<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 6, 1999
REGISTRATION NO. 333-88007
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
LLS CORP.
(Exact name of Registrant as specified in its charter)
---------------------
<TABLE>
<S> <C> <C>
ILLINOIS 3089 36-2741439
(State or other jurisdiction (Primary Standard Industrial (IRS Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
---------------------
DAVID M. SINDELAR
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
LLS CORP.
101 SOUTH HANLEY ROAD, SUITE 400
ST. LOUIS, MISSOURI 63105
(314) 727-1701
(Name, Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices and agent for
service of process)
---------------------
Copies To:
R. SCOTT COHEN, ESQ.
WEIL, GOTSHAL & MANGES LLP
100 CRESCENT COURT, SUITE 1300
DALLAS, TEXAS 75201
(214) 746-7700
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
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 statement 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 Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ______________
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM OFFERING MAXIMUM AMOUNT OF
TITLE OF SHARES TO BE PRICE PER AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED NOTE OFFERING PRICE(1) FEE(2)
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
11 5/8 Senior Subordinated Notes due 2009..... $100,000,000 100% $100,000,000 $29,500.00
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Previously paid in connection with the original filing.
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 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
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<PAGE> 2
THIS PROSPECTUS, DATED DECEMBER 6, 1999, IS SUBJECT TO COMPLETION AND AMENDMENT.
PROSPECTUS
OFFER TO EXCHANGE ALL OUTSTANDING
11 5/8% SENIOR SUBORDINATED NOTES DUE 2009
FOR
11 5/8% SENIOR SUBORDINATED NOTES DUE 2009
OF
LLS CORP.
- - The exchange offer will expire at 5:00 p.m., New York City time on
, 2000, unless we extend this date.
- - If you decide to participate in this exchange offer, the new notes you receive
will be the same as your outstanding notes, except that, unlike your
outstanding notes, you will be able to offer and sell the new notes freely to
any potential buyer in the United States.
- - You will not owe additional federal income taxes if you exchange your
outstanding notes for new notes.
--------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
WE URGE YOU TO READ THE "RISK FACTORS" SECTION OF THIS PROSPECTUS BEGINNING ON
PAGE 8, WHICH DESCRIBES INFORMATION YOU SHOULD CONSIDER BEFORE PARTICIPATING
IN THE EXCHANGE OFFER.
--------------------------------
THE DATE OF THIS PROSPECTUS IS DECEMBER , 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 BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE> 3
PROSPECTUS SUMMARY
This brief summary highlights selected information from the prospectus. It
does not contain all of the information that is important to you. We urge you to
carefully read and review the entire prospectus and the other documents to which
it refers to fully understand the terms of the notes. In this prospectus, unless
otherwise noted, the words "we," "our," "ours," "us" and "the Company" refer to
LLS Corp. and all of its subsidiaries.
THE EXCHANGE OFFER
SECURITIES TO BE
EXCHANGED.................. On July 30, 1999, we issued $100.0 million
aggregate principal amount of 11 5/8% Senior
Subordinated Notes due 2009, referred to in this
prospectus as old notes, to the initial purchaser,
referred to in this prospectus as the original
offering, in a transaction exempt from the
registration requirements of the Securities Act of
1933. The terms of the registered 11 5/8% Senior
Subordinated Notes due 2009 offered hereby,
referred to in this prospectus as new notes, and
the terms of the old notes are substantially
identical in all material respects, except that the
new notes will be freely transferable by you except
as otherwise provided in this prospectus. The old
notes and new notes are sometimes collectively
referred to as the "notes." See the section
entitled "Description of the New Notes" for a
description of the terms of the notes.
THE EXCHANGE OFFER......... $1,000 principal amount of new notes in exchange
for each $1,000 principal amount of old notes. As
of the date of this prospectus, old notes
representing $100.0 million aggregate principal
amount are outstanding.
Based on interpretations by the staff of the SEC,
as set forth in no-action letters issued to third
parties unrelated to us, we believe that the new
notes issued in connection with the exchange offer
in exchange for old notes may be offered for
resale, resold or otherwise transferred by you,
without compliance with the registration and
prospectus delivery requirements of the Securities
Act, provided that your new notes are acquired in
the ordinary course of your business and you have
no arrangement with any person to engage in a
distribution of new notes. The foregoing does not
apply to you if you are (1) an "affiliate" of ours
within the meaning of Rule 405 under the Securities
Act or (2) a broker-dealer who purchased old notes
directly from us to resell under Rule 144A or any
other available exemption under the Securities Act.
However, the SEC has not considered this exchange
offer in the context of a no-action letter and we
cannot be sure that the staff of the SEC would make
a similar determination with respect to this
exchange offer as in other circumstances.
Furthermore, you must, unless you are a
broker-dealer, acknowledge that you are not engaged
in, and do not intend to engage in, a distribution
of your new notes and have no arrangement or
understanding to participate in a distribution of
new notes. If you are a broker-dealer that receives
new notes for your own account pursuant to the
exchange offer you must acknowledge that you will
comply with the prospectus delivery requirements of
the Securities Act in connection with any resale of
your new notes. If you are a broker-dealer who
acquired old notes
1
<PAGE> 4
directly from us and not as a result of
market-making activities or other trading
activities, you may not rely on the staff's
interpretations discussed above or participate in
the exchange offer and must comply with the
prospectus delivery requirements of the Securities
Act in order to resell the new notes.
REGISTRATION RIGHTS
AGREEMENT.................. We sold the old notes on July 30, 1999, in a
private placement in reliance on Section 4(2) of
the Securities Act. The old notes were immediately
resold by the initial purchaser in reliance on Rule
144A under the Securities Act. In connection with
the sale, we entered into a registration rights
agreement with the initial purchaser requiring us
to make the exchange offer. The registration rights
agreement further provides that we must use our
best efforts to:
- cause the registration statement with respect to
the exchange offer to be declared effective on or
before December 27, 1999; and
- consummate the exchange offer on or before
January 26, 2000.
See the section entitled "The Exchange
Offer -- Purpose and Effect."
EXPIRATION DATE............ The exchange offer will expire at 5:00 p.m., New
York City time, , 2000 or such later date
and time to which it is extended.
WITHDRAWAL................. You may withdraw your old notes tendered in
connection with the exchange offer at any time
prior to 5:00 p.m., New York City time, on ,
2000, or any later date and time to which we extend
the offer. If we do not accept your old notes
tendered for exchange for any reason, your old
notes will be returned to you without expense as
soon as possible after the expiration or
termination of the exchange offer.
INTEREST ON THE NEW NOTES
AND THE OLD NOTES.......... Interest on your new notes will accrue from the
original issue date of your old notes or from the
date of the last periodic payment of interest on
your old notes, whichever date is later. No
additional interest will be paid on your old notes
tendered and accepted for exchange.
CONDITIONS TO THE EXCHANGE
OFFER.................... The exchange offer is subject to customary
conditions, some of which may be waived by us. See
the section entitled "The Exchange Offer -- Certain
Conditions to Exchange Offer."
PROCEDURES FOR TENDERING
OLD NOTES.................. If you want to accept the exchange offer you must
complete, sign and date the letter of transmittal,
or a copy thereof, in accordance with the
instructions contained in this prospectus and the
letter of transmittal, and mail or otherwise
deliver the letter of transmittal, or the copy,
together with your old notes and any other required
documentation, to the exchange agent at the address
set forth in this prospectus. If you hold your old
notes through the Depository Trust Company and want
to accept the exchange offer, you must do so under
the DTC's Automated Tender Offer Program ("ATOP"),
by which you will agree to be bound by the letter
of transmittal. By executing or agreeing to be
bound by the letter of transmittal, you will
represent to us that, among other things:
- your new notes acquired in connection with the
exchange offer are being obtained in the ordinary
course of your business, whether or not you are
the registered holder of the old notes;
2
<PAGE> 5
- you are not engaging in and do not intend to
engage in a distribution of your new notes;
- you do not have an arrangement or understanding
with any person to participate in the
distribution of your new notes; and
- you are not our "affiliate," as defined under
Rule 405 under the Securities Act.
Under the registration rights agreement, if:
- prior to the consummation of the exchange offer,
we, or the holders of a majority of the aggregate
principal amount of the notes, determine that the
new notes would not be freely tradable without
restriction under the Securities Act and the
Exchange Act and without material restrictions
under applicable blue sky or state securities
laws;
- applicable interpretations of the SEC would not
permit the consummation of the exchange offer;
- the exchange offer is not consummated within 180
days of the original offering for any reason; or
- in the case of a holder not permitted to
participate in the exchange offer or any holder
participating in the exchange offer that receives
new notes that may not be sold without
restriction under state and federal securities
laws, the holder notifies us within 120 days of
consummation of the exchange offer,
we will be required to file a "shelf" registration
statement for a continuous offering under Rule 415
of the Securities Act in respect of the old notes.
We will accept for exchange any and all of your old
notes which you properly tender, and do not
withdraw, in the exchange offer prior to 5:00 p.m.,
New York City time, on , 2000. The new
notes issued in connection with the exchange offer
will be delivered promptly to you following the
expiration date. See the section entitled "The
Exchange Offer -- Terms of the Exchange Offer."
EXCHANGE AGENT............. The Bank of New York is serving as exchange agent
in connection with the exchange offer.
MATERIAL FEDERAL INCOME TAX
CONSIDERATIONS........... The exchange of your old notes for new notes in
connection with the exchange offer should not
constitute a sale or an exchange for federal income
tax purposes. See the section entitled "United
States Federal Income Tax Considerations."
EFFECT OF NOT TENDERING.... If you fail to tender your old notes or if you
tender your old notes and we do not accept them,
your old notes will, following completion of the
exchange offer, continue to be subject to the
existing transfer restrictions. Under these
circumstances, we will have no further obligation
to provide for the registration of your old notes
under the Securities Act.
3
<PAGE> 6
THE NEW NOTES
The summary below describes the principal terms of the new notes. Some of
the terms and conditions described below are subject to important limitations
and exceptions. The section entitled "Description of the New Notes" of this
prospectus beginning on page 49 contains a more detailed description of the
terms and conditions of the new notes.
Issuer..................... LLS Corp., an Illinois corporation.
Securities Offered......... $100.0 million principal amount of 11 5/8% Senior
Subordinated Notes due 2009.
Maturity Date.............. August 1, 2009.
Interest Rate.............. We will pay interest at an annual rate equal to
11 5/8%.
Interest Payment Dates..... We will make interest payments twice a year,
beginning on February 1, 2000.
Ranking.................... The notes will be unsecured and will be
subordinated in right of payment to all of our
existing and future senior debt. The notes will
rank equal in right of payment with any of our
future senior subordinated debt and will rank
senior to all of our subordinated debt. As of
September 30, 1999, the aggregate principal amount
of our outstanding senior debt was approximately
$145.0 million, and we would have had no senior
subordinated debt outstanding, other than the
notes.
Optional Redemption........ After August 1, 2004, we may, at our option, redeem
all or some of the notes at the following premiums,
plus interest:
<TABLE>
<CAPTION>
FOR THE PERIOD BELOW PERCENTAGE
-------------------- ----------
<S> <C>
On or after August 1, 2004........................ 105.813%
On or after August 1, 2005........................ 103.875%
On or after August 1, 2006........................ 101.938%
August 1, 2007 and thereafter..................... 100.000%
</TABLE>
Prior to August 1, 2002, we may, at our option,
redeem up to $35.0 million of the principal amount
of the notes with the net proceeds of particular
public equity offerings at 111.625% of the face
amount, plus interest.
Change of Control Offer.... If we experience a change of control prior to
August 1, 2004, we may, at our option, redeem all
of the notes at 100% of their face amount, plus
interest and a premium. If we elect not to redeem
the notes, or if the change of control occurs after
August 1, 2004, we must give you, as holders of the
notes, the opportunity to sell us your notes at
101% of their face amount, plus interest.
Asset Sale Proceeds........ If we do not reinvest cash proceeds from the sale
of assets in our business, we may have to use such
proceeds to offer to buy back some of the notes at
their face amount, plus interest.
Certain Indenture
Provisions................. The indenture governing the notes limits our
ability and the ability of our restricted
subsidiaries to, among other things:
- incur additional indebtedness;
- pay dividends on, redeem or repurchase our
capital stock;
4
<PAGE> 7
- issue or sell capital stock of our restricted
subsidiaries;
- make particular types of investments;
- engage in transactions with our affiliates;
- sell assets; and
- consolidate, merge or transfer all or
substantially all of our assets and the assets of
our subsidiaries.
These covenants are subject to a number of
important exceptions.
Use of Proceeds............ We will not receive any cash proceeds from the
issuance of the new notes in connection with the
exchange offer.
For more complete information about the notes, see the section entitled the
"Description of the New Notes" of this prospectus.
THE COMPANY
We are a leading, fully-integrated custom designer, manufacturer and
marketer of precision injection molded plastic components, closures and
dispensing systems used in (1) medical devices and pharmaceutical products, (2)
consumer products and (3) food and beverage products.
Our principal executive offices are located at 101 South Hanley Road, Suite
400, St. Louis, Missouri 63105, and our telephone number is (314)727-1701.
RISK FACTORS
Before exchanging your old notes for new notes, you should consider
carefully the information included in the section entitled "Risk Factors," as
well as all other information set forth in this prospectus.
5
<PAGE> 8
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
The following table presents summary historical combined financial data of
Courtesy Corporation and its affiliates and summary historical consolidated
financial data of LLS Corp. for the periods indicated. The historical combined
financial data for the fiscal years ended September 30, 1997 and 1998 and the
historical consolidated financial data for the fiscal year ended September 30,
1999 have been derived from, and should be read in conjunction with, the audited
combined financial statements of Courtesy Corporation and its affiliates and the
audited consolidated financial statements of LLS Corp. that are included
elsewhere in this prospectus. The unaudited pro forma combined financial data of
Courtesy Corporation and its affiliates for the fiscal year ended September 30,
1998 and the unaudited pro forma consolidated financial data of LLS Corp. for
the fiscal year ended September 30, 1999 shown below gives effect to the
recapitalization as if it had occurred on October 1, 1997.
The summary historical combined financial data, the summary historical
consolidated financial data and the unaudited pro forma combined financial data
are not necessarily indicative of either the future results of operations or the
results of operations that would have occurred if the recapitalization had been
consummated on the indicated dates. The following information should be read in
conjunction with the audited financial statements of Courtesy Corporation and
its affiliates and LLS Corp. and the notes thereto, "Unaudited Pro Forma
Financial Data" and the notes thereto, and "Management's Discussion and Analysis
of Financial Condition and Results of Operations," all included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED SEPTEMBER 30,
---------------------------------------
LLS CORP. PRO FORMA
(FORMERLY KNOWN -------------------
AS COURTESY FISCAL YEARS
COURTESY CORPORATION CORPORATION AND ENDED
AND AFFILIATES AFFILIATES) SEPTEMBER 30,
--------------------- --------------- -------------------
1997 1998 1999 1998 1999
--------- --------- --------------- -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT RATIO AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................ $129,485 $172,608 $171,703 $172,608 $171,703
Cost of sales............................ 88,153 120,986 121,101 120,986 121,101
-------- -------- -------- -------- --------
Gross profit............................. 41,332 51,622 50,602 51,622 50,602
Operating expenses....................... 11,974 15,064 17,363 13,484 17,363
-------- -------- -------- -------- --------
Income from operations................... 29,358 36,558 33,239 38,138 33,239
Interest expense, net.................... 1,535 1,315 6,835 24,325 23,575
Amortization of deferred financing
fees................................... -- -- 428 2,569 2,569
Transaction related expenses(1).......... -- -- 1,220 -- 1,220
-------- -------- -------- -------- --------
Income before income taxes............... 27,823 35,243 24,756 11,244 5,875
Income tax provision..................... 277 188 3,260 4,497 5,100
-------- -------- -------- -------- --------
Net income before minority interest...... 27,546 35,055 21,496 6,747 775
Minority interest........................ 1,060 1,225 171 1,225 171
-------- -------- -------- -------- --------
Net income............................... $ 26,486 $ 33,830 $ 21,325 $ 5,522 $ 604
======== ======== ======== ======== ========
OTHER FINANCIAL DATA:
Depreciation and amortization(2)......... $ 8,224 $ 9,896 $ 13,517 $ 9,896 $ 13,517
Operating cash flows..................... 29,670 37,206 49,414
Investing cash flows..................... (13,937) (31,303) (20,800)
Financing cash flows..................... (15,900) (5,106) (25,651)
EBITDA(3)................................ 37,582 46,454 46,756 48,034 46,756
Adjusted EBITDA(4)....................... 39,038 49,977 47,765 49,977 47,765
Capital expenditures..................... 13,937 31,330 20,800 31,330 20,800
Total assets............................. 105,343 129,826 169,200
Long-term obligations (including current
portion)............................... 19,188 29,925 245,000
Ratio of earnings to fixed charges(5).... 14.5x 19.1x 4.1x 1.4x 1.2x
</TABLE>
6
<PAGE> 9
- ---------------
(1) Represents non-recurring recapitalization related expenses incurred by the
pre-recapitalization shareholders which includes, among other things, bonus
and legal fees.
(2) Excludes amortization of deferred financing fees.
(3) Earnings before interest, taxes, depreciation, amortization, minority
interest and transaction related expenses ("EBITDA") is a key financial
measure but should not be construed as an alternative to operating income or
cash flows from operating activities, as determined in accordance with
generally accepted accounting principles. EBITDA is generally considered to
provide information regarding a company's ability to service indebtedness
and it is included herein to provide additional information with respect to
our ability to meet our future debt service requirements. EBITDA is also one
of the financial measures by which our covenants are calculated under our
debt instruments.
(4) Adjusted EBITDA is presented in order to provide additional information for
determining our ability to meet debt service requirements and to meet
covenant requirements. Adjusted EBITDA reflects EBITDA, as defined in note
(3), adjusted for the following:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED SEPTEMBER 30, PRO FORMA
-------------------------------------------- ----------------
LLS CORP.
(FORMERLY KNOWN AS FISCAL YEARS
COURTESY CORPORATION COURTESY CORPORATION ENDED
AND AFFILIATES AND AFFILIATES) SEPTEMBER 30,
-------------------- -------------------- ----------------
1997 1998 1999 1998 1999
-------- -------- -------------------- ------ ------
<S> <C> <C> <C> <C> <C>
Compensation adjustment(a)......... $1,097 $1,580 $ -- $ -- $ --
Preoperating costs................. 359(b) 1,943(b) 1,009(c) 1,943(b) 1,009(c)
------ ------ ------ ------ ------
$1,456 $3,523 $1,009 $1,943 $1,009
====== ====== ====== ====== ======
</TABLE>
(a) Represents a reduction in officers' compensation under the employment
agreements entered into by particular officers in connection with the
consummation of the recapitalization, as if the reductions had taken
place at the beginning of the periods presented on a summary historical
basis. The compensation adjustment for the pro forma fiscal year ended
September 30, 1998 has been reflected in the statement of operations
data -- operating expenses, presented above.
(b) Represents certain preoperating costs associated with the newly
constructed facility at 600 Buffalo Grove, Illinois. These preoperating
costs represent the costs incurred during the period prior to which the
facility began generating revenues.
(c) Represents certain preoperating costs associated with newly purchased
facilities in Anderson, South Carolina and Lake Geneva, Wisconsin.
These preoperating costs represent the costs incurred during the period
prior to which the facilities began generating revenues.
(5) For purposes of calculating the ratio of earnings to fixed charges,
"earnings" represent earnings before income taxes plus fixed charges. "Fixed
charges" consist of interest on all indebtedness, amortization of deferred
financing fees and the portion, approximately 1/3, of rental expense that
management believes is representative of the interest component of rent
expense.
7
<PAGE> 10
RISK FACTORS
In addition to the other information set forth in this prospectus you
should carefully consider the following information about our business before
exchanging your old notes for new notes.
LEVERAGE -- OUR SUBSTANTIAL AMOUNT OF INDEBTEDNESS COULD LIMIT OUR ABILITY TO
OBTAIN ADDITIONAL FINANCING IN THE FUTURE AND MAKE US MORE VULNERABLE TO CHANGES
IN ECONOMIC OR BUSINESS CONDITIONS.
We have significant indebtedness and debt service obligations. As of
September 30, 1999, we had outstanding long-term indebtedness of $245.0 million,
excluding unused commitments, and total shareholders' deficit of approximately
$123.7 million. See the sections entitled "Capitalization" and "Description of
Senior Credit Facility." In addition, subject to the terms of our indebtedness,
we are able to incur additional indebtedness in the future.
The degree to which we are leveraged could have important consequences to
you, including the following:
- our ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions or other purposes may be
impaired; and
- we may be more vulnerable to economic downturns, more limited in our
ability to withstand competitive pressures and have less flexibility in
responding to changing business and economic conditions.
ABILITY TO SERVICE DEBT -- TO SERVICE OUR INDEBTEDNESS, WE WILL REQUIRE A
SIGNIFICANT AMOUNT OF CASH. OUR ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS
BEYOND OUR CONTROL.
Our high level of indebtedness poses a substantial risk to holders of the
notes, including the risk that we might not be able to generate sufficient cash
flow to satisfy our debt obligations or to meet capital needs. A large portion
of our cash flow from operations is dedicated to the payment of principal and
interest on our indebtedness. Our ability to service our indebtedness depends on
our future performance, which will be affected by general economic conditions
and financial, business and other factors, many of which are beyond our control.
If we were otherwise unable to service our indebtedness, we might pursue one or
more alternative strategies such as:
- selling assets;
- restructuring or refinancing our indebtedness;
- seeking additional debt or equity financing; or
- reducing or delaying planned capital expenditures.
We cannot guarantee that any of these strategies could be effected on
satisfactory terms, if at all, or that restructuring or refinancing would be
permitted under the indenture governing the notes or the senior credit facility.
See the sections entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" and
"Description of Senior Credit Facility."
SUBORDINATION -- YOUR RIGHT TO RECEIVE PAYMENTS ON THESE NOTES IS JUNIOR TO OUR
EXISTING AND FUTURE SENIOR INDEBTEDNESS.
The notes are our general unsecured obligations and are subordinated in
right of payment to all of our existing and future senior indebtedness. Senior
indebtedness includes the indebtedness incurred under the senior credit
facility. Our indebtedness incurred under the senior credit facility is secured
by a first-priority perfected lien on substantially all of our assets and the
assets of our subsidiaries and a first-priority pledge of the common stock of
our subsidiaries. In the event of our dissolution or liquidation, or in the case
of certain events of default with respect to the notes or our senior
indebtedness, holders of our senior
8
<PAGE> 11
indebtedness will be entitled to be paid in full before any payment is made to
you, as holders of the notes. Accordingly, there may be insufficient assets
remaining to pay you after payment of prior claims. As of September 30, 1999, we
had approximately $145.0 million of senior indebtedness outstanding, all of
which represents indebtedness under the senior credit facility secured by
substantially all of our assets and those of our subsidiaries. In addition,
there was approximately $55.0 million available to be drawn by us as secured
senior indebtedness under our senior credit facility. The indenture governing
the notes will not prohibit or limit the designation of indebtedness otherwise
permitted to be incurred as senior indebtedness. See the section entitled
"Description of the New Notes -- Subordination."
INTEREST RATE FLUCTUATIONS -- FLUCTUATIONS IN MARKET INTEREST RATES WILL AFFECT
THE COST OF OUR BORROWINGS AND WOULD IMPACT OUR FUTURE EARNINGS AND CASH FLOWS.
Fluctuations in market interest rates will affect the cost of our
borrowings to the extent not covered by interest rate hedge agreements because
interest under the senior credit facility is payable at variable rates. Interest
rate fluctuations will also impact our future earnings and cash flows which, in
turn, could decrease the amount of cash available to pay interest and principal
on the notes. For more information, see the sections entitled "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Description of Senior Credit
Facility."
RESTRICTIVE COVENANTS -- WE ARE REQUIRED TO COMPLY WITH NUMEROUS COVENANTS WHICH
RESTRICT THE MANNER IN WHICH WE CONDUCT OUR BUSINESS. OUR FAILURE TO COMPLY WITH
THESE COVENANTS MAY RESULT IN THE ACCELERATION OF OUR DEBT.
The indenture governing the notes and the senior credit facility contain
numerous restrictive covenants that limit the discretion of management with
respect to various business matters. These covenants place significant
restrictions on, among other things, our ability, and the ability of our
restricted subsidiaries, to:
- incur additional indebtedness;
- pay dividends on, redeem or repurchase our capital stock;
- issue or sell capital stock of our restricted subsidiaries;
- make particular types of investments;
- engage in transactions with our affiliates;
- sell assets; and
- consolidate, merge or transfer all or substantially all of our assets and
the assets of our subsidiaries.
The indenture and the senior credit facility also contain a number of
financial covenants that require us to meet certain financial ratios and tests.
Our failure to comply with the obligations in the indenture and the senior
credit facility could result in an event of default under the indenture or the
senior credit facility, which, if not cured or waived, could permit acceleration
of the indebtedness thereunder and acceleration of indebtedness under other
instruments that may contain cross-acceleration or cross-default provisions. The
senior credit facility restricts the prepayment, purchase, redemption,
defeasance or other payment of any of the principal of the notes so long as any
loans remain outstanding under the senior credit facility. See the sections
entitled "Description of Senior Credit Facility" and "Description of the New
Notes -- Certain Covenants."
HOLDING COMPANY STRUCTURE -- WE DEPEND ON CASH DISTRIBUTIONS FROM OUR
SUBSIDIARIES TO MEET OUR OBLIGATIONS UNDER THE NOTES.
As a result of our holding company structure, our operating cash flow and
ability to service our indebtedness, including the notes, is dependent upon the
operating cash flow of our subsidiaries and the payment of funds by our
subsidiaries in the form of loans, dividends or otherwise. As of September 30,
1999, our subsidiaries had aggregate liabilities of $192.9 million, including
guarantees of borrowings under
9
<PAGE> 12
the senior credit facility. Our subsidiaries are separate legal entities that
have no obligation to pay any amounts due under the notes or to make any funds
available for that purpose.
In addition, the notes are effectively subordinated to the obligations of
our subsidiaries, including the guarantee by our subsidiaries of our obligations
under the senior credit facility. In the event of an insolvency, liquidation or
other reorganization of any of these subsidiaries, our creditors, including you
as holders of the notes, as well as our shareholders, will have no right to
proceed against the assets of these subsidiaries or to cause the liquidation or
bankruptcy of the subsidiaries under applicable bankruptcy laws. Creditors of
these subsidiaries, including the lenders under the senior credit facility,
would be entitled to payment in full from the assets of these subsidiaries
before we, as a shareholder, would be entitled to receive any distribution from
these subsidiaries. Except to the extent that we may be a creditor with
recognized claims against the subsidiaries, claims of creditors of the
subsidiaries will have priority with respect to the assets and earnings of the
subsidiaries over the claims of our creditors, including your claims under the
notes.
SIGNIFICANT CUSTOMERS -- THE LOSS OF ONE OR MORE OF OUR SIGNIFICANT CUSTOMERS
COULD HAVE A MATERIAL ADVERSE IMPACT ON OUR BUSINESS.
Two of our customers represented approximately 38% of net sales in fiscal
year 1997, 40% of net sales in fiscal year 1998 and 34% of net sales in fiscal
year 1999. Our sales to certain of these and other customers consist of only one
or two products. The loss of any of our significant customers or one of their
products could decrease the amount of cash available to us to satisfy our
obligations under the notes. In addition, we generally do not have long-term
contracts with our customers. Accordingly, a customer could transfer, reduce the
volume of, or cancel a purchase order at any time, which could adversely impact
our business.
CONTROLLING SHAREHOLDERS -- AS OUR CONTROLLING SHAREHOLDER, HICKS, MUSE, TATE &
FURST INCORPORATED HAS THE ABILITY TO MAKE DECISIONS WHICH BENEFIT THEIR
INTERESTS. THESE DECISIONS COULD BE ADVERSE TO YOUR INTERESTS.
Hicks Muse, a Dallas-based private investment firm, and its affiliates own
68.5% of our outstanding capital stock. As a result, Hicks Muse and its
affiliates are, subject to the terms of the shareholders agreement entered into
by and among each of our shareholders, able to elect a majority of the members
of the Board of Directors and thereby control our management and policies. See
the section entitled "Certain Relationships and Related Transactions -- The
Shareholders Agreement." In addition, as owners of more than a majority of our
outstanding capital stock, Hicks Muse and its affiliates are able to approve any
action requiring the approval of our shareholders, including the adoption of
amendments to our Articles of Incorporation and the approval of mergers or sales
of all or substantially all of our assets.
FLUCTUATION IN PRICES FOR RAW MATERIALS -- WE MAY NOT BE ABLE TO PASS ON
INCREASED COSTS OF RESIN TO OUR CUSTOMERS AND, THEREFORE, OUR MARGINS AND
PROFITS MAY DECREASE.
Our results of operations may be negatively impacted by the pricing and
availability of the raw materials we use in the manufacture of our products.
Sudden increases in demand or decreases in supply can greatly increase the cost
of raw materials. Plastic resin, particularly polyethylene and polypropylene, is
our principal raw material. Approximately two-thirds of the cost of all raw
materials procured by us in fiscal years 1998 and 1999 was attributable to
purchases of plastic resin. The cost of plastic resin fluctuates, based on
supply and demand, and rose significantly from 1994 to mid-1996. In the second
half of 1996, market prices for resin decreased as new manufacturing capacity
became available. The prices continued to decline through the first half of
1999. Resin price increases could affect our working capital needs. We cannot
guarantee that plastic resin prices will not rise significantly in the future or
that the supply will remain stable. In the event of an adverse change in the
plastic resin market, we cannot guarantee that we will be able to obtain
sufficient quantities of plastic resin for production or find alternative
sources of supply.
10
<PAGE> 13
COMPETITION -- INCREASED COMPETITION OR TECHNOLOGICAL INNOVATIONS COULD HAVE A
NEGATIVE IMPACT ON OUR RESULTS OF OPERATIONS.
We face direct competition in each of our product lines from a number of
companies, many of which have financial and other resources that are
substantially greater than ours. As we broaden our product offerings, we expect
to meet increased competition from additional competitors with entrenched
positions in those product lines. We also face competition from bottling
companies, other food and beverage providers and medical and pharmaceutical
companies that elect to produce their own closures, dispensing systems and
devices rather than purchase them from outside sources. In addition, the
packaging industry has numerous well-capitalized competitors, and there is a
risk that these companies will expand their product offerings, either through
internal product development or acquisitions of any of our direct competitors,
to compete in the niche markets that we currently serve. These competitors, as
well as existing competitors, could introduce products or establish prices for
their products in a manner that could adversely affect our ability to compete.
Because of our product concentration, an increase in competition or any
technological innovations with respect to our specific product applications,
such as the introduction of lower-priced competitive products or products
containing technological improvement over our products, could cause us to lose
market share with respect to certain products.
INTELLECTUAL PROPERTY -- THE LOSS OF OUR PATENTS OR DISCLOSURE OF OUR
PROPRIETARY INFORMATION MAY ENABLE OTHERS TO MORE EFFECTIVELY COMPETE AGAINST
US.
We hold more than 40 patents covering various aspects of the design and
construction of our products. However, from time to time, litigation may be
necessary to protect our technology, to determine the validity and scope of the
proprietary rights of others or to defend claims of patent infringement. We
cannot be sure that we will be successful in protecting our proprietary
technology from third party infringement or that our products will not be found
to infringe upon the proprietary technology of others. Furthermore, patents do
not ensure that our competitors will not develop competing products in the
future. We also rely on trade secrets and know-how to maintain our competitive
position in the industry. While we enter into confidentiality agreements with
employees and consultants who have access to our proprietary information, we
cannot guarantee that these measures will prevent the unauthorized disclosure or
use of this information. The loss of our patents or the disclosure of any
material proprietary information could enable other companies to more
effectively compete against us.
ENVIRONMENTAL RISKS -- WE COULD HAVE LIABILITY FOR ENVIRONMENTAL CONTAMINATION
AT OUR PROPERTIES.
Our operations are subject to various federal, state and local laws
relating to pollution or the protection of the environment. For example,
stringent environmental laws govern the handling and disposal of chemicals and
substances used in our manufacturing operation. In addition, we, as an owner and
operator of real estate, may be liable under some environmental laws for cleanup
and other costs and damages resulting from past or present spills or other
releases of hazardous or toxic substances on or from our properties. Liability
under these laws may be imposed without regard to whether we knew of, or were
responsible for, the presence of such substances on our property, and, in some
cases, may not be limited to the value of the property. The presence of
contamination, or the failure to properly clean it up, also may adversely affect
our ability to sell, lease or operate our property or to borrow using our
property as collateral. Failure to comply with applicable environmental laws or
the incurrence of clean-up or other environmental costs in the future could
reduce the amount of cash available to us to satisfy our obligations under the
notes. See the section entitled "Business -- Environmental."
11
<PAGE> 14
INTEGRATING ACQUISITIONS -- WE CANNOT BE SURE THAT WE WILL BE ABLE TO
SUCCESSFULLY INTEGRATE ANY BUSINESSES WE MAY ACQUIRE IN THE FUTURE.
In order to grow our business and enhance our competitive position, we may
acquire other businesses in the future. We cannot predict whether or when any
acquisitions will occur. Acquisitions commonly involve various risks, including:
- the difficulty of integrating the acquired business and its employees;
- the potential disruption of our business and diversion of our resources
and management's time;
- the difficulty of maintaining uniform standards, controls, procedures and
policies;
- our possible lack of experience in a particular market;
- possible strains in our relationships with employees or customers as a
result of changes in management or policies; and
- incurring more debt as a means of financing the acquisition and
increasing our payment obligations.
We cannot be sure that we will make any acquisitions or that any acquired
business will be successfully integrated into our operations or will ultimately
perform as expected. Also, the availability of additional financing cannot be
assured and, depending on the terms of the potential acquisition, may be
restricted by the terms of our senior credit facility and the indenture
governing the notes. We cannot be sure that any future acquisitions will not
have a negative impact on our financial position. We currently do not have any
plans regarding potential acquisitions.
CHANGE OF CONTROL -- WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO
FINANCE THE CHANGE OF CONTROL OFFER REQUIRED BY THE INDENTURE GOVERNING THE
NOTES.
Upon the occurrence of particular change of control events, we may need to
refinance large amounts of our indebtedness, including the indebtedness under
the notes and under the senior credit facility. If a change of control occurs
after August 1, 2004, we must offer to buy back the notes for a price equal to
101% of the principal amount, plus any interest which has accrued and remains
unpaid as of the date purchased. We would fund any repurchase obligation with
our available cash and cash generated from other sources such as borrowings or
sales of equity. However, we cannot guarantee that there will be sufficient
funds available for any required repurchases of the notes when a change of
control occurs. In addition, the senior credit facility will prohibit us from
repurchasing the notes after a change of control until we first repay our
indebtedness under the senior credit facility in full. If we fail to repurchase
the notes in that circumstance, we will go into default under both the indenture
governing the notes and the senior credit facility. Any future indebtedness
which we incur may also contain restrictions on repayment which will come into
effect upon a change of control. If a change of control occurs, we cannot assure
you that we will have sufficient funds to satisfy all of our debt service
obligations. See the sections entitled "Description of Senior Credit Facility"
and "Description of the New Notes -- Change of Control."
FRAUDULENT CONVEYANCE -- FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC
CIRCUMSTANCES, TO VOID DEBT OBLIGATIONS AND REQUIRE NOTEHOLDERS TO RETURN
PAYMENTS RECEIVED.
Various laws enacted for the protection of creditors may apply to the
incurrence of indebtedness and other obligations in connection with the
recapitalization and to the transfer of a portion of the proceeds of our
indebtedness to our shareholders. If a court were to find in a lawsuit by an
unpaid creditor or representatives of creditors that we did not receive fair
consideration or reasonably equivalent value for incurring the indebtedness or
obligations in connection with the recapitalization and, at the time of
incurring the indebtedness, we:
- were insolvent;
- became insolvent by reason of the recapitalization;
12
<PAGE> 15
- were engaged in a business or transaction for which our remaining assets
constituted unreasonably small capital; or
- intended to incur or believed we would incur obligations beyond our
ability to pay such obligations as they mature,
such court, subject to applicable statutes of limitations, could void our
obligations under the notes, subordinate the notes to other indebtedness, or
take other action detrimental to you, as holders of notes. Some courts have held
that an obligor's purchase of its own capital stock does not constitute
reasonably equivalent value or fair consideration for indebtedness incurred to
finance that purchase.
The measure of insolvency for purposes of the foregoing will vary depending
on the law of the jurisdiction which is being applied. Generally, however, a
company would be considered insolvent at a particular time if the sum of its
debts was then greater than all of its property at a fair valuation or if the
present fair saleable value of its assets was then less than the amount that
would be required to pay its probable liabilities on its existing debts as they
become absolute and matured. On the basis of our historical financial
information, our recent operating history as discussed in the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and other factors, we believe that, after giving effect to the
recapitalization, we will not be rendered insolvent, we will have sufficient
capital for the business in which we are engaged and we will be able to pay our
debts as they mature. We cannot guarantee, however, what standard a court would
apply to evaluate the parties' intent or to determine whether we were insolvent
at the time of, or rendered insolvent upon completion of, the recapitalization
or that, regardless of the standard, a court would not determine that we were
insolvent at the time of, or rendered insolvent upon completion of, the
recapitalization.
YEAR 2000 ISSUES -- IF OUR SYSTEMS ARE NOT YEAR 2000 COMPLIANT, OUR OPERATIONS
COULD BE DISRUPTED BY UNANTICIPATED SYSTEMS FAILURES.
As the end of the century nears, there is a widespread concern that many
existing information systems, primarily computer software programs, will not be
able to properly recognize or process date-sensitive information when the year
changes to 2000. If not corrected, many information systems could fail, create
erroneous results, cause unanticipated systems failures or otherwise disrupt our
operations. Our failure, or the failure of one or more of our key suppliers,
customers or distributors to address successfully year 2000 issues, could
interrupt our business and lead to a loss of customers if not remedied in a
timely manner. See the section entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Year 2000."
ABSENCE OF PUBLIC MARKET -- IF A MARKET FOR THE NEW NOTES DOES NOT DEVELOP, YOUR
ABILITY TO SELL THE NEW NOTES AT AN ACCEPTABLE PRICE MAY BE LIMITED.
Since the original offering, there has been no public market for the notes.
We do not plan on listing the new notes on any securities exchange. The initial
purchaser has informed us that it plans on making a market in the notes, but it
is not obligated to do so, and may discontinue its activities at any time.
Accordingly, we cannot determine:
- the likelihood that an active market for the notes will develop;
- the liquidity of any such market;
- your ability to sell your notes; or
- the prices that you may obtain for your notes if sold.
Future trading prices for your notes will depend upon many factors,
including, among others, our operating results, the market for similar
securities and changing interest rates.
13
<PAGE> 16
FORWARD-LOOKING INFORMATION -- YOU SHOULD NOT PLACE UNDUE RELIANCE ON
FORWARD-LOOKING INFORMATION.
Throughout this prospectus we make "forward-looking statements."
Forward-looking statements include the words "may," "will," "estimate,"
"intend," "continue," "believe," "pro forma," "expect," "anticipate" and other
similar words. The forward-looking statements contained in this prospectus are
generally located in the sections entitled "Prospectus Summary," "Risk Factors,"
"Capitalization," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and "Business," but may be found in other locations
as well. These forward-looking statements generally relate to our plans and
objectives for future operations and are based upon management's reasonable
estimates of future results or trends. Although we believe that our plans and
objectives reflected in or suggested by such forward-looking statements are
reasonable, we may not achieve such plans or objectives. Actual results may
differ from projected results due, but not limited, to unforeseen developments,
including those discussed above.
You should read this prospectus completely and with the understanding that
actual future results may be materially different from what we expect. We
undertake no obligation after the date of this prospectus to update any
forward-looking statements even though our situation may change in the future.
14
<PAGE> 17
THE RECAPITALIZATION
On July 30, 1999, Hicks Muse and Mills & Partners, Inc., a St. Louis-based
investment and management services firm, together with our pre-recapitalization
shareholders, completed a recapitalization of our company, which included the
following transactions:
- we borrowed an aggregate of $150.3 million under our new $200 million
senior credit facility;
- we sold $100.0 million of senior subordinated notes due 2009, the same
notes we are now offering to exchange;
- Hicks Muse and its affiliates paid $1.00 per share for 78 million shares
of our series A convertible preferred stock and the principals and
executives of Mills & Partners paid $0.01 per share for approximately
13.3 million shares of our class A common stock, which together
represents 68.5% of our outstanding capital stock;
- we purchased 266,807,342 shares of our common stock from our
pre-recapitalization shareholders for $1.00 per share; and
- our pre-recapitalization shareholders retained 42 million shares of our
common stock, which represents 31.5% of our outstanding capital stock.
We used the proceeds from our senior credit facility, the notes offering and the
equity investments by Hicks Muse and the principals and executives of Mills &
Partners to purchase shares of our common stock from our pre-recapitalization
shareholders, repay indebtedness and accrued interest outstanding at the time of
the recapitalization and pay related fees and expenses.
15
<PAGE> 18
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the new notes in
exchange for old notes. In consideration for issuing the new notes as
contemplated by this prospectus, we will receive in exchange old notes in like
principal amount, which will be cancelled and as such will not result in an
increase in our indebtedness.
We used the proceeds from the original offering to partially finance the
recapitalization. The following table sets forth the sources and uses of funds
in connection with the recapitalization:
<TABLE>
<CAPTION>
SOURCES OF FUNDS USES OF FUNDS
---------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Recapitalization
Senior Credit Facility............. $150,300 Consideration(2)................... $311,133
Senior Subordinated Notes due
2009............................. 100,000 Fees and Expenses(3)............... 17,300
Equity Investment(1)............... 78,133
-------- --------
Total Sources............ $328,433 Total Uses......................... $328,433
======== ========
</TABLE>
- ---------------
(1) Reflects the acquisition by Hicks Muse and its affiliates of 78 million
shares of series A convertible preferred stock for $1.00 per share and the
acquisition by the principals and executives of Mills & Partners of
approximately 13.3 million shares of our class A common stock for $0.01 per
share, but does not include the retention of 42 million shares of common
stock by our pre-recapitalization shareholders.
(2) Reflects payments to our pre-recapitalization shareholders for 266,807,342
shares of common stock and includes the repayment of then existing
indebtedness and accrued interest of $45,496, and the retention of $133 for
operating purposes.
(3) Does not include a non-cash expense of $900 incurred in connection with the
issuance of warrants to purchase 1.8 million shares of our common stock at
$0.50 per share.
16
<PAGE> 19
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 1999.
The information set forth below should be read in conjunction with our audited
combined financial statements and unaudited pro forma combined financial data,
together with the related notes thereto, included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
------------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Long-term debt (including current maturities):
Senior credit facility.................................... $ 145,000
Senior subordinated notes due 2009........................ 100,000
---------
Total long-term debt.............................. 245,000
Shareholders' deficit....................................... (123,671)
---------
Total capitalization.............................. $ 121,329
=========
</TABLE>
17
<PAGE> 20
SELECTED FINANCIAL DATA
The historical financial data for the fiscal years ended September 30,
1997, 1998 and 1999 have been derived from, and should be read in conjunction
with, the audited combined financial statements of Courtesy Corporation and its
affiliates and the audited consolidated financial statements of LLS Corp.
included elsewhere in this prospectus. The historical financial data for the
fiscal years ended September 30, 1995 and 1996 have been derived from the
audited combined financial statements of Courtesy Corporation and its affiliates
not included in this prospectus. The following information should be read in
conjunction with the audited combined financial statements of Courtesy
Corporation and its affiliates and the audited consolidated financial statements
of LLS Corp. and the notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED SEPTEMBER 30,
---------------------------------------------------------------
LLS CORP.
(FORMERLY KNOWN AS
COURTESY CORPORATION
COURTESY CORPORATION AND AFFILIATES AND AFFILIATES)
---------------------------------------- --------------------
1995 1996 1997 1998 1999
------- -------- -------- -------- --------------------
(IN THOUSANDS, EXCEPT RATIO AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.......................... $76,379 $101,366 $129,485 $172,608 $171,703
Cost of sales...................... 48,936 67,248 88,153 120,986 121,101
------- -------- -------- -------- --------
Gross profit....................... 27,443 34,118 41,332 51,622 50,602
Operating expenses................. 8,626 9,507 11,974 15,064 17,363
------- -------- -------- -------- --------
Income from operations............. 18,817 24,611 29,358 36,558 33,239
Interest expense, net.............. 1,241 1,389 1,535 1,315 6,835
Amortization of deferred financing
fees............................. -- -- -- -- 428
Transaction related expenses(1).... -- -- -- -- 1,220
------- -------- -------- -------- --------
Income before income taxes......... 17,576 23,222 27,823 35,243 24,756
Income tax provision............... 151 84 277 188 3,260
------- -------- -------- -------- --------
Net income before minority
interest......................... 17,425 23,138 27,546 35,055 21,496
Minority interest.................. 591 718 1,060 1,225 171
------- -------- -------- -------- --------
Net income......................... $16,834 $ 22,420 $ 26,486 $ 33,830 $ 21,325
======= ======== ======== ======== ========
OTHER FINANCIAL DATA:
Depreciation and amortization...... $ 4,275 $ 5,795 $ 8,224 $ 9,896 $ 13,517
Operating cash flows............... 20,119 29,839 29,670 37,206 49,414
Investing cash flows............... (14,227) (21,071) (13,937) (31,303) (20,800)
Financing cash flows............... 4,727 (9,444) (15,900) (5,106) (25,651)
EBITDA(2).......................... 23,092 30,406 37,582 46,454 46,756
Adjusted EBITDA(3)................. 23,381 31,023 39,038 49,977 47,765
Capital expenditures............... 14,265 21,107 13,937 31,330 20,800
Total assets....................... 61,910 87,866 105,343 129,826 169,200
Long-term obligations (including
current portion)................. 16,586 20,452 19,188 29,925 245,000
Ratio of earnings to fixed
charges(4)....................... 11.7x 14.0x 14.5x 19.1x 4.1x
</TABLE>
- ---------------
(1) Represents non-recurring recapitalization related expenses incurred by the
pre-recapitalization shareholders which includes among other things, bonus
and legal fees.
(2) Earnings before interest, taxes, depreciation, amortization, minority
interest and transaction related expenses ("EBITDA") is a key financial
measure but should not be construed as an alternative to operating income or
cash flows from operating activities, as determined in accordance with
generally accepted accounting principles. EBITDA is generally considered to
provide information regarding a company's ability to service indebtedness
and it is included herein to provide additional information
18
<PAGE> 21
with respect to the ability of the Company to meet its future debt service
requirements. EBITDA is also one of the financial measures by which our
covenants are calculated under our debt instruments.
(3) Adjusted EBITDA is presented in order to provide additional information for
determining our ability to meet our debt service requirements and to meet
covenant requirements. Adjusted EBITDA reflects EBITDA, as defined in note
(2), adjusted for the following.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED SEPTEMBER 30,
------------------------------------------------------------
LLS CORP.
(FORMERLY KNOWN AS
COURTESY CORPORATION
COURTESY CORPORATION AND AFFILIATES AND AFFILIATES)
----------------------------------- --------------------
1995 1996 1997 1998 1999
----- ----- ------- ------- --------------------
<S> <C> <C> <C> <C> <C>
Compensation adjustment(a)............ $289 $617 $1,097 $1,580 $ --
Preoperating costs.................... -- -- 359(b) 1,943(b) 1,009(c)
---- ---- ------ ------ ------
$289 $617 $1,456 $3,523 $1,009
==== ==== ====== ====== ======
</TABLE>
(a) Represents a reduction in officers' compensation under the employment
agreements entered into by particular officers in connection with the
consummation of the recapitalization, as if the reductions had taken place
at the beginning of the periods presented.
(b) Represents certain preoperating costs associated with the newly
constructed facility at 600 Buffalo Grove, Illinois. These preoperating
costs represent the costs incurred during the period prior to which the
facility began generating revenues.
(c) Represents certain preoperating costs associated with newly purchased
facilities in Anderson, South Carolina and Lake Geneva, Wisconsin. These
preoperating costs represent the costs incurred during the period prior to
which the facilities began generating revenues.
(4) For purposes of calculating the ratio of earnings to fixed charges,
"earnings" represent earnings before income taxes plus fixed charges. "Fixed
charges" consist of interest on all indebtedness, amortization of deferred
financing fees and the portion, (approximately 1/3), of rental expense that
management believes is representative of the interest component of rent
expense.
19
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table is derived from the audited combined financial
statements of Courtesy Corporation and its affiliates and the audited
consolidated financial statements of LLS Corp. included elsewhere in this
prospectus and sets forth certain items for the periods indicated.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED SEPTEMBER 30,
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(FORMERLY KNOWN AS
COURTESY
CORPORATION
COURTESY CORPORATION AND AFFILIATES AND AFFILIATES)
------------------------------------- ------------------
1997 1998 1999
----------------- ----------------- ------------------
(IN THOUSANDS EXCEPT PERCENTAGES)
Net sales....................... $129,485 100.0% $172,608 100.0% $171,703 100.0%
Cost of sales................... 81,209 62.7% 112,608 65.2% 110,546 64.4%
Operating expenses.............. 10,694 8.3% 13,546 7.9% 14,401 8.4%
Depreciation and
amortization(1)............... 8,224 6.3% 9,896 5.7% 13,517 7.9%
-------- -------- --------
Operating income................ 29,358 22.7% 36,558 21.2% 33,239 19.4%
======== ======== ========
OTHER DATA:
EBITDA.......................... $ 37,582 29.0% $ 46,454 26.9% $ 46,756 27.2%
Adjusted EBITDA................. 39,038 30.1% 49,977 29.0% 47,765 27.8%
</TABLE>
- ---------------
(1) Depreciation and amortization has been excluded from cost of sales and
operating expenses, and reflected as a separate component of operating
income for all of the periods presented. Had depreciation and amortization
been classified as a component of cost of sales and operating expenses, the
cost of sales, and cost of sales as a percentage of net sales, would be
$88,153, or 68.1%, $120,986, or 70.1%, and $121,101, or 70.5%, for the
fiscal years ended September 30, 1997, 1998 and 1999, respectively, with no
effect on the operating income presented.
Fiscal Year Ended September 30, 1999 Compared to Fiscal Year Ended September
30, 1998
Net sales -- Net sales of $171.7 million in 1999, represented a slight
decrease of $0.9 million, compared to net sales of $172.6 million in 1998.
Cost of sales -- Cost of sales decreased $2.1 million or 1.8% during the
year ended September 30, 1999 compared to cost of sales for the same period
during 1998. Cost of sales expressed as a percentage of net sales decreased to
64.4% for the year ended September 30, 1999 from 65.2% for the comparable period
in 1998. These decreases were primarily due to lower average resin prices and to
improvements in manufacturing efficiencies offset by higher labor and facility
costs incurred during the year. Because we pass substantially all resin price
fluctuations onto our customers, a lower average resin price leads to a higher
gross margin percentage but generally has no impact on gross margin dollars.
Operating expenses -- Operating expenses increased $0.9 million or 6.3%, to
$14.4 million for the year ended September 30, 1999 compared to the same period
during 1998. Operating expenses expressed as a percentage of sales increased to
8.4% for the year ended September 30, 1999 from 7.9% for the comparable period
in 1998. These increases were primarily attributable to higher fixed general and
administrative costs resulting from the addition of two manufacturing
facilities.
Depreciation and amortization -- Depreciation and amortization increased
$3.6 million to $13.5 million for the year ended September 30, 1999. This
increase primarily reflects net increases in depreciable assets from new
equipment purchases and the addition of two manufacturing facilities.
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<PAGE> 23
Fiscal Year Ended September 30, 1998 Compared to Fiscal Year Ended September
30, 1997
Net sales -- Net sales of $172.6 million in 1998 reflected an increase of
$43.1 million, or 33.3%, compared to net sales in 1997. This increase was
primarily due to sales growth to existing customers in the amount of
approximately $38.6 million and, to a lesser extent, sales to new customers in
the amount of approximately $4.5 million. Growth in existing accounts
represented increasing demand for existing products as well as the introduction
and sale of new products.
Cost of sales -- Cost of sales increased $31.4 million, or 38.7%, to $112.6
million in 1998. This increase was primarily due to higher sales levels achieved
during the year. Cost of sales expressed as a percentage of net sales increased
to 65.2% in 1998 from 62.7% in 1997. Contributing to this increase was higher
labor and facility costs incurred in 1998 that represented the setup and startup
of a new manufacturing facility in Buffalo Grove, Illinois. The majority of
these costs were incurred during the second half of the year. It is expected
that the addition of this manufacturing facility will lead to an increase in our
manufacturing capacity. In addition, the increase in cost of sales as a
percentage of net sales reflected a shift in product mix during 1998 to products
that have a lower average gross margin than our overall average gross margin in
1997.
Operating expenses -- Operating expenses increased $2.9 million, or 26.7%,
to $13.5 million in 1998. This increase was primarily attributable to higher
variable costs which resulted from increases in sales and the addition of a new
manufacturing facility. Operating expenses expressed as a percentage of net
sales decreased to 7.9% in 1998 from 8.3% in 1997.
Depreciation and amortization -- Depreciation and amortization increased
$1.7 million to $9.9 million in 1998. This reflects net increases in depreciable
assets resulting from new equipment purchases and the addition of a new
manufacturing facility.
SEASONALITY
Historically, a slightly higher portion of our sales and net income has
been realized during the third and fourth fiscal quarters. In addition to our
peak season fluctuations, quarterly results of operations may fluctuate
depending on the timing and amount of sales from the introduction of new
products.
LIQUIDITY AND CAPITAL RESOURCES
We have satisfied our historical requirements for capital through cash flow
from operations. For the three fiscal years ended 1997, 1998, and 1999, our
capital expenditures were $13.9 million, $31.3 million and $20.8 million,
respectively, and our net cash provided by operating activities was $29.7
million, $37.2 million and $49.4 million, respectively.
The notes and senior credit facility increased our debt levels to a total
of $245 million at September 30, 1999. As a result, our annual interest payments
on a pro forma basis for the fiscal year ended September 30, 1999 would have
been approximately $23.6 million, generating an annual tax benefit of
approximately $8.5 million. The notes require semi-annual interest payments
beginning in February 2000 and will mature in 2009. Borrowings under the senior
credit facility require quarterly interest payments beginning in September,
1999. In addition, the senior credit facility provides $55.0 million of
revolving loans available to us. The terms of the notes and the senior credit
facility include significant operating and financial restrictions, particularly
limits on our ability to incur indebtedness, create liens, sell assets, engage
in mergers or consolidations, make investments and pay dividends. The tranche A
loan under the senior credit facility amortizes quarterly over six years as
follows:
- $3.0 million in year two;
- $12.0 million in year three;
- $15.0 million in year four;
- $17.0 million in year five; and
- $18.0 million in year six.
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<PAGE> 24
The tranche B loan under the senior credit facility amortizes quarterly
over seven years as follows:
- $0.2 million in year two;
- $0.8 million in each of years three through six; and
- $76.6 million in year seven.
The revolving loans terminate, and all outstanding amounts thereunder
mature, on June 30, 2005. See the sections entitled "Description of Senior
Credit Facility," "Description of the New Notes" and "Unaudited Pro Forma
Financial Data."
We believe that the net cash provided by operating and financing activities
will be sufficient to fund our future cash requirements, which consist primarily
of repayment of indebtedness, working capital requirements and capital
expenditures. Our future operating performance and ability to service or
refinance our current indebtedness is subject to future economic conditions and
financial, business and other factors, many of which are beyond our control. See
the section entitled "Risk Factors -- Leverage."
YEAR 2000
We use software and related technologies throughout our business that could
be adversely impacted by the year 2000 issue. The year 2000 issue, which is
common to most businesses, concerns the inability of information systems,
primarily computer software programs, to properly recognize or process
date-sensitive information when the year changes to 2000. We have conducted a
comprehensive review of our computer systems to identify the systems that could
be affected by the year 2000 issue and have developed an implementation plan.
Our review and plan includes assessing both business applications and
manufacturing applications. Our business applications include all purchased
software systems and all hardware required for information processing, financial
reporting systems, customer billing systems, customer service systems and
telecommunication transmission and reception systems. Manufacturing systems
include all purchased software systems and all hardware required to support
certain machinery and equipment that is integral to our operations. We have
received year 2000 compliance certificates from the vendors providing our
software programs and have performed all necessary hardware upgrades to bring
our manufacturing applications into year 2000 compliance. Based on our review of
our systems and consultation with our hardware and software vendors, we believe
that our software and hardware for both business and manufacturing applications
will function properly beyond 1999. However, we cannot guarantee that our
systems will be year 2000 compliant.
The total cost associated with the hardware and software modifications
required by the year 2000 issue through September 30, 1999 was less than $0.1
million. To date, our business and manufacturing hardware and software
applications have experienced no problems recognizing date sensitive
information, despite the fact that our fiscal year 2000 began October 1, 1999.
In addition, the inability of third parties with whom we transact business
to adequately address their year 2000 issues is outside of our control.
Nevertheless, we have surveyed all of our critical third party suppliers and
service providers to assess their year 2000 compliance and we will continue to
monitor their progress. However, we cannot guarantee that the third parties with
whom we transact business will be year 2000 compliant. Our failure or the
failure of third parties to adequately address the year 2000 issue could have a
material adverse effect on our business, financial condition and results of
operations and our ability to satisfy our obligations under the notes.
MARKET RISK
In the ordinary course of business we are exposed to market risks. Our main
exposure relates to changes in interest rates on outstanding debt. Our senior
credit facility allows us to enter into interest rate swap agreements to limit
our exposure on a portion of our long-term debt. We do not expect to hold or
issue financial instruments for trading purposes.
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<PAGE> 25
INTEREST RATE AND DEBT SENSITIVITY ANALYSIS
For our fixed-rate debt, interest rate changes affect the fair market value
but do not impact our earnings or cash flows. However, for the variable-rate
debt included in our senior credit facility, interest rate changes generally do
not affect the fair market value but do impact future earnings and cash flows,
assuming other factors are constant. A hypothetical 10% change in our weighted
average borrowing rate would cause a change in earnings of approximately $1.2
million.
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<PAGE> 26
BUSINESS
GENERAL
We are a leading, fully-integrated custom designer, manufacturer and
marketer of precision injection molded plastic components, closures and
dispensing systems used in (1) medical devices and pharmaceutical products, (2)
consumer products and (3) food and beverage products.
PRODUCTS AND SERVICES
Our offering of products and services includes the following:
Mold Design and Development. We design and manufacture custom-made molds
for our customers and for our own proprietary use. The molds we develop for our
customers are used in all of the markets we serve, and the molds we develop for
our own proprietary use are used primarily to produce plastic closures for
applications in bottled water, food products and personal care products. The
typical product cycle of a custom-made mold includes product concept
development, design and precision mold tool construction. This product cycle
typically takes 12 to 26 weeks for completion; however, in some instances it may
take up to five years.
Injection Molded Products. We manufacture precision injection molded
plastic components, closures and dispensing systems used in all of the markets
we serve. Our injection molded components are used in a variety of medical
devices which include insulin pens, inhalers, diagnostic test kits and vials.
Our closure and dispensing systems are used to cap or dispense products which
include (1) pull/push closures used to cap plastic bottles, (2) hinged and twist
top closures for food products and (3) tilt top closures for food and personal
care products.
Value-Added Assembly Services. Our assembly activities consist of
continuous motion, multi-component, pick-and-place assembly of plastic
components. We work closely with our customers, to develop equipment, process
controls and assembly techniques to facilitate the delivery of high quality,
fully assembled products. We are able to provide our value-added assembly in a
"clean room" environment, a necessity for the medical and pharmaceutical
industries.
Supplier-Managed Inventory Programs. As an additional value-added service,
we offer supplier-managed inventory programs to some of our largest customers.
In such programs, we manufacture and ship consignment inventory on an as-needed
basis to customer-owned warehouses. Participating customers manage their
inventory positions through the use of electronic data interface systems shared
with us.
RAW MATERIALS AND PRODUCTION
The principal raw materials for our plastic products are polypropylene and
polyethylene resins, which account for approximately 67% of the cost of all raw
materials purchased for our products. We purchased approximately 69.0 million
and 79.6 million pounds of plastic resins during fiscal 1998 and fiscal 1999,
respectively. We do not rely on a single supplier for our resin. In the past, we
have been able to shift our resin requirements to other suppliers without
experiencing any significant disruptions of our operations. We expect to be able
to continue this practice if the need arises in the future. We believe that due
to our volume purchases we are able to negotiate attractive pricing with resin
suppliers. We have not experienced any significant difficulties over the past
ten years in obtaining sufficient quantities of resins, although prices for
resins can fluctuate over relatively short periods of time. Historically, we
have been able to pass substantially all resin price increases on to our
customers on a timely basis.
In order to produce our products, the resin, which is delivered as small
pebble-size pellets to large storage silos, is conveyed through a pipeline
system to an injection molding machine, where it is melted into a thick liquid
state. Coloring agents are added as appropriate and the mixture is injected at
high pressure into a specially designed, multi-cavity mold. The principal
equipment in our plants includes injection molding machines (we operate
approximately 180 molding machines ranging in size from 55 to 715 tons clamping
pressure), finishing lines, high speed, multi-component, pick and place assembly
machines, and automated systems for handling and processing raw materials and
finished goods.
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<PAGE> 27
We design and manufacture substantially all of our own molds. We believe
our mold expertise has led to reduced costs due to shorter molding cycle times
and enhanced reliability and longevity of our tooling.
PROPERTIES
We own or lease six modern production facilities, which operate five to
seven days a week, 24 hours a day, and one warehouse facility. The production
facilities are highly efficient due to automation and frequently scheduled
maintenance in the plants. We believe that these facilities are well-maintained
and in good operating condition and anticipate that the facilities themselves
will be sufficient to meet our needs for the next several years. We cannot
guarantee, however, that unanticipated developments will not occur that would
require us to add production facilities sooner than expected. The following
table indicates the locations, functions, square footage and nature of ownership
of our facilities:
<TABLE>
<CAPTION>
APPROXIMATE
FACILITY SQUARE FOOTAGE OWNED/LEASED PRINCIPAL USE
-------- -------------- ------------ -------------
<S> <C> <C> <C>
800 Corporate Grove Dr. 265,000 Land & building owned Headquarters and manufacturing
Buffalo Grove, Illinois(1)
700 Corporate Grove Dr. 342,000 Land & building owned Headquarters and manufacturing
Buffalo Grove, Illinois(1)
600 Deerfield Parkway 311,000 Land leased/building Manufacturing
Buffalo Grove, Illinois owned
1019-1021 Noel Avenue 66,000 Leased Manufacturing
Wheeling, Illinois(1)
200 Masters Boulevard 169,000 Land & building Manufacturing
Anderson, South Carolina leased
2491 Vista Drive 11,000 Owned Manufacturing
Lake Geneva, Wisconsin
913 Commerce 98,000 Leased Warehouse
Buffalo Grove, Illinois
</TABLE>
- ---------------
(1) Each of these facilities is certified under ISO 9002, an internationally
recognized manufacturers' quality standard. We expect to have our new
facilities in Buffalo Grove, Illinois and Anderson, South Carolina certified
in the year 2000.
SALES, MARKETING AND CUSTOMER SERVICE
We market our products primarily through our internal sales department. We
also utilize independent sales representatives to market our products. Calls on
customers by these salespersons and representatives, along with participation at
trade shows, are the primary means of customer contact. A number of our
customers are large corporate clients with numerous production facilities, many
of which may make their own separate purchase decisions. Our two largest
customers, Colgate-Palmolive and Abbott Laboratories, accounted for
approximately 22% and 12%, respectively, of our sales during 1999. No other
customers accounted for more than 10% of our sales during 1999. Many of our
customers have been doing business with us for more than ten years.
Attention to customer service is a critical component of our marketing
effort. Our customers operate high-speed, high-volume production lines.
Customers rely on our ability to provide reliable, on-time delivery of our
products and to maintain the uniform quality of those products.
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<PAGE> 28
COMPETITION
We believe that the most important factors in marketing our products are
price, product design, product quality and reliability and customer service.
Among the attributes that distinguish us from other sellers of such products and
provide a competitive advantage include our:
- ability to provide our customers with innovative, low-cost products;
- reputation for quality, reliability and service; and
- highly automated production facilities and in-house tool manufacturing
capability.
We face direct competition in each of our product lines from a number of
companies, many of which have financial and other resources that are
substantially greater than ours. As we broaden our product offerings, we expect
to meet increased competition from additional competitors with entrenched
positions in those product lines. We also face competition from bottling
companies, other food and beverage providers and medical and pharmaceutical
companies that elect to produce their own closures, dispensing systems and
devices rather than purchase them from outside sources. In addition, the
packaging industry has numerous well-capitalized competitors, and there is a
risk that these companies will expand their product offerings, either through
internal product development or acquisitions of any of our direct competitors,
to compete in the niche markets that we currently serve. These competitors, as
well as existing competitors, could introduce products or establish prices for
their products in a manner that could adversely affect our ability to compete.
Because of our product concentration, an increase in competition or any
technological innovations with respect to our specific product applications,
such as the introduction of lower-priced competitive products or products
containing technological improvement over our products, could have a significant
adverse effect on our financial condition and results of operations.
INTELLECTUAL PROPERTY
We hold more than 40 patents covering various aspects of the design and
construction of our products. Our patents were granted between 1985 and 1998 and
the earliest expiration date will be in 2002. We consider the patents valuable
to our products as they illustrate our innovative design ability and provide us
with a competitive advantage. We maintain a strong commitment to research and
development, focusing our efforts on enhancing existing products as well as
developing new products based on our existing technologies and production
capabilities. Our research and development staff of over 30 design engineers
works together with our customers to identify specific needs and develop
innovative, high performance solutions which satisfy those needs. This method of
product development allows the customer to become a member of the development
team, develops close ongoing working relationships between us and our customers
and, in many instances, allows us to gain an in-depth understanding of our
customers' businesses, thereby enabling us to better anticipate and serve their
needs.
LEGAL PROCEEDINGS
We have from time to time been involved in various claims and litigation.
The nature of our business is such that it is anticipated that we will be
involved in claims and litigation considered to be in the ordinary course of
business. Based on our experience with similar claims and litigation, we do not
anticipate that these matters will have a material adverse effect on us.
ENVIRONMENTAL
Certain of our operations are subject to federal, state and local
environmental laws and regulations that govern, among other things, the
discharge of pollutants into the air and water, as well as the handling and
disposal of solid and hazardous wastes. We believe that we are in material
compliance with applicable environmental laws and that the costs of compliance
with such current or proposed environmental laws and regulations will not have a
material adverse effect on us. Further, we are not a party to any claim or
proceeding and are not aware of any threatened claim or proceeding under
environmental laws that could,
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<PAGE> 29
if adversely decided, reasonably be expected to have a material adverse effect
on our financial condition or results of operations. See the section entitled
"Risk Factors -- Environmental."
EMPLOYEES
As of September 30, 1999, we had approximately 1,600 employees, including
approximately 180 mold-makers. None of our employees are party to any collective
bargaining agreements. We have not experienced any labor problems resulting in a
work stoppage, and believe we have good relations with our employees.
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<PAGE> 30
MANAGEMENT
Set forth below is information with respect to those individuals who
currently serve as members of our Board of Directors or as our executive
officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
James N. Mills............................. 62 Chairman of the Board and Chief Executive
Officer
Dan H. Blanks.............................. 50 Director
Jack D. Furst.............................. 40 Director
David M. Sindelar.......................... 42 Director, Senior Vice President and Chief
Financial Officer
Walter J. Kreiseder........................ 57 Director
Gerald J. Sommers.......................... 58 Director
Wesley D. DeHaven.......................... 35 Vice President-Finance
</TABLE>
Set forth below is a description of the backgrounds of those persons who
serve as our directors and executive officers. There is no family relationship
between any of our directors or executive officers. Officers are elected by the
Board of Directors and hold office until their respective successors are duly
elected and qualified.
James N. Mills
James N. Mills has served as our Chairman of the Board and Chief Executive
Officer since July 1999. Mr. Mills is the Chairman of the Board and Chief
Executive Officer of Mills & Partners. Mr. Mills is also Chairman of the Board
and Chief Executive Officer of International Wire Holding Company and Viasystems
Group, Inc. Mr. Mills was Chairman of the Board and Chief Executive Officer of
Berg Electronics Corp. from November 1992 through October 1998, of Crain
Holdings Corp. from August 1995 through December 1997, of Jackson Holding
Company from February 1993 through August 1995, of Thermadyne Holdings
Corporation from February 1989 through February 1995 and of Thermadyne
Industries, Inc. from 1987 to 1995. Prior to that time, Mr. Mills served as
Executive Vice President of McGraw-Edison Company, a company engaged in the
electronic, industrial, commercial and automotive industries, from 1978 to 1985,
and served as Industrial Group President and President of the Bussman Division
of the McGraw-Edison Company from 1980 to 1984.
Dan H. Blanks
Dan H. Blanks has served as a director since November 1999. Mr. Blanks has
served as a Senior Vice President of Hicks Muse since 1997. Mr. Blanks has 28
years experience in equity research and international asset management. Prior to
joining Hicks Muse, Mr. Blanks spent 20 years specializing in working with
pension funds and other institutions on their international investment programs.
Mr. Blanks was involved in the development of the international investments
resources and business for Fidelity Investments as International Investment
Director in London, Hong Kong and Boston. Prior to that, he spent 11 years as
President of Pictet International, an international asset management company, in
London as well as 11 years with J.P. Morgan in London, Tokyo and New York in the
institutional investment and international research areas.
Jack D. Furst
Jack D. Furst has served as a director since July 1999. Mr. Furst has
served as a Partner and Principal of Hicks Muse since 1989, the year in which it
was formed. Mr. Furst has approximately 20 years of experience in leveraged
acquisitions and private investments. Mr. Furst is involved in all aspects of
Hicks Muse's business and has been actively involved in originating, structuring
and monitoring its investments. Prior to joining Hicks Muse, Mr. Furst served as
a Vice President and subsequently a Partner of Hicks & Haas from 1987 to 1989.
From 1984 to 1986, Mr. Furst was a Merger and
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<PAGE> 31
Acquisitions/Corporate Finance Specialist for The First Boston Corporation in
New York. Before joining First Boston, Mr. Furst was a Financial Consultant at
PricewaterhouseCoopers. Mr. Furst serves on the Boards of Directors of American
Tower Corporation, Triton Energy Limited, Home Interiors & Gifts, Inc., Hedstrom
Holdings, Inc., International Wire Holding Company, Cooperative Computing, Inc.
and Viasystems Group, Inc.
David M. Sindelar
David M. Sindelar has served as our Senior Vice President and Chief
Financial Officer and as a director since July 1999. Mr. Sindelar serves as
President of Mills & Partners, Inc., and is a Senior Vice President and Chief
Financial Officer of International Wire Holding Company and Viasystems Group,
Inc. Mr. Sindelar served as Senior Vice President and Chief Financial Officer of
Berg Electronics Corp. from November 1992 through October 1998, of Crain
Holdings Corp. from August 1995 through December 1997 and of Jackson Holding
Company from February 1993 through August 1995. From 1987 to February 1995, Mr.
Sindelar held various positions at Thermadyne Holdings Corporation including
Senior Vice President, Chief Financial Officer and Vice President -- Corporate
Controller and Controller.
Walter J. Kreiseder
Walter J. Kreiseder continues to serve as a director, and serves as Chief
Executive Officer of our operating subsidiary and each of its subsidiaries. Mr.
Kreiseder served as our Chief Executive Officer and as a director from our
inception in 1972 through July 1999. Mr. Kreiseder is directly involved in all
aspects of the business and has over 37 years of experience in the injection
molding industry. Mr. Kreiseder is affiliated with several industry associations
including the Tooling and Manufacturing Association and the Society of Plastic
Engineers.
Gerald J. Sommers
Gerald J. Sommers continues to serve as a director, and serves as President
and Chief Operating Officer of our operating subsidiary and each of its
subsidiaries. Mr. Sommers served as our President and Chief Operating Officer
and as a director from our inception in 1972 through July 1999. Mr. Sommers is
directly involved in all aspects of the business and has over 37 years of
experience in the injection molding industry. Mr. Sommers is affiliated with
several industry associations including the Tooling and Manufacturing
Association and the Society of Plastic Engineers.
Wesley D. DeHaven
Wesley D. DeHaven has served as our Vice President -- Finance since July
1999. Mr. DeHaven serves as a Vice President of Mills & Partners. Mr. DeHaven
served as Vice President of Viasystems Group, Inc. from March 1998 through
November 1998, Vice President -- Finance of Crain Industries, Inc. from December
1996 through February 1998, Corporate Controller of International Wire Group,
Inc. from April 1994 through November 1996, and Controller for the cutting and
welding segment of Thermadyne Industries, Inc. from June 1993 through March
1994. Prior to that time, Mr. DeHaven was employed by the international
accounting firm of Arthur Andersen & Co.
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<PAGE> 32
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid during the fiscal year
ended September 30, 1999 to the Chief Executive Officer and the three other most
highly compensated executive officers who were serving as executive officers at
September 30, 1999 or during the fiscal year ended September 30, 1999.
Information with respect to fiscal years prior to September 30, 1999 is not
required as we were not a reporting company pursuant to Section 13(a) or 15(d)
of the Exchange Act of any time during those years.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)
--------------------------- ---- --------- --------
<S> <C> <C> <C>
James N. Mills, Chief Executive Officer..................... 1999 58,333 --
Walter J. Kreiseder, Chief Executive Officer................ 1999 500,000 --
Gerald J. Sommers, Chief Operating Officer.................. 1999 500,000 --
James Beck, Vice President.................................. 1999 158,190 1,000
Dennis Greenberg, Vice President............................ 1999 130,000 532,500
</TABLE>
COMPENSATION OF DIRECTORS
Directors who are officers, employees or otherwise an affiliate of ours do
not receive compensation for their services as directors. Directors are entitled
to reimbursement of their reasonable out-of-pocket expenses in connection with
their travel to and attendance at meetings of the Board of Directors or
committees thereof.
EXECUTIVE EMPLOYMENT AGREEMENTS
James N. Mills Employment Agreement
Mr. James N. Mills entered into an executive employment agreement with us
upon consummation of the recapitalization. Under his employment agreement, Mr.
Mills will serve as our Chairman of the Board and Chief Executive Officer
through July 30, 2004. Mr. Mills is required to devote his business time and
attention to the transaction of our business as is reasonably necessary to
discharge his duties under the employment agreement. Subject to the above
limitation on his activities, Mr. Mills is free to participate in other business
endeavors.
Mr. Mills' compensation under his employment agreement includes an annual
base salary of not less than $350,000, subject to adjustment at the sole
discretion of our Board of Directors, and benefits as will be customarily
accorded our executives for as long as our employment agreement is in effect. In
addition, Mr. Mills is entitled to an annual bonus in an amount to be determined
at the sole discretion of our Board of Directors.
Mr. Mills' employment agreement also provides that if Mr. Mills' employment
is terminated for a reason other than death, disability or cause, Mr. Mills will
continue to receive his then current salary through July 30, 2004 or for one
year, whichever is longer, and any other benefits to which he would otherwise be
entitled under the employment agreement. In addition, Mr. Mills' employment
agreement provides that if Mr. Mills is terminated due to death or disability,
Mr. Mills or his estate, heirs or beneficiaries, as applicable, will receive, in
addition to any other benefits provided under any benefit plan, his then current
salary for a period of 24 months from the date of termination.
David M. Sindelar Employment Agreement
Mr. David M. Sindelar entered into an executive employment agreement with
us upon consummation of the recapitalization. Under his employment agreement,
Mr. Sindelar will serve as our Senior Vice President and Chief Financial Officer
through July 30, 2004. Mr. Sindelar is required to devote his business time and
attention to the transaction of our business as is reasonably necessary to
discharge his
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<PAGE> 33
duties under the employment agreement. Subject to the above limitation on his
activities, Mr. Sindelar is free to participate in other business endeavors.
Mr. Sindelar's compensation under his employment agreement includes an
annual base salary of not less than $150,000, subject to adjustment at the sole
discretion of the Chairman of the Board, and benefits as will be customarily
accorded our executives for as long as the employment agreement is in effect. In
addition, Mr. Sindelar is entitled to an annual bonus in an amount to be
determined at the sole discretion of the Chairman of the Board.
Mr. Sindelar's employment agreement also provides that if Mr. Sindelar's
employment is terminated for a reason other than death, disability or cause, Mr.
Sindelar will continue to receive his then current salary through July 30, 2004
or for one year, whichever is longer, and any other benefits to which he would
otherwise be entitled under the employment agreement. In addition, Mr.
Sindelar's employment agreement provides that if Mr. Sindelar is terminated due
to death or disability, Mr. Sindelar or his estate, heirs or beneficiaries, as
applicable, will receive, in addition to any other benefits provided under any
benefit plan, his then current salary for a period of 24 months from the date of
termination.
Walter J. Kreiseder Employment Agreement
Mr. Walter J. Kreiseder entered into an executive employment agreement with
our operating subsidiary providing for an employment term of five years upon
consummation of the recapitalization. From July 30, 1999 through the second
anniversary of the employment agreement, Mr. Kreiseder will serve as the Chief
Executive Officer of our operating subsidiary and each of its subsidiaries and
is required to devote his best efforts and full business time, attention,
knowledge and skill to the operation of the business and affairs of our
operating subsidiary and its subsidiaries. Subject to the above limitation on
his activities, Mr. Kreiseder is able to participate in other activities. Prior
to the second anniversary of the effective date of the employment agreement, and
each subsequent anniversary thereof during the term of the employment agreement,
Mr. Kreiseder and our operating subsidiary will negotiate in good faith to
establish reduced time commitments and levels of responsibility applicable to
Mr. Kreiseder's employment with our operating subsidiary for such year and, in
addition, an appropriate reduction in Mr. Kreiseder's annual base salary
commensurate with such reduced time commitments and levels of responsibility.
Mr. Kreiseder has also agreed in connection with his employment agreement not to
compete with us or any of our subsidiaries during his employment and for a
period of two years after the termination of his employment for any reason.
Mr. Kreiseder's compensation under his employment agreement includes an
annual base salary of $500,000, subject to adjustment as described above, and
benefits as will be customarily accorded the executives of our operating
subsidiary for as long as the employment agreement is in effect.
Mr. Kreiseder's employment agreement also provides that if Mr. Kreiseder's
employment is terminated by him for "good reason," or by our operating
subsidiary for any reason other than "cause" or Mr. Kreiseder's death, permanent
disability or retirement:
- on or prior to the second anniversary of the effective date of the
employment agreement, Mr. Kreiseder will continue to receive his then
current base salary for the greater of (1) 12 months from the date of
termination of his employment and (2) the remainder of the period on or
prior to the second anniversary of the effective date of the employment
agreement; or
- after the second anniversary of the effective date of the employment
agreement, Mr. Kreiseder will continue to receive his then current base
salary for 12 months from the date of termination of his employment.
In either case, Mr. Kreiseder will also continue to be covered by the same
or equivalent medical, dental and life insurance coverage as in effect
immediately prior to the termination of his employment until the earlier of the
expiration of the period for which he receives severance pay or the date on
which he commences new employment.
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<PAGE> 34
Gerald J. Sommers Employment Agreement
Mr. Gerald J. Sommers entered into an executive employment agreement with
our operating subsidiary providing for an employment term of five years upon
consummation of the recapitalization. From July 30, 1999 through the second
anniversary of the employment agreement, Mr. Sommers will serve as President and
Chief Operating Officer of our operating subsidiary and each of its subsidiaries
and is required to devote his best efforts and full business time, attention,
knowledge and skill to the operation of the business and affairs of our
operating subsidiary and its subsidiaries. Subject to the above limitation on
his activities, Mr. Sommers is able to participate in other activities. Prior to
the second anniversary of the effective date of the employment agreement and
each subsequent anniversary thereof during the term of the employment agreement,
Mr. Sommers and our operating subsidiary will negotiate in good faith to
establish reduced time commitments and levels of responsibility applicable to
Mr. Sommers' employment with our operating subsidiary and, in addition, an
appropriate reduction in Mr. Sommers' annual base salary commensurate with such
reduced time commitments and levels of responsibility. Mr. Sommers has also
agreed pursuant to his employment agreement not to compete with us or any of our
subsidiaries during his employment and for a period of two years after the
termination of his employment for any reason.
Mr. Sommers' compensation under his employment agreement includes an annual
base salary of $500,000, subject to adjustment as described above, and such
benefits as will be customarily accorded the executives of our operating
subsidiary for as long as the employment agreement is in effect.
Mr. Sommers' employment agreement also provides that if Mr. Sommers'
employment is terminated by him for "good reason," or by our operating
subsidiary for any reason other than "cause" or Mr. Sommers' death, permanent
disability or retirement:
- on or prior to the second anniversary of the effective date of the
employment agreement, Mr. Sommers will continue to receive his then
current base salary for the greater of (1) 12 months from the date of
termination of his employment and (2) the remainder of the period on or
prior to the second anniversary of the effective date of the employment
agreement; or
- after the second anniversary of the effective date of the employment
agreement, Mr. Sommers will continue to receive his then current base
salary for 12 months from the date of termination of his employment.
In either case, Mr. Sommers will also continue to be covered by the same or
equivalent medical, dental and life insurance coverage as in effect immediately
prior to the termination of his employment until the earlier of the expiration
of the period for which he receives severance pay or the date on which he
commences new employment.
LLS CORP. 1999 STOCK OPTION PLAN
We recently adopted the LLS Corp. 1999 Stock Option Plan under which
incentive and non-qualified stock options, stock appreciation rights, stock
awards, performance awards and stock units will be issued to our employees and
the employees of any of our subsidiaries as designated by our Board of
Directors. A total of 7,017,543 shares of our common stock are reserved for
issuance under the stock option plan. The stock option plan will terminate on
the tenth anniversary of its effectiveness, unless sooner terminated by the
committee.
The stock option plan provides that it is to be administered by a committee
of our Board of Directors or a subcommittee of such a committee. The committee
has the authority to grant to any participant one or more awards and to
establish the terms and conditions of such awards, subject to certain
limitations specified in the stock option plan. For example, in the case of
stock options, the per-share exercise price of each option must not be less than
100% of the fair market value of our common stock on the date such option is
granted, and no option may be exercisable later than ten years after the date of
grant. In the event of a change in control, as set forth in the stock option
plan, the committee, in its discretion, may
32
<PAGE> 35
take such actions as it deems appropriate with respect to outstanding awards,
including, without limitation, accelerating the exercisability or vesting of
such awards.
PERFORMANCE OPTIONS
We granted 2,000,749 and 1,600,000 performance options to purchase shares
of our common stock to James N. Mills and David M. Sindelar, respectively, on
July 30, 1999. A total of 4,340,749 shares of our common stock are reserved for
issuance in connection with the exercise of performance options. The performance
options will be exercisable only in the event that HMTF/CC Investments, LLC has
realized an overall rate of return of at least 35% per year, compounded
annually, on all equity funds invested by it in us. Subject to the foregoing,
the performance options will be exercisable:
- immediately prior to a Liquidity Event, as defined below;
- concurrently with the consummation of a Qualified IPO, as defined below;
or
- on the tenth anniversary of the date of grant.
A "Liquidity Event" generally means:
- one or more sales or other dispositions of our common stock if,
thereafter, the amount of our common stock owned by HMTF/CC Investments,
LLC is reduced by 50%;
- any merger, consolidation or other business combination involving us in
which any person or group acquires a majority of the common stock of the
resulting entity; or
- any sale of all or substantially all of our assets.
A "Qualified IPO" means a firm commitment underwritten public offering of our
common stock for gross proceeds of at least $50.0 million.
The exercise price for the performance options will initially be equal to
$1.00 per share and, effective each anniversary of the grant, the per share
exercise price for the performance options will be equal to the per share
exercise price for the prior year multiplied by 1.08. The exercise price for the
performance options and the number of shares of our common stock for which the
performance options will be exercisable is subject to adjustment in the event of
certain fundamental changes in our capital structure. The performance options
will terminate on the tenth anniversary of the date of grant.
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<PAGE> 36
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of our capital stock by (1) each person who owns beneficially more
than five percent of our capital stock, (2) each of our directors and executive
officers and (3) all directors and executive officers as a group. Our series A
convertible preferred stock and class A common stock vote together with our
common stock as a single class. Our series A convertible preferred stock is
entitled to the number of votes equal to the whole number of shares of common
stock into which it is then convertible, which will initially be one per share,
and our class A common stock is entitled to one vote for each share. Unless
otherwise indicated, each person has sole voting power and investment power with
respect to the shares attributed to him/her.
Our series A convertible preferred stock is convertible into our common
stock (1) at the option of any holder of series A convertible preferred stock at
any time and (2) automatically upon the closing of the sale of shares of our
common stock in a registered public offering resulting in at least $50.0 million
in gross proceeds to us. Each share of series A convertible preferred stock is
convertible into a whole number of shares of our common stock as is determined
by dividing $1.00 by the series A conversion price, which will initially be
$1.00.
Our class A common stock is convertible into our common stock (1) at the
option of any holder of class A common stock at any time, (2) at our option upon
the occurrence of a Triggering Event (as defined), and (3) automatically on July
31, 2009. A "Triggering Event" means any merger, consolidation or other business
combination or any sale of all or substantially all of our assets in which Hicks
Muse and its affiliates cease to beneficially own at least 50% of the resulting
entity. Each share of class A common stock is convertible into a fraction of a
share of common stock equal to the quotient of (1) the fair market value of a
share of common stock at the time of conversion less the sum of $0.99 plus
imputed interest thereon at a rate of 8% per annum, compounded annually, at the
time of conversion, divided by (2) the fair market value of a share of common
stock at the time of conversion. Because the fraction of a share of common stock
into which class A common stock is convertible is determinable only at the time
of a conversion, shares of common stock that may be issuable upon conversion of
class A common stock are not included in the shares of common stock beneficially
owned in the foregoing table.
<TABLE>
<CAPTION>
SERIES A
CONVERTIBLE COMMON CLASS A
PREFERRED STOCK STOCK COMMON STOCK
----------------------- ----------------------- -----------------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENT
NUMBER OF OF NUMBER OF OF NUMBER OF OF OF
SHARES CLASS SHARES CLASS SHARES CLASS TOTAL
---------- ---------- ---------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
5% SHAREHOLDERS
HMTF/CC Investments, LLC(1)...... 78,000,000 100.0% -- -- -- -- 58.5%
c/o Hicks, Muse, Tate & Furst
Incorporated
200 Crescent Court, Suite 1600
Dallas, Texas 75201
James N. Mills(2)................ -- -- -- -- 13,333,333 100.0% 10.0%
100 South Hanley, Suite 400
St. Louis, Missouri 63105
Walter J. Kreiseder(3)........... -- -- 21,000,000 50.0% -- -- 15.8%
800 Corporate Grove Drive
Buffalo Grove, Illinois
60089-4552
Gerald J. Sommers(4)............. -- -- 21,000,000 50.0% -- -- 15.8%
800 Corporate Grove Drive
Buffalo Grove, Illinois
60089-4552
</TABLE>
34
<PAGE> 37
<TABLE>
<CAPTION>
SERIES A
CONVERTIBLE COMMON CLASS A
PREFERRED STOCK STOCK COMMON STOCK
----------------------- ----------------------- -----------------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENT
NUMBER OF OF NUMBER OF OF NUMBER OF OF OF
SHARES CLASS SHARES CLASS SHARES CLASS TOTAL
---------- ---------- ---------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
James N. Mills(2)................ -- -- -- -- 13,333,333 100.0% 10.0%
Walter J. Kreiseder(3)........... -- -- 21,000,000 50.0% -- -- 15.8%
Gerald J. Sommers(4)............. -- -- 21,000,000 50.0% -- -- 15.8%
Dan H. Blanks (5)................ 78,000,000 100.0% -- -- -- -- 58.5%
Jack D. Furst(6)................. 78,000,000 100.0% -- -- -- -- 58.5%
David M. Sindelar(7)............. -- -- -- -- 4,000,000 30.0% 3.0%
Wesley D. DeHaven................ -- -- -- -- -- -- --
All directors/executive officers
as a group(7 persons).......... 78,000,000 100.0% 42,000,000 100.0% 13,333,333 100.0% 100.0%
</TABLE>
- ---------------
(1) Consists solely of shares of our series A convertible preferred stock owned
of record by HMTF/CC Investments, LLC, a limited liability company whose
managing member is HMTF/Courtesy GP, LLC. Mr. Thomas O. Hicks is the sole
member and manager of HMTF/Courtesy GP, LLC and, accordingly, may be deemed
to be the beneficial owner of our series A convertible preferred stock held
directly or indirectly by HMTF/CC Investments, LLC. In addition, Mr. Hicks
holds a minority limited liability company interest in HMTF/CC Investments,
LLC. Mr. Hicks disclaims beneficial ownership of shares of our series A
convertible preferred stock owned by HMTF/CC Investments, LLC.
(2) Includes 4,400,000 shares of class A common stock owned of record by Mr.
Mills and 8,933,333 shares of class A common stock owned of record by
certain persons subject to an irrevocable proxy in favor of Mr. Mills. Mr.
Mills disclaims beneficial ownership of shares of our class A common stock
not owned by him. See "Certain Relationships and Related Transactions -- The
Shareholders Agreement."
(3) Includes 10,500,000 shares of common stock owned of record by a personal
trust for which Mr. Kreiseder serves as trustee and 10,500,000 shares of
common stock owned of record by four children's trusts. Mr. Kreiseder
disclaims beneficial ownership of shares of our common stock owned by the
children's trusts.
(4) Includes 8,400,000 shares of common stock owned of record by a personal
trust for which Mr. Sommers serves as trustee and 12,600,000 shares of
common stock owned of record by four children's trusts. Mr. Sommers
disclaims beneficial ownership of shares of our common stock owned by the
children's trusts.
(5) Mr. Blanks holds a minority limited liability company interest in HMTF/CC
Investments, LLC. Mr. Blanks disclaims beneficial ownership of shares of our
series A convertible preferred stock owned by HMTF/CC Investments, LLC.
(6) Mr. Furst holds a minority limited liability company interest in HMTF/CC
Investments, LLC. Mr. Furst disclaims beneficial ownership of shares of our
series A convertible preferred stock owned by HMTF/CC Investments, LLC.
(7) Includes 3,600,000 shares of class A common stock owned of record by Mr.
Sindelar and 400,000 shares of class A common stock owned of record by two
children's trusts of which Mr. Sindelar serves as trustee. Mr. Sindelar
disclaims beneficial ownership of shares of our class A common stock owned
by the children's trusts.
35
<PAGE> 38
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Set forth below is a description of certain transactions entered into
between us and certain of our shareholders or affiliates during the last three
years. Some of these relationships continue to be in effect and may result in
conflicts of interest between us and those shareholders or affiliates.
THE SHAREHOLDERS AGREEMENT
Each holder of common stock, series A convertible preferred stock and class
A common stock entered into a shareholders agreement with us upon consummation
of the recapitalization. In accordance with the terms of the shareholders
agreement, our Board of Directors consists of six directors, made up of two
Hicks Muse designees, two Mills & Partners designees and Walter J. Kreiseder and
Gerald J. Sommers. Also, the number of members of the Board of Directors may be
expanded by the mutual agreement of Hicks Muse and Mills & Partners to include
independent directors who are reasonably acceptable to Mr. Kreiseder and Mr.
Sommers. Each party to the shareholders agreement agreed to vote his or its
shares of common stock, series A convertible preferred stock and class A common
stock and take all other actions necessary to give effect to the agreements
contained therein, including without limitation the election of the Hicks Muse
designees, the Mills & Partners designees and Mr. Kreiseder and Mr. Sommers to
the Board of Directors.
In addition, the shareholders agreement contains an irrevocable proxy in
connection with which the initial holders of class A common stock and their
transferees granted to James N. Mills, or to Hicks Muse if Mr. Mills is no
longer an officer or director, the power to vote all shares of capital stock
held by such parties on all matters concerning the election of directors as
provided in the shareholders agreement.
The shareholders agreement, among other things, grants preemptive rights
and certain registration rights to the parties thereto and contains provisions
requiring the parties to the shareholders agreement to sell their shares of
common stock in connection with certain sales of common stock by HMTF/CC
Investments, LLC and its affiliates ("drag-along rights") and granting the
parties to the shareholders agreement the right to include a portion of their
shares of common stock in certain sales in which HMTF/ CC Investments, LLC and
its affiliates do not exercise their drag-along rights ("tag-along rights"). The
shareholders agreement will terminate on its tenth anniversary date, although
the preemptive rights, drag-along rights and tag-along rights contained in the
shareholders agreement will terminate earlier upon the consummation of a firm
commitment underwritten public offering of our common stock.
MONITORING AND OVERSIGHT AND FINANCIAL ADVISORY AGREEMENTS
Following consummation of the recapitalization, we entered into a
monitoring and oversight agreement with an affiliate of Hicks Muse ("Hicks Muse
Partners"), under which we will pay Hicks Muse Partners an annual fee, payable
quarterly, in an initial amount equal to $500,000 for monitoring and oversight
services to be provided to us. In addition, we will reimburse Hicks Muse
Partners for its expenses incurred in connection with services rendered. The
initial fee will be adjusted, but not below the amount of the initial fee, on
January 1 of each calendar year to an amount equal to 0.2% of our budgeted
consolidated annual net sales for our then-current fiscal year. Upon the
acquisition by us or any of our subsidiaries of another entity or business, the
fee will be adjusted prospectively in the same manner using the pro forma
combined budgeted consolidated annual net sales.
We also entered into a financial advisory agreement with Hicks Muse
Partners under which Hicks Muse Partners received a financial advisory fee in an
amount equal to $5.3 million for its services as financial advisor to us in
connection with the recapitalization. We also reimbursed Hicks Muse Partners for
its expenses incurred in connection with the recapitalization. In addition,
Hicks Muse Partners will be entitled to receive a fee equal to 1.5% of the
"transaction value", as defined below, for each "subsequent transaction", as
defined below, in which we or any of our subsidiaries are involved. The term
"transaction value" means the total value of the subsequent transaction,
including without limitation, the aggregate amount of the funds required to
complete the subsequent transaction, excluding any fees payable pursuant to the
financial advisory agreement, including the amount of any indebtedness,
preferred stock or similar items assumed, or remaining outstanding. The term
"subsequent transaction" means any future proposal
36
<PAGE> 39
for a tender offer, acquisition, sale, merger, exchange offer, recapitalization,
restructuring or other similar transaction directly or indirectly involving us
or any of our subsidiaries or any of their respective subsidiaries and any other
person or entity.
Each of the monitoring and oversight agreement and the financial advisory
agreement will terminate upon the earlier to occur of:
- the tenth anniversary of its execution; or
- the date on which Hicks Muse or its successors and their respective
affiliates, including, without limitation, any equity fund sponsored by
Hicks Muse or its successors, shall cease to own beneficially, any of our
securities or the securities of any of our successors.
Messrs. Hicks and Furst, who serve as two of our directors, are each
principals of Hicks Muse Partners. In addition, we agreed to indemnify Hicks
Muse Partners, its affiliates, and their respective directors, officers,
controlling persons, if any, agents and employees from and against any and all
claims, liabilities, losses, damages, expenses and fees and disbursements
related to or arising out of or in connection with the services rendered by
Hicks Muse Partners in connection with each of the monitoring and oversight
agreement and the financial advisory agreement and not resulting from the bad
faith, gross negligence or willful misconduct of Hicks Muse Partners. Hicks Muse
Partners is also entitled to reimbursement for any expenses incurred by it in
connection with rendering services allocable to us under the monitoring and
oversight agreement and the financial advisory agreement.
The monitoring and oversight agreement and the financial advisory agreement
each make available the resources of Hicks Muse Partners concerning a variety of
financial and operational matters. We do not believe that the services to be
provided by Hicks Muse Partners could otherwise be obtained by us without the
addition of personnel or the engagement of outside professional advisors. In our
opinion, the fees to be provided for under these agreements reasonably reflect
the benefits to be received by us.
REAL PROPERTY LEASES
We lease two of our properties from entities in which two of our directors,
Walter J. Kreiseder and Gerald J. Sommers, hold beneficial interests. The lessor
of our facility in Wheeling, Illinois is KS/Wheeling L.L.C., a limited liability
company of which Messrs. Kreiseder and Sommers are the only members. We have
leased this property since September 1986, and the term of the lease expires in
August 2007. We paid a total of $360,000 in rent in 1998. We lease the land on
which one of our Buffalo Grove, Illinois facilities is located from Cole Taylor
Bank, trustee of a trust for the benefit of Messrs. Kreiseder and Sommers. We
have leased this property since August 1996, and the term of the lease expires
in August 2011. We paid a total of $334,691 in rent in 1998. The terms of the
leases are equivalent to terms available from independent third parties.
NOTES PURCHASE COMMITMENT
In connection with the consummation of the recapitalization, TCW/Crescent
Mezzanine, L.L.C. and its affiliates (collectively, "TCW"), made a stand-by
commitment to purchase the entire $100 million aggregate principal amount of the
notes we originally offered. In consideration for this commitment, TCW received
approximately $2.4 million in cash and warrants to purchase 1,800,000 shares of
our common stock for $0.50 per share. In addition, TCW invested $10.0 million in
HMTF/CC Investments, LLC. TCW/Crescent Mezzanine, L.L.C. is an affiliate of
Hicks Muse.
37
<PAGE> 40
DESCRIPTION OF SENIOR CREDIT FACILITY
In connection with the consummation of the recapitalization, we entered
into the senior credit facility. The following is a summary description of the
principal terms of the senior credit facility. The credit agreement has been
filed as an exhibit to the registration statement, of which this prospectus is a
part. Capitalized terms used in this section and not otherwise defined in this
prospectus shall have the meanings given to them in the senior credit facility.
General. The senior credit facility is provided by a syndicate of banks and
other financial institutions (the "Lenders") for which Bank of America, National
Association ("Bank of America") acts as administrative agent (the
"Administrative Agent"), Credit Suisse First Boston acts as the syndication
agent (the "Syndication Agent"), Bankers Trust Company acts as documentation
agent, and Banc of America Securities LLC acts as lead arranger and book
manager. The senior credit facility provides for borrowing of up to $55.0
million under a revolving credit facility (the "Revolving Facility") and for
borrowings of up to an aggregate of $145.0 million under two term loan
facilities (the "Term Facilities"). The proceeds of the Loans, as defined below,
were used to:
- refinance the outstanding principal amount of our indebtedness
outstanding at the time of the recapitalization;
- consummate the recapitalization;
- pay fees and expenses incurred in connection with the recapitalization;
and
- provide for working capital and other general corporate purposes,
including acquisitions.
The senior credit facility may be amended at any time, including to increase the
amount thereof, in accordance with the terms of the senior credit facility.
Revolving Facility. The Revolving Facility provides for borrowings of up to
$55.0 million (the "Revolving Loans"), which may include up to $10.0 million of
Letters of Credit and $5.0 million of Swing Line Loans. The Revolving Facility
is available on a revolving basis ending on the sixth anniversary of the closing
date of the recapitalization.
Term Facilities. Under the senior credit facility, there are two term loan
facilities as follows:
- a six year term loan facility (the "Term A Facility"); and
- a seven year term loan facility (the "Term B Facility").
The Term A Facility was made available to us in a single borrowing on the
closing date of the recapitalization pursuant to which term loans ("Term A
Loans") were made. The maximum amount available under the Term A Facility is
$65.0 million. Once repaid, the Term A Loans may not be reborrowed. Term A Loans
will amortize in quarterly installments as set forth below. The final maturity
for all Term A Loans is the sixth anniversary of the closing date of the
recapitalization.
The Term B Facility was made available to us in a single borrowing on the
closing date of the recapitalization pursuant to which term loans ("Term B
Loans") were made. The maximum amount available under the Term B Facility is
$80.0 million. Once repaid, the Term B Loans may not be reborrowed. Term B Loans
will amortize in quarterly installments as set forth below. The final maturity
for all Term B Loans is the seventh anniversary of the closing date of the
recapitalization (the Term A Loans, the Term B Loans and the Revolving Loans are
collectively referred herein as, the "Loans").
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<PAGE> 41
The annual amortization of the Term A Loans and Term B Loans is as follows,
payable in equal quarterly installments in each loan year other than loan year
2, which is payable at the end of loan year 2:
<TABLE>
<CAPTION>
TERM A FACILITY TERM B FACILITY
--------------- ---------------
<S> <C> <C>
Loan Year 1............................................. $ 0 $ 0
Loan Year 2............................................. $ 3,000,000 $ 200,000
Loan Year 3............................................. $12,000,000 $ 800,000
Loan Year 4............................................. $15,000,000 $ 800,000
Loan Year 5............................................. $17,000,000 $ 800,000
Loan Year 6............................................. $18,000,000(1) $ 800,000
Loan Year 7............................................. $ 0 $76,600,000(1)
</TABLE>
- ---------------
(1) Or such other amounts then outstanding.
Interest. The Loans bear interest at:
- the reserve adjusted LIBOR rate plus the applicable margins set forth
below (the "LIBOR Applicable Margin"); or
- the Administrative Agent's alternate base rate plus the applicable
margins set forth below (the "Base Rate Applicable Margin"); in each case
determined in accordance with our Leverage Ratio.
<TABLE>
<CAPTION>
LIBOR APPLICABLE MARGIN BASE RATE APPLICABLE MARGIN
------------------------------- -------------------------------
REVOLVING LOANS REVOLVING LOANS
LEVERAGE RATIO AND TERM A LOANS TERM B LOANS AND TERM A LOANS TERM B LOANS
- -------------- ---------------- ------------ ---------------- ------------
<S> <C> <C> <C> <C>
> 4.50:1................... 2.50% 3.00% 1.25% 1.75%
> 4.00:1 < 4.50:1.......... 2.25 2.75 1.00 1.50
> 3.50:1 < 4.00:1.......... 2.00 2.50 0.75 1.25
<3.50:1.................... 1.75 2.50 0.50 1.25
</TABLE>
Interest periods for LIBOR rate loans shall be, at our option, one, two, three
or six months or, if available to all Lenders, nine or twelve months, and shall
be payable on the last business day of the applicable interest period therefor
or, if earlier, on the end of each third-month date following the commencement
of such interest period.
Our interest expense for our borrowings under the senior credit facility is
subject to reduction based upon improvement in our leverage ratio. The leverage
ratio is defined as total debt, less cash and cash equivalents, to running four
quarter EBITDA. For example, as set forth in the above table, if the leverage
ratio improves to 4.50:1.00, but greater than or equal to 4.00:1.00, our
interest expense will decrease by 25 basis points.
Optional and Mandatory Prepayments. Outstanding Loans may be voluntarily
prepaid without penalty; provided that, we shall pay LIBOR rate breakage costs,
if any, for any prepayment other than at the end of a LIBOR interest period.
LIBOR breakage costs are costs that would be incurred by us if we make a
prepayment of any LIBOR borrowing on a day other than the last day of the
interest period relating to such LIBOR borrowing. LIBOR borrowings are for one,
two, three, six, nine, or twelve month contract interest periods. Breakage costs
cannot be quantified until a prepayment occurs, and the actual costs depend on
the length of the original interest period, the amount prepaid and the date of
the actual prepayment. The breakage costs would not be material, as they
generally represent the difference between the rate for the original contract
interest period and the rate we would have paid for the shorter period.
Mandatory prepayments will be required:
- upon the receipt of the net cash proceeds from the sale of assets other
than in the ordinary course of business or from settlements of casualty
claims and condemnation proceedings, subject to particular exceptions, to
the extent such proceeds are not reinvested in our business and the
39
<PAGE> 42
business of our subsidiaries within 12 months after receipt of an amount
equal to the lesser of 100% of such net cash proceeds and an amount, if
any, that would result in the Leverage Ratio being less than 3.50 to
1.00;
- beginning on April 2001, an amount equal to the lesser of 70% of excess
cash flow pursuant to an annual sweep arrangement and an amount, if any,
that would result in the Leverage Ratio being less than 3.50 to 1.00; and
- from 100% of the net cash proceeds from the issuance of future debt by us
or any of our subsidiaries, subject to particular exceptions.
Mandatory prepayments shall be applied pro rata to reduce the outstanding
principal amount of Term A Loans and the Term B Loans and applied first to the
next two installments of Term A Loans and Term B Loans as we elect, and second
to the remaining installments of Term A Loans and Term B Loans pro rata based on
the number of then remaining installments.
Fees. Commencing on the closing date of the recapitalization, a
non-refundable fee (the "Commitment Fee") began to accrue on the daily average
unused portion of the commitment amount of the Revolving Facility, whether or
not then available, payable quarterly in arrears and on the final maturity date
of the Revolving Facility, whether by stated maturity or otherwise. The
Commitment Fee is initially 0.50% per annum, and will decrease to 0.375% per
annum based on improvements to our Leverage Ratio.
Security. The senior credit facility is secured by:
- a first-priority perfected lien on substantially all of our domestic
property and assets, tangible and intangible, and the domestic property
and assets, tangible and intangible, of our subsidiaries;
- a first-priority pledge of the common stock of all of our existing and
future domestic subsidiaries; and
- a first-priority pledge of 65% of the common stock of all of our direct
material foreign subsidiaries, with various exceptions.
Guarantees. Our payment obligations under the senior credit facility are
guaranteed on a senior basis by all of our direct and indirect domestic
subsidiaries, with various exceptions.
Covenants. The senior credit facility contains financial covenants pursuant
to which we must maintain a minimum interest coverage ratio and a maximum
Leverage Ratio. In addition, the senior credit facility contains covenants
pertaining to our management and operations and the management and operations of
our subsidiaries. The senior credit facility also subjects us and our
subsidiaries to restrictions, subject in each case to various exceptions, on:
- the incurrence of additional debt and contingent obligations;
- the granting of liens on our assets;
- the making of dividends or similar distributions;
- the sale of assets or similar transfers other than in the ordinary course
of business;
- the making of selected acquisitions and investments;
- the consummation of mergers and consolidations; and
- entering into selected transactions with affiliates.
Events of Default. The senior credit facility contains customary events of
default, including:
- payment defaults;
- breach of representations and warranties;
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<PAGE> 43
- covenant defaults;
- cross-defaults to particular other indebtedness;
- selected events of bankruptcy and insolvency;
- ERISA events;
- judgment defaults;
- actual or asserted invalidity of any security interests; and
- change of control.
\
41
<PAGE> 44
THE EXCHANGE OFFER
PURPOSE AND EFFECT
We sold the old notes on June 30, 1999. In connection with that placement,
we entered into the registration rights agreement, which requires us to file a
registration statement under the Securities Act with respect to the new notes.
Upon the effectiveness of the registration statement, we will offer you and the
other holders of the old notes the opportunity to exchange your old notes for
new notes of the same principal amount. The new notes will be issued without a
restrictive legend and generally may be reoffered and resold by you without
registration under the Securities Act. The registration rights agreement further
provides that we must use our reasonable best efforts to:
- cause the registration statement with respect to the exchange offer to be
declared effective on or before December 27, 1999; and
- consummate the exchange offer on or before January 26, 2000.
Except as provided below, upon the completion of the exchange offer, our
obligations with respect to the registration of the old notes and the new notes
will terminate. We filed a copy of the registration rights agreement as an
exhibit to the registration statement, of which this prospectus is a part. The
summary in this prospectus of the material provisions of the registration rights
agreement does not purport to be complete and is qualified in its entirety by
reference to the registration rights agreement. As a result of the timely filing
and the effectiveness of the registration statement, we will not owe certain
liquidated damages provided for in the registration rights agreement. Following
the completion of the exchange offer, except as set forth in the paragraph
immediately below, any old notes you do not tender will not have any further
registration rights and your old notes will continue to be subject to particular
restrictions on transfer. Accordingly, the liquidity of the market for the old
notes could be negatively affected upon completion of the exchange offer.
In order to participate in the exchange offer, you must represent to us
among other things, that:
- the new notes acquired in connection with the exchange offer are being
obtained in the ordinary course of your business;
- you are not engaging in and do not intend to engage in a distribution of
the new notes;
- you do not have an arrangement or understanding with any person to
participate in a distribution of the new notes; and
- you are not our "affiliate," as defined in Rule 405 under the Securities
Act.
Under the registration rights agreement, if:
- prior to the consummation of the exchange offer, we, or the holders of a
majority of the aggregate principal amount of the notes, determine that
the new notes would not be freely tradable without restriction under the
Securities Act and the Exchange Act and without material restrictions
under applicable blue sky or state securities laws;
- applicable interpretations of the SEC would not permit the consummation
of the exchange offer;
- the exchange offer is not consummated within 180 days of the original
offering for any reason; or
- in the case of a holder not permitted to participate in the exchange
offer or any holder participating in the exchange offer that receives new
notes that may not be sold without restriction under state and federal
securities laws, the holders notifies us within 120 days of consummation
of the exchange offer,
we will be required to file a "shelf" registration statement for a continuous
offering under Rule 415 under the Securities Act in respect of the old notes.
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<PAGE> 45
Other than set forth in this paragraph, you will not have the right to
participate in the "shelf" registration statement nor otherwise require that we
register your old notes under the Securities Act. See "-- Procedures for
Tendering."
Based on interpretations of the SEC's staff set forth in no-action letters
issued to third parties unrelated to us, we believe that, with the exceptions
set forth below, your new notes issued in connection with the exchange offer in
exchange for your old notes may be offered for resale, resold, and otherwise
transferred by you without compliance with the registration and prospectus
delivery requirements of the Securities Act if:
- the new notes acquired in connection with the exchange offer are being
obtained in the ordinary course of your business;
- you are not engaging in and do not intend to engage in a distribution of
the new notes;
- you do not have an arrangement or understanding with any person to
participate in a distribution of the new notes; and
- you are not our "affiliate," as defined in Rule 405 under the Securities
Act.
If you tender in the exchange offer for the purpose of participating in a
distribution of the new notes, you cannot rely on this interpretation by the
SEC's staff and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction. If you are a broker-dealer that receives the new notes for your own
account in exchange for old notes, where such old notes were acquired by you as
a result of market making activities or other trading activities, you must
acknowledge that you will deliver a prospectus in connection with any resale of
your new notes. See the section entitled "Plan of Distribution." If you are a
broker-dealer who acquired old notes directly from us and not as a result of
market-making activities or other trading activities, you may not rely on the
SEC's interpretations discussed above or participate in the exchange offer and
must comply with the prospectus delivery requirements of the Securities Act in
order to sell your new notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Following the completion of the exchange offer, except as set forth in the
second paragraph under "-- Purpose and Effect" above, any old notes you do not
tender will not have any further registration rights and your old notes will
continue to be subject to particular restrictions on transfer. Accordingly, the
liquidity of the market for your old notes could be negatively affected upon
completion of the exchange offer if you do not participate in the exchange
offer.
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 any and all old notes that you
validly tender and do not withdraw prior to 5:00 p.m., New York City time, on
, 2000, or such date and time to which we extend the offer. We will issue
to you $1,000 principal amount of new notes in exchange for each $1,000
principal amount of outstanding of your old notes we accept in the exchange
offer. You may tender some or all of your old notes in connection with the
exchange offer. However, you may only tender your old notes in integral
multiples of $1,000 in principal amount.
The form and terms of the new notes are substantially the same as the form
and terms of the old notes except that the new notes have been registered under
the Securities Act and will not bear legends restricting their transfer. The new
notes will evidence the same debt as the old notes and will be issued in
connection with, and entitled to the benefits of, the indenture pursuant to
which your old notes were issued.
As of the date of this prospectus, old notes representing $100.0 million
aggregate principal amount were outstanding and there was one registered holder,
a nominee of the DTC. This prospectus, together with the letter of transmittal,
is being sent to DTC's nominee and to others believed to have beneficial
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<PAGE> 46
interests in the old notes. We intend to conduct the exchange offer in
accordance with the applicable requirements of the Securities Act and the rules
and regulations of the SEC under the Securities Act.
We shall be deemed to have accepted validly tendered old notes when, as,
and if we have given oral or written notice of our acceptance to the exchange
agent. The exchange agent will act as agent for you for the purpose receiving
your new notes from us. If your tendered old notes are not accepted for exchange
because of an invalid tender, the occurrence of certain other events set forth
in this prospectus or otherwise, certificates for any of your unaccepted old
notes will be returned, without expense, to you as promptly as practicable after
, 2000, unless we extend the exchange offer.
If you participate 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 your old notes in
connection with the exchange offer. We will pay all charges and expenses, other
than particular applicable taxes, in connection with the exchange offer. See
"-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The expiration date shall be 5:00 p.m., New York City time, on
, 2000, unless we, in our sole discretion, extend the exchange
offer, in which case the expiration date shall mean the latest date and time to
which the exchange offer is extended. In order to extend the exchange offer, we
will notify the exchange agent and each registered holder of any extension by
oral or written notice prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled expiration date. We reserve the
right, in our discretion, to:
- delay accepting any old notes, to extend the exchange offer or, if any of
the conditions set forth under "-- Conditions to Exchange Offer" shall
not have been satisfied, to terminate the exchange offer, by giving oral
or written notice of such delay, extension or termination to the exchange
agent; or
- amend the terms of the exchange offer in any manner.
In the event that we make a material or fundamental change to the terms of
the exchange offer, we will file a post-effective amendment to the registration
statement.
PROCEDURES FOR TENDERING
Except as set forth under "-- Book Entry Transfer," to tender in the
exchange offer you must complete, sign, and date the letter of transmittal, or a
copy of the letter of transmittal, have the signatures guaranteed if required by
the letter of transmittal, and mail or otherwise deliver the letter of
transmittal or copy to the exchange agent prior to the expiration date. In
addition:
- certificates for your old notes must be received by the exchange agent
along with the letter of transmittal prior to the expiration date;
- a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of your old notes, if that procedure is available, into
the exchange agent's account at DTC (the "Book-Entry Transfer Facility")
in accordance with to the procedure for book-entry transfer described
below, must be received by the exchange agent prior to the expiration
date; or
- you must comply with the guaranteed delivery procedures described below.
To be tendered effectively, the letter of transmittal and other required
documents must be received by the exchange agent at the address set forth under
"-- Exchange Agent" prior to the expiration date.
A tender of your old notes that is not withdrawn before the expiration date
will constitute your agreement with us to be bound by the terms and subject to
the conditions of this prospectus and the letter of transmittal.
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<PAGE> 47
THE METHOD OF DELIVERY OF YOUR OLD NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT YOUR ELECTION AND RISK.
INSTEAD OF DELIVERY BY MAIL, 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. DO NOT SEND THE
LETTER OF TRANSMITTAL OR YOUR OLD NOTES TO US. YOU MAY REQUEST THAT YOUR BROKER,
DEALER, COMMERCIAL BANK, TRUST COMPANY OR NOMINEE EFFECT THESE TRANSACTIONS FOR
YOU.
If you want to tender and your old notes are registered in the name of a
broker, dealer, commercial bank, trust company, or other nominee, you should
contact the registered holder promptly and instruct the registered holder to
tender on your behalf. If you want to tender on your own behalf, you must, prior
to completing and executing the letter of transmittal and delivering your old
notes, either make appropriate arrangements to register ownership of the old
notes in the your name or obtain a properly completed bond power from the
registered holder. The transfer of registered ownership may take considerable
time.
Unless you are a registered holder who requests that the new notes be
mailed to you and issued in your name or you are a member of or participant in
the Securities Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Program, the Stock Exchange Medallion Program, or an
"Eligible Guarantor Institution" within the meaning of Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended, each an "Eligible Institution," an
Eligible Institution must guarantee your signature on a letter of transmittal or
a notice of withdrawal.
If the letter of transmittal is signed by a person other than the
registered holder of your old notes listed in the letter of transmittal, your
old notes must be endorsed or accompanied by a properly completed bond power,
signed by the registered holder as that registered holder's name appears on the
old notes.
If a trustee, executor, administrator, guardian, attorney-in-fact, officer
of a corporation, or other person acting in a fiduciary or representative
capacity signs the letter of transmittal or any notes or bond powers on your
behalf, that person must indicate their capacity when signing, and submit
satisfactory evidence to us with the letter of transmittal demonstrating their
authority to act on your behalf.
We will decide all questions as to the validity, form, eligibility,
acceptance, and withdrawal of tendered old notes, and our determination will be
final and binding. We reserve the absolute right to reject any and all old notes
not properly tendered or the acceptance of which would be unlawful in the
opinion of our counsel. We also reserve the right to waive any defects,
irregularities, or conditions of tender particular to your old notes. Our
interpretation of the terms and conditions of the exchange offer, including the
instructions in a letter of transmittal, will be final and binding on all
parties. You must cure any defects or irregularities in connection with tenders
of old notes within such time as we shall determine. Although we intend to
notify you of defects or irregularities with respect to the tender of your old
notes, we, the exchange agent, or any other person shall not incur any liability
for failure to give such notification. Tender of your old notes will not be
deemed to have been made until such defects or irregularities have been cured or
waived. Any of your old notes received by the exchange agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned by the exchange agent to you, unless otherwise
provided in the letter of transmittal, as soon as practicable following the
expiration date.
We reserve the right to purchase or make offers for any old notes that
remain outstanding after the expiration date or to terminate the exchange offer
and, to the extent permitted by law, purchase old notes in the open market, in
privately negotiated transactions or otherwise. The terms of any purchases or
offers could differ from the terms of the exchange offer.
By tendering, you will represent to us that, among other things:
- the new notes acquired in connection with the exchange offer are being
obtained in the ordinary course of your business, whether or not you are
the registered holder;
- you are not engaging in and do not intend to engage in a distribution of
the new notes;
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<PAGE> 48
- you do not have an arrangement or understanding with any person to
participate in the distribution of the new notes; and
- you are not our "affiliate," as defined under Rule 405 of the Securities
Act.
In all cases, issuance of new notes for your old notes we accept for
exchange in connection with the exchange offer will be made only after timely
receipt by the exchange agent of:
- certificates for your old notes or a timely Book-Entry Confirmation of
your old notes into the exchange agent's account at the Book-Entry
Transfer Facility;
- a properly completed and duly executed letter of transmittal or, with
respect to the DTC and its participants, electronic instructions in which
the tendering holder acknowledges its receipt of and agreement to be
bound by the letter of transmittal; and
- all other required documents.
If your tendered old notes are not accepted for any reason set forth in the
terms and conditions of the exchange offer or if your old notes are submitted
for a greater principal amount than you desire to exchange, your unaccepted or
non-exchanged old notes will be returned without expense to you or, in the case
of old notes tendered by book-entry transfer into the exchange agent's account
at the Book-Entry Transfer Facility in accordance with the book-entry transfer
procedures described below, such nonexchanged old notes will be credited to an
account maintained with such Book-Entry Transfer Facility, as promptly as
practicable after the expiration or termination of the exchange offer.
If you are a broker-dealer that receives new notes for your own account in
exchange for your old notes, where you acquired your old notes as a result of
market-making activities or other trading activities, you must acknowledge that
you will deliver a prospectus in connection with any resale of your new notes.
See the section entitled "Plan of Distribution."
BOOK-ENTRY TRANSFER
The exchange agent will make requests to establish accounts at the
Book-Entry Transfer Facility for purposes of the exchange offer within two
business days after the date of this prospectus. If you are a financial
institution that is a participant in the Book-Entry Transfer Facility's systems,
you may make book-entry delivery of your old notes being tendered by causing the
Book-Entry Transfer Facility to transfer your old notes into the exchange
agent's account at the Book-Entry Transfer Facility in accordance with the
appropriate procedures for transfer. However, although you may deliver your old
notes through book-entry transfer at the Book-Entry Transfer Facility, a letter
of transmittal or copy of the letter of transmittal, with any required signature
guarantees and any other required documents, must, except as set forth in the
following paragraph, be transmitted to and received by the exchange agent on or
prior to the expiration date or the guaranteed delivery procedures set forth
below must be complied with.
DTC's ATOP is the only method of processing exchange offers through DTC. To
accept the exchange offer through ATOP, participants in DTC must send electronic
instructions to DTC through DTC's communication system instead of sending a
signed, hard copy letter of transmittal. DTC is obligated to communicate those
electronic instructions to the exchange agent. To tender notes through ATOP, the
electronic instructions sent to DTC and transmitted by DTC to the exchange agent
must contain the participant's acknowledgment of its receipt of and agreement to
be bound by the letter of transmittal for the notes.
GUARANTEED DELIVERY PROCEDURES
If you are the registered holder of old notes and desire to tender your old
notes and your old notes are not immediately available, time will not permit
your old notes or other required documents to reach the
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<PAGE> 49
exchange agent before the expiration date or you cannot complete the procedure
for book-entry transfer on a timely basis, you may tender your old notes if:
- the tender is made through an Eligible Institution;
- prior to the expiration date, the exchange agent received from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery, in the form provided by us; and
- the letter of transmittal and certificates for all physically tendered
old notes, in proper form for transfer, or a Book-Entry Confirmation and
all other documents required by the applicable letter of transmittal are
received by the exchange agent within three NYSE trading days after the
date of execution of the Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery shall state your name and address and the
amount of old notes tendered, that the tender is being made thereby and
guaranteeing that within three NYSE trading days after the date of execution of
the Notice of Guaranteed Delivery, the letter of transmittal and certificates
for all physically tendered old notes, in proper form for transfer, or a
Book-Entry Confirmation and any other documents required by the applicable
letter of transmittal will be deposited by the Eligible Institution with the
exchange agent.
WITHDRAWAL RIGHTS
You may withdraw your tender of your old notes at any time prior to 5:00
p.m., New York City time, on the expiration date.
For your withdrawal to be effective, a written or, for a DTC participant,
electronic ATOP transmission notice of withdrawal must be received by the
exchange agent at its address set forth in this prospectus prior to 5:00 p.m.,
New York City time, on the expiration date.
Your notice of withdrawal must:
- specify your name;
- identify your old notes to be withdrawn, including the certificate number
or numbers and principal amount of your old notes;
- be signed by you in the same manner as the original signature on the
letter of transmittal by which your old notes were tendered or be
accompanied by documents of transfer sufficient to have the trustee of
your old notes register the transfer of your old notes into your name;
and
- specify the name in which any such old notes are to be registered, if you
do not want your old notes registered in your name.
We will determine all questions as to the validity, form, and eligibility
of your notice and our determination shall be final and binding on all you. Any
old notes you withdraw will not be considered to have been validly tendered. We
will return your old notes which have been tendered but not exchanged without
cost to the you as soon as practicable after withdrawal, rejection of tender, or
termination of the exchange offer. You may retender your properly withdrawn old
notes by following one of the above procedures before the expiration date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the exchange offer, we shall not be
required to accept for exchange, or to issue new notes in exchange for, any of
your old notes and may terminate or amend the exchange offer if at any time
before the acceptance of your old notes for exchange or the exchange of the new
notes for such old notes, we determine that the exchange offer violates
applicable law, any applicable interpretation of the staff of the SEC or any
order of any governmental agency or court of competent jurisdiction.
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<PAGE> 50
The foregoing conditions are for our sole benefit and we may assert the
foregoing conditions regardless of the circumstances giving rise to the
conditions. We may waive in whole or in part at any time and from time to time
these conditions in our sole discretion. Our failure at any time to exercise any
of the foregoing rights shall not be deemed a waiver of any such right and each
such right shall be deemed an ongoing right which may be asserted at any time
and from time to time.
In addition, we will not accept for exchange any of your old notes
tendered, and no new notes will be issued in exchange for any your old notes, if
at such time any stop order shall be threatened or in effect with respect to the
registration statement of which this prospectus constitutes a part or the
qualification of the indenture under the Trust Indenture Act of 1939. In any
such event we are required to use every reasonable effort to obtain the
withdrawal of any stop order at the earliest possible time.
EXCHANGE AGENT
All executed letters of transmittal should be directed to the exchange
agent. The Bank of New York has been appointed as exchange agent for the
exchange offer. Questions, requests for assistance and requests for additional
copies of this prospectus or of the letter of transmittal should be directed to
the exchange agent addressed as follows:
THE BANK OF NEW YORK
<TABLE>
<S> <C>
By Registered or Certified Mail: By Hand or Overnight Delivery:
The Bank of New York The Bank of New York
101 Barclay Street 101 Barclay Street
Floor 7-E Corporate Trust Services Window
New York, New York 10286 Ground Level
Attention: New York, New York 10286
Attention:
</TABLE>
By Facsimile:
(Eligible Institutions Only)
(212) 815-6339
For Information or
Confirmation by Telephone:
(212) 815-3428
Originals of all documents sent by facsimile should be sent promptly by
registered or certified mail, by hand or by overnight delivery service.
FEES AND EXPENSES
We will not make any payments to brokers, dealers or others soliciting
acceptances of the exchange offer. The principal solicitation is being made by
mail; however, additional solicitations may be made in person or by telephone by
our officers and employees.
We will pay estimated cash expenses in the aggregate of $ incurred in
connection with the exchange offer. These expenses include fees and expenses of
the exchange agent, accounting, legal, printing, and related fees and expenses.
TRANSFER TAXES
You will not be obligated to pay any transfer taxes in connection with the
exchange offer, unless you request that we register new notes in the name of, or
request that old notes not tendered or not accepted in the exchange offer be
returned to, a person other than the registered tendering holder, in which case
you will be responsible for the payment of any applicable transfer tax on the
notes.
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<PAGE> 51
DESCRIPTION OF THE NEW NOTES
GENERAL
The new notes will be issued under an Indenture, dated as of July 30, 1999
(the "Indenture"), entered into between LLS and The Bank of New York, as Trustee
(the "Trustee"), a copy of which is available upon request to LLS. The following
summary of the principal provisions of the Indenture and the new notes does not
purport to be complete. The Indenture has been filed as an exhibit to the
registration statement of which this prospectus is a part.
Principal of, premium, if any, and interest on the new notes will be
payable, and the new notes may be exchanged or transferred, at the office or
agency of LLS in the Borough of Manhattan, The City of New York, which initially
shall be the corporate trust office of the Trustee in New York, New York, except
that, at the option of LLS, payment of interest may be made by check mailed to
the address of the holders as such address appears in the Note Register.
The new notes will be issued only in fully registered form, without
coupons, in denominations of $1,000 and any integral multiple of $1,000. No
service charge will be made for any registration of transfer or exchange of new
notes, but LLS may require payment of a sum sufficient to cover any transfer tax
or other similar governmental charge payable in connection therewith.
TERMS OF NOTES
The new notes will be unsecured, senior subordinated obligations of LLS,
limited to $100.0 million aggregate principal amount, and will mature on August
1, 2009. Each new note will bear interest at the rate per annum shown on the
front cover of this prospectus from the date of issuance, or from the most
recent date to which interest has been paid or provided for, payable
semiannually on February 1 and August 1 of each year commencing on February 1,
2000 to holders of record at the close of business on the July 15 or January 15
immediately preceding the interest payment date.
OPTIONAL REDEMPTION
Except as set forth below, the notes will not be redeemable at the option
of LLS prior to August 1, 2004. On and after such date, the notes will be
redeemable, at the option of LLS, in whole or in part, at any time upon not less
than 30 nor more than 60 days prior notice mailed by first-class mail to each
holder's registered address, at the following redemption prices, expressed as
percentages of principal amount, plus accrued and unpaid interest to the
redemption date, subject to the right of holders of record on the relevant
record date to receive interest due on the relevant interest payment date:
If redeemed during the 12-month period commencing on August 1 of the years
set forth below:
<TABLE>
<CAPTION>
PERIOD REDEMPTION PRICE
- ------ ----------------
<S> <C>
2004................................................ 105.813%
2005................................................ 103.875%
2006................................................ 101.938%
2007 and thereafter................................. 100.000%
</TABLE>
Notwithstanding the foregoing, at any time and from time to time prior to
August 1, 2002, LLS may redeem in the aggregate up to $35.0 million principal
amount of the notes with the net cash proceeds of one or more Equity Offerings
by LLS so long as there is a Public Market at the time of such redemption, at a
redemption price, expressed as a percentage of principal amount, of 111.625%,
plus accrued and unpaid interest, if any, to the redemption date, subject to the
right of holders of record on the relevant record date to receive interest due
on the relevant interest payment date in respect of then outstanding notes;
provided, however, that at least $65.0 million of the notes must remain
outstanding after each such redemption.
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<PAGE> 52
At any time on or prior to August 1, 2004, the notes may also be redeemed
as a whole, but not in part, at the option of LLS upon the occurrence of a
Change of Control, upon not less than 30 nor more than 60 days prior notice, but
in no event more than 90 days after the occurrence of such Change of Control,
mailed by first-class mail to each holder's registered address, at a redemption
price equal to 100% of the principal amount thereof plus the Applicable Premium
as of, and accrued and unpaid interest, if any, to, the date of redemption (the
"Redemption Date"), subject to the right of holders of record on the relevant
record date to receive interest due on the relevant interest payment date in
respect of then outstanding notes.
"Applicable Premium" means, with respect to a note at any Redemption Date,
the greater of (i) 1.0% of the principal amount of such note and (ii) the excess
of (A) the present value at such time of (1) the redemption price of such note
at August 1, 2004 (such redemption price being described under "-- Optional
Redemption") plus (2) all required interest payments due on such note through
August 1, 2004, computed using a discount rate equal to the Treasury Rate plus
100 basis points, over (B) the principal amount of such note.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity, as compiled and
published in the most recent Federal Reserve Statistical Release H.15 (519)
which has become publicly available at least two business days prior to the
Redemption Date or, if such Statistical Release is no longer published, any
publicly available source or similar market data, most nearly equal to the
period from the Redemption Date to August 1, 2004; provided, however, that if
the period from the Redemption Date to August 1, 2004 is not equal to the
constant maturity of a United States Treasury security for which a weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation, calculated to the nearest one-twelfth of a year, from the weekly
average yields of United States Treasury securities for which such yields are
given, except that if the period from the Redemption Date to August 1, 2004 is
less than one year, the weekly average yield on actually traded United States
Treasury securities adjusted to a constant maturity of one year shall be used.
Selection. In the case of any partial redemption, selection of the notes
for redemption will be made by the Trustee on a pro rata basis, by lot or by
such other method as the Trustee in its sole discretion shall deem to be fair
and appropriate, although no note of $1,000 in original principal amount or less
will be redeemed in part. If any note is to be redeemed in part only, the notice
of redemption relating to such note shall state the portion of the principal
amount thereof to be redeemed. A new note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the holder thereof upon
cancellation of the original note.
RANKING AND SUBORDINATION
The payment of the principal of, premium, if any, and interest on the notes
is subordinated in right of payment, as set forth in the Indenture, to the
payment when due of all Senior Indebtedness of LLS. However, payment from the
money or the proceeds of U.S. Government Obligations held in any defeasance
trust described under "Defeasance" below is not subordinate to any Senior
Indebtedness or subject to the restrictions described herein. As of September
30, 1999, there was approximately $145.0 million of Senior Indebtedness
outstanding. In addition, there was approximately $55.0 million available under
the Senior Credit Facility as of September 30, 1999, for the general corporate
purposes and working capital needs of LLS, all of which would be Senior
Indebtedness if borrowed. Although the Indenture contains limitations on the
amount of additional Indebtedness that LLS may incur, under certain
circumstances the amount of such Indebtedness could be substantial and, in any
case, such Indebtedness may be Senior Indebtedness. See "Certain
Covenants -- Limitation on Indebtedness" below. All the operations of LLS are
conducted through its Subsidiaries. Each Subsidiary of LLS has guaranteed the
obligations of LLS under the Senior Credit Facility. Although the Indenture
limits the incurrence of Indebtedness of the Subsidiaries of LLS, such
limitation is subject to a number of significant qualifications; moreover, the
Indenture does not impose any limitation on the incurrence by such
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Subsidiaries of liabilities that are not considered Indebtedness under the
Indenture. See "-- Limitation on Indebtedness."
"Senior Indebtedness" is defined as the Bank Indebtedness and all other
Indebtedness of LLS, including interest and fees thereon, unless, in the
instrument creating or evidencing the same or pursuant to which the same is
outstanding, it is provided that the obligations in respect of such Indebtedness
are not superior in right of payment to the notes; provided, however, that
Senior Indebtedness will not include (1) any obligation of LLS to any
Subsidiary, (2) any liability for Federal, state, foreign, local or other taxes
owed or owing by LLS, (3) any accounts payable or other liability to trade
creditors arising in the ordinary course of business (including Guarantees
thereof or instruments evidencing such liabilities), or (4) any Indebtedness,
Guarantee or obligation of LLS that is expressly subordinate or junior in right
of payment to any other Indebtedness, Guarantee or obligation of LLS, including
any Senior Subordinated Indebtedness and any Subordinated Indebtedness.
The notes are effectively subordinated to the obligations of the
Subsidiaries of LLS, including the guarantee by its Subsidiaries of obligations
under the Credit Agreement, because LLS is a holding company. In the event of an
insolvency, liquidation or other reorganization of any of the Subsidiaries of
LLS, the creditors of LLS, including the holders of the notes, as well as
shareholders of LLS, will have no right to proceed against the assets of such
Subsidiaries or to cause the liquidation or bankruptcy of such Subsidiaries
under applicable bankruptcy laws. Creditors of such Subsidiaries, including
lenders under the Senior Credit Facility, would be entitled to payment in full
from such assets before LLS, as a shareholder, would be entitled to receive any
distribution therefrom. Except to the extent that LLS itself may be a creditor
with recognized claims against such Subsidiaries, claims of creditors of such
Subsidiaries will have priority with respect to the assets and earnings of such
Subsidiaries over the claims of creditors of LLS, including claims under the
notes.
Only Indebtedness of LLS that is Senior Indebtedness will rank senior to
the notes in accordance with the provisions of the Indenture. LLS has agreed in
the Indenture that it will not incur, directly or indirectly, any Indebtedness
that is subordinate or junior in right of payment to Senior Indebtedness unless
such Indebtedness is Senior Subordinated Indebtedness or is contractually
subordinated in right of payment to Senior Subordinated Indebtedness. Unsecured
Indebtedness is not deemed to be subordinate or junior to Secured Indebtedness
merely because it is unsecured nor is any Indebtedness deemed to be subordinate
or junior to other Indebtedness merely because it matures after such other
Indebtedness.
During the continuance of any default in the payment of the principal of,
premium, if any, interest or liquidated damages, if any, on Designated Senior
Indebtedness or any other default with respect to any Designated Senior
Indebtedness pursuant to which the maturity thereof may be accelerated
immediately without further notice, except such notice as may be required to
effect such acceleration, or the expiration of any applicable grace periods, LLS
may not pay principal of, premium, if any, or interest on, the notes or make any
deposit pursuant to the provisions described under "Defeasance" below and may
not otherwise purchase, redeem or retire any notes (collectively, "pay the
notes"), except in (1) Capital Stock, other than Disqualified Stock, issued by
LLS to pay interest on the notes or issued in exchange for the notes, (2) in
securities substantially identical to the notes issued by LLS in payment of
interest thereon or (3) in securities issued by LLS which are subordinated to
Senior Indebtedness at least to the same extent as the notes and having an
Average Life at least equal to the remaining Average Life of the notes, for a
period (a "Payment Blockage Period") commencing upon the receipt by the Trustee,
with a copy to LLS, of written notice (a "Blockage Notice") of such default from
the Representative of the holders of such Designated Senior Indebtedness
specifying an election to effect a Payment Blockage Period and ending 179 days
thereafter, or earlier if such Payment Blockage Period is terminated (1) by
written notice to the Trustee and LLS from the Person or Persons who gave such
Blockage Notice, (2) because the default giving rise to such Blockage Notice is
no longer continuing or (3) because such Designated Senior Indebtedness has been
repaid in full. Notwithstanding the provisions described in the immediately
preceding sentence, unless the holders of such Designated Senior Indebtedness or
the Representative of such holders have accelerated the maturity of such
Designated Senior Indebtedness, LLS may resume payments on the notes after the
end of such Payment Blockage Period. Not more than one Blockage
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Notice may be given in any consecutive 360-day period, irrespective of the
number of defaults with respect to Designated Senior Indebtedness during such
period.
Upon any payment or distribution of the assets of LLS to creditors upon a
total or partial liquidation or dissolution or reorganization or bankruptcy of
or similar proceeding relating to LLS or its property, the holders of Senior
Indebtedness will be entitled to receive payment in full of the Senior
Indebtedness before the holders of the notes are entitled to receive any
payment, and until the Senior Indebtedness is paid in full, any payment or
distribution to which holders of the notes would be entitled but for the
subordination provisions of the Indenture will be made to holders of the Senior
Indebtedness as their interests may appear.
If payment of the notes is accelerated because of an Event of Default, LLS
and the Trustee shall promptly notify the holders of the Designated Senior
Indebtedness or the Representative of such holders of the acceleration. If any
Designated Senior Indebtedness is outstanding, LLS may not pay the notes until
five Business Days after such holders or the Representative of the Designated
Senior Indebtedness receive notice of such acceleration and, thereafter, may pay
the notes only if the subordination provisions of the Indenture otherwise permit
payment at that time.
By reason of the subordination provisions contained in the Indenture, in
the event of insolvency, creditors of LLS who are holders of Senior Indebtedness
may recover more, ratably, than the Noteholders.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each holder will have the right to require LLS to repurchase all or
any part of such holder's notes at a purchase price in cash equal to 101% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of purchase, subject to the right of holders of record on the relevant record
date to receive accrued and unpaid interest due on the relevant interest payment
date in respect of then outstanding notes:
(1) any sale, lease, exchange or other transfer, in one transaction or
a series of related transactions, of all or substantially all of the assets
of LLS and its Subsidiaries to any Person or group of related Persons for
purposes of Section 13(d) of the Exchange Act (a "Group"), whether or not
otherwise in compliance with the provisions of the Indenture, other than to
Hicks Muse, Mills & Partners, or any of their Affiliates, officers or
directors (the "Permitted Holders"); or
(2) a majority of the Board of Directors of LLS shall consist of
Persons who are not Continuing Directors; or
(3) the acquisition by any Person or Group, other than the Permitted
Holders or any direct or indirect Subsidiary of any Permitted Holder, of
the power, directly or indirectly, to vote or direct the voting of
securities having more than 50% of the ordinary voting power for the
election of directors of LLS.
Within 30 days following any Change of Control, unless LLS has mailed a
redemption notice with respect to all the outstanding notes in connection with
such Change of Control, LLS shall mail a notice to each holder with a copy to
the Trustee stating: (1) that a Change of Control has occurred and that such
holder has the right to require LLS to purchase such holder's notes at a
purchase price in cash equal to 101% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of purchase, subject to the
right of holders of record on a record date to receive accrued and unpaid
interest on the relevant interest payment date in respect of the then
outstanding notes; (2) the repurchase date, which shall be no earlier than 30
days nor later than 60 days from the date such notice is mailed; and (3) the
procedures determined by LLS, consistent with the Indenture, that a holder must
follow in order to have its notes purchased.
LLS will comply, to the extent applicable, with the requirements of Section
14(e) of the Exchange Act and any other securities laws or regulations in
connection with the repurchase of notes pursuant to this covenant. To the extent
that the provisions of any securities laws or regulations conflict with
provisions of
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the Indenture, LLS will comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations described
in the Indenture by virtue thereof.
The definition of "Change of Control" includes, among other transactions, a
disposition of all or substantially all of the property and assets of LLS and
its Subsidiaries. With respect to the disposition of property or assets, the
phrase "all or substantially all" as used in the Indenture varies according to
the facts and circumstances of the subject transaction, has no clearly
established meaning under New York law, (which is the choice of law under the
Indenture) and is subject to judicial interpretation. Accordingly, in certain
circumstances there may be a degree of uncertainty in ascertaining whether a
particular transaction would involve a disposition of "all or substantially all"
of the property or assets of a Person, and therefore it may be unclear whether a
Change of Control has occurred and whether LLS is required to make an offer to
repurchase the notes as described above.
The occurrence of certain of the events that would constitute a Change of
Control would constitute a default under the Credit Agreement. Future Senior
Indebtedness of LLS and future Indebtedness of the Subsidiaries of LLS may also
contain prohibitions of certain events that would constitute a Change of Control
or require such Indebtedness to be repurchased upon a Change of Control.
Moreover, the exercise by the holders of their right to require LLS to
repurchase the notes could cause a default under Senior Indebtedness of LLS,
even if the Change of Control itself does not. Finally, the ability of LLS to
pay cash to the holders upon a repurchase may be limited by the then existing
financial resources of LLS. There can be no assurance that sufficient funds will
be available when necessary to make any required repurchases. Even if sufficient
funds were otherwise available, the terms of the Bank Indebtedness will prohibit
the prepayment of notes by LLS prior to their scheduled maturity. Consequently,
if LLS is not able to prepay the Bank Indebtedness and any other Senior
Indebtedness containing similar restrictions or obtain requisite consents, as
described above, LLS will be unable to fulfill its repurchase obligations if
holders of notes exercise their repurchase rights following a Change of Control,
thereby resulting in a default under the Indenture.
CERTAIN COVENANTS
The Indenture contains certain covenants including, among others, the
following:
Limitation on Indebtedness. (a) LLS shall not, and shall not permit any of
its Restricted Subsidiaries to, Incur any Indebtedness; provided, however, that
LLS and any of its Restricted Subsidiaries may incur Indebtedness if on the date
thereof the Consolidated Coverage Ratio would be greater than 2.00:1.00.
(b) Notwithstanding the foregoing paragraph (a) LLS and its Restricted
Subsidiaries may incur the following Indebtedness: (i) Indebtedness Incurred
pursuant to (A) the Credit Agreement including, without limitation, any renewal,
extension, refunding, restructuring, replacement or refinancing thereof referred
to in clause (ii) of the definition thereof, or (B) any other agreements or
indentures governing Senior Indebtedness; provided, however, that the aggregate
principal amount of all Indebtedness Incurred pursuant to this clause (i) does
not exceed $200.0 million at any time outstanding, less the aggregate principal
amount thereof repaid with the net proceeds of Asset Dispositions, to the
extent, in the case of a repayment of revolving credit Indebtedness, the
commitment to advance the loans repaid has been terminated; (ii) Indebtedness
represented by Capitalized 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
used in a Related Business or Incurred to Refinance any such purchase price or
cost of construction or improvement, in each case Incurred no later than 365
days after the date of such acquisition or the date of completion of such
construction or improvement; provided, however, that the principal amount of any
Indebtedness Incurred pursuant to this clause (ii) shall not exceed $15.0
million at any time outstanding; (iii) Permitted Indebtedness; and (iv)
Indebtedness (other than Indebtedness described in clauses (i)-(iii)) in a
principal amount which, when taken together with the principal amount of all
other Indebtedness Incurred pursuant to this clause (iv) and then outstanding,
will not exceed $40.0 million, it being understood that any Indebtedness
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Incurred under this clause (iv) shall cease to be deemed Incurred or outstanding
for purposes of this clause (iv), but shall be deemed to be Incurred for
purposes of paragraph (a), from and after the first date on which LLS or its
Restricted Subsidiaries could have Incurred such Indebtedness under the
foregoing paragraph (a) without reliance upon this clause (iv).
(c) In addition, LLS shall not Incur any Secured Indebtedness which is not
Senior Indebtedness unless contemporaneously therewith effective provision is
made to secure the notes equally and ratably with such Secured Indebtedness for
so long as such Secured Indebtedness is secured by a Lien.
(d) LLS will not permit any Unrestricted Subsidiary to Incur any
Indebtedness other than Non-Recourse Debt; provided, however, if any such
Indebtedness ceases to be Non-Recourse Debt, such event shall be deemed to
constitute an Incurrence of Indebtedness by LLS or a Restricted Subsidiary.
(e) LLS will not Incur any Indebtedness if such Indebtedness is subordinate
or junior in right of payment to any Senior Indebtedness, unless such
Indebtedness is Senior Subordinated Indebtedness or is contractually
subordinated in right of payment to Senior Subordinated Indebtedness.
(f) For purposes of determining compliance with any U.S. dollar-denominated
restriction on the Incurrence of Indebtedness, the U.S. dollar-equivalent
principal amount of Indebtedness denominated in a foreign currency shall be
calculated based on the relevant currency exchange rate in effect on the date
such Indebtedness was Incurred, in the case of term debt, or first committed, in
the case of revolving credit debt; provided that if such Indebtedness is
Incurred to refinance other indebtedness denominated in a foreign currency, and
such refinancing would cause the applicable U.S. dollar-denominated restriction
to be exceeded if calculated at the relevant currency exchange rate in effect on
the date of such refinancing, such U.S. dollar-denominated restriction shall be
deemed not to have been exceeded so long as the principal amount of such
refinancing Indebtedness does not exceed the principal amount of such
Indebtedness being refinanced. The principal amount of any Indebtedness Incurred
to refinance other Indebtedness, if Incurred in a different currency from the
Indebtedness being refinanced, shall be calculated based on the currency
exchange rate applicable to the currencies in which such respective Indebtedness
is denominated that is in effect on the date of such refinancing.
Limitation on Restricted Payments. (a) LLS shall not, and shall not permit
any of its Restricted Subsidiaries, directly or indirectly, to (i) declare or
pay any dividend or make any distribution on or in respect of its Capital Stock,
including any payment in connection with any merger or consolidation involving
the Company or any of its Restricted Subsidiaries, except (A) dividends or
distributions payable in its Capital Stock, other than Disqualified Stock, or in
options, warrants or other rights to purchase such Capital Stock, other than
Disqualified Stock, and (B) dividends or distributions payable to LLS or a
Restricted Subsidiary of LLS, and if such Restricted Subsidiary is not a
Wholly-Owned Subsidiary, to its other holders of Capital Stock on a pro rata
basis, (ii) purchase, redeem, retire or otherwise acquire for value any Capital
Stock of LLS held by Persons other than a Restricted Subsidiary of LLS or any
Capital Stock of a Restricted Subsidiary of LLS held by Persons other than LLS
or another Restricted Subsidiary of LLS, in either case, other than in exchange
for its Capital Stock, other than Disqualified Stock or to the extent that after
giving effect to such purchase, redemption, retirement or acquisition, such
Restricted Subsidiary would become a Wholly Owned Subsidiary, (iii) purchase,
repurchase, redeem, defease or otherwise acquire or retire for value, prior to
scheduled maturity, scheduled repayment or scheduled sinking fund payment, any
Subordinated Indebtedness other than the purchase, repurchase or other
acquisition of Subordinated Indebtedness purchased in anticipation of satisfying
a sinking fund obligation, principal installment or final maturity, in each case
due within one year of the date of purchase, repurchase or acquisition or (iv)
make any Investment, other than a Permitted Investment, in any Person, any such
dividend, distribution, purchase, redemption, repurchase, defeasance, other
acquisition, retirement or Investment being herein referred to in clauses (i)
through (iv) as a "Restricted Payment", if at the time the Company or such
Restricted Subsidiary makes such Restricted Payment: (1) a Default shall have
occurred and be continuing or would result therefrom; or (2) LLS is not able to
incur an additional $1.00 of Indebtedness pursuant to paragraph (a) under
"Limitation on Indebtedness"; or (3) the aggregate amount of such Restricted
Payment and all other Restricted Payments declared or made
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subsequent to the Issue Date would exceed the sum of: (A) 50% of the
Consolidated Net Income accrued during the period, treated as one accounting
period, from the Issue Date to the end of the most recent fiscal quarter ending
prior to the date of such Restricted Payment as to which financial results are
available, or, in case such Consolidated Net Income shall be a deficit, minus
100% of such deficit; (B) the aggregate net proceeds received by LLS from the
issue or sale of its Capital Stock, other than Disqualified Stock, or other
capital contributions subsequent to the Issue Date, other than net proceeds
received from an issuance or sale of such Capital Stock to a Subsidiary of LLS
or an employee stock ownership plan or similar trust; provided, however, that
the value of any non cash net proceeds, which in each case shall be assets of
the type used in a Related Business or Capital Stock of a Person engaged in a
Related Business, shall be as determined by the Board of Directors in good
faith, except that in the event the value of any non cash net proceeds shall be
$15.0 million or more, the value shall be as determined in writing by an
independent investment banking firm of nationally recognized standing; (C) the
aggregate Net Cash Proceeds received by LLS from the issue or sale of its
Capital Stock, other than Disqualified Stock, to an employee stock ownership
plan or similar trust subsequent to the Issue Date; provided, however, that if
such plan or trust Incurs any Indebtedness owed to or Guaranteed by LLS or any
of its Restricted Subsidiaries to finance the acquisition of such Capital Stock,
such aggregate amount shall be limited to such Net Cash Proceeds less such
Indebtedness Incurred to or Guaranteed by LLS or any of its Restricted
Subsidiaries and any increase in the Consolidated Net Worth of LLS resulting
from principal repayments made by such plan or trust with respect to
Indebtedness Incurred by it to finance the purchase of such Capital Stock; (D)
the amount by which Indebtedness of LLS is reduced on the balance sheet of LLS
upon the conversion or exchange, other than by a Restricted Subsidiary of LLS,
subsequent to the Issue Date of any Indebtedness of LLS for Capital Stock, other
than Disqualified Stock, of LLS, less the amount of any cash, or other property,
distributed by LLS upon such conversion or exchange; (E) the amount equal to the
net reduction in Investments since the Issue Date, other than Permitted
Investments, made by LLS or any of its Restricted Subsidiaries in any Person
resulting from (i) repurchases or redemptions of such Investments by such
Person, proceeds realized upon the sale of such Investment to an unaffiliated
purchaser, and repayments of loans or advances or other transfers of assets by
such Person to LLS or any Restricted Subsidiary of LLS or (ii) the redesignation
of Unrestricted Subsidiaries as Restricted Subsidiaries, valued in each case as
provided in the definition of "Investment," not to exceed, in the case of any
Unrestricted Subsidiary, the amount of Investments previously made by LLS or any
Restricted Subsidiary in such Unrestricted Subsidiary, which amount was included
in the calculation of the amount of Restricted Payments; provided, however, that
no amount shall be included under this clause (E) to the extent it is already
included in Consolidated Net Income; (F) the aggregate Net Cash Proceeds
received by a Person in consideration for the issuance of such Person's Capital
Stock, other than Disqualified Stock, which are held by such Person at the time
such Person is merged with and into the Company in accordance with the "Merger
and Consolidation" covenant subsequent to the Issue Date; provided, however,
that concurrently with or immediately following such merger LLS uses an amount
equal to such Net Cash Proceeds to redeem or repurchase Capital Stock of LLS;
and (G) $5.0 million since the Issue Date.
(b) The provisions of paragraph (a) shall not prohibit: (i) any purchase or
redemption of Capital Stock or Subordinated Indebtedness of LLS made by exchange
for, or out of the proceeds of the substantially concurrent sale of, Capital
Stock of LLS, other than Disqualified Stock and other than Capital Stock issued
or sold to a Subsidiary or an employee stock ownership plan or similar trust;
provided, however, that (A) such purchase or redemption shall be excluded in the
calculation of the amount of Restricted Payments and (B) the Net Cash Proceeds
from such sale shall be excluded from clause (3)(B) of paragraph (a); (ii) any
purchase or redemption of Subordinated Indebtedness of LLS made by exchange for,
or out of the proceeds of the substantially concurrent sale of, Subordinated
Indebtedness of LLS; provided, however, that such purchase or redemption shall
be excluded in the calculation of the amount of Restricted Payments; (iii) any
purchase or redemption of Subordinated Indebtedness from Net Available Cash to
the extent permitted under "Limitation on Sales of Assets and Subsidiary Stock"
below; provided, however, that such purchase or redemption shall be excluded in
the calculation of the amount of Restricted Payments; (iv) dividends paid within
60 days after the date of
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declaration if at such date of declaration such dividend would have complied
with the requirements of paragraph (a) above; (v) payments of dividends on the
common stock of LLS after an initial public offering of common stock of LLS in
an annual amount not to exceed 6% of the gross proceeds, before deducting
underwriting discounts and commissions and other fees and expenses of the
offering, received by LLS from shares of common stock sold for the account of
LLS, and not for the account of any stockholder, in such initial public
offering; (vi) payments by LLS to repurchase Capital Stock or other securities
of LLS from members of management of LLS in an aggregate amount not to exceed
$10.0 million since the Issue Date; (vii) payments to enable LLS to redeem or
repurchase stock purchase or similar rights granted by LLS with respect to its
Capital Stock in an aggregate amount not to exceed $5.0 million since the Issue
Date; (viii) payments, not to exceed $200,000 in the aggregate since the Issue
Date, to enable LLS to make cash payments to holders of its Capital Stock in
lieu of the issuance of fractional shares of its Capital Stock; and (ix)
payments made pursuant to any merger, consolidation or sale of assets effected
in accordance with the "Merger and Consolidation" covenant; provided, however,
that no such payment may be made pursuant to this clause (ix) unless, after
giving effect to such transaction, and the incurrence of any Indebtedness in
connection therewith and the use of the proceeds thereof, LLS would be able to
Incur $1.00 of additional Indebtedness, other than Permitted Indebtedness, in
compliance with the "Limitation on Indebtedness" covenant such that, after
Incurring that $1.00 of additional Indebtedness, the Consolidated Coverage Ratio
would be greater than 3.5:1.00; provided, however, that in the case of clauses
(v), (vi), (vii), (viii) and (ix) no Default or Event of Default shall have
occurred or be continuing at the time of such payment or as a result thereof;
provided further, however, that for purposes of determining the aggregate amount
expended for Restricted Payments in accordance with clause (3) of the
immediately preceding paragraph (a), only the amounts expended under clauses
(iv) through (ix) shall be included.
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. LLS shall not, and shall not permit any of its Restricted
Subsidiaries to, create or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any such Restricted Subsidiary to
(i) pay dividends or make any other distributions on its Capital Stock or pay
any Indebtedness or other obligation owed to LLS, (ii) make any loans or
advances to LLS or (iii) transfer any of its property or assets to LLS; except:
(a) any encumbrance or restriction pursuant to an agreement in effect at or
entered into on the Issue Date, including the Credit Agreement; (b) any
encumbrance or restriction with respect to such a Restricted Subsidiary pursuant
to an agreement relating to any Indebtedness or Preferred Stock issued by such
Restricted Subsidiary on or prior to the date on which such Restricted
Subsidiary was acquired by LLS and outstanding on such date, other than
Indebtedness or Preferred Stock issued as consideration in, or to provide all or
any portion of the funds or credit support utilized to consummate, the
transaction or series of related transactions pursuant to which such Restricted
Subsidiary became a Restricted Subsidiary of LLS or was acquired by LLS; (c) any
encumbrance or restriction with respect to such a Restricted Subsidiary pursuant
to an agreement evidencing Indebtedness Incurred without violation of the
Indenture or effecting a refinancing of Indebtedness issued pursuant to an
agreement referred to in clauses (a) or (b) or this clause (c) or contained in
any amendment to an agreement referred to in clauses (a) or (b) or this clause
(c); provided, however, that the encumbrances and restrictions with respect to
such Restricted Subsidiary contained in any of such agreement, refinancing
agreement or amendment, taken as a whole, are not materially less favorable to
the holders, as determined in good faith by the senior management of LLS or
Board of Directors of LLS, than encumbrances and restrictions with respect to
such Restricted Subsidiary contained in agreements in effect at, or entered into
on, the Issue Date; (d) in the case of clause (iii), any encumbrance or
restriction (A) that restricts in a customary manner the subletting, assignment
or transfer of any property or asset that is a lease, license, conveyance or
contract or similar property or asset, (B) by virtue of any transfer of,
agreement to transfer, option or right with respect to, or Lien on, any property
or assets of LLS or any Restricted Subsidiary not otherwise prohibited by the
Indenture, (C) that is included in a licensing agreement to the extent such
restrictions limit the transfer of the property subject to such licensing
agreement or (D) arising or agreed to in the ordinary course of business and
that does not, individually or in the aggregate, detract from the value of
property or assets of LLS or any of its Subsidiaries in any manner material to
LLS or any such Restricted Subsidiary as
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determined in good faith by senior management of LLS; (e) in the case of clause
(iii) above, restrictions contained in security agreements, mortgages or similar
documents securing Indebtedness of a Restricted Subsidiary to the extent such
restrictions restrict the transfer of the property subject to such security
agreements; (f) any restriction with respect to such a Restricted Subsidiary
imposed pursuant to an agreement entered into for the sale or disposition of all
or substantially all the Capital Stock or assets of such Restricted Subsidiary
pending the closing of such sale or disposition; (g) encumbrances or
restrictions with respect to Indebtedness of Foreign Subsidiaries; provided that
(1) such encumbrances or restrictions do not limit in any manner the ability of
the Restricted Subsidiaries of LLS from performing any of the acts referred to
in clauses (i) through (iii) above and (2) the aggregate principal amount of the
Indebtedness of the Foreign Subsidiaries of the Company which includes such an
encumbrance or restriction does not exceed $25.0 million; and (h) encumbrances
or restrictions arising or existing by reason of applicable law.
Limitation on Sales of Assets and Subsidiary Stock. (a) LLS shall not, and
shall not permit any of its Restricted Subsidiaries to, make any Asset
Disposition unless (i) LLS or such Restricted Subsidiary receives consideration
at the time of such Asset Disposition at least equal to the fair market value,
as determined in good faith by the senior management of LLS or the Board of
Directors, including as to the value of all non-cash consideration, of the
shares and assets subject to such Asset Disposition, (ii) at least 75% of the
consideration thereof received by LLS or such Restricted Subsidiary is in the
form of cash or cash equivalents and (iii) an amount equal to 100% of the Net
Available Cash from such Asset Disposition is applied by LLS, or such Restricted
Subsidiary, as the case may be (A) first, to the extent LLS or any Restricted
Subsidiary elects, or is required by the terms of any Senior Indebtedness, to
prepay, repay or purchase (x) Senior Indebtedness or (y) Indebtedness, other
than Preferred Stock, of a Wholly-Owned Subsidiary, in each case other than
Indebtedness owed to LLS, within 180 days from the later of the date of such
Asset Disposition or the receipt of such Net Available Cash; (B) second, within
one year from the receipt of such Net Available Cash, to the extent of the
balance of such Net Available Cash after application in accordance with clause
(A), at the election of LLS either (x) to the investment in or acquisition of
Additional Assets or (y) to prepay, repay or purchase (1) Senior Indebtedness or
(2) Indebtedness, other than Preferred Stock, of a Wholly-Owned Subsidiary, in
each case other than Indebtedness owed to LLS; and (C) third, within 45 days
after the later of the application of Net Available Cash in accordance with
clauses (A) and (B) and the date that is one year from the receipt of such Net
Available Cash, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A) and (B), to make an offer to purchase
notes and other Senior Subordinated Indebtedness, to the extent required
pursuant to the terms thereof, pro rata at 100% of the tendered principal amount
thereof, or 100% of the accreted value of such other Senior Subordinated
Indebtedness so tendered, if such Senior Subordinated Indebtedness was issued at
a discount, plus accrued and unpaid interest, if any, thereon to the date of
purchase. The balance of such Net Available Cash after application in accordance
with clauses (A), (B) and (C) may be used by LLS in any manner not otherwise
prohibited under the Indenture. Notwithstanding anything herein to the contrary,
in connection with any prepayment, repayment or purchase of Indebtedness
pursuant to clause (A), (B) or (C) above, LLS or such Restricted Subsidiary
shall retire such Indebtedness and shall cause the related loan commitment, if
any, to be permanently reduced in an amount equal to the principal amount so
prepaid, repaid or purchased. Notwithstanding the foregoing provisions, LLS and
its Restricted Subsidiaries shall not be required to apply any Net Available
Cash in accordance herewith except to the extent that the aggregate Net
Available Cash from all Asset Dispositions since the Issue Date which are not
applied in accordance with this covenant at any time exceed $5.0 million. LLS
shall not be required to make an offer for notes pursuant to this covenant if
the Net Available Cash available therefor, after application of the proceeds as
provided in clauses (A) and (B), is less than $10.0 million for any particular
Asset Disposition, which lesser amounts shall be carried forward for purposes of
determining whether an offer is required with respect to the Net Available Cash
from any subsequent Asset Disposition.
For the purposes of this covenant, the following will be deemed to be cash:
(x) the assumption by the transferee of Senior Indebtedness of LLS or
Indebtedness of any Restricted Subsidiary of LLS and the release of LLS or such
Restricted Subsidiary from all liability on such Senior Indebtedness or
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Indebtedness in connection with such Asset Disposition, in which case LLS shall,
without further action, be deemed to have applied such assumed Indebtedness in
accordance with clause (A) of the preceding paragraph, and (y) securities
received by LLS or any Restricted Subsidiary of LLS from the transferee that are
promptly converted by LLS or such Restricted Subsidiary into cash.
Notwithstanding the foregoing, LLS and its Restricted Subsidiaries will be
permitted to consummate an Asset Swap if (i) immediately after giving effect to
such Asset Swap, no Default or Event of Default shall have occurred or be
continuing, (ii) in the event such Asset Swap involves an aggregate amount in
excess of $2.5 million, the terms of such Asset Swap have been approved by a
majority of the members of the Board of Directors of LLS, and (iii) in the event
such Asset Swap involves an aggregate amount in excess of $10.0 million, LLS has
received a written opinion from an independent investment banking firm of
nationally recognized standing that such Asset Swap is fair to LLS or such
Restricted Subsidiary, as the case may be, from a financial point of view.
(b) In the event of an Asset Disposition that requires the purchase of
notes pursuant to clause (a)(iii)(C), LLS will be required to purchase notes
tendered pursuant to an offer by LLS for the notes at a purchase price of 100%
of their principal amount plus accrued and unpaid interest, if any, to the
purchase date in accordance with the procedures, including prorating in the
event of oversubscription as well as proration required as a result of tenders
of other Senior Subordinated Indebtedness, set forth in the Indenture. If the
aggregate purchase price of the notes tendered pursuant to the offer is less
than the Net Available Cash allotted to the purchase of the notes, LLS may use
the remaining Net Available Cash for any purpose not prohibited by the
Indenture. Upon the consummation of the purchase of notes properly tendered in
response to such offer to purchase, the amount of Net Available Cash subject to
future offers to purchase shall be deemed to be reset to zero.
(c) LLS will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of notes pursuant to the Indenture. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of this covenant, LLS will comply with the applicable securities laws
and regulations and will not be deemed to have breached its obligations under
the Indenture by virtue thereof.
Limitation on Affiliate Transactions. (a) LLS will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, enter into or
conduct any transaction, including the purchase, sale, lease or exchange of any
property or the rendering of any service, with any Affiliate of LLS other than a
Wholly-Owned Subsidiary (an "Affiliate Transaction") unless: (i) the terms of
such Affiliate Transaction are no less favorable to LLS or such Restricted
Subsidiary, as the case may be, than those that could be obtained at the time of
such transaction in arm's-length dealings with a Person who is not such an
Affiliate; (ii) in the event such Affiliate Transaction involves an aggregate
amount in excess of $5.0 million, the terms of such transaction have been
approved by a majority of the members of the Board of Directors of LLS and by a
majority of the disinterested members of such Board, if any, and such majority
or majorities, as the case may be, determines that such Affiliate Transaction
satisfies the criteria in (i) above; and (iii) in the event such Affiliate
Transaction involves an aggregate amount in excess of $10.0 million, LLS has
received a written opinion from an independent investment banking firm of
nationally recognized standing that such Affiliate Transaction is fair to LLS or
such Restricted Subsidiary, as the case may be, from a financial point of view.
(b) The foregoing paragraph (a) shall not apply to (i) any Restricted
Payment permitted to be made pursuant to the covenant described under
"Limitation on Restricted Payments," (ii) any issuance of securities, or other
payments, awards or grants in cash, securities or otherwise pursuant to, or the
funding of, employment arrangements, stock options and stock ownership plans
approved by the Board of Directors of LLS, (iii) loans or advances to employees
in the ordinary course of business of LLS or any of its Restricted Subsidiaries,
(iv) any transaction between Wholly-Owned Subsidiaries, (v) indemnification
agreements with, and the payment of fees and indemnities to, directors, officers
and employees of LLS and its Restricted Subsidiaries, in each case in the
ordinary course of business, (vi) transactions pursuant to agreements as in
existence on the Issue Date, (vii) any employment, non-competition or
confidentiality
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agreements entered into by LLS or any of its Restricted Subsidiaries with its
employees in the ordinary course of business, (viii) the issuance of Capital
Stock of LLS, other than Disqualified Stock, (ix) any obligations of LLS
pursuant to the monitoring and oversight agreement and the financial advisory
agreement, and (x) transactions pursuant to supply or similar agreements entered
into in the ordinary course of business on customary terms that are not less
favorable to LLS than those that would have been obtained in a comparable
transaction with an unrelated Person, as determined in good faith by senior
management of LLS.
Limitation on Capital Stock of Restricted Subsidiaries. LLS will not permit
any of its Restricted Subsidiaries to issue any Capital Stock, other than
Preferred Stock, to any Person, other than to LLS or a Wholly-Owned Subsidiary
of LLS, or permit any Person, other than LLS or a Wholly-Owned Subsidiary of
LLS, to own any Capital Stock, other than Preferred Stock, of a Restricted
Subsidiary of LLS, if in either case as a result thereof such Restricted
Subsidiary would no longer be a Restricted Subsidiary of LLS; provided, however,
that this provision shall not prohibit (x) LLS or any of its Restricted
Subsidiaries from selling, leasing or otherwise disposing of all of the Capital
Stock of any Restricted Subsidiary or (y) the designation of a Restricted
Subsidiary as an Unrestricted Subsidiary in compliance with the Indenture.
Rule 144A Information Requirement. LLS will furnish to the holders of
notes, upon their request, and to prospective purchasers thereof designated by
such holders, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act for so long as is required for an offer or
sale of the notes to qualify for an exemption under Rule 144A.
Reports. The Indenture will provide that so long as any of the notes are
outstanding, LLS will provide to the holders of notes and file with the SEC, to
the extent such submissions are accepted for filing by the SEC, copies of the
annual reports and of the information, documents and other reports that LLS
would have been required to file with the SEC pursuant to Sections 13 or 15(d)
of the Exchange Act regardless of whether LLS is then obligated to file such
reports.
Merger and Consolidation. LLS shall not consolidate with or merge with or
into, or convey, transfer or lease all or substantially all its assets to, any
Person, unless: (i) the resulting, surviving or transferee Person (the
"Successor Company") shall be a corporation, partnership, trust or limited
liability company organized and existing under the laws of the United States of
America, any State thereof or the District of Columbia and the Successor
Company, if not LLS, shall expressly assume, by supplemental indenture, executed
and delivered to the Trustee, in form satisfactory to the Trustee, all the
obligations of LLS under the notes and the Indenture; (ii) immediately after
giving effect to such transaction, and treating any Indebtedness that becomes an
obligation of the Successor Company or any Subsidiary of the Successor Company
as a result of such transaction as having been incurred by the Successor Company
or such Restricted Subsidiary at the time of such transaction, no Default or
Event of Default shall have occurred and be continuing; (iii) immediately after
giving effect to such transaction, the Successor Company would be able to incur
at least an additional $1.00 of Indebtedness pursuant to paragraph (a) of
"Limitation on Indebtedness"; and (iv) LLS shall have delivered to the Trustee
an Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture, if any,
comply with the Indenture.
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, LLS under the Indenture, but, in the case of
a lease of all or substantially all its assets, LLS will not be released from
the obligation to pay the principal of and interest on the notes.
Notwithstanding the foregoing clauses (ii) and (iii), (1) any Restricted
Subsidiary of LLS may consolidate with, merge into or transfer all or part of
its properties and assets to LLS and (2) LLS may merge with an Affiliate
incorporated solely for the purpose of reincorporating LLS in another
jurisdiction to realize tax or other benefits, provided, that the Trustee shall
receive an Opinion of Counsel that, as a result of such Affiliate merger, the
holders of the notes will not recognize income, gain or loss for Federal income
tax purposes as a result of such Affiliate merger and will be subject to Federal
income tax on the
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same amount and in the same manner and at the same times as would have been the
case if such Affiliate merger had not occurred.
EVENTS OF DEFAULT
Each of the following constitutes an Event of Default under the Indenture:
(i) a default in any payment of interest on any note when due, continued for 30
days, whether or not such payment is prohibited by the provisions described
under "Ranking and Subordination" above, (ii) a default in the payment of
principal of any note when due at its Stated Maturity, upon optional redemption,
upon required repurchase, upon declaration or otherwise, whether or not such
payment is prohibited by the provisions described under "Ranking and
Subordination" above, (iii) the failure by LLS to comply with its obligations
under the covenants described under "Certain Covenants -- Merger and
Consolidation" above, (iv) the failure by LLS to comply with its obligations
under the covenants described under "Certain Covenants -- Limitation on
Indebtedness," "-- Limitation on Restricted Payments," "-- Limitation on
Restrictions on Distributions from Restricted Subsidiaries," "-- Limitation on
Sales of Assets and Subsidiary Stock," or "Change of Control" above, in each
case, other than a failure to purchase notes, which shall constitute an Event of
Default under clause (ii) above, (v) the failure by the LLS to comply for 30
days after notice with its obligations under the covenants described under
"Certain Covenants" above, other than those referred to in clauses (iii) and
(iv) above, (vi) the failure by LLS to comply for 30 days after notice with its
other agreements contained in the Indenture, (vii) Indebtedness of LLS or any
Restricted Subsidiary is not paid within any applicable grace period after final
maturity or is accelerated by the holders thereof because of a default and the
total amount of such Indebtedness unpaid or accelerated exceeds $15.0 million
and such default shall not have been cured, including by way of repayment, or
such acceleration rescinded after a 10 day period (the "cross acceleration
provision"), (viii) certain events of bankruptcy, insolvency or reorganization
of LLS or a Significant Subsidiary (the "bankruptcy provisions") or (ix) any
judgment or decree for the payment of money in excess of $15.0 million, to the
extent not covered by insurance, is rendered against LLS or a Significant
Subsidiary and such judgment or decree shall remain undischarged or unstayed for
a period of 60 days after such judgment becomes final and non-appealable (the
"judgment default provision"). However, a default under clause (v) or (vi) will
not constitute an Event of Default until the Trustee or the holders of 25% in
principal amount of the outstanding notes notify LLS of the Default and LLS does
not cure such Default within the time specified in clause (v) or (vi) hereof
after receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the outstanding notes by notice to LLS
and the Trustee may declare the principal of and accrued and unpaid interest, if
any, on all the notes to be due and payable. Upon such a declaration, such
principal and accrued and unpaid interest shall be immediately due and payable.
If an Event of Default relating to certain events of bankruptcy, insolvency or
reorganization of LLS occurs and is continuing, the principal of and accrued and
unpaid interest on all the notes will become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any holders.
Under certain circumstances, the holders of a majority in principal amount of
the outstanding notes may rescind any such acceleration with respect to the
notes and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, if an Event of Default occurs and is continuing, the Trustee will be
under no obligation to exercise any of the rights or powers under the Indenture
at the request or direction of any of the holders unless such holders have
offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium, if any, or interest when due, no holder may pursue any
remedy with respect to the Indenture or the notes unless (i) such holder has
previously given the Trustee notice that an Event of Default is continuing, (ii)
holders of at least 25% in principal amount of the outstanding notes have
requested the Trustee to pursue the remedy, (iii) such holders have offered the
Trustee reasonable security or indemnity against any loss, liability or expense,
(iv) the Trustee has not complied with such request within 30 days after the
receipt of the request and the offer of security or indemnity and (v) the
holders of a majority in principal amount of the outstanding notes have not
given
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the Trustee a direction that, in the opinion of the Trustee, is inconsistent
with such request within such 30-day period. Subject to certain restrictions,
the holders of a majority in principal amount of the outstanding notes are given
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee or of exercising any trust or power
conferred on the Trustee. The Trustee, however, may refuse to follow any
direction that conflicts with law or the Indenture or that the Trustee
determines is unduly prejudicial to the rights of any other holder or that would
involve the Trustee in personal liability.
The Indenture provides that if a Default or Event of Default occurs and is
continuing and is known to the Trustee, the Trustee must mail to each holder
notice of the Default or Event of Default within 90 days after it occurs.
However, except in the case of a Default or Event of Default in the payment of
principal of, premium, if any, or interest on any note, the Trustee may withhold
notice if and so long as its board of directors, a committee of its board of
directors or a committee of its trust officers in good faith determines that
withholding notice is in the interests of the holders of the notes. In addition,
LLS is required to deliver to the Trustee, within 120 days after the end of each
fiscal year, a certificate indicating whether the signers thereof know of any
Default or Event of Default that occurred during the previous year. LLS also is
required to deliver to the Trustee, within 30 days after the occurrence thereof,
written notice of any events which would constitute certain Defaults.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the
written consent of the holders of at least a majority in principal amount of the
notes then outstanding and any past default or noncompliance with any provisions
may be waived with the written consent of the holders of at least a majority in
principal amount of the notes then outstanding. However, without the consent of
each holder of an outstanding note affected, no amendment may, among other
things, (i) reduce the amount of notes whose holders must consent to an
amendment, (ii) reduce the stated rate of or extend the stated time for payment
of interest on any note, (iii) reduce the principal of or extend the Stated
Maturity of any note, (iv) reduce the premium payable upon the redemption or
repurchase of any note or change the time at which any note may be redeemed as
described under "Optional Redemption" above, (v) make any note payable in money
other than that stated in the note, (vi) impair the right of any holder to
receive payment of principal of and interest on such holder's notes on or after
the due dates therefor or to institute suit for the enforcement of any payment
on or with respect to such holder's notes or (vii) make any change in the
amendment provisions which require each holder's consent or in the waiver
provisions.
Without the consent of any holder, LLS and the Trustee may amend the
Indenture to cure any ambiguity, omission, defect or inconsistency, to provide
for the assumption by a successor corporation, partnership, trust or limited
liability company of the obligations of LLS under the Indenture, to provide for
uncertificated notes in addition to or in place of certificated notes, provided
that the uncertificated notes are issued in registered form for purposes of
Section 163(f) of the Code, or in a manner such that the uncertificated notes
are described in Section 163(f)(2)(B) of the Code, to make any change in the
subordination provisions in the Indenture that would limit or terminate the
benefits available to any holder of Senior Indebtedness thereunder, to add any
Guarantee with respect to the notes, to secure the notes, to add to the
covenants of LLS for the benefit of the holders or to surrender any right or
power conferred upon LLS, to provide for the issuance of exchange notes, to make
any other change that does not adversely affect the rights of any holder or to
comply with any requirement of the SEC in connection with the qualification of
the Indenture under the Trust Indenture Act. However, no amendment may be made
to the subordination provisions of the Indenture that adversely affects the
rights of any holder of Senior Indebtedness then outstanding unless the holders
of such Senior Indebtedness, or any group or representative thereof authorized
to give a consent, consent to such change.
The consent of the holders is not necessary under the Indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment.
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After an amendment under the Indenture becomes effective, LLS is required
to mail to the holders a notice briefly describing such amendment. However, the
failure to give such notice to all the holders, or any defect therein, will not
impair or affect the validity of the amendment.
DEFEASANCE
LLS at any time may terminate all its obligations under the notes and the
Indenture ("legal defeasance"), except for certain obligations, including those
respecting the defeasance trust and obligations to register the transfer or
exchange of the notes, to replace mutilated, destroyed, lost or stolen notes and
to maintain a registrar and paying agent in respect of the notes. LLS at any
time may terminate its obligations under substantially all its covenants in the
Indenture including those covenants described under "Certain Covenants" (other
than "Merger and Consolidation"), the operation of the cross acceleration
provision, the bankruptcy provisions with respect to Significant Subsidiaries
and the judgment default provision described under "Events of Default" above and
the limitations contained in clauses (iii) and (iv) under "Certain
Covenants -- Merger and Consolidation" above ("covenant defeasance").
LLS may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option. If LLS exercises its legal
defeasance option, payment of the notes may not be accelerated because of an
Event of Default with respect thereto. If LLS exercises its covenant defeasance
option, payment of the notes may not be accelerated because of an Event of
Default specified in clause (iv), (v), (vii), (viii) with respect only to
Significant Subsidiaries or (ix) under "Events of Default" above or because of
the failure of LLS to comply with clause (iii) or (iv) under "Certain
Covenants -- Merger and Consolidation" above.
In order to exercise either defeasance option, LLS must irrevocably deposit
in trust (the "defeasance trust") with the Trustee money or U.S. Government
Obligations for the payment of principal, premium, if any, and interest on the
notes to maturity or any redemption date specified by LLS, as the case may be,
and must comply with certain other conditions, including delivery to the Trustee
of an Opinion of Counsel to the effect that holders of the notes will not
recognize income, gain or loss for Federal income tax purposes as a result of
such deposit and defeasance and will be subject to Federal income tax on the
same amount and in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred and, in the case of legal
defeasance only, such Opinion of Counsel must be based on a ruling of the
Internal Revenue Service or other change in applicable Federal income tax law.
CONCERNING THE TRUSTEE
The Bank of New York is to be the Trustee under the Indenture and has been
appointed by LLS as Registrar and Paying Agent with regard to the notes.
GOVERNING LAW
The Indenture provides that it and the notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Additional Assets" means (i) any property or assets, other than
Indebtedness and Capital Stock, in a Related Business; (ii) the Capital Stock of
a Person that becomes a Restricted Subsidiary as a result of the acquisition of
such Capital Stock by LLS or a Restricted Subsidiary of LLS; (iii) Capital Stock
constituting a minority interest in any Person that at such time is a Restricted
Subsidiary of LLS; or (iv) Permitted Investments of the type and in the amounts
described in clause (viii) of the definition thereof; provided, however, that,
in the case of clauses (ii) and (iii), such Restricted Subsidiary is primarily
engaged in a Related Business.
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"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 the purposes of this definition,
"control," when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Asset Disposition" means any sale, lease, transfer, issuance or other
disposition, or series of related sales, leases, transfers, issuances or
dispositions that are part of a common plan, of shares of Capital Stock of a
Restricted Subsidiary, other than directors' qualifying shares, property or
other assets (each referred to for the purposes of this definition as a
"disposition") by LLS or any of its Restricted Subsidiaries, including any
disposition by means of a merger, consolidation or similar transaction, other
than (i) a disposition by a Restricted Subsidiary to LLS or by LLS or a
Restricted Subsidiary to a Wholly-Owned Subsidiary, (ii) a disposition of
inventory in the ordinary course of business, (iii) a disposition of obsolete or
worn out equipment or equipment that is no longer useful in the conduct of the
business of LLS and its Restricted Subsidiaries and that is disposed of in each
case in the ordinary course of business, (iv) dispositions of property for net
proceeds which, when taken collectively with the net proceeds of any other such
dispositions under this clause (iv) that were consummated since the beginning of
the calendar year in which such disposition is consummated, do not exceed 1.50%
of the consolidated book value of the assets of LLS as of the most recent date
prior to such disposition for which a consolidated balance sheet of LLS has been
regularly prepared, (v) transactions permitted under "Certain
Covenants -- Merger and Consolidation" above, (vi) transactions permitted by the
"Limitation on Restricted Payments" covenant, and (vii) any transaction that
constitutes a Change of Control.
"Asset Swap" means the execution of a definitive agreement, subject only to
customary closing conditions that LLS in good faith believes will be satisfied,
for a substantially concurrent purchase and sale, or exchange, of Productive
Assets between LLS or any of its Restricted Subsidiaries and another Person or
group of affiliated Persons; provided, however, that any amendment to or waiver
of any closing condition that individually or in the aggregate is material to
the Asset Swap shall be deemed to be a new Asset Swap.
"Attributable Indebtedness" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, the present value, discounted at the
interest rate borne by the notes, compounded annually, of the total obligations
of the lessee for rental payments during the remaining term of the lease
included in such Sale/Leaseback Transaction, including any period for which such
lease has been extended.
"Average Life" means, as of the date of determination, with respect to any
indebtedness, the quotient obtained by dividing (i) the sum of the products of
the numbers of years from the date of determination to the dates of each
successive scheduled principal payment of such Indebtedness or redemption
multiplied by the amount of such payment by (ii) the sum of all such payments.
"Bank Indebtedness" means any and all amounts, whether outstanding on the
Issue Date or thereafter incurred, payable or guaranteed by LLS under or in
respect of the Credit Agreement or any Interest Rate Agreement or Currency
Agreement with a holder of Bank Indebtedness and any related notes, collateral
documents, letters of credit and guarantees, including principal, premium, if
any, interest, including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to LLS whether or not a
claim for post filing interest is allowed in such proceedings, fees, charges,
expenses, reimbursement obligations, guarantees and all other amounts payable
thereunder or in respect thereof.
"Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP, and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date such lease may be terminated without penalty.
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"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in, however designated, equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Consolidated Cash Flow" for any period means the Consolidated Net Income
for such period, plus, without duplication, the following to the extent deducted
in calculating such Consolidated Net Income: (i) income tax expense, (ii)
Consolidated Interest Expense, (iii) depreciation expense, (iv) amortization
expense, (v) exchange or translation losses on foreign currencies, and (vi) all
other non-cash items reducing Consolidated Net Income, excluding any non-cash
item to the extent it represents an accrual of or reserve for cash disbursements
for any subsequent period prior to the Stated Maturity of the notes, and less,
to the extent added in calculating Consolidated Net Income, (x) exchange or
translation gains on foreign currencies and (y) non-cash items, excluding such
non-cash items to the extent they represent an accrual for cash receipts
reasonably expected to be received prior to the Stated Maturity of the notes, in
each case for such period. Notwithstanding the foregoing, the income tax
expense, depreciation expense and amortization expense of a Subsidiary of LLS
shall be included in Consolidated Cash Flow only to the extent, and in the same
proportion, that the net income of such Subsidiary was included in calculating
Consolidated Net Income.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of Consolidated Cash Flow for the period of
the most recent four consecutive fiscal quarters ending prior to the date of
such determination and as to which financial statements are available to (ii)
Consolidated Interest Expense for such four fiscal quarters; provided, however,
that (1) if LLS or any of its Restricted Subsidiaries has Incurred any
Indebtedness since the beginning of such period that remains outstanding or if
the transaction giving rise to the need to calculate Consolidated Coverage Ratio
is an incurrence of Indebtedness, or both, Consolidated Cash Flow and
Consolidated Interest Expense for such period shall be calculated after giving
effect on a pro forma basis to (A) such Indebtedness as if such Indebtedness had
been Incurred on the first day of such period, provided that if such
Indebtedness is Incurred under a revolving credit facility or similar
arrangement or under any predecessor revolving credit or similar arrangement
only that portion of such Indebtedness that constitutes the one year projected
minimum balance of such Indebtedness, as determined in good faith by senior
management of LLS and assuming a constant level of sales shall be deemed
outstanding for purposes of this calculation and (B) the discharge of any other
Indebtedness repaid, repurchased, defeased or otherwise discharged with the
proceeds of such new Indebtedness as if such discharge had occurred on the first
day of such period, (2) if since the beginning of such period any Indebtedness
of LLS or any of its Restricted Subsidiaries has been repaid, repurchased,
defeased or otherwise discharged, other than Indebtedness under a revolving
credit or similar arrangement unless such revolving credit Indebtedness has been
permanently repaid and has not been replaced, Consolidated Interest Expense for
such period shall be calculated after giving pro forma effect thereto as if such
Indebtedness had been repaid, repurchased, defeased or otherwise discharged on
the first day of such period, (3) if since the beginning of such period LLS or
any of its Restricted Subsidiaries shall have made any Asset Disposition or if
the transaction giving rise to the need to calculate the Consolidated Coverage
Ratio is an Asset Disposition, Consolidated Cash Flow for such period shall be
reduced by an amount equal to the Consolidated Cash Flow, if positive,
attributable to the assets which are the subject of such Asset Disposition for
such period or increased by an amount equal to the Consolidated Cash Flow, if
negative, attributable thereto for such period, and Consolidated Interest
Expense for such period shall be (i) reduced by an amount equal to the
Consolidated Interest Expense attributable to any Indebtedness of LLS or any of
its Restricted Subsidiaries repaid, repurchased, defeased or otherwise
discharged with respect to LLS and its continuing Restricted Subsidiaries in
connection with such Asset Disposition for such period or, if the Capital Stock
of any Restricted Subsidiary of LLS is sold, the Consolidated Interest Expense
for such period directly attributable to the Indebtedness of such Restricted
Subsidiary to the extent LLS and its continuing Restricted Subsidiaries are no
longer liable for such Indebtedness after such sale, and (ii) increased by
interest income attributable to the assets which are the subject of such Asset
Disposition for such period, (4) if since the beginning of such period LLS or
any of its Restricted Subsidiaries, by merger or otherwise, shall have made an
Investment in any Restricted Subsidiary of LLS, or any Person which becomes a
Restricted Subsidiary of LLS, or an
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acquisition of assets, including any Investment in a Restricted Subsidiary of
LLS or any acquisition of assets occurring in connection with a transaction
causing a calculation to be made hereunder, which constitutes all or
substantially all of an operating unit of a business, or if the transaction
giving rise to such calculation is a transaction subject to the "Mergers and
Consolidations" covenant, Consolidated Cash Flow and Consolidated Interest
Expense for such period shall be calculated after giving pro forma effect
thereto, including the Incurrence of any Indebtedness and the use of the
proceeds therefrom, as if such Investment or acquisition occurred on the first
day of such period and (5) if since the beginning of such period any Person,
that subsequently became a Restricted Subsidiary of LLS or was merged with or
into LLS or any Restricted Subsidiary of LLS since the beginning of such period,
shall have made any Asset Disposition, Investment or acquisition of assets that
would have required an adjustment pursuant to clause (3) or (4) above if made by
LLS or a Restricted Subsidiary of LLS during such period, Consolidated Cash Flow
and Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto as if such Asset Disposition, Investment or
acquisition occurred on the first day of such period. For purposes of this
definition, whenever pro forma effect is to be given to an acquisition of
assets, the amount of income or earnings relating thereto and the amount of
Consolidated Interest Expense associated with any Indebtedness Incurred in
connection therewith, the pro forma calculations shall be determined in good
faith by a responsible financial or accounting officer of LLS. If any
Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest expense on such Indebtedness shall be calculated as if the
rate in effect on the date of determination had been the applicable rate for the
entire period, taking into account any Interest Rate Agreement applicable to
such Indebtedness if such Interest Rate Agreement has a remaining term in excess
of 12 months.
"Consolidated Interest Expense" means, for any period, the total interest
expense of LLS and its Restricted Subsidiaries, plus, to the extent not included
in such interest expense, (i) interest expense attributable to capital leases,
(ii) amortization of debt discount, (iii) capitalized interest, (iv) non-cash
interest expense, (v) commissions, discounts and other fees and charges owed
with respect to letters of credit and bankers' acceptance financing, (vi)
interest actually paid by LLS or any such Restricted Subsidiary under any
Guarantee of Indebtedness or other obligation of any other Person, (vii) net
payments, whether positive or negative, pursuant to Interest Rate Agreements,
(viii) the cash contributions to any employee stock ownership plan or similar
trust to the extent such contributions are used by such plan or trust to pay
interest or fees to any Person, other than LLS, in connection with Indebtedness
Incurred by such plan or trust and (ix) cash and Disqualified Stock dividends in
respect of all Preferred Stock of Restricted Subsidiaries and Disqualified Stock
of LLS held by Persons other than LLS or a Wholly Owned Subsidiary and less (a)
to the extent included in such interest expense, the amortization of capitalized
debt issuance costs and debt discount solely to the extent relating to the
issuance and sale of Indebtedness together with any equity security as part of
an investment unit and (b) interest income. Notwithstanding the foregoing, the
Consolidated Interest Expense with respect to any Restricted Subsidiary of LLS,
that was not a Wholly-Owned Subsidiary, shall be included only to the extent,
and in the same proportion, that the net income of such Restricted Subsidiary
was included in calculating Consolidated Net Income.
"Consolidated Net Income" means, for any period, the net income (loss) of
LLS and its consolidated Restricted Subsidiaries; provided, however, that there
shall not be included in such Consolidated Net Income: (i) any net income (loss)
of any person acquired by LLS or any of its Restricted Subsidiaries in a pooling
of interests transaction for any period prior to the date of such acquisition,
(ii) any net income of any Restricted Subsidiary of the Company if such
Restricted Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to LLS, other than restrictions in effect on
the Issue Date with respect to a Restricted Subsidiary of LLS and other than
restrictions that are created or exist in compliance with the "Limitation on
Restrictions on Distributions from Restricted Subsidiaries" covenant, excluding
clause (g) thereof from the operation of this clause, (iii) any gain or loss
realized upon the sale or other disposition of any assets of LLS or its
consolidated Restricted Subsidiaries, including pursuant to any Sale/Leaseback
Transaction, which are not sold or otherwise disposed of in the ordinary course
of business and any gain or loss realized upon the sale or other disposition of
any Capital Stock of any Person, (iv) any extraordinary
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gain or loss, (v) the cumulative effect of a change in accounting principles,
(vi) one-time transaction expenses incurred in connection with the Transactions
that are not capitalized or amortized pursuant to GAAP, (vii) charges relating
to the writeoff of acquired in-process research and development expenses and
other intangibles in connection with the application of the purchase method of
accounting to the net assets of a Person acquired by LLS and its Restricted
Subsidiaries and charges relating to writeoff of intangible assets, (viii)
charges relating to start-up or organizational costs of any facilities purchased
or otherwise opened by LLS or any of its consolidated Restricted Subsidiaries,
after the Issue Date, including any operating inefficiencies associated
therewith, not to exceed $4.0 million in the aggregate per facility, (ix) the
net income of any Person, other than a Restricted Subsidiary, except to the
extent of the lesser of (A) dividends or distributions paid to LLS or any of its
Restricted Subsidiaries by such Person and (B) the net income of such Person,
but in no event less than zero, and the net loss of such Person, other than an
Unrestricted Subsidiary, shall be included only to the extent of the aggregate
Investment of LLS or any of its Restricted Subsidiaries in such Person and (x)
any non-cash expenses attributable to grants or exercises of employee stock
options. Notwithstanding the foregoing, for the purpose of the covenant
described under "Certain Covenants -- Limitation on Restricted Payments" only,
there shall be excluded from Consolidated Net Income any dividends, repayments
of loans or advances or other transfers of assets from Unrestricted Subsidiaries
to LLS or a Restricted Subsidiary to the extent such dividends, repayments or
transfers increase the amount of Restricted Payments permitted under such
covenant pursuant to clause (a)(3)(E) thereof.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of LLS and its consolidated Restricted Subsidiaries, determined on
a consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of LLS ending prior to the taking of any action for the purpose
of which the determination is being made and for which financial statements are
available, but in no event ending more than 180 days prior to the taking of such
action, as (i) the par or stated value of all outstanding Capital Stock of LLS
plus (ii) paid-in capital or capital surplus relating to such Capital Stock plus
(iii) any retained earnings or earned surplus less (A) any accumulated deficit
and (B) any amounts attributable to Disqualified Stock.
"Continuing Director" means, as of the date of determination, any Person
who (i) was a member of the Board of Directors of LLS on the Issue Date, (ii)
was nominated for election or elected to the Board of Directors of LLS with the
affirmative vote of a majority of the Continuing Directors who were members of
such Board of Directors at the time of such nomination or election, or (iii) is
a representative of a Permitted Holder.
"Credit Agreement" means (i) the Credit Agreement, dated as of July 30,
1999, among LLS, Bank of America, National Association, as Administrative Agent,
Credit Suisse First Boston, as Syndication Agent, Bankers Trust Company, as
Documentation Agent, and the lenders from time to time parties thereto, as the
same may be amended, supplemented or otherwise modified from time to time,
including amendments, supplements or modifications relating to the addition or
elimination of Subsidiaries of LLS as borrowers or other credit parties
thereunder, and (ii) any renewal, extension, refunding, restructuring,
replacement or refinancing thereof, whether with the original Administrative
Agent and lenders or another administrative agent or agents or one or more other
lenders and whether provided under the original Credit Agreement or one or more
other credit or other agreements or indentures.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement as to which such
Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) the Bank Indebtedness and (ii)
any other Senior Indebtedness which, at the date of determination, has an
aggregate principal amount outstanding of, or under which, at the date of
determination, the holders thereof are committed to lend up to, at least $20.0
million and is specifically designated by LLS in the instrument evidencing or
governing such Senior Indebtedness as "Designated Senior Indebtedness" for
purposes of the Indenture.
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"Disqualified Stock" means, with respect to any Person, any Capital Stock
of such Person which by its terms, or by the terms of any security into which it
is convertible or for which it is exchangeable, or upon the happening of any
event (i) matures other than as a result of a Change of Control or is
mandatorily redeemable pursuant to a sinking fund obligation or otherwise, (ii)
is convertible or exchangeable for Indebtedness or Disqualified Stock, excluding
capital stock which is convertible or exchangeable solely at the option of LLS
or a Restricted Subsidiary, or (iii) is redeemable at the option of the holder
thereof, other than as a result of a Change of Control, in whole or in part, in
each case on or prior to the Stated Maturity of the notes, provided, that only
the portion of Capital Stock which so matures or is mandatorily redeemable, is
so convertible or exchangeable or is so redeemable at the option of the holder
thereof prior to such Stated Maturity shall be deemed to be Disqualified Stock.
"Equity Offering" means an offering for cash by LLS of its common stock, or
options, warrants or rights with respect to its common stock.
"Financial Advisory Agreement" means the financial advisory agreement
between Hicks Muse Partners and LLS as in effect on the Issue Date.
"Foreign Subsidiaries" means a Restricted Subsidiary not organized or
existing under the laws of the United States, any state thereof, the District of
Columbia, or any territory thereof.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those 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 the Commission or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations based on GAAP contained in
the Indenture shall be computed in conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay, or advance or supply funds for the purchase or payment of, such
Indebtedness of such other Person, whether arising by virtue of partnership
arrangements, or by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise, or (ii) entered into for purposes of assuring in any
other manner the obligee of such Indebtedness of the payment thereof or to
protect such obligee against loss in respect thereof, in whole or in part;
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such person becomes a Restricted Subsidiary, whether by
merger, consolidation, acquisition or otherwise, shall be deemed to be incurred
by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary.
"Indebtedness" means, with respect to any Person on any date of
determination, without duplication, (i) the principal of and premium, if any, in
respect of indebtedness of such Person for borrowed money, (ii) the principal of
and premium, if any, in respect of obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments, (iii) all obligations of
such Person in respect of letters of credit or other similar instruments,
including reimbursement obligations with respect thereto, other than obligations
with respect to letters of credit securing obligations, other than obligations
described in clauses (i), (ii) and (v), entered into in the ordinary course of
business of such Person to the extent that such letters of credit are not drawn
upon or, if and to the extent drawn upon, such drawing is reimbursed no later
than the third business day following receipt by such Person of a demand for
reimbursement following payment on the letter of credit, (iv) all obligations of
such Person to pay the deferred and unpaid purchase price of property or
services except trade payables and accrued expenses incurred in the ordinary
course of business, which purchase price is due more than six months after the
date of placing
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such property in service or taking delivery and title thereto or the completion
of such services, (v) all Capitalized Lease Obligations and all Attributable
Indebtedness of such Person, (vi) all Indebtedness of other Persons secured by a
Lien on any asset of such Person, whether or not such Indebtedness is assumed by
such Person, (vii) all Indebtedness of other Persons to the extent Guaranteed by
such Person, (viii) the amount of all obligations of such Person with respect to
the redemption, repayment or other repurchase of any Disqualified Stock or, with
respect to any Restricted Subsidiary of LLS, any Preferred Stock of such
Restricted Subsidiary to the extent such obligation arises on or before the
Stated Maturity of the notes but excluding, in each case, any accrued dividends
and (ix) to the extent not otherwise included in this definition, obligations
under Currency Agreements and Interest Rate Agreements. The amount of
Indebtedness of any Person at any date shall be the outstanding principal amount
of all unconditional obligations as described above, as such amount would be
reflected on a balance sheet prepared in accordance with GAAP, and the maximum
liability of such Person, upon the occurrence of the contingency giving rise to
the obligation, of any contingent obligations described above at such date.
"Interest Rate Agreement" means with respect to any Person any interest
rate protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.
"Investment" in any Person means any direct or indirect advance, loan,
other than advances to customers in the ordinary course of business, or other
extension of credit, including by way of Guarantee or similar arrangement, but
excluding any debt or extension of credit represented by a bank deposit other
than a time deposit, or capital contribution to, by means of any transfer of
cash or other property to others or any payment for property or services for the
account or use of others, or any purchase or acquisition of Capital Stock,
Indebtedness or other similar instruments issued by such Person. For purposes of
the "Limitation on Restricted Payments" covenant, (i) "Investment" shall include
the portion, proportionate to the equity interest of LLS in a Restricted
Subsidiary to be designated as an Unrestricted Subsidiary, of the fair market
value of the net assets of such Restricted Subsidiary of LLS at the time that
such Restricted Subsidiary is designated an Unrestricted Subsidiary; provided,
however, that upon a redesignation of such Unrestricted Subsidiary as a
Restricted Subsidiary, LLS shall be deemed to continue to have a permanent
"Investment" in an Unrestricted Subsidiary in an amount, if positive, equal to
(x) LLS' "Investment" in such Subsidiary at the time of such redesignation less
(y) the portion, proportionate to the equity interest of LLS in such Subsidiary,
of the fair market value of the net assets of such Subsidiary at the time that
such Subsidiary is so re-designated a Restricted Subsidiary; and (ii) any
property transferred to or from an Unrestricted Subsidiary shall be valued at
its fair market value at the time of such transfer, in each case as determined
in good faith by the Board of Directors and evidenced by a resolution of such
Board of Directors certified in an Officers' Certificate to the Trustee.
"Issue Date" means the date on which the notes are originally issued.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"monitoring and oversight and agreement" means the monitoring and oversight
agreement between Hicks Muse Partners and LLS as in effect on the Issue Date.
"Net Available Cash" from an Asset Disposition means cash payments
received, including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Indebtedness or other obligations relating
to the properties or assets subject to such Asset Disposition, therefrom, in
each case net of (i) all legal, title and recording tax expenses, commissions
and other fees and expenses incurred, and all Federal, state, foreign and local
taxes required to be paid or accrued as a liability under GAAP in connection
with such Asset Disposition, (ii) all payments made on any Indebtedness which is
secured by any assets subject to such Asset Disposition, in accordance with the
terms of any Lien upon such assets, or which must by its terms, or in order to
obtain a necessary consent to such Asset Disposition, or by applicable law, be
repaid out of the
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proceeds from such Asset Disposition, (iii) all distributions and other payments
required to be made to any Person owning a beneficial interest in assets subject
to sale or minority interest holders in Subsidiaries or joint ventures as a
result of such Asset Disposition, (iv) the deduction of appropriate amounts to
be provided by the seller as a reserve, in accordance with GAAP, against any
liabilities associated with the assets disposed of in such Asset Disposition and
retained by LLS or any Restricted Subsidiary of LLS after such Asset Disposition
and (v) any portion of the purchase price from an Asset Disposition placed in
escrow, whether as a reserve for adjustment of the purchase price, for
satisfaction of indemnities in respect of such Asset Disposition or otherwise in
connection with such Asset Disposition; provided, however, that upon the
termination of such escrow, Net Available Cash shall be increased by any portion
of funds therein released to LLS or any Restricted Subsidiary.
"Net Cash Proceeds" means, with respect to any issuance or sale of Capital
Stock, the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result of such issuance or sale.
"Non-Recourse Debt" means Indebtedness (i) as to which neither LLS nor any
Restricted Subsidiary (a) provides any guarantee or credit support of any kind,
including any undertaking, guarantee, indemnity, agreement or instrument that
would constitute Indebtedness, or (b) is directly or indirectly liable, as a
guarantor or otherwise, and (ii) no default with respect to which, including any
rights that the holders thereof may have to take enforcement action against an
Unrestricted Subsidiary, would permit upon notice, lapse of time or both any
holder of any other Indebtedness of LLS or any Restricted Subsidiary to declare
a default under such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity.
"Permitted Indebtedness" means (i) Indebtedness of LLS owing to and held by
any Wholly-Owned Subsidiary or Indebtedness of a Restricted Subsidiary owing to
and held by LLS or any Wholly-Owned Subsidiary; provided, however, that any
subsequent issuance or transfer of any Capital Stock or any other event which
results in any such Wholly-Owned Subsidiary ceasing to be a Wholly-Owned
Subsidiary or any subsequent transfer of any such Indebtedness, except to LLS or
a Wholly-Owned Subsidiary, shall be deemed, in each case, to constitute the
Incurrence of such Indebtedness by the issuer thereof; (ii) Indebtedness
represented by (x) the notes, (y) any Indebtedness, other than the Indebtedness
described in clauses (i), (ii) and (iv) of paragraph (b) of the covenant
described under "Limitation on Indebtedness" and other than Indebtedness
Incurred pursuant to clause (i) above or clauses (iv), (v), (vi) or (vii) below,
outstanding on the Issue Date and (z) any Refinancing Indebtedness Incurred in
respect of any Indebtedness described in this clause (ii) or Incurred pursuant
to paragraph (a) of the covenant described under "Limitation on Indebtedness";
(iii) (A) Indebtedness of a Restricted Subsidiary Incurred and outstanding on
the date on which such Restricted Subsidiary was acquired by LLS or its
Restricted Subsidiaries, other than Indebtedness Incurred as consideration in,
or to provide all or any portion of the funds or credit support utilized to
consummate, the transaction or series of related transactions pursuant to which
such Restricted Subsidiary became a Subsidiary or was otherwise acquired by LLS;
provided, however, that at the time such Restricted Subsidiary is acquired by
LLS, LLS would have been able to Incur $1.00 of additional Indebtedness pursuant
to paragraph (a) of the covenant described under "Limitation on Indebtedness"
above after giving effect to the Incurrence of such Indebtedness pursuant to
this clause (iii) and (B) Refinancing Indebtedness Incurred by LLS or a
Restricted Subsidiary in respect of Indebtedness Incurred by such Restricted
Subsidiary pursuant to this clause (iii); (iv) Indebtedness (A) in respect of
performance bonds, bankers' acceptances and surety or appeal bonds provided by
LLS or any of its Restricted Subsidiaries to their customers in the ordinary
course of their business, (B) in respect of performance bonds or similar
obligations of LLS or any of its Restricted Subsidiaries for or in connection
with pledges, deposits or payments made or given in the ordinary course of
business in connection with or to secure statutory, regulatory or similar
obligations, including obligations under health, safety or environmental
obligations, (C) arising from Guarantees to suppliers, lessors, licensees,
contractors, franchisees or customers of obligations, other than Indebtedness,
Incurred in the ordinary course of business and (D) under Currency Agreements
and Interest Rate
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Agreements; provided, however, that in the case of Currency Agreements and
Interest Rate Agreements, such Currency Agreements and Interest Rate Agreements
are entered into for bona fide hedging purposes of LLS or its Restricted
Subsidiaries, as determined in good faith by the Board of Directors or senior
management of LLS, and correspond in terms of notional amount, duration,
currencies and interest rates, as applicable, to Indebtedness of LLS or its
Restricted Subsidiaries Incurred without violation of the Indenture or to
business transactions of LLS or its Restricted Subsidiaries on customary terms
entered into in the ordinary course of business; (v) Indebtedness arising from
agreements providing for indemnification, adjustment of purchase price or
similar obligations, or from Guarantees or letters of credit, surety bonds or
performance bonds securing any obligations of LLS or any of its Restricted
Subsidiaries pursuant to such agreements, in each case Incurred in connection
with the disposition of any business, assets or Restricted Subsidiary of LLS,
other than Guarantees of Indebtedness or other obligations Incurred by any
Person acquiring all or any portion of such business assets or Restricted
Subsidiary of LLS for the purpose of financing such acquisition, in a principal
amount not to exceed the gross proceeds actually received by LLS or any of its
Restricted Subsidiaries in connection with such disposition, provided, however,
that the principal amount of any Indebtedness Incurred pursuant to this clause
(v), when taken together with all Indebtedness Incurred pursuant to this clause
(v) and then outstanding since the Issue Date, shall not exceed $15.0 million;
(vi) Indebtedness consisting of (A) Guarantees by LLS or a Restricted LLS or a
Restricted Subsidiary of Indebtedness Incurred by a Wholly-Owned Subsidiary
without violation of the Indenture and (B) Guarantees by a Restricted Subsidiary
of Senior Indebtedness Incurred by LLS without violation of the Indenture, so
long as such Restricted Subsidiary could have Incurred such Indebtedness
directly without violation of the Indenture; (vii) Indebtedness arising from
agreements with governmental agencies of any foreign country, or political
subdivision or agency thereof, relating to the construction of plants and the
purchase and installation, including related training costs, of equipment to be
used in a Related Business; provided that such Indebtedness (A) has a maturity
in excess of ten years and 91 days and (B) in the aggregate does not exceed
$15.0 million since the Issue Date; (viii) Indebtedness of all Foreign
Subsidiaries for working capital purposes and overdraft facilities in an
aggregate amount not to exceed $15.0 million at any one time outstanding; and
(ix) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument drawn against insufficient
funds in the ordinary course of business, provided that such Indebtedness is
extinguished promptly in accordance with customary practices.
"Permitted Investment" means an Investment by LLS or any of its Restricted
Subsidiaries in (i) a Wholly-Owned Subsidiary of LLS; provided, however, that
the primary business of such Wholly-Owned Subsidiary is a Related Business; (ii)
another Person if as a result of such Investment such other Person becomes a
Wholly-Owned Subsidiary of LLS or is merged or consolidated with or into, or
transfers or conveys all or substantially all its assets to, LLS or a
Wholly-Owned Subsidiary of LLS; provided, however, that in each case such
Person's primary business is a Related Business; (iii) Temporary Cash
Investments; (iv) receivables owing to LLS or any of its Restricted
Subsidiaries, if created or acquired in the ordinary course of business and
payable or dischargeable in accordance with customary trade terms; (v) payroll,
travel and similar advances to cover matters that are expected at the time of
such advances ultimately to be treated as expenses for accounting purposes and
that are made in the ordinary course of business; (vi) loans or advances to
employees for purposes of purchasing the common stock of LLS in an aggregate
amount outstanding at any one time not to exceed $7.5 million since the Issue
Date and other loans and advances to employees made in the ordinary course of
business consistent with past practices of LLS or such Restricted Subsidiary;
(vii) stock, obligations or securities received in settlement of debts created
in the ordinary course of business and owing to LLS or any of its Restricted
Subsidiaries or in satisfaction of judgments or claims; (viii) a Person engaged
in a Related Business or a loan or advance to LLS the proceeds of which are used
solely to make an investment in a Person engaged in a Related Business or a
Guarantee by LLS of Indebtedness of any Person in which such Investment has been
made; provided, however, that no Permitted Investments may be made pursuant to
this clause (viii) to the extent the amount thereof would, when taken together
with all other Permitted Investments made pursuant to this clause (viii) since
the Issue Date, exceed $20.0 million in the aggregate (plus, to the extent not
previously reinvested, any return of capital realized since the Issue Date on
Permitted Investments made
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pursuant to this clause (viii), or any release or other cancellation of any
Guarantee constituting such Permitted Investment; (ix) Persons to the extent
such Investment is received by LLS or any Restricted Subsidiary as consideration
for Asset Dispositions effected in compliance with the covenant described under
"Limitations on Sales of Assets and Subsidiary Stock"; (x) prepayments and other
credits to suppliers made in the ordinary course of business consistent with the
past practices of LLS and its Restricted Subsidiaries; and (xi) Investments in
connection with pledges, deposits, payments or performance bonds made or given
in the ordinary course of business in connection with or to secure statutory,
regulatory or similar obligations, including obligations under health, safety or
environmental obligations.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"Preferred Stock" means, as applied to the Capital Stock of any
corporation, Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"Productive Assets" means assets of a kind used or usable by LLS and its
Restricted Subsidiaries in the business of LLS or any Related Business.
A "Public Market" exists at any time with respect to the common stock of
LLS if (a) the common stock of LLS is then registered with the Securities and
Exchange Commission pursuant to Section 12(b) or 12(g) of the Exchange Act and
traded either on a national securities exchange or in the National Association
of Securities Dealers Automated Quotation System and (b) at least 15% of the
total issued and outstanding common stock of LLS has been distributed prior to
such time by means of an effective registration statement under the Securities
Act.
"Refinancing Indebtedness" means Indebtedness that is Incurred to refund,
refinance, replace, renew, repay or extend, including pursuant to any defeasance
or discharge mechanism, (collectively, "refinance") any Indebtedness existing on
the Issue Date or Incurred in compliance with the Indenture, including
Indebtedness of LLS that refinances Indebtedness of any Restricted Subsidiary
and Indebtedness of any Restricted Subsidiary that refinances Indebtedness of
another Restricted Subsidiary, including Indebtedness that refinances
Refinancing Indebtedness, provided, however, that (i) the Refinancing
Indebtedness has a Stated Maturity no earlier than the earlier of (A) the
ninety-first day after the Stated Maturity of the notes and (B) the Stated
Maturity of the Indebtedness being refinanced, (ii) the Refinancing Indebtedness
has an Average Life at the time such Refinancing Indebtedness is Incurred that
is equal to or greater than the lesser of (A) the Average Life of the notes and
(B) the Average Life of the Indebtedness being refinanced, and (iii) such
Refinancing Indebtedness is Incurred in an aggregate principal amount, or if
issued with original issue discount, an aggregate issue price, that is equal to,
or 101% of, in the case of a refinancing of the notes in connection with a
Change of Control, or less than the sum of the aggregate principal amount, or if
issued with original issue discount, the aggregate accredited value, then
outstanding of the Indebtedness being refinanced, plus applicable premium and
reasonable costs paid in connection with such refinancing.
"Related Business" means any business which is the same as or related,
ancillary or complementary to any of the businesses of LLS and its Restricted
Subsidiaries on the Issue Date, as reasonably determined by the Board of
Directors of LLS.
"Representative" means any trustee, agent or representative, if any, of an
issue of Senior Indebtedness.
"Restricted Subsidiary" means any Subsidiary of LLS other than an
Unrestricted Subsidiary.
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"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby LLS or a Restricted Subsidiary transfers
such property to a Person and LLS or a Subsidiary leases it from such Person.
"Secured Indebtedness" means any Indebtedness of LLS secured by a Lien.
"Senior Subordinated Indebtedness" means the notes and any other
Indebtedness of LLS that specifically provides that such Indebtedness is to rank
pari passu with the notes in right of payment and is not subordinated by its
terms in right of payment to any Indebtedness or other obligation of LLS which
is not Senior Indebtedness.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of LLS within the meaning of Rule 1-02 under Regulation
S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision.
"Subordinated Indebtedness" means any Indebtedness of LLS, whether
outstanding on the Issue Date or thereafter Incurred, which is subordinate or
junior in right of payment to the notes pursuant to a written agreement.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other interests, including partnership interests,
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 (i) such Person, (ii) such Person and one
or more Subsidiaries of such Person or (iii) one or more Subsidiaries of such
Person. Unless otherwise specified herein, each reference to a Subsidiary shall
refer to a Subsidiary of LLS.
"Temporary Cash Investments" means any of the following: (i) any Investment
in direct obligations of the United States of America or any agency thereof or
obligations Guaranteed by the United States of America or any agency thereof,
(ii) Investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States of America having capital, surplus and undivided profits
aggregating in excess of $250.0 million, or the foreign currency equivalent
thereof, and whose long-term debt, or whose parent holding company's long-term
debt, is rated "A" or such similar equivalent rating or higher by at least one
nationally recognized statistical rating organization as defined in Rule 436
under the Securities Act, (iii) repurchase obligations with a term of not more
than 30 days for underlying securities of the types described in clause (i)
above entered into with a bank meeting the qualifications described in clause
(ii) above, (iv) Investments in commercial paper, maturing not more than 180
days after the date of acquisition, issued by a corporation (other than an
Affiliate of LLS) organized and in existence under the laws of the United States
of America or any foreign country recognized by the United States of America
with a rating at the time as of which any investment therein is made of "P-1"
(or higher) according to Moody's Investors Service, Inc. or "A-1" (or higher)
according to Standard and Poor's Ratings Group, (v) Investments in securities
with maturities of six months or less from the date of acquisition issued or
fully guaranteed by any state, commonwealth or territory of the United States of
America, or by any political subdivision or taxing authority thereof, and rated
at least "A" by Standard & Poor's Ratings Group or "A" by Moody's Investors
Service, Inc. and (vi) Investments in mutual funds whose investment guidelines
restrict substantially all of such funds' investments to those satisfying the
provisions of clauses (i) through (v) above.
"Unrestricted Subsidiary" means (i) any Subsidiary of LLS that at the time
of determination shall be designated an Unrestricted Subsidiary by the Board of
Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
LLS, including any newly acquired or newly formed Subsidiary of LLS, to be an
Unrestricted Subsidiary
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unless such Subsidiary or any of its Subsidiaries owns any Capital Stock or
Indebtedness of, or owns or holds any Lien on any property of, LLS or any
Restricted Subsidiary of LLS that is not a Subsidiary of the Subsidiary to be so
designated; provided, however, that either (A) the Subsidiary to be so
designated has total consolidated assets of $10,000 or less or (B) if such
Subsidiary has consolidated assets greater than $10,000, then such designation
would be permitted under "Limitation on Restricted Payments." The Board of
Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided, however, that immediately after giving effect to such
designation (x) LLS could Incur $1.00 of additional Indebtedness under clause
(a) of "Limitation on Indebtedness" and (y) no Default shall have occurred and
be continuing. Any such designation by the Board of Directors shall be evidenced
to the Trustee by promptly filing with the Trustee a copy of the Board
Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations, or certificates
representing an ownership interest in such obligations, of the United States of
America, including any agency or instrumentality thereof, for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
"Wholly-Owned Subsidiary" means a Restricted Subsidiary of LLS, at least
99% of the Capital Stock of which, other than directors' qualifying shares, is
owned by LLS or another Wholly-Owned Subsidiary.
BOOK-ENTRY, DELIVERY AND FORM
The notes initially will be represented by one or more notes in registered,
global form without interest coupons (collectively, the "Global Notes"). The
Global Notes will be deposited upon issuance with the Trustee as custodian for
DTC, in New York, New York, and registered in the name of DTC or its nominee, in
each case for credit to an account of a direct or indirect participant as
described below.
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. Beneficial interests in the Global Notes may not be exchanged for notes
in certificated form except in the limited circumstances described below. See
"-- Exchange of Book-Entry Notes for Certificated Notes."
The notes, including beneficial interests in the Global Notes, will be
subject to certain restrictions on transfer and will bear a restrictive legend
as described under "Notice to Investors." In addition, transfer of beneficial
interests in the Global Notes will be subject to the applicable rules and
procedures of DTC and its direct or indirect participants, which may change from
time to time.
The notes may be presented for registration of transfer and exchange at the
offices of the Registrar.
DEPOSITORY PROCEDURES
DTC has advised LLS that DTC is a limited-purpose trust company created to
hold securities for its participating organizations (collectively, the
"Participants") and to facilitate the clearance and settlement of transactions
in those securities between Participants through electronic book-entry changes
in accounts of Participants. The Participants include securities brokers and
dealers, including the initial purchaser, banks, trust companies, clearing
corporations and certain other organizations. Access to DTC's system is also
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 (collectively, the "Indirect Participants").
Persons who are not Participants may beneficially own securities held by or on
behalf of DTC only through the Participants or Indirect Participants. The
ownership interest and transfer of ownership interest of each actual purchaser
of each security held by or on behalf of DTC are recorded on the records of the
Participants and Indirect Participants.
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DTC has also advised LLS that pursuant to procedures established by it, (1)
upon deposit of the Global Notes, DTC will credit the accounts of Participants
designated by the initial purchaser with portions of the principal amount of
Global Notes and (2) ownership of such interests in the Global Notes will be
shown on, and the transfer of ownership thereof will be effected only through,
records maintained by DTC, with respect to Participants, or by Participants and
the Indirect Participants, with respect to other owners of beneficial interests
in the Global Notes.
Investors in the Global Notes may hold their interests therein directly
through DTC, if they are Participants in such system, or indirectly through
organizations that are Participants in such system. All interests in a Global
Note may be subject to the procedures and requirements of DTC.
The laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer beneficial interest in a Global Note to such persons may be limited to
that extent. Because DTC can act only on behalf of Participants, which in turn
act on behalf of Indirect Participants and certain banks, the ability of a
person having a beneficial interest in a Global Note to pledge such interest to
persons or entities that do not participate in the DTC system, or otherwise take
actions in respect of such interest, may be affected by the lack of a physical
certificate evidencing such interest. For certain other restrictions on the
transferability of the notes, see "-- Exchange of Book-Entry Notes for
Certificated Notes."
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTES WILL NOT
HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR
HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Payments in respect of the principal, premium, liquidated damages, if any,
and interest on a Global note registered in the name of DTC or its nominee will
be payable by the Trustee to DTC or its nominee in its capacity as the
registered holder under the Indenture. Under the terms of the Indenture, LLS and
the Trustee will treat the persons in whose names the notes, including the
Global Notes, are registered as the owners thereof for the purpose of receiving
such payments and for any and all other purposes whatsoever. Consequently,
neither LLS, the Trustee nor any agent of LLS or the Trustee has or will have
any responsibility or liability for (1) any aspect of DTC's records or any
Participant's or Indirect Participant's records relating to or payments made on
account of beneficial ownership interests in the Global Notes, or for
maintaining, supervising or reviewing any of DTC's records or any Participant's
or Indirect Participant's records relating to the beneficial ownership interests
in the Global Notes or (2) any other matter relating to the actions and
practices of DTC or any of its Participants or Indirect Participants.
DTC has advised LLS that its current practice, upon receipt of any payment
in respect of securities such as the notes, including principal and interest, is
to credit the accounts of the relevant Participants with the payment on the
payment date, in amounts proportionate to their respective holdings in principal
amount of beneficial interests in the relevant security such as the Global Notes
as shown on the records of DTC. Payments by Participants and the Indirect
Participants to the beneficial owners of notes will be governed by standing
instructions and customary practices and will not be the responsibility of DTC,
the Trustee or LLS. Neither LLS nor the Trustee will be liable for any delay by
DTC or its Participants in identifying the beneficial owners of the notes, and
LLS and the Trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee as the registered owner of the notes for
all purposes.
Interests in the Global Notes will trade in DTC's Same-day Funds Settlement
System and secondary market trading activity in such interests 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.
DTC has advised LLS that it will take any action permitted to be taken by a
holder of notes only at the direction of one or more Participants to whose
account DTC interests in the Global Notes are credited and only in respect of
such portion of the aggregate principal amount of the notes as to which such
Participant or Participants has or have given direction. However, if there is an
Event of Default under the
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notes, DTC reserves the right to exchange Global Notes for legended Notes in
certificated form, and to distribute such notes to its Participants.
The information in this section concerning DTC and its book-entry system
has been obtained from sources believed to be reliable, but LLS takes no
responsibility for the accuracy thereof.
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in the Global Notes among Participants in DTC it is under no
obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. Neither the initial purchaser nor
the Trustee will have any responsibility for the performance by DTC or its
Participants or Indirect Participants of their respective obligations under the
rules and procedures governing their operations.
EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES
A Global Note is exchangeable for definitive notes in registered
certificated form if (1) DTC (a) notifies LLS that it is unwilling or unable to
continue as depositary for the Global Note and LLS thereupon fails to appoint a
successor depositary or (b) has ceased to be a clearing agency registered under
the Exchange Act, (2) LLS, at its option, notifies the Trustee in writing that
it elects to cause the issuance of the notes in certificated form or (3) there
shall have occurred and be continuing to occur a Default or an Event of Default
with respect to the notes. In addition, beneficial interests in a Global Note
may be exchanged for certificated notes upon request but only upon instruction
given to the Trustee by or on behalf of DTC in accordance with customary
procedures. In all cases, certificated notes delivered in exchange for any
Global Note or beneficial interest 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, and will bear the
restrictive legend referred to in "Notice to Investors" unless LLS determines
otherwise in compliance with applicable law.
CERTIFICATED NOTES
Subject to certain conditions, any person having a beneficial interest in a
Global Note may, upon request to the Trustee, exchange such beneficial interest
for notes in certificated form (a "Certificated Note"). Upon any such issuance,
the Trustee is required to register such Certificated Notes in the name of, and
cause the same to be delivered to, such person or persons, or the nominee of any
thereof. All such Certificated Notes would be subject to the legend requirements
described herein under "Notice to Investors." In addition, if (1) LLS notifies
the Trustee in writing that the DTC is no longer willing or able to act as a
depositary and LLS is unable to locate a qualified successor within 90 days or
(2) LLS, at its option, notifies the Trustee in writing that it elects to cause
the issuance of notes in the form of Certificated Notes under the Indenture,
then, upon surrender by the Global Note Holder of its Global Note, notes in such
form will be issued to each person that the Global Note Holder and the DTC
identify as being the beneficial owner of the related notes.
Neither LLS nor the Trustee will be liable for any delay by the Global Note
Holder or the DTC in identifying the beneficial owners of notes and the Trustee
may conclusively rely on, and will be protected in relying on, instructions from
the Global Note Holder or the DTC for all purposes.
SAME DAY SETTLEMENT AND PAYMENT
The Indenture will require that payments in respect of the notes
represented by a Global Note, including principal, premium, if any, interest and
liquidated damages, if any, thereon, be made by wire transfer of immediately
available next day funds to the accounts specified by the Global Note Holder.
With respect to Certificated Notes, LLS will make all payments of principal,
premium, if any, interest and liquidated damages, if any, thereon by wire
transfer of immediately available funds to the accounts specified by the holders
thereof or, if no such account is specified, by mailing a check to each such
holder's registered address. LLS expects that secondary trading in the
Certificated Notes will also be settled in immediately available funds.
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UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of the United States federal income tax
considerations relevant to the exchange of your old notes for new notes. The
discussion is based upon the Internal Revenue Code of 1986, Treasury
regulations, Internal Revenue Service rulings and pronouncements, and judicial
decisions now in effect, all of which are subject to change at any time by
legislative, judicial or administrative action. Any such changes may be applied
retroactively in a manner that could adversely affect you. The description does
not consider the effect of any applicable foreign, state, local or other tax
laws or estate or gift tax considerations.
YOU SHOULD CONSULT YOUR OWN TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES TO YOU OF EXCHANGING YOUR OLD NOTES FOR NEW NOTES, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
EXCHANGE OF OLD NOTES FOR NEW NOTES
The exchange of your old notes for new notes pursuant to the exchange offer
should not constitute a sale or an exchange for federal income tax purposes.
Consequently, you should have a basis for the new notes equal to the basis of
your old notes and your holding period for the new notes should include the
period during which your old notes were held. Accordingly, such exchange should
have no federal income tax consequences to you.
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PLAN OF DISTRIBUTION
If you are a broker-dealer that receives new notes for your own account in
exchange for your old notes pursuant to the exchange offer, where your old notes
were acquired as a result of market-making activities or other trading
activities, you must acknowledge that you will deliver a prospectus in
connection with any resale of your new notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by you in connection with
resales of new notes received in exchange for your old notes where your old
notes were acquired as a result of market-making activities or other trading
activities. We have agreed that, for a period of 180 days after the consummation
of the exchange offer, we will make this prospectus, as amended or supplemented,
available to you for use in connection with any such resale. In addition, until
, 2000, if you effect a transaction in the new notes you may be
required to deliver a prospectus.
We will not receive any proceeds from any sale of new notes by
broker-dealers. If you are a broker-dealer, new notes you receive for your own
account in connection with the exchange offer may be sold from time to time in
one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the new notes or a combination
of such methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. You may
make resales directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such new notes. If you are a
broker-dealer that resells new notes that were received by you for your own
account pursuant to the exchange offer and you participate in a distribution of
your new notes, you may be deemed to be an "underwriter" within the meaning of
the Securities Act, and any profit on any resale of new notes and any
commissions or concessions received by you may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that by
acknowledging that you will deliver and by delivering a prospectus, you will not
be deemed to admit that you are an "underwriter" within the meaning of the
Securities Act.
For a period of days after the registration statement is declared
effective, we will promptly send additional copies of this prospectus and any
amendment or supplement to this prospectus to you, if you are a broker-dealer
that requests these documents in the Letter of Transmittal or otherwise. We have
agreed to pay all expenses incident to the exchange offer, including the
expenses of one counsel for the holders of the notes, other than commissions or
concessions of any broker-dealers and will indemnify you, including any
broker-dealers, against certain liabilities, including certain liabilities under
the Securities Act.
LEGAL MATTERS
The validity of the notes will be passed upon for us by Weil, Gotshal &
Manges LLP, Dallas, Texas and New York, New York.
EXPERTS
The financial statements of Courtesy Corporation and its affiliates as of
September 30, 1998 and for each of the two fiscal years in the period ended
September 30, 1998 included in this prospectus have been audited by Altschuler,
Melvoin and Glasser LLP, independent auditors, as stated in their report
appearing herein and have been so included in reliance on the report of such
firm, given on their authority as experts in accounting and auditing.
The financial statements and schedule of LLS Corp., formerly known as
Courtesy Corporation and its affiliates, as of September 30, 1999 and for the
fiscal year ended September 30, 1999 included in this prospectus have been
audited by Arthur Andersen, LLP, independent public accountants, as indicated in
their report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
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AVAILABLE INFORMATION
We will be subject to the informational requirements of the Exchange Act
and in accordance therewith will file reports and other information with the
SEC. These reports and other information may be inspected and copied at the
public reference facilities of the SEC at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the SEC's regional offices at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60611, and 7 World Trade Center,
13th Floor, New York, New York 10048. Copies of such material can also be
obtained at prescribed rates by writing to the Public Reference Section of the
SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
This prospectus does not contain all the information set forth in the
registration statement filed with the SEC on Form S-4 with respect to the new
notes and the exhibits and schedules thereto, particular portions of which have
been omitted pursuant to the rules and regulations of the SEC. Statements made
in this prospectus as to the contents of any contract, agreement or other
document set forth all material elements of such documents, but are not
necessarily complete. With respect to each such contact, agreement or other
document filed as an exhibit to the registration statement, reference is hereby
made to such exhibit for a more complete description of the matter involved.
Copies of the registration statement and the exhibits thereto are on file with
the SEC and may be examined without charge at the public reference facilities of
the SEC described above. Copies of such materials can also be obtained at
prescribed rates by writing to the Public Reference Section of the SEC at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The reports,
proxy statements and other information may also be obtained from the web site
that the SEC maintains at http://www.sec.gov.
We are required by the indenture to furnish the holders of the notes with
copies of the annual reports and the information, documents and other reports
specified in Sections 13 and 15(d) of the Exchange Act, as long as any notes are
outstanding.
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UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma consolidated statements and pro forma
combined statements of operations for the fiscal years ended September 30, 1999
and September 30, 1998, respectively (the "Pro Forma Financial Statements") give
effect to the recapitalization as if it had occurred as of October 1, 1997.
Hicks, Muse, Tate & Furst Incorporated, Mills & Partners, Inc., Courtesy
Corporation (the "Company") and the Company's pre-recapitalization shareholders
completed a recapitalization of the Company, which included the following
transactions:
- the Company borrowed an aggregate of $150 million under its new $200
million senior credit facility;
- the Company sold $100 million of senior subordinated notes due 2009;
- Hicks Muse and its affiliates paid $1.00 per share for 78 million shares
of the Company's series A convertible preferred stock and the principals
and executives of Mills & Partners paid $0.01 per share for approximately
13.3 million shares of the Company's class A common stock, which
collectively represents 68.5% of the outstanding capital stock;
- the Company purchased 266,807,342 shares of its common stock from its
pre-recapitalization shareholders for $1.00 per share; and
- our pre-recapitalization shareholders retained 42 million shares of
common stock, which represents 31.5% of the Company's outstanding capital
stock.
The proceeds from the foregoing were used to purchase shares of the Company's
common stock from the Company's pre-recapitalization shareholders, repay
existing indebtedness and accrued interest outstanding at the time of the
recapitalization and pay fees and expenses.
The pro forma adjustments are based upon available information and certain
assumptions that management believes are reasonable and are described in the
notes accompanying the Pro Forma Financial Statements. The Pro Forma Financial
Statements are provided for information purposes only and do not purport to
represent what our financial position or results of operations would actually
have been had the recapitalization occurred at such dates or to project our
financial position or results of operations at or for any future date or period.
The Pro Forma Financial Statements and accompanying notes should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the audited combined financial statements of
Courtesy Corporation and its affiliates and the audited consolidated financial
statements of LLS Corp. and the notes thereto contained elsewhere in this
prospectus.
P-1
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LLS CORP. AND SUBSIDIARIES
(FORMERLY KNOWN AS COURTESY CORPORATION AND AFFILIATES)
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONSOLIDATED TRANSACTIONS
HISTORICAL ADJUSTMENTS PRO FORMA
------------ ------------ ---------
<S> <C> <C> <C>
Net sales................................................ $171,703 $ $171,703
Cost of sales............................................ 121,101 121,101
Operating expenses....................................... 17,363 17,363
-------- -------- --------
Income from operations................................... 33,239 33,239
Interest expense, net.................................... 6,835 16,740(1) 23,575
Amortization of deferred financing fees.................. 428 2,141(2) 2,569
Transaction related expenses(3).......................... 1,220 1,220
-------- -------- --------
Income before income taxes............................... 24,756 (18,881) 5,875
Income tax provision..................................... 3,260 1,840(4) 5,100
-------- -------- --------
Net income before minority interest...................... 21,496 (20,721) 775
Minority interest........................................ 171 171
-------- -------- --------
Net income............................................... $ 21,325 $(20,721) $ 604
======== ======== ========
</TABLE>
<TABLE>
<S> <C>
Other Financial Data:
Depreciation and amortization(5).......................... $13,517
EBITDA(6)................................................. $46,756
Adjusted EBITDA(7)........................................ $47,765
Ratio of earnings to fixed charges(8)..................... $ 1.2x
</TABLE>
See accompanying notes to the Unaudited Pro Forma Combined Statement of
Operations
P-2
<PAGE> 83
LLS CORP. AND SUBSIDIARIES
(FORMERLY KNOWN AS COURTESY CORPORATION AND AFFILIATES)
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999
(IN THOUSANDS)
1. Reflects the interest expense on borrowings under the Senior Credit Facility
and the issuance of the Senior Subordinated Notes due 2009 as if the
recapitalization had been consummated as of the beginning of the period:
<TABLE>
<S> <C>
Senior Credit Facility(a)
Tranche A Loans at 7.7%(b)................................ $ 5,005
Tranche B Loans at 8.2%(c)................................ 6,560
Revolving Facility at 7.7%(b)............................. 385
Senior Subordinated Notes due 2009 at 11.625%............... 11,625
Elimination of historical interest.......................... (6,835)
-------
Net adjustment.................................... $16,740
=======
</TABLE>
- ---------------
(a)A one-half of one percent change in interest rates would impact interest
expense for borrowings under the Senior Credit Facility in the amount of
approximately $563.
(b)Borrowings under the Tranche A Loans and the Revolving Facility require
interest payments at the rate of 1.25% above the base rate or 2.50%
above LIBOR.
(c)Borrowings under the Tranche B Loans require interest payments at the
rate of 1.75% above the base rate or 3.00% above LIBOR.
2. Reflects the amortization of deferred financing fees associated with the
recapitalization as if the recapitalization had been consummated at the
beginning of the period. These fees are amortized over the term of the
related debt using the effective interest method and the straight-line
method, which approximates the effective interest method.
3. Represents non-recurring recapitalization related expenses incurred by the
pre-recapitalization shareholders which includes among other, bonus and legal
fees.
4. Reflects the income tax effect of the pro forma adjustments described above
and the status of the Company as a C corporation as if the recapitalization
had been consummated as of the beginning of the period at an effective income
tax rate of 40.0%. The deferred tax recognized on this change in tax status,
estimated to be $2,750, was charged to income from continuing operations
following the recapitalization.
5. Excludes amortization of deferred financing fees.
6. Earnings before interest, taxes, depreciation, amortization, minority
interest and transaction related expenses ("EBITDA") is a key financial
measure but should not be construed as an alternative to operating income or
cash flows from operating activities, as determined in accordance with
generally accepted accounting principles. EBITDA is generally considered to
provide information regarding a company's ability to service indebtedness and
it is included herein to provide additional information with respect to our
ability to meet our future debt service requirements. EBITDA is also one of
the financial measures by which our covenants are calculated under our debt
instruments.
7. Adjusted EBITDA is presented in order to provide additional information for
determining our ability to meet debt service requirements and to meet
covenant requirements. Adjusted EBITDA reflects EBITDA, as defined in note
(6), adjusted for certain preoperating costs associated with newly purchased
facilities in Anderson, South Carolina and Lake Geneva, Wisconsin. These
preoperating costs represent the costs incurred during the period prior to
the facility generating revenues.
P-3
<PAGE> 84
LLS CORP. AND AFFILIATES
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME -- (CONTINUED)
8. For purposes of calculating the ratio of earnings to fixed charges,
"earnings" represent earnings before income taxes plus fixed charges. "Fixed
charges" consist of interest on all indebtedness, amortization of deferred
financing fees and the portion (approximately 1/3) of rental expense that
management believes is representative of the interest component of rent
expense.
P-4
<PAGE> 85
LLS CORP. AND SUBSIDIARIES
(FORMERLY KNOWN AS COURTESY CORPORATION AND AFFILIATES)
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT RATIO AMOUNTS)
<TABLE>
<CAPTION>
COMBINED TRANSACTIONS
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ------------ ---------
<S> <C> <C> <C>
Net sales................................................. $172,608 $ $172,608
Cost of sales............................................. 120,986 120,986
Operating expenses........................................ 15,064 (1,580)(1) 13,484
-------- -------- --------
Income from operations.................................... 36,558 1,580 38,138
Interest expense, net..................................... 1,315 23,010(2) 24,325
Amortization of deferred financing fees................... -- 2,569(3) 2,569
-------- -------- --------
Income before income taxes................................ 35,243 (23,999) 11,244
Income tax provision...................................... 188 4,309(4) 4,497
-------- -------- --------
Net income before minority interest....................... 35,055 (28,308) 6,747
Minority interest......................................... 1,225 1,225
-------- -------- --------
Net income................................................ $ 33,830 $(28,308) $ 5,522
======== ======== ========
Other Financial Data:
Depreciation and amortization(5)........................ $ 9,896
EBITDA(6)............................................... $ 48,034
Adjusted EBITDA(7)...................................... $ 49,977
Ratio of earnings to fixed charges(8)................... 1.4x
</TABLE>
See accompanying notes to the Unaudited Pro Forma Combined Statement of
Operations
P-5
<PAGE> 86
LLS CORP. AND SUBSIDIARIES
(FORMERLY KNOWN AS COURTESY CORPORATION AND AFFILIATES)
NOTES TO THE UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998
(IN THOUSANDS)
1. Reflects the net reduction in officers' compensation pursuant to the
employment agreements, executed concurrent with the recapitalization.
2. Reflects the interest expense on borrowings under the Senior Credit Facility
and the issuance of the Notes as if the recapitalization had been consummated
as of the beginning of the period:
<TABLE>
<S> <C>
Senior Credit Facility(a)
Tranche A Loans at 8.2%(b)................................ $ 5,330
Tranche B Loans at 8.7%(c)................................ 6,960
Revolving Facility at 8.2%(b)............................. 410
Senior Subordinated Notes due 2009 at 11.625%............... 11,625
Elimination of historical interest.......................... (1,315)
-------
Net adjustment.................................... $23,010
=======
</TABLE>
- ---------------
(a)A one-half of one percent change in interest rates would impact interest
expense for borrowings under the Senior Credit Facility in the amount of
approximately $750.
(b)Borrowings under the Tranche A Loans and the Revolving Facility require
interest payments at the rate of 1.25% above the base rate or 2.50%
above LIBOR.
(c)Borrowings under the Tranche B Loans require interest payments at the
rate of 1.75% above the base rate or 3.00% above LIBOR.
3. Reflects the amortization of deferred financing fees associated with the
recapitalization as if the recapitalization had been consummated at the
beginning of the fiscal year. These fees are amortized over the term of the
related debt using the effective interest method and the straight-line
method, which approximates the effective interest method.
4. Reflects the income tax effect of the pro forma adjustments described above
and the status of the Company as a C corporation as if the recapitalization
had been consummated as of the beginning of the fiscal year at an effective
income tax rate of 40.0%. The deferred tax recognized on this change in tax
status, estimated to be $2,588, will be charged to income from continuing
operations following the recapitalization. This charge is not reflected in
the pro forma combined statements of operations because it is a non-recurring
charge directly attributable to the recapitalization.
5. Excludes amortization of deferred financing fees.
6. Earnings before interest, taxes, depreciation, amortization, minority
interest and transaction related expenses ("EBITDA") is a key financial
measure but should not be construed as an alternative to operating income or
cash flows from operating activities, as determined in accordance with
generally accepted accounting principles. EBITDA is generally considered to
provide information regarding a company's ability to service indebtedness and
it is included herein to provide additional information with respect to our
ability to meet our future debt service requirements. EBITDA is also one of
the financial measures by which our covenants are calculated under our debt
instruments.
7. Adjusted EBITDA is presented in order to provide additional information for
determining our ability to meet debt service requirements and to meet
covenant requirements. Adjusted EBITDA reflects EBITDA, as defined in note
(6), adjusted for certain preoperating costs associated with a newly
constructed facility -- 600 Buffalo Grove. These preoperating costs represent
the costs incurred during the period prior to the facility generating
revenues.
P-6
<PAGE> 87
LLS CORP. AND SUBSIDIARIES
(FORMERLY KNOWN AS COURTESY CORPORATION AND AFFILIATES)
NOTES TO THE UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS -- (CONTINUED)
8. For purposes of calculating the ratio of earnings to fixed charges,
"earnings" represent earnings before income taxes plus fixed charges. "Fixed
charges" consist of interest on all indebtedness, amortization of deferred
financing fees and the portion (approximately 1/3) of rental expense that
management believes is representative of the interest component of rent
expense.
P-7
<PAGE> 88
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FINANCIAL STATEMENTS:
LLS Corp.
Independent Auditors' Report.............................. F-2
Consolidated Balance Sheet as of September 30, 1999....... F-3
Consolidated Statement of Operations for the year ended
September 30, 1999..................................... F-4
Consolidated Statement of Stockholders' Equity for the
year ended September 30, 1999.......................... F-5
Consolidated Statement of Cash Flows for the year ended
September 30, 1999..................................... F-6
Notes to Consolidated Financial Statements................ F-7
Courtesy Corporation and Affiliates
Independent Auditors' Report.............................. F-14
Combined Balance Sheet, September 30, 1998................ F-15
Combined Statement of Income, Fiscal Years Ended September
30, 1997 and 1998...................................... F-16
Combined Statement of Changes in Stockholders' Equity,
Fiscal Years Ended September 30, 1997 and 1998......... F-17
Combined Statement of Cash Flows, Fiscal Years Ended
September 30, 1997 and 1998............................ F-18
Notes to the Combined Financial Statements................ F-19
</TABLE>
F-1
<PAGE> 89
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of LLS Corp.:
We have audited the accompanying consolidated balance sheet of LLS Corp.
(an Illinois corporation) as of September 30, 1999 and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
the year then ended. 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. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
LLS Corp. as of September 30, 1999, and the consolidated results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index of
financial statements are presented for purposes of complying with the Securities
and Exchange Commission's rules and are not part of the basic financial
statements. These schedules have been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion,
fairly state in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
St. Louis, Missouri
December 3, 1999
F-2
<PAGE> 90
LLS CORP.
(FORMERLY KNOWN AS COURTESY CORPORATION AND AFFILIATES)
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
-------------
<S> <C>
ASSETS
Current assets:
Cash...................................................... $ 4,140
Accounts receivable (less allowance of $494).............. 20,424
Inventories............................................... 28,705
Prepaid expenses and other................................ 768
---------
Total current assets.............................. 54,037
Property, plant and equipment, net.......................... 86,072
Intangible assets, net...................................... 6,537
Deferred financing costs, net............................... 20,719
Other assets................................................ 1,835
---------
Total assets...................................... $ 169,200
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 19,712
Customers' deposits....................................... 7,645
Accrued and other liabilities............................. 8,228
Accrued interest.......................................... 4,120
---------
Total current liabilities......................... 39,705
Long-term obligations....................................... 245,000
Other long-term liabilities................................. 8,166
---------
Total liabilities................................. 292,871
---------
Stockholders' equity:
Series A convertible preferred stock, $.01 par value,
100,000,000 shares authorized, 78,000,000 shares issued
and outstanding........................................ 780
Common stock, $.01 par value, 500,000,000 shares
authorized, 55,333,333 shares issued and outstanding... 553
Warrants for common stock................................. 900
Additional paid-in capital................................ 75,167
Accumulated deficit....................................... (201,071)
---------
Total stockholders' equity........................ (123,671)
---------
Total liabilities and stockholders' equity........ $ 169,200
=========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-3
<PAGE> 91
LLS CORP.
(FORMERLY KNOWN AS COURTESY CORPORATION AND AFFILIATES)
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED
SEPTEMBER 30,
1999
-------------
<S> <C>
Net sales................................................... $171,703
Operating expenses:
Cost of sales............................................. 110,546
Selling, general and administrative....................... 14,401
Depreciation and amortization............................. 13,517
--------
Operating income............................................ 33,239
Other expense:
Interest expense.......................................... 6,835
Amortization of deferred financing costs.................. 428
Other..................................................... 1,220
--------
Income before income tax provision.......................... 24,756
Income tax provision........................................ 3,260
--------
Net income before minority interest......................... 21,496
Minority interest........................................... 171
--------
Net income.................................................. $ 21,325
========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-4
<PAGE> 92
LLS CORP.
(FORMERLY KNOWN AS COURTESY CORPORATION AND AFFILIATES)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED TOTAL
SERIES A ADDITIONAL EARNINGS/ STOCKHOLDERS'
COMMON CONVERTIBLE PAID-IN (ACCUMULATED EQUITY
STOCK PREFERRED STOCK WARRANTS CAPITAL DEFICIT) (DEFICIT)
------- --------------- -------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1998... $ 20 $ -- $ -- $ 324 $ 70,382 $ 70,726
Reorganization adjustments
(see note 1):
Conversion redemption of
common stock............. (20) -- -- (324) 344 --
Conversion reissuance of
common stock............. 3,088 -- -- -- (3,088) --
Recapitalization adjustments
(see note 1):
Issuance of common stock.... 133 -- -- -- -- 133
Issuance of series A
convertible preferred
stock.................... -- 780 -- 77,220 -- 78,000
Redemption of common stock.. (2,668) -- -- -- (262,836) (265,504)
Issuance of warrants........ -- -- 900 -- -- 900
Transaction fees and
expenses................. -- -- -- (2,053) -- (2,053)
Distributions to
stockholders................ -- -- -- -- (27,198) (27,198)
Net income.................... -- -- -- -- 21,325 21,325
------- ---- ---- ------- --------- ---------
Balance, September 30, 1999... $ 553 $780 $900 $75,167 $(201,071) $(123,671)
======= ==== ==== ======= ========= =========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-5
<PAGE> 93
LLS CORP.
(FORMERLY KNOWN AS COURTESY CORPORATION AND AFFILIATES)
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED
SEPTEMBER 30,
1999
-------------
<S> <C>
Cash flows from operating activities:
Net income................................................ $ 21,325
Adjustment to reconcile net income to net cash from
operating activities:
Depreciation and amortization........................... 13,517
Amortization of deferred financing costs................ 428
Deferred income taxes................................... 2,149
Minority interest....................................... 171
Change in assets and liabilities:
Accounts receivable................................... (740)
Inventories........................................... (3,773)
Prepaid expenses and other............................ 2,865
Accounts payable...................................... 6,551
Customers' deposits................................... 1,253
Accrued and other liabilities......................... 1,733
Accrued interest...................................... 3,935
---------
Net cash from operating activities................. 49,414
---------
Cash flows from investing activities:
Capital expenditures, net................................. (20,800)
---------
Net cash from investing activities................. (20,800)
---------
Cash flows from financing activities:
Proceeds from senior credit facility term loans........... 145,000
Proceeds from issuance of notes........................... 100,000
Repayments of long-term debt obligations.................. (28,925)
Repayments of revolving credit borrowings................. (1,000)
Proceeds from issuance of common stock.................... 133
Proceeds from issuance of series A convertible preferred
stock................................................... 78,000
Redemption of common stock................................ (265,504)
Financing costs and other................................. (17,300)
Redemption of minority interest........................... (8,524)
Distributions to stockholders............................. (27,531)
---------
Net cash from financing activities................. (25,651)
---------
Net change in cash.......................................... 2,963
Cash, beginning of period................................... 1,177
---------
Cash, end of period......................................... $ 4,140
=========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest.............................................. $ 2,900
=========
Income taxes.......................................... $ 244
=========
Non-cash transactions:
Issuance of warrants for common stock..................... $ 900
=========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-6
<PAGE> 94
LLS CORP.
(FORMERLY KNOWN AS COURTESY CORPORATION AND AFFILIATES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEAR ENDED SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
1. THE COMPANY
LLS Corp., an Illinois corporation ("LLS" or the "Company"), formerly
Courtesy Corporation ("Courtesy"), is engaged in the design, manufacture and
distribution of various types of injection molded plastic parts and custom
molds used in plastic injection molding. The Company operates in one industry
segment, serving customers located primarily in the United States.
On July 30, 1999, the Company completed a recapitalization (the
"Recapitalization") through the following simultaneous transactions: (i) LLS
received $78,133 in exchange for the issuance of 78,000,000 shares of its
series A convertible preferred stock at $1.00 per share and 13,333,333 shares
of class A common stock at $0.01 per share, (ii) LLS raised $150,300 from a
senior credit facility (the "Senior Credit Facility") and $100,000 from the
issuance of senior subordinated notes payable (the "Notes") and (iii) the
proceeds from the issuance of equity, the issuance of the Notes and
borrowings under the Senior Credit Facility were used to repay existing
indebtedness and accrued interest for approximately $45,496, redeem
approximately 67.0% of the outstanding capital stock at $1.00 per share for
approximately $265,504, and pay fees and expenses of approximately $17,300.
The Company also incurred a non-cash expense of $900 in connection with the
issuance of warrants to purchase 1,800,000 shares of its common stock for
$0.50 per share. The warrants are exercisable on the first anniversary of the
date of the Recapitalization and expire on the tenth anniversary thereof. In
addition, approximately $133 was retained for operating purposes.
Prior to the Recapitalization, Courtesy completed a Reorganization which
included Creative Packaging Corporation ("Creative") and Courtesy Sales
Corporation ("CSC") -- affiliated by reason of common ownership -- being
reorganized as wholly-owned subsidiaries. The Reorganization included the
following: (i) the shareholders of CSC exchanged their common stock for
common stock in Courtesy making CSC a wholly-owned subsidiary of Courtesy,
(ii) the shareholders of Creative exchanged their common stock for common
stock in Courtesy making Creative a wholly-owned subsidiary of Courtesy,
(iii) Courtesy amended its articles of incorporation to, among other things,
recapitalize its outstanding capital stock and change its name to LLS Corp.
and (iv) LLS organized a new wholly-owned subsidiary and contributed all of
its assets and liabilities to this new subsidiary.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -- The consolidated financial statements include
the accounts of LLS and its wholly-owned subsidiaries. All material
intercompany balances and transactions have been eliminated in consolidation.
Revenue Recognition -- Sales of all the Company's products are recognized
upon shipment or upon passage of title to the customer.
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 disclosures of contingent assets and liabilities at the date
of the financial statements, as well as the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
Inventories -- Inventories are stated at the lower of cost, determined under
the first-in, first-out (FIFO) method, or market.
Property, Plant and Equipment -- Property, plant and equipment is stated at
cost. Depreciation is calculated using the straight-line method and
accelerated methods. The average estimated useful lives
F-7
<PAGE> 95
LLS CORP.
(FORMERLY KNOWN AS COURTESY CORPORATION AND AFFILIATES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
utilized in calculating depreciation are as follows: buildings and
improvements -- 15 to 39 years; machinery and equipment -- 5 to 7 years; and
molds and tools -- 5 years.
Intangible Assets -- On January 31, 1999, the minority interest was redeemed
for $8,524. The Company recorded approximately $6,763 of goodwill in
connection with the transaction. The goodwill is being amortized on a
straight-line basis over an estimated useful life of twenty years.
Deferred Financing Costs -- Deferred financing costs, consisting of fees and
other expenses associated with debt financings are amortized over the term of
the related debt using the effective interest method.
Impairment of Long-lived Assets -- In the event that facts and circumstances
indicate that the cost of any long-lived assets may be impaired, an
evaluation of recoverability would be performed. If an evaluation is
required, the estimated future undiscounted cash flows associated with the
asset would be compared to the asset's carrying amount to determine if a
write-down to market value or discounted cash flow value is required.
Fair Value of Financial Instruments -- The Company's financial instruments
are carried at fair value or amounts that approximate fair value.
Significant Customers -- Sales to two significant customers during fiscal
year 1999 approximated 34% of net sales, respectively. No other single
customer accounted for more than 10% of net sales.
Recent Accounting Pronouncements --
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). In June 1999, the FASB
issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133 -- an
amendment of FASB Statement No. 133" ("SFAS 137"). SFAS 137 delays the
effective date of SFAS 133 for one year, to fiscal years beginning after June
15, 2000 and thus, the Company will adopt SFAS 133 at that time. The Company
does not currently hold any derivative instruments or participate in hedging
activities. Accordingly, the adoption of SFAS 133 would have no impact on the
consolidated financial statements as of September 30, 1999.
3. INVENTORIES
The composition of inventories is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
-------------
<S> <C>
Raw materials............................................... $ 8,138
Work-in-process............................................. 9,990
Finished goods.............................................. 10,577
-------
$28,705
=======
</TABLE>
F-8
<PAGE> 96
LLS CORP.
(FORMERLY KNOWN AS COURTESY CORPORATION AND AFFILIATES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT
The composition of property, plant and equipment is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
-------------
<S> <C>
Land........................................................ $ 4,263
Buildings and improvements.................................. 45,443
Machinery and equipment..................................... 78,600
Molds and tools............................................. 10,394
Construction in progress.................................... 2,698
--------
141,398
Less accumulated depreciation and amortization.............. (55,326)
--------
$ 86,072
========
</TABLE>
5. FINANCING COSTS AND RELATED PARTY TRANSACTIONS
In connection with the Recapitalization, the Company incurred aggregate fees
and costs of $18,200. Costs of $16,147 related to the Senior Credit Facility
and the Notes (see note 6) are included in deferred financing costs and are
being amortized over the terms of the related borrowings, using the effective
interest method. Costs of $2,053 related to the issuance of the Company's
series A convertible preferred stock and class A common stock have been
deducted from the proceeds to reduce the carrying value of the stock.
In connection with the Recapitalization and obtaining the related financing,
the Company entered into a Financial Advisory Agreement with Hicks, Muse &
Co. Partners, L.P. ("Hicks, Muse") pursuant to which the Company paid Hicks,
Muse a cash fee of $5,295 as compensation for financial advisory services.
The fees have been allocated based upon the issuance proceeds to the debt and
equity securities issued in connection with the Recapitalization as deferred
financing costs and reduction of equity proceeds, respectively. In connection
with the Recapitalization and obtaining the related financing, the Company
also entered into a Monitoring and Oversight Agreement (the "Agreement"). The
Agreement provides that the Company shall pay Hicks, Muse an annual fee of
$500, for ten years for monitoring and oversight services, adjusted annually
on January 1 of each calendar year to an amount equal to .2% of the
consolidated budgeted net sales of the Company of the then current fiscal
year, but in no event less than $500 annually. The obligation under the
Agreement and the related deferred financing costs have been recorded in the
consolidated balance sheet.
6. LONG-TERM OBLIGATIONS
The composition of long-term obligations is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
-------------
<S> <C>
Senior Credit Facility...................................... $145,000
Senior Subordinated Notes................................... 100,000
--------
$245,000
========
</TABLE>
F-9
<PAGE> 97
LLS CORP.
(FORMERLY KNOWN AS COURTESY CORPORATION AND AFFILIATES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The schedule of principal payments for long-term obligations at September 30,
1999 is as follows:
<TABLE>
<S> <C>
2000........................................................ $ 0
2001........................................................ 3,200
2002........................................................ 12,800
2003........................................................ 15,800
2004........................................................ 17,800
Thereafter.................................................. 195,400
--------
$245,000
========
</TABLE>
In connection with the Recapitalization on July 30, 1999, the Company
executed a $200,000 Senior Credit Facility and issued $100,000 of Notes.
The Senior Credit Facility provides for (i) a $65,000 term loan (the "Tranche
A Loan") maturing July 31, 2005, (ii) an $80,000 term loan (the "Tranche B
Loan") maturing July 31, 2006 (together with the Tranche A Loan, the "Term
Loans") and (iii) a $55,000 revolving credit facility (the "Revolving
Loans"). The Company may use the Revolving Loans for letters of credit of up
to $10,000. The loans under the Senior Credit Facility bear interest, at the
Company's election, at either the LIBOR Rate plus an applicable margin or the
Base Rate plus an applicable margin. The applicable LIBOR Rate margin is
2.50% for the Tranche A Loan and Revolving Loans and 3.00% for the Tranche B
Loan. The applicable Base Rate margin is 1.25% for the Tranche A Loan and
Revolving Loans and 1.75% for the Tranche B Loan. The applicable margin with
respect to the loans will be eligible for certain performance pricing step-
downs. The Revolving Loans are subject to a commitment fee based on the
undrawn portion of the Revolving Loans. The commitment fee is eligible for
certain performance pricing step downs and is initially .050% per annum.
The Company may, at its option, prepay the Term Loans without premium or
penalty. Additionally, the Company may reduce or eliminate the Revolving
Loans prior to maturity on July 31, 2005. The Senior Credit Facility is
guaranteed unconditionally on a senior basis by the Company's direct and
indirect domestic subsidiaries and is collateralized by a lien on
substantially all assets of the Company and its wholly-owned subsidiaries.
The Senior Credit Facility contains several financial covenants which, among
other things, require the Company to maintain certain financial ratios and
restrict the Company's ability to incur indebtedness, make capital
expenditures and pay dividends
The Notes bear interest at 11 5/8% per year, payable semi-annually on
February 1, and August 1 of each year, commencing on February 1, 2000 and
maturing on August 1, 2009. Except as set forth below, the Notes will not be
redeemable at the option of the Company prior to August 1, 2004. On and after
such date, the Notes are subject to redemption by the Company, in whole or in
part, at specified redemption prices. In addition, prior to August 1, 2002,
the Company may, subject to certain requirements, redeem up to $35,000 of
Notes outstanding at a redemption price equal to 111.625% plus accrued and
unpaid interest. The Notes may be redeemed at any time on or after August 1,
2004, in whole or in part by the Company.
The Notes restrict, among other things, the incurrence of additional
indebtedness by the Company, the payment of dividends and other distributions
in respect of the Company's capital stock, the payment of dividends and other
distributions by the Company's subsidiaries, the creation of liens on the
properties and the assets of the Company to secure certain subordinated debt
and certain mergers, sales of assets and transactions with affiliates.
7. INCOME TAXES
Prior to the Recapitalization, the Company had elected S-Corporation Status
under the Internal Revenue Code. Subsequent thereto, the Company elected
C-Corporation Status under the Internal Revenue Code
F-10
<PAGE> 98
LLS CORP.
(FORMERLY KNOWN AS COURTESY CORPORATION AND AFFILIATES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and began accounting for income taxes in accordance with the provisions of
SFAS No. 109. The provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
1999
-------------
<S> <C>
Current:
Federal................................................... $ 815
State..................................................... 296
------
1,111
Deferred:
Federal................................................... $1,880
State..................................................... 269
------
3,260
======
</TABLE>
Reconciliation between the statutory income tax rate and effective tax rate
is summarized below:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
1999
-------------
<S> <C>
U.S. Federal statutory rate................................. $ 8,664
Pre-recapitalization nontaxable income...................... (8,270)
State taxes................................................. 296
Deferred taxes established upon conversion to
C-corporation............................................. 2,549
Other....................................................... 21
-------
$ 3,260
=======
</TABLE>
The tax effects of significant temporary differences representing deferred
tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
1999
-------------
<S> <C>
Deferred Tax Assets:
Accounts receivable reserves.............................. $ 198
Inventories............................................... 202
Accrued liabilities not yet deductible.................... 973
------
$1,373
------
Deferred Tax Liabilities:
Depreciation and amortization............................. $3,522
------
Net deferred tax liability................................ $2,149
======
</TABLE>
8. RETIREMENT BENEFITS AND STOCK OPTION PLANS
The Company maintains for the benefit of its eligible employees, several
benefit plans, all of which conform to the provisions of the Employee
Retirement Income Security Act of 1974 (ERISA), as follows:
Employees' Profit-sharing Plan -- This plan is maintained for the benefit of
all eligible employees. The employer makes discretionary annual contributions
in such amounts as may be determined by its Board of Directors, limited to
amounts deductible for federal income tax purposes. Benefits vest in
participants over
F-11
<PAGE> 99
LLS CORP.
(FORMERLY KNOWN AS COURTESY CORPORATION AND AFFILIATES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
a period of years, and distributions are made to participants (or to their
beneficiaries) upon death, retirement or severance of employment. The
employer contribution for the fiscal year ended September 30, 1999, amounted
to $615.
Employees' 401(k) Plan -- This plan is maintained for the benefit of all
eligible employees and was established under the provisions of Section 401(k)
of the Internal Revenue Code. Under such plan, employer contributions are
discretionary. The employer contribution for the fiscal year ended September
30, 1999, amounted to $26.
Qualified and Non-qualified Stock Option Plan (the "Option Plan") -- This
plan provides for the granting of up to 7,017,543 shares of common stock to
officers and key employees of the Company. Under the plan, options granted
approximate market value of the common stock at the date of grant. Such
options vest ratably over a five year period commencing on the first
anniversary date after the date of grant, and vested options are exercisable
at the discretion of the committee appointed to administer the Option Plan.
Generally, an option may be exercised only if the holder is an officer or
employee of the Company at the time of exercise. Options granted under the
Option Plan are not transferable, except by will and the laws of descent and
distribution.
The Company has also granted Performance Options (the "Performance Options")
to certain key executives. The Performance Options are exercisable only on
the occurrence of certain events. The exercise price for the Performance
Options is initially equal to $1.00 per share and, effective each anniversary
of the grant date, the per share exercise price for the Performance Options
is equal to the per share exercise price for the prior year multiplied by
1.08. The Performance Options terminate on the tenth anniversary date of the
date of grant. The Performance Options will be accounted for using variable
plan accounting and accordingly there may be compensation expense in future
periods to the extent that the fair value of the stock exceeds the exercise
price of the Performance Options. No compensation expense was recognized in
1999 as the fair market value of the stock is equal to the exercise price.
In accordance with SFAS No. 123, "Accounting for Stock-Based Compensation",
the Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations in accounting for the Option Plan.
Had compensation cost for the Option Plan and the Performance Options been
determined based upon the fair value at the grant date for awards under these
plans consistent with the methodology prescribed under SFAS 123, the effect
on the Company's financial statements would have been immaterial. The Company
granted 3,250,000 options under the Option Plan during fiscal 1999. All
options granted have exercise prices of $1.00 and have remaining contractual
lives of 10 years. None of the options granted were vested as of September
30, 1999. The Company granted 3,600,749 Performance options during fiscal
1999. All options granted currently have exercise prices of $1.00 and have
remaining contractual lives of 10 years.
9. COMMITMENTS AND CONTINGENCIES
Certain premises occupied by the Company are leased under various operating
leases, some of which are owned by a partnership whose partners are officers
and stockholders of the Company. All leases provide for payment by the lessee
of costs applicable to operating the leased premises (inclusive of real
estate taxes), and expire at various dates through fiscal 2011.
Total rent expense was $1,210 during fiscal 1999.
F-12
<PAGE> 100
LLS CORP.
(FORMERLY KNOWN AS COURTESY CORPORATION AND AFFILIATES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum rental payments applicable to the aforementioned leases are as
follows:
<TABLE>
<CAPTION>
RELATED THIRD
FISCAL YEAR ENDED SEPTEMBER 30, PARTIES PARTIES TOTAL
- ------------------------------- ------- ------- ------
<S> <C> <C> <C>
2000....................................................... $ 695 $261 $ 956
2001....................................................... 695 -- 695
2002....................................................... 695 -- 695
2003....................................................... 695 -- 695
2004....................................................... 695 -- 695
Thereafter................................................. 3,425 -- 3,425
------ ---- ------
$6,900 $261 $7,161
====== ==== ======
</TABLE>
The Company is subject to legal proceedings and claims which arise in the
normal course of business. In the opinion of management, the ultimate
liabilities with respect to these actions will not have a material adverse
effect on the Company's financial condition, results of operations or cash
flows.
F-13
<PAGE> 101
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Courtesy Corporation
We have audited the accompanying combined balance sheet of Courtesy
Corporation and Affiliates (Note 1) (the "Company") as of September 30, 1998,
and the related combined statements of income, changes in stockholders' equity
and cash flows for each of the fiscal years in the two-year period ended
September 30, 1998. Courtesy Corporation and Affiliates are under common
ownership and management. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Courtesy
Corporation and Affiliates as of September 30, 1998, and the results of their
operations and their cash flows for each of the fiscal years in the two-year
period ended September 30, 1998, in conformity with generally accepted
accounting principles.
ALTSCHULER, MELVOIN AND GLASSER LLP
Chicago, Illinois
December 11, 1998 (except for
Notes 1 and 5 as to which the date is
July 30, 1999)
F-14
<PAGE> 102
COURTESY CORPORATION AND AFFILIATES
COMBINED BALANCE SHEETS
ASSETS (pledged -- Note 5)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
-------------
<S> <C>
Current Assets:
Cash...................................................... $ 1,177,288
Trade accounts receivable (net of allowance for doubtful
accounts of $27,500)................................... 19,683,672
Inventories (Notes 2 and 3)............................... 24,932,240
Other current assets and prepaid expenses................. 80,009
------------
45,873,209
------------
Property, Plant and Equipment (at cost, net of accumulated
depreciation and amortization -- Notes 2 and 4)........... 78,706,708
------------
Other Assets................................................ 5,245,972
------------
$129,825,889
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 13,161,690
Revolving credit borrowings (Note 5)...................... 1,000,000
Current portion of long-term debt (Note 5)................ 2,388,173
Income taxes payable (Note 2)............................. 200,000
Customers' deposits....................................... 6,391,922
Due to employee benefit plans (Note 7).................... 550,147
Accrued salaries and other expenses....................... 5,979,088
------------
29,671,020
------------
Long-term Liabilities:
Long-term debt (Note 5)................................... 26,536,666
Deferred compensation obligation (Note 6)................. 968,472
------------
27,505,138
------------
Minority Interest........................................... 1,923,336
------------
Commitments and Contingencies (Note 9)
Stockholders' Equity (Note 8):
Common stock.............................................. 20,000
Additional paid-in capital................................ 324,310
Retained earnings......................................... 70,382,085
------------
70,726,395
------------
$129,825,889
============
</TABLE>
The accompanying notes are an integral part of this statement.
F-15
<PAGE> 103
COURTESY CORPORATION AND AFFILIATES
COMBINED STATEMENT OF INCOME
<TABLE>
<CAPTION>
FISCAL YEARS ENDED SEPTEMBER 30,
---------------------------------
1997 1998
--------------- ---------------
<S> <C> <C>
Net Sales................................................... $129,485,110 $172,607,862
Cost of Sales............................................... 88,153,076 120,985,809
------------ ------------
Gross Profit................................................ 41,332,034 51,622,053
Selling, General and Administrative Expenses................ 11,973,898 15,063,672
------------ ------------
Income from Operations...................................... 29,358,136 36,558,381
Interest Expense............................................ (1,721,623) (1,719,078)
Interest Income............................................. 186,705 403,972
------------ ------------
Income before Income Taxes.................................. 27,823,218 35,243,275
Income Tax Provision (Note 2)............................... 277,385 187,810
------------ ------------
Net Income before Minority Interest......................... 27,545,833 35,055,465
Minority Interest........................................... (1,060,101) (1,224,984)
------------ ------------
Net Income.................................................. $ 26,485,732 $ 33,830,481
============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
F-16
<PAGE> 104
COURTESY CORPORATION AND AFFILIATES
COMBINED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
Balance, September 30, 1996................. $20,000 $ 319,310 $ 39,301,791 $ 39,641,101
Distributions to stockholders............... (14,137,138) (14,137,138)
Net income.................................. 26,485,732 26,485,732
------- --------- ------------ ------------
Balance, September 30, 1997................. 20,000 319,310 51,650,385 51,989,695
Issuance of common stock.................... 5,000 5,000
Distributions to stockholders............... (15,098,781) (15,098,781)
Net income.................................. 33,830,481 33,830,481
------- --------- ------------ ------------
Balance, September 30, 1998................. $20,000 $ 324,310 $ 70,382,085 $ 70,726,395
======= ========= ============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
F-17
<PAGE> 105
COURTESY CORPORATION AND AFFILIATES
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
SEPTEMBER 30,
---------------------------
1997 1998
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income for period..................................... $ 26,485,732 $ 33,830,481
Adjustment to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization........................... 8,224,055 9,895,858
Gain on sale of property and equipment.................. 0 (27,477)
Deferred compensation................................... 193,958 159,394
Minority interest....................................... 1,060,101 1,224,984
Increase (Decrease) in cash from changes in:
Trade accounts receivable............................. (3,312,824) (6,378,610)
Inventories........................................... (6,982,665) 4,248,536
Other current assets and prepaid expenses............. (69,729) 222,749
Other assets.......................................... (1,566,461) (344,798)
Accounts payable...................................... 1,281,337 116,043
Income taxes payable.................................. 192,000 (87,000)
Customers' deposits................................... 5,752,051 (7,679,201)
Due to employee benefit plans......................... 33,349 171,690
Accrued salaries and other expenses................... (1,221,138) 2,252,878
Deferred compensation obligation...................... (400,000) (400,000)
------------ ------------
Net cash provided by operating activities.......... 29,669,766 37,205,527
------------ ------------
Cash Flows from Investing Activities:
Capital expenditures...................................... (13,937,312) (31,330,007)
Proceeds from sale of property and equipment.............. 0 27,477
------------ ------------
Net cash used in investing activities.............. (13,937,312) (31,302,530)
------------ ------------
Cash Flows from Financing Activities:
Proceeds from notes payable............................... 591,384 13,408,616
Principal payments of notes payable....................... (2,262,708) (1,586,666)
Proceeds (Repayments) of revolving credit borrowings,
net..................................................... 1,000,000 (500,000)
Repayments of capital lease obligation.................... (592,298) (585,524)
Proceeds from issuance of common stock.................... 0 5,000
Distributions to stockholders............................. (14,636,724) (15,847,808)
------------ ------------
Net cash used in financing activities.............. (15,900,346) (5,106,382)
------------ ------------
Net Increase (Decrease) in Cash............................. (167,892) 796,615
Cash, Beginning of Period................................... 548,565 380,673
------------ ------------
Cash, End of Period......................................... $ 380,673 $ 1,177,288
============ ============
Supplemental Disclosure of Cash Flow Information:
Cash Paid During the Period for:
Interest.............................................. $ 1,569,844 $ 1,646,324
============ ============
Income taxes.......................................... $ 85,385 $ 274,810
============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
F-18
<PAGE> 106
COURTESY CORPORATION AND AFFILIATES
NOTES TO THE COMBINED FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION AND NATURE OF ACTIVITIES
The combined financial statements include the accounts and activities of
Courtesy Corporation ("Courtesy"), Creative Packaging Corporation ("Creative")
and Courtesy Sales Corporation ("CSC" -- formed during fiscal 1998)
(collectively, the "Company") which are affiliated by reason of common ownership
and management. Because the companies are under common ownership, excluding an
11.11% minority interest in Creative, and management, the financial statements
have been combined based on the historical costs of the underlying companies.
All significant intercompany accounts and transactions have been eliminated in
the combination.
The Company is engaged in the design, manufacture and distribution of
various types of injection molded plastic parts and custom molds used in plastic
injection molding. The Company operates in one industry segment, serving
customers located primarily in the United States.
On January 31, 1999, the 11.11% minority interest in Creative was redeemed
for $8,524,355 in cash. In its combined financial statements, the Company
recorded approximately $6,763,000 of goodwill in connection with the purchase of
this minority interest.
Prior to the Recapitalization discussed below, the Company completed a
Reorganization whereby (i) the shareholders of CSC exchanged their common stock
for common stock in Courtesy making CSC a wholly-owned subsidiary of Courtesy,
(ii) the shareholders of Creative exchanged their common stock for common stock
in Courtesy making Creative a wholly-owned subsidiary of Courtesy, (iii)
Courtesy amended its articles of incorporation to, among other things,
recapitalize its outstanding capital stock and change its name to LLS Corp.
("LLS") and (iv) LLS organized a new wholly-owned subsidiary and contributed all
of its assets and liabilities to this new subsidiary.
On July 30, 1999, the Company completed a recapitalization (the
"Recapitalization") through the following simultaneous transactions: (i) LLS
received $78,133,000 in exchange for the issuance of 78,000,000 shares of its
Series A Convertible Preferred Stock at $1.00 per share and 13,333,333 shares of
Class A Common Stock at $0.01 per share, (ii) LLS raised $150,300,000 from a
senior credit facility (the "Senior Credit Facility") and $100,000,000 from the
issuance of senior subordinated notes payable (the "Notes") and (iii) the
proceeds from the issuance of equity, the issuance of the Notes and borrowings
under the Senior Credit Facility were used to repay existing indebtedness and
accrued interest for approximately $45,496,000, redeem approximately 67.0% of
the outstanding capital stock at $1.00 per share for approximately $265,504,000,
and pay fees and expenses of approximately $17,300,000. The Company also
incurred a non-cash expense of $900,000 in connection with the issuance of
warrants to purchase 1,800,000 shares of its common stock for $0.50 per share.
In addition, approximately $133,000 was retained for operating purposes.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies followed by the Company is as
follows:
Revenue Recognition -- Sales of all the Company's products are
recognized upon shipment or upon passage of title to the customer.
Use of Estimates -- In preparing financial statements in conformity
with generally accepted accounting principles, management makes estimates
and assumptions that affect the reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities at the date of the
financial statements, as well as the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from
those estimates.
Inventories -- Inventories are stated at the lower of cost, determined
under the first-in, first-out (FIFO) method, or market.
F-19
<PAGE> 107
COURTESY CORPORATION AND AFFILIATES
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation and Amortization -- Provisions for depreciation and
amortization of plant and equipment are computed on both straight-line and
accelerated methods for financial reporting purposes, based on the
estimated useful lives of the assets. For income tax reporting purposes,
such provisions are computed principally under accelerated methods, as
permitted by the Internal Revenue Code.
Impairment of Long-lived Assets -- In the event that facts and
circumstances indicate that the cost of any long-lived assets may be
impaired, an evaluation of recoverability would be performed. If an
evaluation is required, the estimated future undiscounted cash flows
associated with the asset would be compared to the asset's carrying amount
to determine if a write-down to market value or discounted cash flow value
is required.
Capital Leases -- Leases required to be capitalized under criteria of
Statement of Financial Accounting Standards No. 13 are recorded at the
present value of future rental payments (Note 5). Amortization of capital
leases is computed under the straight-line method over the estimated useful
life of the equipment for financial purposes and under accelerated methods
for tax reporting purposes.
Fair Value of Financial Instruments -- Management believes that the
book value of its current receivables, accounts payable and accrued
expenses approximates fair value due to their short-term nature and the
fair value of the revolving credit note is equal to its carrying value
because the interest rate adjusts with changes in the market rate of
interest. The fair value of the mortgage notes and capitalized lease
obligation are not materially different from its carrying value based upon
discounting cash flows using interest rates that management believes
approximate interest rates currently available for similar debt.
Income Taxes -- Courtesy, Creative and CSC have elected to be taxed as
S corporations, under the Internal Revenue Code, pursuant to which profits
are allocated and taxed to their stockholders by inclusion in their
respective individual income tax returns. Accordingly, no liability or
provision for federal income taxes is included in the accompanying
financial statements, and no deferred taxes are provided for temporary
differences between tax and financial reporting. However, the Company is
subject to state income taxes.
Significant Customers -- Sales to two significant customers during
both fiscal 1997 and 1998 approximated 38% and 40% of net sales,
respectively. No other single customer accounted for more than 10% of net
sales. These customers' receivable balances represented 41% and 40% of
trade accounts receivable as of September 30, 1997 and 1998, respectively.
Advertising and Promotion -- All costs associated with advertising and
promotion are charged to operations as incurred. Such expenses are included
in operating expenses in the combined statement of income and amounted to
$294,801 and $307,447 for the fiscal years ended September 30, 1997 and
1998, respectively.
Recent Accounting Pronouncements -- In June 1997, the Financial
Accounting Standards Board issued Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (FAS 130). FAS 130 establishes standards
for reporting and display of comprehensive income and its components in the
financial statements. FAS is effective for fiscal years beginning after
December 31, 1997. Reclassification of financial statements for earlier
periods provided for comparative purposes is required. The adoption of this
standard is expected to have no impact on the Company's results of
operations, financial position or cash flows.
In June 1997, the Financial Accounting Standards Board issued
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (FAS 131). FAS 131 establishes
standards for the way public business enterprises report information about
operating
F-20
<PAGE> 108
COURTESY CORPORATION AND AFFILIATES
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major
customers. FAS 131 is effective for financial statements for fiscal years
beginning after December 15, 1997. Financial statement disclosure for prior
periods are required to be restated. The adoption of this standard is
expected to have no impact on the disclosures included in the Company's
combined financial statements.
NOTE 3 -- INVENTORIES
Inventories at September 30, 1998 consisted of the following:
<TABLE>
<CAPTION>
1998
-----------
<S> <C>
Raw materials............................................... $ 4,743,471
Work-in-process............................................. 10,933,375
Finished goods.............................................. 9,255,394
-----------
$24,932,240
===========
</TABLE>
NOTE 4 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at September 30, 1998 consisted of the
following:
<TABLE>
<CAPTION>
ESTIMATED
1998 LIFE
------------ ---------
<S> <C> <C>
Land.................................................... $ 3,636,139
Buildings and improvements.............................. 39,106,862 15 to 39 years
Machinery and equipment................................. 59,649,365 5 to 7 years
Machinery and equipment -- capitalized lease
obligations........................................... 2,612,005 5 to 7 years
Molds and tools......................................... 6,300,236 5 years
Automobiles and trucks.................................. 179,753 3 years
Leasehold improvements.................................. 1,596,394 10 to 15 years
------------
113,080,754
Less accumulated depreciation and amortization
(including capital lease amortization of
$2,008,212, respectively).......................... (42,179,590)
------------
70,901,164
Construction in progress (see below).................... 7,805,544
------------
$ 78,706,708
============
</TABLE>
Provisions for depreciation and amortization of plant and equipment for the
fiscal years ended September 30, 1997 and 1998 amounted to $8,224,055 and
$9,895,858, respectively.
During June 1998, the Company completed construction of a new manufacturing
and warehouse facility adjacent to the existing facilities on land which is
owned by an affiliate of the Company (Note 9). The total cost of the facility
amounted to $14,615,301.
Construction in progress at September 30, 1998 represents (a) $2,404,698
incurred in connection with the construction of proprietary molds and (b) costs
incurred in connection with a new manufacturing and warehouse facility located
in South Carolina. The total cost of such new facility (completed during October
1998) approximated $5,500,000.
F-21
<PAGE> 109
COURTESY CORPORATION AND AFFILIATES
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- REVOLVING CREDIT BORROWINGS AND LONG-TERM DEBT
As of September 30, 1998, Courtesy was obligated to The Northern Trust
Company ("Northern") under various credit and security agreements, which provide
for maximum aggregate borrowings of $17,500,000 (exclusive of mortgage loans)
evidenced by revolving credit, term, call and construction loan facilities.
Borrowings are secured by all assets owned by Courtesy and are guaranteed by
Creative.
Revolving credit loan borrowings, due November 30, 1999, are limited to the
lesser of $12,500,000 or the sum of (i) 80% of eligible accounts receivable, and
(ii) 50% of eligible inventories. Such borrowings bear interest, at the
Company's option, at either (a) the LIBOR rate plus 1% or (b) the prime rate.
The weighted average interest rates on the revolving credit borrowings were
6.84% and 6.93% for the fiscal years ended September 30, 1997 and 1998,
respectively.
Long-term obligations at September 30, 1998 consisted of the following:
<TABLE>
<CAPTION>
1998
-----------
<S> <C>
Mortgage note payable to Northern (payable in quarterly
installments of $233,333 plus interest at 7.20%, with a
balloon payment of $4,666,680 due May 31, 2008)............. $13,766,667
Mortgage notes payable to Northern (payable in quarterly
installments of $138,333 plus interest at 8.94% on 50% of
the principal balance and 7.88% on the remainder, with a
balloon payment of $4,426,676 due May 31, 2000)........... 5,256,666
Mortgage note payable to Northern (payable in quarterly
installments of $200,000 plus interest at 7.89%, with a
balloon payment of $4,000,000 due January 31, 2006)....... 9,800,000
Capitalized lease obligation (payable in monthly
installments of $51,185, inclusive of interest at 6.8%;
final payment November 15, 1998; secured by leased
equipment)................................................ 101,506
-----------
Total....................................................... 28,924,839
Less portion due currently.................................. 2,388,173
-----------
Noncurrent portion.......................................... $26,536,666
===========
</TABLE>
The aggregate maturities of long-term liabilities as of September 30, 1998
are as follows:
<TABLE>
<CAPTION>
CAPITALIZED
FISCAL YEAR ENDED LEASE
SEPTEMBER 30, OBLIGATION OTHER
----------------- ----------- -----------
<S> <C> <C>
1999........................................................ $102,371 $ 2,286,667
2000........................................................ 0 6,436,667
2001........................................................ 0 1,733,333
2002........................................................ 0 1,733,333
2003........................................................ 0 1,733,333
Thereafter.................................................. 0 14,900,000
-------- -----------
102,371 28,823,333
Less imputed interest thereon............................... 865 0
-------- -----------
$101,506 $28,823,333
======== ===========
</TABLE>
The agreement pertaining to the Northern loans require the payment of
penalties upon the early retirement of outstanding loans and contain covenants
requiring the maintenance of certain ratios, limitations on the maximum amount
of capital expenditures and specified levels of net worth and pretax earnings.
At September 30, 1998, the Company was in compliance with all covenants.
F-22
<PAGE> 110
COURTESY CORPORATION AND AFFILIATES
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
On October 15, 1998, the Company borrowed $5,000,000 from Northern pursuant
to a note payable, payable in quarterly installments of $83,333, plus interest
at 7.16%, with final maturity on August 31, 2008. The proceeds were used to fund
the costs incurred in connection with a new manufacturing and warehouse facility
located in South Carolina (Note 4).
In connection with the Recapitalization (Note 1), effective July 30, 1999,
the Company executed a $200,000,000 Senior Credit Facility and issued
$100,000,000 of Notes, at which time the amounts outstanding under the
aforementioned revolving credit borrowings and long-term obligations were paid
in full.
The Senior Credit Facility provides for (i) a $65,000,000 term loan (the
"Tranche A Loan") maturing July 31, 2005, (ii) an $80,000,000 term loan (the
"Tranche B Loan") maturing July 31, 2006 (together with the Tranche A Loan, the
"Term Loans") and (iii) a $55,000,000 revolving credit facility (the "Revolving
Loans"). The Company may use the Revolving Loans for letters of credit of up to
$10,000,000. The loans under the Senior Credit Facility bear interest, at the
Company's election, at either the LIBOR Rate plus an applicable margin or the
Base Rate plus an applicable margin. The applicable LIBOR Rate margin is 2.50%
for the Tranche A Loan and Revolving Loans and 3.00% for the Tranche B Loan. The
applicable Base Rate margin is 1.25% for the Tranche A Loan and Revolving Loans
and 1.75% for the Tranche B Loan. The applicable margin with respect to the
loans will be eligible for certain performance pricing step-downs. The Revolving
Loans are subject to a commitment fee based on the undrawn portion of the
Revolving Loans. The commitment fee is eligible for certain performance pricing
step downs and is initially .050% per annum.
The Company may, at its option, prepay the Term Loans without premium or
penalty. Additionally, the Company may reduce or eliminate the Revolving Loans
prior to maturity on July 31, 2005. The Senior Credit Facility is guaranteed
unconditionally on a senior basis by the Company's direct and indirect domestic
subsidiaries and is collateralized by a lien on substantially all assets of the
Company and its wholly-owned subsidiaries. The Senior Credit Facility contains
several financial covenants which, among other things, require the Company to
maintain certain financial ratios and restrict the Company's ability to incur
indebtedness, make capital expenditures and pay dividends
The Notes bear interest at 11 5/8% per year, payable semi-annually on
February 1, and August 1 of each year, commencing on February 1, 2000 and
maturing on August 1, 2009. Except as set forth below, the Notes will not be
redeemable at the option of the Company prior to August 1, 2004. On and after
such date, the Notes are subject to redemption by the Company, in whole or in
part, at specified redemption prices. In addition, prior to August 1, 2002, the
Company may, subject to certain requirements, redeem up to $35,000,000 of Notes
outstanding at a redemption price equal to 111.625% plus accrued and unpaid
interest. The Notes may be redeemed at any time on or after August 1, 2004, in
whole or in part by the Company.
The Notes restrict, among other things, the incurrence of additional
indebtedness by the Company, the payment of dividends and other distributions in
respect of the Company's capital stock, the payment of dividends and other
distributions by the Company's subsidiaries, the creation of liens on the
properties and the assets of the Company to secure certain subordinated debt and
certain mergers, sales of assets and transactions with affiliates.
The Company will file a registration statement on Form S-4 in connection
with a pending exchange offer in which the Company would exchange new Notes for
the Company's currently outstanding Notes due 2009. The terms of the new Notes
are the same as the terms of the currently outstanding Notes.
F-23
<PAGE> 111
COURTESY CORPORATION AND AFFILIATES
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- DEFERRED COMPENSATION OBLIGATION
Courtesy maintains nonqualified deferred compensation agreements for the
benefit of certain key officers of the Company. The plan provides for $3,200,000
to be paid, in equal or unequal increments at such times and in such amounts as
may be determined by the Company, on or before December 31, 2002. During each of
the years ended September 30, 1997 and 1998, $400,000 was paid to the officers.
The initial cost of the benefits was charged to expense and accrued using a
present value method over the expected term of the agreements. Charges to
expense for the fiscal years ended September 30, 1997 and 1998 were $193,958 and
$159,394.
NOTE 7 -- EMPLOYEE BENEFIT PLANS
The Company maintains for the benefit of its eligible employees, several
benefit plans, all of which conform to the provisions of the Employee Retirement
Income Security Act of 1974 (ERISA), as follows:
Employees' Profit-sharing Plan -- This plan is maintained for the
benefit of all eligible employees. The employer makes discretionary annual
contributions in such amounts as may be determined by its Board of
Directors, limited to amounts deductible for federal income tax purposes.
Benefits vest in participants over a period of years, and distributions are
made to participants (or to their beneficiaries) upon death, retirement or
severance of employment. The employer contribution for the fiscal years
ended September 30, 1997 and 1998 amounted to $420,000 and $735,000,
respectively.
Employees' 401(k) Plan -- This plan is maintained for the benefit of
all eligible employees and was established under the provisions of Section
401(k) of the Internal Revenue Code. Under such plan, employer
contributions are discretionary. The employer contribution for the fiscal
years ended September 30, 1997 and 1998 amounted to $15,005 and $20,469,
respectively.
NOTE 8 -- STOCKHOLDERS' EQUITY
As of September 30, 1997 and 1998 (a) 5,000 shares of Courtesy's Class A
voting common (no par value, 10,000 shares authorized) were issued and
outstanding, (b) 15,000 shares of Courtesy's Class B nonvoting common (no par
value, 30,000 shares authorized) were issued and outstanding and (c) 1,000
shares of Creative's common stock (no par value) were authorized, issued and
outstanding. As of September 30, 1998, 100 shares of CSC's common stock (no par
value) were authorized, issued and outstanding.
F-24
<PAGE> 112
COURTESY CORPORATION AND AFFILIATES
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Stockholders' equity at September 30, 1997 and 1998 is comprised of the
following:
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
September 30, 1997
Courtesy............................. $20,000 $ 5,000 $41,296,236 $41,321,236
Creative............................. 0 353,594 12,674,129 13,027,723
CSC.................................. 0 0 0 0
------- -------- ----------- -----------
20,000 358,594 53,970,365 54,348,959
Eliminations......................... 0 (39,284) (2,319,980) (2,359,264)
------- -------- ----------- -----------
Total........................ $20,000 $319,310 $51,650,385 $51,989,695
======= ======== =========== ===========
September 30, 1998
Courtesy............................. $20,000 $ 5,000 $56,565,329 $56,590,329
Creative............................. 0 353,594 16,958,167 17,311,761
CSC.................................. 0 5,000 26,310 31,310
------- -------- ----------- -----------
20,000 363,594 73,549,806 73,933,400
Eliminations......................... 0 (39,284) (3,167,721) (3,207,005)
------- -------- ----------- -----------
Total........................ $20,000 $324,310 $70,382,085 $70,726,395
======= ======== =========== ===========
</TABLE>
NOTE 9 -- COMMITMENTS AND CONTINGENCIES
Certain premises occupied by the Company are leased under various operating
leases, some of which are owned by a partnership whose partners are officers and
stockholders of the Company (see below). All leases provide for payment by the
lessee of costs applicable to operating the leased premises (inclusive of real
estate taxes), and expire at various dates through fiscal 2011.
Courtesy is subject to a ground lease agreement, which allows Courtesy to
utilize a vacant plot of land adjacent to the Company's corporate headquarters.
This plot of land is currently owned by an affiliate of the Company related by
common ownership and was used to build a manufacturing and warehouse facility
which was placed into service in June 1998 (Note 4). The ground lease agreement,
as amended, provides for a base rent of $334,691 per year through August 31,
2011, with an adjustment based on the Consumer Price Index every five years. The
agreement also provides for an option to renew for up to three consecutive
periods of five years and an option to purchase the land at fair market value.
Total rent expense, including real estate taxes, amounted to $1,595,594 and
$1,924,991 ($648,491 and $694,691 which was paid to related parties) for the
fiscal years ended September 30, 1997 and 1998, respectively.
Future minimum rental payments applicable to the aforementioned leases are
as follows:
<TABLE>
<CAPTION>
RELATED THIRD
FISCAL YEAR ENDED SEPTEMBER 30, PARTIES PARTIES TOTAL
- ------------------------------- ---------- -------- ----------
<S> <C> <C> <C>
1999.............................................. $ 695,000 $515,000 $1,210,000
2000.............................................. 695,000 388,000 1,083,000
2001.............................................. 695,000 8,000 703,000
2002.............................................. 695,000 0 695,000
2003.............................................. 695,000 0 695,000
Thereafter........................................ 4,060,000 0 4,060,000
---------- -------- ----------
$7,535,000 $911,000 $8,446,000
========== ======== ==========
</TABLE>
F-25
<PAGE> 113
COURTESY CORPORATION AND AFFILIATES
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Pursuant to an agreement between Courtesy and its stockholders, Courtesy
shall purchase all shares of such stockholders upon that stockholder's death or
disability. The purchase price shall be equal to the Fair Market Value per
Share, as defined, determined as of the date of death or disability. Courtesy
maintains life insurance policies on the lives of its stockholders, in the
aggregate amount of $58,000,000, to provide funds for such possible purchases.
Any remaining unpaid balance shall be paid, in accordance with the terms of a
note to be established, in ten equal annual principal payments, with interest
rates adjusted at each anniversary date based upon Northern's prime rate. Such
agreement was terminated in connection with the Recapitalization (Note 1).
Pursuant to an agreement between Creative and its stockholders, Creative
shall purchase all shares of such stockholders upon that stockholder's death or
disability. The purchase price shall be equal to the Book Value per Share, as
defined, determined as of the date of death or disability. Creative maintains
life insurance policies on the lives of its majority stockholders, in the
aggregate amount of $20,000,000, to provide funds for such possible purchases.
Twenty-five percent of the stockholder's balance will be paid upon determination
of the Book Value per Share. The unpaid balance shall be paid, in accordance
with the terms of a note to be established, in sixteen equal quarterly principal
payments, with interest rates adjusted at each quarter based upon Northern's
prime rate. Such agreement was terminated in connection with the
Recapitalization (Note 1).
There are various lawsuits against Courtesy incident to the operation of
its business. The liability, if any, associated with these matters was not
determinable at September 30, 1998. While certain of these matters involve
substantial amounts, it is the opinion of management that their ultimate
resolution will not have a material adverse effect on the Company's financial
position or results of operations.
F-26
<PAGE> 114
------------------------------------------------------
------------------------------------------------------
WE HAVE NOT AUTHORIZED ANYONE TO GIVE YOU ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS ABOUT THE TRANSACTIONS WE DISCUSS IN THIS PROSPECTUS OTHER THAN
THOSE CONTAINED HEREIN. IF YOU ARE GIVEN ANY INFORMATION OR REPRESENTATIONS
ABOUT THESE MATTERS THAT IS NOT DISCUSSED IN THIS PROSPECTUS, YOU MUST NOT RELY
ON THAT INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY SECURITIES ANYWHERE OR TO ANYONE WHERE OR TO WHOM WE ARE NOT
PERMITTED TO OFFER OR SELL SECURITIES UNDER APPLICABLE LAW. THE DELIVERY OF THIS
PROSPECTUS OFFERED HEREBY DOES NOT, UNDER ANY CIRCUMSTANCES, MEAN THAT THERE HAS
NOT BEEN A CHANGE IN OUR AFFAIRS SINCE THE DATE OF THIS PROSPECTUS. IT ALSO DOES
NOT MEAN THAT THE INFORMATION IN THIS PROSPECTUS IS CORRECT AFTER THIS DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................... 1
Risk Factors......................... 8
The Recapitalization................. 15
Use of Proceeds...................... 16
Capitalization....................... 17
Selected Financial Data.............. 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 20
Business............................. 24
Management........................... 28
Securities Ownership of Certain
Beneficial Owners and Management... 34
Certain Relationships and Related
Transactions....................... 36
Description of Senior Credit
Facility........................... 38
The Exchange Offer................... 42
Description of the New Notes......... 49
United States Federal Income Tax
Considerations..................... 76
Plan of Distribution................. 77
Legal Matters........................ 77
Experts.............................. 77
Available Information................ 78
Unaudited Pro Forma Combined
Financial Data..................... P-1
Index to Financial Statements........ F-1
</TABLE>
---------------------
UNTIL , 2000, ALL DEALERS EFFECTING TRANSACTIONS IN THE NEW
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.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
OFFER TO EXCHANGE ALL
OUTSTANDING
11 5/8% SENIOR SUBORDINATED
NOTES DUE 2009
FOR
11 5/8% SENIOR SUBORDINATED
NOTES DUE 2009
LLS CORP.
---------------------------------
PROSPECTUS
---------------------------------
December , 1999
------------------------------------------------------
------------------------------------------------------
<PAGE> 115
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Amended Articles of Incorporation and the Amended and Restated Bylaws
of the Company provide for the indemnification of directors and officers to the
fullest extent permitted by the Illinois Business Corporation Act ("IBCA").
Pursuant to Section 8.75 of the IBCA, the Company generally has the power to
indemnify its present and former directors and officers against expenses
incurred by them in connection with any suit to which such directors and
officers are, or are threatened to be made, a party by reason of their serving
in such positions, so long as they acted in good faith and in a manner they
reasonably believed to be in, or not opposed to, the best interests of the
Company, and with respect to any criminal action, they had no reasonable cause
to believe their conduct was unlawful. Indemnification is not available if such
person has been adjudged to have been liable to the Company, unless and only to
the extent the court in which such action was brought determines that, despite
the adjudication of liability, but in view of all the circumstances, the person
is reasonably and fairly entitled to indemnification for such expenses as the
court shall deem proper. The Company has the power to purchase and maintain
insurance for such persons. The statute also expressly provides that the power
to indemnify authorized thereby is not exclusive of any rights granted under any
bylaw, agreement, vote of shareholders or disinterested directors, or otherwise.
The above discussion of the Amended Articles of Incorporation and Amended
and Restated Bylaws of the Company and of Section 8.75 of the IBCA is not
intended to be exhaustive and is qualified in its entirety by such Amended
Articles of Incorporation and Amended and Restated Bylaws of the Company and the
IBCA.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act of
1933, as amended (the "Act"), and is therefore unenforceable. In the event that
a claim for indemnification against such liabilities (other than the payment by
the Company of expenses incurred or paid by a director, officer, or controlling
person thereof 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 Company 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 of whether such indemnification by it
is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
2.1 -- Recapitalization Agreement, dated July 13, 1999, by and
among HMTF/CC Investments, L.P., Courtesy Corporation,
Creative Packaging Corp., Courtesy Sales Corp. and the
shareholders party thereto.*
3.1 -- Articles of Incorporation of LLS Corp., as amended.*
3.2 -- Amended and Restated Bylaws of LLS Corp.*
4.1 -- Indenture, dated July 30, 1999, by and between LLS Corp.,
as issuer, and The Bank of New York, as trustee.*
4.2 -- Registration Rights Agreement, dated July 30, by and
between LLS Corp. and Jefferies & Company, Inc.*
</TABLE>
II-1
<PAGE> 116
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
5.1 -- Opinion of Weil, Gotshal & Manges LLP as to the validity
of the securities registered hereby.+
10.1 -- Credit Agreement, dated July 30, 1999, by and among LLS
Corp., certain lenders, Bank of America, N.A., as
administrative agent, Credit Suisse First Boston, as
syndication agent, and Bankers Trust Company, as
documentation agent.*
10.2 -- Escrow Agreement, dated July 30, 1999, by an among LLS
Corp., Walter J. Kreiseder, Gerald J. Sommers and
American National Bank & Trust Company.*
10.3 -- Warrant Agreement, dated July 30, 1999, by and among LLS
Corp. and the purchasers party thereto.*
10.4 -- Shareholders Agreement, dated July 30, 1999, by and among
LLS Corp. and the securityholders listed on the signature
pages thereof.*
10.5 -- Monitoring and Oversight Agreement, dated July 30, 1999,
by and among LLS Corp., Courtesy Corporation, Creative
Packaging Corp., Courtesy Sales Corp. and Hicks Muse &
Co. Partners, L.P.*
10.6 -- Financial Advisory Agreement, dated July 30, 1999, by and
among LLS Corp., Courtesy Corporation, Creative Packaging
Corp., Courtesy Sales Corp. and Hicks Muse & Co.
Partners, L.P.*
10.7 -- Employment Agreement, dated July 30, 1999, by and between
LLS Corp. and James N. Mills.*
10.8 -- Employment Agreement, dated July 30, 1999, by and between
LLS Corp. and David M. Sindelar.*
10.9 -- Employment Agreement, dated July 30, 1999, by and between
Courtesy Corporation and Walter J. Kreiseder.*
10.10 -- Employment Agreement, dated July 30, 1999, by and between
Courtesy Corporation and Gerald J. Sommers.*
10.11 -- Courtesy Group 1999 Stock Option Plan for Key Employees.*
12.1 -- Computation of Earnings to Fixed Charges.*
21.1 -- Subsidiaries of LLS Corp.*
23.1 -- Consent of Weil, Gotshal & Manges LLP (included in the
opinion filed as Exhibit 5.1)
23.2 -- Consent of Altschuler, Melvoin and Glasser, independent
auditors.+
23.3 -- Consent of Arthur Andersen, LLP, independent auditors+
24.1 -- Powers of Attorney of the Directors and Executive
Officers of LLS Corp.*
25.1 -- Statement of Eligibility and Qualification of The Bank of
New York, as trustee, under the Indenture listed as
Exhibit 4.1 to this registration statement on Form T-1.*
27.1 -- Financial Data Schedule for the Fiscal Year Ended
September 30, 1999.+
99.1 -- Form of Letter of Transmittal.*
99.2 -- Form of Notice of Guaranteed Delivery.*
</TABLE>
- ---------------
* Previously filed.
+ Filed herewith.
II-2
<PAGE> 117
(b) Financial Statement Schedules.
Except for Schedule II -- Valuation and Qualifying Accounts, all other
schedules have been omitted since the required information is either not present
or not in amounts sufficient to require submission of the schedule, or because
the information required is included in the financial statements or the notes
thereto.
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(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 than a 20% 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 such information in the registration
statement;
(2) That, for the purpose of determining any liability under the
Securities Act, 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 the time shall be deemed to be the
initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering;
(4) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this
form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request; and
(5) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
II-3
<PAGE> 118
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Co-Registrant certifies that it has reasonable grounds to believe that it meets
all requirements for filing on Form S-4 and has duly caused this Amendment No. 1
to Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of St. Louis, State of Missouri, on
December 3, 1999.
LLS CORP.
By: /s/ DAVID M. SINDELAR
----------------------------------
David M. Sindelar
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<C> <S> <C>
* Chairman of the Board and Chief December 3, 1999
- ----------------------------------------------------- Executive Officer
James N. Mills
Director December , 1999
- -----------------------------------------------------
Dan H. Blanks
* Director December 3, 1999
- -----------------------------------------------------
Jack D. Furst
/s/ DAVID M. SINDELAR Senior Vice President, Chief December 3, 1999
- ----------------------------------------------------- Financial Officer and Director
David M. Sindelar
* Director December 3, 1999
- -----------------------------------------------------
Walter J. Kreiseder
* Director December 3, 1999
- -----------------------------------------------------
Gerald J. Sommers
*By: /s/ DAVID M. SINDELAR
------------------------------------------------
David M. Sindelar
Attorney-in-fact
</TABLE>
II-4
<PAGE> 119
INDEPENDENT AUDITORS' REPORT ON SCHEDULES
To the Board of Directors of
Courtesy Corporation
In connection with our audit of the combined financial statements of
Courtesy Corporation and Affiliates referred to in our audit report dated
December 11, 1998, which was included in this Form S-4, we have also audited
Schedule II as of and for the fiscal years ended September 30, 1997 and 1998. In
our opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
ALTSCHULER, MELVOIN AND GLASSER LLP
Chicago, Illinois
December 11, 1998
<PAGE> 120
COURTESY CORPORATION AND AFFILIATES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLLECTION OF
BALANCE AT PREVIOUSLY BALANCE AT
ALLOWANCE FOR DOUBTFUL ACCOUNTS -- DEDUCTED BEGINNING WRITTEN OFF END OF
FROM RECEIVABLES ON THE BALANCE SHEET OF PERIOD PROVISION WRITEOFFS ACCOUNTS ACQUISITIONS PERIOD
- ------------------------------------------- ---------- --------- --------- ------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
For the year ended September 30, 1997.. $28 $ (3) -- $ 3 -- $ 28
For the year ended September 30, 1998.. $28 -- -- -- -- $ 28
For the year ended September 30, 1999.. $28 $466 -- -- -- $494
</TABLE>
<PAGE> 121
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
5.1 -- Opinion of Weil, Gotshal & Manges LLP as to the validity
of the securities registered hereby.+
23.1 -- Consent of Weil, Gotshal & Manges LLP (included in the
opinion filed as Exhibit 5.1)
23.2 -- Consent of Altschuler, Melvoin and Glasser, independent
auditors.+
23.3 -- Consent of Arthur Anderson LLP, independent auditors.+
27.1 -- Financial Data Schedule for the Fiscal Year Ended
September 30, 1999.+
</TABLE>
- ---------------
+ Filed herewith.
<PAGE> 1
EXHIBIT 5.1
December 3, 1999
LLS Corp.
101 South Hanley Road, Suite 400
St. Louis, Missouri 63105
Ladies and Gentlemen:
We have acted as counsel to LLS Corp., an Illinois corporation (the
"Company"), in connection with the preparation and filing by the Company of a
Registration Statement on Form S-4 (Registration No. 333-88007) (the
"Registration Statement") filed with the Securities and Exchange Commission on
September 29, 1999, under the Securities Act of 1933, as amended (the "Act"),
relating to the Company's $100,000,000 aggregate principal amount of 11% Senior
Subordinated Notes due 2009 (the "Registered Notes") that are to be issued in
exchange for a like principal amount of the issued and outstanding 11% Senior
Subordinated Notes due 2009 (the "Outstanding Notes") of the Company. The
Company proposes to offer, upon the terms set forth in the prospectus (the
"Prospectus") contained in the Registration Statement, to exchange $1,000
principal amount of Registered Notes for each $1,000 principal amount of
Outstanding Notes (the "Exchange Offer"). The Registered Notes will be issued
under an Indenture (the "Indenture"), dated as of July 30, 1999, by and between
the Company and The Bank of New York, as trustee (the "Trustee"). Capitalized
terms defined in the Registration Statement and not otherwise defined herein are
used herein as so defined.
In so acting, we have examined originals or copies, certified or
otherwise identified to our satisfaction, of the Indenture, the form of the
Registered Notes set forth in the Indenture and such corporate records,
agreements, documents and other instruments, and such certificates or comparable
documents of public officials and of officers and representatives of the
Company, and have made such inquiries of such officers and representatives, as
we have deemed relevant and necessary as a basis for the opinion hereinafter set
forth.
In such examination, we have assumed the genuineness of all signatures,
the legal capacity of all natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of documents
submitted to us as certified, conformed or photostatic copies and the
authenticity of the originals of such latter documents. As to all questions of
fact material to this opinion that have not been independently established, we
have relied upon certificates or comparable documents of officers and
representatives of the Company.
<PAGE> 2
Based on the foregoing, and subject to the qualifications stated
herein, we are of the opinion that:
Assuming that the Indenture has been duly authorized, executed and
delivered by the Trustee, when (i) the Registered Notes issuable upon
consummation of the Exchange Offer have been duly executed by the Company and
authenticated by the Trustee in accordance with the terms of the Indenture and
(ii) the Registered Notes issuable upon consummation of the Exchange Offer have
been duly delivered against receipt of Outstanding Notes surrendered in exchange
therefor, the Registered Notes issuable upon consummation of the Exchange Offer
will constitute the legal, valid and binding obligations of the Company,
enforceable against it in accordance with their terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally, and subject, as
to enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity).
The opinions expressed herein are limited to the laws of the State of
New York and the federal laws of the United States, and we express no opinion as
to the effect on the matters covered by this letter of the laws of any other
jurisdiction.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference to this firm under the caption "Legal
Matters" in the Prospectus forming a part of the Registration Statement.
Very truly yours,
/s/ WEIL, GOTSHAL & MANGES LLP
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We hereby consent to the use in this Amendment No. 1 to the Registration
Statement on Form S-4 (File No. 333-88007) of our report dated December 11,
1998, relating to the combined financial statements of Courtesy Corporation and
Affiliates, which appears in such Registration Statement. We also consent to
the references to us under the heading "Experts".
Chicago, Illinois
December 3, 1999
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
As independent public accountants, we hereby consent to the use in this
registration statement of our report dated December 3, 1999 included herein and
to all references to our Firm included in this registration statement.
Arthur Andersen
December 3, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> SEP-30-1999
<CASH> 4,140
<SECURITIES> 0
<RECEIVABLES> 20,918
<ALLOWANCES> 494
<INVENTORY> 28,705
<CURRENT-ASSETS> 54,037
<PP&E> 86,072
<DEPRECIATION> 55,326
<TOTAL-ASSETS> 168,000
<CURRENT-LIABILITIES> 39,405
<BONDS> 245,000
0
780
<COMMON> 553
<OTHER-SE> 125,194
<TOTAL-LIABILITY-AND-EQUITY> 168,000
<SALES> 171,703
<TOTAL-REVENUES> 171,703
<CGS> 121,101
<TOTAL-COSTS> 121,101
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,835
<INCOME-PRETAX> 24,756
<INCOME-TAX> 3,260
<INCOME-CONTINUING> 21,325
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,325
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
