary course of business and consistent
with the past practice of Holdings or such Restricted Subsidiary;
(2) transactions between or among Holdings and/or its Restricted
Subsidiaries;
(3) any sale or other issuance of Equity Interests (other than Disqualified
Stock of Holdings)
(4) Restricted Payments and Permitted Investments that are permitted by the
provisions of the indenture described above under the caption
"--Restricted Payments";
50
<PAGE>
(5) the payment of fees and expenses to Vestar Capital Partners or any of
its Affiliates (i) pursuant to the management agreement dated July 23,
1997 between Holdings and Vestar as in effect on February 10, 1999; (ii)
pursuant to any amended, supplemented or replacement management
agreement; PROVIDED that the terms of any such amended, supplemented or
replacement management agreement are not, with respect to the payment of
fees and expenses to Vestar and its Affiliates, more favorable to Vestar
or any of its Affiliates than the existing management agreement; and
(iii) consisting of advisory, investment banking or similar fees in
connection with acquisitions or other corporate transactions in an amount
not to exceed 1.0% of the value of any such transaction; and
(6) the payment by Holdings or any Restricted Subsidiary of amounts pursuant
to the Buonanno Agreement as in effect on February 10, 1999.
ADDITIONAL SUBSIDIARY GUARANTEES
If Holdings or any of its Restricted Subsidiaries transfers or causes to be
transferred, in one transaction or a series of related transactions, any
property or assets in excess of $500,000 to any domestic Restricted Subsidiary
that is not a Guarantor, or if Holdings or any of its Restricted Subsidiaries
acquires or creates another domestic Restricted Subsidiary after the date of the
indenture with a book value in excess of $500,000, then that newly acquired or
created domestic Restricted Subsidiary must become a Guarantor and shall:
- execute and deliver to the trustee a supplemental indenture in form
reasonably satisfactory to the trustee pursuant to which such Restricted
Subsidiary shall unconditionally guarantee all of Holdings' obligations
under the Notes and the indenture on the terms set forth in the indenture
and
- deliver to the trustee an opinion of counsel that such supplemental
indenture has been duly authorized, executed and delivered by such
Restricted Subsidiary and constitutes a legal, valid, binding and
enforceable obligation of such Restricted Subsidiary, subject to normal
exceptions. Thereafter, such Restricted Subsidiary shall be a Guarantor
for all purposes of the indenture.
DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if that designation would not cause a Default. If a
Restricted Subsidiary is designated as an Unrestricted Subsidiary, all
outstanding Investments owned by Holdings and its Restricted Subsidiaries in the
Subsidiary so designated will be deemed to be an Investment made as of the time
of such designation and will reduce the amount available for Restricted Payments
under the first paragraph of the covenant described above under the caption
"--Restricted Payments" or Permitted Investments, as applicable. All such
outstanding Investments will be valued at the fair market value at the time of
such designation. That designation will only be permitted if such Restricted
Payment would be permitted at that time and if such Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary. The Board of
Directors may redesignate any Unrestricted Subsidiary to be a Restricted
Subsidiary if the redesignation would not cause a Default.
SALE AND LEASEBACK TRANSACTIONS
Holdings will not, and will not permit any of its Restricted Subsidiaries
to, enter into any sale and leaseback transaction; PROVIDED that Holdings or any
Restricted Subsidiary of Holdings that is a Guarantor may enter into a sale and
leaseback transaction if:
51
<PAGE>
(1) Holdings or that Guarantor, as applicable, could have (a) incurred
Indebtedness in an amount equal to the Attributable Debt relating to such
sale and leaseback transaction under the Fixed Charge Coverage Ratio test
in the first paragraph of the covenant described above under the caption
"--Incurrence of Indebtedness and Issuance of Preferred Stock" and (b)
incurred a Lien to secure such Indebtedness pursuant to the covenant
described above under the caption "--Liens";
(2) the gross cash proceeds of that sale and leaseback transaction are at
least equal to the fair market value, as determined in good faith by the
Board of Directors and set forth in an officers' certificate delivered to
the trustee, of the property that is the subject of such sale and
leaseback transaction; and
(3) the transfer of assets in that sale and leaseback transaction is
permitted by, and Holdings applies the proceeds of such transaction in
compliance with, the covenant described above under the caption
"--Repurchase at the Option of Those Holding Notes--Asset Sales."
ISSUANCES AND SALES OF EQUITY INTERESTS IN WHOLLY OWNED SUBSIDIARIES
Holdings will not, and will not permit any of its Restricted Subsidiaries
to, transfer, convey, sell, lease or otherwise dispose of any Equity Interests
in any Wholly Owned Restricted Subsidiary of Holdings to any Person (other than
Holdings or a Wholly Owned Restricted Subsidiary of Holdings), unless the cash
Net Proceeds from such transfer, conveyance, sale, lease or other disposition
are applied in accordance with the covenant described above under the caption
"--Repurchase at the Option of Those Holding Notes--Asset Sales."
ISSUANCES OF GUARANTEES OF INDEBTEDNESS
Holdings will not permit any of its Restricted Subsidiaries, directly or
indirectly, to Guarantee or pledge any assets to secure the payment of any other
Indebtedness of Holdings unless such Restricted Subsidiary simultaneously
executes and delivers a supplemental indenture providing for the Guarantee of
the payment of the Notes by such Restricted Subsidiary, which Guarantee shall be
senior to or PARI PASSU with such Restricted Subsidiary's Guarantee of or pledge
to secure such other Indebtedness, unless such other Indebtedness is Senior
Debt, in which case the Guarantee of the Notes may be subordinated to the
Guarantee of such Senior Debt to the same extent as the Notes are subordinated
to such Senior Debt.
Notwithstanding the preceding paragraph, any Subsidiary Guarantee of the
Notes will provide by its terms that it will be automatically and
unconditionally released and discharged under the circumstances described above
under the caption "--Additional Subsidiary Guarantees." The form of the
Subsidiary Guarantee will be attached as an exhibit to the indenture.
BUSINESS ACTIVITIES
Holdings will not, and will not permit any Restricted Subsidiary to, engage
in any business other than Permitted Businesses, except to the extent that any
such business would not be material to Holdings and its Subsidiaries, taken as a
whole.
PAYMENTS FOR CONSENT
Holdings will not, and will not permit any of its Subsidiaries to, directly
or indirectly, pay or cause to be paid any consideration to or for the benefit
of any Holder of Notes for or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of the indenture or the Notes UNLESS
such consideration is offered to be paid and is paid to all Holders of the Notes
52
<PAGE>
that consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
REPORTS
Whether or not required by the Securities and Exchange Commission, so long
as any Notes are outstanding, Holdings will furnish to the Holders of Notes,
within the time periods specified in the Securities and Exchange Commission's
rules and regulations:
(1) all quarterly and annual financial information that would be required to
be contained in a filing with the Securities and Exchange Commission on
Forms 10-Q and 10-K if Holdings were required to file these Forms,
including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and, with respect to the annual information
only, a report on the annual financial statements by Holdings' certified
independent accountants; and
(2) all current reports that would be required to be filed with the
Securities and Exchange Commission on Form 8-K if Holdings were required
to file these reports.
In addition, whether or not required by the Securities and Exchange
Commission, Holdings will file a copy of all of the information and reports
referred to in clauses (1) and (2) above with the Securities and Exchange
Commission for public availability within the time periods specified in the
Securities and Exchange Commission's rules and regulations (unless the
Securities and Exchange Commission will not accept the filing) and make such
information available to securities analysts and prospective investors upon
request.
These reporting obligations will not apply so long as Holdings is in
compliance with its obligations set forth under "--Registration Covenant;
Exchange Offer," and the exchange offer registration statement contains all of
the financial and other information otherwise required by Forms 10-K and 10-Q
for the year ended December 31, 1998 and the three months ending March 31, 1999,
respectively, Holdings shall not be required to file with the Commission or
otherwise provide an annual report on Form 10-K or a quarterly report on Form
10-Q for the year ended December 31, 1998 or the quarter ending March 31, 1999,
respectively.
EVENTS OF DEFAULT AND REMEDIES
Each of the following is an Event of Default:
(1) default for a continued period of 30 days in the payment when due of
interest on the Notes, whether or not prohibited by the subordination
provisions of the indenture;
(2) default in payment when due of the principal of or premium, if any, on
the Notes, whether or not prohibited by the subordination provisions of
the indenture;
(3) failure by Holdings or any of its Subsidiaries to comply with the
provisions described under the captions "--Repurchase at the Option of
Those Holding Notes--Change of Control" or "--Asset Sales";
(4) failure by Holdings or any of its Restricted Subsidiaries for 30 days
after notice to comply with any of the other agreements in the indenture;
(5) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by Holdings or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by Holdings or any of
its Restricted Subsidiaries) whether such Indebtedness or guarantee now
exists, or is created after the date of the indenture, if that default:
53
<PAGE>
(a) is caused by a failure to pay principal of or premium, if any, or
interest on such Indebtedness at final maturity; or
(b) results in the acceleration of such Indebtedness prior to its express
maturity,
and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under
which there has been a default described in paragraph (a) above or the
maturity of which has been so accelerated, aggregates $5.0 million or
more;
(6) failure by Holdings or any of its Restricted Subsidiaries to pay final
judgments aggregating in excess of $5.0 million, which judgments are not
paid, discharged or stayed for a period of 60 days;
(7) except as permitted by the indenture, any Guarantor's Guarantee shall be
held in any judicial proceeding to be unenforceable or invalid or shall
cease for any reason to be in full force and effect or any Guarantor, or
any Person acting on behalf of any Guarantor, shall deny or disaffirm its
obligations under its Guarantee; and
(8) certain events of bankruptcy or insolvency with respect to Holdings or
any of its Restricted Subsidiaries.
In the case of an Event of Default arising from certain events of bankruptcy
or insolvency, with respect to Holdings, any Restricted Subsidiary that is a
Significant Subsidiary or any group of Restricted Subsidiaries that, taken
together, would constitute a Significant Subsidiary, all outstanding notes will
become due and payable immediately without further action or notice. If any
other Event of Default occurs and is continuing, the trustee or the Holders of
at least 25% in principal amount of the then outstanding notes may declare all
the Notes to be due and payable immediately.
Holders of the Notes may not enforce the indenture or the Notes except as
provided in the indenture. Subject to certain limitations, Holders of a majority
in principal amount of the then outstanding notes may direct the trustee in its
exercise of any trust or power. The trustee may withhold from Holders of the
Notes notice of any continuing Default or Event of Default (except a Default or
Event of Default relating to the payment of principal or interest) if it
determines that withholding notice is in their interest.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes.
Holdings is required to deliver to the trustee annually a statement
regarding compliance with the indenture. Upon becoming aware of any Default or
Event of Default, Holdings is required to deliver to the trustee a statement
specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of Holdings or
any Guarantor, as such, shall have any liability for any obligations of Holdings
or the Guarantors under the Notes, the indenture, the Guarantors' Guarantees or
for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each Holder of Notes by accepting a Note waives and releases all
such liability. The waiver and release are part of the consideration for
issuance of the Notes. The waiver may not be effective to waive liabilities
under the federal securities laws.
54
<PAGE>
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Holdings may, at its option and at any time, elect to have all of its
obligations discharged with respect to the Notes and all obligations of the
Guarantors discharged with respect to their Guarantees ("Legal Defeasance")
except for:
(1) the rights of Holders of outstanding notes to receive payments in
respect of the principal of, premium, if any, and interest on such Notes
when such payments are due from the trust referred to below;
(2) Holdings' obligations with respect to the Notes concerning issuing
temporary Notes, registration of Notes, mutilated, destroyed, lost or
stolen Notes and the maintenance of an office or agency for payment and
money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the trustee, and
Holdings' obligations in connection therewith; and
(4) the Legal Defeasance provisions of the indenture.
In addition, Holdings may, at its option and at any time, elect to have the
obligations of Holdings and the Guarantors released with respect to certain
covenants that are described in the indenture and thereafter any omission to
comply with those covenants shall not constitute a Default or Event of Default
with respect to the Notes. In the event covenant defeasance occurs, certain
events (not including non-payment, bankruptcy, receivership, rehabilitation and
insolvency events) described under "Events of Default" will no longer constitute
an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or covenant defeasance:
(1) Holdings must irrevocably deposit with the trustee, in trust, for the
benefit of the Holders of the Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will
be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if any,
and interest on the Notes on the stated maturity or on the applicable
redemption date, as the case may be, and Holdings must specify whether
the Notes are being defeased to maturity or to a particular redemption
date;
(2) in the case of Legal Defeasance, Holdings shall have delivered to the
trustee an Opinion of Counsel reasonably acceptable to the trustee
confirming that (a) Holdings has received from, or there has been
published by, the Internal Revenue Service a ruling or (b) since the date
of the indenture, there has been a change in the applicable federal
income tax law, in either case to the effect that, and based thereon such
opinion of counsel shall confirm that, the Holders of the outstanding
notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Legal Defeasance had not
occurred;
(3) in the case of covenant defeasance, Holdings shall have delivered to the
trustee an opinion of counsel reasonably acceptable to the trustee
confirming that the Holders of the outstanding notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
covenant defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such covenant defeasance had not occurred;
55
<PAGE>
(4) no Default or Event of Default shall have occurred and be continuing on
the date of such deposit (other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such deposit);
(5) such Legal Defeasance or covenant defeasance will not result in a breach
or violation of, or constitute a default under any material agreement or
instrument (other than the indenture) to which Holdings or any of its
Restricted Subsidiaries is a party or by which Holdings or any of its
Restricted Subsidiaries is bound;
(6) Holdings must have delivered to the trustee an opinion of counsel to the
effect that after the 91st day following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally;
(7) Holdings must deliver to the trustee an officers' certificate stating
that the deposit was not made by Holdings with the intent of preferring
the Holders of Notes over the other creditors of Holdings with the intent
of defeating, hindering, delaying or defrauding creditors of Holdings or
others; and
(8) Holdings must deliver to the trustee an officers' certificate stating
that all conditions precedent relating to the Legal Defeasance or the
covenant defeasance have been complied with.
AMENDMENT, SUPPLEMENT AND WAIVER
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder):
(1) reduce the principal amount of Notes whose Holders must consent to an
amendment, supplement or waiver;
(2) reduce the principal of or change or have the effect of changing the
fixed maturity of any Note or alter the provisions with respect to the
redemption of the Notes (other than provisions relating to the covenants
described above under the caption "--Repurchase at the Option of Those
Holding Notes");
(3) reduce the rate of or change the time for payment of interest on any
Note;
(4) waive a Default or Event of Default in the payment of principal of or
premium, if any, or interest on the Notes (except a rescission of
acceleration of the Notes by the Holders of at least a majority in
aggregate principal amount of the Notes and a waiver of the payment
default that resulted from such acceleration);
(5) make any Note payable in money other than that stated in the Notes;
(6) make any change in the provisions of the indenture relating to waivers
of past Defaults or the rights of Holders of Notes to receive payments of
principal of or premium, if any, or interest on the Notes;
(7) waive a redemption payment with respect to any Note (other than a
payment required by one of the covenants described above under the
caption "--Repurchase at the Option of Those Holding Notes");
(8) amend, change or modify in any material respect the obligation of
Holdings to make and consummate a change of control offer in the event of
a Change of Control or make and consummate an asset sale offer with
respect to any Asset Sale that has been consummated or modify any of the
provisions or definitions with respect thereto;
56
<PAGE>
(9) release any Guarantor from any of its obligations under its Guarantee or
the indenture otherwise than in accordance with the terms of the
indenture; or
(10) make any change in the preceding amendment and waiver provisions.
In addition, any amendment to, or waiver of, the provisions of the indenture
relating to subordination (including the related definitions) that adversely
affects the rights of the Holders of the Notes will require the consent of the
Holders of at least 75% in aggregate principal amount of Notes then outstanding.
Notwithstanding the preceding, without the consent of any Holder of Notes,
Holdings and the trustee may amend or supplement the indenture or the Notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated Notes in addition to or in place of
certificated Notes;
(3) to provide for the assumption of Holdings' obligations to Holders of
Notes in the case of a merger or consolidation or sale of all or
substantially all of Holdings' assets;
(4) to make any change that would provide any additional rights or benefits
to the Holders of Notes or that does not adversely affect the legal
rights under the indenture of any such Holder; or
(5) to comply with requirements of the Commission in order to effect or
maintain the qualification of the indenture under the Trust Indenture
Act.
GOVERNING LAW
The indenture, the Notes and the Guarantors' Guarantees will be governed by
the laws of the State of New York.
CONCERNING THE TRUSTEE
If the trustee becomes a creditor of Holdings or any Guarantor, the
indenture limits its right to obtain payment of claims in certain cases, or to
realize on certain property received in respect of any such claim as security or
otherwise. The trustee will be permitted to engage in other transactions;
however, if it acquires any conflicting interest it must eliminate such conflict
within 90 days, apply to the Securities and Exchange Commission for permission
to continue or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to
certain exceptions. The indenture provides that in case an Event of Default
shall occur and be continuing, the trustee will be required, in the exercise of
its power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the trustee will be under no obligation to
exercise any of its rights or powers under the indenture at the request of any
Holder of Notes, unless such Holder shall have offered to the trustee security
and indemnity satisfactory to it against any loss, liability or expense.
CERTAIN DEFINITIONS
"ACQUIRED DEBT" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other Person
is merged with or into or became a Restricted Subsidiary of such
specified Person, whether or not such Indebtedness is incurred in
connection with, or in contemplation of, such other Person merging with
or into, or becoming a Restricted Subsidiary of, such specified Person;
and
(2) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
57
<PAGE>
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; PROVIDED that beneficial ownership of 10% or more of the
Voting Stock of a Person shall be deemed to be control. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" shall have correlative meanings.
"ASSET SALE" means:
(1) the sale, lease, conveyance or other disposition of any property, assets
or rights, other than sales or leases of inventory in the ordinary course
of business consistent with past practices; PROVIDED that the sale,
lease, conveyance or other disposition of all or substantially all of the
assets of Holdings and its Restricted Subsidiaries taken as a whole will
be governed by the provisions of the indenture described above under the
caption "--Repurchase at the Option of Those Holding Notes--Change of
Control" and/or the provisions described above under the caption
"--Certain Covenants--Merger, Consolidation, or Sale of Assets" and not
by the provisions of the Asset Sale covenant; and
(2) the issuance of Equity Interests by any of Holdings' Restricted
Subsidiaries or the sale of Equity Interests in any of its Subsidiaries,
Notwithstanding the preceding, the following items shall not be deemed to be
Asset Sales:
(1) any single transaction or series of related transactions that involves
assets having a fair market value of less than $2.0 million in any
consecutive 12-month period;
(2) a transfer of assets between or among Holdings and its Wholly Owned
Restricted Subsidiaries;
(3) an issuance of Equity Interests by a Wholly Owned Restricted Subsidiary
to Holdings or to another Wholly Owned Restricted Subsidiary;
(4) disposals or replacements of obsolete equipment or Cash Equivalents in
the ordinary course of business;
(5) a Restricted Payment or a Permitted Investment that is permitted by the
covenant described above under the caption "--Certain
Covenants--Restricted Payments"; and
(6) any sale of accounts receivable, or participations therein, in
connection with any Qualified Receivables Transaction.
"ATTRIBUTABLE DEBT" in respect of a sale and leaseback transaction means, at
the time of determination, the present value of the obligation of the lessee for
net rental payments during the remaining term of the lease included in such sale
and leaseback transaction including any period for which such lease has been
extended or may, at the option of the lessor, be extended. Such present value
shall be calculated using a discount rate equal to the rate of interest implicit
in such transaction, determined in accordance with GAAP.
"BENEFICIAL OWNER" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular person (as such term is used in Section 13(d)(3) of
the Exchange Act), such person shall be deemed to have beneficial ownership of
all securities that such person has the right to acquire, whether such right is
currently exercisable or is exercisable only upon the occurrence of a subsequent
condition.
58
<PAGE>
"BUONANNO AGREEMENT" means a consulting, advisory or similar agreement to be
entered into between Holdings and Vincent J. Buonanno providing for payments of
fees in an aggregate amount not to exceed $1.0 million, plus expense
reimbursement.
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at that time be required to be capitalized on a balance sheet in accordance with
GAAP.
"CAPITAL STOCK" means:
(1) in the case of a corporation, all corporate stock (however designated);
(2) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however
designated) of corporate stock;
(3) in the case of a partnership or limited liability company, partnership
or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a Person the right
to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"CASH EQUIVALENTS" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality thereof
(provided that the full faith and credit of the United States is pledged
in support thereof) having maturities of not more than twelve months from
the date of acquisition;
(3) certificates of deposit and eurodollar time deposits with maturities of
six months or less from the date of acquisition, bankers' acceptances
with maturities not exceeding six months and overnight bank deposits, in
each case, with any domestic commercial bank having capital and surplus
in excess of $500 million and a Thompson Bank Watch Rating of "B" or
better;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3) above
entered into with any financial institution meeting the qualifications
specified in clause (3) above;
(5) commercial paper and other securities having the highest rating
obtainable from Moody's Investors Service, Inc. or Standard & Poor's
Corporation and in each case maturing within twelve months after the date
of acquisition; and
(6) money market funds at least 95% of the assets of which constitute Cash
Equivalents of the kinds described in clauses (1) through (5) of this
definition.
"CHANGE OF CONTROL" means the occurrence of any of the following:
(1) the sale, transfer, conveyance or other disposition (other than by way
of merger or consolidation), in one or a series of related transactions,
of all or substantially all of the assets of Holdings and its Restricted
Subsidiaries taken as a whole to any person (as such term is used in
Section 13(d)(3) of the Exchange Act) other than a Principal;
(2) the adoption of a plan relating to the liquidation or dissolution of
Holdings;
(3) the consummation of any transaction (including, without limitation, any
merger or consolidation) the result of which is that any person (as
defined above), other than the Principals, becomes the Beneficial Owner,
directly or indirectly, of more than (a) 50% of the
59
<PAGE>
Voting Stock of Holdings or (b) 35% of the Voting Stock of Holdings and
such Person Beneficially Owns a greater percentage of the Voting Stock of
Holdings than the Principals, in either case (a) or (b), measured by
voting power rather than number of shares;
(4) the first day on which a majority of the members of the Board of
Directors of Holdings are not Continuing Directors; or
(5) Holdings consolidates with, or merges with or into, any Person, or any
Person consolidates with, or merges with or into, Holdings, in any such
event pursuant to a transaction in which any of the outstanding Voting
Stock of Holdings is converted into or exchanged for cash, securities or
other property, other than any such transaction where the Voting Stock of
Holdings outstanding immediately prior to such transaction is converted
into or exchanged for Voting Stock (other than Disqualified Stock) of the
surviving or transferee Person constituting a majority of the outstanding
shares of such Voting Stock of such surviving or transferee Person
immediately after giving effect to such issuance.
"CONSOLIDATED CASH FLOW" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period PLUS:
(1) an amount equal to any extraordinary loss plus any net loss realized in
connection with an Asset Sale, to the extent such losses were deducted in
computing such Consolidated Net Income; PLUS
(2) provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, to the extent that such
provision for taxes was deducted in computing such Consolidated Net
Income; PLUS
(3) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt issuance
costs and original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease Obligations,
interest on guaranteed indebtedness, commissions, discounts and other
fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments, if any, pursuant to Hedging
Obligations), to the extent that any such expense was deducted in
computing such Consolidated Net Income; PLUS
(4) fees and expenses paid to Vestar or any of its Affiliates pursuant to
the management agreement dated July 23, 1997 between Holdings and Vestar
during such period in an aggregate amount not to exceed $1.0 million;
PLUS
(5) charges classified and reflected as non-recurring on February 10, 1999
and for any other such period, in each case, on Holdings' consolidated
financial statements prepared in accordance with GAAP; PLUS
(6) amounts paid pursuant to the Buonanno Agreement (to the extent not
already included in (7) below) during such period; PLUS
(7) depreciation, amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses that were
paid in a prior period) and other non-cash expenses (excluding any such
non-cash expense to the extent that it represents an accrual of or
reserve for cash expenses in any future period or amortization of a
prepaid cash expense that was paid in a prior period) of such Person and
its Restricted Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash expenses were deducted in
computing such Consolidated Net Income; MINUS
60
<PAGE>
(8) non-cash items increasing such Consolidated Net Income for such period,
other than items that were accrued in the ordinary course of business, in
each case, on a consolidated basis and determined in accordance with
GAAP.
Notwithstanding the preceding, the provision for taxes based on the income or
profits of, and the depreciation and amortization and other non-cash charges of,
a Restricted Subsidiary of Holdings shall be added to Consolidated Net Income to
compute Consolidated Cash Flow of Holdings only to the extent that a
corresponding amount would be permitted at the date of determination to be
dividended to Holdings by such Restricted Subsidiary without prior approval
(that has not been obtained), pursuant to the terms of its charter and all
agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that Subsidiary or its stockholders.
"CONSOLIDATED NET INCOME" means, with respect to any specified Person for
any period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; PROVIDED that:
(1) the Net Income (but not loss) of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of accounting
shall be included only to the extent of the amount of dividends or
distributions received in cash by the specified Person or a Restricted
Subsidiary thereof; PROVIDED that if such Restricted Subsidiary is not a
Guarantor, the amount of such dividends or distributions includable in
Consolidated Net Income shall be limited to Holdings' direct and indirect
pro rata portion of the outstanding Equity Interests in such Restricted
Subsidiary;
(2) the Net Income of any Restricted Subsidiary shall be excluded to the
extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at
the date of determination permitted without any prior governmental
approval (that has not been obtained) or, directly or indirectly, by
operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary or its stockholders;
(3) 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;
(4) the cumulative effect of a change in accounting principles shall be
excluded;
(5) any restoration to income of any contingency reserve of an
extraordinary, non-recurring or unusual nature shall be excluded, except
to the extent that provision for such reserve was made out of
Consolidated Net Income accrued in any period for which Consolidated Net
Income is required to be calculated for purposes of the indenture; and
(6) for purposes of the "Restricted Payments" covenant, in the case of a
successor to the specified Person by consolidation or merger or as a
transferee of the specified Person's assets, any earnings of the
successor corporation prior to such consolidation, merger or transfer of
assets shall be excluded.
"CONSOLIDATED NET WORTH" means, with respect to any Person as of any date,
the sum of:
(1) the consolidated equity of the common stockholders of such Person and
its consolidated Subsidiaries as of such date; PLUS
(2) the respective amounts reported on such Person's balance sheet as of
such date with respect to any series of preferred stock (other than
Disqualified Stock) that by its terms is not entitled to the payment of
dividends unless such dividends may be declared and paid
61
<PAGE>
only out of net earnings in respect of the year of such declaration and
payment, but only to the extent of any cash received by such Person upon
issuance of such preferred stock.
"CONTINUING DIRECTORS" means, as of any date of determination, any member of
the Board of Directors of Holdings who:
(1) was a member of such Board of Directors on the date of the indenture; or
(2) was nominated for election or elected to such Board of Directors with
the approval of a majority of the Continuing Directors who were members
of such Board at the time of such nomination or election.
"DEFAULT" means any event that is, or with the passage of time or the giving
of notice or both would be, an Event of Default.
"DESIGNATED SENIOR DEBT" means (1) the Obligations of Holdings under our
senior credit facility and (2) any other Senior Debt permitted under the
indenture (a) the principal amount of which is $25.0 million or more and (b)
that has been designated by Holdings as "Designated Senior Debt."
"DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, on or prior to the date that is 91 days after the
date on which the Notes mature. Notwithstanding the preceding sentence, any
Capital Stock that would constitute Disqualified Stock solely because the
holders thereof have the right to require Holdings to repurchase such Capital
Stock upon the occurrence of a change of control or an asset sale shall not
constitute Disqualified Stock if the terms of such Capital Stock provide that
Holdings may not repurchase or redeem any such Capital Stock pursuant to such
provisions unless such repurchase or redemption complies with the covenant
described above under the caption "--Certain Covenants--Restricted Payments."
"EQUITY INTERESTS" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"EXISTING INDEBTEDNESS" means the Obligations of Holdings and its Restricted
Subsidiaries in existence on the date of the indenture (including amounts
outstanding under our senior credit facility on such date), until such amounts
are repaid.
"FIXED CHARGES" means, with respect to any Person for any period, the sum,
without duplication, of:
(1) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued, including, without
limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any
deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, imputed interest with respect
to Attributable Debt, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance
financings, and net payments, if any, pursuant to Hedging Obligations;
PLUS
(2) the consolidated interest of such Person and its Restricted Subsidiaries
that was capitalized during such period (other than Capital Lease
Obligations); PLUS
(3) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or
secured by a Lien on assets of such Person or one of its Restricted
Subsidiaries, whether or not such Guarantee or Lien is called upon; PLUS
62
<PAGE>
(4) the product of (a) all dividend payments, whether or not in cash, on any
series of Disqualified Stock of such Person and on any series of
preferred stock of any of its Restricted Subsidiaries, other than
dividend payments on Equity Interests payable solely in Equity Interests
of Holdings (other than Disqualified Stock) or payable to Holdings or a
Restricted Subsidiary of Holdings, times (b) a fraction, the numerator of
which is one and the denominator of which is one minus the then current
combined federal, state and local statutory tax rate of such Person,
expressed as a decimal, in each case, on a consolidated basis and in
accordance with GAAP.
"FIXED CHARGE COVERAGE RATIO" means with respect to any specified Person for
any period, the ratio of the Consolidated Cash Flow of such Person for such
period to the Fixed Charges of such Person for such period. In the event that
the specified Person or any of its Restricted Subsidiaries incurs, assumes,
Guarantees, redeems or repays any Indebtedness (other than revolving credit
borrowings) or issues or redeems preferred stock subsequent to the commencement
of the period for which the Fixed Charge Coverage Ratio is being calculated but
prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, Guarantee, redemption or repayment of Indebtedness, or such issuance
or redemption of preferred stock, as if the same had occurred at the beginning
of the applicable four-quarter reference period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) acquisitions that have been made by the specified Person or any of its
Restricted Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or prior
to the Calculation Date shall be deemed to have occurred on the first day
of the four-quarter reference period and Consolidated Cash Flow for such
reference period shall be calculated without giving effect to clause (3)
of the proviso set forth in the definition of Consolidated Net Income
(including any pro forma expense and cost reductions attributable to the
assets acquired calculated on a basis consistent with the standard set
forth in Regulation S-X under the Act as in effect on the date of the
indenture);
(2) the Consolidated Cash Flow attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed
of prior to the Calculation Date, shall be excluded; and
(3) the Fixed Charges attributable to discontinued operations, as determined
in accordance with GAAP, and operations or businesses disposed of prior
to the Calculation Date, shall be excluded, but only to the extent that
the obligations giving rise to such Fixed Charges will not be obligations
of the specified Person or any of its Restricted Subsidiaries following
the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the indenture; PROVIDED that all
reports and other financial information provided by Holdings to the holders of
the Notes, the trustee and/or the Commission shall be prepared in accordance
with GAAP, as in effect on the date of such report or other financial
information.
63
<PAGE>
"GOVERNMENT SECURITIES" means direct obligations of, or obligations
guaranteed by, the United States of America, and the payment for which the
United States pledges its full faith and credit.
"GUARANTEE" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness.
"GUARANTORS" means each of:
(1) Russell-Stanley Corp., Container Management Services, Inc., New England
Container Co., Inc., Russell-Stanley, Inc., RSLPCO, Inc. and
Russell-Stanley, L.P.; and
(2) any other subsidiary that executes a Guarantee in accordance with the
provisions of the indenture;
and their respective successors and assigns.
"HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of
such Person under:
(1) interest rate swap agreements, interest rate cap agreements and interest
rate collar agreements;
(2) and other agreements or arrangements designed to protect such Person
against fluctuations in interest rates or foreign currency exchange
rates.
"HOLDER" means a Person in whose name a Note is registered.
"INDEBTEDNESS" means, with respect to any specified Person, any indebtedness
of such Person, whether or not contingent:
(1) in respect of borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or letters
of credit (or reimbursement agreements in respect thereof);
(3) in respect of banker's acceptances;
(4) representing Capital Lease Obligations;
(5) representing the balance deferred and unpaid of the purchase price of
any property, except any such balance that constitutes an accrued expense
or trade payable;
(6) representing any Hedging Obligations; or
(7) representing any Disqualified Stock of such Person and any preferred
stock issued by a Restricted Subsidiary of such Person,
if and to the extent any of the preceding items (other than letters of credit,
Hedging Obligations, Disqualified Stock and preferred stock of a Restricted
Subsidiary) would appear as a liability upon a balance sheet of the specified
Person prepared in accordance with GAAP. In addition, the term "Indebtedness"
includes (a) all Indebtedness of others secured by a Lien on any asset of the
specified Person (whether or not such Indebtedness is assumed by the specified
Person), and (b) to the extent not otherwise included, the Guarantee by such
Person of any indebtedness of any other Person.
64
<PAGE>
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any Indebtedness issued with
original issue discount;
(2) the maximum fixed redemption or repurchase price, in the case of
Disqualified Stock of such Person;
(3) the maximum voluntary or involuntary liquidation preferences plus
accrued and unpaid dividends, in the case of preferred stock of a
Restricted Subsidiary of such Person; and
(4) the principal amount thereof, together with any interest thereon that is
more than 30 days past due, in the case of any other Indebtedness.
"INVESTMENTS" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions, purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities, together
with all items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP. If Holdings or any Restricted Subsidiary of
Holdings sells or otherwise disposes of any Equity Interests of any direct or
indirect Restricted Subsidiary of Holdings such that, after giving effect to any
such sale or disposition, such Person is no longer a Restricted Subsidiary of
Holdings, Holdings shall be deemed to have made an Investment on the date of any
such sale or disposition equal to the fair market value of the Equity Interests
of such Restricted Subsidiary not sold or disposed of in an amount determined as
provided in the final paragraph of the covenant described above under the
caption "Certain Covenants--Restricted Payments."
"LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law, including
any conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell or give a security interest in
and any filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction.
"NET INCOME" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends and Disqualified Stock dividends,
excluding, however:
(1) any gain or loss, together with any related provision for taxes on such
gain or loss, realized in connection with: (a) any Asset Sale; or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or
any of its Restricted Subsidiaries; and
(2) any extraordinary gain (but not loss), together with any related
provision for taxes on such extraordinary gain.
"NET PROCEEDS" means the aggregate cash proceeds received by Holdings or any
of its Restricted Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale), net of the direct costs relating to
such Asset Sale, including, without limitation, legal, accounting and investment
banking fees, and sales commissions, and any relocation expenses incurred as a
result thereof, taxes paid or payable as a result thereof, in each case after
taking into account any available tax credits or deductions and any tax sharing
arrangements and amounts required to be applied to the repayment of
Indebtedness, other than Senior Debt, secured by a Lien on the asset or assets
that were the subject of such Asset Sale.
65
<PAGE>
"NON-RECOURSE DEBT" means Indebtedness:
(1) as to which neither Holdings nor any of its Restricted Subsidiaries (a)
provides credit support of any kind (including any undertaking, agreement
or instrument that would constitute Indebtedness), (b) is directly or
indirectly liable as a guarantor or otherwise, or (c) constitutes the
lender;
(2) no default with respect to which (including any rights that the holders
thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit upon notice, lapse of time or both any holder of
any other Indebtedness (other than the Notes) of Holdings or any of its
Restricted Subsidiaries to declare a default on such other Indebtedness
or cause the payment thereof to be accelerated or payable prior to its
stated maturity; and
(3) as to which the lenders have been notified in writing that they will not
have any recourse to the stock or assets of Holdings or any of its
Restricted Subsidiaries.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"PERMITTED BUSINESS" means the business of Holdings and its Restricted
Subsidiaries conducted on the date of the indenture and businesses ancillary or
reasonably related thereto.
"PERMITTED INVESTMENTS" means:
(1) any Investment in Holdings or in a Restricted Subsidiary of Holdings;
(2) any Investment in Cash Equivalents;
(3) any Investment by Holdings or any Restricted Subsidiary of Holdings in a
Person, if as a result of such Investment:
(a) such Person becomes a Restricted Subsidiary of Holdings; or
(b) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is
liquidated into, Holdings or a Restricted Subsidiary of Holdings;
(4) any Investment made as a result of the receipt of non-cash consideration
from an Asset Sale that was made pursuant to and in compliance with the
covenant described above under the caption "--Repurchase at the Option of
Those Holding Notes--Asset Sales" or any transaction not constituting an
Asset Sale by reason of the $2.0 million threshold contained in the
definition thereof;
(5) any acquisition of assets solely in exchange for the issuance of Equity
Interests (other than Disqualified Stock) of Holdings;
(6) other Investments in any Person having an aggregate fair market value
(measured on the date each such Investment was made and without giving
effect to subsequent changes in value), when taken together with all
other Investments made pursuant to this clause (6), not exceed $10.0
million at any one time outstanding;
(7) Investments in securities of trade creditors or customers received in
settlement of obligations or pursuant to any plan of reorganization or
similar arrangement upon the bankruptcy or insolvency of such trade
creditors of customers; and
(8) Investments by Holdings or a Restricted Subsidiary in a Receivables
Subsidiary or any Investment by a Receivables Subsidiary in any other
Person, in each case, in connection with a Qualified Receivables
Transaction.
66
<PAGE>
"PERMITTED JUNIOR SECURITIES" means: (1) Equity Interests in Holdings or any
Guarantor; or (2) debt securities of Holdings or any Guarantor that (A) are
subordinated to all Senior Debt and any debt securities issued in exchange for
Senior Debt to substantially the same extent as, or to a greater extent than,
the Notes and the Subsidiary Guarantees are subordinated to Senior Debt pursuant
to of the indenture and (B) have a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of the Notes.
"PERMITTED LIENS" means:
(1) Liens on the assets of Holdings and any Restricted Subsidiary securing
Indebtedness and other Obligations under our senior credit facility that
were permitted by the terms of the indenture to be incurred;
(2) Liens in favor of Holdings or any Restricted Subsidiary;
(3) Liens on property of a Person existing at the time such Person is merged
with or into or consolidated with Holdings or any Restricted Subsidiary
of Holdings; PROVIDED that such Liens were in existence prior to the
contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with
Holdings;
(4) Liens on property existing at the time of acquisition thereof by
Holdings or any Restricted Subsidiary of Holdings; PROVIDED that such
Liens were in existence prior to the contemplation of such acquisition
and do not extend to any assets other than the property so acquired;
(5) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(6) Liens to secure Indebtedness (including Capital Lease Obligations)
permitted by clause (3) of the second paragraph of the covenant entitled
"Incurrence of Indebtedness and Issuance of Preferred Stock" covering
only the assets acquired with such Indebtedness;
(7) Liens existing on the date of the indenture;
(8) Liens on Assets of Restricted Subsidiary to secure Senior Debt of such
Restricted Subsidiary that was permitted by the indenture to be incurred;
(9) judgment Liens not giving rise to an Event of Default so long as such
Lien is adequately bonded and any appropriate legal proceedings which may
have been duly initiated for the review of such judgment shall not have
been finally terminated or the period within which such proceedings may
be initiated shall not have expired;
(10) Liens securing Permitted Refinancing Indebtedness which is incurred to
refinance any Indebtedness which has been secured by a Lien permitted
under the indenture and which has been incurred in accordance with the
provisions of the indenture; PROVIDED that such Liens (A) are not
materially less favorable to the Holders and are not materially more
favorable to the lienholders with respect to such Liens that the Liens in
respect of the Indebtedness being refinanced and (B) do not extend to or
cover any property or assets of Holdings or any of its Restricted
Subsidiaries not securing the Indebtedness so refinanced;
(11) Liens upon specific items of inventory or other goods and proceeds of
any Person securing such Person's obligations in respect of bankers'
acceptance issued or created for the account of such Person to facilitate
the purchase, shipment or storage of such inventory or other goods;
67
<PAGE>
(12) Liens securing reimbursement obligations with respect to letters of
credit which encumber documents and other property relating to such
letters of credit and products and proceeds thereof;
(13) Liens for taxes, assessments or governmental charges or claims that are
not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
PROVIDED that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor;
(14) Liens on assets of a Receivables Subsidiary granted in connection with
a Qualified Receivables Transaction;
(15) Liens securing Hedging Obligations;
(16) any interest or title of a lessor under any lease, whether or not
characterized as capital or operating; PROVIDED that such Liens do not
extend to any property or assets which is not leased property subject to
such lease; and
(17) Liens incurred in the ordinary course of business of Holdings or any
Restricted Subsidiary of Holdings with respect to obligations that,
together with all other Liens incurred pursuant to this clause (17), do
not exceed $5.0 million at any one time outstanding.
"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of Holdings or
any of its Restricted Subsidiaries issued in exchange for, or the net proceeds
of which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of Holdings or any of its Restricted Subsidiaries (other than
intercompany Indebtedness); PROVIDED that:
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount
of (or accreted value, if applicable), plus accrued interest on, the
Indebtedness so extended, refinanced, renewed, replaced, defeased or
refunded (plus the amount of reasonable expenses incurred in connection
therewith);
(2) such Permitted Refinancing Indebtedness has a final maturity date later
than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity
of, the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded;
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the Notes,
such Permitted Refinancing Indebtedness has a final maturity date later
than the final maturity date of, and is subordinated in right of payment
to, the Notes on terms at least as favorable to the Holders of Notes as
those contained in the documentation governing the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; and
(4) such Indebtedness is incurred either by Holdings or by the Restricted
Subsidiary who is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"PERSON" means an individual, partnership, corporation, limited liability
company, unincorporated organization, trust or joint venture or a governmental
agency or political subdivision thereof.
"PRINCIPALS" means Vestar Capital Partners and its Affiliates.
"PUBLIC EQUITY OFFERING" means any underwritten public offering of common
stock of Holdings in which the gross proceeds to Holdings are at least $35.0
million.
68
<PAGE>
"PURCHASE MONEY NOTE" means a promissory note evidencing a line of credit,
or evidencing other Indebtedness owed to Holdings or any Restricted Subsidiary
in connection with a Qualified Receivables Transaction, which note shall be
repaid from cash available to the maker of such note, other than amounts
required to be established as reserves pursuant to agreement, amounts paid to
investors in respect of interest, principal and other amounts owing to such
investors and amounts paid in connection with the purchase of newly generated
receivables.
"QUALIFIED RECEIVABLES TRANSACTION" means any transaction or series of
transactions that may be entered into by Holdings or any Restricted Subsidiary
pursuant to which Holdings or any Restricted Subsidiary may sell, convey or
otherwise transfer to (a) a Receivables Subsidiary (in the case of a transfer by
Holdings or any Restricted Subsidiary) and (b) any other Person (in the case of
a transfer by a Receivables Subsidiary), or may grant a security interest in,
any accounts receivable (whether now existing or arising in the future) of
Holdings or any Restricted Subsidiary and any asset related thereto including,
without limitation, all collateral securing such accounts receivable and all
guarantees or other obligations in respect of such accounts receivable, proceeds
of such accounts receivable and other assets which are customarily transferred,
or in respect of which security interests are customarily granted, in connection
with asset securitization transactions involving accounts receivable.
"RECEIVABLE SUBSIDIARY" means a Wholly Owned Restricted Subsidiary (other
than a Guarantor) which engages in no activities other than in connection with
the financing of accounts receivables and which is designated by the Board of
Directors of Holdings (as provided below) as a Receivables Subsidiary (a) no
portion of the Indebtedness of any other Obligations (contingent or otherwise)
of which (i) is guaranteed by Holdings or any other Restricted Subsidiary
(excluding guarantees of Obligations (other than the principal of, and interest
on, Indebtedness) constituting Standard Securitization Undertakings), (ii) is
recourse to or obligates Holdings or any other Restricted Subsidiary in any way
other than pursuant to Standard Securitization Undertakings or (iii) subjects
any property or asset of Holdings or any other Restricted Subsidiary, directly
or indirectly, contingently or otherwise, to the satisfaction thereof, other
than pursuant to Standard Securitization Undertakings, (b) with which neither
Holdings nor any other Restricted Subsidiary has any material contract,
agreement, arrangement or understanding (except in connection with a Purchase
Money Note or Qualified Receivables Transaction) other than on terms no less
favorable to Holdings or such other Restricted Subsidiary than those that might
be obtained at the time from persons that are not Affiliates of Holdings, other
than fees payable in the ordinary course of business in connection with
servicing accounts receivable, and (c) to which neither Holdings nor any other
Restricted Subsidiary has any obligation to maintain or preserve such entity's
financial condition or cause such entity to achieve a certain level of operating
results. Any such designation by the Board of Directors of Holdings shall be
evidenced to the trustee by filing with the trustee a certified copy of the
resolution of the Board of Directors of Holdings giving effect to such
designation and an officers' certificate certifying, to the best of such
officer's knowledge and belief after consulting with counsel, that such
designation complied with the foregoing conditions.
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"SENIOR CREDIT FACILITY" means the Fifth Amended and Restated Credit
Agreement, dated as of February 10, 1999, among Holdings and its Subsidiaries,
as borrowers, the lenders listed therein and BankBoston, N.A., as administrative
agent, and Goldman Sachs Credit Partners L.P., as syndication agent, as amended,
restated, modified, renewed, refunded, replaced or refinanced in whole or in
part from time to time.
69
<PAGE>
"SENIOR DEBT" means:
(1) all Indebtedness outstanding under our senior credit facility, and all
Hedging Obligations with respect thereto;
(2) any other Indebtedness permitted to be incurred by Holdings or a
Guarantor under the terms of the indenture, unless the instrument under
which such Indebtedness is incurred expressly provides that it is on a
parity with the Notes or subordinated in right of payment to the Notes or
any other Indebtedness of Holdings; and
(3) all Obligations with respect to the items listed in the preceding
clauses (1) and (2).
Notwithstanding anything to the contrary in the preceding, Senior Debt will not
include:
(1) any liability for federal, state, local or other taxes owed or owing by
Holdings;
(2) any Indebtedness of Holdings to any of its Subsidiaries or other
Affiliates;
(3) any trade payables; or
(4) any Indebtedness that is incurred in violation of the indenture.
"SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a significant
subsidiary as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act of 1933, as such Regulation is in effect on the
date of the indenture.
"STANDARD SECURITIZATION UNDERTAKINGS" means representations, warranties,
covenants and indemnities entered into by Holdings or any Restricted Subsidiary
which are reasonably customary in an accounts receivable transaction.
"STATED MATURITY" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"SUBSIDIARY" means, with respect to any Person:
(1) any corporation, association or other business entity of which more than
50% of the total voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned
or controlled, directly or indirectly, by such Person or one or more of
the other Subsidiaries of that Person (or a combination thereof); and
(2) any partnership (a) the sole general partner or the managing general
partner of which is such Person or a Subsidiary of such Person or (b) the
only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"UNRESTRICTED SUBSIDIARY" means any Subsidiary of Holdings that is
designated by the Board of Directors of Holdings as an Unrestricted Subsidiary
pursuant to a Board Resolution, but only to the extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or understanding
with Holdings or any Restricted Subsidiary of Holdings unless the terms
of any such agreement, contract, arrangement or understanding are no less
favorable to Holdings or such Restricted Subsidiary than those that might
be obtained at the time from Persons who are not Affiliates of Holdings;
70
<PAGE>
(3) is a Person with respect to which neither Holdings nor any of its
Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or preserve
such Person's financial condition or to cause such Person to achieve any
specified levels of operating results; and
(4) has not guaranteed or otherwise directly or indirectly provided credit
support for any Indebtedness of Holdings or any of its Restricted
Subsidiaries.
Any designation of a Subsidiary of Holdings as an Unrestricted Subsidiary
shall be evidenced to the trustee by filing with the trustee a certified copy of
the Board Resolution giving effect to such designation and an officers'
certificate certifying that such designation complied with the preceding
conditions and was permitted by the covenant described above under the caption
"Certain Covenants--Restricted Payments." If, at any time, any Unrestricted
Subsidiary would fail to meet the preceding requirements as an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of the indenture and any Indebtedness of such Subsidiary shall be
deemed to be incurred by a Restricted Subsidiary of Holdings as of such date
and, if such Indebtedness is not permitted to be incurred as of such date under
the covenant described under the caption "Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock," Holdings shall be in default of
such covenant. The Board of Directors of Holdings may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED that such
designation shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of Holdings of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation shall only be permitted if (1) such Indebtedness
is permitted under the covenant described under the caption "Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock,"
calculated on a pro forma basis as if such designation had occurred at the
beginning of the four-quarter reference period; and (2) no Default or Event of
Default would be in existence following such designation.
"VOTING STOCK" of any Person means the Capital Stock of such Person that is
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees of such Person.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
or Disqualified Stock at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of each
then remaining installment, sinking fund, serial maturity or other
required payments of principal or liquidation preference, including
payment at final maturity, in respect thereof, by (b) the number of years
(calculated to the nearest one-twelfth) that will elapse between such
date and the making of such payment; by
(2) the then outstanding principal amount or liquidation preference of such
Indebtedness or Disqualified Stock.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person and/or by one or more Wholly Owned Restricted
Subsidiaries of such Person.
71
<PAGE>
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
OF THE EXCHANGE OFFER
EXCHANGE OF NOTES
The following summary describes the material United States federal income
tax consequences of the exchange offer. The exchange of outstanding notes for
exchange notes in the exchange offer will not constitute a taxable event to you.
Consequently, no gain or loss will be recognized by you upon receipt of an
exchange note, the holding period of the exchange notes will include the holding
period of the outstanding note and the basis of the exchange notes will be the
same as the basis of the outstanding note immediately before the exchange.
IN ANY EVENT, PERSONS CONSIDERING THE EXCHANGE OF OUTSTANDING NOTES FOR
EXCHANGE NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES IN LIGHT OF THEIR PARTICULAR SITUATIONS
AS WELL AS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING
JURISDICTION.
72
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account must
acknowledge that it will deliver a prospectus in connection with any resale of
the exchange notes. This prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
exchange notes received in exchange for outstanding notes that the broker-dealer
had acquired as a result of market-making activities or other trading
activities. To the extent the broker-dealer participates in the exchange offer
and so notifies us in writing, we have agreed that for a period of 180 days
after the date of this prospectus, we will make this prospectus, as amended or
supplemented, available to the broker-dealer for use in connection with resale,
and will promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests the documents
in the letter of transmittal.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the exchange notes or a combination of these methods of resale, at
prevailing market prices at the time of resale, at prices related to these
prevailing market prices or at negotiated prices. These resales may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions. Any broker-dealer that
resells exchange notes that were received by it for its own account and any
broker or dealer that participates in a distribution of exchange notes may be
deemed to be an underwriter within the meaning of the Securities Act of 1933,
and any profit on any resales of exchange notes and any commissions or
concessions received by any these persons may be deemed to be underwriting
compensation under the Securities Act of 1933. 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 of 1933.
We have agreed to pay all expenses incident to the exchange offer, other
than commissions and concessions of any broker-dealers, subject to prescribed
limitations, and will indemnify you against liabilities that may arise under the
Securities Act of 1933.
By its acceptance of the exchange offer, any broker-dealer that receives
exchange notes agrees to notify us prior to using the prospectus in connection
with the sale or transfer of exchange notes, and acknowledges and agrees that,
upon receipt of notice from us of the happening of any event which makes any
statement in this prospectus untrue in any material respect or which requires
the making of any changes in this prospectus in order to make the statements in
it not misleading or which may impose upon us disclosure obligations that may
have a material adverse effect on us, which notice we agree to deliver promptly
to the broker-dealer, the broker-dealer will suspend use of this prospectus
until we have notified the broker-dealer that delivery of this prospectus may
resume and has furnished copies of any amendment or supplement to this
prospectus to the broker-dealer.
73
<PAGE>
CAPITALIZATION
In consideration for issuing the exchange notes as contemplated in this
prospectus, we will receive in exchange a like principal amount of outstanding
notes. The exchange notes will evidence the same indebtedness as the outstanding
notes. The outstanding notes surrendered in exchange for the exchange notes will
be retired and canceled and cannot be reissued. Accordingly, issuance of the
exchange notes will not result in any change in our capitalization. This table
should be read in conjunction with the financial statements and related notes
included in this prospectus.
The following table sets forth our unaudited consolidated capitalization as
of March 31, 1999 on an actual basis.
<TABLE>
<CAPTION>
(IN MILLIONS) MARCH 31, 1999
---------------
<S> <C>
ACTUAL
---------------
Cash and cash equivalents........................................................................ $ 1.8
-------
Long-term debt:
Senior credit facility......................................................................... 44.4
Outstanding notes (issued at 99.248% of their face amount)..................................... 148.9
-------
Total long-term debt......................................................................... 193.3
-------
Stockholders' equity:
Additional paid in capital..................................................................... 70.2
Other.......................................................................................... (36.9)
-------
Total stockholders' equity................................................................... 33.3
-------
Total capitalization............................................................................. $ 226.6
-------
-------
</TABLE>
74
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated financial data has been
derived by the application of pro forma adjustments to our historical financial
statements for the year ended December 31, 1998 and the three months ended March
31, 1999. The pro forma adjustments give effect to:
- our acquisition of New England Container,
- the offering of the outstanding notes and the initial borrowings under our
senior credit facility that we entered into concurrently with the offering
of the outstanding notes and
- the application of the proceeds from the offering of the outstanding notes
and the initial borrowings under our senior credit facility (net of fees
and expenses) to repay a portion of our outstanding long-term
indebtedness.
The unaudited pro forma consolidated statements of operations give effect to
the transactions described above as if they had occurred on January 1, 1998. The
adjustments, which are based upon available information and upon assumptions
that management believes are reasonable, are described in the accompanying
notes. The unaudited pro forma consolidated financial data does not purport to
represent what our financial position or results of operations would actually
have been had the transactions described above in fact occurred on the assumed
dates or to project our results of operations for any future date or period.
The acquisition reflected in the unaudited pro forma consolidated financial
data has been accounted for using the purchase method of accounting.
The unaudited pro forma consolidated statements of operations do not include
any adjustments for anticipated cost savings or other operating improvements.
See "Business-- Business Strategy."
This unaudited pro forma consolidated financial data should be read in
conjunction with the discussion under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our financial statements and
the related notes included in this prospectus.
75
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
(A) (B) ACQUISITION FINANCING
(DOLLARS IN MILLIONS) HISTORICAL ACQUISITION ADJUSTMENTS ADJUSTMENTS PRO FORMA
----------- ------------- --------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Net sales:
Container manufacturing division............ $ 227.4 $ -- $ -- $ -- $ 227.4
Services division........................... 46.6 10.5 -- -- 57.1
----------- ----- ----- ----- -----------
Total net sales............................. 274.0 10.5 -- -- 284.5
Cost of sales................................. 213.2 7.5 -- -- 220.7
----------- ----- ----- ----- -----------
Gross profit.................................. 60.8 3.0 -- -- 63.8
Selling, general and administrative
expenses.................................... 42.9 2.4 (0.1)(c) -- 45.2
Non-recurring charges......................... 6.2 -- 6.2
----------- ----- ----- ----- -----------
Income (loss) from operations................. 11.7 0.6 0.1 -- 12.4
Interest expense.............................. 16.0 0.2 4.3(d) 20.5
Other (income) expense, net................... 0.5 1.5 (1.5)(e) 0.5
----------- ----- ----- ----- -----------
Income (loss) before income taxes and
extraordinary items......................... (4.8) (1.1) 1.6 (4.3) (8.6)
Provision (benefit) for income taxes.......... (0.5) (0.2) (0.2)(f) (1.8)(f) (2.7)
----------- ----- ----- ----- -----------
Income (loss) before extraordinary items
(g)......................................... $ (4.3) $ (0.9) $ 1.8 $ (2.5) $ (5.9)
----------- ----- ----- ----- -----------
----------- ----- ----- ----- -----------
Other data (h):
Pro forma ratio of earnings to fixed charges
(i)....................................... --
</TABLE>
76
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
FINANCING
(DOLLARS IN MILLIONS) HISTORICAL ADJUSTMENTS PRO FORMA
----------- --------------- -----------
<S> <C> <C> <C>
Net sales:
Container manufacturing division......................................... $ 56.0 $ $ 56.0
Services division........................................................ 14.9 14.9
----- ----- -----
Total net sales.......................................................... 70.9 70.9
Cost of sales.............................................................. 52.9 52.9
----- ----- -----
Gross profit............................................................... 18.0 18.0
Selling, general and administrative expenses............................... 12.6 12.6
----- ----- -----
Income from operations..................................................... 5.4 5.4
Interest expense........................................................... 4.6 0.8(d) 5.4
Other (income) expense, net................................................ 0.1 0.1
----- ----- -----
Income (loss) before income taxes and extraordinary items.................. 0.7 (0.8) (0.1)
Provision (benefit) for income taxes....................................... 0.4 (0.3)(f) 0.1
----- ----- -----
Income (loss) before extraordinary items (g)............................... $ 0.3 $ (0.5) $ (0.2)
----- ----- -----
----- ----- -----
Other data (h):
Pro forma ratio of earnings to fixed charges (i)......................... --
</TABLE>
77
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(a) Represents historical consolidated results of operations, including the
results of operations of New England Container from the date of acquisition.
(b) Represents the pre-acquisition operations of New England Container which was
acquired on July 23, 1998.
(c) Represents the net effect of applying purchase accounting to selling,
general and administrative expenses in connection with our acquisition of
New England Container, as follows:
<TABLE>
<CAPTION>
FISCAL
YEAR ENDED
DECEMBER 31,
1998
---------------
<S> <C>
(IN MILLIONS)
Amortization expense (1)..................................................................... $ 0.1
Deferred acquisition costs (2)............................................................... (0.2)
-----
Total...................................................................................... $ (0.1)
-----
-----
</TABLE>
- ------------------------
(1) Represents the increase in amortization expense for the amortization of
goodwill related to our acquisition of New England Container. Goodwill is
amortized over 40 years.
(2) Represents the application of purchase accounting to pre-acquisition
compensation agreements.
(d) Represents the net adjustment to interest expense as a result of the initial
borrowings under our senior credit facility and the issuance of the
outstanding notes, calculated as follows:
<TABLE>
<CAPTION>
FISCAL
YEAR ENDED
DECEMBER 31, THREE MONTHS ENDED
1998 MARCH 31, 1999
--------------- -----------------------
<S> <C> <C>
(IN MILLIONS)
Senior credit facility (1)............................................ $ 2.7 $ 0.9
Outstanding notes (2)................................................. 16.4 4.1
Commitment fees (3)................................................... 0.4 0.1
Amortization of deferred financing costs (4).......................... 1.0 0.3
----- -----
Pro forma interest expense............................................ 20.5 5.4
Historical interest expense........................................... (16.2) (4.6)
----- -----
Net interest expense adjustment....................................... $ 4.3 $ 0.8
----- -----
----- -----
</TABLE>
- ------------------------
(1) Represents interest on the initial borrowings of $4.7 million under the
senior credit facility, using an assumed interest rate of 7.70% through
February 9, 1999 and interest on average borrowings of $16.4 million,
using an actual interest rate of 9.0% for the period February 10, 1999 to
March 31, 1999. In addition this amount also represents interest on the
$25.0 million term loan using the actual fixed interest rate of 9.48%.
(2) Represents interest on the outstanding notes using an effective interest
rate of 11.00%.
(3) Represents a 0.5% commitment fee on the unused portion of our senior
credit facility.
(4) Deferred financing costs are amortized over the term of the related
indebtedness (five years for the revolving credit facility and eight
years for the term loan, each under our senior credit facility, and ten
years for the outstanding notes).
78
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(e) Represents the net effect of applying purchase accounting to eliminate New
England Container non-recurring expenses that were incurred as a result of
the acquisition as follows:
<TABLE>
<S> <C>
Bonuses paid immediately prior to acquisition.................................... $ 0.9
Severance payment for early termination of employment agreement.................. 0.5
Early termination of promissory note receivable.................................. 0.1
---
$ 1.5
---
---
</TABLE>
(f) Represents the tax effect on the pro forma adjustments at a 42% effective
tax rate. In addition, acquisition adjustments include a pro forma tax
adjustment to treat New England Container as a C-Corporation for federal and
state income tax purposes for the pre-acquisition period.
(g) Income (loss) before extraordinary items excludes $0.8 million, net of taxes
relating to deferred financing costs that we wrote-off as a result of the
transactions.
(h) The following Other Data is provided to demonstrate the effect of the pro
forma adjustments on such information.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED MARCH
DECEMBER 31, 1998 31, 1999
------------------------ ------------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
(DOLLARS IN MILLIONS)
Cash flows from (used in):
Operating activities............................ $ 30.8 $ 30.2 $ (8.0) $ (8.5)
Investing activities............................ (41.2) (38.1) (7.4) (7.4)
Financing activities............................ 11.0 8.9 15.5 15.5
EBITDA (1)........................................ 37.8 39.1 12.1 12.1
Adjusted EBITDA (1)............................... 44.9 46.2 12.3 12.3
Capital expenditures.............................. 28.7 29.1 7.4 7.4
Pro forma ratio of Adjusted EBITDA to interest
expense......................................... 2.3x 2.3x
</TABLE>
- ------------------------
(1) We define "EBITDA" as income (loss) before extraordinary items, plus
interest expense, income tax expense (benefit) and depreciation and
amortization. EBITDA does not represent, and should not be considered as
an alternative to, net income or cash flow from operations as determined
in accordance with GAAP, and our calculation therefore may not be
comparable to that reported by other companies. While EBITDA should not
be considered in isolation or as a substitute for net income, cash flows
from operating activities and other income or cash flow statement data
prepared in accordance with GAAP, or as a measure of profitability or
operating performance, management understands that EBITDA is commonly
used in evaluating a company's ability to service debt. EBITDA does not
take into account our debt service requirements and other commitments
and, accordingly, it does not necessarily represent amounts that may be
available for discretionary uses. We define "Adjusted EBITDA" as EBITDA,
plus non-recurring charges and management fees. Our borrowing
arrangements permit us to add back these charges when we calculate our
compliance with financial covenants contained in the indenture.
79
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
The calculation of pro forma EBITDA and Adjusted EBITDA is as follows:
<TABLE>
<CAPTION>
FISCAL
YEAR ENDED
DECEMBER 31, THREE MONTHS ENDED
1998 MARCH 31, 1999
--------------- ---------------------
<S> <C> <C>
(IN MILLIONS)
Income (loss) before extraordinary items.............................. $ (5.9) $ (0.2)
Interest expense...................................................... 20.5 5.4
Income tax expense (benefit).......................................... (2.7) 0.1
Depreciation and amortization (excluding amortization of deferred
financing costs).................................................... 27.2 7.0
----- -----
EBITDA................................................................ 39.1 12.3
Management fees paid to Vestar........................................ 0.9 0.2
Non-recurring charges................................................. 6.2 --
----- -----
Adjusted EBITDA....................................................... $ 46.2 $ 12.5
----- -----
----- -----
</TABLE>
(i) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as income (loss) before income taxes and extraordinary
items, plus fixed charges. Fixed charges consist of interest expense on all
indebtedness, amortization of deferred financing costs and one-third of
rental expense on operating leases, representing that portion of rental
expense which we deem to be attributable to interest.
The calculation of the pro forma ratios of earnings to fixed charges is as
follows:
<TABLE>
<CAPTION>
FISCAL
YEAR ENDED
DECEMBER 31, THREE MONTHS ENDED
1998 MARCH 31, 1999
--------------- ---------------------
<S> <C> <C>
(DOLLARS IN MILLIONS)
Loss before taxes and extraordinary items............................. $ (8.6) $ (0.1)
Fixed charges:
Interest expense.................................................... 20.5 5.4
Rental expense...................................................... 1.7 0.4
Total fixed charges................................................... 22.2 5.8
----- -----
Earnings.............................................................. $ 13.6 $ 5.7
----- -----
----- -----
Ratio of earnings to fixed charges (1)................................ -- --
</TABLE>
- ------------------------
(1) Earnings were insufficient to cover fixed charges by $8.6 million for
the fiscal year ended December 31, 1998 and $0.1 million for the three
months ended March 31, 1999.
80
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA
Set forth below is selected historical consolidated financial and other data
as of and for the years ended, December 31, 1994, 1995, 1996, 1997 and 1998 and
as of and for the three months ended March 31, 1999 and 1998. The data as of
December 31, 1997 and 1998 and for the years ended December 31, 1996, 1997 and
1998 were derived from the consolidated financial statements and related notes
audited by Deloitte & Touche LLP, independent auditors, which are included in
this prospectus. The data as of December 31, 1994, 1995 and 1996 and for the
years ended December 31, 1994 and 1995 have been derived from our audited
consolidated financial statements and related notes which are not included in
this prospectus. The data as of and for the three months ended March 31, 1999
and 1998 were derived from the unaudited consolidated financial statements and
related notes which are included in this prospectus and, in the opinion of
management, have been prepared on a basis consistent with our audited financial
statements and include all adjustments (which consist only of normal recurring
accruals) that are considered by management to be necessary for a fair
presentation of such financial information.
Russell-Stanley Holdings, Inc. was formed in July 1997 to serve as a holding
company for Russell-Stanley Corp. and its subsidiaries. The transaction was
accounted for in a method similar to a pooling of interests, and therefore the
financial data presented below has been prepared from financial statements that
include the operations of Russell-Stanley Holdings, Inc. and its subsidiaries as
if they had been combined for all periods presented.
We completed three acquisitions during 1997 and one acquisition during 1998,
all accounted for under the purchase method of accounting. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Introduction."
In conjunction with the integration of acquired entities and expansion of
our operations, we developed a plan to streamline our operations and sales force
and consolidate and relocate our corporate headquarters in order to improve
operating efficiencies and reduce costs. As part of this plan, we recorded
non-recurring charges of approximately $3.5 million during the year ended
December 31, 1998 and $1.7 million during the three months ended March 31, 1999.
These charges primarily include costs related to the closure of a container
manufacturing facility, severance and other personnel related costs and the
relocation of our corporate headquarters. Non-recurring charges for the year
ended December 31, 1998 also include $2.7 million of costs associated with
proposed acquisitions that were not consummated. See "Note 18--Non-Recurring
Charges" in our financial statements included in this prospectus.
In this table, the terms "EBITDA," "EBITDA Margin," "Adjusted EBITDA," and
"ratio of earnings to fixed charges" have the meanings stated below:
- We define "EBITDA" as income (loss) before extraordinary items, plus
interest expense, income tax expense (benefit) and depreciation and
amortization. We define "EBITDA Margin" as EBITDA divided by net sales.
EBITDA does not represent, and should not be considered an alternative to,
net income or cash flow from operations as determined in accordance with
GAAP, and our calculation therefore may not be comparable to that reported
by other companies. While EBITDA should not be considered in isolation or
as a substitute for net income, cash flows from operating activities and
other income or cash flow statement data prepared in accordance with GAAP,
or as a measure of profitability or operating performance, management
understands that EBITDA is commonly used in evaluating a company's ability
to service debt. However, EBITDA does not take into account our debt
service requirements and other commitments and, accordingly, does not
necessarily represent amounts that may be available to us for
discretionary uses.
81
<PAGE>
- We define "Adjusted EBITDA" as EBITDA plus non-recurring charges and
management fees we pay to Vestar. See "Related Party Transactions." Our
borrowing arrangements permit us to add back these charges when we
calculate our compliance with financial covenants contained in the
indenture.
- For purposes of determining the ratio of earnings to fixed charges,
"earnings" are defined as income (loss) before income taxes and
extraordinary items plus fixed charges. "Fixed charges" consist of
interest expense on all indebtedness, amortization of deferred financing
costs and one-third of rental expense on operating leases, representing
that portion of rental expense which we deem to be attributable to
interest. Earnings were insufficient to cover fixed charges in the year
ended December 31, 1998 by $4.8 million.
Historical data are not necessarily indicative of future results, and
interim results are not necessarily indicative of the results for a full year.
The data presented below should be read in conjunction with the discussion under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and the financial statements of
Container Management Services, Hunter Drums Limited and the plastics division of
Smurfit Packaging Corporation and the related notes included in this prospectus.
82
<PAGE>
<TABLE>
<CAPTION>
THREE
MONTH PERIOD
FISCAL YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS)
STATEMENT OF OPERATIONS DATA:
Net sales:
Container manufacturing division................. $ 126.3 $ 138.8 $ 141.9 $ 161.1 $ 227.4 $ 63.6 $ 56.0
Services division................................ -- -- -- 15.2 46.6 9.6 14.9
--------- --------- --------- --------- --------- --------- ---------
Total net sales................................ 126.3 138.8 141.9 176.3 274.0 73.2 70.9
Cost of sales...................................... 95.9 106.5 103.6 133.6 213.2 56.6 52.9
--------- --------- --------- --------- --------- --------- ---------
Gross profit....................................... 30.4 32.3 38.3 42.7 60.8 16.6 18.0
Selling, general and administrative expenses....... 21.6 21.4 24.3 26.8 42.9 11.1 12.6
Non-recurring charges.............................. -- -- -- -- 6.2 1.7 --
--------- --------- --------- --------- --------- --------- ---------
Income from operations............................. 8.8 10.9 14.0 15.9 11.7 3.8 5.4
Other expense, net................................. -- -- 0.3 0.2 0.5 -- 0.1
Interest expense................................... 7.8 8.3 7.5 8.8 16.0 3.6 4.6
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes and extraordinary
items............................................ 1.0 2.6 6.2 6.9 (4.8) 0.2 0.7
Provision (benefit) for income taxes............... 0.8 1.2 2.5 2.9 (0.5) 0.1 0.4
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary items........... $ 0.2 $ 1.4 $ 3.7 $ 4.0 $ (4.3) $ 0.1 $ 0.3
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
OTHER FINANCIAL DATA:
Cash flows from (used in):
Operating activities............................. $ 2.6 $ 14.0 $ 4.4 $ 17.7 $ 30.8 $ 4.3 $ (8.0)
Investing activities............................. (7.3) (4.9) (3.3) (140.3) (41.2) (4.3) (7.4)
Financing activities............................. 4.8 (8.3) (1.3) 122.5 11.0 0.5 15.5
EBITDA............................................. 15.6 17.1 19.6 25.8 37.8 10.1 12.1
EBITDA margin...................................... 12.4% 12.3% 13.8% 14.6% 13.8% 13.8% 17.1%
Adjusted EBITDA.................................... $ 15.9 $ 17.4 $ 19.9 $ 26.2 $ 44.9 $ 12.0 $ 12.3
Adjusted EBITDA margin............................. 12.6% 12.5% 14.0% 14.9% 16.4% 16.4% 17.3%
Capital expenditures............................... $ 6.2 $ 4.8 $ 3.3 $ 9.9 $ 28.7 $ 4.3 $ 7.4
Depreciation and amortization...................... 6.8 6.2 5.9 10.1 26.6 6.3 6.8
Ratio of earnings to fixed charges................. 1.1x 1.3x 1.8x 1.8x -- -- --
BALANCE SHEET DATA:
Working capital.................................... $ 16.1 $ 11.7 $ 17.6 $ 20.2 $ 12.9 $ 22.2 $ 28.7
Property, plant and equipment, net................. 31.4 33.0 31.2 85.0 92.6 83.6 93.7
Total assets....................................... 96.2 88.4 88.8 245.5 258.3 247.2 270.8
Total debt......................................... 87.4 83.3 86.2 161.4 171.6 161.5 193.3
Redeemable preferred stock......................... 20.2 23.5 27.5 -- -- -- --
Total stockholders' equity (deficit):
Additional paid-in capital....................... 7.6 7.6 7.6 69.1 70.2 69.1 70.2
Other............................................ (19.9) (21.8) (22.1) (30.3) (36.7) (30.6) (36.9)
--------- --------- --------- --------- --------- --------- ---------
Total stockholders' equity (deficit)........... (12.3) (14.2) (14.5) 38.8 33.5 38.5 33.3
</TABLE>
83
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
The rigid industrial container industry has been undergoing consolidation
for a number of years and remains fragmented. We believe that the industry will
evolve to support a few participants who are able to provide a broad range of
containers and related container services. As a result, we began pursuing, and
in July 1997 began consummating, several acquisitions in furtherance of our goal
to become the preeminent provider of rigid industrial containers and related
container services in the United States and Canada. Each of these transactions
was accounted for using the purchase method of accounting.
CONTAINER MANAGEMENT SERVICES, INC. In July 1997, we acquired all the
capital stock of Container Management Services. Container Management Services
pioneered the businesses of plastic container leasing on a per use or round-trip
basis and plastic container fleet management in the United States and Canada
utilizing inventory tracking technology. We believe these businesses are among
the fastest growing sectors of the U.S. rigid industrial container market and
that our acquisition of Container Management Services positions us as the leader
in these businesses in the United States and Canada. Container Management
Services had revenues of approximately $17.8 million for the period from January
1, 1997 through July 23, 1997 and operated two facilities in South Carolina.
HUNTER DRUMS LIMITED. In October 1997, we acquired substantially all of the
capital stock of Hunter Drums Limited. We believe Hunter Drums Limited is a
leading manufacturer and marketer of plastic and steel drums in Canada. Our
acquisition of Hunter Drums Limited, which included an exclusive license to
manufacture and sell the LR-1 drum in Canada, expands our geographic reach for
plastic and steel drums. Located near Toronto, Hunter Drums Limited currently
serves Ontario, Canada and parts of the Midwest and Northeast. Hunter Drums
Limited had revenues of approximately $30.5 million for the period from January
1, 1997 through October 29, 1997 and operated two facilities in Canada.
PLASTICS DIVISION OF SMURFIT PACKAGING CORPORATION. In November 1997, we
acquired the plastics division of Smurfit Packaging Corporation. At that time,
this division was one of the leading manufacturers and marketers of plastic
drums in the United States. The acquisition of this division broadens our
product line to include open-top drums as well as smaller plastic containers,
including the 5- to 20-gallon size, and enhances our geographic reach and market
position in the United States. The acquisition also provides meaningful
operating efficiency opportunities. The plastics division of Smurfit Packaging
Corporation had revenues of approximately $57.7 million for the period from
January 1, 1997 through November 7, 1997 and operated a facility in each of New
Jersey, Georgia, Illinois, Texas and Delaware.
NEW ENGLAND CONTAINER CO., INC. In July 1998, we acquired all the capital
stock of New England Container. We believe that New England Container has the
largest share of the steel reconditioning market in the Northeast and provides
our services division with entry into the steel drum reconditioning market with
a leader in terms of quality and service. New England Container had revenues of
approximately $10.5 million for the period from January 1, 1998 through July 23,
1998, and operated a facility in each of Rhode Island, Maryland and Virginia.
Substantially all of our revenues are derived from sales of our products and
services. Our expenses consist primarily of cost of sales, selling, general and
administrative expenses and interest expense. The most significant component of
cost of sales is our expense for purchases of HDPE resin, which is the principal
raw material for plastic drums, and cold-rolled steel, which is the
84
<PAGE>
principal raw material for steel drums. Over a period of time, we generally pass
changes in the prices for HDPE resin and cold-rolled steel through to our
customers, resulting in relatively consistent gross profit margins on a per unit
basis. Our results of operations are affected by the level of economic activity
in the industries served by our customers, which in turn may be affected by the
level of economic activity in the U.S. and foreign markets which they serve.
Because we operate with little or no backlog, changes in economic activity,
positive and negative, affect our results of operations more quickly than these
changes would affect the results of operations of a company that operated with a
backlog. See "Risk Factors--We may not be able to obtain raw materials at all or
at prices that allow us to maintain a positive cash flow" and "--A significant
economic downturn, particularly one affecting the chemical industry, could have
a material adverse effect on our results of operations."
Although we anticipate minimal/flat growth in the overall steel drum market,
we believe opportunities exist to increase our market share for our steel
products mainly from
- competitors,
- companies exiting the business due to a lack of funds for investment in
new products, equipment and environmental and quality initiatives and
- geographic expansion.
We expect plastic drum shipments in the United States to increase by 2-3%
per year for the next few years, with gains being restrained as users of rigid
industrial containers increasingly convert to IBCs. A typical IBC replaces the
need for approximately five 55-gallon drums. Although we provide IBCs through
our services division, currently, we do not manufacture IBCs and are evaluating
options for obtaining the capacity to do so. We may decide not to pursue this
capacity in the near future or at all. For a discussion of the related risks,
see "Risk Factors--We may not be able to obtain raw materials at all or at
prices that allow us to maintain a positive cash flow" and "--Increasing usage
of IBCs could have a material adverse effect on our results of operations."
The following discussion and analysis provides information that we believe
is relevant to an understanding of our consolidated financial position and
results of operations. The following discussion and analysis should be read in
conjunction with our financial statements and the related notes included in this
prospectus.
85
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for each of the periods indicated, statement
of operations data, expressed as a percentage of net sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED
DECEMBER 31, MARCH 31,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.............................................. 73.0 75.8 77.8 77.3 74.6
Gross profit............................................... 27.0 24.2 22.2 22.7 25.4
Selling, general and administrative expenses............... 17.1 15.2 15.7 15.2 17.8
Income from operations..................................... 9.9 9.0 4.3 5.2 7.6
Interest expense........................................... 5.3 5.0 5.8 4.9 6.5
Income (loss) before taxes and extraordinary
items.................................................... 4.4 3.9 (1.8) 0.3 1.0
Income (loss) before extraordinary items................... 2.6 2.3 (1.6) 0.1 0.4
</TABLE>
THREE MONTH PERIOD ENDED MARCH 31, 1999 COMPARED TO THREE MONTH PERIOD ENDED
MARCH 31, 1998
NET SALES
Net sales decreased 3.2% to $70.9 million for the three months ended March
31, 1999 from $73.2 million for the three months ended March 31, 1998. Our
container manufacturing division's net sales declined 12% to $56.0 million for
the three months ended March 31, 1999 from $63.6 million for the three months
ended March 31, 1998, due primarily to selling price declines in response to
lower raw material prices coupled with competitive pressures and, to a lesser
extent, unit volume decreases. Net sales in our services division increased 55%
to $14.9 million for the three months ended March 31, 1999 from $9.6 million for
the three months ended March 31, 1998 due to the net sales of New England
Container, which we acquired in July 1998, and growth in IBC leasing. Excluding
the impact of the New England Container acquisition, our services division's net
sales increased approximately 7%, despite competitive pressures which resulted
in lower selling prices.
GROSS PROFIT
Gross profit increased $1.4 million to $18.0 million for the three months
ended March 31, 1999 from $16.6 million for the three months ended March 31,
1998, primarily from the benefit of lower raw material prices and a mix shift to
the higher margin services business. Gross profit as a percentage of net sales
improved to 25.4% for the three months ended March 31, 1999 from 22.7% for the
three months ended March 31, 1998. Favorable raw material price trends,
improvements in efficiency and the mix shift to our services division more than
offset the effect of lower sales volume and prices.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses as a percentage of net sales
increased to 17.7% for the three months ended March 31, 1999 from 15.3% for the
three months ended March 31, 1998 primarily due to investments in information
technology, logistics and sales and marketing
86
<PAGE>
infrastructure, as well as the relocation of our corporate headquarters and
increased professional fees.
NON-RECURRING CHARGES
In conjunction with the integration of acquired entities and expansion of
our operations, we developed a plan to streamline our operations and sales force
and consolidate and relocate our corporate headquarters in order to improve
operating efficiencies and reduce costs. This plan began in March 1998 and was
substantially completed during the first quarter of 1999. As part of this plan,
we recorded restructuring, integration and other charges of approximately $1.7
million for the three months ended March 31, 1998. These charges primarily
include costs related to the closure of a container manufacturing facility,
severance costs and other personnel related costs, the relocation of corporate
headquarters and other miscellaneous costs. We did not record any non-recurring
charges for the three months ended March 31, 1999.
INCOME FROM OPERATIONS
Income from operations increased by $1.6 million to $5.4 million for the
three months ended March 31, 1999 from $3.8 million for the three months ended
March 31, 1998. Excluding the non-recurring charges we recorded in 1998, income
from operations for the three months ended March 31, 1999 would have been about
the same as income from operations for the three months ended March 31, 1998.
OTHER EXPENSE, NET
Other expense, net increased slightly to $0.1 million for the three months
ended March 31, 1999 due to the continuing devaluation of the Canadian dollar,
which adversely impacted the fair value of foreign exchange contracts.
INTEREST EXPENSE
Interest expense was $4.6 million for the three months ended March 31, 1999
compared with $3.6 million for the three months ended March 31, 1998. The
increase in interest expense is the result of increased debt levels associated
with the acquisition of New England Container, capital spending investments,
refinancing of our revolving credit loan and term loans and the offering of the
outstanding notes in February 1999.
INCOME BEFORE TAXES AND EXTRAORDINARY ITEM
Income before taxes and extraordinary item was $0.7 million for the three
months ended March 31, 1999 compared to $0.2 million for the three months ended
March 31, 1998. This increase is a result of the higher income from operations
offset by increased interest expense.
PROVISION FOR INCOME TAXES
The effective tax rate on income was 51.3% in 1999 and 40.8% in 1998. The
increase in the effective tax rate is due to the non-deductible portion of
goodwill associated with our 1997 and 1998 acquisitions and higher state and
foreign income taxes.
87
<PAGE>
INCOME BEFORE EXTRAORDINARY ITEM
Income before extraordinary item was $0.3 million for the three months ended
March 31, 1999 as compared to $0.1 million for the three months ended March 31,
1998. This increase is due to the higher income from operations offset by
increased interest and income tax expenses.
EXTRAORDINARY ITEM
As a result of the February 1999 refinancing of our revolving credit loan
and term loans and the offering of the outstanding notes, we incurred an
extraordinary charge of $1.2 million, or $0.8 million net of tax benefits,
relating to the write-off of unamortized deferred financial costs.
NET INCOME (LOSS)
Net (loss) was ($0.4) million for the three months ended March 31, 1999
compared to net income of $0.1 million for the three months ended March 31,
1998. This increase is a result of the increased net income before extraordinary
item offset by a net extraordinary charge of $0.8 million.
FISCAL YEAR ENDED DECEMBER 31, 1998 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1997
NET SALES
Net sales increased 55.4% to $274.0 million in 1998 from $176.3 million in
1997. Our container manufacturing division's net sales rose 41.1% to $227.4
million in 1998 from $161.1 million in 1997, due primarily to the full year
volume impact of our acquisitions of Hunter Drums Limited and the plastics
division of Smurfit Packaging Corporation. Our services division's net sales
more than tripled to $46.7 million in 1998 from $15.2 million in 1997, due
primarily to the full year volume impact of the Container Management Services
acquisition and the net sales of New England Container since we acquired it in
July 1998. Selling prices declined for both divisions, primarily in response to
lower raw material prices coupled with competitive pressures.
GROSS PROFIT
Gross profit increased $18.1 million to $60.8 million in 1998 from $42.7
million in 1997, primarily from increased sales volume and the benefit of lower
raw material prices. Gross profit as a percentage of net sales declined to 22.2%
in 1998 from 24.2% in 1997. The effect of higher sales volume, favorable raw
material prices and improvements in efficiency were more than offset by the
impact of lower selling prices and a mix shift in our services division as the
growth of IBC leasing outpaced the growth of drum leasing. In addition, gross
profit as a percentage of sales was adversely impacted by short-term
manufacturing inefficiencies as a result of the closure of a container
manufacturing facility and the start-up of a co-located container manufacturing
and services facility.
SELLING, GENERAL & ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses as a percentage of net sales
increased to 15.7% in 1998 from 15.2% in 1997 primarily due to investments in
computer technology, logistics and sales and marketing infrastructure, as well
as the relocation of our corporate headquarters. Additionally, higher consulting
fees associated with integration activities related to the acquisitions we made
in 1997 and 1998 and for other activities contributed to the increase.
88
<PAGE>
NON-RECURRING CHARGES
In conjunction with the integration of acquired entities and expansion of
our operations, we developed a plan to streamline our operations and sales force
and consolidate and relocate our corporate headquarters in order to improve
operating efficiencies and reduce costs. As part of this plan we recorded
restructuring, integration and other charges of approximately $3.5 million for
the year ended December 31, 1998. These charges primarily include costs related
to the closure of a container manufacturing facility, severance costs and other
personnel related costs, the relocation of corporate headquarters, and other
miscellaneous costs. Also included in non-recurring charges at December 31, 1998
are $2.7 million of costs associated with proposed acquisitions that were not
consummated.
OPERATING INCOME
Operating income for 1998 decreased by $4.2 million to $11.7 million from
$15.9 million in 1997 as a result of the non-recurring charges recorded in 1998.
Excluding non-recurring charges, operating income would have increased $2.0
million as a result of increased gross profit partially offset by the increase
in selling, general and administrative expenses.
OTHER (INCOME) EXPENSE, NET
Other (income) expense, net increased to $.5 million in 1998 from $.2
million in 1997, primarily due to the continuing devaluation of the Canadian
dollar, which adversely impacted the fair value of foreign exchange contracts.
INTEREST EXPENSE
Interest expense was $16.0 million in 1998 compared with $8.8 million in
1997. The increase in interest expense is the result of increased debt levels
associated with the acquisitions we made in 1997 and 1998 as well as our capital
and debt restructurings in July and November 1997. See "--Recapitalization" and
"Note 1--Organization and Basis of Presentation" in our financial statements
included in this prospectus.
INCOME (LOSS) BEFORE TAXES AND EXTRAORDINARY ITEMS
In 1998, the income (loss) before taxes and extraordinary items was ($4.8)
million as compared to income before taxes and extraordinary items of $6.9
million in 1997. This decrease is primarily as a result of the the increase in
interest expense and the 1998 non-recurring charges.
FISCAL YEAR ENDED DECEMBER 31, 1997 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1996
NET SALES
Net sales increased 24.2% to $176.3 million in 1997 from $141.9 million in
1996, reflecting unit volume growth as well as the impact of our acquisitions of
Container Management Services, Hunter Drums Limited and the plastics division of
Smurfit Packaging Corporation. Our container manufacturing division's net sales
rose 13.5% to $161.1 million in 1997 from $141.9 million in 1996. Excluding the
impact of our acquisition of Hunter Drums Limited and the plastics division of
Smurfit Packaging Corporation, net sales in this division increased 3.9% in 1997
as compared to 1996 on unit volume growth, primarily in plastic drums, offset by
a decline in selling prices. Our services division, which we created in 1997
with our acquisition of Container Management Services, had net
89
<PAGE>
sales of $15.2 million in 1997, reflecting Container Management Service's net
sales since the date of the acquisition.
GROSS PROFIT
Gross profit increased $4.4 million to $42.7 million in 1997 from $38.3
million in 1996, resulting from increased unit volume. Gross profit as a
percentage of net sales declined to 24.2% in 1997 from 27.0% in 1996 as
improvements in productivity and efficiency as well as the effect of higher unit
volume were more than offset by increased raw material costs for HDPE resin and
lower customer selling prices due to intensified competition.
SELLING, GENERAL & ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses as a percentage of net sales
decreased to 15.2% in 1997 from 17.1% in 1996 due to higher net sales.
OPERATING INCOME
Operating income increased 13.6% to $15.9 million in 1997 from $14.0 million
in 1996 as a result of the combination of the increase in gross profit partially
offset by the increase in selling, general and administrative expenses.
OTHER (INCOME) EXPENSE, NET
Other (income) expense, net declined to $0.2 million in 1997 from $0.3
million in 1996. Unrealized losses on foreign exchange contracts was the primary
component of the amount recorded in 1997. The write-down of an idled asset was
the primary component of the amount recorded in 1996.
INTEREST EXPENSE
Interest expense increased 17.3% to $8.8 million in 1997 from $7.5 million
in 1996. The increase in interest expense is the result of increasing debt
levels to finance our acquisitions of Container Management Services, Hunter
Drums Limited and the plastics division of Smurfit Packaging Corporation as well
as the restructuring of our capital structure in July and November 1997. See
"--Recapitalization" and "Note 1--Organization and Basis of Presentation" in our
financial statements included in the back of this prospectus.
INCOME BEFORE TAXES AND EXTRAORDINARY ITEMS
Income before taxes and extraordinary items increased 11.3% to $6.9 million
in 1997 from $6.2 million in 1996 as a result of the increase in operating
income partially offset by the increase in interest expense.
LIQUIDITY AND CAPITAL RESOURCES
Our principal uses of cash are for capital expenditures, interest expense,
working capital and acquisitions. We utilize funds generated from operations and
borrowings to meet these requirements. For the years ended December 31, 1996,
1997 and 1998 and for the three months ended March 31, 1999, net cash generated
by (used for) operating activities totaled approximately $4.4 million, $17.7
million, $30.8 million and $(8.0) million, respectively.
90
<PAGE>
For the years ended December 31, 1996, 1997 and 1998 and for the three
months ended March 31, 1999, we made capital expenditures of approximately $3.3
million, $9.9 million, $28.7 million and $7.4 million, respectively. In 1998,
our capital expenditures included approximately $14.7 million for purchases of
containers for our leasing business, $8.5 million for ongoing maintenance and
$5.5 million for productivity and growth initiatives. We currently have no
capital commitments outside the ordinary course of business. Other significant
investing activities included the acquisitions we made in 1997 and 1998. The
aggregate cash purchase price for the acquisitions was $130.2 million in 1997
and $13.9 million in 1998. In addition, as part of the consideration for the
acquisitions, in 1997 we issued 27,778 shares of non-voting exchangeable stock
exchangeable into 27,778 shares of our common stock and in 1998 we issued 24,243
shares of our common stock.
Our principal working capital requirements are to finance accounts
receivable and inventories. As of March 31, 1999, we had net working capital of
approximately $28.7 million, including $1.8 million of cash, $35.6 million of
accounts receivable, $19.5 million of inventory, $5.9 million of other current
assets and approximately $34.2 million of accounts payable, accrued expenses and
the current portion of long-term indebtedness.
Concurrently with the offering of the outstanding notes, we replaced our
former senior credit agreement with our senior credit facility. Our former
senior credit agreement provided for term and revolving indebtedness. Some of
the term loans under our former senior credit agreement bore interest at fixed
rates, and the revolving indebtedness as well as the other term loans bore
interest at a combination of domestic source and Eurodollar borrowing rates
which fluctuated based on our EBITDA and debt levels. At December 31, 1998,
outstanding term loan indebtedness under our former senior credit agreement bore
interest at a weighted average rate of 9.35% and outstanding revolving credit
indebtedness bore interest at a weighted average rate of 9.00%. Our senior
credit facility provides for a $25.0 million term loan and $75.0 million of
revolving credit availability. See "Capitalization." The equivalent of U.S.
$15.0 million of revolving indebtedness is available for borrowing in Canadian
dollars by our Canadian subsidiary, Hunter Drums Limited. The term loan under
our senior credit facility bears interest at 9.48% per annum. Revolving
indebtedness under our senior credit facility bears interest at a combination of
domestic source and Eurodollar borrowing rates which fluctuate based on our
EBITDA and debt levels currently. As of March 31, 1999, the revolving
indebtedness under our senior credit facility bore interest at a weighted
average rate of 8.75% per annum. The term loan under our senior credit facility
matures in two equal installments in June 2006 and June 2007. The outstanding
revolving indebtedness, and the revolving credit commitment, will mature in
February 2004. See "Description of Senior Credit Facility."
Based upon the current level of operations and revenue growth, our
management believes that cash flow from operations and available cash, together
with available borrowings under our senior credit facility, will be adequate to
meet our future liquidity needs for at least the next several years. For a
discussion of the factors that could cause us to have insufficient liquidity and
the related risks, see "Risk Factors--Our substantial indebtedness could have a
material adverse effect on our financial health and prevent us from fulfilling
our obligations under the outstanding notes and exchange notes," "--If we cannot
obtain the funds to make the significant capital expenditures that our business
will require, we may not be able to maintain our current level of operations or
grow our business" and "--We may not be able to obtain raw materials at all or
at prices that allow us to maintain a positive cash flow."
RECAPITALIZATION
In July 1997, we restructured our capital structure through the following
transactions:
91
<PAGE>
- issuance of 1,222,221 shares of common stock in exchange for $54,999,940,
resulting in additional paid-in capital of $54,987,718,
- repurchase of 122,500 shares of common stock for $4,450,500,
- repurchase of all outstanding senior subordinated notes for $29,257,638,
including make whole payments of $3,025,858 and accrued interest of
$240,080,
- repurchase of $15.00/$17.50 cumulative exchangeable redeemable preferred
stock (Series B) for $37,611,126, including make whole payments of
$7,529,123 and accrued interest of $302,745 and
- conversion/repurchase of warrants for $1,059,190.
In addition, we restructured our debt through the following transactions:
- repayment of existing bank debt of $25,924,331 and
- borrowing on a new credit facility of $46,102,987.
Immediately following these transactions, we formed Russell-Stanley
Holdings, Inc. to serve as a holding company. The transaction was accounted for
in a manner similar to a pooling of interests, and therefore, our financial
statements as of and for the two years in the period ended December 31, 1997
reflect our results of operations and financial condition as if Russell-Stanley
Holdings, Inc. and its subsidiaries had been combined for the entire period. In
November 1997, we issued 377,779 shares of common stock in exchange for
$17,000,055, resulting in additional paid-in capital of $16,996,277. See
"Description of Senior Credit Facility," "Ownership of Common Stock" and "Note
1--Organization and Basis of Presentation" in our financial statements included
in this prospectus.
EFFECT OF INFLATION
Inflation generally affects our business by increasing the interest expense
of floating rate indebtedness and by increasing the cost of raw materials, labor
and equipment. We do not believe that inflation has had any material effect on
our business during the periods discussed in this prospectus.
INTEREST RATE RISK AND FOREIGN CURRENCY EXCHANGE RATE RISK
GENERAL
Our results of operations and financial condition are affected by changes in
interest rates and foreign currency exchange rates as measured against the U.S.
dollar. We manage this exposure through internal policies and procedures and the
use of derivative financial instruments. In accordance with our internal
policies, we only use derivative financial instruments for risk management and
not for speculative or trading purposes.
INTEREST RATE RISK
The revolving indebtedness under our senior credit facility bears interest
at a floating rate. Our primary exposure to interest rate risk is as a result of
changes in interest expense related to this indebtedness due to changes in
market interest rates. We maintain an interest rate collar in an aggregate
notional principal amount of $45.0 million to limit our exposure to interest
rate risk. Under this collar, if the actual LIBOR rate at the specified
measurement date is greater than a ceiling rate
92
<PAGE>
stated in the collar agreement, the other party to the collar pays us the
differential interest expense. If the actual LIBOR rate is lower than the floor
stated in the collar agreement, we pay the other party to the collar the
differential interest expense. The collar terminates on November 30, 2000. A 10%
increase in interest rates at December 31, 1998 would not have a material
adverse affect on our results of operations, financial condition or cash flows.
FOREIGN CURRENCY EXCHANGE RATE RISK
We have operations in Canada and sales denominated in Canadian dollars. Our
primary exposure to foreign currency exchange rate risk is as a result of
changes in the exchange rate between the U.S. dollar and the Canadian dollar. We
currently do not maintain any derivative financial instruments to limit our
exposure to this risk. Our Canadian subsidiary, Hunter Drums Limited, maintains
U.S. dollar denominated foreign currency exchange contracts which were in place
prior to our acquisition of Hunter Drums. At March 31, 1999 Hunter Drums held
$2.9 million of forward foreign currency exchange contracts with settlement
rates ranging from $1.38 to $1.41 Canadian dollars to U.S. dollars and
settlement dates from April 1999 through December 1999. While these contracts
increase our exposure to foreign currency exchange rate risk, due primarily to
the relatively short maturities of these contracts, a 10% change in the exchange
rate on March 31, 1999 between the U.S. dollar and the Canadian dollar would not
have had a material adverse affect on our results of operations, financial
condition or cash flows.
RECENTLY ISSUED ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS 133
establishes new disclosure requirements which provide a comprehensive standard
for recognition and measurement of derivatives and hedging activities. This will
require new disclosures, all derivatives to be recorded on the balance sheet at
fair value and special accounting for particular types of hedges. SFAS 133 is
scheduled to take effect for us on January 1, 2000, but the Financial Accounting
Standards Board recently issued an exposure draft of a statement, which if
approved as drafted, would defer the effective date for one year. Based on our
current derivatives, an interest rate collar and foreign currency forward
contracts, management does not believe that SFAS 133 will have a material effect
on our financial condition or results of operations.
YEAR 2000 COMPLIANCE
GENERAL
As has been widely reported, many computer systems process dates based on
two digits for the year of transaction and may be unable to process dates in the
year 2000 and beyond. We believe that we have identified all significant
internal systems and hardware with embedded applications that require
modification to ensure year 2000 compliance. In addition, we have sent
questionnaires to our critical vendors in an attempt to confirm that they are
year 2000 compliant. We are conducting our year 2000 compliance efforts with the
assistance of independent consultants.
INTERNAL SYSTEMS
Our significant internal systems consist of our accounting systems and (our
system that manages the inventory for our plastic container leasing and fleet
management businesses). Two of our four accounting systems have been certified
by the licensor and successfully tested by us for year 2000 compliance. We are
in the process of replacing one of the other two accounting systems
93
<PAGE>
with a system that is certified by the licensor as being year 2000 compliant,
and we expect the replacement and testing to be completed by the end of
September 1999. We are in the process of updating the fourth accounting system
for year 2000 compliance, and we expect the updating and testing to be completed
by the end of July 1999. We are also in the process of updating our system that
manages the inventory for our plastic container leasing and fleet management
businesses for year 2000 compliance, and we expect the updating and testing to
be completed by the end of September 1999.
HARDWARE
Our hardware with embedded applications principally consists of
manufacturing machinery for the manufacture of plastic and steel drums.
Substantially all of this machinery has been certified by the manufacturer and
tested by us for year 2000 compliance.
VENDORS
We have sent questionnaires to 22 of our vendors that we consider to be
critical. Twelve vendors have responded, eight by supplying readiness disclosure
letters and four by completing our questionnaire. None of the responding vendors
reported any significant year 2000 compliance issues. We have sent a follow up
letter to the 10 vendors that have not responded to our questionnaire. All of
the vendors which have not responded are large, sophisticated institutions, and
we expect that they are aware of their year 2000 compliance issues.
YEAR 2000 RISKS
Despite our year 2000 compliance efforts, there are many risks associated
with the year 2000 compliance issue, including but not limited to the possible
failure of our systems and hardware with embedded applications. These failures
could result in:
- our inability to order raw materials,
- the malfunctioning of our manufacturing or services processes,
- our inability to properly bill and collect payments from our customers
and/or
- errors or omissions in accounting and financial data, any of which could
have a material adverse effect on our results of operations and financial
condition.
In addition, there can be no guarantee that the systems of other companies,
including our vendors, utilities and customers, will be converted in a timely
manner, or that a failure to convert by another company, or a conversion that is
incompatible with our systems, would not have a material adverse effect on us.
We have not yet developed any contingency plans but will do so if the testing or
investigations that we will carry out through 1999 suggest it is necessary.
COSTS
Through March 31, 1999 we have incurred and capitalized costs of
approximately $4.5 million primarily related to the upgrade and replacement of
our internal systems. We currently expect that we will incur and capitalize
future incremental costs of approximately $0.9 million. We are funding these
costs with a combination of cash from operations and borrowings under our senior
credit facility. We have developed our cost estimates with the assistance of
independent consultants.
94
<PAGE>
BUSINESS
GENERAL
We are a leading manufacturer and marketer of plastic and steel industrial
containers and a leading provider of related container services in the United
States and Canada. Our container manufacturing division manufactures and sells
new plastic and steel rigid industrial containers. Our services division
- leases plastic rigid industrial containers,
- provides plastic container fleet management services,
- reconditions and sells steel drums and
- retrieves and recycles empty industrial containers.
Our container manufacturing and services divisions together have over 1,500
active customers in the agricultural chemical, food product, lubricant,
pharmaceutical and specialty chemical industries.
We believe that our customers base their purchasing decisions primarily on
price, service and quality and are increasingly looking to maintain
relationships with fewer suppliers who can provide a broad range of high-quality
industrial containers and related container services at competitive prices,
often on a national or international basis. We have increased our net sales from
$138.8 million for the year ended December 31, 1995 to $284.5 million on a pro
forma basis for the year ended December 31, 1998, representing a compound annual
growth rate of 27.0%. During the same period we increased our Adjusted EBITDA
from $17.4 million to $46.2 million, representing a compound annual growth rate
of 38.4%, while our Adjusted EBITDA margin expanded from 12.5% to 16.2%. The
majority of our revenue and Adjusted EBITDA growth and margin improvement during
this period has come from the successful acquisition and integration of four
complementary businesses. Also, during the same period, our income (loss) before
extraordinary items decreased from $1.4 million to $(4.3) million. This decrease
was a result of increased interest expense and non-recurring charges.
We believe that our container manufacturing division offers one of the
broadest lines of 5- to 70-gallon plastic rigid industrial containers in the
United States and Canada and enjoys the largest share in the U.S. plastic drum
market as well as one of the leading shares in the Canadian plastic drum market.
We are the principal manufacturer in the United States and Canada of 55-gallon
plastic tight-head drums, which we sell under the brand names L-1 (LR-1 in
Canada) and Delcon. We believe that the design of the L-1 and Delcon drums is
the industry standard for 55-gallon plastic tight-head drums in the United
States and Canada, and we own and/or have a license to use important proprietary
technology relating to the manufacture and sale of these drums. Our container
manufacturing division also offers a broad line of the widely used 55-gallon
steel drum and, we believe, enjoys one of the leading shares in the Northeast,
Gulf Coast and Canadian steel drum markets.
Our services division is an innovator and, we believe, the leader in the
United States and Canada in the businesses of leasing plastic containers on a
per use or round-trip basis and providing plastic container fleet management
services. In our container leasing business, we lease a container to our
customer for filling and shipping to the end-user. We then retrieve the
container directly from the end-user and prepare it for re-use. Container fleet
management involves the same services, but uses containers owned by the
customer. Since 1991, the growth of plastic container leasing and fleet
management has outpaced the growth of the rigid industrial container market as a
whole, and we believe these businesses are among the fastest growing sectors of
the U.S. rigid industrial container market. We believe that our services
division is also the leading reconditioner of steel drums in the Northeast. The
addition of container services to our historical manufacturing business enables
us to serve a wider range of our customers' evolving industrial container
95
<PAGE>
requirements and is an important aspect of our strategy to retain and enhance
our leading market position as our customers increasingly look to rely on fewer
suppliers.
We currently operate twelve plastic drum manufacturing plants, three steel
drum manufacturing plants and six container services plants throughout the
United States and Canada, enabling us to be strategically located near our major
customers. We sell, lease and service plastic containers in most markets in the
United States and in most of the major industrial regions in Canada. We sell new
steel drums in the Northeast, the Gulf Coast, parts of the Midwest and Ontario,
Canada, regions where there is a high concentration of purchasers of steel
drums, and we sell reconditioned steel drums in the Northeast.
RECENT ACQUISITIONS
The rigid industrial container industry has been undergoing consolidation
for a number of years and remains fragmented. We believe that the industry will
evolve to support a few participants who are able to provide a broad range of
containers and related container services. As a result, we began pursuing, and
in July 1997 began consummating, several acquisitions in furtherance of our goal
to become the preeminent provider of rigid industrial containers and related
container services in the United States and Canada. We acquired Container
Management Services in July 1997, Hunter Drums Limited in October 1997, the
plastics division of Smurfit Packaging Corporation in November 1997 and New
England Container in July 1998. We discuss each of the businesses we acquired
under "Management's Discussion and Analysis of Financial Condition and Results
of Operation--Introduction."
As a result of these acquisitions, since July 1997 we have overseen the
successful integration of more than 100 products and the addition of our
services division. In addition, we have increased the number of our facilities
from 8 to 21 and improved our operating efficiency and Adjusted EBITDA margin.
INDUSTRY SEGMENT OVERVIEW
As reported by The Freedonia Group Incorporated, an international
study/database company, in a study dated August 1997, the rigid industrial
container industry consists of new plastic, steel and fiber drums, rigid
intermediate bulk containers and pails as well as bulk boxes and materials
handling containers. According to The Freedonia Group, the U.S. market had sales
of approximately $3.7 billion in 1996, the most recent period for which The
Freedonia Group reports relevant industry data. This represents a compound
annual growth rate of approximately 5.4% from 1987 sales of approximately $2.3
billion. Our container manufacturing division competes in a sector of the rigid
industrial container industry. We define our sector as consisting of new and
reconditioned plastic, steel and fiber drums, rigid intermediate bulk containers
and small containers/ pails. Our services division competes with other providers
of similar services. We do not know of any third-party source of market data for
the industrial container services industry.
Plastic drums are used primarily in the storage and transportation of
chemical products and are also increasingly being used for the storage and
transportation of petroleum and lubricants. Plastic drums are available in a
variety of capacities, ranging from 5 to 70 gallons, with the 55-gallon drum
being the most widely used. According to The Freedonia Group, there were $267
million of new plastic drums shipped from U.S. manufacturing establishments in
1996. Steel drums are used primarily for the transportation and storage of
liquids, semi-solids and dry products, particularly petroleum, lubricants and
chemical products, and have been utilized in these industries for more than 40
years. Steel drums typically range in capacities from 13 to 85 gallons, with the
55-gallon drum being the most widely used. According to The Freedonia Group,
there were $692 million of new steel drums shipped from U.S. manufacturing
establishments in 1996.
96
<PAGE>
Based on the changes we have experienced in our business and direct
discussions with our customers, we believe the following trends will continue to
play an important role in our industry's future:
- Larger competitors which offer broader product lines and have greater
manufacturing capacities, higher operating efficiencies and a greater
ability to invest in enhanced products and services will capture
increasing market share as smaller, regional companies find it more
difficult to compete, resulting in further consolidation of the industry;
- Customers are increasingly looking to fewer suppliers to provide an
increasing percentage of their industrial container supply and servicing
requirements;
- Customers are increasingly seeking broader product lines and global
service; consequently, our industry is becoming less regional, with
customers increasingly seeking national and international supply
arrangements; and
- Users of fiber drums are converting to the use of plastic drums in
response, in part, to the lower performance and re-use characteristics of
fiber drums and the higher cost of fiber drum disposal. We also believe
some users of plastic drums are converting to rigid intermediate bulk
containers based, in part, upon the perceived economies of shipping and
handling.
COMPETITIVE STRENGTHS
We believe the following competitive strengths are the primary factors
contributing to our leading position in the marketplace:
WE ARE A LEADING INDUSTRY PLAYER WITH STRONG MARKET POSITIONS. We believe
that we hold the largest share in the U.S. plastic drum manufacturing market,
one of the leading shares in the Canadian plastic drum manufacturing market and
one of the leading shares in the Northeast, Gulf Coast and Canadian steel drum
manufacturing markets. We also believe we are the leading provider of plastic
container leasing and fleet management services in the United States and Canada
and the leading steel drum reconditioner in the Northeast.
WE HAVE A BROAD OFFERING OF QUALITY PRODUCTS AND SERVICES. We offer a broad
line of 5- to 70-gallon plastic rigid industrial containers, anchored by the
55-gallon plastic tight-head L-1 and Delcon drums. We believe that the design of
the L-1/LR-1 and Delcon drums is the industry standard for 55-gallon plastic
tight-head drums in the United States and Canada. We also offer a broad line of
the widely used 55-gallon steel drum. We believe that our integration of
industrial containers and related container services distinguishes us from most
of our competitors and enables us to serve a wide range of our customers'
evolving industrial container requirements.
We pride ourselves in the quality of our products and services. As described
under "--Customers," we have received numerous quality awards from our
customers.
WE FOCUS ON MAINTAINING A COMPETITIVE COST STRUCTURE. We focus on
maintaining a competitive cost structure. Our cost structure benefits from:
- our attaining favorable prices for our most significant raw materials,
HDPE resin and cold-rolled steel, based on our high volume of raw material
purchases,
- the economies of scale provided by our high production volumes,
- high plant utilization,
- manufacturing techniques that reduce raw materials requirements, reduce
scrap and enhance productivity and
- low transportation costs resulting from the proximity of our facilities to
our major customers.
We also maintain an ongoing capital investment program designed to achieve high
levels of operating efficiency and productivity.
97
<PAGE>
WE HAVE A HIGH QUALITY AND DIVERSE CUSTOMER BASE. We have over 1,500 active
customers at more than 10,000 locations in the United States and Canada. No
single customer accounts for more than 4% of our 1998 net sales, and our top 15
customers account for less than 25% of our 1998 net sales. Our customers include
major participants in the agricultural chemical, food product, lubricant,
pharmaceutical and specialty chemical industries. We have enjoyed long-standing
relationships with many of our key customers and have been formally recognized
on a number of occasions for outstanding product quality and service. We have
been doing business with 14 of our top 15 customers for more than five years.
WE HAVE AN EXPERIENCED MANAGEMENT TEAM AND STRONG SPONSOR. Our senior
managers have more than 100 years of combined experience in the rigid industrial
container industry. We have successfully retained key members of management from
all recently acquired companies. Our management team has overseen the successful
integration of four complementary businesses and increased the number of our
facilities from 8 to 21. Our sponsor, Vestar, led the acquisition of
Russell-Stanley in June 1989. Since 1989, Vestar has been our majority
shareholder and has invested over $55 million of equity in Russell-Stanley.
Russell-Stanley currently represents one of Vestar's largest investments.
COMPETITION
The markets for our products are competitive. We believe competition is
based primarily on price, service and quality. Price competition may require us
to match competitors' prices to retain business or market share. We believe that
our competitive cost structure, high quality products, broad geographic coverage
and high level of customer service enable us to compete effectively. Our
container manufacturing division competes primarily with Greif Brothers
Corporation, Hoover Materials Handling Group, Inc., Schutz Container Systems,
Inc., and Van Leer Containers, Inc. in plastic drums and Evans Industries, Inc.,
Greif Brothers Corporation and Van Leer Containers, Inc. for steel drums. Our
services division competes primarily with Greif Brothers Corporation, Hoover
Materials Handling Group, Inc. and PalEx, Inc. Both of our divisions also
compete with smaller industry participants. See "Risk Factors--Competition could
have a material adverse effect on our operations."
BUSINESS STRATEGY
Our goal is to become the preeminent provider of rigid industrial containers
and related container services in the United States and Canada.
CONTINUE TO BROADEN OUR PRODUCT AND SERVICE OFFERING AND GEOGRAPHIC
REACH. We intend to continue to enhance our existing product lines through the
introduction of new products and product enhancements and selectively expand our
geographic reach in the United States and Canada. Most recently, we introduced a
number of new drum designs for use in specific markets, including plastic and
steel export drums that significantly reduce freight costs for exporters who use
overseas shipping containers, an open-top plastic drum that is designed for the
leasing market served by our services division and a returnable/reusable drum
principally for use in the agricultural market. We intend to aggressively market
our plastic containers and container leasing services to purchasers of fiber
drums. We believe purchasers of fiber drums represent a significant potential
market for us due, in part, to the lower performance and re-use characteristics
of fiber drums and the higher cost of fiber drum disposal. To expand our
geographic reach, we have budgeted for the addition of a new facility for our
services division and we plan to selectively review new geographic markets for
the steel drum business of our container manufacturing division.
98
<PAGE>
CONTINUE TO IMPROVE OUR COST STRUCTURE. We intend to continue to lower our
costs by reducing transportation costs, streamlining manufacturing facilities,
manufacturing some container parts in-house that we currently purchase from
third parties and reducing our overhead. We believe that we will also continue
to benefit from lower raw material costs based on our high volume of raw
material purchases. We also believe that opportunities exist for the sharing of
best practices of our most efficient manufacturing facilities which we believe
will lead to increased efficiencies and lower costs company-wide.
PURSUE SELECTIVE ACQUISITIONS. The rigid industrial container industry has
been undergoing consolidation for a number of years and remains fragmented. We
plan to pursue selected acquisition opportunities that complement and expand our
core businesses in terms of products, services and geographic reach. We believe
we can leverage our production, purchasing, distribution and management
strengths to improve the results of acquired operations.
CONTAINER MANUFACTURING DIVISION
Our container manufacturing division manufactures and sells new plastic and
steel rigid industrial containers and generated revenues of $227.4 million for
the year ended December 31, 1998 and $56.0 million for the three months ended
March 31, 1999.
PLASTIC CONTAINERS
We believe that we hold the largest share in the U.S. plastic drum
manufacturing market and one of the leading shares in the Canadian plastic drum
manufacturing market. We operate twelve plastic drum manufacturing facilities
serving most markets in the United States and most of the major industrial
regions in Canada.
We believe that we offer one of the broadest lines of plastic rigid
industrial containers in the United States and Canada. Our large containers
include full lines of both tight-head and open-top drums in sizes ranging from
30 to 70 gallons. We also produce a line of smaller plastic containers in sizes
ranging from 5 to 20 gallons.
We are the principal manufacturer in the United States and Canada of
55-gallon plastic tight-head drums, which we sell under the brand names L-1
(LR-1 in Canada) and Delcon. We believe that the design of the L-1 and Delcon
drums is the industry standard for 55-gallon plastic tight-head drums in the
United States and Canada, and we own and/or have a license to use important
proprietary technology relating to the manufacture and sale of these drums. See
"--Intellectual Property." We believe that the L-1 and Delcon drums offer
significant production cost advantages over earlier two-piece drum designs,
including higher manufacturing speeds and lower manufacturing costs. We also
believe that the L-1 and Delcon drums are superior to our competitors' similar
products because of their design features. We believe that the primary
advantages offered by the design features of the L-1 and Delcon drums are
- superior design which easily accommodates both new and old drum handling
equipment and which is available with an optimally drainable feature which
we were instrumental in pioneering and
- excellent performance with high structural integrity.
A key component of our strategy has been to build on the acceptance of the
L-1 and Delcon drums by enhancing our broad product offering. We have
accomplished this by both the introduction of new products and selective
acquisitions. We have introduced several new products, including a 30-gallon
version of the L-1 and Delcon drums and a light-weight 15-gallon drum. Most
recently, we introduced a number of new drum designs for use in specific
markets, including a plastic export drum that significantly reduces freight
costs for exporters who use overseas shipping containers, an open-top plastic
drum that is designed for the leasing market served by our services
99
<PAGE>
division and a returnable/reusable drum principally for use in the agricultural
market. On many of our drums over 15 gallons, we offer an industry leading
optimally drainable design feature which results in the drum retaining less
residual product than other designs. In addition, through the acquisition of the
plastics division of Smurfit Packaging Corporation, we broadened our product
line to include open-top drums as well as smaller (i.e., 5- to 20-gallon)
plastic containers, providing us with one of the broadest lines of plastic
containers in the industry.
We also manufacture several specialty tight-head drums, including a
high-purity "clean" drum for use in the electronic chemical market, drums for
the lubricant industry which use special replaceable closures and are capable of
four-high stacking, a "raised head" drum for end users with special stacking
requirements and a "heavy" drum that meets United Nations international shipping
standards for particular products. Other products include plastic liners used
for steel, fiber and composite drums.
STEEL CONTAINERS
We believe that we have one of the leading shares in the Northeast, Gulf
Coast and Canadian steel drum manufacturing markets. We have three steel drum
facilities which serve the Northeast, the Gulf Coast, parts of the Midwest and
Ontario, Canada, regions where there is a high concentration of purchasers of
steel drums.
We produce a broad line of the widely used 55-gallon steel drum,
manufactured to customer specifications, including steel gauge, special linings,
custom painting and special closure systems. Our line of steel drum products
also includes lined and unlined tight-head and open-top drums and tight-head
drums that incorporate our optimally drainable design feature. In addition, we
also manufacture a steel export drum that significantly reduces freight costs
for exporters who use overseas shipping containers.
We are actively pursuing new products and product enhancements for our line
of steel drums. For example, in the second quarter of 1997 we introduced into
our product line a drum with an innovative "W" shaped rolling hoop that has
better performance characteristics than steel drums with the standard rolling
hoop.
SERVICES DIVISION
Our services division
- leases plastic rigid industrial containers,
- provides plastic container fleet management services,
- reconditions and sells steel drums and
- retrieves and recycles empty industrial containers and generated revenues
of $46.6 million for the year ended December 31, 1998 and $14.9 million
for the three months ended March 31, 1999.
The addition of these container services to our historical manufacturing
business enables us to serve a wider range of our customers' evolving industrial
container requirements and is an important aspect of our strategy to retain and
enhance a leading market position as our customers increasingly look to maintain
relationships with fewer suppliers.
CONTAINER LEASING
Our services division pioneered the businesses of plastic container leasing
on a per use or round-trip basis and plastic container fleet management in the
United States and Canada utilizing inventory tracking technology.
100
<PAGE>
In our plastic container leasing business, our services division leases a
plastic container to a customer, who fills the container and ships the full
container to its customer, the end-user. The end-user then calls a toll-free
number, and we arrange to pick up the empty container directly from the
end-user. Upon its return, the container is thoroughly inspected, cleaned and
graded and either inventoried for re-use or, if below grade, recycled. We charge
our leasing customers a flat per use price. We believe that container leasing on
a per use or round trip basis is an attractive alternative to purchasing as per
use leasing may result in lower container costs for our customers. Also, our
retrieval of the empty container relieves the end-user of container disposal.
CONTAINER FLEET MANAGEMENT
In our plastic container fleet management business, our services division
provides the customer with the same services as described above, but using the
customer's fleet of containers purchased from our container manufacturing
division or from another manufacturer. We also charge our container fleet
management customers a flat per use price.
STEEL RECONDITIONING
We began steel drum reconditioning in July 1998 with the acquisition of New
England Container, a leader in terms of quality and service. Our services
division arranges for the retrieval of empty industrial containers of all types,
including containers manufactured by other manufacturers. Larger end-users of
drums are provided with trailers to store their empty drums. When the trailer is
filled, we arrange for it to be returned to our service facility and leave an
empty trailer in its place. We also arrange to pick up empty drums from smaller
customers on request. Used drums are returned to our service facility where they
are thoroughly inspected, sorted and graded. The drums are then cleaned and
either processed for recycling or fully reconditioned. The reconditioning
process includes metal preparation (to prepare the steel for a new coating),
metalworkings (to remove all dents and insure the drum meets dimensional
specifications), leak testing, interior lining and exterior painting to meet the
filling customer's specifications. A reconditioned steel drum sells for
approximately 60% of the price of a new steel drum. We generally charge our
customers a fee to pick up and dispose of used drums. In some cases, however, we
will pay the customer a small fee for drums which are in high demand and are of
reconditionable quality.
CONTAINER RECYCLING
We provide for the environmentally sound destruction of plastic and fiber
containers and steel containers that are not suitable for reconditioning on a
contract basis. The empty containers are cleaned in an environmentally sound
fashion and are then processed for sale as recycled material.
CUSTOMERS
Some of our major customers include A. Smith Bowman Distillery Incorporated,
Ashland Chemical Co., BASF Corporation, CIBA-GEIGY Co., Clariant Corporation,
Crompton & Knowles Corporation, Diversey Lever, The Dow Chemical Company, E.I.
Du Pont De Nemours & Co., Ecolab, Inc., Equilon Enterprises LLC, Exxon
Corporation, Henkel Surface Technologies (Henkel Corporation), National
Packaging Services, Inc., and Rohm and Haas Company. We have received numerous
quality awards from our customers, including a Supplier Partnership Award from
The Dow Chemical Company, three Distinguished Vendor awards from Ecolab, Inc., a
Supplier of the Year award from Novus International, Inc., three Quality
Supplier Q-1 awards from Parker-Amchem, a division of Henkel Corporation and a
Supplier of the Year award from Union Carbide Corporation. For more information
regarding our customers, see "--Competitive Strengths--We Have a High Quality
and Diverse Customer Base."
101
<PAGE>
RAW MATERIALS
The principal raw material and most significant cost component for our
plastic containers is HDPE resin. We generally maintain less than one month of
HDPE resin inventory at each plastic manufacturing facility. The principal raw
material and most significant cost component for our steel drums is cold-rolled
steel. We generally maintain one to two months of cold-rolled steel inventory at
each steel manufacturing facility. We maintain this level of inventory of
cold-rolled steel because we purchase a portion of our cold-rolled steel from
foreign suppliers who do not ship as frequently as domestic suppliers. There is
no effect on our operating margin from maintaining this additional inventory.
Raw materials purchasing is centrally managed from our corporate
headquarters. We maintain relationships with various suppliers for HDPE resin,
cold-rolled steel and other raw materials. While we generally believe our access
to raw materials is good, we cannot assure you that we will have an
uninterrupted supply of raw materials at competitive prices. See "Risk
Factors--We may not be able to obtain raw materials at all or at prices that
allow us to maintain a positive cash flow."
We do not manufacture rigid intermediate bulk containers. Our rigid
intermediate bulk containers purchases are effected through individual purchase
orders. For a discussion of related risks, see "Risk Factors--Increasing usage
of IBCs could have a material adverse effect on our results of operations."
SALES AND MARKETING
Our sales and marketing is conducted through a sales force of approximately
50 people. While our sales force is generally divided along our product and
service lines, we have a group of four Strategic Account Managers who sell and
market all of our products and services to our large customers who purchase
across our product and services lines. Our Strategic Account Managers promote us
as a source for all of our customers' rigid industrial container requirements.
Our Strategic Account Managers also coordinate our participation in the
Mauser International Packaging Institute and Drumnet associations of industrial
container suppliers. We and other participants in these organizations can offer
to supply and service a customer's industrial container requirements through the
network of participants in more than 30 countries, primarily in North America,
Europe and Asia. Our ability to provide for our customers' industrial container
requirements on an international basis results in strong customer relationships
in our U.S. and Canadian markets.
Our sales personnel work closely with our customers and business operators
to satisfy all of our customers' industrial container requirements. Our sales
personnel are trained to seek and recognize opportunities to cross-sell all of
our products and services. In addition, we have employees who are trained to
provide extensive technical and regulatory support to our customers.
102
<PAGE>
PROPERTIES AND EQUIPMENT
We own or lease twelve plastic and three steel drum manufacturing facilities
and six service facilities. The following table sets forth particular
information as of March 31, 1999 with respect to our facilities:
<TABLE>
<CAPTION>
LOCATION DESCRIPTION AREA (SQUARE FEET) LEASED OR OWNED
- ----------------------------------------- ------------------------------ ------------------- -----------------
<S> <C> <C> <C>
Allentown, Pennsylvania.................. Plastic Manufacturing 140,000 Leased
Romeoville, Illinois..................... Plastic Manufacturing 70,000 Owned
Houston, Texas........................... Plastic Manufacturing 50,000 Owned
Rancho Cucamonga, California............. Plastic Manufacturing 73,500 Owned
Nitro, West Virginia..................... Plastic Manufacturing 58,000 Leased
Reserve, Louisiana....................... Plastic Manufacturing 72,000 Owned
The Woodlands, Texas..................... Plastic Manufacturing 90,000 Leased
Atlanta, Georgia......................... Plastic Manufacturing 95,000 Owned
South Brunswick, New Jersey.............. Plastic Manufacturing 110,000 Leased
Addison, Illinois........................ Plastic Manufacturing 135,000 Owned
Wilmington, Delaware(*).................. Plastic Manufacturing 80,000 Leased
Bramalea, Ontario........................ Plastic Manufacturing 80,000 Leased
Woodbridge, New Jersey................... Steel Manufacturing 120,000 Owned
Houston, Texas........................... Steel Manufacturing 106,500 Owned
Burlington, Ontario...................... Steel Manufacturing 60,000 Owned
Simpsonville, South Carolina (two
facilities)............................ Plastic Services 123,000/40,000 Leased
Allentown, Pennsylvania.................. Plastic Services 150,000 Leased
Smithfield, Rhode Island................. Plastic and Steel Services 44,000 Owned
Baltimore, Maryland...................... Steel Services 39,000 Leased
Richmond, Virginia....................... Steel Services 16,500 Leased
</TABLE>
- ------------------------
(*) Scheduled to be closed in 1999.
We own approximately 1,400 trailers and lease approximately 400 trailers to
help ensure on-time delivery of containers directly to our customers'
facilities.
Our corporate and executive headquarters, located in Bridgewater, New
Jersey, provides administrative services to our facilities, including
accounting, accounts receivable, financial reporting, human resources,
information technology, insurance, taxes and treasury services.
INTELLECTUAL PROPERTY
We have the exclusive license from Mauser to manufacture the L-1 drum
throughout all of the United States, except particular parts of the Southeast,
and throughout all of Canada, we and one other manufacturer have the exclusive
right to sell the L-1 throughout the United States and we have the exclusive
right to sell the LR-1 in Canada. There are over 40 licensees worldwide for
Mauser plastic drum technology, which is generally acknowledged as one of the
best large plastic blow mold production technologies worldwide. Our rights to
the Mauser technology derive from a series of licenses. These licenses terminate
on July 31, 2008, unless one or more improvement patents are issued, in which
case they terminate on the earlier of
(1) the expiration of the latest to expire of these improvement patents and
(2) July 31, 2015, unless extended by Mauser. See "Risk Factors--The
termination of our license with Mauser could have a material adverse
effect on our results of operations."
103
<PAGE>
We also have the non-exclusive license from Gallay S.A. to manufacture steel
containers using Gallay's patented production process at our steel drum
manufacturing facilities and the non-exclusive license to sell these steel
containers throughout the United States and Canada. The duration of the Gallay
licenses extends to the time of expiration of the last of any patent licensed
under our agreements with Gallay.
A significant portion of our revenues are generated by products created
under the Gallay licenses.
Other than our licenses described above, we do not have any material patents
or other intellectual property.
EMPLOYEES
As of May 31, 1999, we employed 1,563 persons, of whom 33 were employed at
corporate headquarters, 255 were regional or area managers and support personnel
and 1,275 were employed at our manufacturing and service facilities.
Approximately 29% of our employees are represented under collective bargaining
agreements which expire from August 1999 to June 2002. There are approximately
110 employees working under the agreement that expires in August 1999. None of
our employees are working under expired collective bargaining agreements. We do
not anticipate any difficulty in extending or renegotiating our collective
bargaining agreements as they expire. We believe that our labor relations are
good. See "Risk Factors--Employee slowdowns, strikes or similar actions could
have a material adverse effect on the results of our operations."
ENVIRONMENTAL MATTERS
Our operations are subject to federal, state, local and Canadian
environmental laws that continue to be adopted and amended. These environmental
laws regulate, among other things, air and water emissions and discharges at our
manufacturing and service facilities; our generation, storage, treatment,
transportation and disposal of solid and hazardous waste; and the release of
toxic substances, pollutants and contaminants into the environment at properties
that we operate and at other sites. In some circumstances and jurisdictions,
these laws also impose requirements regarding the environmental conditions at
properties prior to a transfer or sale. These laws may apply to facilities that
we previously owned or operated. Our business involves the manufacture, lease
and reconditioning of containers, which may be used for chemical products. Risks
of significant costs and liabilities are inherent in our operations and
facilities, as they are with other companies engaged in like businesses. We
believe, however, that our operations are in substantial compliance with all
applicable environmental laws.
In addition, under environmental laws, a current or previous owner of real
property, and parties that generate or transport hazardous substances that are
disposed of at real property, may be liable for the costs of investigating and
remediating these substances on or under the property. The federal Comprehensive
Environmental Response, Compensation & Liability Act, as amended, and similar
laws, may impose this liability on a joint and several basis, regardless of
whether the liable party was at fault for the presence of the hazardous
substances. We have not incurred significant liability in several of these cases
asserted against us and settled to date involving the cleanup of off-site
locations where we allegedly disposed of waste. However, we cannot assure that a
material claim under these laws will not arise in the future.
The U.S. Environmental Protection Agency has confirmed the presence of
certain contaminants, including dioxin, in and along the Woonasquatucket River
in Rhode Island. Prior to 1970, New England Container operated a facility in
North Providence, Rhode Island along the Woonasquatucket River at a site where
contaminants have been found. Recent press reports identify New England
Container as a business that may have contributed to the contamination. We are
not aware that any party has been formally identified by the EPA as a
potentially responsible
104
<PAGE>
party. Although New England Container no longer operates the facility, and did
not operate the facility at the time we acquired the outstanding capital stock
of New England Container in July 1998, New England Container could incur
liability under federal and state environmental laws and/or as a result of civil
litigation. We believe that any resulting liability is subject to a contractual
indemnity from Vincent J. Buonanno, one of our directors and the former owner of
New England Container. However, this indemnity is subject to a $2.0 million
limit. We currently are unable to estimate the likelihood or extent of any
liability; however, this matter may result in liability to New England Container
that could have a material adverse effect on Russell-Stanley's financial
condition and results of operations. See "Risk Factors--Environmental laws and
regulations could have a material adverse effect on our financial condition,
results of operations or cash flows."
LEGAL PROCEEDINGS
As a result of a grand jury criminal investigation initiated by the
Antitrust Division of the Department of Justice into price fixing in the steel
drum industry prior to the acquisition of Russell-Stanley by Vestar, our former
Director of National Sales was indicted in October 1992 and convicted in
February 1993 of conspiring to fix steel drum prices with a number of our
competitors in the Eastern United States during a period preceding March 1990.
As a result of the same investigation, William Lima, who had been President of
Russell-Stanley prior to his termination in April 1993, was indicted in December
1994 and convicted in November 1995 of the same offense. Mr. Lima was sentenced
in December 1996. In December 1997, Mr. Lima's conviction was affirmed on appeal
by a three judge panel of the U.S. Court of Appeals, Third Circuit. Mr. Lima's
petition for a rehearing of that decision was denied in January 1998. In June
1993, we negotiated a plea agreement with the Antitrust Division of the
Department of Justice pursuant to which Russell-Stanley pled guilty to several
counts relating to the price fixing investigation and subsequent information
gathering processes and paid specified fines. In June 1992, we settled a
private, class action lawsuit arising out of the price fixing investigation
pursuant to which we paid monetary damages and attorneys' fees.
In May 1993, Mr. Lima sued Russell-Stanley, Vestar and principals of Vestar
who are directors of Russell-Stanley in New Jersey Superior Court for
compensatory damages which Mr. Lima estimated to be approximately $7.5 million,
punitive damages in an unspecified amount and attorney's fees. Mr. Lima alleged
several causes of action arising out of Russell-Stanley's decision to treat his
termination of employment as being for "cause" and therefore to treat Mr. Lima's
stock and options as being without value. The term "cause" was defined in a
stock subscription agreement and a nonqualified stock option agreement between
Mr. Lima and Russell-Stanley. Mr. Lima also alleged a cause of action for breach
of contract arising out of our decision to cease paying Mr. Lima's legal fees in
connection with the grand jury investigation. The defendants counterclaimed
against Mr. Lima alleging common law fraudulent misrepresentation and common law
fraudulent inducement in connection with our acquisition by Vestar and our
agreement to enter into the agreements mentioned above with Mr. Lima. In March
1994, the New Jersey Superior Court entered an order staying all proceedings in
this action pending the outcome of Mr. Lima's criminal proceeding. In June 1998,
following the final resolution of Mr. Lima's criminal case, we and the other
defendants moved to lift the stay and for partial summary judgment dismissing
Mr. Lima's claims. On November 5, 1998, the New Jersey Superior Court entered an
order vacating the stay. The Superior Court denied the partial summary judgment
motion without prejudice subject to being renewed following limited discovery on
the issue of the reasons for Mr. Lima's termination. After discovery was
completed, defendants renewed their partial summary judgment motion. After the
motion was fully briefed, the judge referred the case to a mediator for
non-binding mediation. On June 4, 1999, the parties reached a settlement. The
portion of the settlement payable by us is not material to our results of
operations or financial condition.
In addition to the proceedings described above, we are a party to various
lawsuits arising in the ordinary course of business. We do not believe these
other lawsuits are material to our results of operations or financial condition.
105
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our Directors and executive officers are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- ----------------------------------------------------------------------
<S> <C> <C>
Robert L. Rosner 39 Chairman of the Board of Directors
Robert L. Singleton 51 President, Chief Executive Officer, Secretary and Director
Daniel W. Miller 48 Executive Vice President, Chief Financial Officer, Treasurer,
Assistant Secretary and Director
Mark E. Daniels 39 Executive Vice President, President of Container Management Services
and Director
Michael W. Hunter 42 Executive Vice President, President of Hunter Drums Limited and
Director
Gerard C. DiSchino 42 President New England Container
Joseph P. Bevilaqua 44 Vice President, Container Manufacturing Division--Plastic Products
John H. Hunter 53 Vice President, Operations and Engineering--Container Manufacturing
Division
David Garrison 59 Vice President, Container Manufacturing Division--Steel Products
Kevin H. Kerchner 45 Vice President, Logistics and Planning
Ronald M. Litchkowski 41 Vice President, Controller
Norman W. Alpert 40 Director
Vincent J. Buonanno 55 Director
Todd N. Khoury 33 Director
Leonard Lieberman 70 Director
Kevin Mundt 45 Director
Arthur J. Nagle 60 Director
Vincent J. Naimoli 61 Director
Daniel S. O'Connell 45 Director
John W. Priesing 70 Director
</TABLE>
ROBERT L. ROSNER is a Managing Director of Vestar and was a founding partner
of Vestar at its inception in 1988. Mr. Rosner is Chairman of Russell-Stanley's
Board of Directors. Mr. Rosner is also a director of Remington Products Company,
L.L.C. a company in which Vestar has a significant equity interest. Mr. Rosner
holds a B.A. from Trinity College and a M.B.A. from the University of
Pennsylvania.
ROBERT L. SINGLETON joined Russell-Stanley in 1996 as President and Chief
Executive Officer. Prior to joining Russell-Stanley, Mr. Singleton served as
Vice President-Materials and Vice President-Plastics Group of Rexam Inc., a
subsidiary of Rexam plc, since 1992. From 1983 to 1992, Mr. Singleton held
positions at GE Plastics, a division of General Electric Company, in global
business development, marketing and product management, most recently serving as
General Manager of General Electric's worldwide LEXAN business. Mr. Singleton
holds a B.S.E. from Princeton University, a S.M. from M.I.T. and a M.B.A. from
Harvard University.
DANIEL W. MILLER joined Russell-Stanley in March 1995 and was appointed
Senior Vice President and Chief Financial Officer in February 1996. Mr. Miller
was appointed Senior Vice President,
106
<PAGE>
Finance and Chief Financial Officer in June 1996 and is currently Executive Vice
President and Chief Financial Officer. Prior to May 1998, Mr. Miller was also a
Managing Director of Vestar Resources, Inc., an affiliate of Vestar, which he
joined in 1993. From 1990 to 1993, Mr. Miller held various executive positions
and served as President of Harding Service Corporation, an affiliate of Wesray
Capital Corporation. He has also held various executive financial positions with
Forstmann Little & Co. and Dresser Industries, Inc. Mr. Miller is a C.P.A. and
holds a B.S. from Northern Illinois University.
MARK E. DANIELS joined Russell-Stanley as Executive Vice President with the
acquisition of Container Management Services in 1997. Mr. Daniels founded
Container Management Services in 1991, and served as President of Container
Management Services since its inception. In 1983, Mr. Daniels founded and
managed LinTech, Inc. which provided ultra low temperature size reduction and
classification of specialty products including thermoplastics, pharmaceuticals
and foodstuffs. LinTech was sold to Tanner Chemical/Chamberlain Phipps in 1986,
where Mr. Daniels served as Division Manager from 1986 to 1991. Mr. Daniels
holds a B.S. from Lehigh University.
MICHAEL W. HUNTER joined Russell-Stanley as Executive Vice President and
President of Hunter Drums Limited with the acquisition of Hunter Drums Limited
in 1997. Mr. Hunter joined Hunter Drums Limited in 1979 and became President in
1984. Mr. Hunter holds a B.A. from the University of Western Ontario.
GERARD C. DISCHINO joined Russell-Stanley as President of New England
Container with the acquisition of New England Container in 1998, where he became
president in 1997. Prior to joining New England Container, Mr. DiSchino spent
over 15 years in various positions with Norton Company, a division of Saint
Gobain Corporation. Mr. DiSchino holds a B.A. from Boston College and a M.B.A.
from Babson College.
JOSEPH P. BEVILAQUA joined Russell-Stanley as Vice President, Sales and
Market Development in 1998. Mr. Bevilaqua is currently Vice President, Container
Manufacturing Division--Plastic Products. Prior to joining Russell-Stanley, Mr.
Bevilaqua was Executive Director, Engineered Products and Corporate Marketing of
Woodbridge Foam Corporation. Mr. Bevilaqua has held a variety of product
management and market development positions at GE Plastics, a division of
General Electric Company. Mr. Bevilaqua holds a B.S. from the University of
Tennessee.
JOHN H. HUNTER joined Russell-Stanley in 1984 as a Vice President and was
appointed Vice President--Plastics Division in 1986. Mr. Hunter is currently
Vice President, Operations and Engineering--Container Manufacturing Division.
Prior to joining Russell-Stanley, Mr. Hunter was a Plant Manager for ACT. Mr.
Hunter holds a B.S. from the University of Strathclyde in Glasgow, Scotland.
DAVID GARRISON joined Russell-Stanley as Vice President, Operations in 1991.
Mr. Garrison is currently Vice President, Container Manufacturing
Division--Steel Products. Prior to joining Russell-Stanley, Mr. Garrison was
Vice President and General Manager at Eastern Steel Barrel Corp. From 1962 to
1978 he was employed by American Thermo Plastics Corporation, a subsidiary of
Phillips Chemical Company. Mr. Garrison holds a B.S. from Lehigh University.
KEVIN H. KERCHNER joined Russell-Stanley as Vice President, Operations with
its acquisition of the plastics division of Smurfit Packaging Corporation in
1997. Mr. Kerchner is currently Vice President, Logistics and Planning. Prior to
joining Russell-Stanley, Mr. Kerchner spent ten years with Smurfit Packaging
Corporation in operating assignments in both plastics and fiber packaging. He
has held various positions in finance and planning with Johnson Matthey PLC and
Container Corporation of America. Mr. Kerchner holds a B.A. from Eastern
Illinois University and a M.B.A. from Butler University.
107
<PAGE>
RONALD M. LITCHKOWSKI joined Russell-Stanley as Vice President, Controller
in 1997. Prior to joining Russell-Stanley, Mr. Litchkowski was Vice President of
Finance and Administration for the Institutional Products Division of
Colgate-Palmolive Company, where he worked since 1989. Mr. Litchkowski is a
C.P.A. and holds a B.S. from King's College.
NORMAN W. ALPERT is a Managing Director of Vestar and was a founding partner
of Vestar at its inception in 1988. Mr. Alpert is Chairman of the Board of
Directors of Advanced Organics, Inc., International AirParts Corporation and
Aearo Corporation, and a director of Cluett American Corp., Siegel & Gale
Holdings, Inc. and Remington Products Company L.L.C., all companies in which
Vestar has a significant equity interest. Mr. Alpert holds an A.B. from Brown
University.
VINCENT J. BUONANNO is the Chairman and Chief Executive Officer of Tempel
Steel Company of Chicago, a producer of magnetic steel laminations. Mr. Buonanno
was the principal stockholder and President of New England Container from 1980
until 1997 and is a trustee of Brown University. Mr. Buonanno holds an A.B. from
Brown University.
TODD N. KHOURY is a Vice President of Vestar and joined Vestar in 1993. Mr.
Khoury is also a director of Siegel & Gale Holdings, Inc., a company in which
Vestar has a significant equity interest. Mr. Khoury holds a B.A. from Yale
University and a M.B.A. from Harvard University.
LEONARD LIEBERMAN is a retired Chief Executive Officer of Supermarkets
General Corporation and Outlet Communications Inc. Mr. Lieberman is also a
director of Advanced Organics, Inc. and Reid Plastics Holdings, Inc., companies
in which Vestar has a significant equity interest, Celestial Seasonings Inc.,
Republic New York Corporation, Republic National Bank of New York, Sonic Corp.,
and Nice-Pak Products, Inc. Mr. Lieberman holds a B.A. from Yale University, a
J.D. from Columbia University and participated in the Advanced Management
Program at Harvard University.
KEVIN MUNDT is a Vice President, member of the Board of Directors, and head
of the Retail, Consumer & Healthcare Group of Mercer Management Consulting.
Prior to that, Mr. Mundt was a founding partner of Corporate Decisions, Inc., a
Boston strategy consulting firm that focused on developing growth strategies in
changing markets that later merged with Mercer. Mr. Mundt holds an A.B. from
Brown University and holds a M.B.A. from Harvard University.
ARTHUR J. NAGLE is a Managing Director of Vestar and was a founding partner
of Vestar at its inception in 1988. Mr. Nagle is a director of Aearo Corporation
and Remington Products Company, L.L.C., both companies in which Vestar has a
significant equity interest. Mr. Nagle holds a B.S. from Pennsylvania State
University and a M.B.A. from Columbia University.
VINCENT J. NAIMOLI is the Chairman, President and Chief Executive Officer of
Anchor Industries International. Mr. Naimoli is also Managing General Partner
and Chief Executive Officer of the Tampa Bay Devil Rays, Ltd. Major League
Baseball Club and a director of Florida Progress and Players International Inc.
Mr. Naimoli holds a B.S.M.E. from the University of Notre Dame, a M.S.M.E. from
New Jersey Institute of Technology, a M.B.A. from Fairleigh Dickinson University
and participated in the Advanced Management Program at Harvard University.
DANIEL S. O'CONNELL is the founder and Chief Executive Officer of Vestar.
Mr. O'Connell is a director of Advanced Organics, Inc., Aearo Corporation,
Cluett American Corp., Insight Communications Company, L.P., Remington Products
Company L.L.C. and Siegel & Gale Holdings, Inc., all companies in which Vestar
has a significant equity interest. Mr. O'Connell holds an A.B. from Brown
University and a M.P.P.M. from Yale University.
JOHN W. PRIESING is the Chief Executive Officer of Advanced Organics, Inc.,
a company in which Vestar has a significant equity interest. Mr. Priesing was
Russell-Stanley's Chairman from 1993 to 1997 and President and Chief Executive
Officer from 1993 to 1996. Prior to joining Russell-Stanley, Mr. Priesing served
as President and Chief Executive Officer of Axel Johnson Inc. From 1973 to
108
<PAGE>
1978, Mr. Priesing was group vice president and director of Phelps Dodge
Industries. Mr. Priesing holds a B.A. from Amherst College and a M.B.A. from
Harvard University.
There are no family relationships among any of our directors or executive
officers.
During 1998, Robert L. Rosner, Leonard Lieberman and Arthur J. Nagle served
on the Compensation Committee of our board of directors.
BOARD COMPENSATION
All directors are reimbursed for expenses incurred in attending all Board
and committee meetings. Except for Mark Daniels, directors who are also
employees of ours or Vestar do not receive remuneration for serving as
directors. Mr. Daniels receives $25,000 per year for his service as a director.
Each other director of the Board receives $15,000 per year for his service as a
director, $2,000 for each meeting of the Board attended in person (or $1,000 for
each meeting of the Board attended by teleconference) and $1,000 for each
committee meeting attended in person (or $500 for each committee meeting
attended by teleconference).
EXECUTIVE COMPENSATION
The following table sets forth summary information concerning compensation
for services in all capacities awarded to, earned by or paid to our Chief
Executive Officer and each of our other four most highly compensated executive
officers whose aggregate cash and cash equivalent compensation exceeded $100,000
(collectively, the "Named Executive Officers"), with respect to the year ended
December 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
------------------------
AWARDS
----------- PAYOUTS
SECURITIES ----------- ALL OTHER
ANNUAL COMPENSATION UNDERLYING LTIP COMPEN-
NAME AND ------------------------ OPTIONS PAYOUTS SATION
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) (#) ($) ($)(1)
- --------------------------------------------------- --------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Robert L. Singleton................................ 1998 310,000 100,000 35,000 31,250 141,953(2)
President and Chief Executive Officer
Daniel W. Miller................................... 1998 247,308(3) 125,000(4) 15,000
Executive Vice President and Chief Financial
Officer
Mark E. Daniels.................................... 1998 225,000 25,000 17,500 795,000(5)
Executive Vice President and President of
Container Management Services
Michael W. Hunter.................................. 1998 238,319(6) 94,470(7) 17,500 469,000(8)
Executive Vice President and President of Hunter
Drums Limited
John H. Hunter..................................... 1998 166,000 60,000 3,000 41,667 18,889(9)
Vice President, Operations and
Engineering--Container Manufacturing Division
</TABLE>
- ------------------------
(1) Russell-Stanley maintains a group life insurance policy under which some
employees, including all of the Named Executive Officers, receive life
insurance with a death benefit equal to the
109
<PAGE>
lesser of the employee's salary and $300,000. The premiums paid in respect
of any individual are not significant.
(2) Represents payment of $124,688 by Russell-Stanley in reimbursement of
expenses incurred by Mr. Singleton in connection with his relocation to New
Jersey, a contribution of $5,000 by Russell-Stanley under Russell-Stanley's
401(k) Savings Plan and a contribution of $12,265 by Russell-Stanley under a
defined contribution plan maintained by Russell-Stanley during 1999.
(3) Represents payment by Russell-Stanley of $75,000 to Vestar in consideration
for Mr. Miller's services as Russell-Stanley's Senior Vice President and
Chief Financial Officer from January through May 1998 and the payment by
Russell-Stanley of $172,308 to Mr. Miller as salary in respect of the period
from May through December 1998. Prior to May 1998, Russell-Stanley made all
payments in respect of Mr. Miller's services to Vestar. See "Certain
Relationships and Related Party Transactions."
(4) Represents a bonus of $100,000 paid by Russell-Stanley and a payment of
$25,000 from Vestar.
(5) Represents payment of $770,000 by Russell-Stanley pursuant to a stay/pay
agreement and payment of $25,000 by Russell-Stanley for Mr. Daniels' service
as a director. See "-- Employment Contracts" and "--Board Compensation."
(6) Mr. Hunter's salary is $355,700 (Canadian) per year. The amount reflected in
the table represents this amount converted at the rate of 0.67 U.S. dollars
per Canadian dollar.
(7) Mr. Hunter's bonus for 1998 was $141,000 (Canadian). The amount reflected in
the table represents this amount converted at the rate of 0.67 U.S. dollars
per Canadian dollar.
(8) Represents payment by Russell-Stanley of $700,000 (Canadian) pursuant to a
stay/pay agreement. The amount reflected in the table represents this amount
converted at the rate of 0.67 U.S. dollars per Canadian dollar. See
"--Employment Contracts."
(9) Represents a contribution of $3,760 by Russell-Stanley under
Russell-Stanley's 401(k) Savings Plan and a contribution of $15,129 by
Russell-Stanley under a defined contribution plan maintained by
Russell-Stanley in 1998.
110
<PAGE>
STOCK OPTION GRANTS
During the year ended December 31, 1998, Russell-Stanley granted a total of
88,000 stock options to the Named Executive Officers. The following table sets
forth the grants for each Named Executive Officer during the year ended December
31, 1998.
OPTION GRANTS IN 1998
<TABLE>
<CAPTION>
NUMBER OF POTENTIAL REALIZABLE
SECURITIES VALUE AT ASSUMED
UNDERLYING % OF TOTAL ANNUAL RATES OF
OPTIONS OPTIONS GRANTED EXERCISE OR STOCK PRICE
GRANTED TO EMPLOYEES IN BASE PRICE APPRECIATION FOR
NAME (#)(1) FISCAL YEAR ($/SHARE) EXPIRATION DATE OPTION TERM ($)
- ---------------------------- ----------- ----------------- ----------- --------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
5% 10%
Robert L. Singleton......... 35,000 27.9 50.00 February 25, 2008 1,100,400 2,789,150
Daniel W. Miller............ 15,000 11.9 50.00 May 17, 2008 471,600 1,195,350
Mark E. Daniels............. 17,500 13.9 50.00 February 25, 2008 550,200 1,394,575
Michael W. Hunter........... 17,500 13.9 50.00 February 25, 2008 550,200 1,394,575
John H. Hunter.............. 3,000 2.4 50.00 February 25, 2008 94,320 239,070
</TABLE>
- ------------------------
(1) Grants consist of stock options which become exercisable in five equal
annual installments commencing one year after the date of grant and become
immediately exerciseable in the event of a change in control or an initial
public offering of Russell-Stanley's common stock or other voting
securities. A change of control will occur on
- the date Vestar and its affiliates cease to beneficially own a majority of
the voting power of Russell-Stanley and cannot elect a majority of our
Board of Directors,
- subsequent to an initial public offering, the date any person other than
Vestar or its affiliates beneficially owns more than 35% of the voting
power of Russell-Stanley and Vestar or its affiliates beneficially owns
less voting power than that person or
- the date that the continuing members of the Board of Directors cease to
constitute a majority of the Board of Directors during a two-year period.
OPTION EXERCISES AND YEAR-END HOLDINGS
During the year ended December 31, 1998, none of the Named Executive
Officers exercised their stock options. The following table sets forth certain
information with respect to unexercised stock options held by each Named
Executive Officer as of December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-THE-
UNDERLYING UNEXERCISED MONEY OPTIONS AT
OPTIONS AT FISCAL FISCAL YEAR-END
YEAR-END UNEXERCISABLE/EXERCISABLE
NAME UNEXERCISABLE/EXERCISABLE (#) ($)(1)
- ----------------------------------------------------- ----------------------------- ----------------------------
<S> <C> <C>
Robert L. Singleton.................................. 51,427/12,561 476,383/364,269
Daniel W. Miller..................................... 18,650/8,000 0/296,000
Mark E. Daniels...................................... 49,719/15,869 0/0
Michael W. Hunter.................................... 17,500/0 0/0
John H. Hunter....................................... 3,000/16,000 0/592,000
</TABLE>
- ------------------------
(1) Values have been determined assuming a fair market value of $45.00 per share
of Russell-Stanley's common stock based on the most recent third-party
valuation of Russell-Stanley's equity value.
111
<PAGE>
LONG-TERM INCENTIVE PLAN
We maintain a performance unit incentive plan for key employees, including
the Named Executive Officers. During the year ended December 31, 1998,
Russell-Stanley awarded a total of 9,675 units to the Named Executive Officers
and established a target EBITDA for the three-year period from January 1, 1998
through December 31, 2000 pursuant to the plan. Each unit has a value of $100.00
if the EBITDA target is achieved. This per unit value will be prorated down to
$25.00 if less than 100% but more than 85% of the EBITDA target is achieved. The
units will have no value if less than 85% of the EBITDA target is achieved. The
per unit value will be prorated up to $200.00 if the EBITDA target is exceeded
by up to 25%. There is no increase in the per unit value for achieving EBITDA in
excess of 125% of the target amount. The unit payments will be made in three
equal annual installments in 2001, 2002 and 2003, provided that the relevant
Named Executive Officer is employed by Russell-Stanley on the payment dates. The
following table sets forth information with respect to the units granted to each
Named Executive Officer.
LONG-TERM INCENTIVE PLAN AWARDS IN 1998
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
NUMBER PERFORMANCE -----------------------------------
OF PERIOD THRESHOLD TARGET MAXIMUM
NAME UNITS (#) UNTIL PAYOUT ($) ($) ($)
- ----------------------------------------- ----------- ----------------------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Robert L. Singleton...................... 2,325 January 1, 1998- 197,625 232,500 465,000
December 31, 2000
Daniel W. Miller......................... 2,100 January 1, 1998- 178,500 210,000 420,000
December 31, 2000
Mark E. Daniels.......................... 1,875 January 1, 1998- 159,375 187,500 375,000
December 31, 2000
Michael W. Hunter........................ 1,875 January 1, 1998- 159,375 187,500 375,000
December 31, 2000
John H. Hunter........................... 1,500 January 1, 1998- 127,500 150,000 300,000
December 31, 2000
</TABLE>
EMPLOYMENT CONTRACTS
Robert L. Singleton entered into an employment agreement with
Russell-Stanley on September 20, 1996. Pursuant to the agreement, Mr. Singleton
received an initial annual base salary of $275,000, subject to discretionary
increases. Mr. Singleton is also entitled to annual incentive bonuses and is
eligible to participate in our long-term incentive program. The employment
agreement renews annually unless Russell-Stanley elects not to renew.
Mark E. Daniels entered into an employment agreement with Russell-Stanley on
July 23, 1997. Pursuant to the agreement, Mr. Daniels received an initial annual
base salary of $225,000, subject to discretionary increases. Mr. Daniels is also
entitled to annual incentive bonuses and is eligible to participate in our
long-term incentive program. The employment agreement has an initial term of
three years which is automatically renewed for one-year periods unless 60 days
prior written notice is given by either Mr. Daniels or Russell-Stanley. In the
event Mr. Daniels' employment is terminated by Russell-Stanley without cause,
Mr. Daniels would be entitled to receive a cash lump sum payment in respect of
compensation earned but not yet paid, as well as a severance payment in an
amount equal to the sum of
- one year's base salary and
- the product of
(1) Mr. Daniels' bonus for the fiscal year ended prior to his termination
of employment and
112
<PAGE>
(2) a fraction, the numerator of which is the number of days passed in
the current fiscal year prior to this termination and the denominator
of which is 365.
Mr. Daniels also entered into a separate agreement with Russell-Stanley on
July 23, 1997 providing him with additional monetary incentive to remain an
employee of Container Management Services through July 23, 2000. This agreement
provides for Mr. Daniels to receive $770,000 annually through July 23, 2000. In
addition, in the event Mr. Daniels' employment is terminated by Russell-Stanley
without cause, we would continue to make these payments.
Michael W. Hunter entered into an employment agreement with Russell-Stanley
on October 30, 1997. Pursuant to the agreement, Mr. Hunter received an initial
annual base salary of $345,000 (Canadian), subject to discretionary increases.
Mr. Hunter is also entitled to annual incentive bonuses and is eligible to
participate in our long-term incentive program. The employment agreement has an
initial term of five years which is automatically renewed for one-year periods
unless 60 days prior written notice is given by either Mr. Hunter or
Russell-Stanley. In the event Mr. Hunter's employment is terminated by
Russell-Stanley without cause, Mr. Hunter would be entitled to receive a cash
lump sum payment in respect of compensation earned but not yet paid, as well as
a severance payment in an amount equal to the sum of
- a multiple (ranging from 1 1/2 to 3) of one year's base salary and
- the product of
(1) the target bonus in respect of the fiscal year in which Mr. Hunter's
termination of employment occurs and
(2) a fraction, the numerator of which is the number of days passed in
the current fiscal year prior to his termination and the denominator
of which is 365.
Mr. Hunter also entered into a separate agreement with Hunter Drums Limited
on October 30, 1997 providing him with additional monetary incentive to remain
an employee of Hunter Drums Limited through October 30, 2003. This agreement
provides for Mr. Hunter to receive monthly payments of $58,334 (Canadian)
through October 30, 2001 and then $37,500 (Canadian) monthly thereafter, through
October 30, 2003. In addition, in the event Mr. Hunter's employment is
terminated by Russell-Stanley or Hunter Drums Limited without cause, Mr. Hunter
would be entitled to receive
- 75% of the aggregate payments remaining to be made pursuant to the
previous sentence in equal monthly installments during the first 50% of
the remaining term of the agreement and
- the remaining 25% of those aggregate payments on October 30, 2003.
In the event of a change of control, as defined in the agreement, Mr. Hunter
would be entitled to receive a single lump sum payment equal to the present
value of the remaining payments due under the agreement.
113
<PAGE>
OWNERSHIP OF COMMON STOCK
The following table sets forth information concerning the beneficial
ownership shares of our common stock on June 21, 1999 by
- each person known by us to be the beneficial owner of more than 5% of any
class of our common stock,
- each director who is a shareholder,
- our Chief Executive Officer and each of our Named Executive Officers, and
- all of our executive officers and directors as a group:
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF SHARES
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(A) OUTSTANDING (A)
- ------------------------------------------------------------- --------------------- -----------------------
<S> <C> <C>
5% STOCKHOLDERS
Vestar Capital Partners III, L.P. ........................... 1,163,637 53.55%
245 Park Avenue
New York, New York 10167
Vestar/R-S Investment, L.P. ................................. 490,000 22.55%
245 Park Avenue
New York, New York 10167
New York Life Insurance Company.............................. 290,909 13.39%
51 Madison Avenue
New York, New York 10010
Vestar Portfolio Investments, L.P. .......................... 29,318 1.35%
245 Park Avenue
New York, New York 10167
OFFICERS AND DIRECTORS
Robert L. Rosner(b).......................................... -- --
Robert L. Singleton.......................................... 19,561(c) *
Daniel W. Miller............................................. 14,650(d) *
Mark E. Daniels.............................................. 35,719(e) 2.0%
Michael W. Hunter............................................ 3,500(f) *
John H. Hunter............................................... 20,725(g) *
Norman W. Alpert(b).......................................... -- --
Vincent J. Buonanno.......................................... 24,243 1.12%
Leonard Lieberman............................................ 3,160 *
Arthur J. Nagle(b)........................................... -- --
Vincent J. Naimoli........................................... 3,160 *
Daniel S. O'Connell(b)....................................... -- --
John W. Priesing............................................. 22,000(h) 1.00%
All executive officers and directors as a group (20
persons)................................................... 151,128(i) 6.60%
</TABLE>
- ------------------------
* Less than one percent.
(a) The amounts and percentage of common stock beneficially owned are reported
on the basis of regulations of the Securities and Exchange Commission
governing the determination of beneficial ownership of securities. Under the
regulations, a person is deemed to be a "beneficial owner" of a security if
that person has or shares "voting power," which includes the
114
<PAGE>
power to vote or to direct the voting of that security, or "investment
power," which includes the power to dispose of or to direct the disposition
of that security. A person is also deemed to be a beneficial owner of any
securities of which that person has a right to acquire beneficial ownership
within 60 days. Under these rules, more than one person may be deemed a
beneficial owner of the same securities and a person may be deemed to be a
beneficial owner of securities as to which he has no economic interest.
(b) Mr. O'Connell is the President and Chief Executive Officer and Messrs.
Rosner, Nagle and Alpert are Vice Presidents of Vestar Associates
Corporation III. Vestar Associates Corporation III is the sole general
partner of Vestar Associates III, L.P., and Vestar Associates III, L.P. is
the sole general partner of Vestar Capital Partners III, L.P., which owns
1,163,637 shares of our common stock. Messrs. O'Connell, Rosner, Nagle and
Alpert, as executive officers of Vestar Associates Corporation III, may be
deemed to share beneficial ownership of those shares. Each of these
individuals disclaims that beneficial ownership.
Messrs. Alpert, Nagle and O'Connell are general partners of Vestar/R-S
Investment, L.P. which owns 490,000 shares of our common stock. Messrs.
Alpert, Nagle and O'Connell, as general partners of Vestar/R-S Investment,
L.P., may be deemed to share beneficial ownership of those shares. Each of
these individuals disclaims that beneficial ownership.
Messrs. Alpert, Nagle and O'Connell are general partners of Vestar/MAG
Aerospace Limited Partnership. Vestar/MAG Aerospace Limited Partnership is
the sole general partner of Vestar Portfolio Investments, L.P., which owns
29,318 shares of our common stock. Messrs. Alpert, Nagle and O'Connell, as
general partners of Vestar/MAG Aerospace Limited Partnership, may be deemed
to share beneficial ownership of those shares. Each of these individuals
disclaims that beneficial ownership.
(c) Includes currently exercisable options to purchase 19,561 shares of common
stock.
(d) Includes currently exercisable options to purchase 14,650 shares of common
stock.
(e) Includes currently exercisable options to purchase 35,719 shares of common
stock.
(f) Includes currently exercisable options to purchase 3,500 shares of common
stock.
(g) Includes currently exercisable options to purchase 16,600 shares of common
stock.
(h) Includes currently exercisable options to purchase 22,000 shares of common
stock.
(i) Includes currently exercisable options to purchase 116,440 shares of common
stock.
115
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
On July 23, 1997, we entered into a management agreement with Vestar.
Pursuant to the management agreement, Vestar provides us with advisory and
consulting services for an annual fee equal to the greater of $225,000 or 0.25%
of our net sales for that fiscal year, plus reimbursement of out-of-pocket
expenses. The management agreement terminates at any time that Vestar and its
affiliates hold, in the aggregate, less than 10% of the voting power of our
outstanding voting stock. See "Ownership of Common Stock." In addition to the
fees based on net sales for advisory and consulting services, in 1998 we paid
Vestar $160,000 for consulting services in connection with our acquisition of
New England Container and approximately $224,000 in reimbursement of out-of-
pocket expenses.
Prior to May 1998, Daniel W. Miller, our Executive Vice President and Chief
Financial Officer and one of our directors, was a Managing Director of Vestar
Resources, Inc., an affiliate of Vestar. Between February 1996 when Mr. Miller
became our Senior Vice President and Chief Financial Officer and May 1998 when
Mr. Miller became a full-time employee of Russell-Stanley, we paid Vestar at the
rate of $150,000 per year for Mr. Miller's services as our Senior Vice President
and Chief Financial Officer. Pursuant to this arrangement, we paid Vestar
$75,000 in respect of Mr. Miller's services for the period from January through
May 1998.
Kevin Mundt, one of our directors, is a Vice President, member of the Board
of Directors and head of the Retail, Consumer & Healthcare Group of Mercer
Management Consulting. In 1998, we engaged Mercer to provide consulting services
to Container Management Services, for which we paid Mercer approximately
$189,000. In 1998 we also engaged Mercer to provide consulting services to
Russell-Stanley, for which we paid Mercer approximately $272,000.
In June 1998, Russell-Stanley made an interest-free loan in the amount of
$77,000 to David Garrison, one of our executive officers, in connection with Mr.
Garrison's relocation to our headquarters in Bridgewater, New Jersey. Mr.
Garrison repaid the loan in full in August 1998.
In July 1998, Russell-Stanley acquired all of the capital stock of New
England Container from Vincent J. Buonanno, who subsequently became one of our
directors, for $14 million in cash and 24,243 shares of our common stock. The
consideration was determined based on negotiations between Russell-Stanley and
Mr. Buonanno and was approved by Russell-Stanley's board of directors. Under the
terms of the transaction, Russell-Stanley and Mr. Buonanno have agreed to
indemnify each other for losses pursuant to customary indemnification
provisions.
We have entered into a consulting agreement with Mr. Buonanno. In
consideration for his advising us on matters relating to the steel drum
reconditioning business, we will pay Mr. Buonanno four payments of $250,000 each
prior to December 31, 2001.
New York Life Insurance Company, one of our 5% stockholders, and New York
Life Insurance and Annuity Corporation, an affiliate of New York Life Insurance
Company, were lenders under our former senior credit agreement, with an
aggregate term loan commitment of $20.0 million which bore interest at 9.48% per
annum. This term loan remains outstanding under our senior credit facility
bearing the same interest rate and will mature in two equal installments in June
2006 and June 2007. We are required to offer to repay the term loan with the
proceeds from the sale of assets and with the proceeds from issuances of our
equity securities. We can also make optional prepayments. Mandatory and optional
prepayments are subject to prepayment premiums. In connection with the execution
of our senior credit facility, we paid fees of approximately $100,000 to these
lenders.
116
<PAGE>
DESCRIPTION OF SENIOR CREDIT FACILITY
Our senior credit facility is provided by a syndicate of banks and other
financial institutions led by BankBoston N.A., as administrative agent, and
Goldman Sachs Credit Partners L.P., as syndication agent. Our senior credit
facility provides for a $25.0 million term loan and $75.0 million of revolving
credit availability. The equivalent of U.S. $15.0 million of the revolving
indebtedness is available for borrowings in Canadian dollars by our Canadian
subsidiary, Hunter Drums Limited. The term loan will mature in two equal
installments in June 2006 and June 2007. The outstanding revolving credit
indebtedness and the revolving credit commitment will mature in February 2004.
The term loan bears interest at 9.48% per annum. Revolving indebtedness
bears interest at a combination of domestic source and Eurodollar borrowing
rates which fluctuate based on our EBITDA and debt levels.
We pay a commitment fee at a rate equal to 0.50% per annum on the undrawn
portion of the revolving credit commitments. Following the first fiscal quarter
of 2000, the commitment fee adjusts quarterly depending on the undrawn portion
of the revolving credit commitments.
We must repay indebtedness under our senior credit facility with the
proceeds from the sale of assets and with the proceeds from issuances of our
equity securities. We can also make optional prepayments on the term loan.
Mandatory and optional prepayments are subject to prepayment premiums.
Except for the obligations of Hunter Drums Limited, the obligations under
our senior credit facility are joint and several obligations of our material
domestic subsidiaries. The obligations of Hunter Drums Limited under our senior
credit facility are unconditionally and irrevocably guaranteed by us and our
material domestic subsidiaries. In addition, our senior credit facility is
secured by first priority or equivalent security interests in substantially all
of our assets, including all the capital stock of, or other equity interests in,
our domestic subsidiaries and 65% of the capital stock of, or other equity
interests in, our foreign subsidiaries (to the extent permitted by applicable
contractual and legal provisions). See "Description of the Notes--Subordination"
and "Risk Factors--As a result of the subordination provisions of the
outstanding notes and exchange notes, you may not receive payment on your notes
if we are involved in a bankruptcy or similar proceeding."
Our senior credit facility contains a number of covenants and restrictions
that will restrict our ability to incur additional indebtedness, incur liens,
make capital expenditures, enter into related party transactions, pay dividends,
enter into mergers and consolidations, sell assets, make acquisitions and
otherwise restrict corporate activities. In addition, under our senior credit
facility we are required to comply with specified financial ratios and tests,
including minimum interest coverage ratios and maximum senior leverage ratios.
Even though our senior credit facility restricts our ability to incur
additional indebtedness, we are still able to borrow substantial additional
amounts, including:
- up to $75 million by the issuance of additional senior subordinated notes,
- up to $10 million at any time outstanding under capitalized lease
obligations,
- up to $3.5 million at any time outstanding for the acquisition of real or
personal property and
- up to $5 million at any time outstanding of other indebtedness.
We maintain an interest rate collar in an aggregate notional principal
amount of $45.0 million to hedge interest rate risk. Under this collar, if the
actual LIBOR rate at the specified measurement date is greater than a ceiling
rate stated in the collar agreement, the lender pays us the differential
interest expense. If the actual LIBOR rate is lower than the floor rate stated
in the collar agreement, we pay the lender the differential interest expense.
The interest rate collar terminates on November 30, 2000.
117
<PAGE>
LEGAL MATTERS
The validity of the exchange notes will be passed upon for Russell-Stanley
by Simpson Thacher & Bartlett, New York, New York.
EXPERTS
The financial statements of Russell-Stanley Holdings, Inc. and subsidiaries
as of December 31, 1997 and 1998 and for each of the years in the three-year
period ended December 31, 1998, of Container Management Services, Inc. as of
July 23, 1997 and for the period January 1, 1997 through July 23, 1997, of
Hunter Drums Limited as of October 29, 1997, and for the period January 1, 1997
through October 29, 1997 and of Smurfit Plastic Packaging as of December 31,
1996 and November 7, 1997, for the year ended December 31, 1996 and for the
period January 1, 1997 through November 7, 1997, included in this prospectus
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports appearing in this prospectus, and are included in reliance upon
the reports of such firm given upon their authority as experts in accounting and
auditing.
The financial statements of Container Management Services, Inc. as and for
the year ended December 31, 1996 included in this prospectus have been audited
by Elliott, Davis & Company, LLP, independent auditors, as stated in their
report appearing in this prospectus, and are included in reliance upon the
report of that firm given upon their authority as experts in accounting and
auditing.
118
<PAGE>
(This page intentionally left blank)
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
Independent Auditors' Report..................................................... F-2
Financial Statements as of December 31, 1997 and 1998 and for each of the years
ended December 31, 1996, 1997 and 1998:
Consolidated Balance Sheets...................................................... F-3
Consolidated Statements of Operations and Comprehensive Income (Loss)............ F-5
Consolidated Statements of Redeemable Preferred Stock and Stockholders' Equity
(Deficit)........................................................................ F-6
Consolidated Statements of Cash Flows............................................ F-7
Notes to Consolidated Financial Statements....................................... F-8
Financial Statements as of December 31, 1998 and March 31, 1999 (Unaudited) and
for each of the periods ended March 31, 1998 and 1999 (Unaudited)................ F-36
INDEX TO FINANCIAL STATEMENTS OF CONTAINER MANAGEMENT SERVICES, INC.
Independent Auditors' Report..................................................... F-50
Report of Independent Certified Public Accountants............................... F-51
Financial Statements as of December 31, 1996 and July 23, 1997 and for the year
ended December 31, 1996 and the period from January 1, 1997 through July 23,
1997:
Balance Sheets................................................................... F-52
Statements of Operations......................................................... F-53
Statements of Stockholders' Equity............................................... F-54
Statements of Cash Flows......................................................... F-55
Notes to Financial Statements.................................................... F-56
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF HUNTER DRUMS LIMITED
Independent Auditors' Report..................................................... F-60
Financial Statements as of October 29, 1997 and for the period from January 1,
1997 through October 29, 1997:
Consolidated Balance Sheet....................................................... F-61
Consolidated Statement of Operations and Retained Earnings....................... F-62
Consolidated Statement of Cash Flows............................................. F-63
Notes to Consolidated Financial Statements....................................... F-64
INDEX TO FINANCIAL STATEMENTS OF SMURFIT PLASTIC PACKAGING
Independent Auditors' Report..................................................... F-69
Financial Statements as of December 31, 1996 and November 7, 1997 and for the
year ended December 31, 1996 and the period from January 1, 1997 to November 7,
1997:
Balance Sheets................................................................... F-70
Statements of Operations......................................................... F-71
Statements of Cash Flows......................................................... F-72
Notes to Financial Statements.................................................... F-73
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Russell-Stanley Holdings, Inc.
Bridgewater, New Jersey
We have audited the accompanying consolidated balance sheets of
Russell-Stanley Holdings, Inc. and subsidiaries (the "Company") as of December
31, 1997 and 1998, and the related consolidated statements of operations and
comprehensive income (loss), redeemable preferred stock and stockholders' equity
(deficit), and cash flows for each of the three years in the period ended
December 31, 1998. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at December 31,
1997 and 1998, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
February 22, 1999
F-2
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
ASSETS (NOTE 8)
CURRENT ASSETS:
Cash and cash equivalents............................................................. $ 1,051 $ 1,630
Accounts receivable, less allowances of $224 and $169, respectively................... 29,641 29,408
Inventories (Note 3).................................................................. 19,004 18,761
Prepaid taxes and income taxes receivable--net (Note 9)............................... 1,700 3,460
Prepaid and other current assets...................................................... 2,512 2,132
Deferred tax benefit--net (Note 9).................................................... 1,289 602
----------- -----------
Total current assets.............................................................. 55,197 55,993
----------- -----------
PROPERTY, PLANT AND EQUIPMENT--Net
(Notes 4 and 6)....................................................................... 84,962 92,643
----------- -----------
OTHER ASSETS:
Goodwill and other intangibles--net (Note 5).......................................... 103,734 108,195
Deferred financing costs--net (Note 15)............................................... 1,498 1,294
Other noncurrent assets............................................................... 139 129
----------- -----------
Total other assets................................................................ 105,371 109,618
----------- -----------
TOTAL ASSETS............................................................................ $ 245,530 $ 258,254
----------- -----------
----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses (Notes 7 and 14)................................ $ 34,191 $ 42,230
Income taxes payable (Note 9)......................................................... 47 849
Current maturities of long-term debt (Note 8)......................................... 745 10
----------- -----------
Total current liabilities......................................................... 34,983 43,089
LONG-TERM DEBT (Notes 8, 17 and 20)..................................................... 160,617 171,592
DEFERRED TAXES--Net (Note 9)............................................................ 5,819 4,662
OTHER NONCURRENT LIABILITIES (Note 14).................................................. 5,320 5,374
----------- -----------
Total liabilities................................................................. 206,739 224,717
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 14 and 20)
STOCKHOLDERS' EQUITY (Note 13)--At December 31, 1997 and 1998, 2,181 shares and 2,205
shares were issued and outstanding.................................................... 38,791 33,537
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............................................. $ 245,530 $ 258,254
----------- -----------
----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
NET SALES
Containers............................................................... $ 141,925 $ 161,107 $ 227,392
Services................................................................. -- 15,206 46,650
----------- ----------- -----------
Total net sales........................................................ 141,925 176,313 274,042
COST OF SALES
Containers............................................................... 103,636 121,576 171,851
Services................................................................. -- 12,027 41,356
----------- ----------- -----------
Total cost of sales.................................................... 103,636 133,603 213,207
----------- ----------- -----------
Gross profit........................................................... 38,289 42,710 60,835
----------- ----------- -----------
EXPENSES:
Selling.................................................................. 11,268 12,254 17,532
General and administrative............................................... 11,976 12,862 21,911
Amortization of intangibles.............................................. 1,070 1,726 3,487
Nonrecurring charges (Notes 7 and 18).................................... -- -- 6,167
----------- ----------- -----------
Total expenses......................................................... 24,314 26,842 49,097
----------- ----------- -----------
INCOME FROM OPERATIONS..................................................... 13,975 15,868 11,738
INTEREST EXPENSE........................................................... 7,473 8,754 16,025
OTHER EXPENSE--Net......................................................... 268 197 550
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEMS.................. 6,234 6,917 (4,837)
PROVISION (BENEFIT) FOR INCOME TAXES (Note 9).............................. 2,559 2,925 (505)
----------- ----------- -----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS................................... 3,675 3,992 (4,332)
EXTRAORDINARY ITEMS (less applicable income tax benefit of $2,655 in 1997)
(Note 15)................................................................ -- 5,100 --
----------- ----------- -----------
NET INCOME (LOSS).......................................................... 3,675 (1,108) (4,332)
OTHER COMPREHENSIVE INCOME (LOSS) (Note 2)................................. 7 (171) (2,012)
----------- ----------- -----------
COMPREHENSIVE INCOME (LOSS)................................................ $ 3,682 $ (1,279) $ (6,344)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
OTHER
COMPREHENSIVE
INCOME (LOSS)
(NOTE 2)
REDEEMABLE -------------
PREFERRED COMMON
STOCK STOCK ADDITIONAL CUMULATIVE
-------------------- ------------------------ PAID-IN ACCUMULATED TRANSLATION
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENTS
--------- --------- --------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996........ 236,498 $ 23,517 645,000 $ 7 $ 7,600 $ (21,067) $ --
Net income.................... -- -- -- -- -- 3,675 --
Issued as dividends........... 39,094 3,910 -- -- -- -- --
Amortization of discount...... -- 38 -- -- -- -- --
Preferred stock dividends..... -- -- -- -- -- (3,913) --
Minimum pension liability
adjustment.................. -- -- -- -- -- -- --
--------- --------- --------- --- ----------- ------------- -------------
BALANCE, DECEMBER 31, 1996...... 275,592 27,465 645,000 7 7,600 (21,305) --
Net loss...................... -- -- -- -- -- (1,108) --
Issued as dividends........... 22,149 2,214 -- -- -- -- --
Reacquired by purchase........ (297,741) (29,774) (122,500) -- -- -- --
Amortization of discount...... -- 95 -- -- -- -- --
Shares issued................. -- -- 1,627,778 16 71,984 -- --
Preferred stock dividends..... -- -- -- -- -- (2,525) --
Conversion of warrants........ -- -- 30,243 -- (1,059) -- --
Premium paid on repurchase of
preferred stock............. -- -- -- -- (7,529) -- --
Transaction fees.............. -- -- -- -- (1,907) -- --
Minimum pension liability
adjustment.................. -- -- -- -- -- -- --
Translation adjustment........ -- -- -- -- -- -- (103)
--------- --------- --------- --- ----------- ------------- -------------
BALANCE, DECEMBER 31, 1997...... -- -- 2,180,521 23 69,089 (24,938) (103)
Net loss...................... -- -- -- -- -- (4,332) --
Shares issued................. -- -- 24,243 -- 1,090 -- --
Minimum pension liability
adjustment.................. -- -- -- -- -- -- --
Translation adjustment........ -- -- -- -- -- -- (1,631)
--------- --------- --------- --- ----------- ------------- -------------
BALANCE, DECEMBER 31, 1998...... $ -- $ -- 2,204,764 $ 23 $ 70,179 $ (29,270) $ (1,734)
--------- --------- --------- --- ----------- ------------- -------------
--------- --------- --------- --- ----------- ------------- -------------
<CAPTION>
MINIMUM NOTES TREASURY TOTAL
PENSION RECEIVABLE STOCK STOCKHOLDERS'
LIABILITY FOR SHARES TO ---------------------- EQUITY
ADJUSTMENT MANAGEMENT SHARES AMOUNT (DEFICIT)
------------- ----------------- --------- ----------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996........ $ (302) $ (64) 117,000 $ (402) $ (14,228)
Net income.................... -- -- -- -- 3,675
Issued as dividends........... -- -- -- -- --
Amortization of discount...... -- -- -- -- --
Preferred stock dividends..... -- -- -- -- (3,913)
Minimum pension liability
adjustment.................. 7 -- -- -- 7
------ --- --------- ----------- --------------
BALANCE, DECEMBER 31, 1996...... (295) (64) 117,000 (402) (14,459)
Net loss...................... -- -- -- -- (1,108)
Issued as dividends........... -- -- -- -- --
Reacquired by purchase........ -- -- 122,500 (4,451) (4,451)
Amortization of discount...... -- -- -- -- --
Shares issued................. -- -- -- -- 72,000
Preferred stock dividends..... -- -- -- -- (2,525)
Conversion of warrants........ -- -- -- -- (1,059)
Premium paid on repurchase of
preferred stock............. -- -- -- -- (7,529)
Transaction fees.............. -- -- -- -- (1,907)
Minimum pension liability
adjustment.................. (68) -- -- -- (68)
Translation adjustment........ -- -- -- -- (103)
------ --- --------- ----------- --------------
BALANCE, DECEMBER 31, 1997...... (363) (64) 239,500 (4,853) 38,791
Net loss...................... -- -- -- -- (4,332)
Shares issued................. -- -- -- -- 1,090
Minimum pension liability
adjustment.................. (381) -- -- -- (381)
Translation adjustment........ -- -- -- -- (1,631)
------ --- --------- ----------- --------------
BALANCE, DECEMBER 31, 1998...... $ (744) $ (64) 239,500 $ (4,853) $ 33,537
------ --- --------- ----------- --------------
------ --- --------- ----------- --------------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997 1998
--------- ------------ ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................................... $ 3,675 $ (1,108) $ (4,332)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation.............................................................. 4,799 8,475 23,479
Amortization.............................................................. 1,069 1,613 3,127
Amortization of deferred financing costs.................................. 887 594 276
Extraordinary items, noncash (Note 15).................................... -- 7,755 --
Other noncash items....................................................... 340 393 770
Changes in operating assets and liabilities, excluding effects of
acquisitions:
Decrease (increase) in accounts receivable................................ 270 (135) 1,916
Decrease (increase) in inventories........................................ (4,252) 2,147 1,024
Decrease (increase) in prepaid and other current assets................... (221) (1,085) 672
(Decrease) increase in accounts payable, accrued expenses and income taxes
payable................................................................. (1,852) (1,763) 4,482
Decrease in deferred income taxes......................................... (489) (418) (848)
Increase in other--net.................................................... 142 1,265 231
--------- ------------ ---------
Net cash provided by operating activities............................... 4,368 17,733 30,797
--------- ------------ ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions--net of cash acquired (Note 16)................................ -- (130,249) (13,874)
Capital expenditures........................................................ (3,335) (9,949) (28,679)
Proceeds from sale of property, plant and equipment......................... 1,394
Other, net.................................................................. 4 (147) (74)
--------- ------------ ---------
Net cash used in investing activities................................... (3,331) (140,345) (41,233)
--------- ------------ ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings.......................................... 7,875 282,733 --
Repayments of long-term borrowings.......................................... (3,924) (144,708) (429)
(Repayments of) borrowings under revolver credit--net....................... (5,124) (8,515) 11,777
Dividends on redeemable preferred stock..................................... (4) (2) --
Increase in deferred financing costs........................................ (130) (6,877) (72)
Repurchase of senior subordinated notes..................................... -- (29,258) --
Capital restructuring....................................................... -- (42,880) --
Issuance of common stock.................................................... -- 72,000 --
Other, net.................................................................. -- 21 (287)
--------- ------------ ---------
Net cash (used in) provided by financing activities..................... (1,307) 122,514 10,989
--------- ------------ ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS.................. -- (103) 26
--------- ------------ ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS....................................... (270) (201) 579
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR.................................. 1,522 1,252 1,051
--------- ------------ ---------
CASH AND CASH EQUIVALENTS, END OF YEAR........................................ $ 1,252 $ 1,051 $ 1,630
--------- ------------ ---------
--------- ------------ ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest.................................................................... $ 6,541 $ 6,580 $ 12,883
--------- ------------ ---------
--------- ------------ ---------
Income taxes................................................................ $ 3,668 $ 2,276 $ 209
--------- ------------ ---------
--------- ------------ ---------
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION--Through its direct operating subsidiaries, Russell-Stanley
Corp. ("RSC"), Container Management Services, Inc. ("CMS"), Hunter Drums Limited
("Hunter"), and New England Container Co., Inc. ("NEC"), Russell-Stanley
Holdings, Inc. ("Holdings" or the "Company") is a leading manufacturer and
marketer of plastic and steel industrial containers and a leading provider of
related container services in the United States and Canada. The Company's
products are used in a broad range of industries including agricultural,
chemical, food product, lubricant, pharmaceutical and specialty chemicals. In
July 1997, the Company restructured its capital structure through the following
transactions, i) issuance of 1,222,221 shares of common stock in exchange for
$54,999,940, resulting in additional paid-in capital of $54,987,718, ii)
repurchase of 122,500 shares of common stock for $4,450,500, iii) repurchase of
all outstanding senior subordinated notes for $29,257,638, including make whole
payments and accrued interest of $3,025,858 and $240,080, respectively, iv)
repurchase of $15.00/$17.50 Cumulative Exchangeable Redeemable Preferred Stock
(Series B) for $37,611,126, including make whole payments and accrued interest
of $7,529,123 and $302,745, respectively, and v) conversion/repurchase of
warrants for $1,059,190 (the "Capital Restructuring"). In addition, the Company
restructured its debt through the following transactions: i) repayment of
existing bank debt of $25,924,331 and ii) borrowing on a new credit facility of
$46,102,987 (the "July Debt Restructuring"). Immediately following the Capital
Restructuring and the July Debt Restructuring, Holdings was formed to serve as a
holding company for RSC and subsidiaries. The transaction was accounted for in a
manner similar to a pooling of interests, therefore, the financial statements as
of and for the two years in the period ended December 31, 1997 include the
operations of Holdings and RSC and subsidiaries as if Holdings and RSC had been
combined for the entire period. In connection with the transaction, all RSC
shares and options were exchanged for shares and options in Holdings with the
same par value and exercise price. In July 1997, CMS was acquired; CMS pioneered
the businesses of plastic container leasing on a per use or round-trip basis and
plastic container fleet management in the United States and Canada utilizing
inventory tracking technology. In October 1997, the Company acquired the stock
of Hunter, a leading Canadian manufacturer and marketer of steel and plastic
drums. In November 1997, Holdings issued 377,779 shares of common stock in
exchange for $17,000,055, resulting in additional paid-in capital of
$16,996,277, and acquired certain assets of Smurfit Plastic Packaging
Corporation ("SPP" or "SPP Assets"), a leading manufacturer and marketer of
plastic drums in the United States. In addition, the Company entered into an
amended and restated revolving credit and term loan agreement (Notes 8 and 15).
In connection with the 1997 capital transactions, $1,907,000 of legal and
consulting fees were incurred and recorded as a reduction of paid in capital. In
July 1998, NEC was acquired; NEC has the largest share of the steel drum
reconditioning market in the Northeast and provides the Company with entry into
the steel drum reconditioning market, (with respect to the above acquisitions
refer to Note 16).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
REVENUE RECOGNITION--Revenue is recognized when products are shipped or
services are provided to customers.
F-8
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES--The preparation of these financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.
Estimates are used to a significant extent in determining the recoverability of
intangibles from future operations and in establishing other valuation
allowances.
CASH EQUIVALENTS--The Company considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents and are valued at cost which approximates fair value.
INVENTORIES--Inventories are stated at the lower of cost or market value.
Cost is determined on the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment, stated at
cost, is being depreciated for financial reporting purposes on the straight-line
method over the estimated useful lives of the assets or the lease term,
whichever is shorter. The estimated useful lives for each class of property,
plant and equipment are as follows:
<TABLE>
<S> <C>
Buildings and improvements................................... 15-30 years
Furniture and fixtures....................................... 3-7 years
Machinery and equipment...................................... 3-10 years
Containers held for lease.................................... 14-25 months
</TABLE>
GOODWILL AND OTHER INTANGIBLES--The excess of cost over the fair value of
net assets acquired ("goodwill") is being amortized on a straight-line basis
over its estimated useful life of 40 years. Other intangible assets, consisting
primarily of customer lists and patents, are recorded at cost and are being
amortized over the life of the related assets (up to 17 years), using the
straight-line method. Management periodically evaluates the estimated useful
lives of goodwill and other intangibles. In addition, management periodically
evaluates the recoverability of long-term assets, including goodwill, based upon
current and future anticipated income and cash flows. For the three-year period
ended December 31, 1998, there were no adjustments to the useful lives or the
carrying values of long-term assets resulting from those evaluations.
DEFERRED FINANCING COSTS--Deferred financing costs incurred in connection
with the Company's debt restructurings are being amortized for financial
reporting purposes over the average life of the debt, using the straight-line
method.
INCOME TAXES--Deferred tax assets and liabilities are recognized for the
expected future tax consequences attributable to the difference between the
financial statement carrying amounts of assets and liabilities and their
respective tax basis. Management periodically evaluates the available evidence
about future taxable income and other possible sources of realization of
deferred tax assets and establishes valuation allowances if necessary.
TRANSLATION OF FOREIGN CURRENCIES--The assets and liabilities of Hunter are
translated into U.S. dollars at year-end exchange rates, with resulting
translation gains and losses accumulated in a
F-9
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
separate component of stockholders' equity. Income and expense items are
converted into U.S. dollars at average rates of exchange prevailing throughout
the year.
FINANCIAL INSTRUMENTS--The Company utilizes financial instruments to limit
its exposure to interest rate fluctuations.
COMPREHENSIVE INCOME (LOSS)--The Company has adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, REPORTING COMPREHENSIVE INCOME.
Comprehensive income (loss) consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1996 1997 1998
--------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Comprehensive income (loss):
Net income (loss).............................. $ 3,675 $ (1,108) $ (4,332)
Other comprehensive income (loss):
Foreign currency translation adjustment...... -- (103) (1,631)
Minimum pension liability adjustment......... 7 (68) (381)
--------- --------- ---------
Other comprehensive income (loss).............. 7 (171) (2,012)
--------- --------- ---------
Total............................................ $ 3,682 $ (1,279) $ (6,344)
--------- --------- ---------
--------- --------- ---------
</TABLE>
RECENTLY ISSUED ACCOUNTING STANDARD--In June 1998, SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities ("SFAS 133") was issued. SFAS
133 establishes new disclosure requirements which provide a comprehensive
standard for recognition and measurement of derivatives and hedging activities.
SFAS 133 will require new disclosures to be recorded on the balance sheet at
fair value and establishes special accounting for certain types of hedging
activities and will take effect in 2000. Based on the Company's current
derivatives, an interest rate collar and foreign currency forward contracts,
management does not believe that SFAS 133 will have a material effect on the
Company's financial condition or results of operations.
3. INVENTORIES
Inventory consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1997 1998
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Raw materials.............................................. $ 12,003 $ 12,435
Work-in-process............................................ 637 562
Finished goods............................................. 6,364 5,764
--------- ---------
Total...................................................... $ 19,004 $ 18,761
--------- ---------
--------- ---------
</TABLE>
F-10
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1997 1998
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Land....................................................... $ 5,205 $ 5,518
Buildings and improvements................................. 16,518 15,418
Machinery and equipment.................................... 107,605 138,049
--------- ---------
Total...................................................... 129,328 158,985
Less accumulated depreciation.............................. (44,366) (66,342)
--------- ---------
Total...................................................... $ 84,962 $ 92,643
--------- ---------
--------- ---------
</TABLE>
Included in machinery and equipment are containers held for lease,
consisting of plastic drums and intermediate bulk containers ("IBCs") which are
leased to customers.
5. GOODWILL AND OTHER INTANGIBLES
Goodwill and other intangibles consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
<S> <C> <C>
1997 1998
----------- -----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Goodwill................................................... $ 110,262 $ 117,840
Customer lists and other intangibles....................... 2,846 2,817
Patents.................................................... 206 245
----------- -----------
113,314 120,902
Less accumulated amortization.............................. (9,580) (12,707)
----------- -----------
Total...................................................... $ 103,734 $ 108,195
----------- -----------
----------- -----------
</TABLE>
6. LEASES
CAPITAL LEASES--Leased equipment included in machinery and equipment
consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1997 1998
--------- -----
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Leased equipment........................................... $ 850 $ 25
Less accumulated depreciation.............................. (233) (7)
--------- ---
Total...................................................... $ 617 $ 18
--------- ---
--------- ---
</TABLE>
F-11
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
6. LEASES (CONTINUED)
Future minimum lease payments under the capital lease obligations at
December 31, 1998, are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
-------------------
<S> <C>
1999......................................................................... $ 9
2000......................................................................... 4
---
Minimum lease payments....................................................... 13
Less amounts representing interest........................................... 2
---
Present value of net minimum lease payments (Note 8)......................... $ 11
---
---
</TABLE>
OPERATING LEASES--The Company has operating lease commitments expiring at
various dates, principally for real property, machinery and equipment, and
transportation equipment. Total lease expense amounted to $840,000, $1,456,000
and $4,416,000 in 1996, 1997 and 1998, respectively.
Future minimum lease payments under the terms of the noncancelable operating
leases with initial or remaining terms in excess of one year at December 31,
1998 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
---------------
<S> <C>
1999......................................................................... $ 4,365
2000......................................................................... 3,568
2001......................................................................... 3,190
2002......................................................................... 2,433
2003......................................................................... 2,159
Thereafter................................................................... 9,833
---------------
Total........................................................................ $ 25,548
---------------
---------------
</TABLE>
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1997 1998
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Accounts payable................................................. $ 18,900 $ 20,471
Accrued payroll.................................................. 2,217 1,932
Accrued professional fees........................................ 565 3,663
Accrued interest payable......................................... 3,943 3,909
Other accrued expenses........................................... 8,566 12,255
--------- ---------
Total............................................................ $ 34,191 $ 42,230
--------- ---------
--------- ---------
</TABLE>
Included in accrued professional fees are $2.3 million of unpaid costs
incurred in 1998 associated with proposed transactions that were not
consummated. The total costs of $2.7 million
F-12
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES (CONTINUED)
are included in nonrecurring expenses in the accompanying statement of
operations and comprehensive income (loss).
8. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
<S> <C> <C>
1997 1998
----------- -----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Revolving credit loan and term loans.......................... $ 161,034 $ 171,591
Capital lease obligations (Note 6)............................ 328 11
----------- -----------
161,362 171,602
Less current maturities....................................... 745 10
----------- -----------
Long-term debt................................................ $ 160,617 $ 171,592
----------- -----------
----------- -----------
</TABLE>
In July and November 1997, the Company entered into amended and restated
revolving credit and term loan agreements (the "Agreements"). The Agreements
bear interest at a combination of domestic source and Eurodollar borrowing rates
which fluctuate based on earnings before interest, taxes, depreciation and
amortization ("EBITDA"). Up to $50 million can be borrowed on the revolving
credit loan. In addition, up to $5 million can be borrowed under a Swing Line,
as long as total borrowings under the revolving credit loan and Swing Line do
not exceed $50 million in the aggregate. The term loans consist of three
tranches A, B, and C (the "Term Loans"). Term Loan A is for an aggregate of $45
million and is payable in quarterly installments commencing March 31, 1999 in
increasing amounts through September 30, 2003. Term Loan B is for an aggregate
of $80 million and is payable in quarterly installments commencing June 30, 1998
in increasing amounts through September 30, 2005. Term Loan C is for an
aggregate of $25 million and is payable in two equal installments on June 30,
2006 and 2007. The Term Loans carry mandatory repayment terms based upon any of
the following i) the sale of certain assets, ii) the closing of any public
offering of equity securities or iii) 50% of excess cash flow, as defined, for
each fiscal year commencing with the year ending December 31, 1998. Optional
prepayments can also be made on the Term Loans, and are subject to prepayment
premiums as defined in the agreement. The Company is required to meet certain
financial covenants under the Agreements including fixed charge and leverage
ratios and capital expenditure spending limits. The Company was in compliance
with all of the financial covenants as of December 31, 1998 and throughout the
year. The debt is secured by substantially all assets of the Company. In
addition, the Agreements restrict the payments of dividends by the Company.
Subsequent to year-end the Company refinanced its long-term debt (Note 20).
F-13
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
8. LONG-TERM DEBT (CONTINUED)
The revolving credit loans and term loans have the following provisions
(dollars in thousands):
<TABLE>
<CAPTION>
INTEREST INTEREST
RATE AT BALANCE AT RATE AT
DOMESTIC EURODOLLAR DECEMBER 31, DECEMBER 31, DECEMBER 31,
INTEREST RATE INTEREST RATE 1997 1997 1998
--------------------- --------------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
Revolving credit
loan.................. Prime plus margin not LIBOR plus margin not
less than 1.00% less than 2.50% 9.50% $ 11,034 9.00%
Term Loan A--
Domestic.............. Prime plus margin not LIBOR plus margin not
less than 1.00% less than 2.50% 8.44 35,000 9.00
Term Loan A--
Foreign............... Prime plus margin not LIBOR plus margin not
less than 1.00% less than 2.50% 8.44 10,000 9.00
Term Loan B............ Prime plus margin not LIBOR plus margin not
less than 1.50% less than 3.00% 8.94 80,000 9.50
Term Loan C............ Fixed rate Fixed rate 9.48 25,000 9.48
---------------
Total.................. $ 161,034
---------------
---------------
<CAPTION>
BALANCE AT
DECEMBER 31,
1998
---------------
<S> <C>
Revolving credit
loan..................
$ 22,837
Term Loan A--
Domestic..............
35,000
Term Loan A--
Foreign...............
9,182
Term Loan B............
79,572
Term Loan C............ 25,000
---------------
Total.................. $ 171,591
---------------
---------------
</TABLE>
In addition to the interest rate provisions stated above, the Company
maintains an interest rate collar in an aggregate notional principal amount of
$45 million to hedge interest rate risk through November 2000. Under this
collar, if the actual LIBOR rate at the specified measurement date is greater
than a ceiling rate of 7.5%, the lender pays the Company the differential
interest expense. If the actual LIBOR rate is lower than the floor rate of
5.27%, the Company pays the lender the differential interest expense.
SENIOR SUBORDINATED NOTES--In conjunction with the Capital Restructuring and
July Debt Restructuring, all senior subordinated notes were repurchased (Note
1).
MATURITIES OF LONG-TERM DEBT--As of December 31, 1998, taking into account
subsequent events, maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1999......................................................................... $ 10
2004 and thereafter.......................................................... 171,592
---------------
Total........................................................................ $ 171,602
---------------
---------------
</TABLE>
(Maturities of long-term debt under the agreements entered into subsequent
to year-end are disclosed in Note 20.)
F-14
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
9. INCOME TAXES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1996 1997 1998
--------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Income (loss) before income taxes and
extraordinary items:
U.S............................................. $ 6,234 $ 7,063 $ (7,538)
Foreign......................................... -- (146) 2,701
--------- --------- ---------
Total............................................. $ 6,234 $ 6,917 $ (4,837)
--------- --------- ---------
--------- --------- ---------
</TABLE>
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1996 1997 1998
--------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.......................................... $ 2,688 $ 2,794 $ (261)
Foreign.......................................... -- 79 461
State............................................ 161 219 (235)
--------- --------- ---------
Total current...................................... 2,849 3,092 (35)
--------- --------- ---------
Deferred:
Federal.......................................... (290) (211) (1,963)
Foreign.......................................... -- 44 1,493
--------- --------- ---------
Total deferred..................................... (290) (167) (470)
--------- --------- ---------
Net provision for income taxes..................... $ 2,559 $ 2,925 $ (505)
--------- --------- ---------
--------- --------- ---------
</TABLE>
The difference between the effective income tax and the statutory Federal
income tax rate is explained as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1996 1997 1998
--------- --------- ---------
Federal statutory tax rate......................... 34.0% 34.0% (34.0)%
Goodwill amortization.............................. 4.1 3.6 9.7
State taxes, net of Federal tax benefit............ 1.7 2.0 6.3
Travel and entertainment........................... 0.9 0.6 2.2
Foreign tax rate differential...................... -- 2.1 2.5
Other.............................................. 0.3 -- 2.9
--------- --------- ---------
Effective tax rate................................. 41.0% 42.3% (10.4)%
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-15
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
9. INCOME TAXES (CONTINUED)
The components of the net deferred tax liabilities as of December 31, 1997
and 1998 were as follows:
<TABLE>
<CAPTION>
1997 1998
------------------------ ------------------------
<S> <C> <C> <C> <C>
DEFERRED DEFERRED DEFERRED DEFERRED
TAX TAX TAX TAX
ASSETS LIABILITIES ASSETS LIABILTIES
----------- ----------- ----------- -----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current:
Accounts receivable......... $ 31 $ -- $ 76 $ --
Inventory................... -- 172 -- 335
Prepaid expenses............ -- 520 -- 520
Accrued expenses............ 1,879 -- 1,255 --
Other....................... 71 -- 126 --
----------- ----------- ----------- -----------
Total current................. $ 1,981 $ 692 $ 1,457 $ 855
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Noncurrent:
Property, plant and
equipment................. $ -- $ 5,612 $ -- $ 6,747
Goodwill.................... -- 244 -- 974
Accrued expenses............ -- -- 562 --
Alternative minimum tax
credit.................... -- -- 180 --
Net operating loss.......... -- -- 2,153 --
Other....................... 37 -- 164 --
----------- ----------- ----------- -----------
Total noncurrent.............. $ 37 $ 5,856 $ 3,059 $ 7,721
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
As of December 31, 1998, the Company had a net operating loss carryover for
Federal tax purposes of approximately $6,333,000. The carryover will expire
after December 31, 2018. The Company also had an alternative minimum tax credit
carryover of approximately $180,000. This credit does not expire, but can be
carried forward indefinitely.
10. RETIREMENT BENEFIT PLANS
RSC has a defined contribution plan which covers all eligible nonunion
employees. Contributions to the defined contribution plan are based on years of
service, age and salary. Total expense for this plan was approximately $298,000,
$418,000 and $515,000 for 1996, 1997 and 1998, respectively.
The Company also contributes to a defined benefit pension plan for certain
union employees. The defined benefit pension plan assets are comprised primarily
of mutual funds.
F-16
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
10. RETIREMENT BENEFIT PLANS (CONTINUED)
Net pension cost for this defined benefit pension plan is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Service cost--benefits earned during the period.......... $ 76 $ 77 $ 141
Interest cost on projected benefit obligation............ 88 89 119
Actual return on plan assets............................. (49) (48) (48)
Net amortization and deferral............................ 19 20 3
--------- --------- ---------
Net periodic pension cost................................ $ 134 $ 138 $ 215
--------- --------- ---------
--------- --------- ---------
</TABLE>
Assumptions used in the accounting for the plans were:
<TABLE>
<CAPTION>
1996 1997 1998
----- --------- ---------
<S> <C> <C> <C>
Weighted-average discount rates............................ 7.5% 7.5% 6.5%
Expected long-term rate of return on assets................ 9.5 10.5 10.5
</TABLE>
The following table sets forth the funded status and amounts recognized for
this defined benefit pension plan at December 31:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Accumulated benefit obligation--vested............................ $ 1,575 $ 1,631
Accumulated benefit obligation--nonvested......................... 115 220
--------- ---------
Total accumulated benefit obligation.............................. $ 1,690 $ 1,851
--------- ---------
Projected benefit obligation for service rendered to date......... $ (1,690) $ (1,851)
Plan assets at fair value......................................... 1,081 889
--------- ---------
Projected benefit obligation in excess of plan assets............. (609) (962)
Prior service cost not yet recognized in net periodic pension
cost............................................................ 246 218
Unrecognized portion of net obligation existing at date of
adoption of FAS No. 87.......................................... 67 54
Unrecognized net loss............................................. 310 591
Adjustment to recognize minimum liability......................... (623) (863)
--------- ---------
Accrued pension cost.............................................. $ (609) $ (962)
--------- ---------
--------- ---------
</TABLE>
F-17
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
10. RETIREMENT BENEFIT PLANS (CONTINUED)
The following table sets forth the change in benefit obligation and plan
assets for this defined benefit pension plan at December 31:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Change in benefit obligation:
Benefit obligation at beginning of year.......................... $ 1,497 $ 1,690
Service cost..................................................... 77 141
Interest cost.................................................... 89 119
Actuarial gain................................................... (58)
Actuarial assumptions............................................ 118 300
Benefits paid.................................................... (91) (341)
--------- ---------
Benefit obligation at end of year................................ 1,690 1,851
Change in plan assets:
Fair value of plan assets at beginning of plan year.............. 927 1,081
Actual return on plan assets..................................... 48 48
Employer contribution............................................ 197 101
Benefits paid.................................................... (91) (341)
--------- ---------
Fair value of plan assets at end of year......................... 1,081 889
--------- ---------
Funded status.................................................... (609) (962)
Unrecognized actuarial loss...................................... 310 591
Unrecognized prior service cost.................................. 246 218
Unrecognized net obligation...................................... 67 54
--------- ---------
Net amount recognized............................................ $ 14 $ (99)
--------- ---------
--------- ---------
Amounts recognized in the balance sheet consist of:
Prepaid (accrued) pension cost................................... $ 14 $ (99)
Accrued benefit liability........................................ (609) (962)
Intangible asset................................................. 246 218
Accumulated other comprehensive income........................... 363 744
--------- ---------
Net amount recognized............................................ $ 14 $ (99)
--------- ---------
--------- ---------
</TABLE>
The Company offers all eligible RSC nonunion and certain eligible union
employees a 401(k) tax deferred savings plan. Eligibility in the plan is
dependent upon the completion of one year of service. The Company matches 50% of
the employee's contribution, up to 4%. The Company's contribution for 1996, 1997
and 1998 was $177,000, $186,000 and $198,000, respectively.
The vesting period for the Company's 401(k) plan, defined contribution plan,
and defined benefit plan is 20% after the first three years and each year
thereafter, until the participant becomes fully vested after a seven-year
period.
Pursuant to the acquisition of the SPP Assets, formerly a division of
Jefferson Smurfit Corporation ("JSC") (Note 16), salaried, union and non-union
employees of SPP continued to be covered under defined benefit plans and 401(k)
plans maintained by JSC for the remainder of 1997.
F-18
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
10. RETIREMENT BENEFIT PLANS (CONTINUED)
The Company paid JSC $70,000 for the expenses JSC incurred relating to the
maintenance of these plans for the period in 1997 subsequent to the acquisition.
Effective January 1, 1998, these employees were transferred to a retirement plan
established by the Company.
Effective January 1, 1999, the 401(k) plans for all non-union RSC, former
SPP and CMS employees were replaced with a new 401(k) savings and retirement
plan. Eligibility in the plan is dependent upon the completion of one year of
service and the attainment of age 21. Under the plan, the Company matches 100%
of the employee's contribution, up to 4%. In addition, at the discretion of the
Board, the Company may contribute an additional 1% to 4.75% of each employee's
salary, as defined, depending upon age.
Certain employees of Hunter (Note 16) are covered under a money purchase
pension plan. Eligibility in the plan is dependent upon the completion of one
year of service. Employees can contribute up to 3% of eligible income and
executives can contribute up to 9% of eligible income, with a maximum yearly
contribution of $6,750. Hunter matches 100% of employee and executive
contributions and these employer contributions vest after two full years as a
member of the plan. Company contributions for the periods ended December 31,
1997 and 1998, were $2,000 and $80,000, respectively.
Certain employees of NEC are covered under a 401(k) plan. Eligibility in the
plan is dependent upon the completion of one year of service. Participants can
defer up to 15% of eligible compensation. Matching contributions are provided by
the employer at the rate of 10% of the participant contributions, up to a
maximum of 5% of each participants compensation in any plan year. Employer
contributions made in 1998 were $21,000.
11. RELATED PARTIES
The Company has a management agreement with Vestar Capital Partners, Inc.,
together with its affiliates, ("Vestar") a majority shareholder of the Company,
which provides the Company with certain management services for the greater of
$225,000 per year or .25% of the consolidated net sales of the Company, plus
out-of-pocket expenses. For the years ended December 31, 1996, 1997 and 1998,
the Company paid $391,000, $561,000 and $952,000, respectively, for these
services. In conjunction with the 1997 acquisitions and restructurings and the
1998 acquisition, Vestar was paid transaction fees of approximately $2.4 million
and $160,000, respectively. During 1996, the Company also paid $213,000 to
Vestar for outside consulting services.
Prior to May 1998, the Company's Executive Vice President and Chief
Financial Officer who was also one of the Company's directors, was a Managing
Director of Vestar Resources, Inc., an affiliate of Vestar. Between February
1996 when he became Senior Vice President and Chief Financial Officer and May
1998 when he became a full-time employee of the Company, we paid Vestar at the
rate of $150,000 per year for these services as our Senior Vice President and
Chief Financial Officer. Pursuant to this arrangement we paid Vestar $75,000 in
respect of these services for the period from January 1998 through May 1998.
One of the Company's directors, is a Vice President, member of the Board of
Directors and head of the Retail, Consumer & Healthcare Group of Mercer
Management Consulting ("Mercer"). In 1998, the Company engaged Mercer to provide
consulting services to CMS, for which the
F-19
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
11. RELATED PARTIES (CONTINUED)
Company paid Mercer approximately $189,000. In 1998 the Company also engaged
Mercer to provide consulting services to the Company, for which the Company paid
Mercer approximately $272,000.
In June 1998, the Company made an interest-free loan in the amount of
$77,000 to one of the executive officers, in connection with his relocation to
the headquarters in Bridgewater, New Jersey. The loan was repaid in full in
August 1998.
Subsequent to year end the Company entered into a consulting agreement with
Mr. Buonanno, one of the directors. In consideration for his advice on matters
relating to the steel drum reconditioning business, the Company will pay Mr.
Buonanno four payments of $250,000 each prior to December 31, 2001.
New York Life Insurance Company, one of the Company's 5% stockholders, and
New York Life Insurance and Annuity Corporation, an affiliate of New York Life
Insurance Company, were lenders under the Company's senior credit agreement,
with an aggregate term loan commitment of $20.0 million which bore interest at
9.48% per annum. This term loan remains outstanding under the Company's new
senior credit facility bearing the same interest rate and will mature in two
equal installments in June 2006 and June 2007. In connection with the execution
of the new senior credit facility, the Company paid fees of approximately
$100,000 to these lenders (Note 20).
12. LONG-TERM INCENTIVE PLAN
The Company currently provides a performance unit incentive plan for certain
key employees. Under this plan, approximately 10,000 units were awarded to the
participants of the plan in 1995. The value of each unit is dependent upon the
Company's achievement of certain operating cash flow levels, as defined, for the
three-year period ended December 31, 1997. The Company recognizes expense in
relation to this plan based on the estimate of the final payout of the plan.
Accordingly, the Company recognized expense of $411,000, and $467,000 in 1996
and 1997, respectively. The total amount to be paid under this plan is
approximately $1,113,000, of which $609,000 was paid in 1998 and $252,000, plus
interest, will be paid in each of 1999 and 2000.
During 1998, the Company established a new performance unit incentive plan
for certain key employees to cover the three year period ended December 31,
2000. Under the new plan 27,925 units were awarded to the participants of the
plan in 1998. The value of each unit is dependent upon the Company's achievement
of certain operating cash flow levels, as defined, for the three-year period
ended December 31, 2000. The Company recognizes expense in relation to this plan
based on the estimate of the final payout of the plan. Accordingly, the Company
recognized expense of $233,000 in 1998.
13. REDEEMABLE PREFERRED STOCK AND COMMON STOCK
REDEEMABLE PREFERRED STOCK--In conjunction with the Capital Restructuring
all redeemable preferred stock was repurchased and cancelled in July 1997 (Note
1).
COMMON STOCK--The par value of the Company's common stock is $0.01. There
were 3,000,000 shares of common stock authorized at December 31, 1997 and 1998.
In 1989, common
F-20
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
13. REDEEMABLE PREFERRED STOCK AND COMMON STOCK (CONTINUED)
stock was issued to certain of the Company's management in exchange for notes
receivable totaling $64,000. Simple interest accrues at 9% per annum on the
notes and the principal plus interest becomes due and payable in full in June
1999. Total principal and interest due was $113,000 and $119,000 at December 31,
1997 and 1998, respectively.
The shares of the Company's common stock issued to directors and management
investors are subject to various restrictions on transferability, and the
Company has the right to repurchase these shares under certain circumstances.
During 1997, the Company repurchased substantially all outstanding warrants,
originally issued in 1989, in conjunction with the Capital Restructuring (Note
1).
The Company maintains a stock option plan which provides for the granting of
stock options to certain officers and key employees. Information relating to the
option plan is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Options outstanding at January 1............................ 30,000 92,988 174,679
Options cancelled........................................... -- (1,000) (46,953)
Options granted............................................. 62,988 82,691 125,550
--------- --------- ---------
Options outstanding at December 31.......................... 92,988 174,679 253,276
--------- --------- ---------
--------- --------- ---------
Options exercisable at December 31.......................... 57,012 65,669 75,430
--------- --------- ---------
--------- --------- ---------
</TABLE>
In 1996, the Company granted a total of 34,000 options at an exercise price
of $8 per share and 28,988 options at an exercise price of $16 per share to
purchase shares of the Company's common stock. In 1997, the Company granted a
total of 56,547 options at an exercise price of $45 per share and 26,144 options
at an exercise price of $38.25 per share to purchase shares of the Company's
common stock. In 1998, the Company granted a total of 120,550 options at an
exercise price of $50 per share and 5,000 options at an exercise price of $60
per share. All options granted prior to 1996 have an exercise price of $8.00 per
share. Common stock acquired in accordance with the stock option agreement is
not transferable except as provided in the Stockholders' Transfer Rights
Agreement or pursuant to an effective registration statement filed under the
provisions of the Securities Act of 1933.
The 177,846 nonvested options at December 31, 1998 will become vested over
the following periods: 105,550 vest evenly over five years commencing in
February 1999; 15,000 vest evenly over five years commencing in May 1999; 32,219
vest over two years commencing July 1999; 3,650 vest in July 1999; 5,000 vest
evenly over five years commencing in August 1999; 4,831 vest in November 1999;
and the remaining 11,596 fully vest if the Company achieves certain performance
objectives. All options must be exercised, or will expire, within 10 years of
the date of the grant. In addition, in the event of a change in control, all
options vest.
The Company accounts for the stock option plan in accordance with Accounting
Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, under
which no compensation cost has been recognized for stock option awards. However,
under Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION ("SFAS 123"), the
F-21
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
13. REDEEMABLE PREFERRED STOCK AND COMMON STOCK (CONTINUED)
Company must disclose the pro forma net income as if the Company had adopted the
accounting requirements of SFAS 123. Based on the Minimum Value Method of SFAS
123, the Company's pro forma net income (loss) for 1996, 1997 and 1998 would
have been $3,067,000, $(1,263,000), and $(4,588,000), respectively.
The weighted average exercise price for options at the beginning of year,
granted during the year and as of December 31, 1998 was $19.58, $50.20 and
$34.44 per share, respectively. The weighted average exercise price of options
exercisable as of December 31, 1998 was $12.15 per share. The weighted average
fair value of the stock options granted during 1998 was $7.49. This amount
represents the estimated fair market value of the Company's common stock reduced
by the present value of the exercise price of the options granted during 1998.
The fair value of each stock option grant is estimated on the date of grant
using the Minimum Value Method with the following weighted average assumptions
used for grants:
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Risk-free interest rate.................................... 6.84% 6.75% 6.00%
Expected dividend yield.................................... 0% 0% 0%
Expected life in years..................................... 5 5 5
Expected volatility........................................ 0% 0% 0%
</TABLE>
The following table summarizes options outstanding at December 31, 1998:
<TABLE>
<S> <C> <C> <C>
Exercise price range.................... $ 8.00 $ 16.00 $45.00-$60.00
Options outstanding..................... 47,000 28,988 177,288
Weighted average exercise price......... $ 8.00 $ 16.00 $ 48.82
Weighted average remaining contractual
life.................................. 6 years 8 years 9 years
Options currently exercisable........... 47,000 12,561 15,869
Weighted average exercise price of
options currently exercisable......... $ 8.00 $ 16.00 $ 45.00
</TABLE>
F-22
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
14. COMMITMENTS AND CONTINGENCIES
The Company has entered into employment agreements with certain employees,
through its acquisitions, whereby the Company is committed to provide employment
and reimbursement for specified expenses providing the employees comply with the
provisions of said agreements. Future minimum payments under these agreements as
of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
---------------
<S> <C>
1999......................................................................... $ 1,285
2000......................................................................... 1,285
2001......................................................................... 515
2002......................................................................... 330
2003......................................................................... 330
-------
Total........................................................................ $ 3,745
-------
-------
</TABLE>
The above future payments were recorded in conjunction with purchase
accounting; $1,285,000 is included in accounts payable and accrued expenses at
both December 31, 1997 and 1998, and $3,745,000 and $2,460,000 is included in
other noncurrent liabilities at December 31, 1997 and 1998, respectively.
The Company is party to various claims, legal actions, complaints and union
negotiations arising in the ordinary course of business. In management's
opinion, the ultimate resolution of these matters will not have a material
adverse effect on its financial condition or results of operations (Note 20).
15. EXTRAORDINARY ITEMS
The Company used a portion of the proceeds from the debt refinancings to
repay its pre-existing debt. As a result of this early extinguishment of debt,
the Company incurred extraordinary charges, in both July and November 1997,
totaling approximately $5.1 million, net of tax benefits of $2.7 million,
consisting of the write-off of unamortized deferred financing costs and premium
payments on the repurchase of senior subordinated notes.
16. ACQUISITIONS
In July 1997, the Company acquired CMS, which pioneered the businesses of
plastic container leasing on a per use or round-trip basis and plastic container
fleet management in the United States and Canada utilizing inventory tracking
technology. The purchase price of the stock acquisition was $32.5 million, plus
transaction-related expenses. The former owner was granted options to purchase
48,088 shares of Holdings common stock at $45 per share vesting over three
years.
In October 1997, the Company acquired Hunter, a leading manufacturer and
marketer of plastic and steel drums in Canada. The purchase price of the stock
acquisition was $23.7 million, plus transaction-related expenses and 27,778
shares of nonvoting exchangeable stock, exchangeable into 27,778 shares of
Holdings common stock valued at $45 per share. The non-voting exchangeable stock
is exchangeable upon the occurrence of specific events, but in any event no
F-23
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
16. ACQUISITIONS (CONTINUED)
later than October 2004. These shares have been treated as outstanding shares of
Holdings in the accompanying financial statements.
In November 1997, the Company acquired certain assets of SPP, formerly a
division of JSC, a leading manufacturer and marketer of plastic drums in the
United States. The assets were acquired for $70 million, plus
transaction-related expenses.
In July 1998, the Company acquired NEC. NEC has a large share of the steel
drum reconditioning market in the Northeast and provides the Company entry into
the steel drum reconditioning market. The purchase price of the stock
acquisition was $14.0 million, plus transaction-related expenses and 24,243
shares of common stock valued at $45 per share.
All of these transactions (collectively, the "Acquisitions"), have been
accounted for as purchases, and, accordingly, the purchase prices were allocated
to the net tangible and intangible assets acquired based on estimated fair
values at the respective dates of acquisition. The excess purchase price over
the net assets and liabilities acquired was allocated to goodwill which is being
amortized on a straight-line basis over its estimated useful life of 40 years.
The results of operations of the Acquisitions have been included in the
consolidated financial statements since the respective dates of acquisition.
The following unaudited pro forma information assumes that the Acquisitions
occurred on January 1 of the year acquired for each year presented, after giving
effect to certain adjustments, including amortization of goodwill, increased
depreciation expense, increased interest expense on the acquisition debt
incurred, the elimination of pre-acquisition sales, the elimination of certain
shareholder expenses and the related income tax effects. The pro forma results
are not necessarily indicative of the results of operations which would actually
have occurred had the transaction taken place on the dates indicated or of the
results which may occur in the future:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(IN THOUSANDS)
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Net sales................................... $ 284,666 $ 297,300 $ 284,510
Income (loss) before income taxes and
extraordinary items....................... 10,017 3,200 (5,428)
Net income (loss)........................... 5,879 (3,200) (4,623)
</TABLE>
The following represents the cash flow details of the Acquisitions:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Fair value of assets acquired............... $ 158,984 $ 18,329
Liabilities assumed......................... 27,874 3,264
Common stock issued......................... -- 1,091
--------- ---------
Cash paid for acquisitions.................. 131,110 13,974
Less cash acquired.......................... 861 100
--------- ---------
$ 130,249 $ 13,874
--------- ---------
--------- ---------
</TABLE>
F-24
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
17. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES
FOREIGN EXCHANGE CONTRACTS--The Company's Canadian subsidiary maintains U.S.
dollar denominated foreign currency exchange contracts which were in place prior
to the Company's acquisition of Hunter. At December 31, 1997 and 1998, $15.8
million and $3.9 million, respectively, of forward contracts were held with
settlement rates ranging from $1.3821 to $1.4072, Canadian dollars to U.S.
dollars, and settlement dates from January 1998 to December 1999. The foreign
exchange contracts are recorded at fair value with the related unrealized gains
or losses included in other expense-net on the accompanying statement of
operations and comprehensive income (loss). Included in other expense-net for
the years ended December 31, 1997 and 1998, was $465,000 and $629,000,
respectively, of losses on foreign exchange contracts.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The Company does not enter into
financial instruments for trading purposes. For cash and cash equivalents,
accounts receivable and payable and accrued expenses, the carrying amount
approximates fair value due to their short maturities. The fair values of
long-term debt are estimated based on the borrowing rates currently available
for borrowings with similar terms and maturities. At December 31, 1997, the
carrying amount approximates fair value due to the debt being restructured
during November 1997. At December 31, 1998, the carrying amount approximates
fair value based on current borrowing rates. The fair value of the interest rate
collar was not material at either December 31, 1997 or 1998. The foreign
exchange contracts are recorded at a fair value of $680,000 and $342,000 at
December 31, 1997 and 1998, respectively.
18. NON-RECURRING CHARGES
In conjunction with the integration of acquired entities and expansion of
the Company's operations, a plan was developed to streamline the Company's
operations and sales forces and to consolidate and relocate the Company's
corporate headquarters in order to improve operating efficiencies and reduce
costs. This plan is expected to be substantially complete by the end of the
first quarter of 1999. As part of this plan, the Company recorded restructuring,
integration and other charges of approximately $3.5 million for the year ended
December 31, 1998. These charges primarily include costs related to the closure
of a container manufacturing facility, severance costs and other
personnel-related costs and the relocation of corporate headquarters and other
miscellaneous costs.
The liabilities accrued for the restructuring, integration and other costs
are as follows (in thousands):
<TABLE>
<CAPTION>
SEVERANCE PLANT AND
AND OTHER HEADQUARTERS
PERSONNEL- CLOSURE/
RELATED RELOCATION
COSTS COSTS OTHER TOTAL
----------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Initial liability assumed..................... $ 2,166 $ 1,239 $ 62 $ 3,467
Cash expenditures............................. 681 876 31 1,588
----------- ------------- --- ---------
Balance, December 31, 1998.................... $ 1,485 $ 363 $ 31 $ 1,879
----------- ------------- --- ---------
----------- ------------- --- ---------
</TABLE>
F-25
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
18. NON-RECURRING CHARGES (CONTINUED)
The severance and other personnel-related costs are comprised of $1,392,000
of severance charges arising from the elimination of 10 positions at the
corporate headquarters and 36 positions at a containers manufacturing facility.
Other personnel costs consist of $645,000 of employee relocation expenses and
$129,000 of employee placement fees relating to the relocation of corporate
headquarters and the closure of a containers manufacturing facility.
The containers manufacturing facility closure and corporate headquarters
relocation costs consist of $1,089,000 of lease termination charges and $150,000
of impairment charges to write off the net book value of leasehold improvements
abandoned in conjuction with the relocation of corporate headquarters and the
closure of the containers manufacturing facility.
In addition, professional fees of $2.7 million were incurred during 1998
associated with proposed acquisitions that were not consummated.
19. SEGMENT REPORTING
The Company adopted SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION, during the fourth quarter of 1998. SFAS 131
establishes standards for reporting information about operating segments in
annual financial statements. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
Operating segments are defined as components of an enterprise for which
separate, discrete financial information is available that is evaluated
regularly by the chief operating decision maker, to make decisions about
resources to be allocated and to assess its performance.
The Company has two reportable operating segments. Containers manufactures
and sells new plastic and steel rigid industrial containers. Services leases
plastic rigid industrial containers, provides plastic container fleet management
services, reconditions and sells steel drums and retrieves and recycles empty
industrial containers.
Information as to the operations of the Company's business segments is set
forth below based on the nature of the products and services offered. The
Company evaluates performance based on several factors, of which the primary
financial measure is business segment profit or loss from operations before
amortization of intangible assets, depreciation, interest, income taxes and
extraordinary items. The accounting policies of the segments are the same as
those described in the summary of significant accounting policies (Note 2).
Intersegment sales are recorded at cost plus applicable margin and are
eliminated upon consolidation.
F-26
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
19. SEGMENT REPORTING (CONTINUED)
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Sales:
Containers...................................... $ 141,925 $ 164,407 $ 229,692
Services........................................ -- 15,206 46,650
--------- --------- ---------
141,925 179,613 276,342
Intersegment sales:
Containers...................................... -- 3,300 2,300
Services........................................ -- -- --
--------- --------- ---------
-- 3,300 2,300
Net sales:
Containers...................................... 141,925 161,107 227,392
Services........................................ -- 15,206 46,650
--------- --------- ---------
Consolidated net sales............................ $ 141,925 $ 176,313 $ 274,042
--------- --------- ---------
--------- --------- ---------
Earnings before amortization, depreciation,
interest, income taxes and extraordinary items:
Containers...................................... $ 19,575 $ 20,654 $ 23,453
Services........................................ -- 5,105 14,341
--------- --------- ---------
19,575 25,759 37,794
Interest expense.................................. 7,473 8,754 16,025
Depreciation and amortization expense............. 5,868 10,088 26,606
--------- --------- ---------
Consolidated income (loss) before income taxes and
extraordinary items............................. $ 6,234 $ 6,917 $ (4,837)
--------- --------- ---------
--------- --------- ---------
Depreciation and amortization expense:
Containers...................................... $ 5,868 $ 6,728 $ 11,617
Services........................................ -- 3,360 14,989
--------- --------- ---------
Consolidated depreciation and amortization
expense......................................... $ 5,868 $ 10,088 $ 26,606
--------- --------- ---------
--------- --------- ---------
Segment assets:
Containers...................................... $ 88,844 $ 200,305 $ 188,376
Services........................................ -- 43,727 64,902
Other........................................... -- 1,498 4,976
--------- --------- ---------
Consolidated segment assets....................... $ 88,844 $ 245,530 $ 258,254
--------- --------- ---------
--------- --------- ---------
Capital Expenditures:
Containers...................................... $ 3,335 $ 5,655 $ 10,484
Services........................................ -- 4,294 18,195
--------- --------- ---------
Consolidated capital expenditures................. $ 3,335 $ 9,949 $ 28,679
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-27
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
19. SEGMENT REPORTING (CONTINUED)
Net sales by geographic area, as determined by the location of customer, are
as follows:
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales by geographic area:
United States................ $ 141,925 $ 172,310 $ 257,150
Canada....................... -- 4,003 15,490
Other countries.............. -- -- 1,402
--------- --------- ---------
Total.......................... $ 141,925 $ 176,313 $ 274,042
--------- --------- ---------
--------- --------- ---------
</TABLE>
Long-lived assets by geographic area, consisting of property, plant and
equipment--net and goodwill and other intangibles--net, as determined by
location of the asset, is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-lived assets--net by geographic
area:
United States.......................... $ 56,689 $ 162,044 $ 177,345
Canada................................. -- 26,652 23,493
--------- --------- ---------
Total.................................... $ 56,689 $ 188,696 $ 200,838
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company does not have a single customer which represents 10 percent or
more of consolidated revenues.
20. SUBSEQUENT EVENTS
On February 10, 1999, the Company refinanced its revolving credit loan and
term loans by entering into a new senior credit facility consisting of a $75.0
million revolving credit facility ($13.3 million was drawn on February 10,
1999), bearing interest at LIBOR plus 2.75%, and a $25.0 million term loan,
bearing interest at 9.48% (collectively, the "Senior Credit Facility"). The
revolving credit facility matures in February 2004 and the term loan matures in
two equal installments in June 2006 and 2007. In addition, the Company issued
$150 million of 10 7/8% Senior Subordinated Notes (the "Notes") due February 15,
2009, issued at 99.248%, resulting in an effective yield of 11.0%. The Senior
Credit Facility contains certain covenants and restrictions and is guaranteed by
substantially all assets of the Company. The Notes require semiannual interest
payments commencing August 15, 1999 and mature February 2009. The Notes are
subordinate to all current and future debt of the Company and are
unconditionally guaranteed by the guarantor subsidiaries, (Note 21). Deferred
financing charges of approximately $7.0 million were incurred in connection with
the refinancing.
In January 1999, the U.S. Environmental Protection Agency (the "EPA")
confirmed the presence of certain contaminants, including dioxin, in and along
the Woonasquatucket River in Rhode Island. Prior to 1970, NEC operated a
facility in North Providence, Rhode Island along the Woonasquatucket River at a
site where contaminants have been found. Recent press reports identify NEC as a
business that may have contributed to the contamination. The Company is not
aware that any party has been formally identified by the EPA as a potentially
responsible party.
F-28
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
20. SUBSEQUENT EVENTS (CONTINUED)
Despite the fact that NEC no longer operates the facility, and did not operate
the facility at the time the Company acquired the outstanding capital stock of
NEC in July 1998, NEC could incur liability under Federal and state
environmental laws and/or as a result of civil litigation. The Company believes
that any resulting liability is subject to a contractual indemnity from Vincent
J. Buonanno, one of its directors and the former owner of NEC. However, this
indemnity is subject to a $2.0 million limit. The Company is currently unable to
estimate the likelihood or extent of any liability; however, this matter may
result in liability to NEC that could have a material adverse effect on the
Company's financial condition and results of operations.
21. GUARANTOR SUBSIDIARIES
The Company's payment obligations under the Notes are fully,
unconditionally, jointly and severally guaranteed by its current domestic
subsidiaries, principally: RSC, CMS, and NEC (collectively, the "Guarantor
Subsidiaries"). Each of the Guarantor Subsidiaries is a direct or indirect
wholly-owned subsidiary of the Company. The Company's payment obligations under
the Notes will not be guaranteed by the remaining subsidiary, Hunter (the
"Non-Guarantor Subsidiary"). The obligations of each Guarantor Subsidiary under
their guarantee of the Notes are subordinated to each subsidiary's obligations
under their guarantee of the Senior Credit Facility.
Presented below is condensed combining financial information for the Parent
Company, the Guarantor Subsidiaries and the Non-Guarantor Subsidiary. In the
Company's opinion, separate financial statements and other disclosures
concerning each of the Guarantor Subsidiaries would not provide additional
information that is material to investors. Therefore, the Guarantor Subsidiaries
are combined in the presentation below.
Investments in subsidiaries are accounted for by the Company on the equity
method of accounting. Earnings of subsidiaries are, therefore, reflected in the
Company's investments in and advances to/from subsidiaries account and earnings
(losses). The elimination entries eliminate investments in subsidiaries, related
stockholders' equity and other intercompany balances and transactions.
F-29
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
----------- ------------ --------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............. $ -- $ 1,246 $ 384 $ -- $ 1,630
Accounts receivable--net.............. -- 26,263 3,226 (81) 29,408
Inventories........................... -- 16,354 2,407 -- 18,761
Prepaid and other current
assets--net......................... -- 2,412 398 3,384 6,194
----------- ------------ --------------- ------------ -------------
Total current assets.............. -- 46,275 6,415 3,303 55,993
----------- ------------ --------------- ------------ -------------
PROPERTY, PLANT AND EQUIPMENT--Net...... -- 86,720 5,923 -- 92,643
----------- ------------ --------------- ------------ -------------
OTHER ASSETS:
Goodwill and other intangibles--net... -- 91,869 17,570 (1,244) 108,195
Deferred financing costs--net......... 1,294 -- -- -- 1,294
Other noncurrent assets............... -- 129 -- -- 129
Intercompany advances................. 21,434 76,033 390 (97,857) --
Investment in subsidiaries............ 37,788 -- -- (37,788) --
----------- ------------ --------------- ------------ -------------
TOTAL ASSETS............................ $ 60,516 $ 301,026 $ 30,298 $ (133,586) $ 258,254
----------- ------------ --------------- ------------ -------------
----------- ------------ --------------- ------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses............................ $ (2,149) $ 37,767 $ 4,336 $ 3,125 $ 43,079
Current maturities of long-term
debt................................ -- 10 -- -- 10
----------- ------------ --------------- ------------ -------------
Total current liabilities............. (2,149) 37,777 4,336 3,125 43,089
LONG-TERM DEBT.......................... 19,997 142,413 9,182 -- 171,592
DEFERRED TAXES--Net..................... -- 2,331 2,331 -- 4,662
OTHER NONCURRENT LIABILITIES............ -- 4,714 1,410 (750) 5,374
----------- ------------ --------------- ------------ -------------
Total liabilities..................... 17,848 187,235 17,259 2,375 224,717
INTERCOMPANY ADVANCES................... -- 90,252 6,790 (97,042) --
TOTAL STOCKHOLDERS' EQUITY.............. 42,668 23,539 6,249 (38,919) 33,537
----------- ------------ --------------- ------------ -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY................................ $ 60,516 $ 301,026 $ 30,298 $ (133,586) $ 258,254
----------- ------------ --------------- ------------ -------------
----------- ------------ --------------- ------------ -------------
</TABLE>
F-30
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR ELIMINATION
COMPANY SUBSIDIARIES SUBSIDIARY ADJUSTMENTS CONSOLIDATED
----------- ------------ --------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
NET SALES..................................... $ -- $ 238,292 $ 35,750 $ -- $ 274,042
COST OF SALES................................. -- 187,550 25,657 -- 213,207
----------- ------------ --------------- ------------- -------------
GROSS PROFIT.................................. -- 50,742 10,093 -- 60,835
TOTAL EXPENSES................................ -- 43,670 5,427 -- 49,097
----------- ------------ --------------- ------------- -------------
INCOME FROM OPERATIONS........................ -- 7,072 4,666 -- 11,738
EQUITY LOSS................................... (2,876) -- -- 2,876 --
INTEREST EXPENSE.............................. 2,185 12,505 1,335 -- 16,025
OTHER (INCOME) EXPENSE--Net................... -- (79) 629 -- 550
----------- ------------ --------------- ------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES............. (5,061) (5,354) 2,702 2,876 (4,837)
PROVISION (BENEFIT) FOR INCOME TAXES.......... (729) (1,034) 1,258 -- (505)
----------- ------------ --------------- ------------- -------------
NET INCOME (LOSS)............................. $ (4,332) $ (4,320) $ 1,444 $ 2,876 $ (4,332)
----------- ------------ --------------- ------------- -------------
----------- ------------ --------------- ------------- -------------
</TABLE>
F-31
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR ELIMINATION
COMPANY SUBSIDIARIES SUBSIDIARY ADJUSTMENT CONSOLIDATED
----------- ------------ --------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS PROVIDED BY OPERATING
ACTIVITIES:
Net (loss) income...................... $ (4,332) $ (4,320) $ 1,444 $ 2,876 $ (4,332)
Adjustments to reconcile net (loss)
income to net cash provided by
operating activities:
Equity loss.......................... 2,876 -- -- (2,876) --
Depreciation and amortization........ -- 25,301 1,305 -- 26,606
Amortization of deferred financing
costs.............................. 276 -- -- -- 276
Other noncash items.................. -- 770 -- -- 770
Changes in operating assets and
liabilities........................ 1,252 8,288 (2,063) -- 7,477
----------- ------------ ------- ----------- -------------
Net cash provided by operating
activities....................... 72 30,039 686 -- 30,797
----------- ------------ ------- ----------- -------------
CASH FLOWS USED IN INVESTING
ACTIVITIES............................. -- (40,690) (543) -- (41,233)
----------- ------------ ------- ----------- -------------
CASH FLOWS (USED IN) PROVIDED BY
FINANCING ACTIVITIES................... (72) 11,067 (6) -- 10,989
----------- ------------ ------- ----------- -------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS................... -- -- 26 -- 26
----------- ------------ ------- ----------- -------------
NET CHANGE IN CASH AND CASH
EQUIVALENTS............................ -- 416 163 -- 579
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD................................. -- 829 222 -- 1,051
----------- ------------ ------- ----------- -------------
CASH AND CASH EQUIVALENTS, END OF
PERIOD................................. $ -- $ 1,245 $ 385 $ -- $ 1,630
----------- ------------ ------- ----------- -------------
----------- ------------ ------- ----------- -------------
</TABLE>
F-32
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
----------- ------------ --------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............. $ -- $ 829 $ 222 $ -- $ 1,051
Accounts receivable--net.............. -- 25,739 4,029 (127) 29,641
Inventories........................... -- 17,022 1,982 -- 19,004
Prepaid and other current
assets--net......................... 1,082 2,633 229 1,557 5,501
----------- ------------ --------------- ------------ -------------
Total current assets................ 1,082 46,223 6,462 1,430 55,197
----------- ------------ --------------- ------------ -------------
PROPERTY, PLANT AND EQUIPMENT--Net...... -- 78,481 6,481 -- 84,962
----------- ------------ --------------- ------------ -------------
OTHER ASSETS:
Goodwill and other intangibles--net... -- 83,563 20,171 -- 103,734
Deferred financing costs--net......... 1,498 -- -- -- 1,498
Other noncurrent assets............... -- 139 -- -- 139
Intercompany advances................. 21,418 73,560 -- (94,978) --
Investment in subsidiaries............ 42,453 -- -- (42,453) --
----------- ------------ --------------- ------------ -------------
TOTAL ASSETS............................ $ 66,451 $ 281,966 $ 33,114 $ (136,001) $ 245,530
----------- ------------ --------------- ------------ -------------
----------- ------------ --------------- ------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses............................ $ (1,643) $ 28,510 $ 5,941 $ 1,430 $ 34,238
Current maturities of long-term
debt................................ -- 745 -- -- 745
----------- ------------ --------------- ------------ -------------
Total current liabilities........... (1,643) 29,255 5,941 1,430 34,983
----------- ------------ --------------- ------------ -------------
----------- ------------ --------------- ------------ -------------
LONG-TERM DEBT.......................... 19,997 130,620 10,000 -- 160,617
DEFERRED TAXES--Net..................... 1,306 3,971 542 -- 5,819
OTHER NONCURRENT LIABILITIES............ -- 3,011 2,309 -- 5,320
----------- ------------ --------------- ------------ -------------
Total liabilities................... 19,660 166,857 18,792 1,430 206,739
INTERCOMPANY ADVANCES................... -- 87,284 7,694 (94,978) --
TOTAL STOCKHOLDERS' EQUITY.............. 46,791 27,825 6,628 (42,453) 38,791
----------- ------------ --------------- ------------ -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY................................ $ 66,451 $ 281,966 $ 33,114 $ (136,001) $ 245,530
----------- ------------ --------------- ------------ -------------
----------- ------------ --------------- ------------ -------------
</TABLE>
F-33
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR ELIMINATION
COMPANY SUBSIDIARIES SUBSIDIARY ADJUSTMENTS CONSOLIDATED
----------- ------------ --------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
NET SALES..................................... $ -- $ 170,673 $ 5,640 $ -- $ 176,313
COST OF SALES................................. -- 129,267 4,336 -- 133,603
----------- ------------ ------- ------------ -------------
GROSS PROFIT.................................. -- 41,406 1,304 -- 42,710
TOTAL EXPENSES................................ -- 25,924 918 -- 26,842
----------- ------------ ------- ------------ -------------
INCOME FROM OPERATIONS........................ -- 15,482 386 -- 15,868
EQUITY INCOME................................. 1,648 -- -- (1,648) --
INTEREST EXPENSE.............................. 898 7,625 231 -- 8,754
OTHER (INCOME) EXPENSE--Net................... -- (104) 301 -- 197
----------- ------------ ------- ------------ -------------
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEMS......................... 750 7,961 (146) (1,648) 6,917
PROVISION (BENEFIT) FOR INCOME TAXES.......... (305) 3,107 123 -- 2,925
----------- ------------ ------- ------------ -------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS...... 1,055 4,854 (269) (1,648) 3,992
EXTRAORDINARY ITEMS........................... 2,163 2,937 -- -- 5,100
----------- ------------ ------- ------------ -------------
NET INCOME (LOSS)............................. $ (1,108) $ 1,917 $ (269) $ (1,648) $ (1,108)
----------- ------------ ------- ------------ -------------
----------- ------------ ------- ------------ -------------
</TABLE>
F-34
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR ELIMINATION
COMPANY SUBSIDIARIES SUBSIDIARY ADJUSTMENTS CONSOLIDATED
----------- ------------ --------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS PROVIDED BY OPERATING
ACTIVITIES:
Net (loss) income..................... $ (1,108) $ 1,917 $ (269) $ (1,648) $ (1,108)
Adjustments to reconcile net (loss)
income to net cash provided by
operating activities:
Equity income....................... (1,648) -- -- 1,648 --
Depreciation and amortization....... 196 10,222 264 -- 10,682
Extraordinary items................. 3,277 4,478 -- -- 7,755
Other noncash items--............... -- 200 193 -- 393
Changes in operating assets and
liabilities....................... (1,419) 1,465 (35) -- 11
----------- ------------ --------------- ------------ -------------
Net cash provided by operating
activities...................... (702) 18,282 153 -- 17,733
----------- ------------ --------------- ------------ -------------
CASH FLOWS USED IN INVESTING
ACTIVITIES............................ (7,000) (115,823) (17,522) -- (140,345)
----------- ------------ --------------- ------------ -------------
CASH FLOWS (USED IN) PROVIDED BY
FINANCING ACTIVITIES.................. 7,702 97,118 17,694 -- 122,514
----------- ------------ --------------- ------------ -------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS.................. -- -- (103) -- (103)
----------- ------------ --------------- ------------ -------------
NET CHANGE IN CASH AND CASH
EQUIVALENTS........................... -- (423) 222 -- (201)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD................................ -- 1,252 -- -- 1,252
----------- ------------ --------------- ------------ -------------
CASH AND CASH EQUIVALENTS, END OF
PERIOD................................ $ -- $ 829 $ 222 $ -- $ 1,051
----------- ------------ --------------- ------------ -------------
----------- ------------ --------------- ------------ -------------
</TABLE>
* * *
F-35
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------------ --------------
<S> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash.............................................................................. $ 1,760 $ 1,630
Accounts receivable--net.......................................................... 35,643 29,408
Inventories....................................................................... 19,548 18,761
Prepaid taxes and income taxes receivable--net.................................... 4,337 3,460
Prepaid expenses and other current assets......................................... 1,492 2,132
Deferred tax benefit--net......................................................... 109 602
------------ --------------
Total current assets............................................................ 62,889 55,993
------------ --------------
PROPERTY, PLANT AND EQUIPMENT--Net 93,748 92,643
------------ --------------
OTHER ASSETS
Goodwill and other intangibles--net............................................... 107,855 108,195
Deferred financing costs--net..................................................... 6,155 1,294
Other noncurrent assets........................................................... 196 129
------------ --------------
Total other assets.............................................................. 114,206 109,618
------------ --------------
TOTAL ASSETS........................................................................ $ 270,843 $ 258,254
------------ --------------
------------ --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses............................................. $ 34,178 $ 43,079
Current maturities of long-term debt.............................................. -- 10
------------ --------------
Total current liabilities....................................................... 34,178 43,089
LONG TERM DEBT...................................................................... 193,290 171,592
DEFERRED TAXES--Net................................................................. 4,731 4,662
OTHER NON CURRENT LIABILITIES....................................................... 5,321 5,374
------------ --------------
Total liabilities............................................................... 237,520 224,717
------------ --------------
STOCKHOLDERS' EQUITY................................................................ 33,323 33,537
------------ --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.......................................... $ 270,843 $ 258,254
------------ --------------
------------ --------------
</TABLE>
See notes to consolidated financial statements
F-36
<PAGE>
FINANCIAL INFORMATION
CONSOLIDATED FINANCIAL STATEMENTS
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
<S> <C> <C>
1999 1998
--------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C>
NET SALES............................................................................... $ 70,938 $ 73,270
COST OF SALES........................................................................... 52,953 56,642
--------- ---------
Gross Profit.......................................................................... 17,985 16,628
OPERATING EXPENSES
Selling............................................................................... 5,747 4,984
General and administrative............................................................ 5,945 5,395
Amortization of intangibles........................................................... 876 801
Non-recurring charges................................................................. -- 1,650
--------- ---------
Total expenses........................................................................ 12,568 12,830
INCOME FROM OPERATIONS.................................................................. 5,417 3,798
INTEREST EXPENSE........................................................................ 4,596 3,645
OTHER (INCOME) EXPENSE--Net............................................................. 62 (4)
--------- ---------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM....................................... 759 157
PROVISION FOR INCOME TAXES.............................................................. 389 64
--------- ---------
INCOME BEFORE EXTRAORDINARY ITEM........................................................ 370 93
EXTRAORDINARY ITEM, net of tax.......................................................... 763 --
--------- ---------
NET INCOME (LOSS)....................................................................... (393) 93
OTHER COMPREHENSIVE INCOME (LOSS)....................................................... 327 (120)
--------- ---------
COMPREHENSIVE INCOME (LOSS)............................................................. $ (66) $ (27)
--------- ---------
--------- ---------
</TABLE>
See notes to consolidated financial statements.
F-37
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1999 1998
----------- ---------
<S> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................................................... $ (393) $ 93
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities:
Depreciation and amortization...................................................... 6,964 6,341
Extraordinary item................................................................. 1,271 --
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable........................................... (6,235) (3,697)
Decrease (increase) in inventories................................................... (787) 815
Decrease (increase) in prepaid expenses and other current assets..................... (237) (2,720)
Increase (decrease) in accounts payable and accrued expenses......................... (8,985) 3,487
Increase (decrease) in deferred income taxes......................................... 562 (191)
Increase (decrease) in other--net.................................................... (120) 209
----------- ---------
Net cash (used in) provided by operating activities.............................. (7,960) 4,337
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................................................. (7,367) (4,254)
----------- ---------
Net cash used in investing activities............................................ (7,367) (4,254)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings................................................... 183,670 --
Repayments of long-term borrowings................................................... (139,571) --
Proceeds from revolving credit loan.................................................. 16,455 524
Repayments of revolving credit loan.................................................. (38,868) --
Cash paid for financing costs........................................................ (6,263) --
Other................................................................................ 33 (27)
----------- ---------
Net cash (used in) provided by financing activities.............................. 15,456 497
----------- ---------
NET CHANGE IN CASH..................................................................... 129 580
CASH, BEGINNING OF PERIOD.............................................................. 1,631 1,051
----------- ---------
CASH, END OF PERIOD.................................................................... $ 1,760 $ 1,631
----------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest........................................................................... $ 5,308 $ 1,104
Income taxes....................................................................... $ 1,004 $ 58
</TABLE>
See notes to consolidated financial statements.
F-38
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--BASIS OF PRESENTATION
These consolidated financial statements and related notes thereto as of
March 31, 1999 and for the three-month period ended March 31, 1999 and 1998 are
unaudited.
The information furnished herein reflects all adjustments which are, in the
opinion of management, necessary for a fair presentation of the consolidated
balance sheets as of March 31, 1999 and December 31, 1998 and the consolidated
statements of operations and comprehensive income and cash flows for the three
month periods ended March 31, 1999 and 1998. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make certain estimates and assumptions that affect the amounts
reported on the financial statements and accompanying notes. Actual amounts
could differ from those estimates.
These financial statements should be read in conjunction with the annual
financial statements and related notes thereto of Russell-Stanley Holdings, Inc.
included herein.
NOTE 2--RECENTLY ISSUED ACCOUNTING STANDARD
In June 1998, Statement of Financial Accounting Standards No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES ("SFAS 133") was
issued. SFAS 133 establishes new disclosure requirements which provide a
comprehensive standard for recognition and measurement of derivatives and
hedging activities. SFAS 133 is scheduled to take effect in 2000, however, the
Financial Accounting Standards Board recently issued an exposure draft of a
proposed standard, which if adopted in its current form would delay the
effective date for one year. SFAS 133 will require new disclosures, all
derivatives to be recorded on the balance sheet at fair value, and establish
special accounting for certain types of hedging activities. Based on the
Company's current derivatives, an interest rate collar and foreign currency
forward contracts, management does not believe that SFAS 133 will have a
material effect on the Company's financial condition or results of operations.
NOTE 3--INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- --------------
<S> <C> <C>
(IN THOUSANDS)
<CAPTION>
(UNAUDITED)
<S> <C> <C>
Raw material..................................................... $ 11,519 $ 12,435
Work-in-process.................................................. 1,198 562
Finished goods................................................... 6,831 5,764
----------- --------------
Total........................................................ $ 19,548 $ 18,761
----------- --------------
----------- --------------
</TABLE>
F-39
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- --------------
<S> <C> <C>
(IN THOUSANDS)
<CAPTION>
(UNAUDITED)
<S> <C> <C>
Senior subordinated notes........................................ $ 148,885 $ --
Revolving credit and term loans.................................. 44,405 171,591
Capital lease obligations........................................ -- 11
----------- --------------
193,290 171,602
Less current maturities.......................................... -- 10
----------- --------------
Long-term debt................................................... $ 193,290 $ 171,592
----------- --------------
----------- --------------
</TABLE>
On February 10, 1999, the Company refinanced its revolving credit loan and
term loans by amending its senior credit facility to provide for a $75.0 million
revolving credit line (including a $15.0 million Canadian credit line), which
bears interest, at the Company's election, at a combination of domestic source
and Eurodollar borrowing rates which fluctuate based on the Company's EBITDA and
debt levels, and a $25.0 million term loan, bearing interest at 9.48%
(collectively, the "Senior Credit Facility"). The revolving credit facility
matures in February 2004 and the term loan matures in two equal installments in
June 2006 and 2007. In addition, the Company issued $150 million of 10 7/8%
Senior Subordinated Notes (the "Notes") due February 15, 2009, issued at
99.248%, resulting in an effective yield of 11.0%. The Senior Credit Facility
contains certain covenants and restrictions and is secured by substantially all
assets of the Company. The Notes require semiannual interest payments commencing
August 15, 1999 and mature February 2009. The Notes are subordinate to all
existing and future senior indebtedness of the Company and are unconditionally
guaranteed by the domestic subsidiaries and contain a number of customary
covenants and restrictions. Deferred financing charges of approximately $6.3
million were incurred in connection with the refinancing.
F-40
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--LONG-TERM DEBT (CONTINUED)
The Notes, revolving credit loan, and term loans have the following
provisions (dollars in thousands):
<TABLE>
<CAPTION>
INTEREST INTEREST
RATE AT BALANCE AT RATE AT
DOMESTIC EURODOLLAR MARCH 31, MARCH 31, DECEMBER 31,
INTEREST RATE INTEREST RATE 1999 1999 1998
---------------------- ----------------------- ------------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<CAPTION>
----------------------------------------------
<S> <C> <C> <C> <C> <C>
Revolving credit loan... Prime plus margin not LIBOR plus margin not 9.00% $ 9,915 9.00%
less than 1.25 less than 2.75%
Revolving credit Canadian prime plus -- 8.50 9,490 --
loan--foreign......... margin not less than
1.25%
Term Loan A-- Prime plus margin not LIBOR plus margin not -- -- 9.00
Domestic.............. less than 1.00% less than 2.50%
Term Loan A-- Prime plus margin not LIBOR plus margin not -- -- 9.00
Foreign............... less than 1.00% less than 2.50%
Term Loan B............. Prime plus margin not LIBOR plus margin not -- -- 9.50
less than 1.50% less than 3.00%
Term Loan C............. Fixed rate Fixed rate 9.48 25,000 9.48
Senior Subordinated Fixed rate -- 10.88 148,885 --
Notes.................
------------
Total................... 193,290
------------
------------
<CAPTION>
BALANCE AT
DECEMBER 31,
1998
--------------
<S> <C>
(UNAUDITED)
<S> <C>
Revolving credit loan... $ 22,837
Revolving credit --
loan--foreign.........
Term Loan A-- 35,000
Domestic..............
Term Loan A-- 9,182
Foreign...............
Term Loan B............. 79,572
Term Loan C............. 25,000
Senior Subordinated --
Notes.................
--------------
Total................... 171,591
--------------
--------------
</TABLE>
Maturities of long-term debt
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
2004......................................................................... $ 19,405
2005 and thereafter.......................................................... 173,885
---------------
Total........................................................................ $ 193,290
---------------
---------------
</TABLE>
F-41
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------------ --------------
<S> <C> <C>
(IN THOUSANDS)
<CAPTION>
(UNAUDITED)
<S> <C> <C>
Common Stock, $.01 par value,
At March 31, 1999 and December 31, 1998,
3,000,000 shares were authorized; 2,201,000 and 2,205,000
shares were issued and outstanding at March 31, 1999 and
December 31, 1998, respectively.............................. $ 23 $ 23
Additional paid in capital..................................... 70,179 70,179
Accumulated deficit............................................ (29,663) (29,270)
Accumulated other comprehensive income......................... (2,151) (2,478)
Less: Notes receivable for shares issued to management......... (32) (64)
Treasury stock............................................ (5,033) (4,853)
------------ --------------
TOTAL STOCKHOLDERS' EQUITY..................................... $ 33,323 $ 33,537
------------ --------------
------------ --------------
</TABLE>
NOTE 6--EXTRAORDINARY ITEM
The Company used a portion of the proceeds from the debt refinancing to
repay its existing debt. As a result of this early extinguishment of debt, the
Company incurred an extraordinary charge in February 1999 totaling approximately
$763,000, net of tax benefits, consisting of the write-off of unamortized
deferred financing costs.
NOTE 7--COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standards ("SFAS")
No. 130, "Reporting Comprehensive Income." Other comprehensive income (loss)
consists of foreign currency translation adjustments for each of the three
months ended March 31, 1999 and 1998.
NOTE 8--CONTINGENCY
In January 1999, the U.S. Environmental Protection Agency (the "EPA")
confirmed the presence of certain contaminants, including dioxin, in and along
the Woonasquatucket River in Rhode Island. Prior to 1970, NEC operated a
facility in North Providence, Rhode Island along the Woonasquatucket River at a
site where contaminants have been found. Recent press reports identify NEC as a
business that may have contributed to the contamination. The Company is not
aware that any party has been formally identified by the EPA as a potentially
responsible party. Notwithstanding that NEC no longer operates the facility, and
did not operate the facility at the time the Company acquired the outstanding
capital stock of NEC in July 1998, NEC could incur liability under Federal and
state environmental laws and/or as a result of civil litigation. The Company
believes that any resulting liability is subject to a contractual indemnity from
Vincent J. Buonanno, one of its directors and the former owner of NEC. However,
such indemnity is subject to a $2.0 million limit. The Company is currently
unable to estimate the likelihood or extent of any liability;
F-42
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--CONTINGENCY (CONTINUED)
however, this matter may result in liability to NEC that could have a material
adverse effect on the Company's financial condition and results of operations.
NOTE 9--GUARANTOR SUBSIDIARIES
The Company's payment obligations under the Notes are fully,
unconditionally, jointly and severally guaranteed by its current domestic
subsidiaries, principally: RSC, CMS, and NEC (collectively, the "Guarantor
Subsidiaries"). Each of the Guarantor Subsidiaries is a direct or indirect
wholly-owned subsidiary of the Company. The Company's payment obligations under
the Notes will not be guaranteed by the remaining subsidiary, Hunter (the
"Non-Guarantor Subsidiary"). The obligations of each Guarantor Subsidiary under
their guarantee of the Notes are subordinated to each subsidiary's obligations
under their guarantee of the Senior Credit Facility.
Presented below is condensed combining financial information for the Parent
Company, the Guarantor Subsidiaries and the Non-Guarantor Subsidiary. In the
Company's opinion, separate financial statements and other disclosures
concerning each of the Guarantor Subsidiaries would not provide additional
information that is material to investors. Therefore, the Guarantor Subsidiaries
are combined in the presentation below.
Investments in subsidiaries are accounted for by the Company on the equity
method of accounting. Earnings of subsidiaries are, therefore, reflected in the
Company's investments in and advances to/from subsidiaries account and earnings
(losses). The elimination entries eliminate investments in subsidiaries, related
stockholders' equity and other intercompany balances and transactions.
F-43
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--GUARANTOR SUBSIDIARIES (CONTINUED)
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
MARCH 31, 1999
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
----------- ------------ --------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............. $ -- $ 1,760 $ -- $ -- $ 1,760
Accounts receivable--net.............. -- 31,421 4,222 -- 35,643
Inventories........................... -- 16,994 2,554 -- 19,548
Prepaid and other current
assets--net......................... -- 5,722 216 -- 5,938
----------- ------------ --------------- ------------ -------------
Total current assets.............. -- 55,897 6,992 -- 62,889
----------- ------------ --------------- ------------ -------------
PROPERTY, PLANT AND EQUIPMENT--Net...... -- 87,729 6,019 -- 93,748
----------- ------------ --------------- ------------ -------------
OTHER ASSETS:
Goodwill and other intangibles--net... -- 89,985 17,870 -- 107,855
Deferred financing costs--net......... -- 6,155 -- -- 6,155
Other noncurrent assets............... -- 196 -- -- 196
Intercompany advances................. 31,725 56,978 503 (89,206) --
Investment in subsidiaries............ 29,596 -- -- (29,596) --
----------- ------------ --------------- ------------ -------------
TOTAL ASSETS............................ $ 61,321 $ 296,940 $ 31,384 $ (118,802) $ 270,843
----------- ------------ --------------- ------------ -------------
----------- ------------ --------------- ------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses............................ $ -- $ 30,047 $ 4,131 $ -- $ 34,178
Current maturities of long-term
debt................................ -- -- -- -- --
----------- ------------ --------------- ------------ -------------
Total current liabilities............. -- 30,047 4,131 -- 34,178
----------- ------------ --------------- ------------ -------------
LONG-TERM DEBT.......................... 19,997 163,803 9,490 -- 193,290
DEFERRED TAXES--Net..................... -- 2,362 2,369 -- 4,731
OTHER NONCURRENT LIABILITIES............ -- 3,993 1,328 -- 5,321
----------- ------------ --------------- ------------ -------------
Total liabilities..................... 19,997 200,205 17,318 -- 237,520
INTERCOMPANY ADVANCES................... -- 76,304 12,901 (89,205) --
TOTAL STOCKHOLDERS' EQUITY.............. 41,324 20,431 1,165 (29,597) 33,323
----------- ------------ --------------- ------------ -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY................................ $ 61,321 $ 296,940 $ 31,384 $ (118,802) $ 270,843
----------- ------------ --------------- ------------ -------------
----------- ------------ --------------- ------------ -------------
</TABLE>
F-44
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--GUARANTOR SUBSIDIARIES (CONTINUED)
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR ELIMINATION
COMPANY SUBSIDIARIES SUBSIDIARY ADJUSTMENTS CONSOLIDATED
----------- ------------ --------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
NET SALES..................................... $ -- $ 62,099 $ 8,839 $ -- $ 70,938
COST OF SALES................................. -- 46,410 6,543 -- 52,953
----------- ------------ ------- ------ -------------
GROSS PROFIT.................................. -- 15,689 2,296 -- 17,985
TOTAL EXPENSES................................ -- 11,266 1,301 -- 12,567
----------- ------------ ------- ------ -------------
INCOME FROM OPERATIONS........................ -- 4,423 995 -- 5,418
EQUITY INCOME................................. 756 -- -- (756) --
INTEREST EXPENSE.............................. 490 3,790 316 -- 4,596
OTHER (INCOME) EXPENSE--Net................... -- 105 (43) -- 62
----------- ------------ ------- ------ -------------
INCOME (LOSS) BEFORE INCOME TAXES............. 266 528 722 (756) 760
PROVISION (BENEFIT) FOR INCOME TAXES.......... (105) 165 329 -- 389
----------- ------------ ------- ------ -------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM....... 371 363 393 (756) 371
EXTRAORDINARY ITEM............................ 763 -- -- -- 763
----------- ------------ ------- ------ -------------
NET INCOME (LOSS)............................. $ (392) $ 363 $ 393 $ (756) $ (392)
----------- ------------ ------- ------ -------------
----------- ------------ ------- ------ -------------
</TABLE>
F-45
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--GUARANTOR SUBSIDIARIES (CONTINUED)
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR ELIMINATION
COMPANY SUBSIDIARIES SUBSIDIARY ADJUSTMENT CONSOLIDATED
----------- ------------ --------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS PROVIDED BY OPERATING
ACTIVITIES:
Net (loss) income...................... $ (392) $ 363 $ 393 $ (756) $ (392)
Adjustments to reconcile net (loss)
income to net cash provided by
operating activities:
Equity loss.......................... (756) -- -- 756 --
Depreciation and amortization........ 23 6,608 333 -- 6,964
Amortization of deferred financing
costs.............................. -- -- -- -- --
Other noncash items.................. -- (10) 10 -- --
Changes in operating assets and
liabilities........................ 658 (14,047) (1,143) -- (14,532)
----------- ------------ ------- ----------- -------------
Net cash provided by operating
activities....................... (467) (7,086) (407) -- (7,960)
----------- ------------ ------- ----------- -------------
CASH FLOWS USED IN INVESTING
ACTIVITIES............................. -- (7,082) (285) -- (7,367)
----------- ------------ ------- ----------- -------------
CASH FLOWS (USED IN) PROVIDED BY
FINANCING ACTIVITIES................... 467 14,683 306 -- 15,456
----------- ------------ ------- ----------- -------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS................... -- -- -- -- --
----------- ------------ ------- ----------- -------------
NET CHANGE IN CASH AND CASH
EQUIVALENTS............................ -- 515 (386) -- 129
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD................................. -- 1,245 386 -- 1,631
----------- ------------ ------- ----------- -------------
CASH AND CASH EQUIVALENTS, END OF
PERIOD................................. $ -- $ 1,760 $ -- $ -- $ 1,760
----------- ------------ ------- ----------- -------------
----------- ------------ ------- ----------- -------------
</TABLE>
F-46
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--GUARANTOR SUBSIDIARIES (CONTINUED)
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1998
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
----------- ------------ --------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............. $ -- $ 1,246 $ 384 $ -- $ 1,630
Accounts receivable--net.............. -- 26,263 3,226 (81) 29,408
Inventories........................... -- 16,354 2,407 -- 18,761
Prepaid and other current
assets--net......................... -- 2,412 398 3,384 6,194
----------- ------------ --------------- ------------ -------------
Total current assets................ -- 46,275 6,415 3,303 55,993
----------- ------------ --------------- ------------ -------------
PROPERTY, PLANT AND EQUIPMENT--Net...... -- 86,720 5,923 -- 92,643
----------- ------------ --------------- ------------ -------------
OTHER ASSETS:
Goodwill and other intangibles--net... -- 91,869 17,570 (1,244) 108,195
Deferred financing costs--net......... 1,294 -- -- -- 1,294
Other noncurrent assets............... -- 129 -- -- 129
Intercompany advances................. 21,434 76,033 390 (97,857) --
Investment in subsidiaries............ 37,788 -- -- (37,788) --
----------- ------------ --------------- ------------ -------------
TOTAL ASSETS............................ $ 60,516 $ 301,026 $ 30,298 $ (133,586) $ 258,254
----------- ------------ --------------- ------------ -------------
----------- ------------ --------------- ------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses............................ $ (2,149) $ 37,767 $ 4,336 $ 3,125 $ 43,079
Current maturities of long-term
debt................................ -- 10 -- -- 10
----------- ------------ --------------- ------------ -------------
Total current liabilities........... (2,149) 37,777 4,336 3,125 43,089
----------- ------------ --------------- ------------ -------------
----------- ------------ --------------- ------------ -------------
LONG-TERM DEBT.......................... 19,997 142,413 9,182 -- 171,592
DEFERRED TAXES--Net..................... -- 2,331 2,331 -- 4,662
OTHER NONCURRENT LIABILITIES............ -- 4,714 1,410 (750) 5,374
----------- ------------ --------------- ------------ -------------
Total liabilities................... 17,848 187,235 17,259 2,375 224,717
INTERCOMPANY ADVANCES................... -- 90,252 6,790 (97,042) --
TOTAL STOCKHOLDERS' EQUITY.............. 42,668 23,539 6,249 (38,919) 33,537
----------- ------------ --------------- ------------ -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY................................ $ 60,516 $ 301,026 $ 30,298 $ (133,586) $ 258,254
----------- ------------ --------------- ------------ -------------
----------- ------------ --------------- ------------ -------------
</TABLE>
F-47
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--GUARANTOR SUBSIDIARIES (CONTINUED)
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR ELIMINATION
COMPANY SUBSIDIARIES SUBSIDIARY ADJUSTMENTS CONSOLIDATED
----------- ------------ --------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
NET SALES..................................... $ -- $ 63,708 $ 9,562 $ -- $ 73,270
COST OF SALES................................. -- 49,380 7,262 -- 56,642
----------- ------------ ------- ------ -------------
GROSS PROFIT.................................. -- 14,328 2,300 -- 16,628
TOTAL EXPENSES................................ -- 11,452 1,378 -- 12,830
----------- ------------ ------- ------ -------------
INCOME FROM OPERATIONS........................ -- 2,876 922 -- 3,798
EQUITY INCOME................................. 440 -- -- (440) --
INTEREST EXPENSE.............................. 526 2,775 344 -- 3,645
OTHER (INCOME) EXPENSE--Net................... -- (4) -- -- (4)
----------- ------------ ------- ------ -------------
INCOME (LOSS) BEFORE INCOME TAXES............. (86) 105 578 (440) 157
PROVISION (BENEFIT) FOR INCOME................ (179) (39) 282 -- 64
----------- ------------ ------- ------ -------------
NET INCOME (LOSS)............................. $ 93 $ 144 $ 296 $ (440) $ 93
----------- ------------ ------- ------ -------------
----------- ------------ ------- ------ -------------
</TABLE>
F-48
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--GUARANTOR SUBSIDIARIES (CONTINUED)
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR ELIMINATION
COMPANY SUBSIDIARIES SUBSIDIARY ADJUSTMENTS CONSOLIDATED
----------- ------------ --------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS PROVIDED BY OPERATING
ACTIVITIES:
Net (loss) income..................... $ 93 $ 144 $ 296 $ (440) $ 93
Adjustments to reconcile net (loss)
income to net cash provided by
operating activities:
Equity loss......................... (440) -- -- 440 --
Depreciation and amortization....... 5,971 370 -- 6,341
Extraordinary items................. -- -- -- --
Other noncash items--............... -- (20) -- (20)
Changes in operating assets and
liabilities....................... (110) (1,274) (693) -- (2,077)
----------- ------------ --------------- ------------ -------------
Net cash provided by operating
activities...................... (457) 4,841 (47) -- 4,337
----------- ------------ --------------- ------------ -------------
CASH FLOWS USED IN INVESTING
ACTIVITIES............................ -- (4,072) (182) -- (4,254)
----------- ------------ --------------- ------------ -------------
CASH FLOWS PROVIDED BY FINANCING
ACTIVITIES............................ 457 33 7 -- 497
----------- ------------ --------------- ------------ -------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS.................. -- -- -- -- --
----------- ------------ --------------- ------------ -------------
NET CHANGE IN CASH AND CASH
EQUIVALENTS........................... -- 802 (222) -- 580
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD................................ -- 829 222 -- 1,051
----------- ------------ --------------- ------------ -------------
CASH AND CASH EQUIVALENTS, END OF
PERIOD................................ $ -- $ 1,631 $ -- $ -- $ 1,631
----------- ------------ --------------- ------------ -------------
----------- ------------ --------------- ------------ -------------
</TABLE>
F-49
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Container Management Services, Inc.
Simpsonville, South Carolina
We have audited the accompanying balance sheet of Container Management
Services, Inc. (the "Company") as of July 23, 1997, and the related statements
of operations, stockholders' equity and cash flows for the period from January
1, 1997 through July 23, 1997. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit. The financial statements of the
Company for the year ended December 31, 1996 were audited by other auditors
whose report, dated February 28, 1997, expressed an unqualified opinion on those
statements.
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, such 1997 financial statements present fairly, in all
material respects, the financial position of Container Management Services, Inc.
as of July 23, 1997, and the results of its operations and its cash flows for
the period from January 1, 1997 through July 23, 1997, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
January 29, 1998
F-50
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Container Management Services, Inc.
Simpsonville, South Carolina
We have audited the accompanying balance sheet of Container Management
Services, Inc. as of December 31, 1996, and the related statements of
operations, stockholders' equity and cash flows for the year 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 Container Management
Services, Inc. as of December 31, 1996, and the results of their operations and
their cash flows for the year then ended, in conformity with generally accepted
accounting principles.
Elliott, Davis & Company, LLP
Greenville, South Carolina
February 28, 1997, excepting Note 2 which is
as of May 23, 1997
F-51
<PAGE>
CONTAINER MANAGEMENT SERVICES, INC.
BALANCE SHEET
DECEMBER 31, 1996 AND JULY 23, 1997
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents......................................................... $ 1,173,716 $ 583,932
Accounts receivable--net of allowance for doubtful accounts of $30,000 at December
31, 1996 and July 23, 1997...................................................... 3,206,013 3,519,337
Prepaid expenses and other assets................................................. 32,360 278,365
------------- -------------
Total current assets............................................................ 4,412,089 4,381,634
PROPERTY, PLANT AND EQUIPMENT--At cost, less accumulated depreciation and
amortization (Notes 2 and 5)...................................................... 3,012,753 3,746,394
INTANGIBLE ASSETS--Net of accumulated amortization of $6,402 at December 31, 1996
and $6,734 at July 23, 1997....................................................... 8,237 7,905
------------- -------------
TOTAL ASSETS........................................................................ $ 7,433,079 $ 8,135,933
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................................................. $ 2,376,068 $ 3,240,720
Current portion of long-term debt (Note 4)........................................ 206,064 --
Obligations under capital lease (Note 5).......................................... 13,975 13,975
Accrued expenses and other liabilities (Note 3)................................... 277,517 181,702
------------- -------------
Total current liabilities....................................................... 2,873,624 3,436,397
------------- -------------
LONG-TERM LIABILITIES:
Long-term debt (Note 4)........................................................... 49,869 --
Obligations under capital lease (Note 5).......................................... 7,254 9,217
------------- -------------
TOTAL LIABILITIES................................................................... 57,123 9,217
Commitments and contingencies (Note 5).............................................. -- --
------------- -------------
STOCKHOLDERS' EQUITY:
Class A voting common stock--No par value; 240,000 shares authorized; 90,000
shares issued and outstanding................................................... 90,000 90,000
Class B nonvoting common stock--$1 par value; 10,000 shares authorized, issued and
outstanding..................................................................... 10,000 10,000
Retained earnings................................................................. 4,402,332 4,590,319
------------- -------------
4,502,332 4,690,319
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.......................................... $ 7,433,079 $ 8,135,933
------------- -------------
------------- -------------
</TABLE>
See notes to financial statements.
F-52
<PAGE>
CONTAINER MANAGEMENT SERVICES, INC.
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
AND THE PERIOD FROM JANUARY 1, 1997
THROUGH JULY 23, 1997
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
YEAR ENDED THROUGH
DECEMBER 31, JULY 23,
1996 1997
-------------- --------------
<S> <C> <C>
NET SALES.................................................................. $ 28,266,486 $ 17,805,750
COST OF SALES.............................................................. 22,952,361 14,527,511
-------------- --------------
Gross profit........................................................... 5,314,125 3,278,239
-------------- --------------
EXPENSES:
Selling.................................................................. 107,427 154,266
General and administrative............................................... 2,566,249 919,153
Amortization............................................................. 1,157 332
-------------- --------------
Total expenses......................................................... 2,674,833 1,073,751
-------------- --------------
INCOME FROM OPERATIONS..................................................... 2,639,292 2,204,488
INTEREST EXPENSE........................................................... 38,989 34,142
OTHER INCOME............................................................... 7,596 51,576
-------------- --------------
NET INCOME................................................................. $ 2,607,899 $ 2,221,922
-------------- --------------
-------------- --------------
</TABLE>
See notes to financial statements.
F-53
<PAGE>
CONTAINER MANAGEMENT SERVICES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1996
AND THE PERIOD FROM JANUARY 1, 1997
THROUGH JULY 23, 1997
<TABLE>
<CAPTION>
CLASS A, VOTING CLASS B, NONVOTING
COMMON STOCK COMMON STOCK TOTAL
-------------------- -------------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT EARNINGS EQUITY
--------- --------- --------- --------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996................ 90,000 $ 90,000 10,000 $ 10,000 $ 3,557,177 $ 3,657,177
Net income............................ -- -- -- -- 2,607,899 2,607,899
Distributions to stockholders......... -- -- -- -- (1,762,744) (1,762,744)
--------- --------- --------- --------- -------------- --------------
BALANCE, DECEMBER 31, 1996.............. 90,000 90,000 10,000 10,000 4,402,332 4,502,332
Net income............................ -- -- -- -- 2,221,922 2,221,922
Distributions to stockholders......... -- -- -- -- (2,033,935) (2,033,935)
--------- --------- --------- --------- -------------- --------------
BALANCE, JULY 23, 1997.................. 90,000 $ 90,000 10,000 $ 10,000 $ 4,590,319 $ 4,690,319
--------- --------- --------- --------- -------------- --------------
--------- --------- --------- --------- -------------- --------------
</TABLE>
See notes to financial statements.
F-54
<PAGE>
CONTAINER MANAGEMENT SERVICES, INC.
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
AND THE PERIOD FROM JANUARY 1, 1997
THROUGH JULY 23, 1997
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
YEAR ENDED THROUGH
DECEMBER 31, JULY 23,
1996 1997
-------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................................... $ 2,607,899 $ 2,221,922
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.................................................. 6,543,563 4,543,009
Loss on disposal of equipment.................................................. 18,514 --
Changes in assets and liabilities which provided (used) cash:
Accounts and other receivables............................................... (353,901) (544,452)
Prepaid expenses and other assets............................................ (21,112) (14,877)
Accounts payable............................................................. (35,112) 864,652
Accrued expenses and other liabilities....................................... 169,300 (95,815)
-------------- -------------
Net cash provided by operating activities.................................. 8,929,151 6,974,439
-------------- -------------
NET CASH USED IN INVESTING ACTIVITIES:
Purchase of equipment............................................................ (6,550,411) (5,263,365)
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable and capital lease obligations.......................... (61,526) (266,923)
Distributions to stockholders.................................................... (1,762,744) (2,033,935)
-------------- -------------
Net cash used in financing activities...................................... (1,824,270) (2,300,858)
-------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................... 554,470 (589,784)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR....................................... 619,246 1,173,716
-------------- -------------
CASH AND CASH EQUIVALENTS, END OF YEAR............................................. $ 1,173,716 $ 583,932
-------------- -------------
-------------- -------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest........................................................... $ 38,989 $ 34,142
-------------- -------------
-------------- -------------
Noncash activities:
Capital lease of equipment..................................................... $ -- $ 12,953
-------------- -------------
-------------- -------------
</TABLE>
See notes to financial statements.
F-55
<PAGE>
CONTAINER MANAGEMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
AND THE PERIOD FROM JANUARY 1, 1997
THROUGH JULY 23, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES
DESCRIPTION OF BUSINESS--Container Management Services, Inc. (the "Company")
provides the chemical, textile and other industries with a closed loop container
return/reuse program. CMS purchases, leases and reconditions containers, drums
and intermediate bulk containers and manages the logistics (i.e., warehousing,
transportation and disposal) of containers; it also grinds worn drums and IBC's
into resin for resale into the recycling market. CMS was the first industrial
container company to combine these services into an integrated container
management program. The Company is located in Simpsonville, South Carolina, and
extends credit to customers primarily in the eastern United States.
On July 23, 1997, 100% of the Company's common stock was purchased by
Russell-Stanley Corp. for $33,900,000. The accompanying financial statements
represent the historical financial statements of the Company prior to the
acquisition.
CASH AND CASH EQUIVALENTS--The Company considers all highly liquid
investments with original maturities of three months or less to be cash
equivalents.
PROPERTY, PLANT AND EQUIPMENT--Equipment is stated at cost. Containers,
which include containers, rings and lids, are depreciated using an accelerated
method over their estimated useful lives. The cost and related accumulated
depreciation of containers is removed from the books when fully depreciated. All
other equipment is depreciated using accelerated methods based on the estimated
useful lives of the respective assets. Maintenance, repairs and other expenses
not resulting in betterments are charged to expense as incurred.
INTANGIBLE ASSETS--Organization costs and other intangible assets are stated
at cost and are amortized using the straight-line method over a period of 5 to
19 years.
INCOME TAXES--The Company, with the consent of its stockholders, has elected
to be taxed as an S corporation for Federal and state income tax purposes. Under
this election, the Company's income, deductions and credits are reported by its
stockholders on their individual income tax returns. Therefore, no provision for
income taxes is recorded by the Company.
The Company maintains a policy of making distributions to its stockholders
in amounts at least sufficient to pay individual income taxes resulting from
reporting the Company's income on the stockholders' individual income tax
returns.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
ADVERTISING--The Company's policy is to expense advertising costs as
incurred. These costs were approximately $34,000 and $68,000 for the year ended
December 31, 1996 and for the period January 1, 1997 through July 23, 1997,
respectively.
F-56
<PAGE>
CONTAINER MANAGEMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996
AND THE PERIOD FROM JANUARY 1, 1997
THROUGH JULY 23, 1997
2. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1996 and July 23, 1997
consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JULY 23,
USEFUL LIVES 1996 1997
---------------- --------------- ---------------
<S> <C> <C> <C>
Furniture and fixtures................... 5-7 years $ 209,761 $ 232,407
Plant equipment.......................... 5-7 years 2,716,691 2,833,766
Containers............................... 16-36 months 11,495,183 16,562,421
Vehicles................................. 5 years 27,035 27,035
Leasehold improvements................... 31.5-39 years 54,933 66,656
Construction in progress................. -- 37,920 95,556
--------------- ---------------
14,541,523 19,817,841
Less accumulated depreciation and
amortization........................... (11,528,770) (16,071,447)
--------------- ---------------
Total.................................... $ 3,012,753 $ 3,746,394
--------------- ---------------
--------------- ---------------
</TABLE>
The Company began capitalizing costs associated with rings and lids in 1997
as a result of a modernization of plant equipment which enables the Company to
recycle the rings and lids. Amounts capitalized for rings and lids as of July
23, 1997 totaled approximately $669,000 which is included in "containers." The
rings and lids are being depreciated over a three-year period using an
accelerated method; accumulated depreciation of the rings and lids totaled
$167,000 at July 23, 1997.
3. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities at December 31, 1996 and July 23,
1997 consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JULY 23,
1996 1997
-------------- -----------
<S> <C> <C>
Salaries and wages............................................... $ 75,841 $ 79,836
Accrued and withheld payroll taxes............................... 10,288 24,681
Insurance........................................................ 5,390 2,164
Sales tax--NC.................................................... 111,000 6,365
Real estate taxes................................................ 33,288 21,509
Personal property taxes.......................................... -- 47,052
Other............................................................ 41,710 95
-------------- -----------
Total............................................................ $ 277,517 $ 181,702
-------------- -----------
-------------- -----------
</TABLE>
F-57
<PAGE>
CONTAINER MANAGEMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996
AND THE PERIOD FROM JANUARY 1, 1997
THROUGH JULY 23, 1997
4. NOTES PAYABLE
The note payable to a bank in monthly installments of $5,148, including
interest at 7% through September 1998, was paid in full in July 1997. Payments
for the period from January 1, 1997 through July 23, 1997 totaled $109,741,
including $3,808 of interest expense.
The demand note payable to a stockholder in monthly payments of interest
only at prime plus two percent was paid in full in July 1997. Payments for the
period from January 1, 1997 through July 23, 1997 totaled $150,000 of principal
and $8,208 of interest expense.
5. LEASE COMMITMENTS
CAPITAL LEASES--Obligations under capital leases have been discounted to
present value by use of the Company's incremental borrowing rate for these funds
at the inception of the lease. Assets under capital leases totaled $42,009 at
December 31, 1996 and $54,962 at July 23, 1997 and are included in property,
plant and equipment. Amortization of capitalized leases for the year ended
December 31, 1996 totaled $9,982 and for the period from January 1, 1997 through
July 23, 1997 totaled $12,241 and is included in depreciation and amortization
expense. The future minimum lease payments under capital leases, together with
the discount to arrive at present value, are as follows:
<TABLE>
<CAPTION>
PERIOD ENDING
JULY 23,
- -----------------------------------------------------------------------------------
<S> <C>
1998............................................................................... $ 18,249
1999............................................................................... 7,703
2000............................................................................... 2,274
---------
Total minimum lease payments....................................................... 28,226
Less portion of payments representing interest..................................... (5,034)
---------
Present value of net minimum lease payments........................................ 23,192
Current portion.................................................................... (13,975)
---------
Long-term portion.................................................................. $ 9,217
---------
---------
</TABLE>
OPERATING LEASES--The Company rents buildings and various equipment under
the terms of noncancelable operating leases. The Company is responsible for
property taxes, insurance and nonstructural maintenance costs. Aggregate rentals
for the year ended December 31, 1996 totaled $435,887 and for the period from
January 1, 1997 through July 23, 1997 totaled $257,318.
F-58
<PAGE>
CONTAINER MANAGEMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996
AND THE PERIOD FROM JANUARY 1, 1997
THROUGH JULY 23, 1997
5. LEASE COMMITMENTS (CONTINUED)
The following is a summary of future minimum lease payments under operating
leases that have initial or remaining noncancelable terms in excess of one year
as of July 23, 1997:
<TABLE>
<CAPTION>
PERIOD ENDING
JULY 23,
- -------------------------------------------------------------------------------
<S> <C>
1998........................................................................... $ 423,830
1999........................................................................... 398,274
2000........................................................................... 398,274
2001........................................................................... 398,274
2002........................................................................... 349,228
Thereafter..................................................................... 792,097
-------------
Total.......................................................................... $ 2,759,977
-------------
-------------
</TABLE>
The Company also has a month-to-month operating lease for a building with
monthly payments of $5,348.
During the period ended July 23, 1997, the Company entered into an agreement
with a bank for the purchase of equipment, not to exceed $550,000, to be
accounted for as operating leases. Under the agreement, the Company uses its
funds to purchase the equipment and is then reimbursed by the bank. All amounts
associated with the agreement were paid in full to the Company in January 1998.
6. RELATED PARTY TRANSACTIONS
As described in Note 4, the Company paid in full during July 1997 the note
payable to one of its stockholders.
7. CONCENTRATION OF RISK
Sales to two customers represented 11.2% and 10.0% of revenues for the year
ended December 31, 1996 and 12.8% and 10.6% of revenues for the period January
1, 1997 through July 23, 1997. Accounts receivable from those customers totaled
6.9% and 8.4% at December 31, 1996 and 11.1% and 8.3% of accounts receivable at
July 23, 1997. The Company performs ongoing credit evaluations of its customers'
financial condition but does not require collateral to support customer
receivables.
Purchases of drum containers from two vendors represented 65.7% and 34.3% of
purchases for the year ended December 31, 1996 and 47.9% and 45.3% of purchases
for the period January 1, 1997 through July 23, 1997. Accounts payable to those
customers totaled 39.9% and 11.1% at December 31, 1996 and 29.9% and 27.7% at
July 23, 1997.
Purchases of industrial bulk containers from two vendors represented 78.2%
and 21.8% for the year ended December 31, 1996 and 71.7% and 28.3% of purchases
for the period January 1, 1997 through July 23, 1997. Accounts payable to those
customers totaled 7.9% and 5.6% at December 31, 1996 and 6.0% and 2.1% at July
23, 1997.
F-59
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
Hunter Drums Limited:
We have audited the accompanying consolidated balance sheet of Hunter Drums
Limited, a Canadian company (the "Company") as of October 29, 1997 and the
consolidated statements of operations and retained earnings and cash flows for
the period from January 1, 1997 through October 29, 1997. These consolidated
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 in the United States of America. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of October 29,
1997 and the results of its operations and its cash flows for the period from
January 1, 1997 through October 29, 1997 in accordance with accounting
principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
January 29, 1998
F-60
<PAGE>
HUNTER DRUMS LIMITED
CONSOLIDATED BALANCE SHEET
AS OF OCTOBER 29, 1997
(AMOUNTS IN UNITED STATES DOLLARS)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash......................................................................... $ 28,540
Accounts receivable, net of allowance for doubtful accounts of $98,284....... 4,200,958
Inventories (Note 3)......................................................... 2,040,185
Prepaid expenses............................................................. 357,669
Deferred income taxes (Note 5)............................................... 136,400
----------
Total current assets......................................................... 6,763,752
PROPERTY, PLANT AND EQUIPMENT--NET (Note 4).................................... 2,495,460
----------
TOTAL ASSETS................................................................... $9,259,212
----------
----------
LIABILITIES
CURRENT LIABILITIES:
Accounts payable and accrued liabilities..................................... $4,742,738
Income taxes payable......................................................... 422,487
----------
Total current liabilities.................................................. 5,165,225
----------
DEFERRED INCOME TAXES (Note 5)................................................. 252,402
----------
Total liabilities.......................................................... 5,417,627
----------
COMMITMENTS (Note 9)...........................................................
SHAREHOLDERS' EQUITY...........................................................
Common stock (Note 7)........................................................ 928
Retained earnings............................................................ 3,939,108
Cumulative translation adjustment............................................ (98,452)
----------
Total shareholders' equity................................................. 3,841,585
----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..................................... $9,259,212
----------
----------
</TABLE>
See notes to consolidated financial statements.
F-61
<PAGE>
HUNTER DRUMS LIMITED
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
FOR THE PERIOD FROM JANUARY 1, 1997 THROUGH OCTOBER 29, 1997
(AMOUNTS IN UNITED STATES DOLLARS)
<TABLE>
<S> <C>
SALES......................................................................... $30,503,187
COST OF SALES................................................................. 22,524,685
-----------
GROSS PROFIT.................................................................. 7,978,502
-----------
OPERATING EXPENSES:
Selling..................................................................... 3,339,609
General and administration.................................................. 2,001,662
-----------
Total Expenses............................................................ 5,341,271
-----------
INCOME FROM OPERATIONS........................................................ 2,637,231
INTEREST EXPENSE.............................................................. 61,791
OTHER (INCOME) EXPENSE--Net................................................... 249,140
-----------
EARNINGS BEFORE INCOME TAXES.................................................. 2,326,300
PROVISION FOR INCOME TAXES.................................................... 990,623
-----------
NET INCOME.................................................................... 1,335,677
RETAINED EARNINGS, BEGINNING OF PERIOD........................................ 4,313,874
DIVIDENDS..................................................................... (1,710,443)
-----------
RETAINED EARNINGS, END OF PERIOD.............................................. $ 3,939,108
-----------
-----------
</TABLE>
See notes to consolidated financial statements.
F-62
<PAGE>
HUNTER DRUMS LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1997 THROUGH OCTOBER 29, 1997
(AMOUNTS IN UNITED STATES DOLLARS)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................................... $ 1,335,677
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization.............................................. 397,438
Loss on sale of assets..................................................... 6,539
Deferred income taxes...................................................... (136,400)
Changes in operating assets and liabilities:.................................
(Increase) decrease in accounts receivable................................. (1,210,237)
(Increase) decrease in inventories......................................... (106,858)
(Increase) decrease in prepaid expenses.................................... 1,112,215
Increase (decrease) in accounts payable.................................... 441,118
Increase (decrease) in income taxes payable................................ 130,211
-----------
Net cash provided by operating activities................................ 1,969,703
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in investments........................................... 1,710,443
Purchase of property, plant & equipment...................................... (500,970)
Disposal of property, plant & equipment...................................... 194,419
-----------
Net cash provided by investing activities................................ 1,403,892
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt.................................................. (187,040)
Repayment of notes payable to shareholders................................... (221,656)
Dividends.................................................................... (1,710,443)
-----------
Net cash used for financing activities................................... (2,119,139)
-----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH........................................ 9,716
-----------
NET CHANGE IN CASH............................................................. 1,264,172
CASH, BEGINNING OF YEAR........................................................ (1,235,632)
-----------
CASH, END OF YEAR.............................................................. $ 28,540
-----------
-----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest................................................................... $ 61,791
-----------
-----------
Taxes...................................................................... $ 878,275
-----------
-----------
</TABLE>
See notes to consolidated financial statements.
F-63
<PAGE>
HUNTER DRUMS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD ENDED OCTOBER 29, 1997
1. DESCRIPTION OF BUSINESS
Hunter Drums Limited (the "Company") is incorporated under the Ontario
Business Corporations Act and is engaged in the manufacturing of steel and
plastic drums and laminated and plastic products.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America and include the
operations of Hunter Drums Limited and two inactive subsidiaries which have been
subsequently dissolved.
On October 29, 1997, the Company's common stock was purchased by
Russell-Stanley Holdings, Inc. ("RSH"). The Company's financial statements
represent the historical financial statements of the Company prior to
acquisition.
INVENTORIES--Inventories are valued at the lower of cost or net realizable
value, with cost being determined on a first-in, first-out basis.
REVENUE RECOGNITION--Revenue is recognized when products are shipped or
services are provided to customers.
USE OF ESTIMATES--The preparation of these financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.
PROPERTY, PLANT & EQUIPMENT--Property, plant and equipment, stated at cost,
is being depreciated for financial reporting purposes on the straight-line
method over the estimated useful lives of the assets or the lease term,
whichever is shorter. The estimated useful lives for each class of capital
assets are as follows:
<TABLE>
<S> <C>
Building........................ 15-30 years
Machinery and equipment......... 3-10 years
Furniture and fixtures.......... 3-7 years
Transportation equipment........ 3-10 years
Lesser of useful life or the life of the
Leasehold improvements.......... lease
</TABLE>
TRANSLATION OF FOREIGN CURRENCIES--The Canadian dollar is the functional
currency in which the Company operates. The assets and liabilities of the
Company are translated into U.S. dollars at period-end exchange rates, with
resulting translation gains and losses accumulated in a separate component of
shareholders' equity. Income and expense items are converted into U.S. dollars
at average rates of exchange prevailing throughout the year.
FINANCIAL INSTRUMENTS--The Company utilizes financial instruments to limit
its exposure to foreign currency exchange rate fluctuations.
INCOME TAXES--The Company follows the tax allocation method of accounting
for income taxes whereby provisions for income taxes are based on reported
income. Deferred income taxes arise
F-64
<PAGE>
HUNTER DRUMS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD ENDED OCTOBER 29, 1997
from claiming amortization for income tax purposes at different rates than
amounts recorded for accounting purposes.
MOLDS AND DIES--Expenditures on molds and dies are amortized on a
straight-line basis over two years commencing upon productive use. At October
29, 1997, prepaid expenses include $281,187 of moulds and dies, net of
accumulated amortization.
3. INVENTORIES
Inventory consists of the following:
<TABLE>
<CAPTION>
AS OF
OCTOBER 29,
1997
-------------
<S> <C>
Raw Materials.................................................................. $ 858,828
Work-in-process................................................................ 700,552
Finished goods................................................................. 480,805
-------------
Total.......................................................................... $ 2,040,185
-------------
-------------
</TABLE>
4. PROPERTY, PLANT & EQUIPMENT
<TABLE>
<CAPTION>
NET BOOK VALUE
AS OF
ACCUMULATED OCTOBER 29,
COST AMORTIZATION 1997
-------------- ------------- ---------------
<S> <C> <C> <C>
Land................................................... $ 78,918 $ -- $ 78,918
Building............................................... 936,207 580,250 355,957
Machinery and equipment................................ 8,192,510 6,275,333 1,917,177
Furniture & fixtures................................... 575,165 455,243 119,922
Transportation equipment............................... 214,343 199,440 14,903
Leasehold improvements................................. 23,423 14,840 8,583
-------------- ------------- ---------------
$ 10,020,566 $ 7,525,106 $ 2,495,460
-------------- ------------- ---------------
-------------- ------------- ---------------
</TABLE>
F-65
<PAGE>
HUNTER DRUMS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD ENDED OCTOBER 29, 1997
5. INCOME TAXES
The provision (benefit) for income taxes for the period ended October 29,
1997 consists of the following:
<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 29,
1997
-------------
<S> <C>
Current:
Federal...................................................................... $ 717,000
Provincial................................................................... 410,023
-------------
Total Current.................................................................. 1,127,023
-------------
Deferred:
Federal...................................................................... (87,000)
Provincial................................................................... (49,400)
-------------
Total Deferred................................................................. (136,400)
-------------
Net provision for income taxes................................................. $ 990,623
-------------
-------------
</TABLE>
The difference between the effective income tax rate and the statutory
federal income tax rate is due to permanent differences related to travel and
entertainment and life insurance premiums.
The components of the net deferred taxes as of October 29, 1997 were as
follows:
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED
OCTOBER 29, 1997
------------------------------------------
<S> <C> <C>
DEFERRED TAX
DEFERRED TAX ASSET LIABILITY
------------------- ---------------------
Current:
Other Assets...................................................... $ 136,400 $ --
---------- ----------
Total current......................................................... 136,400 --
---------- ----------
Noncurrent:...........................................................
Property, plant & equipment......................................... -- 252,402
---------- ----------
Total noncurrent...................................................... -- 252,402
---------- ----------
Total deferred tax.................................................... $ 136,400 $ 252,402
---------- ----------
---------- ----------
</TABLE>
6. LONG TERM DEBT AND SHAREHOLDER NOTES PAYABLE
At October 29, 1997, the Company had no outstanding balances for long term
debt or shareholder notes payable. The long term debt consisted of a
non-revolving loan with interest at the bank's prime rate plus 1/2%. The balance
of $187,040 was paid in full in October 1997. The shareholder notes were
non-interest bearing notes payable to Hunter Holdings, Inc. and Ontario Ltd. The
balance of $221,656 were paid in full in October 1997.
F-66
<PAGE>
HUNTER DRUMS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD ENDED OCTOBER 29, 1997
7. COMMON STOCK
Authorized:
Unlimited number of voting Class A common shares
Unlimited number of voting Class B common shares
Unlimited number of nonvoting, noncumulative, redeemable and retractable
Class A special shares, issuable in series
200 voting Class B special shares, noncumulative, redeemable and
retractable
Unlimited number of voting, redeemable and retractable Class C special
shares
Issued and outstanding:
<TABLE>
<CAPTION>
AS OF
OCTOBER 29,
1997
-------------
<S> <C>
90,000 Class A common shares............................................................. $ 6
900,000 Class B common shares............................................................. 63
880,000 Class A special shares, first series.............................................. 630
20,000 Class B special shares............................................................ 143
120,000 Class C special shares............................................................ 86
-----
$ 928
-----
-----
</TABLE>
The Class A common shares rank equally in priority to Class B common shares.
Both classes are entitled to a noncumulative dividend. Those holding Class A
common shares are entitled to two votes in respect of each Class A common share
held by them at all meetings of shareholders. Those holding Class B common
shares are entitled to one vote in respect of each Class B common share held by
them at all meetings of shareholders.
The Class A special shares rank equally with the Class C special shares in
priority to all other classes of shares, and may be redeemed, purchased or
acquired by the Company or put to the Company by the holder, in whole or in
part, for an amount determined in accordance with the Articles of Amendment
dated June 26, 1997. These shares are entitled to a noncumulative cash dividend.
The Class B special shares rank in priority to the common shares, and may be
redeemed, purchased or acquired by the Company for an amount not exceeding $1
per share together with all declared and unpaid noncumulative cash dividends
thereon.
On July 26, 1997, the Company amended its Articles of Incorporation by
creating an unlimited number of Class C special shares.
On September 29, 1997, the Company amended its Articles of Incorporation to
change each issued and outstanding:
i) Class A common share into 100 issued and outstanding Class A common
shares, and
ii) Class B common share into 100 issued and outstanding Class B common
shares.
F-67
<PAGE>
HUNTER DRUMS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD ENDED OCTOBER 29, 1997
8. SUBSEQUENT EVENT
In connection with the acquisition of the Company by RSH, the Company
amended its Articles of Incorporation and merged into HDL Acquisition, Inc. The
merged company will continue operations under the name Hunter Drums Limited. The
authorized capital of the merged company is an unlimited number of Class A
voting shares and an unlimited number of Class B nonvoting shares.
The 8,800 Class A special shares, the 200 Class B special shares, the 1,200
Class C special shares, the 9,000 Class B common shares and 330 Class A common
shares were canceled. The remaining 570 Class A common shares were converted to
27,778 nonvoting shares.
9. COMMITMENTS
The future minimum lease payments under the terms of the noncancelable
operating leases for certain facilities and equipment are as follows:
<TABLE>
<S> <C>
1998............................................................. $ 872,569
1999............................................................. 665,799
2000............................................................. 485,910
2001............................................................. 347,445
2002............................................................. 117,075
</TABLE>
10. FINANCIAL INSTRUMENTS
FOREIGN EXCHANGE CONTRACTS--The Company utilizes U.S. dollar denominated
foreign exchange contracts to limit its exposure to foreign currency exchange
rate fluctuations. At October 29, 1997, $13,750,000 of forward contracts were
held with settlement rates ranging from $1.353 to $1.407, Canadian dollars to
U.S. dollars, and settlement dates from January 1998 to December 1999. The
foreign exchange contracts are recorded at fair value with related unrealized
gains or losses included in other (income) expense. For the period ended October
29, 1997, the Company recorded $378,619 of losses on foreign exchange contracts.
11. RETIREMENT BENEFIT PLAN
Certain employees of the Company are covered under a money purchase pension
plan. Eligibility in the plan is dependent upon one year of service. Employees
can contribute up to 3% of eligible income, executives can contribute up to 9%
of eligible income, with a maximum yearly contribution of $6,750. Hunter matches
100% of employee and executive contributions and such employer contributions
vest after two full years as a member of the plan.
F-68
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Smurfit Plastic Packaging
Wilmington, Delaware
We have audited the accompanying balance sheets of Smurfit Plastic Packaging
(the "Company") as of December 31, 1996 and November 7, 1997 and the related
statements of operations and cash flows for the year ended December 31, 1996 and
the period from January 1, 1997 to November 7, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 1996 and
November 7, 1997 and the results of its operations and its cash flows for the
year ended December 31, 1996 and for the period from January 1, 1997 to November
7, 1997, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
June 8, 1998
F-69
<PAGE>
SMURFIT PLASTIC PACKAGING
BALANCE SHEETS
DECEMBER 31, 1996
AND NOVEMBER 7, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 7,
1996 1997
-------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash............................................................................. $ 2 $ 2
Accounts receivable, less allowances of $89 in 1996 and $94 in 1997.............. 8,425 8,331
Inventories (Note 3)............................................................. 4,847 4,925
Prepaid expenses and other current assets........................................ 144 185
-------------- -------------
Total current assets............................................................... 13,418 13,443
PROPERTY, PLANT AND EQUIPMENT--
Net (Note 4)..................................................................... 19,558 19,461
-------------- -------------
TOTAL ASSETS....................................................................... $ 32,976 $ 32,904
-------------- -------------
-------------- -------------
LIABILITIES AND DIVISIONAL EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses............................................ $ 7,726 $ 7,250
Income taxes payable (Note 6).................................................... 2,850 1,275
-------------- -------------
Total current liabilities...................................................... 10,576 8,525
DEFERRED TAXES--Net (Note 6)....................................................... 2,467 2,544
-------------- -------------
Total liabilities.............................................................. 13,043 11,069
COMMITMENTS AND CONTINGENCIES (Note 5).............................................
DIVISIONAL EQUITY.................................................................. 19,933 21,835
-------------- -------------
TOTAL LIABILITIES AND DIVISIONAL EQUITY.......................................... $ 32,976 $ 32,904
-------------- -------------
-------------- -------------
</TABLE>
See notes to financial statements.
F-70
<PAGE>
SMURFIT PLASTIC PACKAGING
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
AND FOR THE PERIOD FROM
JANUARY 1, 1997 TO NOVEMBER 7, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
YEAR ENDED 1997 TO
DECEMBER 31, NOVEMBER 7,
1996 1997
-------------- -------------
<S> <C> <C>
NET SALES (Note 8)................................................................. $ 64,492 $ 57,679
COST OF SALES (Note 8)............................................................. 50,294 48,283
-------------- -------------
Gross profit..................................................................... 14,198 9,396
-------------- -------------
EXPENSES:
Selling.......................................................................... 2,426 2,005
General and administrative....................................................... 3,927 3,333
-------------- -------------
Total expenses................................................................. 6,353 5,338
-------------- -------------
INCOME FROM OPERATIONS............................................................. 7,845 4,058
INTEREST EXPENSE................................................................... 531 480
-------------- -------------
INCOME BEFORE INCOME TAXES......................................................... 7,314 3,578
PROVISION FOR INCOME TAXES (Note 6)................................................ 2,756 1,352
-------------- -------------
NET INCOME......................................................................... $ 4,558 $ 2,226
-------------- -------------
-------------- -------------
</TABLE>
See notes to financial statements.
F-71
<PAGE>
SMURFIT PLASTIC PACKAGING
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996 AND FOR THE
PERIOD FROM JANUARY 1, 1997 TO NOVEMBER 7, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
YEAR ENDED 1997 TO
DECEMBER 31, NOVEMBER 7,
1996 1997
-------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................................... $ 4,558 $ 2,226
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.................................................. 1,924 1,976
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable..................................... (881) 94
Increase in inventories........................................................ (49) (78)
Increase in prepaid and other current assets................................... (29) (41)
Increase (decrease) in accounts payable, accrued expenses and income taxes
payable...................................................................... 2,004 (2,051)
Increase (decrease) in deferred income taxes................................... (94) 77
------- -------------
Net cash provided by operating activities.................................... 7,433 2,203
------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES--
Capital expenditures............................................................. (2,657) (1,502)
------- -------------
Net cash used in investing activities........................................ (2,657) (1,502)
------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES--
Intercompany cash settlements and transfers...................................... (4,776) (701)
------- -------------
Net cash used in financing activities........................................ (4,776) (701)
------- -------------
NET CHANGE IN CASH................................................................. -- --
CASH, BEGINNING OF PERIOD.......................................................... 2 2
------- -------------
CASH, END OF PERIOD................................................................ $ 2 $ 2
------- -------------
------- -------------
</TABLE>
See notes to financial statements.
F-72
<PAGE>
SMURFIT PLASTIC PACKAGING
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996, AND THE
PERIOD FROM JANUARY 1, 1997 TO NOVEMBER 7, 1997
1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION--Smurfit Plastic Packaging ("SPP" or the "Company") is a
leading U.S. producer of plastic industrial drums and is also a manufacturer of
liners for use in steel and fiber drum composites.
The Company was acquired by Smurfit Packaging Corporation ("SPC"), a
subsidiary of the Jefferson Smurfit Group (the "Parent Company") as part of
their acquisition of Container Corporation of America in 1986. Effective
November 8, 1997, the assets of the Company were acquired by Russell-Stanley
Holdings, Inc. ("RSH").
BASIS OF PRESENTATION--The accompanying financial statements have been
prepared from the separate accounting records maintained by SPP, a division of
SPC. The results of these financials may not necessarily be indicative of the
conditions that would have existed if the Division had been operated as an
unaffiliated company. Amounts collected from the related parties and amounts
distributed to the Parent Company are reflected as cash settlements and
transfers in the accompanying financial statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH--As a subsidiary of the Parent Company, SPP was a participant in the
Parent Company's cash management system. All of the cash receipt and
disbursement activities of SPP were performed by the Parent Company on behalf of
SPP. The cash presented on the financial statements represents petty cash
maintained at each of the SPP plants.
INVENTORIES--Inventories are stated at the lower of cost or market value.
Cost is determined on the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment, stated at
cost, is being depreciated for financial reporting purposes on the straight-line
method over the estimated useful lives of the assets or the lease term,
whichever is shorter. The estimated useful lives for each class of property,
plant and equipment are as follows:
<TABLE>
<S> <C>
Buildings and improvements........................................ 40 years
Furniture and fixtures............................................ 5 years
Machinery and equipment........................................... 15 years
Transportation equipment.......................................... 5 years
</TABLE>
REVENUE RECOGNITION--Revenue is recognized when products are shipped to
customers.
INCOME TAXES--Deferred tax assets and liabilities are recognized for the
expected future tax consequences attributable to the difference between the
financial statement carrying amounts of assets and liabilities and their
respective tax basis, as if the division had been operated as an unaffiliated
company.
INTEREST EXPENSE--Under the Parent Company's corporate policies, SPP was
charged an amount of interest each month based upon the balance of SPP's working
capital during the month
F-73
<PAGE>
SMURFIT PLASTIC PACKAGING
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996, AND THE
PERIOD FROM JANUARY 1, 1997 TO NOVEMBER 7, 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
calculated using the London Interbank Offered Rate ("LIBOR") in effect at the
end of that month. SPP carried no separate outstanding debt during 1996 or 1997.
USE OF ESTIMATES--The preparation of these financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.
3. INVENTORIES
At December 31, 1996 and November 7, 1997, inventory consists of:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 7,
1996 1997
-------------- -------------
<S> <C> <C>
(IN THOUSANDS)
Raw materials.................................................. $ 1,859 $ 1,892
Finished goods................................................. 2,988 3,033
------- -------------
TOTAL.......................................................... $ 4,847 $ 4,925
------- -------------
------- -------------
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
At December 31, 1996 and November 7, 1997, property, plant and equipment
consists of:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 7,
1996 1997
-------------- -------------
<S> <C> <C>
(IN THOUSANDS)
Land........................................................... $ 606 $ 606
Buildings and improvements..................................... 4,193 4,208
Machinery and equipment........................................ 25,746 29,685
Furniture and fixtures......................................... 13 13
Transportation equipment....................................... 24 23
Construction in progress....................................... 3,480 895
-------------- -------------
Total.......................................................... 34,062 35,430
Less accumulated depreciation.................................. 14,504 15,969
-------------- -------------
Property, plant and equipment--net............................. $ 19,558 $ 19,461
-------------- -------------
-------------- -------------
</TABLE>
5. COMMITMENTS
OPERATING LEASES--The Company has operating lease commitments expiring at
various dates, principally for real property, machinery and equipment, and
transportation equipment leases. Total rent expense amounted to $1,184,000 and
$1,036,000 in 1996 and 1997, respectively.
F-74
<PAGE>
SMURFIT PLASTIC PACKAGING
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996, AND THE
PERIOD FROM JANUARY 1, 1997 TO NOVEMBER 7, 1997
5. COMMITMENTS (CONTINUED)
Future minimum commitments under these leases are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
---------------
<S> <C>
1998......................................................................... $ 1,040
1999......................................................................... 945
2000......................................................................... 937
2001......................................................................... 896
2002......................................................................... 509
Thereafter................................................................... 1,689
-------
Total........................................................................ $ 6,016
-------
-------
</TABLE>
6. INCOME TAXES
The provision (benefit) for income taxes for the year ended December 31,
1996, and the period ended November 7, 1997 consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 7,
1996 1997
-------------- -------------
<S> <C> <C>
(IN THOUSANDS)
Current:
Federal...................................................... $ 2,429 $ 1,081
State........................................................ 421 194
------- -------------
Total current.................................................. 2,850 1,275
------- -------------
Deferred:
Federal...................................................... (80) 65
State........................................................ (14) 12
------- -------------
Total deferred................................................. (94) 77
------- -------------
Net provision for income taxes................................. $ 2,756 $ 1,352
------- -------------
------- -------------
</TABLE>
The difference between the effective income tax rate and the statutory
Federal income tax rate is due to state taxes.
The components of net deferred tax liabilities as of December 31, 1996 and
November 7, 1997 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 7,
1996 1997
-------------- -------------
<S> <C> <C>
(IN THOUSANDS)
Deferred tax liabilities:
Property, plant and equipment................................ $ 2,467 $ 2,544
------- -------------
Total deferred tax liabilities................................. $ 2,467 $ 2,544
------- -------------
------- -------------
</TABLE>
F-75
<PAGE>
SMURFIT PLASTIC PACKAGING
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996, AND THE
PERIOD FROM JANUARY 1, 1997 TO NOVEMBER 7, 1997
7. PENSION AND POSTRETIREMENT HEALTH CARE BENEFITS
Substantially all employees of the Company participate in a noncontributory
defined benefit pension plan sponsored by the Parent Company. The Company's
portion of the present value of accumulated plan benefits and the net assets
available for the payment of these benefits are not presented because that
information is not determined for each participating company. For the year ended
December 31, 1996, and the period ended November 7, 1997, pension expense
allocated to the Company was approximately $314,000 and $412,000, respectively.
The Company has a savings and investment plan which allows employees to
defer up to 15% of their salary, with the Company matching 60% of each
employee's contribution not exceeding 6% of the employee's salary. The Company's
contributions charged to operations for the year ended December 31, 1996, and
the period ended November 7, 1997 were approximately, $129,000 and $120,000,
respectively.
In addition, the Company provides certain health care and life insurance
benefits for all salaried and certain hourly employees. The Company has various
plans under which the cost may be borne either by the Company, the employee or
partially by each party. The Company does not currently fund these plans. These
benefits are discretionary and are not a commitment to long-term benefit
payments.
8. TRANSACTIONS WITH AFFILIATES
The Company is a member of a group of companies affiliated through common
ownership and management.
The net intercompany cash settlements and transfers resulted in the Parent
Company contributing a loan payable to the Company in the amount of $4,776,000,
and $547,000 for 1996 and 1997, respectively. Also the Company was subject to a
charge from the Parent Company based upon the monthly balance of the Company's
working capital (Note 2), which amounted to approximately $530,000 and $480,000
for 1996 and 1997, respectively.
9. SUPPLEMENTAL CASH FLOWS INFORMATION
There were no interest or income tax payments for the year ended December
31, 1996, and the period ended November 7, 1997.
10. MATAWAN FACILITY
During a portion of 1996, the Company operated a fiber drum manufacturing
facility in Matawan, NJ. During October 1996, SPC ceased operations at this
facility and leased the space to a third party. The Company received the rental
income from this property for the remainder of 1996 and for part of 1997.
Beginning in September 1997, SPC received the rental income from this property.
Rental income received by the Company was $60,000. The rental income, as well as
all other balances and transactions relating to the Matawan facility for 1996
and 1997 have not been included in the accompanying financial statements due to
the facility not being part of the assets sold (Note 1).
F-76
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[LOGO]
Until , 1999 (90 days after the date of this prospectus), all dealers
effecting transactions in the exchange notes, whether or not participating in
this distribution, may be required to deliver a prospectus. This is in addition
to the obligation of dealers to deliver a prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
No dealer, salesperson or other person is authorized to give any information or
to represent anything not contained in this prospectus. You must not rely on any
unauthorized information or representations. This prospectus is an offer to
exchange the exchange notes for outstanding notes only under circumstances and
in jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.
RUSSELL-STANLEY
HOLDINGS, INC.
Offer to Exchange All Outstanding
10 7/8% Senior Subordinated Notes
due 2009
for 10 7/8% Senior Subordinated
Notes due 2009
Which We Have Registered
Under the Securities Act of 1933
--------------
PROSPECTUS
--------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL") provides
that a corporation may indemnify directors and officers as well as other
employees and individuals against expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement in connection with specified
actions, suits or proceedings, whether civil, criminal, administrative, or
investigative (other than action by or in the right of the corporation a
"derivative 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
corporation and, with respect to any criminal action or proceedings, had no
reasonable cause to believe their conduct was unlawful. A similar standard is
applicable in the case of derivative actions, except that indemnification only
extends to expenses (including attorneys' fees) incurred in connection with the
defense or settlement of derivative actions, and the statute requires court
approval before there can be any indemnification where the person seeking
indemnification has been found liable to the corporation. The statute provides
that it is not exclusive of other indemnification that may be granted by a
corporation's charter, by-laws, disinterested director vote, stockholder vote,
agreement or otherwise. The Registrant's by-laws provide that the Registrant
will indemnify any person to the fullest extent permitted by Delaware law who is
or was made, or threatened to be made, a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, including, without limitation, an action by or in the right of
the Registrant to procure a judgment in its favor, by reason of the fact that
the person, or a person of whom the person is the legal representative, is or
was a director or officer of the Registrant, or is or was serving in any
capacity at the request of the Registrant for any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
against judgments, fines, penalties, excise taxes, amounts paid in settlement
and costs, charges and expenses (including attorneys' fees and disbursements).
Persons who are not directors or officers of the Registrant may be similarly
indemnified in respect of service to the Registrant or to any of the above other
entities at the request of the Registrant to the extent the board of directors
at any time specifies that those persons are entitled to the benefits of the
indemnification. Pursuant to the by-laws, the Registrant also has the power to
purchase officers' and directors' liability insurance which insures against
liabilities that officers and directors of the Registrant, in those capacities,
may incur.
Section 102(b)(7) of the DGCL permits a corporation to provide in its
certificate of incorporation that a director of the corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duties as a director, except for liability (i) for any
transaction from which the director derives an improper personal benefit, (ii)
for acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law, (iii) for improper payment of dividends or
redemptions of shares, or (iv) for any breach of a director's duty of loyalty to
the company or its stockholders. Article Seventh of the Registrant's certificate
of incorporation includes this provision.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following exhibits were filed pursuant to Item 601 of Regulation S-K.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
*3.1 Certificate of Incorporation of Russell-Stanley Holdings, Inc.
*3.2 By-Laws of Russell-Stanley Holdings, Inc.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
*3.3 Amended and Restated Certificate of Incorporation of Russell-Stanley Corp.
*3.4 By-Laws of Russell-Stanley Corp.
*3.5 Articles of Incorporation of Container Management Services, Inc.
*3.6 By-Laws of Container Management Services, Inc.
*3.7 Restated Articles of Incorporation of New England Container Co., Inc.
*3.8 Amended and Restated By-Laws of New England Container Co., Inc.
*3.9 Articles of Incorporation of Russell-Stanley, Inc.
*3.10 By-Laws of Russell-Stanley, Inc.
*3.11 Certificate of Incorporation of RSLPCO, Inc.
*3.12 By-Laws of RSLPCO, Inc.
*3.13 Certificate of Limited Partnership of Russell-Stanley, L.P.
*3.14 Agreement of Limited Partnership of Russell-Stanley, L.P.
*4.1 Indenture, dated as of February 10, 1999, by and among Russell-Stanley Holdings, Inc., the guarantors
named therein and The Bank of New York, as the Trustee
*4.2 Form of 10 7/8% Senior Subordinated Notes due 2009 (included as part of the Indenture filed as
Exhibit 4.1 hereto)
**5 Opinion of Simpson Thacher & Bartlett
*10.1 Fifth Amended and Restated Revolving Credit Agreement and Term Loan Agreement, dated as of February
10, 1999, among Russell-Stanley Holdings, Inc. and its subsidiaries, as borrowers, the lenders listed
therein and BankBoston, N.A., as administrative agent, and Goldman Sachs Credit Partners, L.P., as
syndication agent
*10.2 Stock Purchase Agreement dated as of July 21, 1998, among Vincent J. Buonanno, New England Container
Co., Inc. and Russell-Stanley Holdings, Inc.
*10.3 Stock Purchase Agreement dated as of July 1, 1997, among Mark E. Daniels, Robert E. Daniels, Mark E.
Daniels Irrevocable Family Trust, R.E. Daniels Irrevocable Family Trust, Container Management
Services, Inc. and Russell-Stanley Corp.
*10.4 Share Purchase Agreement dated as of October 24, 1997, among Michael W. Hunter, John D. Hunter,
Michael W. Hunter Holdings Inc., John D. Hunter Holdings Inc., Hunter Holdings Inc., 373062 Ontario
Limited, Hunter Drums Limited, Russell-Stanley Holdings, Inc. and HDL Acquisition, Inc.
*10.5 Purchase and Sale Agreement dated as of October 23, 1997, among Smurfit Packaging Corporation,
Russell-Stanley Holdings, Inc. and Russell-Stanley Corp.
*10.6 Vestar Management Agreement, dated as of July 23, 1997, among Russell-Stanley Holdings, Inc.,
Russell-Stanley Corp., Container Management Services, Inc. and Vestar Capital Partners
+*10.7 Know How and Patent Licensing Agreement between Mauser-Werke GmbH and Russell-Stanley Corp., dated
June 26, 1995
+*10.8 Licensing Agreement between Mauser-Werke GmbH and Russell-Stanley Corp., dated June 26, 1995
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
+*10.9 Know How and Patent Licensing Agreement between Mauser-Werke GmbH and Russell-Stanley Corp., dated
June 26, 1995
+*10.10 Know How and Patent Licensing Agreement between Mauser-Werke GmbH and Hunter Drums Limited, dated
July 31, 1996
+*10.11 Know How and Patent Licensing Agreement between Mauser-Werke GmbH and Hunter Drums Limited, dated
July 31, 1996
+*10.12 Consent and Agreement between Hunter Drums Limited and Mauser-Werke GmbH, dated September 29, 1997
*10.13 1998 Stock Option Plan
*10.14 Russell-Stanley Holdings, Inc. Management Annual Incentive Compensation Plan 1998
*10.15 Employment Agreement, dated October 30, 1997, among Russell-Stanley Holdings, Inc., Hunter Drums
Limited and Michael W. Hunter
*10.16 Stay Pay Agreement, dated October 30, 1997, among Russell-Stanley Holdings, Inc., Hunter Drums
Limited and Michael W. Hunter
*10.17 Employment Agreement, dated as of July 23, 1997, between Russell-Stanley Holdings, Inc. and Mark E.
Daniels
*10.18 Stay Pay Agreement, dated as of July 23, 1997, between Russell-Stanley Holdings, Inc. and Mark
Daniels
*10.19 Employment Agreement, dated as of July 23, 1998, between Russell-Stanley Holdings, Inc. and Gerard C.
DiSchino
*10.20 Employment Agreement, dated September 20, 1996, between Russell-Stanley Corp. and Robert Singleton
*10.21 Services Agreement, dated as of February 10, 1999, between Russell-Stanley Holdings, Inc. and Vincent
J. Buonanno
*10.22 License Agreement between Gallay SA and Hunter Drums Limited, dated February 7, 1997
*10.23 License Agreement between Gallay SA and Hunter Drums Limited, dated April 16, 1987
*12 Computation of Earnings to Fixed Charges
*21 Subsidiaries of the Company
**23.1 Consent of Deloitte & Touche LLP, Independent Auditors
**23.2 Consent of Elliott, Davis & Company, L.L.P., Independent Certified Public Accountants, with respect
to Container Management Services, Inc. as of and for the year ended December 31, 1996
**23.3 Consent of Simpson Thacher & Bartlett (included as part of its opinion filed as Exhibit 5 hereto)
*24 Power of Attorney
*25 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of The Bank of New York, as
trustee
*27 Financial Data Schedule for the year ended December 31, 1998
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
*99.1 Form of Letter of Transmittal
*99.2 Form of Notice of Guaranteed Delivery
</TABLE>
- ------------------------
* PREVIOUSLY FILED.
** FILED HEREWITH.
+ THE REGISTRANTS HAVE APPLIED FOR CONFIDENTIAL TREATMENT OF PORTIONS OF THIS
EXHIBIT. ACCORDINGLY, PORTIONS THEREOF HAVE BEEN OMITTED AND FILED
SEPARATELY.
II-4
<PAGE>
ITEM 22. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under 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
this indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
these 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 a 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 the indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
the issue.
(b) 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 end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more that a 20
percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement; and
(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 this 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; and
(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.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, on June 23, 1999.
RUSSELL-STANLEY HOLDINGS, INC.
By: /s/ Daniel W. Miller
-----------------------------------------
Daniel W. Miller
Executive Vice President,
Chief Financial Officer and Treasurer
Pursuant to the requirements of the Securities Act, the Registration
Statement has been signed on the 23rd day of June, 1999 by the following persons
in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ ---------------------------
<C> <S>
President, Chief Executive
* Officer, Secretary and
- ------------------------------ Director (principal
Robert L. Singleton executive officer)
Executive Vice President,
/s/ Daniel W. Miller Chief Financial Officer,
- ------------------------------ Treasurer and Director
Daniel W. Miller (principal financial
officer)
* Vice President, Controller
- ------------------------------ (principal accounting
Ronald M. Litchkowski officer)
* Executive Vice President
- ------------------------------ and Director
Mark E. Daniels
* Executive Vice President
- ------------------------------ and Director
Michael W. Hunter
* Chairman of the Board of
- ------------------------------ Directors
Robert L. Rosner
* Director
- ------------------------------
Norman W. Alpert
* Director
- ------------------------------
Vincent J. Buonanno
* Director
- ------------------------------
Todd N. Khoury
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ ---------------------------
<C> <S>
* Director
- ------------------------------
Leonard Lieberman
* Director
- ------------------------------
Kevin Mundt
* Director
- ------------------------------
Arthur J. Nagle
* Director
- ------------------------------
Vincent J. Naimoli
* Director
- ------------------------------
Daniel S. O'Connell
* Director
- ------------------------------
John W. Priesing
* By: /s/Daniel W. Miller
Daniel W. Miller,
Attorney-in-fact
</TABLE>
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, on June 23, 1999.
RUSSELL-STANLEY CORP.
By: /s/ Daniel W. Miller
-----------------------------------------
Daniel W. Miller
Executive Vice President, Chief
Financial Officer and Treasurer
Pursuant to the requirements of the Securities Act, the Registration
Statement has been signed on the 23rd day of June 1999 by the following persons
in the capacities indicated:
SIGNATURE TITLE
- ------------------------------ ---------------------------
President, Chief Executive
* Officer and Director
- ------------------------------ (principal executive
Robert L. Singleton officer)
Executive Vice President,
/s/ Daniel W. Miller Chief Financial Officer,
- ------------------------------ Treasurer and Director
Daniel W. Miller (principal financial
officer)
* Vice President, Controller
- ------------------------------ and Secretary (principal
Ronald M. Litchkowski accounting officer)
* Director
- ------------------------------
Robert L. Rosner
* By: /s/Daniel W. Miller
Daniel W. Miller,
Attorney-in-fact
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, on June 23, 1999.
RUSSELL-STANLEY, INC.
By: /s/ Daniel W. Miller
-----------------------------------------
Daniel W. Miller
Executive Vice President, Chief
Financial Officer and Treasurer
Pursuant to the requirements of the Securities Act, the Registration
Statement has been signed on the 23rd day of June 1999 by the following persons
in the capacities indicated:
SIGNATURE TITLE
- ------------------------------ ---------------------------
President, Chief Executive
* Officer and Director
- ------------------------------ (principal executive
Robert L. Singleton officer)
Executive Vice President,
/s/ Daniel W. Miller Chief Financial Officer,
- ------------------------------ Treasurer and Director
Daniel W. Miller (principal financial
officer)
* Vice President, Controller
- ------------------------------ and Secretary (principal
Ronald M. Litchkowski accounting officer)
* Director
- ------------------------------
Robert L. Rosner
* By: /s/Daniel W. Miller
Daniel W. Miller,
Attorney-in-fact
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, on June 23, 1999.
RSLPCO, INC.
By: /s/ Daniel W. Miller
-----------------------------------------
Daniel W. Miller
Executive Vice President, Chief
Financial Officer and Treasurer
Pursuant to the requirements of the Securities Act, the Registration
Statement has been signed on the 23rd day of June 1999 by the following persons
in the capacities indicated:
SIGNATURE TITLE
- ------------------------------ ---------------------------
President, Chief Executive
* Officer, Secretary and
- ------------------------------ Director (principal
Robert L. Singleton executive officer)
Executive Vice President,
/s/ Daniel W. Miller Chief Financial Officer,
- ------------------------------ Treasurer and Director
Daniel W. Miller (principal financial and
accounting officer)
* Director
- ------------------------------
Robert L. Rosner
* By: /s/Daniel W. Miller
Daniel W. Miller,
Attorney-in-fact
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, on June 23, 1999.
RUSSELL-STANLEY, L.P.
By: Russell-Stanley, Inc., its General Partner
By: /s/ Daniel W. Miller
-----------------------------------------
Daniel W. Miller
Executive Vice President, Chief Financial
Officer and Treasurer
Pursuant to the requirements of the Securities Act, the Registration
Statement has been signed on the 23rd day of June 1999 by the following persons
in the capacities indicated:
SIGNATURE TITLE
- ------------------------------ ---------------------------
* Director, Russell-Stanley,
- ------------------------------ Inc., as General Partner
Robert L. Singleton
/s/ Daniel W. Miller Director, Russell-Stanley,
- ------------------------------ Inc., as General Partner
Daniel W. Miller
* Director, Russell-Stanley,
- ------------------------------ Inc., as General Partner
Robert L. Rosner
* By: /s/Daniel W. Miller
Daniel W. Miller,
Attorney-in-fact
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, on June 23, 1999.
CONTAINER MANAGEMENT SERVICES, INC.
By: /s/ Daniel W. Miller
-----------------------------------------
Daniel W. Miller
Executive Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Act, the Registration
Statement has been signed on the 23rd day of June 1999 by the following persons
in the capacities indicated:
SIGNATURE TITLE
- ------------------------------ ---------------------------
* President and Director
- ------------------------------ (principal executive
Mark E. Daniels officer)
Executive Vice President,
/s/ Daniel W. Miller Chief Financial Officer and
- ------------------------------ Director (principal
Daniel W. Miller financial officer)
* Director
- ------------------------------
Robert L. Singleton
* By: /s/Daniel W. Miller
Daniel W. Miller,
Attorney-in-fact
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, on June 23, 1999.
NEW ENGLAND CONTAINER CO., INC.
By: /s/ Daniel W. Miller
-----------------------------------------
Daniel W. Miller
Executive Vice President, Chief
Financial Officer and Secretary
Pursuant to the requirements of the Securities Act, the Registration
Statement has been signed on the 23rd day of June, 1999 by the following persons
in the capacities indicated:
SIGNATURE TITLE
- ------------------------------ ---------------------------
* President and Director
- ------------------------------ (principal executive
Gerard C. DiSchino officer)
Executive Vice President,
/s/ Daniel W. Miller Chief Financial Officer,
- ------------------------------ Secretary and Director
Daniel W. Miller (principal financial
officer)
* Vice President, Controller
- ------------------------------ and Treasurer (principal
Eugene D. Onofrio accounting officer)
* Director
- ------------------------------
Robert L. Singleton
* By: /s/Daniel W. Miller
Daniel W. Miller,
Attorney-in-fact
II-13
<PAGE>
Exhibit 5
[Letterhead of Simpson Thacher & Bartlett]
June 23, 1999
Russell-Stanley Holdings, Inc.
685 Route 202/206
Bridgewater, New Jersey 08807
Ladies and Gentlemen:
We have acted as special counsel for Russell-Stanley Holdings, Inc., a
Delaware corporation (the "Company"), and for the entities listed on Schedule
A hereto (the "Guarantors"), in connection with the Registration Statement on
Form S-4 (the "Registration Statement") filed by the Company and the
Guarantors with the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Securities Act"), relating
to the issuance by the Company of $150,000,000 aggregate principal amount of
its 10 7/8% Senior Subordinated Notes due 2009 which have been registered
under the Securities Act (the "Exchange Notes") and the issuance by the
Guarantors of guarantees (the "Guarantees") with respect to the Exchange
Notes. The Exchange Notes are to be offered by the Company in exchange for
(the "Exchange") $150,000,000 aggregate principal amount of its outstanding
10 7/8% Senior Subordinated Notes due 2009 (the "Original Notes"). The
Original Notes have been, and the Exchange Notes will be, issued under an
Indenture, dated as of February 10, 1999 (the "Indenture"), between the
Company and The Bank of New York, as Trustee.
We have examined the Registration Statement and the Indenture, which has
been filed with the Commission as an Exhibit to the Registration Statement.
In addition, we have examined the originals or duplicates, or certified or
conformed copies, of such records, agreements, instruments and other
documents and have made such other and further investigations as we have
deemed relevant and necessary in connection with the opinions expressed
herein. As to questions of fact material to this opinion, we have relied upon
certificates of public officials and of officers and representatives of the
Company and the Guarantors.
In such examination, we have assumed the genuineness of all signatures,
the legal capacity of natural persons, the due incorporation and valid
existence of the Guarantors, the due authorization, execution and delivery of
the Indenture by the Guarantors, the authenticity of all documents submitted
to us as originals, the conformity to original documents of all documents
submitted to us as duplicates or certified or conformed copies, and the
authenticity of the originals of such latter documents.
Based upon the foregoing, and subject to the qualifications and
limitations stated herein, we are of the opinion that:
1. When the Exchange Notes have been duly executed, authenticated, issued
and delivered in accordance with the provisions of the Indenture upon
the Exchange, the Exchange Notes will constitute valid and legally
binding obligations of the Company enforceable against the Company in
accordance with their terms.
2. When (a) the Exchange Notes have been duly executed, authenticated,
issued and delivered in accordance with the provisions of the Indenture
upon the Exchange and (b) the Guarantees have been duly issued, the
Guarantees will constitute valid and legally binding obligations of the
Guarantors enforceable against the Guarantors in accordance with their
terms.
Our opinions set forth in paragraphs 1 and 2 above are subject to the
effects of bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally, general equitable principles (whether considered in a proceeding
in equity or at law) and an implied covenant of good faith and fair dealing.
We are members of the Bar of the State of New York, and we do not
express any opinion herein concerning any law other than Delaware General
Corporation Law (which reference to the Delaware General Corporation Law
includes, as a matter of generally understood opinion practice, case law
construing the Delaware General Corporation Law).
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption
"Legal Matters" in the Prospectus included therein.
Very truly yours,
/s/ Simpson Thacher & Bartlett
SIMPSON THACHER & BARTLETT
<PAGE>
SCHEDULE A
Guarantors
Container Management Services, Inc.
New England Container Co., Inc.
RSLPCO, Inc.
Russell-Stanley Corp.
Russell-Stanley, Inc.
Russell-Stanley, L.P.
<PAGE>
EXHIBIT 23.1
CONSENT OF DELOITTE & TOUCHE LLP
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-76057 of Russell-Stanley Holdings, Inc. and subsidiaries on Form S-4 of our
reports dated February 22, 1999 relating to Russell-Stanley Holdings, Inc. and
subsidiaries; dated January 29, 1999 relating to Container Management Services,
Inc. and Hunter Drums Limited; and dated June 3, 1998 relating to Smurfit
Plastic Packaging. All such reports appear in the Prospectus, which is part of
this Registration Statement.
We also consent to the reference to us under the headings "Summary Historical
and Pro Forma Consolidated Financial and Other Data", "Selected Historical
Consolidated Financial and Other Data" and "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
------------------------------------------------------------------------------
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
June 21, 1999
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Container Management Services, Inc.
We consent to the use of our report on the financial statements of Container
Management Services, Inc. as of and for the year ended December 31, 1996
included in this Registration Statement on Form S-4 for Russell-Stanley
Holdings, Inc. and to the reference to our Firm under the caption "Experts" in
the Prospectus.
/s/ Elliott, Davis & Company, L.L.P.
- --------------------------------------------------------------------------------
ELLIOTT, DAVIS & COMPANY, L.L.P.
Greenville, South Carolina
June 21, 1999
