<PAGE>
As Filed Pursuant to Rule 424(b)(3)
Registration No. 333-33572
Prospectus
DIAMOND TRIUMPH AUTO GLASS, INC.
Offer to Exchange
up to $100,000,000 9 1/4% Senior Notes due 2008
for any and all outstanding 9 1/4% Senior Notes due 2008
This Prospectus and the accompanying Letter of Transmittal relate to the
proposed offer by Diamond Triumph Auto Glass, Inc. ("Diamond") to exchange up
to $100,000,000 in aggregate principal amount of new 9 1/4% senior notes due
2008 for any and all of its outstanding 9 1/4% senior notes due 2008. The new
notes, which are referred to as the "New Notes," will be freely transferable.
The outstanding notes, which are referred to as the "Old Notes," have certain
transfer restrictions. The Old Notes and the New Notes are collectively
referred to as the "Notes."
The terms of the Exchange Offer are as follows:
. Diamond will exchange all Old Notes that are validly tendered and not
withdrawn prior to the expiration date of the Exchange Offer. The
Exchange Offer expires 5:00 p.m. New York City time on June 12, 2000,
unless extended.
. You may withdraw tendered Old Notes at any time prior to the expiration
of the Exchange Offer.
. The terms of the New Notes are substantially identical to the terms of
the Old Notes, except for certain transfer restrictions and registration
rights relating to the Old Notes.
. Diamond believes that there will be no United States federal income tax
consequences to holders of Old Notes who exchange Old Notes for New Notes
pursuant to the Exchange Offer, but you should read the section entitled
"Certain U.S. Federal Income Tax Considerations" for more information.
. Old Notes not exchanged in the Exchange Offer will remain outstanding and
be entitled to the benefits of the indenture under which they were
issued, but under certain circumstances will not have further exchange or
registration rights.
. Diamond does not intend to apply for listing of the New Notes on any
securities exchange or to arrange for the New Notes to be quoted on any
quotation system.
. Diamond will not receive any proceeds from the Exchange Offer.
If you wish to accept the Exchange Offer, you must deliver the Old Notes to
be exchanged, together with the Letter of Transmittal that accompanies this
Prospectus and any other required documentation, to the exchange agent
identified in this Prospectus. Alternatively, you may effect a tender of your
Old Notes by book-entry transfer into the exchange agent's account at the
Depository Trust Company. All deliveries are at your risk. You can find
detailed instructions concerning delivery in the "Exchange Offer" section of
this Prospectus and in the accompanying Letter of Transmittal.
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of those New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act of 1933, as amended. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where the Old
Notes were acquired by that broker-dealer as a result of market-making
activities or other trading activities. Diamond has agreed that, starting on
June 12, 2000 and ending on the close of business 180 days after June 12, 2000,
it will make this Prospectus available to any broker-dealer for use in
connection with any resale. See "Plan of Distribution."
---------------
This investment involves risks. Please read this Prospectus carefully,
including the section entitled "Risk Factors" that begins on page 9 for a
discussion of the risks that you should consider prior to tendering your Old
Notes for exchange.
Neither the Securities and Exchange Commission (the "SEC") nor any state
securities and exchange commission has approved or disapproved of these
securities or passed upon the adequacy or the accuracy of this Prospectus. Any
representation to the contrary is a criminal defense.
This Prospectus is not an offer to sell the New Notes and is not soliciting
an offer to buy the New Notes in any jurisdiction where the offer to sell is
not permitted.
---------------
The date of this Prospectus is April 27, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Where You Can Find More Information....................................... i
Forward Looking Information............................................... ii
Prospectus Summary........................................................ 1
Summary Historical Financial Data......................................... 7
Risk Factors.............................................................. 9
Use of Proceeds........................................................... 15
Capitalization............................................................ 16
The Exchange Offer........................................................ 17
Selected Historical Financial Data........................................ 26
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 28
Business.................................................................. 33
Management................................................................ 40
Security Ownership of Certain Beneficial Owners and Management............ 45
Certain Relationships and Related Transactions............................ 46
Description of Credit Facility............................................ 47
Description of Capital Stock.............................................. 49
Description of the New Notes.............................................. 52
Certain U.S. Federal Income Tax Considerations............................ 84
Book-Entry, Delivery and Form............................................. 87
Plan of Distribution...................................................... 90
Legal Matters............................................................. 90
Experts................................................................... 90
Index to Financial Statements............................................. F-1
</TABLE>
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WHERE YOU CAN FIND MORE INFORMATION
Diamond has filed a Registration Statement (which term includes any
amendments to the Registration Statement) with the SEC on Form S-4 under the
Securities Act of 1933, as amended (the "Securities Act"), covering the
Exchange Notes to be issued in the Exchange Offer. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto, to which reference is hereby made. Each statement made in
this Prospectus referring to a document filed as an exhibit or schedule to the
Registration Statement is not necessarily complete and is qualified in its
entirety by reference to the exhibit or schedule for a complete statement of
its terms and conditions.
Upon the effectiveness of the Registration Statement filed with the SEC,
Diamond will be subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). As a result, Diamond
will be required to file periodic reports and other information with the SEC
relating to its business, financial statements and other matters. These filings
and the Registration Statement are available to the public over the Internet at
the SEC's website at http://www.sec.gov. You may also read and copy any
document filed by Diamond with the SEC at the SEC's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Please call the SEC
at 1-800-SEC-0330 for further information on these public reference rooms and
their copy charges.
Diamond's obligations under the Exchange Act to file periodic reports and
other information with the SEC may be suspended, under certain circumstances,
if the New Notes are held of record by fewer than 300 holders at the beginning
of any fiscal year and are not listed on a national securities exchange.
Diamond has agreed that, whether or not it is required to do so by the SEC's
rules and regulations, for so long as any Notes remain outstanding, it will
furnish to the holders of those Notes and file with the SEC (unless the SEC
will not accept the filing) all annual, quarterly and current reports that
Diamond would be required to file with the SEC pursuant to Sections 13(a) or
15(d) of the Exchange Act. In addition, for so long as any Old Notes remain
outstanding, Diamond has agreed to make available to any prospective purchaser
of the Old Notes or any beneficial owner of the Old Notes, upon request, the
information required by 144A(d)(4) under the Securities Act.
This Prospectus incorporates documents by reference, which means that this
Prospectus discloses certain information to you by referring you to another
document. These incorporated documents contain important information about
Diamond that is not included in or delivered with this Prospectus. You may
request a copy of any documents incorporated by reference (including the
exhibits to those documents) at no cost, by writing or calling Diamond at the
following address or telephone number:
Investor Relations
Diamond Triumph Auto Glass, Inc.
220 Division Street
Kingston, Pennsylvania 18704
(570) 287-9915 ext. 3888
To obtain timely delivery of any copies of any requested documents, please
write or telephone no later than June 2, 2000, ten days prior to the scheduled
expiration of the Exchange Offer.
You should rely only on the information provided or incorporated by
reference in this Prospectus. Diamond has not authorized anyone else to provide
you with different information. You should not assume that the information in
this Prospectus is accurate as of any date other than the date on the front of
this Prospectus. Neither the delivery of this Prospectus or the accompanying
Letter of Transmittal, nor any exchange made pursuant to this Prospectus shall
under any circumstances create an implication that the information contained in
this Prospectus is correct as of any subsequent date.
This Exchange Offer is not being made to, nor will tenders of Old Notes be
accepted from, holders of Old Notes in any jurisdiction in which the Exchange
Offer or its acceptance is unlawful.
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FORWARD LOOKING INFORMATION
You are cautioned that there are statements contained in this Prospectus
which are "forward-looking" statements within the meaning of the Private
Securities Litigation Reform Act of 1995 (the "Act"). Forward-looking
statements include statements which are predictive in nature, which depend upon
or refer to future events or conditions, which include words such as "expects,"
"anticipates," "intends," "plans," "believes," "estimates," or similar
expressions. In addition, any statements concerning future financial
performance (including future revenues, earnings or growth rates), ongoing
business strategies or prospects, and possible future actions, which may be
provided by management, are also forward-looking statements as defined by the
Act. Forward-looking statements are based on current expectations and
projections about future events and are subject to risks, uncertainties and
assumptions about Diamond, economic and market factors and the industries in
which Diamond does business, among other things. These statements are not
guaranties of future performance and Diamond has no specific intention to
update these statements.
These forward-looking statements, like any forward-looking statements,
involve risks and uncertainties that could cause actual results to differ
materially from those projected or anticipated. The risks and uncertainties
include, among other things, overall economic and business conditions, the
demand for Diamond's services, competitive factors in the industries in which
Diamond competes and changes in government regulation. For a discussion of
important factors that could cause actual results to differ materially from the
forward-looking statements contained in this Prospectus, please read the
Section entitled "Risk Factors" beginning on page 9.
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PROSPECTUS SUMMARY
The following summary highlights selected information from this Prospectus
and may not contain all of the information that is important to you. For a
complete understanding of this Exchange Offer and for a more complete
description of the legal terms used to describe the Exchange Offer and the New
Notes, you should read this entire Prospectus carefully, as well as the
additional documents that Diamond refers you to. See "Where You Can Find More
Information."
As you read this Prospectus, you should also note the following: This
Prospectus contains various references to industry market data and certain
industry forecasts. The industry market data and industry forecasts were
obtained from publicly available information and industry publications.
Industry publications generally state that the information contained therein
has been obtained from sources believed to be reliable, but that the accuracy
and completeness of that information is not guaranteed. Similarly, industry
forecasts, while believed to be accurate, have not been independently verified
and Diamond does not make any representation as to the accuracy of that
information.
Diamond
Diamond is a leading provider of automotive glass replacement and repair
services in the Northeast, Mid-Atlantic, Midwest, Southeast and Southwest
regions of the United States. At December 31, 1999, Diamond operated a network
of 226 automotive glass service centers, approximately 1,041 mobile
installation vehicles and four distribution centers in 39 states. Diamond
serves all of its customers' automotive glass replacement and repair needs,
offering windshields, tempered glass and other related products. Sales and
EBITDA for the year ended December 31, 1999 were $164.5 million and $13.8
million, respectively.
Diamond believes that, due to its sole focus on automotive glass replacement
and repair, it has one of the lowest cost structures in the automotive glass
replacement and repair industry. Diamond's low cost structure enables it to
serve all segments of the industry, which is comprised of: (1) individual
consumers; (2) commercial customers, including commercial fleet leasing and
rental car companies, car dealers, body shops and government agencies; and (3)
insurance customers, including referrals from local agents, claims offices and
centralized call centers. Diamond's 1999 sales to individual consumers,
commercial customers and insurance customers represented 28.6%, 41.5% and 29.9%
of total sales, respectively. While the two largest participants in the
industry primarily focus on servicing automotive glass insurance claims
(including providing related insurance claims processing services) and also
manufacture automotive glass, Diamond has strategically positioned itself
solely as a provider of automotive glass replacement and repair services to a
balanced mix of individual, commercial and insurance customers.
Diamond's headquarters are located at 220 Division Street, Kingston,
Pennsylvania 18704 and its telephone number is (570) 287-9915.
Recent Developments
On March 31, 1998, Diamond entered into a bank facility with a syndicate of
financial institutions, which provided for borrowings of up to $35 million. On
March 27, 2000, Diamond entered into a new revolving credit facility with The
CIT Group/Business Credit, Inc., as lender, which provides for revolving
advances ("Revolving Loans") of up to the lesser of:
. $25,000,000; or
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. the sum of 85% of Diamond's Eligible Accounts Receivable (as defined in
the new credit facility) plus 85% of Diamond's Eligible Inventory (as
defined in the new credit facility), less certain reserves; or
. an amount equal to 1.5 times Diamond's EBITDA for the prior twelve
months. For purposes of the new credit facility, EBITDA is defined as
earnings before interest, taxes, depreciation and amortization, plus any
accrued and unpaid management fees payable to Leonard Green & Partners,
L.P. ("LGP") during the period.
At the same time Diamond entered into the new credit facility, it repaid
outstanding borrowings under the old bank facility. For a more detailed
description of the new credit facility, please read the section entitled
"Description of Credit Facility."
About this Transaction
On March 31, 1998, Diamond sold $100.0 million of 9 1/4% Senior Notes Due
2008 in a private offering to First Union Capital Markets, BT Alex. Brown
Incorporated and Donaldson, Lufkin & Jenrette Securities Corporation,
collectively referred to as the "Initial Purchasers." These are the Old Notes
to which this Exchange Offer applies. Simultaneously with the private offering
of the Old Notes, Diamond entered into a Registration Rights Agreement with the
Initial Purchasers, in which Diamond agreed, among other things, to deliver
this Prospectus to you and to complete this Exchange Offer on or before October
27, 2000.
Set forth below is a summary of the material terms of the Exchange Offer:
The Exchange Offer
The Exchange Offer Diamond is offering to issue registered New Notes in
exchange for a like principal amount of its
outstanding Old Notes. Diamond is offering to issue
these New Notes to satisfy its obligations under the
Registration Rights Agreement it entered into with
the Initial Purchasers. You may tender your
outstanding Old Notes for exchange by following the
procedures described under the heading "The Exchange
Offer."
Expiration Date The Exchange Offer will expire at 5:00 p.m., New York
City time, on June 12, 2000, unless Diamond, in its
sole discretion, extends the Exchange Offer.
Procedures for If you wish to accept the Exchange Offer, you must
Tendering Old Notes complete, sign and date the Letter of Transmittal, or
a facsimile thereof, in accordance with the
instructions contained in this Prospectus and in the
Letter of Transmittal. You should then mail or
otherwise deliver the Letter of Transmittal, or the
facsimile thereof, together with the Old Notes to be
exchanged and any other required documentation, to
the exchange agent at the address set forth in this
Prospectus and in the Letter of Transmittal. Old
Notes may be physically delivered, but physical
delivery is not required if a confirmation of a book-
entry of such Old Notes to the exchange agent's
account at The Depository Trust Company is delivered
in a timely fashion. By executing the Letter of
Transmittal, you will represent to Diamond that,
among other things:
. you are acquiring the New Notes in the ordinary
course of business;
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. you have no arrangement or understanding with any
person to participate in the distribution of the
New Notes issued to you in the Exchange Offer; and
. you are not an "affiliate," as defined in Rule 405
under the Securities Act, of Diamond, or, if you
are an affiliate, that you will comply with the
registration and prospectus delivery requirements
of the Securities Act to the extent applicable.
See "The Exchange Offer--How to Tender Old Notes for
Exchange" and "Plan of Distribution."
Guaranteed Delivery If you wish to tender your Old Notes and:
Procedures
. your Old Notes are not immediately available;
. you cannot deliver your Old Notes, the Letter of
Transmittal or any other required documents to the
exchange agent prior to the expiration of the
Exchange Offer; or
. you cannot complete the procedure for book-entry
transfer on a timely basis;
you may tender your Old Notes according to the
guaranteed delivery procedures described in this
Prospectus. See "The Exchange Offer--Guaranteed
Delivery Procedures."
Acceptance of Old Notes Upon satisfaction or waiver of all conditions of the
and Delivery of New Exchange Offer, Diamond will accept any and all Old
Notes Notes that are properly tendered in the Exchange
Offer prior to 5:00 p.m., New York City time, on June
12, 2000. The New Notes issued pursuant to the
Exchange Offer will be delivered promptly after
acceptance of the Old Notes.
Withdrawal Rights You may withdraw any Old Notes you tender for
exchange at any time prior to 5:00 p.m., New York
City time, on June 12, 2000.
The Exchange Agent State Street Bank and Trust Company is the exchange
agent. The address and telephone number of the
exchange agent are set forth in "The Exchange Offer--
The Exchange Agent."
United States Federal Your exchange of Old Notes for New Notes will not
Income Tax result in any gain or loss to you for federal income
Considerations tax purposes. See "Certain U.S. Federal Income Tax
Considerations."
Fees and Expenses Diamond will pay all expenses incurred in connection
with the Exchange Offer.
Use of Proceeds Diamond will not receive any proceeds from the
issuance of the New Notes.
Resales of New Notes Based on certain no-action letters issued by the
staff of the SEC to third parties in connection with
transactions similar to the Exchange Offer, Diamond
believes that you may offer for resale, resell or
otherwise
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transfer any New Notes without compliance with the
registration and prospectus delivery requirements of
the Securities Act, unless:
. you acquire the New Notes other than in the
ordinary course of business;
. you are participating, intend to participate or
have an arrangement or understanding with any
person to participate, in a distribution of the
New Notes; or
. you are an "affiliate" of Diamond, as defined in
Rule 405 under the Securities Act.
In any of the foregoing circumstances:
. you will not be able to rely on the
interpretations of the staff of the SEC, in
connection with any offer for resale, resale or
other transfer of New Notes; and
. you must comply with the registration and
prospectus delivery requirements of the Securities
Act, or have an exemption available, in connection
with any offer for resale, resale or other
transfer of the New Notes.
Each broker-dealer that receives New Notes for its
own account in exchange for Old Notes, where the Old
Notes were acquired by that broker-dealer as a result
of market-making activities or other trading
activities, must acknowledge that it will deliver a
prospectus in connection with any resale of the New
Notes. See "Plan of Distribution."
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The New Notes
In this Exchange Offer, you may exchange your Old Notes for New Notes. The
form and terms of the New Notes are identical in all material respects to the
form and terms of the outstanding Old Notes, except that:
. the offering of the New Notes has been registered under the Securities
Act;
. the New Notes will not be subject to transfer restrictions; and
. the New Notes will not be entitled to exchange and registration rights.
The New Notes will be issued under and entitled to the benefits of the
indenture that governs the Old Notes.
Set forth below is a summary of the material terms of the New Notes:
Terms of the New Notes
Securities Offered $100.0 million principal amount of 9 1/4% Senior
Notes due 2008, registered under the Securities Act.
Maturity April 1, 2008.
Interest Payment Dates April 1 and October 1, beginning October 1, 2000.
Optional Redemption On or after April 1, 2003, Diamond may redeem some or
all of the New Notes at the redemption prices set
forth in "Description of the New Notes--Redemption."
In addition, at any time before April 1, 2001,
Diamond may redeem up to 35% of the aggregate
principal amount of the New Notes with the net cash
proceeds from an initial public offering at the
redemption price set forth in "Description of the New
Notes--Redemption."
Ranking The New Notes will be:
. senior, unsecured obligations of Diamond and will
rank senior in right and priority of payment to
any indebtedness of Diamond that by its terms is
expressly subordinated to the New Notes.
. subordinated to secured indebtedness of Diamond
(including indebtedness under the new credit
facility with respect to the assets securing such
indebtedness. As of December 31, 1999, Diamond's
aggregate consolidated indebtedness was
approximately $107.5 million (of which $7.5
million represented aggregate outstanding
indebtedness under the old bank facility).
. subordinated to claims of creditors of Diamond's
subsidiaries, except to the extent that holders of
the New Notes may be creditors of such
subsidiaries pursuant to the Guarantees described
in "Description of the New Notes--The
Guarantees"). Diamond currently has no
subsidiaries, and, accordingly, there are
currently no Guarantees.
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Subsidiary Guarantees If Diamond has a subsidiary in the future with assets
having a book value of more than $50,000, this future
subsidiary must guarantee the New Notes on a senior,
unsecured basis. See "Description of the New Notes--
The Guarantees."
Change of Control
If Diamond undergoes specific kinds of changes of
control, Diamond must make an offer to purchase all
outstanding New Notes at a price equal to 101% of
their aggregate principal amount, plus accrued and
unpaid interest thereon to the date of purchase. See
"Description of the New Notes--Change of Control."
Certain Covenants The indenture pursuant to which the New Notes will be
issued is the same as the indenture under which the
Old Notes were issued. The indenture, among other
things, restricts Diamond's ability to:
. borrow money
. pay dividends or make distributions
. incur liens to secure indebtedness
. transfer or sell certain assets
. enter into certain transactions with affiliates
. merge or consolidate with other companies.
Absence of a Public
Market The New Notes have no established market, and Diamond
does not expect that an active trading market in the
New Notes will develop. As a result, Diamond cannot
assure you as to the development or liquidity of any
market for the New Notes. Diamond does not currently
intend to list the New Notes on any securities
exchange or to arrange for the New Notes to be quoted
on any quotation system.
Risk Factors
You should carefully consider all of the information set forth in this
Prospectus. In particular, you should evaluate the specific factors set forth
under "Risk Factors" beginning on page 9 for risks involved with an investment
in the New Notes to be issued in this Exchange Offer.
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Summary Historical Financial Data
The summary historical and unaudited pro forma condensed financial data as
of December 31, 1995, 1996, 1997, 1998 and 1999 and for each of the years then
ended has been derived from Diamond's audited financial statements. The report
of KPMG LLP, independent auditors, on Diamond's Financial Statements as of
December 31, 1998 and 1999, and for each of the years in the three year period
ended December 31, 1999, is included elsewhere herein.
This summary historical and unaudited pro forma condensed financial data
should be read in conjunction with "Selected Historical Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Diamond's Financial Statements and the related notes thereto
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------
1995 1996 1997 1998 1999
------- -------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operating Data:
Sales........................ $68,102 $101,355 $122,005 $149,609 $164,520
Cost of sales................ 20,697 31,423 36,702 43,851 51,456
------- -------- -------- -------- --------
Gross profit................. 47,405 69,932 85,303 105,758 113,064
Operating expenses........... 40,470 56,883 74,696 89,764 101,894
------- -------- -------- -------- --------
Income from operations....... 6,935 13,049 10,607 15,994 11,170
Interest income.............. (54) (109) (184) (120) (31)
Interest expense............. -- -- -- 8,162 11,054
Pre-tax income............... 6,989 13,158 10,791 7,952 147
Provision for income taxes... -- -- -- (37) 138
------- -------- -------- -------- --------
Net income................... $ 6,989 $ 13,158 $ 10,791 $ 7,989 $ 9
======= ======== ======== ======== ========
Pro forma (1):
Historical income before pro-
vision for income taxes..... $ 6,989 $ 13,158 $ 10,791 $ 7,952
Pro forma provision for in-
come taxes.................. 2,796 5,263 4,316 3,181
------- -------- -------- --------
Pro forma net income......... $ 4,193 $ 7,895 $ 6,475 $ 4,771
======= ======== ======== ========
Other Data:
EBITDA(2).................... $ 8,284 $ 14,948 $ 18,029 $ 18,524 $ 13,796
EBITDA margin................ 12.2% 14.8% 14.8% 12.4% 8.4%
Non-vehicle capital expendi-
tures....................... $ 356 $ 1,616 $ 1,514 $ 1,856 $ 1,892
Vehicle capital expendi-
tures....................... 1,425 3,730 859 673 479
------- -------- -------- -------- --------
Total capital expenditures... 1,781 5,346 2,373 2,529 2,371
Ratio of earnings to fixed
charges (excluding preferred
stock dividends)(3)......... 1.97x 1.01x
Service centers operated at
period end.................. 105 142 174 206 226
Balance Sheet Data (at period
end):
Cash and cash equivalents.... $ 4,100 $ 5,393 $ 6,255 $ 301 $ 94
Total assets................. 21,069 31,494 36,687 90,692 87,519
Total debt................... -- -- -- 108,500 107,500
Stockholders' equity (defi-
cit)........................ 15,728 24,294 23,285 (73,441) (78,232)
</TABLE>
- --------
(1) Prior to March 31, 1998, Diamond consisted of S corporations and,
accordingly, federal and state income taxes were generally paid at the
stockholder level only. Upon consummation of the Recapitalization (as
defined under "Business--Recapitalization"), Diamond eliminated its S
corporation status and, accordingly, is subject to federal and state income
taxes.
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(2) EBITDA represents income before income taxes, interest expense,
depreciation and amortization expense and non-recurring executive
compensation expense in 1997 of $5 million. While EBITDA is not intended to
represent cash flow from operations as defined by GAAP and should not be
considered as an indicator of operating performance or an alternative to
cash flow (as measured by GAAP) as a measure of liquidity, it is included
herein to provide additional information with respect to Diamond's ability
to meet its future debt service, capital expenditure and working capital
requirements.
(3) Ratio of earnings to fixed charges equals pre-tax income plus interest
expense divided by interest expense.
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RISK FACTORS
In addition to the other information set forth in this Prospectus, you
should carefully consider the following risk factors prior to tendering your
Old Notes for exchange in this Exchange Offer.
Diamond is substantially leveraged and has significant debt service obligations
which could impair its ability to pay the amounts due under the New Notes.
Diamond is highly leveraged and has significant debt service obligations. As
of December 31, 1999, Diamond's aggregate consolidated indebtedness was
approximately $107.5 million (of which approximately $7.5 million represented
aggregate outstanding indebtedness under Diamond's old bank facility), and
Diamond had $43.0 million (liquidation preference) of outstanding Preferred
Stock and a stockholders' deficit of $78.2 million. See "Capitalization."
The degree to which Diamond is leveraged may impair Diamond's ability to pay
the amounts due under the New Notes. Possible adverse consequences of Diamond's
degree of leverage include the following:
. Diamond's ability to obtain additional financing for working capital,
capital expenditures or general corporate purposes may be impaired;
. a substantial portion of Diamond's cash flow from operations goes to the
payment of interest and principal on its outstanding debt, thereby
reducing the funds available to Diamond for other purposes;
. the new credit facility and the indenture contain certain restrictive
financial and operating covenants;
. Diamond's indebtedness under the new credit facility is at variable
rates of interest, which makes Diamond vulnerable to increases in
interest rates;
. Diamond's indebtedness outstanding under the new credit facility is
secured by a first priority lien on substantially all of its assets and
will become due prior to the time the principal on the New Notes will
become due;
. Diamond's substantial degree of leverage will limit its ability to
adjust rapidly to changing market conditions, reduce its ability to
withstand competitive pressures, and make it more vulnerable in the
event of a downturn in general economic conditions, repeated years of
mild weather conditions or other adverse events in its business.
If Diamond is unable to generate sufficient cash flows from operations in
the future to service its indebtedness, it may be required to refinance all or
a portion of its indebtedness, including the New Notes, or to obtain additional
financing or to dispose of material assets or discontinue certain of its
operations. The new credit facility and the indenture restrict Diamond's
ability to sell assets and/or use the proceeds therefrom. Diamond cannot assure
you that any refinancing or asset sales would be possible under its debt
instruments existing at that time, that the proceeds which Diamond could
realize from such refinancing or asset sales would be sufficient to meet its
obligations then due or that Diamond could obtain any additional financing.
The New Notes will be subordinated to Diamond's secured indebtedness.
The New Notes will be:
. senior, unsecured obligations of Diamond and will rank senior in right
and priority of payment to any indebtedness of Diamond that by its terms
is expressly subordinated to the New Notes.
. subordinated to secured indebtedness of Diamond (including indebtedness
under the new credit facility) with respect to the assets securing such
indebtedness. The new credit facility is secured by a first priority
lien on substantially all of Diamond's assets.
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. subordinated to claims of creditors of Diamond's subsidiaries, except to
the extent that holders of the New Notes may be creditors of such
subsidiaries pursuant to the Guarantees described under "Description of
the New Notes--The Guarantees"). Diamond currently has no subsidiaries,
and, accordingly, there are currently no Guarantees.
Diamond's obligations with respect to the New Notes will be guaranteed,
jointly and severally, on a senior, unsecured basis by certain of its future
subsidiaries. Any obligations of Diamond's subsidiaries will be senior to the
claims of the holders of the New Notes with respect to the assets of any of
these subsidiaries, except to the extent that the holders of the New Notes may
be creditors of a subsidiary pursuant to a Guarantee. Any claim by the holders
of the New Notes with respect to the assets of any subsidiary will be
subordinated to secured indebtedness (including indebtedness under the new
credit facility) of that subsidiary with respect to the assets securing such
indebtedness. The rights of Diamond and its creditors, including holders of the
New Notes, to realize upon the assets of any subsidiary upon that subsidiary's
liquidation or reorganization (and the consequent rights of holders of the New
Notes to participate in those assets) will be subject to the prior claims of
that subsidiary's creditors, except to the extent that Diamond may itself be a
creditor with recognized claims against that subsidiary or to the extent that
the holders of the New Notes may be creditors with recognized claims against
that subsidiary pursuant to the terms of a Guarantee (subject, however, to the
prior claims of creditors holding secured indebtedness of any subsidiary with
respect to the assets securing that indebtedness). The new credit facility is
secured by a first priority lien on substantially all of Diamond's assets. See
"Description of Credit Facility." In addition, the indenture will restrict the
amount of indebtedness that subsidiaries are permitted to incur. See
"Description of the New Notes--Certain Covenants--Limitation on Incurrence of
Additional Indebtedness."
Diamond may not be able to comply with certain provisions in the agreements
governing its outstanding debt that restrict Diamond's actions and require
Diamond to maintain financial ratios.
The new credit facility and the indenture include certain covenants that,
among other things, restrict Diamond's ability to:
. make investments;
. incur additional indebtedness;
. grant liens;
. merge or consolidate with other companies;
. change the nature of its business;
. dispose of assets;
. make loans;
. pay dividends or redeem capital stock;
. guarantee the debts of other persons;
. make capital expenditures; and
. engage in transactions with affiliates.
The old bank facility required Diamond to maintain certain financial ratios,
including interest coverage and leverage ratios. In August 1999, the lenders of
the old bank facility amended the old bank facility to increase the permitted
maximum leverage ratio and decrease the minimum interest coverage ratio. At
December 31, 1999, Diamond did not comply with the revised ratios set forth in
the old bank facility, as amended. Diamond received a waiver from the lenders
under the old bank facility with respect to this non-compliance. The new credit
facility requires Diamond to maintain minimum EBITDA (as defined in the new
credit facility), calculated monthly, for each 12-month period, ending as of
the end of each month, of at least $10.5 million.
10
<PAGE>
Diamond's ability to comply with the minimum EBITDA requirement and the
other provisions of its new credit facility may be affected by events beyond
its control. Diamond's breach of any of these covenants could result in a
default under the new credit facility, in which case the lender would, among
other things, be entitled to elect to declare all amounts owing under the new
credit facility, together with accrued interest, to be due and payable. If
Diamond were unable to repay these borrowings, the lender could proceed against
its collateral. If the indebtedness under the new credit facility were
accelerated, Diamond cannot assure you that its assets would be sufficient to
repay in full that indebtedness and Diamond's other indebtedness, including the
New Notes. See "Description of the New Notes."
The New Notes are subject to fraudulent conveyance laws.
Diamond's obligations under the Notes may be subject to review under
relevant federal and state fraudulent conveyance laws in the event that a
bankruptcy, reorganization or rehabilitation case by or on behalf of unpaid
creditors of Diamond were to occur. Under these laws, Diamond's obligation to
repay the Notes could be voided, or the New Notes could be subordinated to all
other creditors of Diamond, if, at the time Diamond issued the Notes, any of
the following were true:
Diamond intended to hinder, delay or defraud any existing or future creditor
or contemplated insolvency in order to prefer one or more creditors to the
exclusion in the whole or in part of others;
. Diamond was insolvent or was rendered insolvent by reason of issuing the
Notes;
. Diamond was engaged in a business or transaction with unreasonably small
capital; or
. Diamond intended to incur, or believed that it would incur, debts beyond
its ability to pay those debts as they matured.
In the event that in the future the Notes are guaranteed by subsidiary
guarantors, the Guarantees may also be subject to review under federal and
state fraudulent transfer laws. If a court were to determine that, at the time
a subsidiary guarantor became liable under its Guarantee, it satisfied certain
of the conditions stated above, the court could void the Guarantee and direct
the repayment of amounts paid thereunder.
The measure of insolvency under fraudulent conveyance statutes varies
depending upon the laws of the jurisdiction being applied. Generally, however,
Diamond would be considered insolvent if, at the time it issued the Notes,
either (1) the sum of its debts was greater than all of its property at a fair
valuation; or (2) if the present fair salable value of its assets is less than
the amount that it would be required to pay on its existing debts as they
become absolute and matured. The obligations of each Subsidiary Guarantor under
its Guarantee, however, will be limited in a manner intended to avoid it being
deemed a fraudulent conveyance under applicable law. See "Description of the
New Notes."
Additionally, under federal bankruptcy or applicable state insolvency law,
if a bankruptcy or insolvency proceeding were initiated by or against Diamond
within 90 days after it made any payment with respect to the Notes, or if
Diamond anticipated becoming insolvent at the time of that payment, all or a
portion of the payment could be avoided as a preferential transfer and the
recipient of that payment could be required to return that payment.
Diamond does not know what standard a court would use to determine whether
Diamond was insolvent at the time the Notes were issued, nor can Diamond assure
you that a court would not find Diamond to be insolvent on that date or that,
regardless of Diamond's solvency, that the issuances of the Notes constituted
fraudulent conveyances on another of the grounds summarized above.
11
<PAGE>
Diamond may not be able to comply with its obligations under the indenture to
purchase all of the Notes upon a change of control.
Upon the occurrence of a change of control, the indenture requires Diamond
to make an offer to repurchase all outstanding Notes at a price equal to 101%
of the aggregate principal amount thereof, together with accrued and unpaid
interest thereon to the date of repurchase. However, the new credit facility
prohibits Diamond from repurchasing any Notes, unless and until Diamond has
paid the indebtedness under the new credit facility in full. Diamond's failure
to repurchase the Notes would result in a default under the indenture and the
new credit facility. Diamond's inability to pay the indebtedness under the new
credit facility, if accelerated, would also constitute a default under the
indenture, which could have adverse consequences to Diamond and to the holders
of the Notes. In the event of a change of control, Diamond cannot assure you
that it would have sufficient assets to satisfy all of its obligations under
the new credit facility and the Notes. See "Description of the New Notes--
Change of Control."
Diamond's future expansion may be hindered by its lack of sufficient capital or
other factors, which would adversely affect Diamond's continued growth.
Diamond's continued growth depends to a significant degree on its ability to
open new service centers in existing and new markets and to operate these
service centers on a profitable basis. In addition, Diamond will require
additional distribution centers as it implements its program to expand its
service centers to achieve a nationwide presence. Diamond's ability to expand
will depend, in part, on business conditions and the availability of qualified
managers and service representatives, and sufficient capital. Due to weak
industry conditions resulting from reduced demand for auto glass services and
lower average revenue per installation unit, Diamond opened 24 new service
centers in 1999, as compared to an average of 35 new service centers in the
three years prior to 1999. Diamond currently plans to open approximately 4 new
service centers in 2000 absent an improvement in industry conditions. A decline
in Diamond's overall financial performance may adversely impact its ability to
expand in the future. Diamond expects that the net cash generated from
operations, together with borrowings under the new credit facility, should
enable it to finance the expenditures related to its expansion. However,
Diamond cannot assure you that:
. it will possess sufficient funds to finance the expenditures related to
its expansion;
. new service centers can be opened on a timely basis;
. new service centers can be operated on a profitable basis; or that
. Diamond will be able to hire, train and integrate employees.
In the event net cash generated from operations together with working
capital reserves and borrowings under the new credit facility are insufficient
to finance the expenditures related to Diamond's expansion, Diamond may be
required to reduce its expansion in the future.
Diamond's operating results are affected by seasonality and weather.
Weather has historically affected Diamond's sales, net income and EBITDA,
with severe weather generating increased sales and income and mild weather
resulting in lower sales, net income and EBITDA. In addition, Diamond's
business is somewhat seasonal, with the fourth quarter traditionally its
slowest period of activity. Diamond believes these seasonal trends will
continue for the foreseeable future. Although Diamond's installation units
increased 18.4% in fiscal 1999, primarily reflecting the continued maturation
of Diamond's service centers and increased installation productivity, revenue
per installation unit decreased an average of 6% in 1999. The decrease in
Diamond's average revenue per installation unit is primarily attributable to
weaker industry demand for glass replacement services, due primarily to milder
weather conditions, which resulted in price compression throughout the
industry.
12
<PAGE>
Diamond competes against other large companies that may be better equipped to
provide customers with automotive glass replacement and repair services.
The automotive glass replacement and repair industry is highly competitive,
with customer decisions based on price, customer service, technical
capabilities, quality, advertising and geographic coverage. The competition in
the industry could result in additional pricing pressures, which could
negatively affect Diamond's results of operations. In addition, certain of
Diamond's competitors provide insurance companies with claims management
services, including computerized referral management, policyholder call
management, electronic auditing and billing services and management reporting.
While the market is generally highly fragmented, Diamond also competes against
several other large competitors in this market, the largest two of which are
Safelite Glass Corporation and Harmon AutoGlass, a division of Apogee
Enterprises, Inc. Many of Diamond's competitors have substantially less
leverage than Diamond, which may allow them greater flexibility in managing
their operations. Diamond cannot assure you that it will be able to continue to
compete effectively with these or other competitors. See "Business--
Competition."
Diamond is dependent on its key personnel and the loss of key personnel could
adversely affect its results of operations.
Diamond's success is largely dependent upon the abilities and experience of
its senior management team, including Kenneth Levine, Richard Rutta, Norman
Harris and Michael A. Sumsky. The loss of services of one or more of these
senior executives could adversely affect Diamond's results of operations. See
"Management."
Ownership of Diamond is concentrated in Green Equity Investors II, L.P., whose
interests may conflict with those of the holders of Notes.
Green Equity Investors II, L.P., an investment partnership managed by LGP,
owns 77.0% of the outstanding shares of Diamond's Common Stock and 80.0% of the
outstanding shares of Diamond's Series A 12% Senior Redeemable Cumulative
Preferred Stock. As a result, Green Equity Investors II, L.P. has the power to
elect all of the members of Diamond's board of directors, to approve all
amendments to Diamond's certificate of incorporation and bylaws and to effect
fundamental corporate transactions such as mergers, asset sales and public
offerings. Diamond cannot assure you that the interests of Green Equity
Investors II, L.P. will not conflict with the interests of the holders of the
Notes. See "Security Ownership of Certain Beneficial Owners and Management."
Diamond's results of operations may be adversely affected by a downturn in
general economic conditions or an increase in fuel prices.
Diamond's revenues are dependent on the annual number of windshields
replaced, which in turn is influenced by the aggregate number of vehicles on
the road and the number of miles driven per vehicle per year. As a result, a
general economic downturn or higher fuel prices could have a material adverse
effect on Diamond's results of operations.
Diamond's EBITDA has declined due to industry conditions.
In 1999, Diamond's EBITDA declined 25.4%. The decrease in EBITDA was
primarily due to lower average revenue per installation unit that was partially
offset by a decrease in glass product costs, increases in installation
productivity and the leveraging of service center, corporate and administrative
expenses. If Diamond continues to experience further declines in revenue per
installation unit, Diamond would experience further declines in EBITDA which
could limit its ability to meet its ongoing debt service obligations. The new
credit facility requires Diamond to maintain minimum EBITDA (as defined in the
new credit facility), calculated monthly, for each 12-month period, ending as
of the end of each month, of at least $10.5 million.
13
<PAGE>
Diamond's business involves the potential for product liability claims against
Diamond, which may adversely affect Diamond's business, financial condition and
results of operations if the cost of those claims exceeds Diamond's insurance
coverage.
The replacement of windshields entails risk of product liability claims,
particularly if the windshields Diamond uses in its business are defective. To
date, no material product liability claims have been made against Diamond
relating to its replacement of windshields. However, Diamond cannot assure you
that these claims will not be made in the future. A successful product
liability claim (or series of claims) against Diamond in excess of its
insurance coverage could have a material adverse affect on Diamond's business,
financial condition and results of operations.
There is no established market for the New Notes and no assurance that a liquid
trading market will develop in the future.
There is no existing market for the New Notes, Diamond cannot assure you as
to the liquidity of any markets that may develop for the New Notes, the ability
of holders of the New Notes to sell their New Notes or the price at which
holders would be able to sell their New Notes. Future trading prices of the New
Notes will depend on many factors, including, among other things, prevailing
interest rates, Diamond's operating results and the market for similar
securities.
Old Notes that are not exchanged in the Exchange Offer will continue to be
subject to restrictions on transfer.
Holders of Old Notes who do not exchange their Old Notes for New Notes as
part of this Exchange Offer will continue to be subject to the restrictions on
transfer of the Old Notes. These restrictions are described in the legend to
the Old Notes. In general, the Old Notes may not be offered or sold unless: (1)
they are registered under the Securities Act, or (2) an exemption from the
registration requirements of the Securities Act and applicable state securities
laws is available. Diamond does not currently anticipate that it will register
the outstanding Old Notes under the Securities Act.
14
<PAGE>
USE OF PROCEEDS
Diamond will not receive any proceeds from the Exchange Offer.
15
<PAGE>
CAPITALIZATION
The following table sets forth Diamond's capitalization on December 31,
1999. This table should be read in conjunction with Diamond's Financial
Statements and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
At December 31, 1999
--------------------
(in thousands)
<S> <C>
Long-term debt (including current portion):
Bank Facility............................................ $ 7,500
Notes.................................................... 100,000
---------
Total long-term debt................................... 107,500
---------
Preferred Stock............................................ 43,046
Stockholders' equity:
Common stock, par value $0.01 per share.................. 10
Additional paid-in capital............................... 52,747
Retained earnings........................................ (130,989)
---------
Total stockholders' equity (deficit)................... (78,232)
---------
Total capitalization................................. (72,314)
=========
</TABLE>
16
<PAGE>
THE EXCHANGE OFFER
Reasons for the Exchange Offer
Diamond initially sold the Old Notes in a private offering on March 31, 1998
to First Union Capital Markets, BT Alex. Brown Incorporated and Donaldson,
Lufkin & Jenrette Securities Corporation, collectively referred to as the
"Initial Purchasers," pursuant to a Purchase Agreement dated March 26, 1998
among Diamond and the Initial Purchasers. The Initial Purchasers subsequently
resold or were permitted to resell the Old Notes:
. to qualified institutional buyers in accordance with the provisions of
Rule 144A under the Securities Act;
. to institutional accredited investors in accordance with the provisions
of Rule 501(a) under the Securities Act; and
. outside the United States in accordance with the provisions of
Regulation S under the Securities Act.
In connection with the private offering of the Old Notes, Diamond and the
Initial Purchasers entered into a Registration Rights Agreement dated March 31,
1998 in which Diamond agreed, among other things:
. to file with the SEC on or before March 30, 2000, a registration
statement relating to an Exchange Offer for the Old Notes;
. use its best efforts to cause the Exchange Offer registration statement
to be declared effective under the Securities Act on or before August
28, 2000;
. upon the effectiveness of the Exchange Offer registration statement, to
offer the holders of the Old Notes the opportunity to exchange their Old
Notes in the Exchange Offer for a like principal amount of New Notes;
. to keep the Exchange Offer open for not less than 30 business days, or
longer, if required by applicable law, after notice of the Exchange
Offer is mailed to holders of the Old Notes; and
. to use its best efforts to consummate the Exchange Offer within 60
business days from the effective date of the Exchange Offer registration
statement.
Diamond also agreed, under certain circumstances:
. to file a shelf registration statement relating to the offer and sale of
the Old Notes by the holders of the Old Notes;
. to use its best efforts to cause the shelf registration statement to be
declared effective; and
. to use its best efforts to keep the shelf registration statement
effective for 180 days after the shelf registration statement becomes
effective or until the Old Notes covered by the shelf registration
statement have been sold or cease to be outstanding.
The Exchange Offer being made by this Prospectus is intended to satisfy
Diamond's exchange and registration obligations under the Registration Rights
Agreement. If Diamond fails to fulfill these obligations, you are entitled to
receive additional interest at the rate of 0.25% per annum for each violation
of Diamond's obligations. The rate will increase by an additional 0.25% for
each 90-day period during which the additional interest continues to accrue.
The maximum aggregate increase to the interest rate under all circumstances is
0.50% per annum. After Diamond has cured all defaults of its registration and
exchange obligations, the accrual of additional interest on the Old Notes will
cease, and the interest rate for the Old Notes will revert to its original
rate.
For a more complete understanding of your exchange and registration rights,
please refer to the Registration Rights Agreement, which is included as Exhibit
4.2 to the Exchange Offer registration statement.
17
<PAGE>
Transferability of the New Notes
Based on certain no-action letters issued by the staff of the SEC to third
parties in connection with transactions similar to the Exchange Offer, Diamond
believes that you may offer for resale, resell or otherwise transfer any New
Notes without compliance with the registration and prospectus delivery
requirements of the Securities Act, unless:
. you acquire the New Notes other than in the ordinary course of business;
. you are participating, intend to participate or have an arrangement or
understanding with any person to participate, in a distribution of the
New Notes; or
. you are an "affiliate" of Diamond, as defined in Rule 405 under the
Securities Act.
In any of the foregoing circumstances:
. you will not be able to rely on the interpretations of the staff of the
SEC, in connection with any offer for resale, resale or other transfer
of the New Notes; and
. you must comply with the registration and prospectus delivery
requirements of the Securities Act, or have an exemption available, in
connection with any offer for resale, resale or other transfer of the
New Notes.
Diamond is not making this Exchange Offer to, nor will it accept surrenders
of the Old Notes from, you if you live in any state in which this Exchange
Offer would not comply with the applicable securities laws or "blue sky" laws
of that state. However, Diamond will register or qualify the New Notes for
offer and sale under the securities or blue sky laws of those jurisdictions as
any holder of the Old Notes may reasonably request and do any and all other
acts necessary or advisable to enable the offer and sale of the New Notes in
those jurisdictions.
Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes, where the Old Notes were acquired by that broker-dealer as a
result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
the New Notes. See "Plan of Distribution."
Terms of the Exchange Offer
The Old Notes were issued in a single series of 9 1/4% Senior Notes due
2008. As of the date of this Prospectus, $100.0 million aggregate principal
amount of the 9 1/4% Senior Notes due 2008 are outstanding. In the Exchange
Offer, the Old Notes will be exchanged for New Notes.
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, Diamond will accept all Old
Notes validly tendered and not withdrawn prior to 5:00 p.m. New York City time
on June 12, 2000, the date that the Exchange Offer expires. Diamond, in its
sole discretion, may extend the Exchange Offer to a later date and time. See
"Expiration Date; Extensions; Amendments" below. After authentication of the
New Notes by the trustee under the indenture governing the Notes, Diamond will
issue and deliver up to $100.0 million aggregate principal amount of the New
Notes in exchange for up to $100.0 million aggregate principal amount of the
Old Notes accepted in the Exchange Offer. Holders may tender some or all of
their Old Notes pursuant to the Exchange Offer in denominations of $1,000 and
integral multiples of $1,000.
The form and terms of the New Notes are identical in all material respects
to the form and terms of the Old Notes, except that:
. the offering of the New Notes has been registered under the Securities
Act;
. the New Notes will not be subject to transfer restrictions; and
. the New Notes will not be entitled to exchange and registration rights.
18
<PAGE>
The New Notes will be issued under and entitled to the benefits of the
indenture that governs the Old Notes.
In connection with the issuance of the Old Notes, Diamond arranged for the
Old Notes to be issued and transferable in book-entry form through the
facilities of The Depository Trust Company, acting as a depositary. The New
Notes will also be issuable and transferable in book-entry form through DTC.
This Prospectus, together with the accompanying Letter of Transmittal, is
initially being sent to all registered holders of the Old Notes as of the close
of business on April 27, 2000. The Exchange Offer of the Old Notes is not
conditioned upon any minimum aggregate principal amount being tendered.
However, the Exchange Offer is subject to certain customary conditions which
may be waived by Diamond, and to the terms and provisions of the Registration
Rights Agreement. See "Conditions to the Exchange Offer" below.
The exchange agent is State Street Bank and Trust Company, which also serves
as trustee under the indenture that governs the Notes.
Diamond will be deemed to have accepted validly tendered Old Notes when, as
and if Diamond has given oral or written notice thereof to the exchange agent.
The exchange agent will act as agent of the tendering holders for the purpose
of receiving the New Notes from Diamond and as agent of Diamond for the purpose
of delivering the New Notes to those holders. See "Exchange Agent" below.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein,
certificates for the unaccepted Old Notes will be returned, at Diamond's cost
and expense, to the tendering holder as promptly as practicable after the
expiration of the Exchange Offer.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of the Old Notes
pursuant to the Exchange Offer. Diamond will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer. See
"Solicitation of Tenders, Fees and Expenses" below.
Expiration Date; Extensions; Amendments
The Exchange Offer will expire at 5:00 p.m., New York City time, on June 12,
2000, unless Diamond, in its sole discretion, extends the Exchange Offer.
Diamond may extend the Exchange Offer at any time and from time to time by
giving oral or written notice to the exchange agent and by timely public
announcement.
Diamond reserves the right, in its sole discretion, to amend, waive or
modify the terms of the Exchange Offer in any manner. If any of the conditions
set forth below under "Conditions to the Exchange Offer" has occurred and has
not been waived by Diamond, Diamond expressly reserves the right, in its sole
discretion, by giving oral or written notice to the exchange agent, to:
. delay acceptance of, or refuse to accept, any Old Notes not previously
accepted;
. extend the Exchange Offer; or
. terminate the Exchange Offer.
Any delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice by Diamond to the
registered holders of the Old Notes. If the Exchange Offer is amended in a
manner determined by Diamond to constitute a material change, Diamond will
promptly disclose that amendment in a manner reasonably calculated to inform
the holders of the Old Notes of the amendment, and Diamond will extend the
Exchange Offer to the extent required by law. If the Exchange Offer is
terminated, federal law requires that Diamond promptly either exchange or
return all Old Notes that have been tendered.
19
<PAGE>
Diamond will have no obligation to publish, advise, or otherwise communicate
any delay in acceptance, extension, termination or amendment of the Exchange
Offer other than by making a timely press release. Diamond may also publicly
communicate these matters in any other appropriate manner of its choosing.
How to Tender Old Notes for Exchange
Only a registered holder of the Old Notes may tender its Old Notes in the
Exchange Offer. To tender the Old Notes in the Exchange Offer:
. registered holders of certificated Old Notes must complete, sign and
date the Letter of Transmittal, or a facsimile thereof, in accordance
with the instructions contained in this Prospectus and in the Letter of
Transmittal. The holder should then mail or otherwise deliver the Letter
of Transmittal, or such facsimile, together with the Old Notes to be
exchanged and any other required documents, to the exchange agent, at
the address set forth in this Prospectus and in the Letter of
Transmittal.
. holders of the Old Notes that are DTC participants may follow the
procedures for book-entry transfer as provided for below under "Book-
Entry Transfer" and in the Letter of Transmittal.
To be effective, a tender must be made prior to the expiration of the
Exchange Offer.
If your Old Notes are registered in the name of a broker, dealer, commercial
bank, trust company or other nominee and you wish to tender the Old Notes in
the Exchange Offer, you should contact the registered holder promptly and
instruct the registered holder to tender on your behalf. If you 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 your own name or obtain a properly
completed bond power from the registered holder of the Old Notes. This transfer
of record ownership may take considerable time.
Delivery of documents to DTC in accordance with DTC's procedures will NOT
constitute delivery to the exchange agent.
Your tender of the Old Notes will constitute a binding agreement between
you, Diamond and the exchange agent in accordance with the terms and subject to
the conditions set forth in this Prospectus and in the Letter of Transmittal.
If you tender less than the entire principal amount of your Old Notes, you
should fill in the amount of Old Notes being tendered in the specified box on
the Letter of Transmittal. You will be deemed to have tendered the entire
principal amount of the Old Notes which you deliver to the exchange agent
unless you indicate otherwise.
By tendering your Old Notes, you will represent to Diamond that, among other
things:
. you are acquiring the New Notes in the ordinary course of your business;
. you are not participating, do not intend to participate and do not have
any arrangement or understanding with any person to participate, in the
distribution of the New Notes; and
. you are not an "affiliate," as defined in Rule 405 under the Securities
Act, of Diamond, or, if you are an affiliate of Diamond, that you will
comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable.
A Letter of Transmittal of a broker-dealer that receives New Notes for its
own account in exchange for Old Notes that were acquired by it as a result of
market-making or other trading activities must also include an acknowledgment
that the broker-dealer will deliver a copy of this Prospectus in connection
with any resale of the New Notes. By so acknowledging and by delivering a
prospectus, the broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. See "Plan of
Distribution."
20
<PAGE>
The method of delivery of Old Notes and Letters of Transmittal and all other
required documents is at your election and risk. Instead of delivery by mail,
Diamond recommends that you use an overnight or hand delivery service. In all
cases, you should allow sufficient time to ensure timely delivery to the
exchange agent prior to the expiration of the Exchange Offer. You should not
send the Letter of Transmittal or your Old Notes directly to Diamond.
Signatures on a Letter of Transmittal or a notice of withdrawal (described
in "Withdrawal of Tenders" below), as the case may be, must be guaranteed by a
member firm of a registered national securities exchange or of the National
Association of Securities Dealers, Inc., a commercial bank or trust company
having an office or correspondent in the United States or an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange
Act (each, an "Eligible Institution"), unless the corresponding Old Notes
are tendered:
. by a registered holder who has not completed the box entitled "Special
Registration Instructions" or the box entitled "Special Delivery
Instructions" in the Letter of Transmittal; or
. for the account of an Eligible Institution.
If a Letter of Transmittal is signed by a person other than the registered
holder or holders, the corresponding Old Notes must be endorsed or accompanied
by appropriate bond powers which authorize that person to tender the Old Notes
on behalf of the registered holder or holders, in either case signed exactly as
the name of the registered holder or holders appears on the Old Notes. If a
Letter of Transmittal or any Old Notes or bond powers are signed or endorsed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, those
persons should so indicate when signing the Letter of Transmittal and submit
evidence satisfactory to Diamond of their authority to so act, unless Diamond
waives this requirement.
Diamond, in its sole discretion, will determine all questions as to the
validity, form, eligibility (including time of receipt), acceptance of tendered
Old Notes and withdrawal of tendered Old Notes. Diamond's determination will be
final and binding. Diamond reserves the absolute right to:
. reject any and all Old Notes improperly tendered;
. refuse to accept any Old Note if, in Diamond's judgment or the judgment
of Diamond's counsel, acceptance of the Old Note may be deemed unlawful;
and
. waive any defects or irregularities or conditions of the Exchange Offer
as to particular Old Notes.
Diamond's interpretation of the terms and conditions of the Exchange Offer,
including the instructions in the Letter of Transmittal, will be final and
binding on all parties. You must cure any defects or irregularities in
connection with your tender of the Old Notes within the time that Diamond
determines, unless Diamond waives those defects or irregularities.
Although Diamond intends to notify you of defects or irregularities with
respect to your tender of Old Notes, neither Diamond, the exchange agent nor
any other person will be under any duty or obligation to do so, and no person
will incur any liability for failure to give you this notification. Your Old
Notes will not be validly tendered until you have cured any defects or
irregularities to Diamond's satisfaction or Diamond has waived those defects or
irregularities. If the exchange agent receives Old Notes that Diamond
determines are not properly tendered or the tender of which Diamond otherwise
rejects, the exchange agent will return those Old Notes to the tendering holder
or other person specified in the appropriate Letter of Transmittal as soon as
practicable following the expiration of the Exchange Offer.
21
<PAGE>
Diamond reserves the right in its sole discretion:
. to purchase or make offers for any Old Notes that remain outstanding
after the expiration of the Exchange Offer;
. to terminate the Exchange Offer, as set forth in "Conditions to the
Exchange Offer" below; and
. to the extent permitted by applicable law, to purchase Old Notes during
the pendency of the Exchange Offer in the open market, in privately
negotiated transactions or otherwise.
The terms of any of these purchases or offers may differ from the terms of
the Exchange Offer.
Book-Entry Transfer
The exchange agent will make a request promptly after the date of this
Prospectus to establish accounts with respect to the Old Notes at DTC for the
purpose of facilitating the Exchange Offer. Any financial institution that is a
participant in DTC's system may make book-entry delivery of the Old Notes by
causing DTC to transfer those Old Notes into the exchange agent's DTC account
in accordance with DTC's procedures for transfer. The exchange for tendered Old
Notes will only be made after a timely confirmation of a book-entry transfer of
the Old Notes into the exchange agent's account, and timely receipt by the
exchange agent of an Agent's Message, as defined below.
The term "Agent's Message" means a message, transmitted by DTC and received
by the exchange agent and forming part of the confirmation of a book-entry
transfer, which states that DTC has received an express acknowledgment from a
participant in DTC tendering Old Notes and that the participant has received an
appropriate Letter of Transmittal and agrees to be bound by the terms of the
Letter of Transmittal, and Diamond may enforce that agreement against the
participant. Delivery of an Agent's Message will also constitute an
acknowledgement from the tendering DTC participant that the representations
contained in the appropriate Letter of Transmittal and described above are true
and correct.
Guaranteed Delivery Procedures
If you wish to tender your Old Notes and:
. your Old Notes are not immediately available;
. you cannot deliver your Old Notes, the Letter of Transmittal or any
other required documents to the exchange agent prior to the expiration
of the Exchange Offer; or
. you cannot complete the book-entry transfer procedures on a timely
basis;
You may effect a tender if:
. the tender is made through an Eligible Institution;
. prior to the expiration of the Exchange Offer, the exchange agent
receives from the Eligible Institution a properly completed and duly
executed Notice of Guaranteed Delivery by facsimile transmittal,
overnight courier, mail or hand delivery; and
. the exchange agent receives certificate(s) representing all tendered Old
Notes in proper form for transfer, together with a properly completed
and executed Letter of Transmittal, or a facsimile thereof, and all
other documents required by the Letter of Transmittal, or confirmation
of a book-entry transfer into the exchange agent's account at DTC of the
Old Notes delivered electronically, within three business days after the
expiration of the Exchange Offer.
A Notice of Guaranteed Delivery must state:
. the name and address of the holder;
. if the Old Notes will be tendered by their registered holder, the
certificate number or numbers of the Old Notes;
. the principal amount of the Old Notes tendered;
22
<PAGE>
. that the tender is being made thereby; and
. that the holder guarantees that, within three business days after the
expiration of the Exchange Offer, a properly completed and executed
Letter of Transmittal or facsimile thereof, together with the
certificate(s) representing the Old Notes to be tendered in proper form
for transfer and all other documents required by the Letter of
Transmittal, or confirmation of a book-entry transfer into the exchange
agent's account at DTC of the Old Notes delivered electronically, will
be deposited by the Eligible Institution with the exchange agent.
Forms of the Notice of Guaranteed Delivery will be available from the
exchange agent upon request.
Withdrawal Rights
Except as otherwise provided herein, you may withdraw tenders of your Old
Notes at any time prior to the expiration of the Exchange Offer by delivery of
a written or facsimile transmission notice of withdrawal to the exchange agent
at its address set forth in this Prospectus.
Any notice of withdrawal must:
. specify the name of the person having deposited the Old Notes to be
withdrawn;
. identify the Old Notes to be withdrawn, including the certificate
numbers or number and principal amount of the Old Notes or, in the case
of Old Notes transferred by book-entry transfer, the name and number of
the account at DTC to be credited;
. be signed by the depositor of the Old Notes in the same manner as the
original signature on the Letter of Transmittal by which the Old Notes
were tendered, including any required signature guarantee, or be
accompanied by documents of transfer sufficient to permit the registrar
to register the transfer of the Old Notes into the name of the person
withdrawing the tender; and
. specify the name in which any the Old Notes are to be registered, if
different from that of the depositor of the Old Notes.
Diamond will determine all questions as to the validity, form and
eligibility (including time of receipt) of any withdrawal notices. Diamond's
determination will be final and binding on all parties. Any Old Notes which are
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer, and no New Notes will be issued with respect to those Old Notes
unless they are validly retendered. Any Old Notes that have been tendered for
exchange but are not accepted for exchange by Diamond will be returned to the
holder thereof without cost to the holder as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Old Notes may be retendered by following one of the procedures
described above under "How to Tender Old Notes for Exchange" at any time prior
to the expiration of the Exchange Offer.
Conditions to the Exchange Offer
Diamond is not required to accept for exchange, or to issue New Notes for,
any Old Notes, and may terminate or amend the Exchange Offer before the
acceptance of the Old Notes if, in Diamond's judgment, any of the following
conditions has occurred:
. the Exchange Offer, or the making of any exchange by a holder of Old
Notes, violates applicable law or the applicable interpretations of the
SEC staff;
. any action or proceeding shall have been instituted or threatened in any
court or by or before any governmental agency or body with respect to
the Exchange Offer; or
. there has been adopted or enacted any law, statute, rule or regulation
that can reasonably be expected to impair Diamond's ability to proceed
with the Exchange Offer.
23
<PAGE>
See "Expiration Date; Extensions; Amendments" above for a discussion of
possible actions Diamond may take if any of the foregoing conditions occur.
The foregoing conditions are for Diamond's sole benefit. Diamond may assert
them regardless of the circumstances giving rise to any of the foregoing
conditions at any time and from time to time in its sole discretion. Diamond's
failure at any time to exercise any of the foregoing rights will not be deemed
a waiver of any of these rights, and each right will be considered an ongoing
right which Diamond may assert at any time and from time to time.
Exchange Agent
State Street Bank and Trust Company has been appointed as exchange agent for
the Exchange Offer. 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:
By Mail, Overnight Delivery or Hand Delivery:
State Street Bank and Trust Company
Corporate Trust Department
Two Avenue de Layfayette
Fifth Floor
Boston, Massachusetts 02111-1724
Attention: Meaghan Haight
Facsimile Transmission: (617) 662-1452
Information or Confirmation by Telephone: (617) 662-1603
Solicitation of Tenders; Fees and Expenses
Diamond is making the principal solicitation pursuant to the Exchange Offer
by mail and through the facilities of DTC. Additional solicitations may be made
by officers and regular employees of Diamond and its affiliates in person or by
telegraph, telephone, facsimile transmission, electronic communication or
similar methods.
Diamond has not retained any dealer-manager in connection with the Exchange
Offer and will not make any payments to brokers, dealers or other persons
soliciting acceptances of the Exchange Offer. Diamond will, however, pay the
exchange agent reasonable and customary fees for its services and will
reimburse the exchange agent for its reasonable out-of-pocket costs and
expenses incurred in connection with the Exchange Offer and will indemnify the
exchange agent for all losses and claims incurred by it as a result of the
Exchange Offer. Diamond may also pay brokerage houses and other custodians,
nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them
in forwarding copies of this Prospectus, the Letter of Transmittal and related
documents to the beneficial owners of the Old Notes and in handling or
forwarding tenders for exchange.
Diamond will pay all expenses incurred in connection with the Exchange
Offer, including fees and expenses of the trustee, accounting and legal fees,
including the expense of one counsel designated by the holders of a majority of
the aggregate principal amount of the Old Notes, and printing costs.
Diamond will pay any transfer taxes applicable to the exchange of the Old
Notes pursuant to the Exchange Offer. If, however, a transfer tax is imposed
for any reason other than the exchange of the Old Notes pursuant to the
Exchange Offer, then the amount of these transfer taxes, whether imposed on the
registered holder thereof or any other person, will be payable by the tendering
holder.
24
<PAGE>
Accounting Treatment
Diamond will record the New Notes at the same carrying value as the Old
Notes, as reflected in Diamond's accounting records on the date of the
exchange. As a result, Diamond will not recognize any gain or loss for
accounting purposes as a result of the consummation of the Exchange Offer.
Diamond will amortize the expense of the Exchange Offer over the term of the
New Notes.
Consequences of a Failure to Exchange Old Notes
Following consummation of the Exchange Offer, assuming Diamond has accepted
for exchange all validly tendered Old Notes, Diamond will have fulfilled its
exchange and registration obligations under the Registration Rights Agreement.
All untendered Old Notes outstanding after consummation of the Exchange Offer
will continue to be valid and enforceable debt obligations of Diamond, subject
to the restrictions on transfer set forth in the indenture governing the Notes.
Holders of these Old Notes will only be able to offer for sale, sell or
otherwise transfer their untendered Old Notes as follows:
. to Diamond, although Diamond has no obligation to purchase untendered
Old Notes unless they are called for redemption in accordance with the
provisions of the indenture governing the Notes;
. pursuant to a registration statement that has been declared effective
under the Securities Act, although Diamond will have no obligation, and
does not intend, to file any such registration statement;
. for so long as the Old Notes are eligible for resale pursuant to Rule
144A under the Securities Act, to a person reasonably believed to be a
qualified institutional buyer, or QIB, within the meaning of Rule 144A,
that purchases for its own account or for the account of a QIB to whom
notice is given that the transfer is being made in reliance on the
exemption from the registration requirements of the Securities Act
provided by Rule 144A;
. pursuant to offers and sales that occur outside the United States to
foreign persons in transactions complying with the provisions of
Regulation S under the Securities Act; or
. pursuant to any other available exemption from the registration
requirements of the Securities Act.
To the extent that Old Notes are tendered and accepted in the Exchange
Offer, the liquidity of the trading market for untendered Old Notes could be
adversely affected.
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<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The selected historical and unaudited pro forma condensed financial data as
of December 31, 1995, 1996, 1997, 1998 and 1999 and for each of the years then
ended has been derived from Diamond's audited financial statements. The report
of KPMG LLP, independent auditors, on Diamond's Financial Statements as of
December 31, 1998 and 1999, and for each of the years in the three year period
ended December 31, 1999, is included elsewhere herein.
This summary historical and unaudited pro forma condensed financial data
should be read in conjunction with "Summary Historical Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Diamond's Financial Statements and the related notes thereto
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------
1995 1996 1997 1998 1999
------- -------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operating Data:
Sales........................ $68,102 $101,355 $122,005 $149,609 $164,520
Cost of sales................ 20,697 31,423 36,702 43,851 51,456
------- -------- -------- -------- --------
Gross profit................. 47,405 69,932 85,303 105,758 113,064
Operating expenses........... 40,470 56,883 74,696 89,764 101,184
------- -------- -------- -------- --------
Income from operations....... 6,935 13,049 10,607 15,994 11,170
Interest income.............. (54) (109) (184) (120) (31)
Interest expense............. -- -- -- 8,162 11,054
Pre-tax income............... 6,989 13,158 10,791 7,952 147
Provision for income taxes... -- -- -- (37) 138
------- -------- -------- -------- --------
Net income................... $ 6,989 $ 13,158 $ 10,791 $ 7,989 $ 9
======= ======== ======== ======== ========
Pro forma (1):
Historical income before pro-
vision for income taxes..... $ 6,989 $ 13,158 $ 10,791 $ 7,952
Pro forma provision for in-
come taxes.................. 2,796 5,263 4,316 3,181
------- -------- -------- --------
Pro forma net income......... $ 4,193 $ 7,895 $ 6,475 $ 4,771
======= ======== ======== ========
Other Data:
EBITDA(2).................... $ 8,284 $ 14,948 $ 18,029 $ 18,524 $ 13,796
EBITDA margin................ 12.2% 14.8% 14.8% 12.4% 8.4%
Non-vehicle capital expendi-
tures....................... $ 356 $ 1,616 $ 1,514 $ 1,856 $ 1,892
Vehicle capital expendi-
tures....................... 1,425 3,730 859 673 479
------- -------- -------- -------- --------
Total capital expenditures... 1,781 5,346 2,373 2,529 2,371
Ratio of earning to fixed
changes (excluding preferred
stock dividends)(3)......... 1.97x 1.01x
Service centers operated at
period end.................. 105 142 174 206 226
Balance Sheet Data (at period
end):
Cash and cash equivalents.... $ 4,100 $ 5,393 $ 6,255 $ 301 $ 94
Total assets................. 21,069 31,494 36,687 91,692 87,519
Total debt................... -- -- -- 108,500 107,500
Stockholders' equity (defi-
cit)........................ 15,728 24,294 23,285 (73,441) (78,232)
</TABLE>
- --------
(1) Prior to March 31, 1998, Diamond consisted of S corporations and,
accordingly, federal and state income taxes were generally paid at the
stockholder level only. Upon consummation of the Recapitalization (as
defined under "Business--Recapitalization"), Diamond eliminated its S
corporation status and, accordingly, is subject to federal and state income
taxes.
26
<PAGE>
(2) EBITDA represents income before income taxes, interest expense,
depreciation and amortization expense and non-recurring executive
compensation expense in 1997 of $5 million. While EBITDA is not intended to
represent cash flow from operations as defined by GAAP and should not be
considered as an indicator of operating performance or an alternative to
cash flow (as measured by GAAP) as a measure of liquidity, it is included
herein to provide additional information with respect to Diamond's ability
to meet its future debt service, capital expenditure and working capital
requirements.
(3) Ratio of earnings to fixed charges equals pre-tax income plus interest
expense divided by interest expense.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Diamond is a leading provider of automotive glass replacement and repair
services in the Northeast, Mid-Atlantic, Midwest, Southeast and Southwest
regions of the United States. At December 31, 1999, Diamond operated a network
of 226 automotive glass service centers, approximately 1,041 mobile
installation vehicles and four distribution centers in 39 states. Diamond
serves all of its customers' automotive glass replacement and repair needs,
offering windshields, tempered glass and other related products. Sales and
EBITDA for the year ended December 31, 1999 were $164.5 million and $13.8
million, respectively.
Diamond believes that, due to its sole focus on automotive glass replacement
and repair, it has one of the lowest cost structures in the automotive glass
replacement and repair industry. Diamond's low cost structure enables it to
serve all segments of the industry, which is comprised of: (1) individual
consumers; (2) commercial customers, including commercial fleet leasing and
rental car companies, car dealers, body shops and government agencies; and (3)
insurance customers, including referrals from local agents, claims offices and
centralized call centers. Diamond's 1999 sales to individual consumers,
commercial customers and insurance customers represented 28.6%, 41.5% and 29.9%
of total sales, respectively. While the two largest participants in the
industry primarily focus on servicing automotive glass insurance claims
(including providing related insurance claims processing services) and also
manufacture automotive glass, Diamond has strategically positioned itself
solely as a provider of automotive glass replacement and repair services to a
balanced mix of individual, commercial and insurance customers.
Recapitalization
On January 15, 1998, Diamond, Kenneth Levine, Richard Rutta, Green Equity
Investors II, L.P. and certain affiliated entities of Diamond entered into a
Second Amended and Restated Stock Purchase Agreement, pursuant to which, among
other things: (1) Diamond declared and paid a dividend of 3,500 shares of
Series A 12% Senior Redeemable Cumulative Preferred Stock (equal to 10.0% of
the Series A 12% Senior Redeemable Cumulative Preferred Stock outstanding after
the Recapitalization, as defined below) to each of Kenneth Levine and Richard
Rutta; (2) Kenneth Levine and Richard Rutta transferred all of the issued and
outstanding shares of each of the affiliated entities to Diamond in
consideration for which Diamond issued 6,950,000 shares of Common Stock to
Kenneth Levine and Richard Rutta; (3) each of the affiliated entities merged
with and into Diamond; (4) Green Equity Investors II, L.P. purchased: (A)
770,000 shares of Common Stock, equal to 77.0% of the Common Stock outstanding
after the Recapitalization, for aggregate consideration equal to $15.4 million,
and (B) 28,000 shares of Series A 12% Senior Redeemable Cumulative Preferred
Stock, equal to 80.0% of the Preferred Stock outstanding following the
Recapitalization, for an aggregate consideration of $28.0 million; (5) Norman
Harris and Michael A. Sumsky purchased an aggregate of 30,000 shares of Common
Stock, equal to 3.0% of the Common Stock outstanding after the
Recapitalization, for aggregate consideration of $600,000; and (6) Diamond
redeemed from Kenneth Levine and Richard Rutta all of the Common Stock owned by
them (other than 100,000 shares owned by each of them) for approximately $150.7
million in cash, which resulted in each of Kenneth Levine and Richard Rutta
owning 10.0% of the Common Stock outstanding after the Recapitalization. These
transactions were consummated on March 31, 1998, and together constitute the
"Recapitalization." Concurrently with the Recapitalization, Diamond issued the
Old Notes and entered into the old bank facility, under which Diamond borrowed
$12.5 million in connection with the Recapitalization. See "Description of
Credit Facility."
Results of Operations
The following discussion and analysis should be read in conjunction with
"Selected Financial Data" and the audited Financial Statements of Diamond and
the notes thereto included elsewhere in this Prospectus.
28
<PAGE>
The following table summarizes Diamond's historical results of operations
and historical results of operations as a percentage of sales for the years
ended December 31, 1997, 1998 and 1999.
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------
1997 1998 1999
------------ ------------ -----------
$ % $ % $ %
----- ----- ----- ----- ----- -----
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Sales................................... 122.0 100.0 149.6 100.0 164.5 100.0
Cost of Sales........................... 36.7 30.1 43.8 29.3 51.4 31.2
----- ----- ----- ----- ----- -----
Gross Profit............................ 85.3 69.9 105.8 70.7 113.1 68.8
Operating Expenses...................... 74.7 61.2 89.8 60.0 101.9 61.9
----- ----- ----- ----- ----- -----
Income from Operations.................. 10.6 8.7 16.0 10.7 11.2 6.8
Interest Income......................... (0.2) 0.2 (0.1) 0.1 0.0 0.0
Interest Expense........................ 0.0 0.0 8.1 5.4 11.0 6.7
----- ----- ----- ----- ----- -----
(0.2) 0.2 8.0 5.3 11.0 6.7
----- ----- ----- ----- ----- -----
Income before provision for income tax-
es..................................... 10.8 8.9 8.0 5.3 0.2 0.1
Provision for income taxes.............. 0.0 0.0 0.0 0.0 0.2 0.1
----- ----- ----- ----- ----- -----
Net income.............................. 10.8 8.9 8.0 5.3 0.0 0.0
===== ===== ===== ===== ===== =====
EBITDA (1).............................. 18.0 14.8 18.5 12.4 13.8 8.4
</TABLE>
- --------
(1) EBITDA represents income before taxes, interest expense, depreciation and
amortization expense and non-recurring executive compensation expense in
1997 of $5 million. While EBITDA is not intended to represent cash flow
from operations as defined by GAAP and should not be considered as an
indicator of operating performance or an alternative to cash flow (as
measured by GAAP) as a measure of liquidity, it is included herein to
provide additional information with respect to Diamond's ability to meet
its future debt service, capital expenditure and working capital
requirements.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Sales. Sales for 1999 increased by $14.9 million, or 10.0%, to $164.5
million from $149.6 million for 1998. This increase was primarily due to an
increase in sales at service centers opened in 1998 and 1999. Although
installation units increased 18.4%, primarily reflecting the continued
maturation of Diamond's service centers and increased installation
productivity, revenue per installation unit decreased an average of 6%. The
decrease in Diamond's average revenue per installation unit is primarily
attributable to weaker industry demand for glass replacement services, due
primarily to milder weather conditions, which resulted in price compression
throughout the industry.
Gross Profit. Gross profit for 1999 increased by $7.3 million, or 6.9%, to
$113.1 million from $105.8 million for 1998. Gross margin decreased as a
percentage of sales to 68.8% for 1999 from 70.7% for 1998. The decrease in
gross margin was primarily due to price compression throughout the industry,
which adversely affected average revenue per installation unit. The adverse
impact of price compression was partially offset by a decrease in glass product
costs.
Operating Expenses. Operating expenses for 1999 increased by $12.1 million,
or 13.5%, to $101.9 million from $89.8 million for 1998. Operating expenses
increased as a percentage of sales to 61.9% for 1999 from 60.0% for 1998. The
increase in operating expenses during 1999 was primarily due to an increase in
expenses related to the continued expansion of Diamond's service and
distribution center network which resulted in an increase in service and
distribution center payroll and other operating expenses, such as vehicle
operating leases and rent. The increase in operating expenses as a percentage
of sales is attributable to a decrease in average revenue per installation unit
which was partially offset by an average decrease of 4% in operating expense
per installation unit due to the leveraging of service center, corporate and
administrative
29
<PAGE>
expenses. In addition, operating expenses in 1999 included a full year of costs
related to senior management salaries and the management fees paid to LGP
compared to the inclusion of nine months of these costs in 1998 following the
consummation of the Recapitalization.
Depreciation and amortization expense for 1999 increased by $0.2 million, or
8.3%, to $2.6 million from $2.4 million for 1998. This increase is attributable
to a $0.5 million increase in amortization expense related to the
implementation of certain sales, billing and financial systems software in
February 1999. The increase in amortization expense was offset by a $0.5
million decrease in depreciation expense due to the inception of a master fleet
leasing program during 1997 for the lease of mobile installation and
distribution service vehicles.
Income from Operations. Income from operations for 1999 decreased by $4.8
million, or 30.0%, to $11.2 million from $16.0 million for 1998. This decrease
was primarily due to the decline in average revenue per installation unit
discussed above that was partially offset by a decrease in glass product costs,
an increase in installation productivity and the leveraging of service center,
corporate and administrative expenses.
Interest Expense. Interest expense for 1999 increased by $2.9 million, or
35.8%, to $11.0 million from $8.1 million for 1998. In 1999, Diamond incurred a
full year of interest expense compared to the inclusion of nine months of
interest expense in 1998 following the consummation of the Recapitalization.
Net Income. Diamond recorded a minimal amount of net income in 1999
compared to $8.0 million of net income in 1998. Net income as a percentage of
sales decreased to 0.0% for 1999 from 5.3% for 1998. The decrease in net income
and net income margin during 1999 was primarily due to the adverse impact of
lower average revenue per installation unit that was partially offset by a
decrease in glass product costs, an increase in installation productivity and
the leveraging of service center, corporate and administrative expenses.
EBITDA. EBITDA for 1999 decreased by $4.7 million, or 25.4%, to $13.8
million from $18.5 million for 1998. EBITDA as a percentage of sales decreased
to 8.4% for 1999 from 12.4% for 1998. The decrease in EBITDA and EBITDA margin
during 1999 was primarily due to the adverse impact of lower average revenue
per installation unit that was partially offset by a decrease in glass product
costs, an increase in installation productivity and the leveraging of service
center, corporate and administrative expenses.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Sales. Sales for 1998 increased by $27.6 million, or 22.6%, to $149.6
million from $122.0 million for 1997. This increase was primarily due to an
increase in sales at service centers opened in 1996, 1997 and 1998.
Gross Profit. Gross profit for 1998 increased by $20.5 million, or 24.0%,
to $105.8 million from $85.3 million for 1997. Gross profit increased as a
percentage of sales to 70.7% for 1998 from 69.9% for 1997. The increase in
gross profit and gross margin during 1998 was primarily due to an increase in
Diamond's sales and an increase in average revenue per installation unit.
Operating Expenses. Operating expenses for 1998 increased by $15.1 million,
or 20.2%, to $89.8 million from $74.7 million for 1997. Operating expenses
decreased as a percentage of sales to 60.0% for 1998 from 61.2% for 1997. The
decrease in operating expenses as a percentage of sales during 1998 was
primarily due to a non-recurring executive compensation expense of $5.0 million
accrued for in 1997. Excluding the non-recurring executive compensation expense
in 1997, operating expenses increased as a percentage of sales to 60.0% for
1998 from 57.1% for 1997. The increase in operating expenses during 1998 was
primarily due to an increase in expenses related to the continued expansion of
Diamond's service and distribution center network. During 1998, Diamond added
32 net new service centers; opened distribution centers in Rock Island,
Illinois and Atlanta, Georgia and consolidated its Raleigh, North Carolina and
its Orlando, Florida distribution centers into Diamond's Atlanta, Georgia
distribution center. The increase in operating expenses as a percentage of
sales is primarily attributable to an increase in service and distribution
center network payroll and other operating expenses combined with weaker demand
for auto glass installation services. In addition, since April 1998
30
<PAGE>
Diamond has incurred additional costs related to increases in senior management
salaries, an accrual for an incentive based bonus program for senior management
and management fees paid to LGP.
Depreciation and amortization expense for 1998 increased by $0.2 million, or
9.1%, to $2.4 million from $2.2 million for 1997. In 1998, Diamond commenced
amortization of certain software related to the implementation of a new point
of sale system for the service center network. The increase in amortization
expense was offset by a $0.1 million decrease in depreciation expense due to
the inception of a master fleet leasing program during 1997 for the lease of
mobile installation and distribution service vehicles.
Income from Operations. Income from operations for 1998 increased by $5.4
million, or 50.9%, to $16.0 million from $10.6 million for 1997. Excluding the
impact of the non-recurring executive compensation expense of $5.0 million in
1997, income from operations for 1998 increased by $0.4 million, or 2.6%, to
$16.0 million from $15.6 million for 1997.
Interest Expense. Interest expense for 1998 was $8.1 million due to the
consummation of the Recapitalization compared to no interest expense for 1997.
Net Income. Net income for 1998 decreased $2.8 million, or 25.9%, to $8.0
million from $10.8 million for 1997. The primary reason for this decrease was
attributable to interest expense of $8.1 million. This was offset with a $5.4
million increase in income from operations.
EBITDA. EBITDA for 1998 increased by $0.5 million, or 2.8%, to $18.5 million
from $18.0 million for 1997. EBITDA as a percentage of sales decreased to 12.4%
for 1998 from 14.8% for 1997. The increase in EBITDA during 1998 was primarily
due to the increase in sales and gross profit, which was offset by an increase
in operating expenses. The decrease in EBITDA margin during 1998 is primarily
attributable to an increase in the service and distribution center network
payroll and other operating expenses combined with weaker demand for auto glass
installation services. During 1998, Diamond incurred additional costs related
to increases in senior management salaries, an accrual for an incentive based
bonus program for senior management and management fees paid to LGP. The
decrease in EBITDA margin for 1998 related primarily to an increase in
operating expenses which was partially offset by an increase in gross margin.
Liquidity and Capital Resources
Diamond's need for liquidity will arise primarily from interest payable on
the Notes, the new credit facility and the funding of Diamond's capital
expenditures and working capital requirements. There are no mandatory principal
payments on the Notes prior to their maturity on April 1, 2008 and, except to
the extent that the borrowing base under the new credit facility exceeds the
amount outstanding thereunder, no required payments of principal on the new
credit facility prior to its expiration on March 28, 2004.
Net Cash Provided by Operating Activities. Net cash provided by operating
activities for 1999 decreased $1.9 million to $3.3 million from $5.2 million
for 1998. The decrease in cash provided by operating activities for 1999 was
due to a decrease in Diamond's net earnings, a $1.4 million increase in
inventory and a $1.6 million decrease in accounts payable which was offset by a
$1.9 million decrease in accounts receivable due to newly implemented accounts
receivable and billing systems which improved the accuracy and timeliness of
customer billings and improved post-billing collection efforts. Net cash
provided by operating activities for 1998 decreased $10.5 million to $5.2
million from $15.7 million for 1997. The decrease in cash provided by operating
activities for 1998 was primarily due to a decrease in Diamond's net earnings
and an increase in working capital requirements.
Net Cash Provided by/Used in Investing Activities. Net cash used in
investing activities for 1999 decreased $2.8 million to $2.3 million used from
$0.5 million provided by investing activities for 1998. Net cash provided by
investing activities for 1998 increased $3.6 million to $0.5 million from $3.1
million used in investing activities for 1997. The primary reason for these
variances was the elimination in 1998 of a due from related company of $2.9
million in connection with the Recapitalization.
31
<PAGE>
Net Cash Used in Financing Activities. Net cash used in financing activities
for 1999 decreased $10.4 million to $1.2 million from $11.6 million for 1998,
while net cash used in financing activities for 1998 decreased $0.2 million to
$11.6 million from $11.8 million for 1997. The reason for these variances was
the Recapitalization, in which $97.0 million was received from the issuance of
the Notes, $12.5 million from the old bank facility, $28.0 million from the
sale of preferred stock to Green Equity Investors II, L.P. and $16.0 million
from the sale of common stock to Green Equity Investors II, L.P., Norman Harris
and Michael A. Sumsky. This was offset by distributions to stockholders of $4.6
million, the repurchase of common stock for $150.7 million and deferred loan
costs of $5.8 million principally resulting from the issuance of the Notes. In
addition, Diamond repaid $4.0 million of the $12.5 million received from the
old bank facility during 1998 in connection with the Recapitalization.
Capital Expenditures. Net capital expenditures were $2.4 million for 1999 as
compared to $2.5 million for 1998 and $2.4 million for 1997. Excluding vehicle
capital expenditures, capital expenditures were $1.9 million for 1999 as
compared to $1.8 million for 1998 and $1.5 million for 1997. Capital
expenditures in 1999 were made primarily to fund the continued upgrade of
Diamond's management information systems. The most significant capital
expenditures contemplated over the next five years will be for the continued
enhancement and maintenance of Diamond's management information systems and
development of Diamond's nationwide expansion program. It is anticipated that
Diamond will annually incur approximately $2.5 to $3.0 million in capital
expenditures primarily to expand its management information systems with the
remaining portion used to expand its service and distribution center network.
Liquidity. Management believes that Diamond will have adequate capital
resources and liquidity to satisfy its debt service obligations, working
capital needs and capital expenditure requirements, including those related to
the opening of new service centers. Diamond's capital resources and liquidity
are expected to be provided by Diamond's net cash provided by operating
activities and borrowings under the new credit facility.
Inflation
Diamond believes that inflation has not had a material impact on its results
of operations for 1997, 1998 or 1999.
Effect of Weather Conditions and Seasonality
Weather has historically affected Diamond's sales, net income and EBITDA,
with severe weather generating increased sales, net income and EBITDA and mild
weather resulting in lower sales, net income and EBITDA. In addition, Diamond's
business is somewhat seasonal, with the fourth quarter traditionally its
slowest period of activity. Diamond believes such seasonal trends will continue
for the foreseeable future. See "--Sales."
32
<PAGE>
BUSINESS
Overview
Diamond is a leading provider of automotive glass replacement and repair
services in the Northeast, Mid-Atlantic, Midwest, Southeast and Southwest
regions of the United States. At December 31, 1999, Diamond operated a network
of 226 automotive glass service centers, approximately 1,041 mobile
installation vehicles and four distribution centers in 39 states. Diamond
serves all of its customers' automotive glass replacement and repair needs,
offering windshields, tempered glass and other related products. Sales and
EBITDA for the year ended December 31, 1999 were $164.5 million and $13.8
million, respectively.
Diamond believes that, due to its sole focus on automotive glass replacement
and repair, it has one of the lowest cost structures in the automotive glass
replacement and repair industry. Diamond's low cost structure enables it to
serve all segments of the industry, which is comprised of: (1) individual
consumers; (2) commercial customers, including commercial fleet leasing and
rental car companies, car dealers, body shops and government agencies; and (3)
insurance customers, including referrals from local agents, claims offices and
centralized call centers. Diamond's 1999 sales to individual consumers,
commercial customers and insurance customers represented 28.6%, 41.5% and 29.9%
of total sales, respectively. While the two largest participants in the
industry primarily focus on servicing automotive glass insurance claims
(including providing related insurance claims processing services) and also
manufacture automotive glass, Diamond has strategically positioned itself
solely as a provider of automotive glass replacement and repair services to a
balanced mix of individual, commercial and insurance customers.
Diamond's sole focus on automotive glass replacement and repair, combined
with its aggressive cost controls, strong purchasing power and efficient
internal distribution system, have positioned Diamond as one of the lowest cost
providers of automotive glass replacement and repair services. These
competitive attributes, together with localized marketing efforts, have enabled
Diamond's new service centers to quickly establish a base of local consumer and
commercial installation business from which Diamond plans to grow all three of
its customer segments.
Diamond's financial performance reflects attractive service center-level
economics. The cash required to open a new service center, including inventory
net of trade payables, averages $33,000. In 1999, over 75% of Diamond's
installations and repairs were performed by mobile technicians at a customer's
home or workplace. Due to the high percentage of mobile installations and
repairs which Diamond performs, service centers are typically located in
commercial or industrial areas, where rents are generally available at low
cost. In 1999, Diamond's 102 mature service centers (service centers open for
four years or longer) averaged approximately $956,000 in sales and
approximately $200,000 of branch operating profit per location. For the year
ended December 31, 1999, approximately 82% of Diamond's service centers that
had been open for at least fifteen months achieved positive branch operating
profitability.
Diamond believes that the high volume of its automotive glass purchases
positions Diamond as an important customer of the primary automotive glass
manufacturers, thereby reducing Diamond's exposure to product shortages and
maximizing its ability to purchase automotive glass at the lowest available
cost. Diamond's purchasing program utilizes the major domestic original
equipment manufacturers for truckload and spot purchases, and importation of
containers from the larger manufacturers throughout the world. Management
believes that the scope and flexibility of Diamond's purchasing program and its
efficient distribution system have enabled Diamond to achieve higher service
levels and a lower cost of goods than most of its competitors.
History
Diamond was founded in 1923 by the grandfather of Kenneth Levine and Richard
Rutta, Diamond's Co-Chairmen of the Board and Co-Chief Executive Officers.
Diamond continues to operate a service center at the location of its original
store in Scranton, Pennsylvania. Messrs. Levine and Rutta joined Diamond in
1979,
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<PAGE>
when Diamond operated only one service center, and acquired Diamond in 1987,
when Diamond operated ten service centers in Pennsylvania and New York. Under
the management of Messrs. Levine and Rutta, Diamond has expanded its service
center and distribution network to serve 226 locations at the end of 1999.
Recapitalization
On January 15, 1998, Diamond, Kenneth Levine, Richard Rutta, Green Equity
Investors II, L.P. and certain affiliated entities of Diamond entered into a
Second Amended and Restated Stock Purchase Agreement, pursuant to which, among
other things:
. Diamond declared and paid a dividend of 3,500 shares of Series A 12%
Senior Redeemable Cumulative Preferred Stock (equal to 10.0% of the
Series A 12% Senior Redeemable Cumulative Preferred Stock outstanding
after the Recapitalization, as defined below) to each of Kenneth Levine
and Richard Rutta;
. Kenneth Levine and Richard Rutta transferred all of the issued and
outstanding shares of each of the affiliated entities to Diamond in
consideration for which Diamond issued 6,950,000 shares of Common Stock
to Kenneth Levine and Richard Rutta;
. each of the affiliated entities merged with and into Diamond;
. Green Equity Investors II, L.P. purchased:
(1) 770,000 shares of Common Stock, equal to 77.0% of the Common Stock
outstanding after the Recapitalization, for aggregate consideration
equal to $15.4 million, and
(2) 28,000 shares of Series A 12% Senior Redeemable Cumulative
Preferred Stock, equal to 80.0% of the Preferred Stock outstanding
following the Recapitalization, for an aggregate consideration of
$28.0 million;
. Norman Harris and Michael A. Sumsky purchased an aggregate of 30,000
shares of Common Stock, equal to 3.0% of the Common Stock outstanding
after the Recapitalization, for aggregate consideration of $600,000; and
. Diamond redeemed from Kenneth Levine and Richard Rutta all of the Common
Stock owned by them (other than 100,000 shares owned by each of them)
for approximately $150.7 million in cash, which resulted in each of
Kenneth Levine and Richard Rutta owning 10.0% of the Common Stock
outstanding after the Recapitalization.
The above transactions were consummated on March 31, 1998, and together
constitute the "Recapitalization." Concurrently with the Recapitalization,
Diamond issued the Old Notes and entered into the old bank facility, under
which Diamond borrowed $12.5 million in connection with the Recapitalization.
See "Description of Credit Facility."
Industry Overview
The automotive glass replacement and repair industry is an approximately
$3.0 billion market. The market for the installation of automotive glass is
highly fragmented, with approximately 20,000 providers of automotive glass
replacement and repair services in the United States. Many participants in the
industry are small "mom and pop" installers who compete less effectively
against large, geographically diversified providers of automotive glass
installation services, such as Diamond. Consequently, the industry has been
consolidating.
Over the past 10 years, management estimates that total industry sales have
grown at approximately 4.0% per year. Replacement volume is influenced by
several factors, including the total vehicle population and the number of miles
driven. Severe weather and road conditions can also increase demand for
automotive glass
34
<PAGE>
repair and replacement. Fixing minor damage to a windshield may be deferred by
consumers until a vehicle trade-in, sale or inspection for new license tags.
Therefore, new automobile sales, turnover of used vehicles and state automobile
inspection laws influence automotive glass demand.
Sales growth has been attributable primarily to an increase in the aggregate
number of vehicles on the road, from approximately 181 million vehicles in 1988
to approximately 212 million vehicles in 1998, and to an increase in the
aggregate number of miles driven per vehicle per year, from approximately
11,188 miles in 1988 to approximately 12,183 miles in 1998. Growth in industry
sales has also been driven by the use of larger, more complex and more
expensive automotive glass in new vehicles. In 1999, management estimates that
industry replacement units decreased approximately 3%, primarily due to weak
demand. This weaker demand had a negative impact on pricing and resulted in a
decrease in average revenue per installation unit.
Pricing
The price of replacement automotive glass is based on list prices developed
by the National Auto Glass Specification ("NAGS"), an independent third party.
NAGS prices are generally changed following wholesale price increases announced
by original equipment manufacturers. Prices charged by participants in the
automotive glass replacement industry are independently determined using
varying percentage discounts from the NAGS price list. The impact of NAGS price
increases on Diamond's financial results depends on the level of discounts
Diamond grants to its customers and the level of discounts that Diamond can
obtain from its glass suppliers. Effective January 1, 1999, NAGS significantly
modified its published list prices in order to bring actual prices more in line
with published list prices.
Products
Diamond's primary installation products are automotive windshields which are
made of laminated safety glass. Safety glass consists of two layers of glass
bound together with a thin layer of vinyl which adds strength to the glass and
makes it very difficult for an object to penetrate a windshield upon impact. As
part of Diamond's commitment to serve all of its customers' automotive glass
replacement needs, Diamond also offers tempered automotive glass. Tempered
glass is generally used for side and rear automobile and truck windows and is
significantly stronger than regular glass due to specialized processing which
also causes tempered glass to shatter into dull-edged pebbles, reducing glass
related injuries. In addition, Diamond offers automotive glass repair services.
Customers and Marketing
Diamond provides automotive glass replacement services to each of the
industry's customer segments, which include individual consumers, commercial
customers and insurance customers. Management believes that in addition to
capturing additional consumer sales, broadening Diamond's service center
network and geographic coverage will facilitate Diamond's efforts to obtain an
increased share of the national insurance and fleet markets, whose participants
generally establish multiple providers for their automotive glass replacement
requirements. Diamond's 1999 sales to individual consumers, commercial
customers and insurance customers represented 28.6%, 41.5% and 29.9% of total
sales, respectively. In 1999, Diamond's top ten customer accounts comprised
approximately 18.9% of total sales and no single customer account exceeded 6.0%
of total sales.
Diamond's marketing is conducted through a combination of prominent Yellow
Pages advertising and by a direct sales force of 143 representatives. Yellow
Pages advertising is supported by customer service representatives and extended
hour call centers that answer telephone inquiries, schedule service
appointments and arrange emergency service. Sales representatives market
Diamond's services to insurance claim centers, local agents, fleet operators,
automobile dealers and body shops and have established relationships at all
levels of the major insurance, fleet and rental car company organizations.
35
<PAGE>
Individual Consumers. The marketing focus to the individual consumer segment
is low price and speed of service. Diamond's consumer customers consist of
individuals who are not associated with a related automobile insurance claim.
Customers in this segment typically do not have automobile glass insurance
coverage, have a high insurance deductible or do not want to file a claim with
their insurance carrier. These customers are primarily concerned with price,
quality, convenience and speed of service. A substantial portion of the
industry's consumer sales are generated as a result of localized marketing
efforts, such as Yellow Pages advertising. In order to attract consumer
customers, Diamond's Yellow Pages advertisements are designed to appear in the
first group of display advertisements and promote Diamond's competitive pricing
and fast mobile service. When a customer calls, Diamond's service
representatives are trained to emphasize Diamond's low price guarantee and
prompt service capabilities. The majority of Diamond's services can be provided
by its mobile installation technicians at a customer's home or workplace.
Commercial Customers. Diamond markets to commercial customers through its
direct sales force, which emphasizes high quality service at a low cost.
Diamond's commercial segment customers include commercial fleet leasing
companies, rental car companies, car dealerships, body shops, utilities and
government agencies. Diamond's customers in the commercial segment include Avis
Rent-A-Car, Inc., Enterprise Rent-A-Car and Bell Atlantic Corporation.
Management believes that Diamond's expanding geographic coverage will enable
Diamond to obtain an increased share of the national fleet automotive glass
replacement business.
Insurance Customers. Diamond markets its services to all levels of the
insurance industry, including local agents, claims offices and centralized call
centers. In addition to marketing directly to insurance companies through its
direct sales force, Diamond participates as an approved service provider within
glass replacement networks administered by third parties, including certain of
Diamond's competitors. These third party networks act as outsourced claims
administrators under contract to an insurance company. Historically, insurance
companies which participate in these networks have required that automotive
glass replacement and repair services be provided by more than one service
provider in order to ensure competitive pricing and high quality service.
Diamond is an approved service provider for many national insurance carriers,
including State Farm Insurance Company, Nationwide Insurance Company, Allstate
Insurance Company and Travelers Property Casualty Corporation.
Service Centers
Diamond's repair and installation service is performed either on-site at a
service center location or at a customer's home or workplace by a mobile
technician. Diamond operates approximately 1,041 mobile installation vehicles.
In 1999, over 75% of Diamond's installations and repairs were performed by
mobile technicians at a customer's home or workplace. Due to the high
percentage of mobile installations and repairs which Diamond performs, service
centers are typically located in commercial or industrial areas, where rents
are generally available at low cost.
At the end of 1999, Diamond's network comprised 226 service centers in 39
states in the Northeast, Mid-Atlantic, Midwest, Southeast and Southwest regions
of the United States. These service centers are operated under the following
service marks: Triumph Auto Glass and Diamond Auto Glass in the Northeast and
Mid-Atlantic; and Triumph Auto Glass in the Midwest, Southeast and Southwest.
Any expansion into new states will be under the Triumph Auto Glass registered
service mark. Generally, Diamond's service center locations are approximately
2,600 square feet in size. Due to weak industry conditions, Diamond opened 24
new service centers in 1999, as compared to an average of 35 new service
centers in the three years prior to 1999. Diamond currently plans to open
approximately 4 new service centers in 2000 absent an improvement in industry
conditions.
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<PAGE>
The following chart provides information concerning Diamond's service center
openings from 1990 to 1999:
<TABLE>
<CAPTION>
Service % Increase
Centers Over Prior
Openings Consolidations At Year End Year
-------- -------------- ----------- ----------
<S> <C> <C> <C> <C>
1990.......................... 6 -- 24 33.3%
1991.......................... 7 -- 31 29.2%
1992.......................... 12 -- 43 38.7%
1993.......................... 17 -- 60 39.5%
1994.......................... 31 -- 91 51.7%
1995.......................... 17 3 105 15.4%
1996.......................... 39 2 142 35.2%
1997.......................... 33 1 174 22.5%
1998.......................... 33 1 206 18.4%
1999.......................... 24 4 226 9.7%
</TABLE>
Service centers are typically staffed with approximately four persons and
are open for business from 8:00 a.m. to 5:00 p.m. on Monday through Friday and
8:00 a.m. to 12:00 p.m. on Saturday. Service center employees perform
installation services and process customer inquiries during regular business
hours. After-hours customer inquiries are handled by Diamond's emergency and
extended hour call center. Operators at this call center answer customer
inquiries, schedule mobile installation services and arrange emergency service
from service centers throughout Diamond's network.
Distribution System
Diamond currently operates four distribution centers which operate 7 days a
week and are located in Kingston, Pennsylvania; Columbus, Ohio; Atlanta,
Georgia; and Rock Island, Illinois. Diamond's efficient distribution system
enables Diamond to make nightly or weekly deliveries to all of its service
centers both to replenish stock and to provide automotive glass that is not
carried in service center inventories. Through its distribution centers,
Diamond supports over 75% of its sales with internally distributed product,
with the remainder being purchased from the spot market. Diamond's highly
efficient distribution center network, combined with a successful inventory
management program at its service centers, enables Diamond to meet immediate
service demands at a lower cost than if larger quantities of automotive glass
were required to be purchased in the spot market.
Suppliers
Diamond believes that the high volume of its automotive glass purchases
positions Diamond as an important customer of the primary automotive glass
manufacturers, thereby reducing Diamond's exposure to product shortages and
maximizing its ability to purchase automotive glass at the lowest available
cost. Diamond's purchasing program utilizes the major domestic original
equipment manufacturers for truckload and spot purchases, and importation of
containers from the larger manufacturers throughout the world. Management
believes that the scope and flexibility of Diamond's purchasing program and its
efficient distribution system have enabled Diamond to achieve higher service
levels and a lower cost of goods than those of most of its competitors.
Diamond has numerous domestic and international suppliers, and is continuing
to expand its supplier network by utilizing additional foreign suppliers in
order to hedge against product shortages and to reduce the overall cost of
automotive glass. In 1999, no single supplier represented more than 30% of
Diamond's automotive glass purchases. Due to the competitive nature of the
automotive glass manufacturing industry, Diamond does not anticipate any
difficulty in sourcing its automotive glass requirements in the foreseeable
future.
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<PAGE>
Competition
The automotive glass replacement and repair industry is highly competitive,
with customer decisions based on price, customer service, technical
capabilities, quality, advertising and geographic coverage. The competition in
the industry could result in additional pricing pressures, which would
negatively affect Diamond's results of operations. In addition, certain of
Diamond's competitors provide insurance companies with claims management
services, including computerized referral management, policyholder call
management, electronic auditing and billing services and management reporting.
While the market is generally highly fragmented, Diamond competes against
several other large competitors in this market, the largest two of which are
Safelite Glass Corporation and Harmon AutoGlass, a division of Apogee
Enterprises, Inc.
Properties
The following chart provides information concerning Diamond's headquarters,
distribution facilities and emergency call centers, all of which are leased:
<TABLE>
<CAPTION>
Area in
Facility Function Square Feet
-------- -------- ------------
<S> <C> <C>
Kingston, PA................................ Headquarters 121,000
Distribution Center
Call Center
Columbus, OH................................ Distribution Center 26,000
Atlanta, GA................................. Distribution Center 20,000
Rock Island, IL............................. Distribution Center 16,000
Scranton, PA................................ Call Center 2,500
</TABLE>
The following chart provides information concerning the number and location
of Diamond's service centers, all of which are leased:
<TABLE>
<CAPTION>
Number of Number of
Service Service
State Centers State Centers
----- --------- ----- ---------
<S> <C> <C> <C>
Alabama..................... 5 Nebraska.................... 1
Arkansas.................... 1 New Hampshire............... 5
Colorado.................... 4 New Jersey.................. 10
Connecticut................. 6 New Mexico.................. 1
Delaware.................... 2 New York.................... 27
Florida..................... 10 North Carolina.............. 8
Georgia..................... 9 Ohio........................ 11
Illinois.................... 6 Oklahoma.................... 1
Indiana..................... 7 Pennsylvania................ 26
Iowa........................ 3 Rhode Island................ 1
Kansas...................... 2 South Carolina.............. 4
Kentucky.................... 3 South Dakota................ 1
Louisiana................... 3 Tennessee................... 5
Maine....................... 3 Texas....................... 5
Maryland.................... 8 Utah........................ 1
Massachusetts............... 9 Vermont..................... 3
Michigan.................... 8 Virginia.................... 11
Minnesota................... 4 West Virginia............... 3
Mississippi................. 1 Wisconsin................... 5
Missouri.................... 3
</TABLE>
Diamond believes that its facilities are adequate for its current needs and
that suitable additional distribution centers and service locations will be
available to satisfy Diamond's expansion needs.
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<PAGE>
Employees
As of December 31, 1999, Diamond employed 1,610 persons. None of Diamond's
employees are covered by a collective bargaining agreement, and Diamond
believes that its relationships with its employees are good.
Legal Proceedings and Insurance
Diamond is involved in legal proceedings in the ordinary course of its
business. Management believes that the amounts which may be awarded or assessed
against Diamond in connection with these matters, if any, will not have a
material adverse effect on Diamond. In addition, management believes that
Diamond has appropriate insurance coverage to operate its business, including
insurance for its mobile installation units and technicians.
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<PAGE>
MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information concerning each of
Diamond's directors and executive officers:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Kenneth Levine.......... 46 Co-Chairman of the Board, Co-Chief Executive Officer and Director
Richard Rutta........... 43 Co-Chairman of the Board, Co-Chief Executive Officer and Director
Norman Harris........... 45 President
Michael A. Sumsky....... 41 Executive Vice President, Chief Financial Officer and General Counsel
Gregory J. Annick....... 36 Director
John G. Danhakl......... 44 Director
Jonathan D. Sokoloff.... 42 Director
</TABLE>
Kenneth Levine has been Diamond's Co-Chairman of the Board and Co-Chief
Executive Officer since March 1998 and a Director of Diamond since March 1987.
Mr. Levine joined Diamond in 1979 and has served as Diamond's effective Co-
President since 1987. In 1987, Mr. Levine, together with Richard Rutta,
purchased all of Diamond's outstanding stock.
Richard Rutta has been Diamond's Co-Chairman of the Board and Co-Chief
Executive Officer since March 1998 and a Director of Diamond since March 1987.
Mr. Rutta joined Diamond in 1979 and has served as Diamond's effective Co-
President since 1987. In 1987, Mr. Rutta, together with Kenneth Levine,
purchased all of Diamond's outstanding stock.
Norman Harris has been Diamond's President since March 1998. Mr. Harris has
served as Diamond's Executive Vice President from 1995 until March 1998. Mr.
Harris joined Diamond in 1993. From 1991 through 1993, Mr. Harris served as
President of Inveauto C.A. of Maracay, Venezuela, a fabricator of automotive
glass and parts. From 1977 until 1991, Mr. Harris was employed by Safelite
Glass Corporation.
Michael A. Sumsky has been Diamond's Executive Vice President, Chief
Financial Officer and General Counsel since joining Diamond in 1995. Prior to
joining Diamond, Mr. Sumsky was the co-founder of a distributorship of seasonal
gift electronics and other consumer products since 1991. Mr. Sumsky was
employed by Emerson Radio Corporation in various financial and legal capacities
from 1986 to 1989 and from 1990 to 1991. From 1989 to 1990, Mr. Sumsky was an
associate at Parker, Duryee, Rosoff & Haft, a New York City law firm.
Gregory J. Annick has been a Director of Diamond since March 1998. Mr.
Annick has been an executive officer of LGP, a merchant banking firm that
manages Green Equity Investors II, L.P., since the formation of LGP and Green
Equity Investors II, L.P. in 1994. Mr. Annick joined a merchant-banking firm
affiliated with LGP as an associate in 1989, became a principal in 1993, and
through a corporation became a partner in 1994. From 1988 to 1989, Mr. Annick
was an associate with the merchant banking firm of Gibbons, Green, van
Amerongen. Prior thereto, Mr. Annick was a financial analyst in mergers and
acquisitions with Goldman, Sachs & Co. Mr. Annick is also a director of several
private companies.
John G. Danhakl has been a Director of Diamond since March 1998. Mr. Danhakl
has been an executive officer of LGP since 1995. Mr. Danhakl had previously
been a Managing Director at Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ") and had been with DLJ since 1990. Prior to joining DLJ, Mr. Danhakl was
a Vice President at Drexel Burnham Lambert Incorporated ("Drexel"). Mr. Danhakl
is also a director of Twinlab Corporation, The Arden Group, Inc. and several
private companies.
Jonathan D. Sokoloff has been a Director of Diamond since March 1998. Mr.
Sokoloff has been an executive officer of LGP since its formation in 1994.
Since 1990, Mr. Sokoloff had been a partner at a
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<PAGE>
merchant-banking firm affiliated with LGP. Mr. Sokoloff had previously been a
Managing Director at Drexel. Mr. Sokoloff is also a director of Twinlab
Corporation, Gart Sports Company, Rite Aid Corporation and several private
companies.
Except for Messrs. Levine and Rutta, who are first cousins, no family
relationship exists between any of Diamond's officers or directors.
Committees of the Board of Directors
There are no committees of the Board of Directors.
Compensation of Directors
Diamond's officers, as well as Messrs. Annick, Danhakl and Sokoloff, do not
receive any compensation directly for their service on Diamond's Board of
Directors. Diamond has agreed, however, to pay LGP certain fees for various
management, consulting and financial planning services, including assistance in
strategic planning, providing market and financial analyses, negotiating and
structuring financing and exploring expansion opportunities. See "Certain
Relationships and Related Transactions."
Stock Option Plan
In September 1998, Diamond's Board of Directors and stockholders approved
and adopted the Diamond Triumph Auto Glass, Inc. 1998 Management Stock Option
Plan (the "1998 Plan"). The purpose of the 1998 Plan is to provide key
employees of Diamond and its subsidiaries with an incentive to remain in the
service of Diamond or its subsidiaries, to enhance Diamond's long-term
performance and to afford key employees the opportunity to acquire a
proprietary interest in Diamond. Currently, the 1998 Plan is administered by
Diamond's Board of Directors. An aggregate of 30,000 shares of Common Stock are
authorized for issuance under the 1998 Plan. As of December 31, 1999, the Board
of Directors had granted options to purchase a total of 27,175 shares of Common
Stock under the 1998 Plan. These options vest in five equal annual
installments, commencing on the first anniversary of the date of grant. Vested
options may not be exercised until the earlier of: (1) 90 days after Diamond's
Common Stock has become publicly traded and (2) 91 days prior to the tenth
anniversary of the date of grant. The 1998 Plan expires in September 2008.
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<PAGE>
Executive Compensation
Summary Compensation Table. The following table provides information about
the compensation paid by Diamond to its Co-Chief Executive Officers and its two
other executive officers during the fiscal years ended December 31, 1997, 1998
and 1999. The Co-Chief Executive Officers and the two other executive officers
of Diamond are collectively referred to as the "Named Executive Officers."
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
------------------------------------- ------------
Securities All
Other Underlying Other
Name and Principal Annual Options/SARs Compensation
Position Year Salary($) Bonus($) Compensation($) (#) ($)
- ------------------ ---- --------- -------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth Levine.......... 1999 $300,000 -- -- -- $3,168(3)
Co-Chairman of the 1998 $249,331 $85,386(1) -- -- $3,168(3)
Board and
Co-Chief Executive Of- 1997 $106,000 -- (2) -- $3,168(3)
ficer
Richard Rutta........... 1999 $300,000 -- -- -- $3,168(3)
Co-Chairman of the 1998 $249,331 $85,386(1) -- -- $3,168(3)
Board and
Co-Chief Executive Of- 1997 $106,000 -- (2) -- $3,168(3)
ficer
Norman Harris........... 1999 $275,000 -- -- -- $3,168(3)
President 1998 $256,962 $70,016(1) -- 450 $3,168(3)
1997 $212,000 -- (2) -- $2,721(3)
Michael A. Sumsky....... 1999 $250,000 -- -- -- $2,711(3)
Executive Vice Presi- 1998 $221,893 $70,016(1) -- 450 $2,324(3)
dent, Chief Financial
Officer and
General Counsel 1997 $148,400 -- (2) -- $2,182(3)
</TABLE>
- --------
(1) This bonus was earned in the year indicated, but paid in the immediately
subsequent year.
(2) During 1997, Diamond accrued an aggregate of $5.0 million in non-recurring
executive compensation for the Named Executive Officers, which was paid in
1998.
(3) Represents Diamond's net contribution on behalf of the Named Executive
Officer to Diamond's 401(k) Profit Sharing Plan.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values. The following table provides information regarding the exercise price
of stock options during the fiscal year ended December 31, 1999 for each of
Diamond's Named Executive Officers and the year-end value of unexercised
options held by the Named Executive Officers.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options/SARs at In-the-Money Options/SARs
Shares Acquired on Fiscal Year-End (#) at Fiscal Year-End ($)
Name Exercise (#) Value Realized($) Exercisable/Unexercisable Exercisable/Unexercisable
---- ------------------ ----------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Kenneth Levine.......... N/A N/A N/A N/A
Richard Rutta........... N/A N/A N/A N/A
Norman Harris........... -- -- 0/450 0/0
Michael A. Sumsky....... -- -- 0/450 0/0
</TABLE>
42
<PAGE>
Employment Agreements
On March 31, 1998, Diamond entered into employment agreements with each of
Kenneth Levine and Richard Rutta pursuant to which they each agreed to serve as
the Co-Chairmen of the Board and Co-Chief Executive Officers of Diamond. Each
of the agreements with Messrs. Levine and Rutta provide for the following:
(1) An initial term of five years beginning on March 31, 1998 and ending on
March 31, 2003.
(2) An annual base salary of $300,000, subject to annual review based on
Diamond's and the executive's performance. In addition, for each
calendar year beginning on January 1, 1998, each executive is entitled
to receive an annual bonus equal to a percentage of Diamond's EBITDA in
excess of specified thresholds, not to exceed $450,000.
(3) In the event the executive is terminated by Diamond for cause (as
defined in the employment agreement) or in the event the executive
resigns, Diamond will pay the executive the executive's base salary
through the date of termination.
(4) In the event the executive is terminated due to death or disability (as
defined in the employment agreement), the executive will receive:
. his base salary for a period of 12 months (but in no event beyond
March 31, 2003); and
. the amount of any bonus payable through the date of termination.
(5) In the event the executive is terminated by Diamond for any other
reason than as provided in clauses (3) and (4) above, the executive
will receive:
. his base salary through the date of termination;
. the amount of any bonus payable through the date of termination; and
. in lieu of any further compensation, severance pay equal to the base
salary that the executive would have otherwise received during the
period beginning on the date of termination and ending on the
earlier of (1) the scheduled termination date of executive's
employment period under the employment agreement and (2) such time
as the executive obtains other permanent employment.
(6) Customary non-competition and non-solicitation provisions, which
provisions survive for one year after the termination of the
executive's employment, and customary non-disclosure and assignment of
inventions provisions.
On March 31, 1998, Diamond entered into an employment agreement with Norman
Harris pursuant to which Mr. Harris agreed to serve as the President of Diamond
at an annual salary of $275,000, subject to annual review based on Diamond's
and the executive's performance. On March 31, 1998, Diamond also entered into
an employment agreement with Michael A. Sumsky pursuant to which Mr. Sumsky
agreed to serve as the Executive Vice President, Chief Financial Officer and
General Counsel of Diamond at an annual salary of $250,000, subject to annual
review based on Diamond's and the executive's performance. Each of the
agreements with Messrs. Harris and Sumsky also provide for the following:
(1) An initial term of three years beginning on March 31, 1998 and ending
on March 31, 2001.
(2) In addition to his base salary, for each calendar year beginning on
January 1, 1998, each executive is entitled to receive an annual bonus
equal to a percentage of Diamond's EBITDA in excess of specified
thresholds, not to exceed $375,000.
(3) In the event the executive is terminated by Diamond for cause (as
defined in the employment agreement) or in the event the executive
resigns, Diamond will pay the executive the executive's base salary
through the date of termination.
43
<PAGE>
(4) In the event the executive is terminated due to death or disability (as
defined in the employment agreement), the executive will receive:
. his base salary for a period of 12 months (but in no event beyond
March 31, 2001); and
. the amount of any bonus payable through the date of termination.
(5) In the event the executive is terminated by Diamond for any other
reason than as provided in clauses (3) and (4) above, the executive
will receive:
. his base salary through the date of termination;
. the amount of any bonus payable through the date of termination; and
. in lieu of any further compensation, severance pay equal to the base
salary that the executive would have otherwise received during the
period beginning on the date of termination and ending on the
earlier of (1) the scheduled termination date of executive's
employment period under the employment agreement and (2) such time
as the executive obtains other permanent employment for compensation
in an amount reasonably comparable to his base salary with Diamond.
(6) Customary non-competition, non-solicitation provisions, non-disclosure
and assignment of inventions provisions.
44
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides information regarding the beneficial ownership
of Diamond's Common Stock and Series A 12% Senior Redeemable Cumulative
Preferred Stock (referred to in the table as the "Series A Preferred Stock"),
as of March 30, 2000, by (1) each person known by Diamond to be the beneficial
owner of more than 5% of the Common Stock, (2) each director, (3) Diamond's
Named Executive Officers, and (4) all of Diamond's executive officers and
directors as a group. Except as indicated in the footnotes to this table,
Diamond believes that the persons named in this table have sole voting and
investment power with respect to all of the shares of Common Stock and Series A
Preferred Stock indicated.
<TABLE>
<CAPTION>
Series A Preferred
Common Stock Stock
Beneficially Owned Beneficially Owned
-------------------- --------------------
Number of Percentage Number of Percentage
Name Shares of Class Shares of Class
---- --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Green Equity Investors II, L.P.(1)... 770,000 77.0% 28,000 80.0%
Gregory J. Annick(1)(2).............. 770,000 77.0% 28,000 80.0%
John G. Danhakl(1)(2)................ 770,000 77.0% 28,000 80.0%
Jonathan D. Sokoloff(1)(2)........... 770,000 77.0% 28,000 80.0%
Kenneth Levine....................... 100,000 10.0% 3,500 10.0%
Richard Rutta........................ 100,000 10.0% 3,500 10.0%
Norman Harris........................ 15,000 1.5% --
Michael Sumsky....................... 15,000 1.5% --
All directors and executive officers
as a group
(7 persons)(3)...................... 1,000,000 100.0% 35,000 100.00%
</TABLE>
- --------
(1) The address of Green Equity Investors II, L.P. and Messrs. Annick, Danhakl
and Sokoloff is 11111 Santa Monica Boulevard, Suite 2000, Los Angeles,
California 90025.
(2) The shares shown as beneficially owned by Messrs. Annick, Danhakl and
Sokoloff represent the 770,000 shares of Common Stock and the 28,000 shares
of Series A Preferred Stock owned of record by Green Equity Investors II,
L.P. Green Equity Investors II, L.P. is a Delaware limited partnership
managed by LGP, which is an affiliate of the general partner of Green
Equity Investors II, L.P. Each of Leonard I. Green, Jonathan D. Sokoloff,
John G. Danhakl, Peter J. Nolan and Gregory J. Annick, either directly
(whether through ownership interest or position) or through one or more
intermediaries, may be deemed to control LGP and such general partner. LGP
and such general partner may be deemed to control the voting and
disposition of the shares of Common Stock owned by Green Equity Investors
II, L.P. As such, Messrs. Annick, Danhakl and Sokoloff may be deemed to
have shared voting and investment power with respect to all shares held by
Green Equity Investors II, L.P. However, such individuals disclaim
beneficial ownership of the securities held by Green Equity Investors II,
L.P., except to the extent of their respective pecuniary interests therein.
(3) Includes the shares referred to in Note 2 above.
45
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Management Services Agreement
In connection with the Recapitalization, Diamond entered into a Management
Services Agreement with LGP pursuant to which LGP receives an annual management
fee of $685,000. This fee is subordinated in right of payment to the Notes. The
Management Services Agreement also provides that LGP may receive reasonable and
customary fees and reasonable expenses from time to time for providing
financing, advisory and investment banking services to Diamond in connection
with major financial transactions. See "Business--Recapitalization".
Lease
Kenneth Levine and Richard Rutta are the sole partners of a partnership
which leases to Diamond, on an arm's length basis, Diamond's headquarters and
distribution facility in Kingston, Pennsylvania and 18 service center
locations. Following the Recapitalization, at Diamond's request, Kenneth Levine
and Richard Rutta caused the partnership to renew or extend the leases on the
facilities through December 31, 2010, on terms substantially similar to those
applicable to those facilities on January 15, 1998, provided that the monthly
rental amounts increase 4.0% each calendar year beginning January 1, 1999.
Rental payments to the partnership for the facilities aggregated $513,000,
$535,000 and $556,000 in 1997, 1998 and 1999, respectively.
Stockholders Agreement
On March 31, 1998, Green Equity Investors II, L.P., Kenneth Levine, Richard
Rutta and Diamond entered into a Stockholders Agreement. The Stockholders
Agreement generally restricts the transferability of shares of Common Stock
held by Kenneth Levine and Richard Rutta. The Stockholders Agreement also
establishes a right of first refusal in favor of Green Equity Investors II,
L.P. or Diamond in the event Kenneth Levine or Richard Rutta seek to transfer
any of their shares of Common Stock to a third party pursuant to a bona fide
offer. In addition, Green Equity Investors II, L.P. has certain "drag-along"
rights and certain sales of Common Stock by Green Equity Investors II, L.P. are
subject to "tag-along" rights of Kenneth Levine and Richard Rutta to
participate in those sales. The Stockholders Agreement also grants demand
registration rights to Green Equity Investors II, L.P. and piggyback
registration rights to Green Equity Investors II, L.P., Kenneth Levine and
Richard Rutta
Pursuant to the Stockholders Agreement, Green Equity Investors II, L.P.,
Kenneth Levine and Richard Rutta have agreed to vote their shares of Common
Stock in favor of the election of each of Kenneth Levine and Richard Rutta as a
director of Diamond so long as they are executive officers of Diamond.
Subject to early termination of the provisions described above (other than
those relating to registration rights) at the time, if any, as the Common Stock
is publicly held, the Stockholders Agreement terminates on the tenth
anniversary of the date thereof.
Management Share Agreements
On March 31, 1998, Diamond and Green Equity Investors II, L.P., entered into
Management Subscription and Stockholders Agreements with each of Norman Harris
and Michael A. Sumsky, which are collectively referred to as the "Management
Share Agreements." Pursuant to the Management Share Agreements, the shares of
Common Stock purchased by Messrs. Harris and Sumsky in the transactions related
to the Recapitalization are subject to various transfer restrictions and
purchase rights. The Management Share Agreements also contain certain
"piggyback," registration rights, "tag-along" sale rights, "drag-along" sale
obligations and a right of first refusal in favor of Green Equity Investors II,
L.P. or Diamond in the event Messrs. Harris or Sumsky seek to transfer their
shares of Common Stock to a third party pursuant to a bona fide offer.
46
<PAGE>
DESCRIPTION OF CREDIT FACILITY
On March 31, 1998, Diamond entered into the old bank facility. The old bank
facility provided for borrowings of up to $35 million, a portion of which was
available for the issuance of letters of credit.
On March 27, 2000, Diamond entered into a new revolving credit facility with
The CIT Group/Business Credit, Inc., as lender. Simultaneously therewith, the
borrowings under the old bank facility were repaid. The description below
summarizes the principal terms of the new credit facility.
Revolving Line of Credit. The new credit facility provides for revolving
advances ("Revolving Loans") of up to the lesser of:
. $25,000,000; or
. the sum of 85% of Diamond's Eligible Accounts Receivable (as defined in
the new credit facility) plus 85% of Diamond's Eligible Inventory (as
defined in the new credit facility), less certain reserves; or
. an amount equal to 1.5 times Diamond's EBITDA for the prior twelve
months. EBITDA is defined as earnings before interest, taxes,
depreciation and amortization, plus any accrued and unpaid management
fees payable to LGP during the period.
Letters of Credit. A portion of the revolving line of credit, not to exceed
$3,000,000, is available for the issuance of letters of credit for the
importation of inventory or standby letters of credit for business purposes
unrelated to the purchase of inventory.
Term. The new credit facility has an initial term of four years with
automatic renewals thereafter, unless the lender gives at least 60 days prior
notice of non-renewal.
Diamond may terminate the new credit facility at any time upon 60 days prior
notice. However, if the new credit facility is terminated by Diamond, Diamond
must pay the lender an early termination fee equal to 1.00% of the line of
credit if termination occurs during the first year of the new credit facility,
or 0.50% of the line of credit if termination occurs during the second or third
years of the new credit facility. No early termination fee is payable if
termination occurs during the fourth year of the new credit facility or
thereafter.
Interest Rates. Interest on all outstanding Revolving Loans will be computed
and payable monthly at a spread above the Chase Manhattan Bank Rate ("CMBR") or
LIBOR as follows:
<TABLE>
<CAPTION>
EBITDA CMBR LIBOR
------ ---- -----
<S> <C> <C>
> $17,000,000................................................... 0.25% 2.00%
$13,000,000 to $17,000,000...................................... 0.50% 2.25%
< $13,000,000................................................... 0.75% 2.50%
</TABLE>
The CMBR is the rate of interest per annum announced by The Chase Manhattan
Bank from time to time as its prime rate in effect at its principal office in
the City of New York. Diamond may elect to use the LIBOR rate; however, Diamond
cannot have more than five LIBOR loans outstanding at any one time.
Fees. Diamond must pay certain fees under the new credit facility as
follows:
. A line of credit fee, payable at the end of each month, of 0.25% per
annum computed on the difference between the revolving line of credit
and the sum of (A) the average daily balance of outstanding letters of
credit and (B) the average daily Revolving Loan balance due the lender;
. A collateral management fee of $50,000 per year;
47
<PAGE>
. A $220,000 loan facility fee, paid at the closing of the new credit
facility; and
. A fee equal to 1.50% per annum, payable monthly, on the undrawn amount
of each letter of credit.
In connection with entering into the new credit facility, Diamond paid the
lender an initial loan facility fee of $220,000.
Collateral. The new credit facility is secured by a first priority lien on
substantially all of Diamond's assets, including accounts receivable, inventory
and equipment and the proceeds of each of the foregoing.
Covenants. The new credit facility contains a number of covenants that,
among other things, restrict Diamond's ability to:
. make investments,
. incur additional indebtedness;
. grant liens;
. merge or consolidate with other companies;
. change the nature of its business;
. dispose of assets;
. make loans;
. pay dividends or redeem capital stock;
. guarantee the debts of other persons; and
. engage in transactions with affiliates.
In addition, the new credit facility limits capital expenditures to a
maximum of $3,000,000 per year and requires Diamond to maintain minimum EBITDA,
calculated monthly, for each 12-month period ending as of the end of each
month, of at least $10,500,000.
Events of Default. The new credit facility contains customary events of
default, including events of default relating to:
. non-payment of principal, interest or fees;
. violation of covenants;
. inaccuracy of representations and warranties;
. defaults on other indebtedness; and
. certain events of bankruptcy or insolvency.
48
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Overview
Diamond's authorized capital stock consists of 1,100,00 shares of Common
Stock, par value $0.01 per share, and 100,000 shares of Preferred Stock, par
value $0.01 per share, of which 35,000 shares have been designated Series A 12%
Senior Redeemable Cumulative Preferred Stock. The Series A 12% Senior
Redeemable Cumulative Preferred Stock is referred to as the "Series A Preferred
Stock."
The following is only a summary of the provisions of the Common Stock and
the Series A Preferred Stock. For a full description of the Common Stock and
the Series A Preferred Stock, you should read Diamond's Certificate of
Incorporation, which is filed as an exhibit to the Exchange Offer
registration statement.
Common Stock
Subject to the rights of the holders of any Preferred Stock which may be
outstanding, all shares of Common Stock are subject to the following rights and
restrictions:
Dividends. All shares of Common Stock participate equally in dividends
payable to holders of Common Stock when, as and if dividends are declared by
Diamond's Board of Directors.
Liquidation or Dissolution. All shares of Common Stock participate equally
in net assets available for distribution to holders of Common Stock on
liquidation or dissolution of Diamond.
Voting. The holders of Common Stock are entitled to one vote per share on
all matters submitted to a vote of Diamond's stockholders. The holders of
Common Stock do not have cumulative voting rights in the election of directors.
Series A Preferred Stock
Rank. With respect to dividend distributions and distributions upon
liquidation, winding up or dissolution of Diamond, the Series A Preferred Stock
is senior to all classes of Common Stock and to each other class of capital
stock or series of preferred stock created by Diamond's Board of Directors
after March 27, 1998, unless that stock expressly provides otherwise.
Dividends. Diamond will pay cumulative quarterly dividends on the Series A
Preferred Stock if, when and as declared by its Board of Directors. All
dividends will be cumulative, whether or not earned or declared, and will
accrue on a daily basis from the date Diamond initially issued the Series A
Preferred Stock (computed on the basis of a 360-day year and the actual number
of days elapsed). At Diamond's option, dividends may be paid in cash or by
adding to the then liquidation value of the Series A Preferred Stock an amount
equal to the dividends then accrued and payable. So long as any shares of
Series A Preferred Stock remain outstanding and subject to certain exceptions,
neither Diamond nor any of its subsidiaries will redeem, purchase or otherwise
acquire any other equity security of Diamond which is junior to the Series A
Preferred Stock in right of payment. In addition, Diamond will not declare or
pay dividends or make any distribution of assets to any holders of junior
securities other than dividends or distributions of junior securities.
Liquidation or Dissolution. Upon a Liquidity Event (as defined below), the
Series A Preferred Stock has an initial liquidation preference over the Common
Stock equal to the liquidation value of the Series A Preferred Stock plus
accrued and unpaid dividends. The initial liquidation preference of the Series
A Preferred Stock was $1,000 per share, or $35.0 million in the aggregate. To
the extent dividends on the Series A Preferred Stock accrue but are not paid,
the liquidation preference per share will increase by the amount of such
dividends. At December 31, 1999, the liquidation preference of the Series A
Preferred Stock was approximately $1,230 per share, or approximately $43
million in the aggregate. If, upon a Liquidation Event, Diamond has
insufficient
49
<PAGE>
assets to pay in full the liquidation payments payable to the holders of Series
A Preferred Stock and the holders of all other equity securities of Diamond
which rank equally with the Series A Preferred Stock, then all of these holders
will share equally and ratably in any distribution of Diamond's assets. A
"Liquidity Event" means the voluntary or involuntary liquidation, dissolution
or winding up of Diamond. A Liquidity Event does not include (1) a sale,
conveyance, exchange or transfer of all or substantially all of Diamond's
assets, or (2) Diamond's merger with or into another corporation or other
entity.
Voting. The holders of Series A Preferred Stock have no voting rights with
respect to general corporate matters, except as required by law or as described
under "Restrictions and Limitations" below.
Restrictions and Limitations. Subject to certain exceptions, so long as any
shares of Series A Preferred Stock are outstanding, Diamond will not, without
the vote or written consent of a majority of the outstanding shares of Series A
Preferred Stock:
(1) authorize or issue any class or series of equity securities which rank
equally with the Series A Preferred Stock;
(2) authorize or issue any class or series of equity securities which rank
senior to the Series A Preferred Stock;
(3) amend, alter or repeal any provision of Diamond's Certificate of
Incorporation so as to adversely affect any of the preferences, rights,
powers or privileges of the Series A Preferred Stock; or
(4) issue any additional shares of Series A Preferred Stock after March 31,
1998.
Mandatory Redemption. The Series A Preferred Stock is subject to mandatory
redemption by Diamond on April 1, 2010 at 100% of the liquidation value plus
accrued and unpaid dividends. Diamond's mandatory redemption of the Series A
Preferred Stock is subject to certain contractual and other restrictions,
including restrictions imposed by the new credit facility and the indenture.
Optional Redemption. At Diamond's option, Diamond may redeem some or all of
the Series A Preferred Stock at 100% of the liquidation value plus accrued and
unpaid dividends. If Diamond redeems less than all of the outstanding shares of
Series A Preferred Stock, the redemption will be made from the holders of
Series A Preferred Stock on a pro rata basis, based on the number of shares of
Series A Preferred Stock held by each stockholder, or by lot, as may be
determined in Diamond's sole discretion. Diamond's optional redemption of the
Series A Preferred Stock is subject to certain contractual and other
restrictions, including restrictions imposed by the new credit facility and the
indenture.
Change of Control. Upon a Change of Control (as defined below), Diamond must
offer to repurchase the Series A Preferred Stock at 100% of its liquidation
value plus accrued and unpaid dividends. Diamond's obligation to repurchase the
Series A Preferred Stock upon a Change of Control is subject to certain
contractual and other restrictions,, including restrictions imposed by the new
credit facility and the indenture. A Change of Control means:
(1) Diamond's merger or consolidation with or into any other entity, or the
sale, transfer or conveyance of all or substantially all of Diamond's
assets on a consolidated basis in one transaction or a series of
transactions; if, immediately after giving effect to the
transaction(s), another person or group (other than Green Equity
Investors II, L.P., parties related to Green Equity Investors II, L.P.,
Kenneth Levine or Richard Rutta) becomes the beneficial owner, directly
or indirectly, of more than 50% of the capital stock of Diamond
entitled to vote in the election of directors, managers or trustees, as
applicable, of the transferee(s) or the surviving entity or entities;
or
(2) Any person or group (other than Green Equity Investors II, L.P.,
parties related to Green Equity Investors II, L.P., Kenneth Levine or
Richard Rutta) becomes the beneficial owner, directly or indirectly, of
more than 50% of the capital stock of Diamond then outstanding normally
entitled to vote in the election of directors; or
50
<PAGE>
(3) during any period of 12 consecutive months after the date on which
Diamond initially issued the Series A Preferred Stock, individuals who
at the beginning of that 12-month period constituted Diamond's Board of
Directors cease to constitute a majority of Diamond's Board of
Directors for any reason.
51
<PAGE>
DESCRIPTION OF THE NEW NOTES
Diamond will issue the New Notes under the indenture, dated as of March 31,
1998, between Diamond and State Street Bank and Trust Company, as trustee. The
terms of the Old Notes and the New Notes are identical, except that the New
Notes are not subject to restrictions on transfer. As used in this "Description
of the New Notes," the term "Note" or "Notes" refers to both the Old Notes and
the New Notes. The indenture is subject to, and governed by, the Trust
Indenture Act of 1939, as amended.
This description of the Notes is intended to be a useful overview of the
material provisions of the Notes and the indenture. Since this description of
the Notes is only a summary, you should refer to the indenture for a complete
description of Diamond's obligations and your rights under the indenture.
Diamond has filed a copy of the indenture as Exhibit 4.1 to the registration
statement.
The section entitled "Certain Definitions" beginning on page 67 includes the
definitions of the capitalized terms used in this description. References to
the "Company" mean only Diamond Triumph Auto Glass, Inc., and not any of its
future subsidiaries. References to the Bank Facility, as used in the indenture,
include the new credit facility.
General
The Notes:
. represent senior, unsecured obligations of Diamond, ranking senior in
right of priority and payment to any indebtedness of Diamond that by its
terms is expressly subordinated to the Notes.
. are unconditionally guaranteed (the "Guarantees") on a senior, unsecured
basis by any Subsidiary Guarantor, of which there are currently none.
. are effectively subordinated to secured indebtedness of Diamond and the
Subsidiary Guarantors (including indebtedness under the Bank Facility)
with respect to the assets securing that indebtedness.
. are effectively subordinated to claims of creditors of any of Diamond's
subsidiaries, except to the extent that holders of the Notes may be
creditors of Diamond's subsidiaries pursuant to a Guarantee.
Paying Agent and Registrar
Initially, the Trustee will act as paying agent and registrar for the Notes.
Diamond may change the paying agent or registrar without notice to holders of
the Notes. Holders must surrender their Notes to a paying agent to collect
principal payments and premium, if any. Principal, premium, if any, and
interest on the Notes will be paid by check mailed to the registered holders at
their registered addresses, except that any holders who have given wire
transfer instructions to Diamond will be paid by wire transfer of immediately
available funds to the accounts specified by those holders.
Principal, Maturity and Interest
The interest rate, aggregate principal amounts and maturity dates of the
Notes are as follows:
<TABLE>
<S> <C>
Interest Rate................................................ 9.25% per annum
Aggregate Principal Amount................................... $100.0 million
Maturity Date................................................ April 1, 2008
</TABLE>
Interest on the Notes will:
. accrue at the rate of 9.25% per annum;
. be payable semi-annually in arrears on each April 1 and October 1,
commencing on October 1, 1998, to the persons who are registered holders
of the Notes at the close of business on the March 15 and September 15,
respectively, immediately preceding the applicable interest payment
date; and
52
<PAGE>
. accrue from the most recent date to which interest has been paid or, if
no interest has been paid, from and including the date of issuance.
The Notes are not entitled to the benefit of any mandatory sinking fund.
Additional Notes
Subject to the limitations set forth under "--Certain Covenants--Limitation
on Incurrence of Additional Indebtedness," Diamond may incur additional
Indebtedness which, at Diamond's option, may consist of additional notes, in
one or more series, having identical terms as the Notes. Holders of such
additional notes will have the right to vote together with holders of the Notes
as one class.
The Guarantees
Diamond currently has no Subsidiaries, and, accordingly, there are no
Subsidiary Guarantors. Any future Wholly Owned Restricted Subsidiary with total
assets having a book value of more than $50,000 will be required to become a
Subsidiary Guarantor. No future non-Wholly Owned Restricted Subsidiary will be
required to become a Subsidiary Guarantor unless it guarantees any other
Indebtedness of Diamond or a Subsidiary Guarantor.
Any Subsidiary Guarantor will irrevocably and unconditionally guarantee on a
senior unsecured basis the performance and punctual payment when due, whether
at Stated Maturity, by acceleration or otherwise, of all of Diamond's
obligations under the indenture and the Notes, whether for principal of,
premium, if any, or interest on the Notes, expenses, indemnification or
otherwise (all such obligations guaranteed by a Subsidiary Guarantor being
herein called the "Guaranteed Obligations"). Any Subsidiary Guarantor will
agree to pay, on a senior unsecured basis and in addition to the amount stated
above, any and all expenses (including reasonable counsel fees and expenses)
incurred by the Trustee in enforcing any rights under a Guarantee with respect
to a Subsidiary Guarantor.
Each Guarantee:
. will represent a senior, unsecured obligation of the respective
Subsidiary Guarantor, ranking senior in right of priority and payment to
any Indebtedness of that Subsidiary Guarantor that by its terms is
expressly subordinate to such Subsidiary Guarantor's Guarantee. Any
claims by holders of the Notes with respect to the assets of any
Subsidiary Guarantor will be effectively subordinated to secured
Indebtedness of the Subsidiary Guarantor with respect to the assets
securing such Indebtedness.
. will be limited in amount to an amount not to exceed the maximum amount
that can be guaranteed by the relevant Subsidiary Guarantor without
rendering the Guarantee voidable under applicable law relating to
fraudulent conveyance or fraudulent transfer or similar laws affecting
the rights of creditors generally. See "Risk Factors--Fraudulent
Conveyance."
. will be a continuing guarantee and will (1) remain in full force and
effect until payment in full of all the Guaranteed Obligations or until
released as described in the following paragraph, (2) be binding upon
each Subsidiary Guarantor and (3) inure to the benefit of and be
enforceable by the Trustee, the holders of the Notes and their
successors, transferees and assigns. Each Guarantee shall be a guarantee
of payment and not of collection.
Each Subsidiary Guarantor may liquidate or dissolve or may consolidate with,
merge into, or sell or otherwise dispose of its assets to, Diamond or another
Subsidiary Guarantor without limitation. See "--Certain Covenants--Merger,
Consolidation and Sale of Assets." In the event of a disposition of all of the
assets or all of the Capital Stock of any Subsidiary Guarantor, by way of sale,
merger, consolidation or otherwise, that Subsidiary Guarantor in the event of a
disposition of all of the Capital Stock or all of the assets of that Subsidiary
Guarantor or the surviving entity (whether or not that Subsidiary Guarantor) in
the event of a
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merger or consolidation will be deemed released and relieved of its obligations
under its Guarantee without any further action required on the part of the
Trustee or any holder of the Notes and the Person acquiring or owning the
assets or Capital Stock of that Subsidiary Guarantor (if not otherwise required
to be a Subsidiary Guarantor) will not be required to enter into a Guarantee;
provided, in each case, that the transaction is carried out pursuant to and in
accordance with "--Certain Covenants-Limitation on Asset Sales" and, if
applicable, "--Merger, Consolidation and Sale of Assets." If a Subsidiary
Guarantor becomes an Unrestricted Subsidiary pursuant to and in accordance with
the definition of "Unrestricted Subsidiary" set forth below under "--Certain
Definitions," it will be deemed released and relieved of its obligations under
its Guarantee without any further action required on the part of the Trustee or
any holder of the Notes. A non-Wholly Owned Restricted Subsidiary that is a
Subsidiary Guarantor solely by reason of its guarantee of other Indebtedness of
Diamond or a Subsidiary Guarantor will be deemed released and relieved of its
Guarantee without any further action required on the part of the Trustee or any
holder of the Notes if it is released and relieved of its guarantee of such
that Indebtedness and that Subsidiary Guarantor gives written notice to the
Trustee of its election to be released from its Guarantee.
Redemption
Optional Redemption. Except as described below, the Notes are not redeemable
until April 1, 2003. On and after April 1, 2003, Diamond may redeem all or a
part of the Notes with not less than 30 nor more than 60 days' notice, at the
redemption prices listed below. Redemption prices are expressed as percentages
of the principal amount. In addition, at redemption, any accrued and unpaid
interest to the applicable redemption date will be paid. Redemption prices
during the 12-month period commencing on April 1 of the years indicated are as
follows:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2003.............................................................. 104.625%
2004.............................................................. 103.083%
2005.............................................................. 101.542%
2006 and thereafter............................................... 100.000%
</TABLE>
Optional Redemption upon Public Equity Offerings. On or prior to April 1,
2001, Diamond may, at its option, use the net cash proceeds of one or more
Public Equity Offerings (as defined below) to redeem up to 35% of the aggregate
principal amount of the Notes originally issued at a redemption price equal to
109.0% of the principal amount of the Notes, plus accrued and unpaid interest
on the Notes to the date of redemption (subject to the right of the record
holders of the Notes on a record date to receive interest due on an interest
payment date that is on or prior to the date of redemption); provided that:
. after giving effect to any redemption, at least 65% of the aggregate
principal amount of the Notes originally issued remains outstanding; and
. the redemption occurs not more than 60 days after the consummation of
the Public Equity Offering.
As used above, "Public Equity Offering" means an underwritten public
offering of Qualified Capital Stock of Diamond pursuant to a registration
statement filed with the Commission in accordance with the Securities Act, or
any successor statute.
Selection and Notice of Redemption
In the event that less than all of the Notes are to be redeemed at any time,
the Trustee will select which Notes will be redeemed in compliance with the
requirements of:
. the principal national securities exchange, if any, on which the Notes
are listed; or
. if such Notes are not then listed on a national securities exchange, on
a pro rata basis, by lot or by any method as the Trustee deems fair and
appropriate.
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In addition, the Trustee's ability to select Notes for redemption is subject
to the following conditions:
. no Notes of a principal amount of $1,000 or less can be redeemed in
part;
. Notes of a principal amount in excess of $1,000 may be redeemed in part
in multiples of $1,000 only; and
. if a partial redemption is made with the proceeds of a Public Equity
Offering, selection of the Notes or portions of the Notes for redemption
will, subject to the preceding proviso, be made by the Trustee only on a
pro rata basis or on as nearly a pro rata basis as is practicable
(subject to DTC procedures), unless this method is otherwise prohibited.
Diamond must deliver a notice of redemption by first-class mail at least 30
but not more than 60 days before the redemption date to each holder of the
Notes to be redeemed at its registered address. If any Note is to be redeemed
in part only, the notice of redemption that relates to the Note must state the
portion of the principal amount to be redeemed. A new Note in a principal
amount equal to the unredeemed portion of the Note will be issued in the name
of the holder upon cancellation of the original Note. On and after the
redemption date, interest will cease to accrue on the Notes or portions of the
Notes called for redemption as long as Diamond has deposited with the paying
agent sufficient funds to redeem on the redemption date all the Notes called
for redemption.
Change of Control
If a Change of Control occurs, each holder of the Notes will have the right
to require Diamond to purchase all or a portion (in integral multiples of
$1,000) of the holder's Notes at a purchase price equal to 101% of the
principal amount of the Notes plus accrued and unpaid interest to the date of
purchase (subject to the right of holders of record on a record date to receive
interest due on an interest payment date that is on or prior to the date of
purchase).
Within 30 days following the date upon which the Change of Control occurred,
Diamond must send, by first-class mail, a notice (the "Change of Control
Offer") to each holder of the Notes with a copy to the Trustee stating, among
other things, the purchase date, which must be no earlier than 30 days nor
later than 60 days from the date the notice is mailed, other than as may be
required by law (the "Change of Control Payment Date"). Holders electing to
have a Note purchased pursuant to a Change of Control Offer will be required to
surrender the Note, with the form entitled "Option of Holder to Elect Purchase"
on the reverse of the Note completed, to the paying agent at the address
specified in the notice prior to the close of business on the third business
day prior to the Change of Control Payment Date.
If a Change of Control Offer is made, Diamond may not have available funds
sufficient to pay the Change of Control purchase price for all the Notes that
might be delivered by holders of the Notes seeking to accept the Change of
Control Offer. In the event Diamond is required to purchase outstanding Notes
pursuant to a Change of Control Offer, Diamond expects that it would seek
third-party financing to the extent it does not have available funds to meet
its purchase obligations. However, there can be no assurance that Diamond would
be able to obtain that financing. Neither Diamond's Board of Directors nor the
Trustee may waive the covenant relating to Diamond's obligation to make a
Change of Control Offer. Restrictions in the indenture on the ability of
Diamond and its Restricted Subsidiaries to incur additional Indebtedness, to
grant Liens on their property securing Indebtedness, to make Restricted
Payments and to make Asset Sales may also make more difficult or discourage a
takeover of Diamond, whether favored or opposed by Diamond's management.
Consummation of any of these types of transactions in certain circumstances may
require redemption or repurchase of the Notes, and there can be no assurance
that Diamond or the acquiring party will have sufficient financial resources to
effect a redemption or repurchase. These restrictions and the restrictions on
transactions with Affiliates may, in certain circumstances, make more difficult
or discourage any leveraged buyout of Diamond or any of its Subsidiaries. While
these restrictions cover a wide variety of arrangements which have
traditionally been used to effect highly leveraged transactions, the indenture
may not afford holders of the Notes protection in all
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circumstances from the adverse aspects of a highly leveraged transaction,
reorganization, restructuring, merger or similar transaction.
Diamond will comply with the requirements of Rule 14e-1 under the Exchange
Act and any other securities laws and regulations thereunder to the extent
these laws and regulations are applicable in connection with the purchase of
the Notes pursuant to a Change of Control Offer. To the extent that the
provisions of any securities laws or regulations conflict with the "Change of
Control" provisions of the indenture, Diamond will comply with the applicable
securities laws and regulations and will not be considered to have breached its
obligations under the "Change of Control" provisions of the indenture by that
compliance.
Certain Covenants
The indenture contains, among others, the following covenants:
Limitation on Incurrence of Additional Indebtedness. Diamond will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
create, incur, assume, guarantee, become liable, contingently or otherwise,
with respect to, or otherwise become responsible for payment of (collectively,
"incur"), any Indebtedness (including Acquired Indebtedness but excluding
Permitted Indebtedness); provided, however, that Diamond or any future
Subsidiary Guarantor may incur Indebtedness if on that date, after giving
effect to the incurrence:
(1) no Default or Event of Default has occurred and is continuing at the
time of or as a consequence of the incurrence of that Indebtedness, and
(2) the Consolidated Fixed Charge Coverage Ratio of Diamond is greater than
2.0 to 1.0.
Indebtedness of a Person which is secured by a Lien on an asset acquired by
Diamond or a Restricted Subsidiary of Diamond (whether or not that Indebtedness
is assumed by the acquiring Person) will be deemed incurred at the time of the
Asset Acquisition.
Limitation on Restricted Payments. Diamond will not, and will not cause or
permit any of its Restricted Subsidiaries to, directly or indirectly,
(1) declare or pay any dividend or make any distribution other than:
(A) dividends or distributions payable on its Qualified Capital Stock
or on warrants, rights or options to purchase or acquire shares of
Qualified Capital Stock,
(B) dividends on shares of the Senior Preferred Stock paid by
increasing the then liquidation preference per share of the Senior
Preferred Stock or
(C) dividends or distributions payable to Diamond or a Restricted
Subsidiary and pro rata dividends or distributions to Diamond
and/or its Restricted Subsidiaries and to minority holders of
Capital Stock of Restricted Subsidiaries) on or in respect of
shares of Capital Stock of Diamond or any Restricted Subsidiary to
holders of that Capital Stock,
(2) purchase, redeem or otherwise acquire or retire for value any Capital
Stock of Diamond or any warrants, rights or options to purchase or
acquire shares of any class of Diamond's Capital Stock,
(3) make any principal payment on, purchase, defease, redeem, prepay,
decrease or otherwise acquire or retire for value, prior to any
scheduled final maturity, scheduled repayment or scheduled sinking fund
payment, as the case may be, any Indebtedness of Diamond or any
Subsidiary Guarantor that is subordinate or junior in right of payment
to the Notes or Guarantees, or
(4) make any Investment (other than Permitted Investments) (each of the
foregoing actions set forth above being referred to as a "Restricted
Payment"),
if at the time of the Restricted Payment or immediately after giving effect
to the Restricted Payment:
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(1) a Default or an Event of Default has occurred and is continuing, or
(2) Diamond is not able to incur at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) in compliance with the covenant
described under "Limitation on Incurrence of Additional Indebtedness,"
or
(3) the aggregate amount of Restricted Payments (including such proposed
Restricted Payment) made subsequent to the Issue Date (the amount
expended for these purposes, if other than in cash, being the fair
market value of that property) exceeds the sum of:
(A) 50% of Diamond's cumulative Consolidated Net Income (or if
cumulative Consolidated Net Income will be a loss, minus 100% of
that loss) accrued during the period (treated as one accounting
period) beginning on April 1, 1998 to the end of the most recent
fiscal quarter ending at least 45 days prior to the date of the
Restricted Payment; plus
(B) 100% of the aggregate net cash proceeds Diamond received from any
Person (other than a Subsidiary of Diamond) from the issuance and
sale subsequent to the Issue Date of Diamond's Qualified Capital
Stock or any warrants, rights or options to purchase or acquire
shares of Diamond's Capital Stock or from the issuance and sale
subsequent to the Issue Date of any debt or other security of
Diamond that has been converted into or exchanged for Diamond's
Qualified Capital Stock; plus
(C) the net cash proceeds of any capital contribution to Diamond
subsequent to the Issue Date; plus
(D) without duplication, the sum of:
(i) the aggregate amount returned in cash on or with respect to
Investments (other than Permitted Investments) made subsequent
to the Issue Date whether through interest payments, principal
payments, dividends or other distributions or payments,
(ii) the net cash proceeds received by Diamond or any Restricted
Subsidiary from the disposition of all or any portion of those
Investments (other than to a Restricted Subsidiary of Diamond),
(iii) to the extent that any Investment was in the form of a
guarantee, any reduction in the amount guaranteed, and
(iv) the portion (proportionate to Diamond's equity interest in the
Subsidiary) of the fair market value of the net assets of an
Unrestricted Subsidiary at the time the Unrestricted Subsidiary
is designated a Restricted Subsidiary;
provided, however, that the foregoing sum shall not exceed, in the
case of any Unrestricted Subsidiary, the amount of Investments
previously made (and treated as a Restricted Payment) by Diamond or
any Restricted Subsidiary in the Unrestricted Subsidiary.
The immediately foregoing provisions do not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration if the dividend would have been permitted on the date of
declaration;
(2) if no Default or Event of Default has occurred and is continuing, the
acquisition of any shares of Diamond's Capital Stock or any warrants,
rights or options to purchase or acquire shares of Diamond's Capital
Stock, either:
(A) in exchange for shares of Diamond's Qualified Capital Stock or any
warrants, rights or options to purchase or acquire shares of
Diamond's Qualified Capital Stock, or
(B) through the application of net proceeds of a substantially
concurrent sale for cash (other than to a Subsidiary of Diamond) of
shares of Diamond's Qualified Capital Stock or any warrants, rights
or options to purchase or acquire shares of Diamond's Qualified
Capital Stock;
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(3) if no Default or Event of Default has occurred and is continuing, the
voluntary prepayment, purchase, defeasance, redemption or other
acquisition or retirement for value of any Indebtedness of Diamond or
any Subsidiary Guarantor that is subordinate or junior in right of
payment to the Notes or Guarantees:
(A) solely in exchange for shares of Diamond's Capital Stock or any
warrants, rights or options to purchase or acquire shares of
Diamond's Capital Stock; provided, however, that if that Capital
Stock is, or those warrants, rights or options to purchase that
Capital Stock are convertible into or exchangeable at the option of
the holder thereof for, Disqualified Capital Stock, then that
Disqualified Capital Stock will not:
(i) by its terms, or upon the happening of any event, mature or be
mandatorily redeemable pursuant to a sinking fund obligation or
otherwise, or be redeemable at the option of the holder thereof,
in any case, on or prior to the final maturity of the
Indebtedness permitted to be prepaid, purchased, defeased,
redeemed or acquired pursuant to this clause (3) and
(ii) have a Weighted Average Life to Maturity less than the
Indebtedness permitted to be prepaid, purchased, defeased,
redeemed or acquired pursuant to this clause (3) or
(B) through the application of net proceeds of a substantially
concurrent sale for cash (other than to a Subsidiary of Diamond) of
(i) shares of Diamond's Qualified Capital Stock or any warrants,
rights or options to purchase or acquire shares of Diamond's
Qualified Capital Stock, or
(ii) Refinancing Indebtedness;
(4) so long as no Default or Event of Default has occurred and is
continuing, repurchases by Diamond of Diamond's Common Stock or
options, warrants or other securities exercisable or convertible into
Diamond's Common Stock from employees and directors of Diamond or any
of its Subsidiaries or their authorized representatives upon the death,
disability or termination of employment or directorship of these
employees or directors, in an aggregate amount not to exceed $750,000
in any calendar year and $3.0 million in the aggregate (in each case
plus the amount of net cash proceeds received by Diamond from the sale
of Qualified Capital Stock or any warrants, rights or options to
purchase or acquire shares of Qualified Capital Stock to employees or
directors of Diamond and its Subsidiaries, to the extent that those
amounts did not provide the basis for any previous Restricted Payment);
and
(5) so long as no Default or Event of Default has occurred and is
continuing, the payment of dividends on the shares of the Senior
Preferred Stock with:
(A) the net proceeds of a sale for cash (other than to a Subsidiary of
Diamond) of shares of Diamond's Qualified Capital Stock or any
warrants, rights or options to purchase or acquire shares of
Diamond's Qualified Capital Stock or
(B) the net cash proceeds of any capital contribution to Diamond to the
extent the amounts in clauses 5(A) and 5(B) did not provide the
basis for any previous Restricted Payment.
In determining the aggregate amount of Restricted Payments made subsequent
to the Issue Date, amounts expended pursuant to clauses (1), (2)(B), (3)(B)(i),
(4) and (5) should be included in the calculation and amounts expended pursuant
to clauses (2)(A), 3(A) and 3(B)(ii) should not be included in the calculation.
Not later than the date of making any Restricted Payment, Diamond will
deliver to the Trustee an officers' certificate stating that the Restricted
Payment complies with the indenture and setting forth in reasonable detail the
basis upon which the required calculations were computed, which calculations
may be based upon Diamond's latest available internal quarterly financial
statements.
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Limitation on Asset Sales. Diamond will not, and will not permit any of its
Restricted Subsidiaries to, consummate an Asset Sale unless:
(1) Diamond or the applicable Restricted Subsidiary, as the case may be,
receives consideration at the time of the Asset Sale at least equal to
the fair market value of the assets sold or otherwise disposed of (as
determined in good faith by Diamond's Board of Directors),
(2) at least 75% of the consideration received for the assets sold by
Diamond or the Restricted Subsidiary, as the case may be, from the
Asset Sale is in the form of cash or Cash Equivalents and is received
at the time of the disposition; provided, however, that for purposes of
this clause (2) only:
(A) notes received by Diamond or a Restricted Subsidiary as
consideration for an Asset Sale that are converted into cash or
Cash Equivalents within 30 days following the consummation of the
Asset Sale, or
(B) the assumption by the purchaser of assets pursuant to an Asset Sale
of Indebtedness of Diamond or a Restricted Subsidiary (other than
Indebtedness that is by its terms subordinate to the Notes or any
Guarantee) are, in each case of the immediately preceding clauses
(2)(A) and (2)(B), deemed to be cash or Cash Equivalents at the
time of the Asset Sale in an amount equal to, in the case of clause
(2)(A), the amount of cash or Cash Equivalents realized on the
conversion and, in the case of clause (2)(B), the amount of the
Indebtedness so assumed, as reflected on Diamond's balance sheet,
and
(3) following the consummation of an Asset Sale, Diamond will or will cause
the Restricted Subsidiary, within 365 days of receipt thereof either
(A) to apply the Net Cash Proceeds related to the Asset Sale to prepay
any Indebtedness that by its terms is not subordinate to the Notes
or any Guarantee (and to permanently reduce the commitments, if
any, with respect thereto),
(B) to make a Permitted Investment or an investment in properties and
assets that replace the properties and assets that were the subject
of the Asset Sale or in properties and assets that will be used in
a Related Business (collectively, "Replacement Assets"), or
(C) a combination of prepayment and investment permitted by the
foregoing clauses (3)(A) and (3)(B).
On the 365th day after an Asset Sale, or the earlier date, if any, as
Diamond's Board of Directors determines not to apply or cause to be applied the
Net Cash Proceeds relating to the Asset Sale as set forth in clauses (3)(A),
(3)(B) and (3)(C) of the immediately preceding paragraph (each, a "Net Proceeds
Offer Trigger Date"), the aggregate amount of Net Cash Proceeds which have not
been applied on or before the applicable Net Proceeds Offer Trigger Date as
permitted in clauses (3)(A), (3)(B) and (3)(C) of the immediately preceding
paragraph (or, in the case of a Net Proceeds Offer Trigger Date occurring prior
to the 365th day, the aggregate amount of Net Cash Proceeds that the Board of
Directors of Diamond has determined not to so apply) (each a "Net Proceeds
Offer Amount") will be applied by Diamond or the Restricted Subsidiary to make
an offer to purchase (the "Net Proceeds Offer") on a date (the "Net Proceeds
Offer Payment Date") not less than 30 nor more than 45 days following the
applicable Net Proceeds Offer Trigger Date, from all holders of the Notes on a
pro rata basis (and on a pro rata basis with the holders of any other
Indebtedness of Diamond that is not by its terms subordinate in right of
payment to the Notes with similar provisions requiring Diamond to offer to
purchase that Indebtedness with the proceeds of asset sales), that principal
amount of the Notes and such other Indebtedness equal to the Net Proceeds Offer
Amount at a price, in the case of the Notes, equal to 100% of the principal
amount of the Notes to be purchased, plus accrued and unpaid interest to the
date of purchase (subject to the right of holders of record on a record date to
receive interest due on an interest payment date that is on or prior to such
date of purchase); provided, however, that if at any time any non-cash
consideration received by Diamond or any Restricted Subsidiary of Diamond, as
the case may be, in connection with any Asset Sale is converted into or sold or
otherwise disposed of for cash (other than interest received with respect to
any
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non-cash consideration), then the conversion or disposition will be deemed to
constitute an Asset Sale hereunder and the Net Cash Proceeds will be applied in
accordance with this covenant. Diamond may defer the Net Proceeds Offer until
there is an aggregate unutilized Net Proceeds Offer Amount equal to or in
excess of $5.0 million resulting from one or more Asset Sales (at which time,
the entire unutilized Net Proceeds Offer Amount, and not just the amount in
excess of $5.0 million, will be applied as required pursuant to this
paragraph).
In the event of the transfer of substantially all (but not all) of the
property and assets of Diamond and its Restricted Subsidiaries as an entirety
to a Person in a transaction permitted under "--Merger, Consolidation and Sale
of Assets," the Surviving Entity will be deemed to have sold the properties and
assets of Diamond and its Restricted Subsidiaries not so transferred for
purposes of this covenant, and will comply with the provisions of this covenant
with respect to the deemed sale as if it were an Asset Sale. In addition, the
fair market value of the properties and assets of Diamond or its Restricted
Subsidiaries deemed to be sold will be deemed to be Net Cash Proceeds for
purposes of this covenant.
Notwithstanding the two immediately preceding paragraphs, Diamond and its
Restricted Subsidiaries will be permitted to consummate an Asset Sale without
complying with those paragraphs to the extent:
(1) at least 75% of the consideration for the Asset Sale constitutes
Replacement Assets and cash or Cash Equivalents; and
(2) the Asset Sale is for fair market value;
provided that any consideration not constituting Replacement Assets
received by Diamond or any of its Restricted Subsidiaries in connection
with any Asset Sale permitted to be consummated under this paragraph will
constitute Net Cash Proceeds subject to the provisions of the two preceding
paragraphs.
Each Net Proceeds Offer will be mailed to the record holders of the Notes as
shown on the register of holders within 25 days following the Net Proceeds
Offer Trigger Date, with a copy to the Trustee, and will comply with the
procedures set forth in the indenture. Upon receiving notice of the Net
Proceeds Offer, holders of the Notes may elect to tender their Notes in whole
or in part in integral multiples of $1,000 in exchange for cash. To the extent
holders of the Notes and holders of other Indebtedness, if any, which are the
subject of a Net Proceeds Offer properly tender Notes or the other Indebtedness
in an aggregate amount exceeding the Net Proceeds Offer Amount, Notes of
tendering holders and other Indebtedness of tendering holders will be purchased
on a pro rata basis (based on amounts tendered). A Net Proceeds Offer will
remain open for a period of at least 20 business days or a longer period as may
be required by law.
Diamond will comply with the requirements of Rule 14e-1 under the Exchange
Act and any other securities laws and regulations thereunder to the extent
those laws and regulations are applicable in connection with the purchase of
the Notes pursuant to a Net Proceeds Offer. To the extent that the provisions
of any securities laws or regulations conflict with the "Asset Sale" provisions
of the indenture, Diamond will comply with the applicable securities laws and
regulations and will not be deemed to have breached its obligations under the
"Asset Sale" provisions of the indenture by its compliance.
Upon completion of a Net Proceeds Offer, the amount of Net Cash Proceeds
will be reset at zero. Accordingly, to the extent that the aggregate amount of
the Notes and other Indebtedness tendered pursuant to a Net Proceeds Offer is
less than the Net Cash Proceeds Offer Amount, Diamond may use any remaining Net
Cash Proceeds for general corporate purposes.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries. Diamond will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause
or permit to exist or become effective any consensual encumbrance or
restriction on the ability of any Restricted Subsidiary of Diamond to:
(1) pay dividends or make any other distributions on or in respect of its
Capital Stock;
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(2) make loans or advances or to pay any Indebtedness or other obligation
owed to Diamond or any other Restricted Subsidiary of Diamond; or
(3) transfer any of its property or assets to Diamond or any other
Restricted Subsidiary of Diamond.
These restrictions do not apply to any encumbrances or restrictions existing
under or by reason of:
(1) applicable law;
(2) the indenture;
(3) any new credit facility, provided that the provisions relating to the
encumbrance or restriction are not materially more restrictive than
those in the new credit facility as in existence on the Issue Date, as
any restriction may apply to any present or future Restricted
Subsidiary of Diamond;
(4) customary non-assignment provisions of any contract and customary
provisions restricting assignment or subletting in any lease governing
a leasehold interest of any Restricted Subsidiary of Diamond, or any
customary restriction on the ability of a Restricted Subsidiary of
Diamond to dividend, distribute or otherwise transfer any asset which
secures Purchase Money Indebtedness of that Subsidiary;
(5) any instrument governing Acquired Indebtedness, which encumbrance or
restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person or the properties or assets
of the Person so acquired;
(6) restrictions with respect to a Subsidiary of Diamond imposed pursuant
to a binding agreement which has been entered into for the sale or
disposition of Capital Stock or assets of that Subsidiary, provided
those restrictions apply solely to the Capital Stock or assets of that
Subsidiary which are being sold;
(7) customary restrictions imposed on the transfer of copyrighted or
patented materials; or
(8) an agreement governing Indebtedness incurred to Refinance the
Indebtedness issued, assumed or incurred pursuant to an agreement
referred to in clause (2), (3) or (5) above; provided, however, that
the provisions relating to any encumbrance or restriction contained in
any Indebtedness are not materially more restrictive than the
provisions relating to any encumbrance or restriction contained in
agreements referred to in such clause (2), (3) or (5). Notwithstanding
the foregoing, Liens not prohibited by the terms of the indenture will
not be considered a restriction on the ability of the applicable
Subsidiary to transfer any assets.
Limitation on Preferred Stock of Restricted Subsidiaries. Diamond will not
permit any of its Restricted Subsidiaries to issue any Preferred Stock (other
than to Diamond or to a Wholly Owned Restricted Subsidiary of Diamond) or
permit any Person (other than Diamond or a Wholly Owned Restricted Subsidiary
of Diamond) to own any Preferred Stock of any Restricted Subsidiary of Diamond;
provided, however, that any Restricted Subsidiary of Diamond that is not a
Wholly-Owned Restricted Subsidiary of Diamond may issue Preferred Stock to, and
that Preferred Stock may be owned by, the holders of the Common Stock of that
Subsidiary in the same proportions as their relative ownership of the Common
Stock of that Subsidiary.
Limitation on Liens. Diamond will not, and will not cause or permit any of
its Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or permit or suffer to exist any Liens (other than Permitted Liens) securing
any Indebtedness of any kind against or upon any property or assets of Diamond
or any of its Restricted Subsidiaries whether owned on the Issue Date or
acquired after the Issue Date, or any proceeds therefrom, unless:
(1) in the case of Liens securing Indebtedness that is expressly
subordinate or junior in right of payment to the Notes, the Notes are
secured by a Lien on the property, assets or proceeds that is senior in
priority to those Liens, and
(2) in all other cases, the Notes are equally and ratably secured.
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Merger, Consolidation and Sale of Assets. Diamond will not, in a single
transaction or series of related transactions, consolidate or merge with or
into any Person, or sell, assign, transfer, lease, convey or otherwise dispose
of (or cause or permit any Subsidiary of Diamond to sell, assign, transfer,
lease, convey or otherwise dispose of) all or substantially all of Diamond's
assets (determined on a consolidated basis for Diamond and its Subsidiaries)
whether as an entirety or substantially as an entirety to any Person unless:
(1) either:
(A) Diamond will be the surviving or continuing corporation, or
(B) the Person (if other than Diamond) formed by the consolidation or
into which Diamond is merged or the Person which acquires by sale,
assignment, transfer, lease, conveyance or other disposition the
properties and assets of Diamond and of Diamond's Subsidiaries
substantially as an entirety (the "Surviving Entity"):
(i) will be a corporation, limited liability company or similar
entity organized and validly existing under the laws of the
United States or any State thereof or the District of Columbia,
and
(ii) will expressly assume, by supplemental indenture (in form and
substance satisfactory to the Trustee), executed and delivered
to the Trustee, the due and punctual payment of the principal
of, and premium, if any and interest on all of the Notes and
the performance of every covenant of the Notes and the
indenture to be performed or observed by Diamond;
(2) immediately after giving effect to the transaction and the assumption
contemplated by clause (1)(B)(ii) above (including giving effect to any
Indebtedness and Acquired Indebtedness incurred or anticipated to be
incurred in connection with or in respect of the transaction), Diamond
or the Surviving Entity, as the case may be,
(A) will have a Consolidated Net Worth equal to or greater than
Diamond's Consolidated Net Worth immediately prior to the
transaction, and
(B) will be able to incur at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) pursuant to the covenant
described under "--Limitation on Incurrence of Additional
Indebtedness;"
(3) immediately before and immediately after giving effect to the
transaction and the assumption contemplated by clause (1)(B)(ii)) above
(including, without limitation, giving effect to any Indebtedness and
Acquired Indebtedness incurred or anticipated to be incurred and any
Lien granted in connection with or in respect of the transaction), no
Default or Event of Default will have occurred or be continuing, and
(4) Diamond or the Surviving Entity will have delivered to the Trustee an
officers' certificate and an opinion of counsel, each stating that the
consolidation, merger, sale, assignment, transfer, lease, conveyance or
other disposition and, if a supplemental indenture is required in
connection with the transaction, the supplemental indenture, comply
with the applicable provisions of the indenture and that all conditions
precedent in the indenture relating to the transaction have been
satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Subsidiaries of
Diamond the Capital Stock of which constitutes all or substantially all of the
properties and assets of Diamond, will be deemed to be the transfer of all or
substantially all of the properties and assets of Diamond.
The foregoing provisions shall not apply to:
(1) any transfer of the properties or assets of a Subsidiary of Diamond to
Diamond or to a Wholly Owned Restricted Subsidiary of Diamond,
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(2) any merger of a Restricted Subsidiary of Diamond into Diamond, or
(3) any merger of Diamond into a Restricted Subsidiary of Diamond.
In addition, the requirements of clause (2)(B) of the first paragraph under
this caption shall not apply to any merger into Diamond of a Person that:
(1) owns more than 50% of the outstanding Common Stock of Diamond, and
(2) has no Indebtedness (other than any guarantees of Indebtedness of
Diamond and the Subsidiary Guarantors).
The indenture provides that upon any consolidation, combination or merger or
any transfer of all or substantially all of Diamond's assets in accordance with
the foregoing, in which Diamond is not the continuing corporation, the
successor Person formed by the consolidation or into which Diamond is merged or
to which that conveyance, lease or transfer is made will succeed to, and be
substituted for, and may exercise every right and power of, Diamond under the
indenture and the Notes with the same effect as if the surviving entity had
been named as such.
Each Subsidiary Guarantor (other than any Subsidiary Guarantor whose
Guarantee is to be released in accordance with the terms of its Guarantee and
the indenture in connection with any transaction complying with the provisions
of "--Limitation on Asset Sales" or as otherwise provided in the indenture)
will not, and Diamond will not cause or permit any Subsidiary Guarantor to,
consolidate with or merge into any Restricted Subsidiary of Diamond that is not
a Subsidiary Guarantor unless that Restricted Subsidiary (if that Restricted
Subsidiary is the surviving entity) assumes by supplemental indenture all of
the obligations of the Subsidiary Guarantor in respect of its Guarantee.
Limitations on Recapitalization with Affiliates. Diamond will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly, enter
into any transaction or series of related transactions (including, without
limitation, the purchase, sale, lease or exchange of any property or the
rendering of any service) with, or for the benefit of, any of its Affiliates
(each an "Affiliate Transaction"), other than:
(1) Affiliate Recapitalization permitted below, and
(2) Affiliate Recapitalization on terms that are no less favorable than
those that could reasonably be expected to be obtained in a comparable
transaction at that time on an arm's-length basis from a Person that is
not an Affiliate of Diamond or a Restricted Subsidiary.
All Affiliate Recapitalization (and each series of related Affiliate
Recapitalization which are similar or part of a common plan), other than
Affiliate Recapitalization permitted below, involving consideration to either
party in excess of $1.0 million must be approved by the Board of Directors of
Diamond or the relevant Restricted Subsidiary, as the case may be, that
approval to be evidenced by a Board Resolution stating that the Board of
Directors has determined that the transaction complies with the foregoing
provisions. If Diamond or any Restricted Subsidiary of Diamond enters into an
Affiliate Transaction (or a series of related Affiliate Recapitalization
related to a common plan), other than Affiliate Recapitalization permitted
below, that involves aggregate consideration to either party of more than $5.0
million, Diamond or the relevant Restricted Subsidiary, as the case may be,
must, prior to the consummation of that related transaction, obtain a favorable
opinion as to the fairness of that related transaction or series of related
transactions to Diamond or the relevant Restricted Subsidiary, as the case may
be, from a financial point of view, from an Independent Financial Advisor and
file the opinion with the Trustee.
The foregoing limitations on Affiliate Recapitalization do not apply to:
(1) compensation, indemnification and other benefits paid or made
available:
(A) pursuant to the Employment Agreements, or
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(B) for or in connection with services actually rendered and comparable
to those generally paid or made available by entities engaged in
the same or similar businesses (including reimbursement or
advancement of reasonable out-of-pocket expenses, loans to
officers, directors and employees in the ordinary course of
business consistent with past practice and directors' and officers'
liability insurance) as determined in good faith by Diamond's Board
of Directors or senior management;
(2) transactions, expenses and payments pursuant to the terms of or
contemplated by the Stockholders Agreement, the Management Subscription
and Stockholders Agreements or the Stock Purchase Agreement;
(3) any Restricted Payments or other payments or transactions expressly
permitted under the covenant discussed above under "Limitation on
Restricted Payments;"
(4) payments for services and reimbursement of reasonable expenses under
the Management Services Agreement;
(5) payments to be made in connection with the consummation of the
transactions contemplated by the Stock Purchase Agreement or the
financing of those transactions to be received by LGP, and its
Affiliates pursuant to the Stock Purchase Agreement as in effect on the
Issue Date;
(6) transactions and payments pursuant to leases between Diamond and
Richard Rutta and Kenneth Levine, General Partnership in effect on the
Issue Date as any of those leases may be extended or amended from time
to time;
(7) transactions between or among Diamond and any of its Restricted
Subsidiaries or between or among any Restricted Subsidiaries; provided
that those transactions are not otherwise prohibited by the indenture;
(8) Permitted Investments; and
(9) loans or advances to Diamond's officers or employees in the ordinary
course of business not to exceed $500,000 in the aggregate at any one
time outstanding.
Future Guarantors. The indenture provides that Diamond will cause any Person
that becomes a Wholly Owned Restricted Subsidiary of Diamond and has total
assets having a book value of more than $50,000, and each future non-Wholly
Owned Restricted Subsidiary of Diamond that guarantees any other Indebtedness
of Diamond or a Subsidiary Guarantor, to become a Subsidiary Guarantor by
executing and delivering an appropriate supplemental indenture. See "--The
Guarantees." In addition, other Restricted Subsidiaries of Diamond may, but are
not required, to become Subsidiary Guarantors.
Conduct of Business. Diamond and its Restricted Subsidiaries will not engage
in any businesses other than a Related Business.
Reports to Holders. Notwithstanding that Diamond may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, so long as
any Notes remain outstanding, Diamond will provide the Trustee, the Noteholders
and the Initial Purchasers with the annual reports and the information,
documents and other reports (other than exhibits) as are specified in Sections
13 and 15(d) of the Exchange Act and applicable to a U.S. corporation subject
to those Sections, such information, documents and other reports to be so
provided within 15 days after the times specified for the filing of such
information, documents and reports under those Sections. Notwithstanding that
Diamond may not be subject to the reporting requirements of Section 13 or 15(d)
of the Exchange Act, Diamond will, beginning on the earlier of (x) the
effective date of the Exchange Offer Registration Statement and (y) 730 days
following the Issue Date, file with the Commission, to the extent permitted,
the annual reports and the information, documents and other reports as are
specified in Sections 13 and 15(d) of the Exchange Act and applicable to a U.S.
corporation subject to those Sections, such information, documents and other
reports to be so filed within 15 days after the times specified for the filing
of
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such information, documents and reports under those Sections. In addition,
Diamond will make available, upon request, to any holder of Notes and any
prospective purchaser of Notes the information required pursuant to Rule
144A(d)(4) under the Securities Act.
Events of Default
The following events are defined in the indenture as "Events of Default":
(1) the failure to pay interest on any Notes when that interest becomes due
and payable and the default continues for a period of 30 days;
(2) the failure to pay the principal on any Notes, when that principal
becomes due and payable, at maturity, upon redemption or otherwise
(including the failure to make a required payment to purchase Notes
tendered pursuant to a Change of Control Offer or a Net Proceeds
Offer);
(3) Diamond's failure to comply with the provisions described under "--
Certain Covenants--Merger, Consolidation and Sales of Assets";
(4) a default in the observance or performance of any other covenant or
agreement contained in the indenture which default continues for a
period of 30 days after Diamond receives written notice specifying the
default (and demanding that the default be remedied) from the Trustee
or the holders of at least 25% of the outstanding principal amount of
the Notes;
(5) the failure to pay at final maturity (giving effect to any applicable
grace periods and any extensions of those grace periods) the principal
amount of any Indebtedness of Diamond or any Restricted Subsidiary of
Diamond, or the acceleration of the final stated maturity of any
Indebtedness by reason of a default or event of default in respect of
that Indebtedness, in any case if the aggregate principal amount of
that Indebtedness, together with the principal amount of any other that
Indebtedness in default for failure to pay principal at final maturity
or which has been so accelerated, aggregates $5.0 million or more at
any time;
(6) one or more judgments in an aggregate amount in excess of $5.0 million
will have been rendered against Diamond or any of its Restricted
Subsidiaries and those judgments remain undischarged, unpaid or
unstayed for a period of 60 days after those judgment or judgments
become final and non-appealable;
(7) certain events of bankruptcy affecting Diamond or any of its
Significant Subsidiaries; or
(8) the Guarantee of any Subsidiary Guarantor is held by a final non-
appealable order or judgment of a court of competent jurisdiction to be
unenforceable or invalid or ceases for any reason to be in full force
and effect (other than in accordance with the terms of the indenture)
or any Subsidiary Guarantor or any Person acting on behalf of any
Subsidiary Guarantor denies or disaffirms that Subsidiary Guarantor's
obligations under its Guarantee (other than by reason of a release of
that Subsidiary Guarantor from its Guarantee in accordance with the
terms of the indenture).
If an Event of Default (other than an Event of Default specified in clause
(7) above) occurs and is continuing, the Trustee or the holders of at least 25%
in principal amount of outstanding Notes may declare the principal of and
accrued and unpaid interest on all the Notes to be due and payable by notice in
writing to Diamond and the Trustee specifying the respective Event of Default
and that it is a "notice of acceleration" (the "Acceleration Notice"), and the
same shall become immediately due and payable. If an Event of Default specified
in clause (7) above occurs and is continuing, then all unpaid principal of, and
premium, if any, and accrued and unpaid interest on all of the outstanding
Notes shall ipso facto become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any holder of Notes.
The indenture provides that, at any time after a declaration of acceleration
with respect to the Notes as described in the preceding paragraph, the holders
of a majority in principal amount of the Notes may rescind and cancel that
declaration and its consequences:
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(1) if the rescission would not conflict with any judgment or decree,
(2) if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because
of the acceleration,
(3) to the extent the payment of that interest is lawful, interest on
overdue installments of interest and overdue principal, which has
become due otherwise than by the declaration of acceleration, has been
paid,
(4) if Diamond has paid the Trustee its reasonable compensation and
reimbursed the Trustee for its reasonable expenses, disbursements and
advances, and
(5) in the event of the cure or waiver of an Event of Default of the type
described in clause (7) of the description above of Events of Default,
the Trustee will have received an officers' certificate and an opinion
of counsel that the relevant Event of Default has been cured or waived.
No rescission will affect any subsequent Default or impair any right
consequent thereto.
The holders of a majority in principal amount of the Notes may waive any
existing Default or Event of Default under the indenture, and its consequences,
except a default in the payment of the principal of, premium, if any, or
interest on any Notes.
Subject to the provisions of the indenture relating to the duties of the
Trustee, the Trustee is under no obligation to exercise any of its rights or
powers under the indenture at the request, order or direction of any of the
holders of the Notes, unless the holders have offered to the Trustee reasonable
indemnity. Subject to all provisions of the indenture and applicable law, the
holders of a majority in aggregate principal amount of the then outstanding
Notes have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee.
No holder of any Notes will have any right to institute any proceeding with
respect to the indenture or for any remedy under the indenture, unless:
(1) The Holder gives the Trustee written notice of a continuing Event of
Default;
(2) Holders of at least 25% in principal amount of the then outstanding
Notes make a written request to pursue the remedy;
(3) The holders of the Notes provide to the Trustee satisfactory indemnity;
(4) the Trustee does not comply within 60 days; and
(5) during that 60 day period the holders of a majority in principal amount
of the outstanding Notes do not give the Trustee a written direction
which, in the opinion of the Trustee, is inconsistent with the request.
Otherwise, no holder of any Note will have any right to institute any
proceeding with respect to the indenture or for any remedy under the
indenture, except (i) a holder of a Note may institute suit for
enforcement of payment of the principal of and premium, if any, or
interest on the Note on or after the respective due dates expressed in
the Note or (ii) the institution of any proceeding with respect to the
indenture or any remedy under the indenture, including, without
limitation, acceleration, by the Holders of a majority in principal
amount of the outstanding Notes; provided that upon institution of any
proceeding or exercise of any remedy, those holder or Holders provide
the Trustee with prompt notice.
Under the indenture, Diamond is required to provide an officers' certificate
to the Trustee promptly upon any those officer obtaining knowledge of any
Default or Event of Default (provided that those officers will provide the
certification at least annually whether or not they know of any Default or
Event of Default) that has occurred and is continuing and, if applicable,
describe the relevant Default or Event of Default and the status that Default
or Event of Default.
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Legal Defeasance and Covenant Defeasance
Diamond may, at its option and at any time, elect to have its obligations
discharged with respect to the outstanding Notes ("Legal Defeasance"). This
Legal Defeasance means that Diamond will be deemed to have paid and discharged
the entire indebtedness represented by the outstanding Notes, except for
(1) the rights of holders of the Notes to receive payments in respect of
the principal of, premium, if any, and interest on the Notes when those
payments are due,
(2) Diamond's obligations with respect to the Notes concerning issuing
temporary Notes, registration of Notes, mutilated, destroyed, lost or
stolen Notes and the maintenance of an office or agency for payments,
(3) the rights, powers, trust, duties and immunities of the Trustee and
Diamond's obligations in connection therewith, and
(4) the Legal Defeasance provisions of the indenture.
In addition, Diamond may, at its option and at any time, elect to have its
obligations released with respect to certain covenants that are described in
the indenture ("Covenant Defeasance") and thereafter any omission to comply
with those obligations will not constitute a Default or Event of Default with
respect to the Notes. In the event Covenant Defeasance occurs, certain events
(not including non-payment, bankruptcy, receivership, reorganization and
insolvency events) described under "--Events of Default" will no longer
constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) Diamond must irrevocably deposit with the Trustee, in trust, for the
benefit of the holders of the Notes cash in U.S. dollars, non-callable
U.S. government obligations, or a combination thereof, in those amounts
as will be sufficient, in the opinion of a nationally recognized firm
of independent public accountants, to pay the principal of, premium, if
any, and interest on the Notes on the stated date for payment thereof
or on the applicable redemption date, as the case may be;
(2) in the case of Legal Defeasance, Diamond will have delivered to the
Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee to the effect that:
(A) Diamond has received from, or there has been published by, the
Internal Revenue Service a ruling or;
(B) since the Issue Date, there has been a change in the applicable
federal income tax law, in either case to the effect that, and
based on that change the opinion of counsel will state that, the
holders of Notes will not recognize income, gain or loss for
federal income tax purposes as a result of the Legal Defeasance
and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case
if that Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, Diamond will have delivered to the
Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee to the effect that the holders of the Notes
will not recognize income, gain or loss for federal income tax purposes
as a result of that Covenant Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same
times as would have been the case if that Covenant Defeasance had not
occurred;
(4) the Trustee will have received an officers' certificate stating that:
(A) no Default or Event of Default has occurred and is continuing on
the date of the deposit or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the
period ending on the 91st day after the date of deposit;
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(B) the Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under the
indenture or any other material agreement or instrument to which
Diamond or any of its Subsidiaries is a party or by which Diamond
or any of its Subsidiaries is bound (and in that connection, the
Trustee will have received a certificate from the agent under the
Bank Facility to that effect with respect to the Bank Facility
then in effect);
(C) Diamond did not make the deposit with the intent of preferring the
holders of the Notes over any other creditors of Diamond or any
Subsidiary of Diamond or with the intent of defeating, hindering,
delaying or defrauding any other creditors of Diamond or others;
(5) Diamond will have delivered to the Trustee an officers' certificate and
an opinion of counsel, each stating that all conditions precedent
provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with;
(6) Diamond will have delivered to the Trustee an opinion of counsel to the
effect that after the 91st day following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; and
(7) certain other customary conditions precedent are satisfied.
Satisfaction and Discharge
The indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the indenture) as to all outstanding Notes
when:
(1) either:
(A) all the Notes theretofore authenticated and delivered (except lost,
stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in
trust or segregated and held in trust by Diamond and thereafter
repaid to Diamond or discharged from such trust) have been
delivered to the Trustee for cancellation, or
(B) all the Notes not theretofore delivered to the Trustee for
cancellation have become due and payable, or will be due and
payable within one year or are to be called for redemption within
one year under arrangements satisfactory to the Trustee for the
giving of notice of redemption, and Diamond has irrevocably
deposited or caused to be deposited with the Trustee funds or
certain direct, non-callable obligations of, or guaranteed by, the
United States sufficient to pay and discharge the entire
Indebtedness on the Notes not theretofore delivered to the Trustee
for cancellation, for principal of, premium, if any, and interest
on the Notes to the earlier of the stated maturity or the
redemption date together with irrevocable instructions from Diamond
directing the Trustee to apply those funds and/or the proceeds of
such direct, non-callable obligations to the payment thereof at
maturity or redemption, as the case may be;
(2) Diamond has paid all other sums payable under the indenture by Diamond;
and
(3) Diamond has delivered to the Trustee an officers' certificate stating
that all conditions precedent under the indenture relating to the
satisfaction and discharge of the indenture have been complied with.
Modification of the Indenture
From time to time, Diamond and the Trustee, without the consent of the
holders of the Notes, may amend the indenture or the Notes for certain
specified purposes, including curing ambiguities, defects or inconsistencies,
so long as the change does not, in the opinion of the Trustee, adversely affect
the rights of any of the holders of the Notes in any material respect. In
formulating its opinion on these matters, the Trustee will be entitled to rely
on any evidence it considers appropriate, including, without limitation, solely
on an opinion
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of counsel. Other modifications and amendments of the indenture or the Notes
may be made with the consent of the holders of a majority in principal amount
of the then outstanding Notes issued under the indenture, except that, without
the consent of each holder affected thereby, no amendment may:
(1) reduce the amount of Notes whose holders must consent to an amendment
or waiver;
(2) reduce the rate of or change or have the effect of changing the time
for payment of interest, including defaulted interest, on any Notes;
(3) reduce the principal of or change or have the effect of changing the
fixed maturity of any Notes, or change the date on which any Notes may
be subject to redemption, or reduce the redemption price therefor;
(4) make any Notes payable in money other than that stated in the Notes;
(5) make any change in provisions of the indenture entitling each holder of
the Notes to receive payment of principal of and interest on those Note
on or after the due date thereof or to bring suit to enforce that
payment, or permitting Holders of a majority in principal amount of
Notes to waive Defaults or Events of Default; or
(6) amend, change or modify in any material respect the obligation of
Diamond to make and consummate a Change of Control Offer in respect of
a Change of Control that has occurred or make and consummate a Net
Proceeds Offer with respect to any Asset Sale that has been
consummated.
Governing Law
The indenture and the Notes are governed by, and construed in accordance
with, the laws of the State of New York but 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.
The Trustee
The indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only those duties as are specifically set
forth in the indenture. During the existence of an Event of Default, the
Trustee will exercise those rights and powers vested in it by the indenture,
and use the same degree of care and skill in its exercise as a prudent man
would exercise or use under the circumstances in the conduct of his own
affairs.
The indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of Diamond, to obtain
payments of claims in certain cases or to realize on certain property received
in respect of any claim as security or otherwise. Subject to the TIA, the
Trustee will be permitted to engage in other transactions; provided that if the
Trustee acquires any conflicting interest as described in the TIA, it must
eliminate that conflict or resign.
Payments for Consent
Neither Diamond nor any of its Subsidiaries will, directly or indirectly,
pay or cause to be paid any consideration, whether by way of interest, fee or
otherwise, to any holder of any Notes for or as an inducement to any consent,
waiver or amendment of any terms or provisions of the Notes, unless that
consideration is offered to be paid or agreed to be paid to all holders of the
Notes which so consent, waive or agree to amend in the time frame set forth in
the solicitation documents relating to such consent, waiver or agreement.
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Certain Definitions
Set forth below is a summary of certain of the defined terms used in the
indenture. You should refer to the indenture for the full definition of all of
these terms, as well as any other terms used herein for which no definition is
provided.
"Acquired Indebtedness" means Indebtedness:
(1) of a Person or any of its Subsidiaries existing at the time that Person
becomes a Restricted Subsidiary of Diamond or at the time it merges or
consolidates with Diamond or any of its Restricted Subsidiaries; or,
(2) assumed in connection with the acquisition of assets from that Person,
and in each case not incurred in connection with, or in anticipation or
contemplation of, that acquisition, merger or consolidation.
Acquired Indebtedness will be deemed to have been incurred:
(1) at the time a Person becomes a Restricted Subsidiary of Diamond; or
(2) at the time a Person merges or consolidates with Diamond or a
Restricted Subsidiary of Diamond; or
(3) at the time that Indebtedness is assumed in connection with the
acquisition of assets from that Person.
"Affiliate" means, with respect to any specified Person, any other Person
who directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, that specified Person. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative of the
foregoing.
"Asset Acquisition" means:
(1) an Investment by Diamond or any Restricted Subsidiary of Diamond in any
other Person pursuant to which that Person will become a Restricted
Subsidiary of Diamond, or is merged with or into Diamond or any
Restricted Subsidiary of Diamond; or
(2) the acquisition by Diamond or any Restricted Subsidiary of Diamond of
the assets of any Person (other than a Subsidiary of Diamond) which
constitute all or substantially all of the assets of that Person or
comprise any division or line of business of that Person or any other
properties or assets of that Person other than in the ordinary course
of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary
course of business), assignment or other transfer for value by Diamond or any
of its Restricted Subsidiaries (including any Sale and Leaseback Transaction)
to any Person other than Diamond or a Restricted Subsidiary of Diamond
(including a Person that is or will become a Restricted Subsidiary of Diamond
immediately after that sale, issuance, conveyance, transfer, lease, assignment
or other transfer for value) of:
(1) any Capital Stock of any Restricted Subsidiary of Diamond; or
(2) any other property or assets (other than cash or Cash Equivalents) of
Diamond or any Restricted Subsidiary of Diamond other than in the
ordinary course of business.
This definition of Asset Sales does not include:
(1) a transaction or series of related transactions for which Diamond or
its Restricted Subsidiaries receive aggregate consideration of less
than $500,000; and
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(2) the sale, lease, conveyance, disposition or other transfer of all or
substantially all of the assets of Diamond as permitted under "--
Certain Covenants--Merger, Consolidation and Sale of Assets."
"Bank Facility" means the credit agreement dated as of March 31, 1998 among
Diamond, the lenders named therein and Bankers Trust Company, as Administrative
Agent, and all amendments thereto, together with the related documents thereto
(including, without limitation, any guarantee agreements and security
documents), in each case as these agreements may be amended (including any
amendment and restatement thereof), supplemented or otherwise modified from
time to time by one or more credit agreements, including any agreement adding
Subsidiaries of Diamond as additional borrowers or guarantors thereunder or
extending the maturity of, refinancing, replacing or otherwise restructuring
all or any portion of the Indebtedness under these agreement(s) or any
successor or replacement agreement(s) and whether by the same or any other
agent, lender or group of lenders.
"Board of Directors" means, as to any Person, the board of directors of that
Person or any duly authorized committee thereof.
"Board Resolution" means, with respect to any Person, a copy of a resolution
certified by the Secretary or an Assistant Secretary of that Person to have
been duly adopted by the Board of Directors of that Person and to be in full
force and effect on the date of certification, and delivered to the Trustee.
"Capitalized Lease Obligations" means, as to any Person, the obligations of
that Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of these obligations at any date will be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"Capital Stock" means:
(1) with respect to any Person that is a corporation, any and all shares,
interests, participations or other equivalents (however designated and
whether or not voting) of corporate stock, including each class of
Common Stock and Preferred Stock of that Person; and
(2) with respect to any Person that is not a corporation, any and all
partnership or other equity or ownership interests of that Person.
"Cash Equivalents" means:
(1) marketable direct obligations issued by, or unconditionally guaranteed
by, the United States Government or issued by any agency thereof and
backed by the full faith and credit of the United States, in each case
maturing within one year from the date of acquisition;
(2) marketable direct obligations issued by any state of the United States
of America or any political subdivision of any state or any public
instrumentality maturing within one year from the date of acquisition
and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc. ("Moody's");
(3) commercial paper maturing no more than one year from the date of
creation and, at the time of acquisition, having a rating of at least
A-1 from S&P or at least P-1 from Moody's;
(4) certificates of deposit or bankers' acceptances maturing within one
year from the date of acquisition issued by any bank organized under
the laws of the United States of America or any state or the District
of Columbia or any U.S. branch of a foreign bank having at the date of
acquisition combined capital and surplus of not less than $250.0
million;
(5) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (1) above
entered into with any bank meeting the qualifications specified in
clause (4) above; and
(6) investments in money market funds which invest substantially all their
assets in securities of the types described in clauses (1) through (5)
above.
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"Change of Control" means the occurrence of one or more of the following
events:
(1) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of
Diamond's assets if, immediately after giving effect to those
transaction(s), any Person or group of related Persons (other than
Permitted Holders) for purposes of Section 13(d) of the Exchange Act (a
"Group"), is or becomes the beneficial owner, directly or indirectly,
of shares representing more than 50% of the aggregate ordinary voting
power represented by the issued and outstanding Capital Stock of the
transferee or surviving entity;
(2) any Person or Group (other than Permitted Holders) will become the
beneficial owner, directly or indirectly, of shares representing more
than 50% of the aggregate ordinary voting power represented by
Diamond's issued and outstanding Capital Stock;
(3) the replacement after the Issue Date of a majority of Diamond's Board
of Directors over a two-year period after the Issue Date from the
directors who constituted Diamond's Board of Directors at the beginning
of that period, and the replacement will not have been approved by a
vote of at least a majority of Diamond's Board of Directors then still
in office who either were members of that Board of Directors at the
beginning of that period or whose election as a member of such Board of
Directors was previously so approved; or
(4) Diamond consolidates with, or merges with or into, another Person, or
sells, assigns, conveys, transfers, leases or otherwise disposes of all
or substantially all of its assets to any Person, or any Person
consolidates with, or merges with or into, Diamond, in any such event
pursuant to a transaction in which the shares representing the
aggregate ordinary voting power represented by Diamond's issued and
outstanding Capital Stock is converted into or exchanged for cash,
securities or other property, other than:
(A) any transaction where:
(i) the shares representing Diamond's issued and outstanding
ordinary voting Capital Stock are converted into or exchanged
for:
. ordinary voting Capital Stock (other than Disqualified
Capital Stock) of the surviving or transferee corporation,
and/or
. cash, securities and other property in an amount which could
be paid by Diamond as a Restricted Payment under the
indenture; and
(ii) the "beneficial owners" of the shares representing Diamond's
issued and outstanding ordinary voting Capital Stock
immediately prior to that transaction own, directly or
indirectly, shares of Capital Stock representing not less than
a majority of voting power of all issued and outstanding shares
of Capital Stock of the surviving or transferee corporation
immediately after that transaction; or
(B) any transaction as a result of which the Permitted Holders own
shares of Capital Stock representing more than 50% of the voting
power of all issued and outstanding shares of Capital Stock of the
surviving or transferee corporation immediately after that
transaction.
"Change of Control Offer" has the meaning set forth under "--Change of
Control."
"Change of Control Payment Date" has the meaning set forth under "--Change
of Control."
"Commission" means the Securities and Exchange Commission, or any successor
agency thereto with respect to the regulation or registration of securities.
"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of that Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of that common stock.
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"Consolidated EBITDA" means, for any period, the sum (without duplication)
of:
(1) Consolidated Net Income; and
(2) to the extent Consolidated Net Income has been reduced thereby:
(A) all income taxes of Diamond and its Restricted Subsidiaries paid or
accrued in accordance with GAAP for that period;
(B) Consolidated Interest Expense;
(C) Consolidated Non-cash Charges less any non-cash items increasing
Consolidated Net Income for that period;
(D) executive compensation expense not to exceed $5.0 million incurred
in the fiscal year ended December 31, 1997; and
(E) write-offs in the fiscal year ending December 31, 1998 of amounts,
not to exceed $3.0 million, due from a company owned by Kenneth
Levine and Richard Rutta,] all as determined on a consolidated
basis for Diamond and its Restricted Subsidiaries in accordance
with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means the ratio of Consolidated
EBITDA during the four full fiscal quarters (the "Four Quarter Period") ending
on or prior to the date of the transaction giving rise to the need to calculate
the Consolidated Fixed Charge Coverage Ratio (the "Transaction Date") to
Consolidated Fixed Charges for the Four Quarter Period. In addition to and
without limitation of the foregoing, for purposes of this definition,
"Consolidated EBITDA" and "Consolidated Fixed Charges" will be calculated after
giving effect on a pro forma basis for the period of the calculation to:
(1) the incurrence or repayment of any Indebtedness of Diamond or any of
its Restricted Subsidiaries (and the application of the proceeds
thereof) giving rise to the need to make this calculation and any
incurrence or repayment of other Indebtedness (and the application of
the proceeds thereof), other than the incurrence or repayment of
Indebtedness in the ordinary course of business for working capital
purposes pursuant to working capital facilities, occurring during the
Four Quarter Period or at any time subsequent to the last day of the
Four Quarter Period and on or prior to the Transaction Date, as if the
incurrence or repayment, as the case may be (and the application of the
proceeds thereof), occurred on the first day of the Four Quarter
Period; and
(2) any Asset Sales or Asset Acquisitions (including, without limitation,
any Asset Acquisition giving rise to the need to make such calculation
as a result of Diamond or one of its Restricted Subsidiaries (including
any Person who becomes a Restricted Subsidiary as a result of the Asset
Acquisition) incurring, assuming or otherwise being liable for Acquired
Indebtedness and including, without limitation, by giving pro forma
effect to any Consolidated EBITDA (provided that pro forma Consolidated
EBITDA will be calculated in a manner consistent with the exclusions in
the definition of "Consolidated Net Income") attributable to the assets
which are the subject of the Asset Acquisition or Asset Sale during the
Four Quarter Period) occurring during the Four Quarter Period or at any
time subsequent to the last day of the Four Quarter Period and on or
prior to the Transaction Date, as if such Asset Sale or Asset
Acquisition (including the incurrence, assumption or liability for any
such Acquired Indebtedness) occurred on the first day of the Four
Quarter Period. If Diamond or any of its Restricted Subsidiaries
directly or indirectly guarantees Indebtedness of a third Person, the
preceding sentence will give effect to the incurrence of that
guaranteed Indebtedness as if Diamond or any of its Restricted
Subsidiaries had directly incurred or otherwise assumed that guaranteed
Indebtedness.
In calculating "Consolidated Fixed Charges" for purposes of determining the
denominator (but not the numerator) of this "Consolidated Fixed Charge Coverage
Ratio:"
(1) interest on outstanding Indebtedness determined on a fluctuating
basis as of the Transaction Date and which will continue to be so
determined thereafter will be deemed to have accrued at a fixed
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rate per annum equal to the rate of interest on that Indebtedness in
effect on the Transaction Date;
(2) if interest on any Indebtedness actually incurred on the
Transaction Date may optionally be determined at an interest rate
based upon a factor of a prime or similar rate, a eurocurrency
interbank offered rate, or other rates, then the interest rate in
effect on the Transaction Date will be deemed to have been in
effect during the Four Quarter Period; and
(3) notwithstanding clause (1) above, interest on Indebtedness
determined on a fluctuating basis, to the extent that interest is
covered by agreements relating to Interest Swap Obligations, will
be deemed to accrue at the rate per annum resulting after giving
effect to the operation of those agreements.
"Consolidated Fixed Charges" means, for any period, the sum, without
duplication, of:
(1) Consolidated Interest Expense (excluding any amortization or write off
of deferred financing costs), plus
(2) the product of:
(A) the amount of all dividend payments on any series of Diamond's
Preferred Stock (other than dividends paid in Qualified Capital
Stock) paid, accrued or scheduled to be paid or accrued during that
period
- times -
(B) a fraction, the numerator of which is one and the denominator of
which is one minus Diamond's then current effective consolidated
federal, state and local tax rate, expressed as a decimal.
"Consolidated Interest Expense" means, for any period, the sum of, without
duplication:
(1) the aggregate of the interest expense of Diamond and its Restricted
Subsidiaries for that period determined on a consolidated basis in
accordance with GAAP, including, without limitation:
(A) any amortization of debt discount and any amortization or write off
of deferred financing costs;
(B) the net costs under Interest Swap Obligations;
(C) all capitalized interest; and
(D) the interest portion of any deferred payment obligation;
and
(2) the interest component of Capitalized Lease Obligations paid, accrued
and/or scheduled to be paid or accrued by Diamond and its Restricted
Subsidiaries during that period as determined on a consolidated basis
in accordance with GAAP.
"Consolidated Net Income" means, for any period, the aggregate net income
(or loss) of Diamond and its Restricted Subsidiaries for that period on a
consolidated basis, determined in accordance with GAAP; provided that there
shall be excluded therefrom:
(1) net after-tax gains from Asset Sales or abandonments or reserves
relating thereto,
(2) net after-tax items classified as extraordinary or nonrecurring gains
or losses,
(3) the net income of any Person acquired in a "pooling of interests"
transaction accrued prior to the date it becomes a Restricted
Subsidiary of Diamond or is merged or consolidated with Diamond or any
Restricted Subsidiary of Diamond,
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(4) the net income (but not loss) of any Restricted Subsidiary of Diamond
to the extent that the declaration of dividends or similar
distributions by that Subsidiary of that income is restricted by
contract, operation of law or otherwise,
(5) the net income of any Person, other than a Restricted Subsidiary of
Diamond, except to the extent of cash dividends or distributions paid
to Diamond or to a Restricted Subsidiary of Diamond by that Person,
(6) any restoration to income of any contingency reserve, except to the
extent that provision for such reserve was made out of Consolidated Net
Income accrued at any time following the Issue Date, and
(7) income or loss attributable to discontinued operations (including,
without limitation, operations disposed of during such period whether
or not those operations were classified as discontinued).
"Consolidated Net Worth" of any Person means the consolidated stockholders'
equity of that Person, determined on a consolidated basis in accordance with
GAAP, less (without duplication) amounts attributable to Disqualified Capital
Stock of that Person.
"Consolidated Non-cash Charges" means, for any period, the aggregate
depreciation, amortization and other non-cash expenses of Diamond and its
Restricted Subsidiaries reducing Consolidated Net Income of Diamond and its
Restricted Subsidiaries for that period, determined on a consolidated basis in
accordance with GAAP (excluding any charges constituting an extraordinary item
or loss or any charge which requires an accrual of or a reserve for cash
charges for any future period).
"Covenant Defeasance" has the meaning set forth under "--Legal Defeasance
and Covenant Defeasance."
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of
Default.
"Disqualified Capital Stock" means that portion of any Capital Stock which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or is redeemable at the sole option of
the holder thereof, in any case, on or prior to the final maturity date of the
Notes. Notwithstanding the foregoing, in no event will the Senior Preferred
Stock be deemed to be Disqualified Capital Stock.
"Employment Agreements" means the employment agreements, dated as of the
Issue Date, between Diamond and each of Kenneth Levine, Richard Rutta, Norman
Harris and Michael Sumsky, as any of these agreements may be extended or
amended from time to time to the extent that any extension or amendment does
not have the effect of increasing in any material respect the payments
permitted to be made under agreements pursuant to "--Certain Covenants--
Limitation on Recapitalization with Affiliates."
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or any
successor statute or statutes thereto.
"fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Fair market value
will be determined by Diamond's Board of Directors acting reasonably and in
good faith and will be evidenced by a Board Resolution of Diamond's Board of
Directors delivered to the Trustee.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in any other statements by any
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
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"Indebtedness" means with respect to any Person, without duplication:
(1) the principal amount (or, if less, the accreted value) of all
obligations of that Person for borrowed money,
(2) the principal amount (or, if less, the accreted value) of all
obligations of that Person evidenced by bonds, debentures, notes or
other similar instruments,
(3) all Capitalized Lease Obligations of that Person,
(4) all obligations of that Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations and all
obligations under any title retention agreement (but excluding trade
accounts payable and other accrued liabilities arising in the ordinary
course of business that are not overdue by 90 days or more or are being
contested in good faith by appropriate proceedings promptly instituted
and diligently conducted),
(5) all obligations of that Person for the reimbursement of any obligor on
any letter of credit, banker's acceptance or similar credit
transaction,
(6) guarantees and other contingent obligations of that Person in respect
of Indebtedness referred to in clauses (1) through (5) above and clause
(8) below,
(7) all Indebtedness of any other Person of the type referred to in clauses
(i) through (vi) which are secured by any lien on any property or asset
of that Person, the amount of that Indebtedness being deemed to be the
lesser of the fair market value of that property or asset or the amount
of the Indebtedness so secured,
(8) all obligations under currency agreements and interest swap agreements
of such Person, and
(9) all Disqualified Capital Stock issued by that Person with the amount of
Indebtedness represented by that Disqualified Capital Stock being equal
to the greater of its voluntary or involuntary liquidation preference
and its maximum fixed repurchase price, but excluding accrued
dividends, if any. For purposes hereof, the "maximum fixed repurchase
price" of any Disqualified Capital Stock which does not have a fixed
repurchase price will be calculated in accordance with the terms of
that Disqualified Capital Stock as if that Disqualified Capital Stock
were purchased on any date on which Indebtedness will be required to be
determined pursuant to the indenture, and if that price is based upon,
or measured by, the fair market value of that Disqualified Capital
Stock, that fair market value that be determined reasonably and in good
faith by the Board of Directors of the issuer of that Disqualified
Capital Stock.
"Independent Financial Advisor" means an accounting firm, appraisal firm,
investment banking firm or consultant to Persons engaged in a Related Business,
in each case, of nationally recognized standing that is, in the judgment of
Diamond's Board of Directors, qualified to perform the task for which it has
been engaged.
"Interest Swap Obligations" means the obligations of any Person pursuant to
any arrangement with any other Person whereby, directly or indirectly, that
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by the other Person calculated by
applying a fixed or a floating rate of interest on the same notional amount and
shall include, without limitation, interest rate swaps, caps, floors, collars
and similar agreements.
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"Investment" means, with respect to any Person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee) 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 by that Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness
issued by, any Person. "Investment" will exclude accounts receivable or
deposits arising in the ordinary course of business. For purposes of the
"Limitation on Restricted Payments" covenant, "Investment" will include and be
valued at the fair market value of the net assets of any Restricted Subsidiary
of Diamond at the time that the Restricted Subsidiary is designated an
Unrestricted Subsidiary. If Diamond or any Restricted Subsidiary of Diamond
sells or otherwise disposes of any Common Stock of any direct or indirect
Restricted Subsidiary of Diamond so that, after giving effect to any the sale
or disposition, that Restricted Subsidiary would cease to be a Subsidiary of
Diamond, Diamond will be deemed to have made an Investment on the date of that
sale or disposition equal to the fair market value of the Common Stock of that
Restricted Subsidiary not sold or disposed of.
"Issue Date" means the date of original issuance of the Notes.
"Legal Defeasance" has the meaning set forth under "--Legal Defeasance and
Covenant Defeasance."
"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other
title retention agreement, any lease in the nature thereof and any agreement
to give any security interest).
"Management Services Agreement" means the Management Services Agreement,
dated as of the Issue Date, between Diamond and LGP, substantially as in
effect on the Issue Date.
"Management Subscription and Stockholders Agreements" mean each of the
Management Subscription and Stockholders Agreements, dated as of the Issue
Date, among Diamond, Green Equity Investors II, L.P. and an employee or
director of Diamond and/or one or more of its Subsidiaries, as any of these
agreement may be amended from time to time.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents
(other than the portion of any such deferred payment constituting interest)
received by Diamond or any of its Restricted Subsidiaries from that Asset Sale
net of:
(1) reasonable out-of-pocket expenses and fees relating to that Asset Sale
(including, without limitation, legal, accounting and investment
banking fees and sales commissions);
(2) taxes paid or payable after taking into account any reduction in
consolidated tax liability due to available tax credits or deductions
and any tax sharing arrangements;
(3) repayment of Indebtedness that is required to be repaid in connection
with that Asset Sale;
(4) appropriate amounts to be provided by Diamond or any Restricted
Subsidiary, as the case may be, as a reserve, in accordance with GAAP,
against any liabilities associated with that Asset Sale and retained by
Diamond or any Restricted Subsidiary, as the case may be, after that
Asset Sale, including, without limitation, pension and other post-
employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations
associated with that Asset Sale; and
(5) that portion of the cash or Cash Equivalents attributable to the
Capital Stock of a Restricted Subsidiary which is not a Wholly Owned
Restricted Subsidiary of Diamond held, directly or indirectly, by any
Person which is not Diamond or a Wholly Owned Restricted Subsidiary of
Diamond.
"Net Proceeds Offer" has the meaning set forth under "--Certain Covenants--
Limitation on Asset Sales."
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"Net Proceeds Offer Amount" has the meaning set forth under "--Certain
Covenants--Limitation on Asset Sales."
"Net Proceeds Offer Payment Date" has the meaning set forth under "--Certain
Covenants--Limitation on Asset Sales."
"Net Proceeds Offer Trigger Date" has the meaning set forth under "--Certain
Covenants--Limitation on Asset Sales."
"Permitted Holders" means Green Equity Investors II, L.P., its Affiliates
and Related Parties and Diamond's senior management on the Issue Date.
"Permitted Indebtedness" means, without duplication, each of the following:
(1) Indebtedness in an aggregate principal amount not to exceed $100.0
million under the Notes, the Guarantees and the indenture and any
replacement Notes therefor issued pursuant to the indenture;
(2) Indebtedness of Diamond and the Subsidiary Guarantors incurred under
the Bank Facility in an aggregate principal amount at any time
outstanding not to exceed $35.0 million less the amount of any
permanent prepayments of Indebtedness made with the Net Cash Proceeds
of an Asset Sale pursuant to clause (3) (A) of the first sentence under
"--Certain Covenants--Limitation on Asset Sales;"
(3) other Indebtedness of Diamond and the Subsidiary Guarantors outstanding
on the Issue Date;
(4) Diamond's Interest Swap Obligations covering Indebtedness of Diamond or
any of its Restricted Subsidiaries and Interest Swap Obligations of any
Restricted Subsidiary of Diamond covering Indebtedness of that
Restricted Subsidiary; provided, however, that those Interest Swap
Obligations are entered into to protect Diamond and its Restricted
Subsidiaries from fluctuations in interest rates on Indebtedness
incurred in accordance with the indenture to the extent the notional
principal amount of that Interest Swap Obligation does not exceed the
principal amount of the Indebtedness to which that Interest Swap
Obligation relates;
(5) Indebtedness of a Restricted Subsidiary of Diamond to Diamond or to a
Wholly Owned Restricted Subsidiary of Diamond for so long as that
Indebtedness is held by Diamond or a Wholly Owned Restricted Subsidiary
of Diamond, in each case subject to no Lien securing Indebtedness other
than Permitted Liens; provided that if as of any date any Person other
than Diamond or a Wholly Owned Restricted Subsidiary of Diamond owns or
holds any that Indebtedness or holds a Lien in respect of such
Indebtedness securing Indebtedness other than Permitted Liens, such
date shall be deemed the incurrence of Indebtedness not constituting
Permitted Indebtedness by the issuer of that Indebtedness;
(6) Indebtedness of Diamond to a Wholly Owned Restricted Subsidiary of
Diamond for so long as that Indebtedness is held by a Wholly Owned
Restricted Subsidiary of Diamond, in each case subject to no Lien
securing Indebtedness other than Permitted Liens; provided that if as
of any date any Person other than a Wholly Owned Restricted Subsidiary
of Diamond owns or holds any Indebtedness or any Person other than a
Wholly Owned Restricted Subsidiary of Diamond holds a Lien in respect
of that Indebtedness securing Indebtedness other than Permitted Liens,
that date will be deemed the incurrence of Indebtedness not
constituting Permitted Indebtedness by Diamond;
(7) Indebtedness of Diamond or any of its Restricted Subsidiaries arising
from the honoring by a bank or other financial institution of a check,
draft or similar instrument inadvertently (except in the case of
daylight overdrafts) drawn against insufficient funds in the ordinary
course of business; provided, however, that such Indebtedness is
extinguished within two business days of incurrence;
(8) Indebtedness of Diamond or any of its Restricted Subsidiaries
represented by letters of credit for the account of Diamond or any
Restricted Subsidiary, as the case may be, in order to provide security
for
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workers' compensation claims, payment obligations in connection with
self-insurance or similar requirements in the ordinary course of
business;
(9) Refinancing Indebtedness;
(10) Capitalized Lease Obligations and Purchase Money Indebtedness of
Diamond or any of the Subsidiary Guarantors in an aggregate principal
amount not to exceed $5.0 million at any one time outstanding; and
(11) additional Indebtedness of Diamond or any of its Restricted
Subsidiaries in an aggregate principal amount not to exceed $10.0
million at any one time outstanding (which amount may, but need not,
be incurred in whole or in part under the Bank Facility); provided,
however, that the Indebtedness of Restricted Subsidiaries that are not
Subsidiary Guarantors permitted by this clause (11) shall not exceed
$2.0 million at any one time outstanding.
"Permitted Investments" means:
(1) Investments by Diamond or any Restricted Subsidiary of Diamond in any
Person that is or will become, or Investments by Diamond or any
Restricted Subsidiary of Diamond which result in any Person becoming,
in any case, immediately after that Investment, a Restricted Subsidiary
of Diamond or that will merge or consolidate into Diamond or a
Restricted Subsidiary of Diamond;
(2) Investments by any Restricted Subsidiary of Diamond in Diamond;
(3) Investments in cash and Cash Equivalents;
(4) Investments existing as of the Issue Date and any extension,
modification or renewal of that Investment (but not increases thereof,
other than as a result of the accrual or accretion of interest or
original issue discount pursuant to the terms of such Investment);
(5) transactions or arrangements with officers, directors or employees of
Diamond or any Subsidiary of Diamond entered into in the ordinary
course of business (including compensation or employee benefit
arrangements with any officer or director of Diamond or any Subsidiary
of Diamond permitted under the covenant "Recapitalization with
Affiliates");
(6) Investments received as a result of the bankruptcy or reorganization of
any Person or taken in settlement of or other resolution of claims or
disputes, and, in each case, extensions, modifications and renewals
thereof;
(7) Investments made by Diamond or its Restricted Subsidiaries as a result
of consideration received in connection with an Asset Sale made in
compliance with the covenant described under "--Certain Covenants--
Limitation on Asset Sales" or any exchange of any such Investment with
the issuer thereof, and extensions, modifications and renewals thereof;
and
(8) other Investments not to exceed $2.0 million at any one time
outstanding.
"Permitted Liens" means the following types of Liens:
(1) Liens securing Indebtedness incurred under the Bank Facility or
pursuant to clause (11) of the definition of Permitted Indebtedness;
(2) Liens securing letters of credit issued in the ordinary course of
business consistent with past practice in connection with workers'
compensation, unemployment insurance and other types of social
security;
(3) any interest or title of a lessor under any Capitalized Lease
Obligation; provided that those Liens do not extend to any property or
assets which is not leased property subject to that Capitalized Lease
Obligation;
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(4) Liens securing Purchase Money Indebtedness of Diamond or any Restricted
Subsidiary of Diamond; provided, however, that (A) the Purchase Money
Indebtedness will not exceed the cost of that property or assets and
shall not be secured by any property or assets of Diamond or any
Restricted Subsidiary of Diamond other than the property and assets so
acquired and (B) the Lien securing that Indebtedness will be created
within 90 days of such acquisition;
(5) Liens upon specific items of inventory or other goods and proceeds of
any Person securing that Person's obligations in respect of bankers'
acceptances issued or created for the account of that Person to
facilitate the purchase, shipment or storage of that inventory or other
goods;
(6) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating
to those letters of credit and products and proceeds thereof;
(7) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under
the indenture;
(8) Liens securing Acquired Indebtedness incurred in accordance with the
covenant described under "--Certain Covenants--Limitation on Incurrence
of Additional Indebtedness"; provided that (A) those Liens secured that
Acquired Indebtedness at the time of and prior to the incurrence of
such Acquired Indebtedness by Diamond or a Restricted Subsidiary of
Diamond and were not granted in connection with, or in anticipation of,
the incurrence of that Acquired Indebtedness by Diamond or a Restricted
Subsidiary of Diamond and (B) those Liens do not extend to or cover any
property or assets of Diamond or of any of its Restricted Subsidiaries
other than the property or assets that secured the Acquired
Indebtedness prior to the time that Indebtedness became Acquired
Indebtedness of Diamond or a Restricted Subsidiary of Diamond and are
not materially more favorable to the lienholders than those securing
the Acquired Indebtedness prior to the incurrence of that Acquired
Indebtedness by Diamond or a Restricted Subsidiary of Diamond;
(9) Liens created under the indenture;
(10) Liens of Diamond or a Wholly Owned Restricted Subsidiary of Diamond on
assets of any Restricted Subsidiary of Diamond; and
(11) Liens securing Refinancing Indebtedness which is incurred to Refinance
any Indebtedness which has been secured by a Lien permitted under the
indenture and which has been incurred in accordance with the
provisions of the indenture; provided, however, that those Liens (A)
are not materially less favorable to the Holders and are not
materially more favorable to the lienholders with respect to those
Liens than the Liens in respect of the Indebtedness being Refinanced
and (B) do not extend to or cover any property or assets of Diamond or
any of its Subsidiaries not securing the Indebtedness so Refinanced.
"Person" means an individual, partnership, corporation, limited liability
company, unincorporated organization, trust or joint venture, or a governmental
agency or political subdivision thereof.
"Preferred Stock" of any Person means any Capital Stock of that Person that
has preferential rights over any other Capital Stock of that Person with
respect to dividends or redemptions or upon liquidation.
"Purchase Money Indebtedness" means Indebtedness of Diamond and its
Restricted Subsidiaries incurred in connection with the purchase of businesses
(including Capital Stock of businesses primarily engaged in a Related
Business), properties or assets for the business of Diamond and its Restricted
Subsidiaries and any Refinancing thereof.
"Qualified Capital Stock" means the Senior Preferred Stock and any other
Capital Stock that is not Disqualified Capital Stock.
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"Refinance" means, in respect of any security or Indebtedness, to refinance,
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a
security or Indebtedness in exchange or replacement for, such security or
Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have
correlative meanings.
"Refinancing Indebtedness" means any Refinancing by Diamond or any
Restricted Subsidiary of Diamond of Indebtedness incurred in accordance with
the covenant described under "--Certain Covenants--Limitation on Incurrence of
Additional Indebtedness" (other than pursuant to clause (2), (4), (5), (6),
(7), (8), (10) or (11) of the definition of Permitted Indebtedness), to the
extent that such Refinancing does not:
(1) result in an increase in the aggregate principal amount of the
Indebtedness of the Person as of the date of that proposed Refinancing
(plus the amount of any premium required to be paid under the terms of
the instrument governing that Indebtedness and plus the amount of
reasonable expenses incurred by Diamond in connection with that
Refinancing); or
(2) create Indebtedness with:
(A) a Weighted Average Life to Maturity that is less than the Weighted
Average Life to Maturity of the Indebtedness being Refinanced; or
(B) a final maturity earlier than the final maturity of the
Indebtedness being Refinanced;
provided that:
(1) if the Indebtedness being Refinanced is Indebtedness solely of Diamond,
then that Refinancing Indebtedness will be Indebtedness solely of
Diamond; and
(2) if that Indebtedness being Refinanced is subordinate or junior to the
Notes, then that Refinancing Indebtedness will be subordinate to the
Notes at least to the same extent and in the same manner as the
Indebtedness being Refinanced.
"Related Business" means a business whose revenues are derived from the
general business conducted by Diamond on the Issue Date or any business or
activity that (in the good faith judgment of Board of Directors of Diamond) is
reasonably related thereto or a reasonable extension, development or expansion
thereof or ancillary thereto.
"Related Party" means, with respect to Green Equity Investors II, L.P., any
partnership, corporation or other Person which is managed or controlled by LGP
or any Affiliate thereof.
"Restricted Payments" has the meaning set forth under "--Certain Covenants--
Limitation on Restricted Payments."
"Restricted Subsidiary" of Diamond means any Subsidiary of Diamond which at
the time of determination is not an Unrestricted Subsidiary.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any Person is a party, providing for the leasing to
Diamond or a Restricted Subsidiary of any property, whether owned by Diamond or
any Restricted Subsidiary at the Issue Date or later acquired, which has been
or is to be sold or transferred by Diamond or that Restricted Subsidiary to
such Person or to any other Person by whom funds have been or are to be
advanced on the security of that Property.
"Senior Preferred Stock" means the Series A 12% Senior Redeemable Cumulative
Preferred Stock of Diamond issued pursuant to the Certificate of Designations,
Preferences and Relative, Participating, Optional and Other Special Rights of
Series A 12% Senior Redeemable Cumulative Preferred Stock, as in effect on the
Issue Date.
"Significant Subsidiary" has the meaning set forth in Rule 1.02(w) of
Regulation S-X under the Securities Act.
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"Stock Purchase Agreement" means the Second Amended and Restated Stock
Purchase and Sale Agreement, dated as of January 15, 1998, as amended as of the
Issue Date, by and among VGMC Corp., Green Equity Investors II, L.P., Diamond
Auto Glass Works, Inc., Triumph Auto Glass, Inc., Diamond, A Above Average
Glass Company by Diamond, Inc., A-AA Triumph Auto Glass, Inc., Scranton
Holdings, Inc., Diamond/Triumph Auto Export Sales Co., Inc., A-Auto Glass by
Triumph, Inc., A-Auto Glass Company by Diamond, Inc., Kenneth Levine and
Richard Rutta.
"Stockholders Agreement" means the Stockholders Agreement dated as of the
Issue Date among Green Equity Investors II, L.P., Kenneth Levine, Richard Rutta
and Diamond, as that agreement may be amended from time to time, provided that
no such amendment shall have the effect of increasing in any material respect
the cost to Diamond of the transactions, payments or expenses permitted under
such agreement pursuant to "--Certain Covenants--Limitation on Recapitalization
with Affiliates."
"Subordinated Management Fees" means the management fees payable under the
Management Services Agreement, which fees are subordinated in right of payment,
as provided in the Management Services Agreement, to the prior payment in full
in cash of all obligations of Diamond with respect to the Notes, whether for
principal of or interest on the Notes, expenses, indemnification or otherwise.
"Subsidiary," with respect to any Person, means:
(1) any corporation of which the outstanding Capital Stock having at least
a majority of the votes entitled to be cast in the election of
directors under ordinary circumstances shall at the time be owned,
directly or indirectly, by that Person; or
(2) any other Person of which at least a majority of the voting interest
under ordinary circumstances is at the time, directly or indirectly,
owned by that Person.
"Subsidiary Guarantor" means each future Restricted Subsidiary of Diamond
that executes a supplemental indenture in which that Restricted Subsidiary
agrees to be bound by the terms and provisions of the indenture as a Subsidiary
Guarantor.
"Surviving Entity" has the meaning set forth under "--Certain Covenants--
Merger, Consolidation and Sale of Assets."
"Unrestricted Subsidiary" means:
(1) any Subsidiary of Diamond that at the time of determination shall be
designated an Unrestricted Subsidiary by Diamond's Board of Directors
in the manner provided below; and
(2) any Subsidiary of an Unrestricted Subsidiary. Diamond's Board of
Directors may designate any Subsidiary of Diamond (including any newly
acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary
unless that Subsidiary or any of its Subsidiaries owns any Capital
Stock or Indebtedness of, or holds any Lien on any property of, Diamond
or any Restricted Subsidiary of Diamond that is not a Subsidiary of the
Subsidiary to be so designated;
provided, however, that
(1) either:
(A) the Subsidiary to be so designated has total assets of $1,000 or
less; or
(B) if that Subsidiary has assets greater than $1,000, such designation
would be permitted under the covenant described under "--Limitation
on Restricted Payments;"
and
(2) the Subsidiary to be so designated and each of its Subsidiaries has not
at the time of that designation, and does not thereafter, incur any
Indebtedness pursuant to which the lender has recourse to any of
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the assets or properties of Diamond or any of its Restricted
Subsidiaries (except to the extent such recourse arises pursuant to an
Investment permitted by the indenture).
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided, however, that
(1) any Indebtedness of that Subsidiary outstanding at the time of that
designation will be deemed to have been incurred at such time; and
(2) immediately after giving effect to that designation and that incurrence
no Default will have occurred and be continuing. Any designation by the
Board of Directors will be evidenced by Diamond to the Trustee by
promptly filing with the Trustee a copy of the Board Resolution giving
effect to that designation and an Officers' Certificate certifying that
the designation complied with the foregoing provisions.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
(including any Disqualified Capital Stock) at any date, the number of years
obtained by dividing:
(1) the sum of the products obtained by multiplying:
(A) the amount of each then remaining installment, sinking fund, serial
maturity or other required payment of principal, including payment
at final maturity, in respect thereof,
by
(B) the number of years (calculated to the nearest one-twelfth) that
will elapse between such date and the making of such payment,
by
(2) the then outstanding principal amount or liquidation preference, as
applicable, of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of Diamond means any Restricted
Subsidiary of Diamond of which all the outstanding voting securities (other
than in the case of a foreign Restricted Subsidiary, directors' qualifying
shares or an immaterial amount of shares required to be owned by other Persons
pursuant to applicable law) are owned by Diamond or any Wholly Owned
Restricted Subsidiary of Diamond.
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CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of anticipated U.S. federal income tax
consequences of the ownership and disposition of the notes to holders thereof
and of the exchange of Old Notes for New Notes pursuant to the Exchange Offer.
This summary is based upon laws, regulations, rulings and decisions currently
in effect, all of which are subject to change at any time, possibly with
retroactive effect. Moreover, it deals only with purchasers who hold notes as
"capital assets" within the meaning of Section 1221 of the U.S. Internal
Revenue Code of 1986, as amended, and does not purport to deal with persons in
special tax situations, such as financial institutions, insurance companies,
regulated investment companies, tax exempt investors, dealers in securities or
currencies, U.S. expatriates, persons holding notes as a hedge against currency
risk or as a position in a "straddle," "hedge," "conversion" or another
integrated transaction for tax purposes or U.S. Holders, as defined below,
whose functional currency is not the U.S. dollar. Further, this discussion does
not address the consequences under U.S. federal estate or gift tax laws or the
laws of any U.S. state or locality.
Holders of Old Notes are urged to consult their own tax advisors concerning
the consequences, in their particular circumstances, of the ownership and
disposition of the notes and the exchange of Old Notes for New Notes pursuant
to the Exchange Offer under the U.S. federal tax laws and the laws of any
relevant state, local or non-U.S. taxing jurisdiction.
As used in this section, the term "U.S. Holder" means a beneficial owner of
notes that is, for U.S. federal income tax purposes:
. a citizen or resident of the United States,
. a corporation, partnership or other entity, other than a trust, created
or organized in or under the laws of the United States or of any
political subdivision thereof, other than a partnership that is not
treated as a U.S. person under any applicable U.S. Treasury regulations,
. an estate whose income is subject to U.S. federal income tax regardless
of its source, or
. a trust if, in general, a court within the U.S. is able to exercise
primary jurisdiction over its administration and one or more U.S.
persons have authority to control all of its substantial decisions.
As used in this section, the term "non-U.S. Holder" means a beneficial owner
of notes that is not a U.S. Holder for U.S. federal income tax purposes.
The Exchange Offer
An exchange of Old Notes for New Notes pursuant to the Exchange Offer should
not be treated as an exchange or other taxable event for United States federal
income tax purposes. Accordingly, there should be no United States federal
income tax consequences to holders of Old Notes who exchange Old Notes for New
Notes pursuant to the Exchange Offer, and any holder should have the same
adjusted tax basis and holding period in the New Notes as it had in the Old
Notes immediately before the exchange.
U.S. Holders
Interest and Disposition Generally
The gross amount of interest paid on the Notes will be taxable as ordinary
income for U.S. federal income tax purposes when received or accrued by a U.S.
holder in accordance with such U.S. Holder's method of tax accounting.
Upon the sale, redemption or other taxable disposition of a Note, a U.S.
Holder will recognize capital gain or loss equal to the difference between the
amount realized (excluding any amount attributable to accrued interest, which
will be taxable as ordinary interest income as described above, or accrued
market discount
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which is described below) and the U.S. Holder's tax basis in the Notes. Such
gain or loss will be long term capital gain or loss if the Notes are held for
more than one year. The deductibility of capital losses is subject to certain
limitations.
Special rules apply to Notes acquired at a market discount or premium, which
are discussed below.
Bond Premium
If a U.S. Holder purchased Notes for an amount in excess of the amount
payable at the maturity date of the Notes, the U.S. Holder may deduct such
excess as amortizable bond premium over the term of the Notes under a yield-to-
maturity formula. The deduction is available only if an election is made by the
purchaser or if such an election is in effect. This election is revocable only
with the consent of the U.S. Internal Revenue Service. The election applies to
all obligations owned or subsequently acquired by the U.S. Holder. The U.S.
Holder's adjusted tax basis in the Notes will be reduced to the extent of the
deduction of amortizable bond premium. The amortizable bond premium is treated
as an offset to interest income on the notes rather than as a separate
deduction item.
Market Discount
A U.S. Holder that acquires Notes, other than in an original issue, at a
market discount (other than market discount that is less than 1/4 of 1% of the
stated redemption price of the notes at maturity multiplied by the number of
remaining complete years to maturity) must include as ordinary income upon a
subsequent disposition, redemption or gift of the Notes, the lesser of:
. the gain realized upon the disposition or redemption or, in the case of
a gift, the appreciation in the Notes, and
. the portion of the market discount which accrued on a straight line
basis, or, if the U.S. Holder so elects, on a constant interest rate
basis, while the Notes were held by such U.S. Holder.
For these purposes, market discount means the excess, if any, of the stated
redemption price at maturity of the Notes (i.e., their principal amount) over
the U.S. Holder's tax basis in such Notes immediately after their acquisition
by the U.S. Holder. A U.S. Holder may elect to include accrued market discount
in income currently, which would increase the U.S. Holder's basis in the Notes,
rather than upon disposition of the Notes. This election once made applies to
all market discount obligations acquired on or after the first taxable year to
which the election applies, and may not be revoked without the consent of the
Internal Revenue Service.
A U.S. Holder of Notes acquired at a market discount generally will be
required to defer the deduction of a portion of the interest on any
indebtedness incurred or maintained to purchase or carry such Notes until the
market discount is recognized upon a subsequent disposition of such Notes. Such
a deferral is not required, however, if the U.S. Holder elects to include
accrued market discount in income currently.
A proposal recently set forth in the Clinton Administration's Fiscal Year
2001 Revenue Proposals would require U.S. Holders that use an accrual method of
accounting to include market discount in income on a constant-yield basis as it
accrues. The U.S. Holder's yield for purposes of determining and accruing
market discount would be limited to the greater of (1) the original yield-to-
maturity of the debt instrument plus 5 percentage points, or (2) the applicable
Federal rate at the time the holder acquired the debt instrument plus 5
percentage points. The proposal would be effective for debt instruments
acquired on or after the date of enactment.
Information Reporting and Backup Withholding
Non-exempt U.S. Holders may be subject to information reporting with respect
to payments of interest on, and the proceeds of the disposition of, Notes. Non-
exempt U.S. Holders who are subject to information reporting and who do not
provide appropriate information when requested may be subject to backup
withholding at a 31% rate. U.S. Holders should consult their tax advisors.
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Non-U.S. Holders
Interest and Disposition
In general, payments of interest received by a non-U.S. Holder will not be
subject to U.S. federal withholding tax, provided that the non-U.S. Holder (a)
does not actually or constructively own 10% or more of the total combined
voting power of all classes of stock of the Company entitled to vote, (b) is
not a controlled foreign corporation that is related to the Company actually or
constructively through stock ownership, and (c) provides, under penalties of
perjury (either directly or through a financial institution that holds the note
on behalf of the non-U.S. Holder and that holds customers' securities in the
ordinary course of its trade or business), the Company or its agent with the
non-U.S. Holder's (or, if different, the beneficial owner's) name and address
and certifies, under penalties of perjury, that it is not a U.S. Holder.
Payments of interest not exempt from U.S. federal withholding tax as described
above will be subject to withholding tax at the rate of 30% unless, (i) the
interest received on the note is effectively connected with the conduct by the
non-U.S. Holder of a trade or business within the U.S. and the non-U.S. Holder
complies with certain reporting requirements (see "Effectively Connected
Income" below); or (ii) the non-U.S. Holder is entitled to the benefits of an
income tax treaty under which the interest is exempt from U.S. withholding tax
or the rate is reduced and the non-U.S. Holder complies with certain reporting
requirements.
A non-U.S. Holder generally will not be subject to U.S. federal income tax
(and generally no tax will be withheld) with respect to gain realized on the
disposition of a Note, unless (i) the gain is effectively connected with a U.S.
trade or business conducted by the non-U.S. Holder or (ii) the non-U.S. Holder
is an individual who is present in the United States for 183 or more days
during the taxable year of the disposition and certain other requirements are
satisfied.
Effectively Connected Income
If interest or other payments received by a non-U.S. Holder with respect to
the Notes (including proceeds from the disposition of the Notes) are
effectively connected with the conduct by the non-U.S. Holder of a trade or
business within the United States (or the non-U.S. Holder is otherwise subject
to U.S. federal income taxation on a net basis with respect to such holder's
ownership of notes), such non-U.S. Holder will generally be subject to the
rules described above under "U.S. Holders" (subject to any modification
provided under an applicable income tax treaty). Non-U.S. corporate holders may
also be subject to the U.S. "branch profits tax" at a rate of 30%, or a lower
rate provided by an applicable income tax treaty.
Information Reporting and Backup Withholding
If the Notes are held by a non-U.S. Holder through a non-U.S., and non-U.S.
related broker or financial institution, information reporting and backup
withholding generally would not be required. Information reporting, and
possibly backup withholding, may apply if the Notes are held by a non-U.S.
Holder through a U.S., or U.S. related, broker or financial institution and the
non-U.S. Holder fails to provide appropriate information. Holders should
consult their tax advisors.
Recently Issued Treasury Regulations
The U.S. Treasury Department issued final Treasury regulations governing
information reporting and the certification procedures regarding withholding
and backup withholding on certain amounts paid to non-U.S. Holders after
December 31, 2000. The new Treasury regulations would alter the procedures for
claiming the benefits of an income tax treaty and may change the certification
procedures relating to the receipt by intermediaries of payments on behalf of a
beneficial owner of a note.
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BOOK-ENTRY, DELIVERY AND FORM
The Global Notes
The certificates representing the Old Notes were issued, and the
certificates representing the New Notes will be issued, in fully registered
form, without coupons. The Old Notes are represented by one or more permanent
global certificates in definitive, fully registered form without interest
coupons. Except as described under "Certificated New Notes," the New Notes
initially will be represented by one or more permanent global certificates in
definitive, fully registered form and
. will be deposited with, or on behalf of, DTC, and registered in the name
of Cede & Co., as DTC's nominee, or
. will remain in the custody of the trustee pursuant to a FAST Balance
Certificate Agreement between DTC and the trustee.
Depositary Procedures
The following description of the operations and procedures of DTC, Euroclear
and Cedelbank are provided only as a matter of convenience. These operations
and procedures are solely within the control of the respective settlement
systems and are subject to changes by them from time to time. Diamond takes no
responsibility for these operations and procedures and urges you to contact the
system or their participants directly to discuss these matters.
DTC has advised Diamond 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 its Participants. DTC's Participants include securities brokers
and dealers (including the Initial Purchasers), 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 the
Indirect Participants. The ownership interests in, and transfers of ownership
interests in, each security held by or on behalf of DTC are recorded on the
records of the Participants and Indirect Participants.
DTC has also advised Diamond that, pursuant to DTC's procedures:
. upon deposit of the global notes representing the New Notes, DTC will
credit the accounts of Participants with an interest in the global
notes; and
. ownership of the New Notes will be shown on, and the transfer of
ownership thereof will be effected only through, records maintained by
DTC, with respect to the interests of its Participants, and the records
of DTC's Participants and the Indirect Participants, with respect to the
interests of persons other than Participants in such series of the
global notes.
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of those securities in definitive form. As a
result, the ability to transfer interests in the New Notes represented by
global notes to those persons may be limited. In addition, because DTC can act
only on behalf of its Participants, who in turn act on behalf of persons who
hold interests through a Participant, the ability of a person having an
interest in New Notes represented by a global note to pledge or transfer that
interest to persons or entities that do not participate in DTC's system, or to
otherwise take actions in respect of that interest, may be affected by the lack
of a physical definitive security evidencing that interest.
So long as DTC or its nominee is the registered owner of a global note, DTC
or the nominee, as the case may be, will be considered the sole owner or holder
of the New Notes represented by the global note for all
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purposes under the indenture. Except as provided below, owners of beneficial
interests in a global note will not be entitled to have New Notes represented
by the global note registered in their names, will not receive or be entitled
to receive physical delivery of certificated New Notes, and will not be
considered the owners or holders thereof under the indenture for any purpose,
including with respect to the giving of any direction, instruction or approval
to the trustee under the indenture. As a result, each holder owning a
beneficial interest in a global note must rely on the procedures of DTC and, if
the holder is not a DTC Participant or an Indirect Participant, on the
procedures of the Participant through which the holder owns its interest, to
exercise any rights of a holder of the New Notes under the indenture or the
global note. Diamond understands that under existing industry practice, in the
event that Diamond requests any action of holders of the New Notes, or a holder
that is an owner of a beneficial interest in a global note desires to take any
action that DTC, as the holder of the global note, is entitled to take, DTC
would authorize the Participants to take that action and the participants would
authorize holders owning through these Participants to take that action or
would otherwise act upon the instruction of those holders. Neither Diamond nor
the trustee will have any responsibility or liability for any aspect of the
records relating to or payments made on account of New Notes by DTC, or for
maintaining, supervising or reviewing any records of DTC relating to these New
Notes.
Except as described below, owners of interests in 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 of, and premium, if any, and interest
on the New Notes represented by the global note registered in the name of DTC
or its nominee on the applicable record date will be payable by the trustee to
DTC or its nominee in its capacity as the registered holder of the global note
representing the New Notes under the indenture. Under the terms of the
indenture, Diamond and the trustee may treat the persons in whose names the New
Notes, including the global notes, are registered as the owners thereof for the
purpose of receiving payments thereon and for any and all other purposes
whatsoever. Consequently, neither Diamond, the trustee or any agent of Diamond
or the trustee has or will have any responsibility or liability for the payment
of these amounts to owners of beneficial interests in a global note, including
principal, premium, if any, and interest. Payments by the DTC Participants and
Indirect Participants to the beneficial owner of a global note will be governed
by standing instructions and customary industry practice and will be the
responsibility of the Participants or Indirect Participants and DTC.
DTC has advised Diamond that its current practice, upon receipt of any
payment in respect of securities such as the New 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 the principal amount of beneficial interest in the relevant
security as shown on the records of DTC, unless DTC has reason to believe it
will not receive payment on the payment date. Payments by the Participants and
the Indirect Participants to the beneficial owners of the New Notes will be
governed by standing instructions and customary practices and will be the
responsibility of the Participants or the Indirect Participants and will not be
the responsibility of DTC, the trustee or Diamond. Neither Diamond nor the
trustee will be liable for any delay by DTC or any of its Participants in
identifying the beneficial owners of the New Notes, and Diamond and the trustee
may conclusively rely on and will be protected in relying on instructions from
DTC or its nominee for all purposes.
Cross-market transfers between the Participants in DTC, on the one hand, and
Euroclear or Cedelbank participants, on the other hand, will be effected
through DTC in accordance with DTC's rules on behalf of Euroclear or Cedelbank,
as the case may be, by its respective depositary; however, these cross-market
transactions will require delivery of instructions to Euroclear or Cedelbank,
as the case may be, by the counterparty in that system in accordance with the
rules and procedures and within the established deadlines (Brussels time) of
that system. Euroclear or Cedelbank, as the case may be, will, if the
transaction meets its settlement requirements, deliver instructions to its
respective depositary to take action to effect final settlement on its behalf
by delivering or receiving interests in the global note in DTC, and making or
receiving payment in
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accordance with normal procedures for same-day funds settlement applicable to
DTC. Euroclear participants and Cedelbank participants may not deliver
instructions directly to the depositories for Euroclear or Cedelbank.
DTC has advised Diamond that it will take any action permitted to be taken
by a holder of Notes of any series only at the direction of one or more
Participants to whose account DTC has credited the interests in the global
notes of such series 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 such direction. However, if there is an event of default under
the Notes, DTC reserves the right to exchange the global notes for legended
Notes in certificated form, and to distribute such Notes to its Participants.
Although DTC, Euroclear and Cedelbank have agreed to the foregoing
procedures to facilitate transfers of interests in the global notes among
Participants in DTC, Euroclear and Cedelbank, they are under no obligation to
perform or to continue to perform these procedures, and these procedures may be
discontinued at any time. Neither Diamond nor the trustee will have any
responsibility for the performance by DTC, Euroclear or Cedelbank or their
respective Participants or Indirect Participants of their respective
obligations under the rules and procedures governing their operations.
Certificated New Notes
If:
. Diamond notifies the trustee in writing that DTC is no longer willing or
able to act as a depositary or DTC ceases to registered as a clearing
agency under the Exchange Act, and a successor depositary is not
appointed within 90 days of such notice or cessation;
. Diamond, at its option, notifies the trustee in writing that it elects
to cause the issuance of New Notes in definitive form under the
indenture; or
. upon the occurrence of other events described in the indenture.
upon surrender by DTC of the global notes representing New Notes,
certificated New Notes will be issued in the names and denominations requested
by DTC in accordance with its customary procedures. Upon any issuance of
certificated New Notes, the trustee is required to register the certificated
New Notes in the name of the beneficial owner indicated by DTC, and cause the
same to be delivered to that person.
Neither Diamond nor the trustee will be liable for any delay by DTC or any
Participant or Indirect Participant in identifying the beneficial owners of the
related notes and Diamond and the trustee may conclusively rely on, and will be
protected in relying on, instructions from DTC for all purposes.
89
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of the New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
the Old Notes were acquired as a result of market-making activities or other
trading activities. Diamond has agreed that, starting on June 12, 2000 and
ending on the close of business 180 days after June 12, 2000, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any resale. In addition, until July 26, 2000, all dealers
effecting transactions in New Notes may be required to deliver a prospectus.
Diamond will not receive any proceeds from any sale of New Notes by broker-
dealers. New Notes received by broker-dealers for their own account pursuant to
the Exchange Offer may be sold from time to time in one or more transactions in
the over-the-counter market, in negotiated transactions, through the writing of
options on the New Notes or a combination of these methods of resale, at market
prices prevailing at the time of resale, at prices related to these prevailing
market prices or negotiated prices. Any resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any broker-dealer and/or the
purchasers of any New Notes. Any broker-dealer that resells New Notes that were
received by it for its own account pursuant to the Exchange Offer and any
broker or dealer that participates in a distribution of the New Notes may be
deemed to be an "underwriter" within the meaning of the Securities Act and any
profit from any resale of New Notes and any commissions or concessions received
by any of these persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after June 12, 2000, Diamond will promptly send
additional copies of this Prospectus and any amendment or supplement to this
Prospectus to any broker-dealer that requests those documents in the Letter of
Transmittal. Diamond has agreed to pay all expenses incident to the Exchange
Offer (including the expenses of one counsel for the holders of the Old Notes)
other than dealers' and brokers' discounts, commissions and counsel fees) and
will indemnify the holders of the Old Notes (including any broker-dealers)
against certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the New Notes will be passed upon for Diamond by Kramer
Levin Naftalis & Frankel LLP, New York New York.
EXPERTS
The Balance Sheets as of December 31, 1998 and 1999 and the related
Statements of Operations, Stockholders' Equity, and Cash Flows for each of the
years in the three year period ended December 31, 1997, 1998 and 1999, included
in this Prospectus, have been audited by KPMG LLP, independent certified public
accountants, as stated in their report included herein, and are included in
this Prospectus in reliance upon the authority of said firm as experts in
accounting and auditing.
90
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report............................................. F-2
Balance Sheets, December 31, 1999 and 1998............................... F-3
Statements of Operations for the Years Ended December 31, 1999, 1998 and
1997.................................................................... F-4
Statements of Stockholders' Equity (Deficit) for the Years Ended December
31, 1999, 1998 and 1997................................................. F-5
Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and
1997.................................................................... F-6
Notes to Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Diamond Triumph Auto Glass, Inc.:
We have audited the accompanying balance sheets of Diamond Triumph Auto
Glass, Inc. as of December 31, 1999 and 1998, and the related statements of
operations, stockholders' equity (deficit) and cash flows for each of the years
in the three year period ended December 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Diamond Triumph Auto Glass,
Inc. as of December 31, 1999 and 1998, and the results of its operations and
its cash flows for each of the years in the three year period ended December
31, 1999, in conformity with generally accepted accounting principles.
/s/ KPMG LLP
Allentown, Pennsylvania
February 22, 2000, except for Note 12 which is as of March 27, 2000
F-2
<PAGE>
DIAMOND TRIUMPH AUTO GLASS, INC.
BALANCE SHEETS
December 31, 1999 and 1998
(Dollars in Thousands)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents............................... $ 94 $ 301
Accounts receivable, less allowance for doubtful
accounts of $956 and $800 for 1999 and 1998
respectively........................................... 10,895 12,727
Other receivables....................................... 189 1,610
Inventories............................................. 12,620 11,264
Prepaid expenses........................................ 962 841
Deferred income taxes................................... 3,081 2,826
--------- ---------
Total current assets.................................. 27,841 29,569
--------- ---------
Equipment and leasehold improvements:
Vehicles................................................ 10,289 11,040
Computers and office equipment.......................... 3,173 2,667
Computer software....................................... 3,901 2,566
Other equipment......................................... 524 488
Leasehold improvements.................................. 140 123
--------- ---------
18,027 16,884
Accumulated depreciation and amortization............... (10,334) (8,906)
--------- ---------
Net equipment and leasehold improvements............... 7,693 7,978
Deferred loan costs and senior notes discount, net....... 7,502 8,152
Deferred income taxes.................................... 44,082 44,619
Other assets............................................. 401 374
--------- ---------
Total assets.......................................... 87,519 90,692
========= =========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable........................................ 7,950 9,586
Accrued expenses
Payroll and related items............................... 3,314 3,166
Accrued interest........................................ 2,363 2,326
Accrued income taxes.................................... 1,216 1,955
Other................................................... 362 354
--------- ---------
Total accrued expenses................................. 7,255 7,801
--------- ---------
Total current liabilities............................. 15,205 17,387
--------- ---------
Long-term debt:
Bank facility........................................... 7,500 8,500
Senior notes............................................ 100,000 100,000
--------- ---------
Total long-term debt................................... 107,500 108,500
--------- ---------
Total liabilities..................................... 122,705 125,887
--------- ---------
Series A 12% senior redeemable cumulative preferred
stock--par value $0.01 per share; authorized 100,000
shares; issued and outstanding 35,000 in 1999 and 1998,
at liquidation preference value......................... 43,046 38,246
--------- ---------
Stockholders' equity (deficit):
Common stock, 1999 and 1998--par value $0.01 per share;
authorized 1,100,000 shares; issued and outstanding
1,000,000 shares....................................... 10 10
Additional paid-in capital.............................. 52,747 57,547
Retained earnings (accumulated deficit)................. (130,989) (130,998)
--------- ---------
Total stockholders' equity (deficit).................. (78,232) (73,441)
--------- ---------
Total liabilities and stockholders' equity
(deficit).......................................... $ 87,519 $ 90,692
========= =========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
DIAMOND TRIUMPH AUTO GLASS, INC.
STATEMENTS OF OPERATIONS
Years Ended December 31, 1999, 1998 and 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net sales........................................ $164,520 $149,609 $122,005
Cost of sales.................................... 51,456 43,851 36,702
-------- -------- --------
Gross profit................................. 113,064 105,758 85,303
-------- -------- --------
Operating expenses:
Payroll........................................ 61,434 54,377 47,653
Advertising and promotional.................... 10,349 9,499 7,360
Other operating expenses....................... 27,516 23,478 17,445
Depreciation and amortization.................. 2,595 2,410 2,238
-------- -------- --------
101,894 89,764 74,696
-------- -------- --------
Income from operations....................... 11,170 15,994 10,607
Other (income) expense:
Interest income................................ (31) (120) (184)
Interest expense............................... 11,054 8,162 --
-------- -------- --------
11,023 8,042 (184)
-------- -------- --------
Income before provision for income taxes..... 147 7,952 10,791
Provision for income taxes....................... 138 (37) --
-------- -------- --------
Net income................................... 9 7,989 10,791
Preferred stock dividends........................ 4,800 3,246 --
-------- -------- --------
Net (loss) income applicable to common
stockholders.................................... $ (4,791) $ 4,743 $ 10,791
======== ======== ========
Historical income before provision for income
taxes......................................... $ 7,952 $ 10,791
Pro forma provision for taxes.................. 3,181 4,316
-------- --------
Pro forma net income........................... 4,771 6,475
Preferred stock dividends...................... 3,246 --
-------- --------
Pro forma net income applicable to common
stockholders.................................. $ 1,525 $ 6,475
======== ========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
DIAMOND TRIUMPH AUTO GLASS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Years Ended December 31, 1999, 1998 and 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
Retained
Common stock Additional earnings
------------------ paid-in (accumulated
Shares Amount capital deficit) Total
---------- ------ ---------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1996.................... 2,300 $ 4 $ -- $ 24,290 $ 24,294
Issuance of common
stock................... -- -- -- -- --
Net income............... -- -- -- 10,791 10,791
Distributions to
stockholders............ -- -- -- (11,800) (11,800)
---------- ---- ------- --------- ---------
Balance, December 31,
1997.................... 2,300 4 -- 23,281 23,285
Net income............... -- -- -- 7,989 7,989
Distributions to
stockholders............ -- -- -- (11,597) (11,597)
Reclassification of
common stock............ 698,500 6 -- (6) --
Common stock issued as
stock purchase shares... 6,950,000 69 -- (69) --
Sale of common stock..... 800,000 8 15,992 -- 16,000
Redemption of
stockholders' common
stock and
recapitalization
followed by cancellation
of treasury stock
including income tax
effects................. (7,450,800) (77) 44,801 (150,596) (105,872)
Preferred stock
dividends............... -- -- (3,246) -- (3,246)
---------- ---- ------- --------- ---------
Balance, December 31,
1998.................... 1,000,000 10 57,547 (130,998) (73,441)
Net income............... -- -- -- 9 9
Preferred stock
dividends............... -- -- (4,800) -- (4,800)
---------- ---- ------- --------- ---------
Balance, December 31,
1999.................... 1,000,000 $ 10 $52,747 $(130,989) $ (78,232)
========== ==== ======= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
DIAMOND TRIUMPH AUTO GLASS, INC.
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999, 1998 and 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
1999 1998 1997
-------- --------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income..................................... $ 9 $ 7,989 $ 10,791
-------- --------- --------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and other amortization........... 2,595 2,410 2,238
Amortization of deferred loan costs and senior
notes discount............................... 882 661 --
Provision for doubtful accounts............... 1,341 1,063 662
(Gain) on sale of fixed assets................ (32) (40) (2)
Changes in assets and liabilities:
Decrease (increase) in accounts and other
receivables................................. 1,912 (5,586) (4,824)
(Increase) decrease in inventories........... (1,356) (3,027) 886
(Increase) decrease in prepaid expenses...... (121) 363 (207)
(Decrease) increase in accounts payable...... (1,635) 3,655 911
(Decrease) increase in accrued expenses...... (546) (2,339) 5,290
Increase in deferred income taxes............ 282 25 --
-------- --------- --------
Total adjustments............................ 3,322 (2,815) 4,954
-------- --------- --------
Net cash provided by operating activities.... 3,331 5,174 15,745
-------- --------- --------
Cash flows from investing activities:
Capital expenditures........................... (2,371) (2,529) (2,373)
Proceeds from sale of equipment................ 92 186 105
(Increase) decrease in other assets............ (27) (69) 83
Due from (to) related company.................. -- 2,866 (898)
-------- --------- --------
Net cash (used in) provided by investing
activities................................. (2,306) 454 (3,083)
-------- --------- --------
Cash flows from financing activities:
Net proceeds from issuance of senior notes..... -- 97,000 --
Net proceeds from bank facility................ 26,000 18,500 --
Proceeds from issuance of preferred stock...... -- 28,000 --
Distributions to stockholders, net............. -- (4,597) (11,800)
Payments on bank facility...................... (27,000) (10,000) --
Issuance of common stock....................... -- 16,000 --
Deferred loan costs............................ (232) (5,813) --
Repurchase of common stock..................... -- (150,672) --
-------- --------- --------
Net cash used in financing activities....... (1,232) (11,582) (11,800)
-------- --------- --------
Net (decrease) increase in cash and cash
equivalents................................ (207) (5,954) 862
Cash and cash equivalents, beginning of year.... 301 6,255 5,393
-------- --------- --------
Cash and cash equivalents, end of year.......... $ 94 $ 301 $ 6,255
======== ========= ========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
DIAMOND TRIUMPH AUTO GLASS, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1999, 1998 and 1997
(Dollars in Thousands)
(1) Description of Entity, Basis of Presentation and Recapitalization
Prior to March 31, 1998, Diamond Triumph Auto Glass, Inc. (formerly Diamond
Auto Glass Works, Inc. and affiliates) included Diamond Auto Glass Works, Inc.,
Triumph Auto Glass, Inc., Triumph Auto Glass of Ohio, Inc., A Above Average
Auto Glass Company by Diamond, Inc., A-AA Triumph Auto Glass, Inc., and
Scranton Holding Co., all of which were owned equally by two stockholders. All
significant intercompany balances and transactions were eliminated in
combination prior to March 31, 1998.
The Company, Kenneth Levine and Richard Rutta (together, the "Company
Principals"), Green Equity Investors II, L.P. ("GEI"), and certain affiliated
entities of the Company (the "Affiliated Companies") entered into a Second
Amended and Restated Stock Purchase and Sale Agreement, dated as of January 15,
1998 and which was consummated on March 31, 1998, pursuant to which, among
other things, (a) the Company declared and paid a dividend of 3,500 shares
($3,500) of Preferred Stock, to each of the Company Principals, equal to 10.0%
of the Preferred Stock to be outstanding following the Recapitalization (as
hereinafter defined); (b) the Company Principals transferred all of the issued
and outstanding shares of each of the Affiliated Companies to Diamond and as
consideration for such transfers Diamond issued 6,950,000 shares of Common
Stock (the "Stock Purchase Shares") to the Company Principals; (c) certain
Affiliated Companies merged with and into the Company (the "Merger"); (d) GEI
purchased (i) approximately 770,000 shares of Common Stock, equal to 77.0% of
the Common Stock outstanding following the Recapitalization, for aggregate
consideration of $15,400, and (ii) 28,000 shares of Preferred Stock, equal to
80.0% of the Preferred Stock outstanding following the Recapitalization, for
aggregate consideration of $28,000; (e) certain members of the Company's
management purchased 30,000 shares of Common Stock, equal to 3.0% of the Common
Stock outstanding following the Recapitalization, for aggregate consideration
of $600; and (f) the Company redeemed from the Company Principals all of the
Stock Purchase Shares and other shares of Common Stock owned by them (other
than 100,000 shares owned by each of them) for cash, resulting in each of the
Company Principals owning 10.0% of the Common Stock to be outstanding following
the Recapitalization. Concurrently, with the consummation of the transactions
set forth in clauses (a) through (f) above (the "Recapitalization"), the
Company issued $100,000 in aggregate principal amount of senior notes in a
private placement (the "Note Offering") and entered into a five year $35,000
revolving credit facility (the "Old Bank Facility") with a syndicate of
financial institutions, of which $12,500 was borrowed in connection with the
Recapitalization.
On March 27, 2000, the Company replaced the Old Bank Facility with a new
revolving credit facility (the "Credit Facility") (See Note 12--Subsequent
Event).
The Company, headquartered in Kingston, Pennsylvania, is a provider of
automotive glass replacement and repair services in the Northeast, Mid-
Atlantic, Midwest, Southwest and Southeast regions of the United States. At
December 31, 1999, the Company operated a network of 226 service centers and
four distribution centers in 39 states.
(2) Summary of Significant Accounting Policies
(a) Cash and Cash Equivalents
Investments with original maturities of three months or less are considered
cash equivalents.
(b) Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the rolling average method with costs incurred on a first-in, first-out
basis.
F-7
<PAGE>
DIAMOND TRIUMPH AUTO GLASS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1999, 1998 and 1997
(Dollars in Thousands)
(c) Equipment and Leasehold Improvements
Equipment and leasehold improvements are recorded at cost. Depreciation and
amortization is calculated using the straight-line method over the following
useful lives:
<TABLE>
<S> <C>
Vehicles........................................................... 5 years
Computers and office equipment..................................... 5-7 years
Computer software.................................................. 3-5 years
Other equipment.................................................... 5 years
Leasehold improvements............................................. 39 years
</TABLE>
Costs in 1999 and 1998 related to the development of software for a new back
office sales audit and financial accounting system and point of sale system
were capitalized. Upon completion of each of the projects in 1999 and 1998, the
Company commenced amortizing the software costs over the estimated useful life
of five years. Unamortized computer software costs were $3,218 and $2,503 at
December 31, 1999 and 1998, respectively. Amortization expense in 1999 and 1998
for capitalized computer software costs was $620 and $61, respectively.
(d) Income Taxes
Effective March 31, 1998, the date of conversion from S Corporation status
to C Corporation status, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109, Accounting for Income Taxes, and has reported the
effect of recognizing deferred tax assets and liabilities in income tax expense
in the 1998 statement of operations.
Under the asset and liability method of SFAS No. 109, deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS No. 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date of any change.
(e) Deferred Loan Costs and Senior Notes Discount
Deferred loan costs and senior notes discount are amortized over the life of
the related debt and included in interest expense. Costs and accumulated
amortization are summarized as follows:
<TABLE>
<CAPTION>
Accumulated
December 31, 1999 Amount Amortization Balance
----------------- ------ ------------ -------
<S> <C> <C> <C>
Deferred loan costs.............................. $6,013 $1,017 $4,996
Discount on senior notes......................... 3,000 525 2,475
------ ------ ------
$9,013 $1,542 $7,471
====== ====== ======
<CAPTION>
December 31, 1998
-----------------
<S> <C> <C> <C>
Deferred loan costs.............................. $5,813 $ 436 $5,377
Discount on senior notes......................... 3,000 225 2,775
------ ------ ------
$8,813 $ 661 $8,152
====== ====== ======
</TABLE>
F-8
<PAGE>
DIAMOND TRIUMPH AUTO GLASS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1999, 1998 and 1997
(Dollars in Thousands)
(f) Revenue Recognition
Revenue from auto glass installation and related services is recognized when
the installation is complete or the service is performed.
(g) Advertising
The Company expenses all advertising costs as incurred. The costs of yellow
pages advertising are expensed at the time the yellow pages phone book is
published. Total advertising expense was $8,150, $7,444 and $5,902 in 1999,
1998 and 1997, respectively.
(h) Impairment of Long-Lived Assets
The Company accounts for long-lived assets in accordance with the provisions
of SFAS No. 121, "Accounting For the Impairment of Long-lived Assets and For
Long-lived Assets to Be Disposed Of". Under the provisions of this statement,
the Company has evaluated its long-lived assets for financial impairment, and
will continue to evaluate them as events or changes in circumstances indicate
that the carrying amount of such assets may not be fully recoverable.
(i) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(3) Fair Value of Financial Instruments
For purposes of estimating the fair value of financial instruments, the
Company has determined that the carrying amounts recorded on the balance sheet
approximate the fair value for cash and cash equivalents, accounts and other
receivables and current liabilities. In making this determination, the Company
considered the short-term maturity of those assets and liabilities. The
carrying amount of the Company's Old Bank Facility approximates fair value
based on borrowing rates available to the Company for loans with similar terms.
On March 27, 2000, the Company replaced the Old Bank Facility with the new
Credit Facility (See Note 12--Subsequent Event). The fair value of the
Company's Senior Notes is estimated based on quoted market prices for those or
similar investments. The estimated fair value of the Corporation's Senior Notes
is $70,000 and $100,000 at December 31, 1999 and 1998, respectively. The fair
value of the Company's Series A 12% Senior Redeemable Cumulative Preferred
Stock approximates the liquidation preference.
(4) Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Bank facility.............................................. $ 7,500 $ 8,500
Senior notes............................................... 100,000 100,000
-------- --------
Total.................................................... $107,500 $108,500
======== ========
</TABLE>
F-9
<PAGE>
DIAMOND TRIUMPH AUTO GLASS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1999, 1998 and 1997
(Dollars in Thousands)
The Old Bank Facility was scheduled to expire on April 1, 2003 and provided
for borrowings of up to $35,000. Borrowings under the Old Bank Facility bore
interest, at the Company's discretion, at either the Base Rate, as defined, or
at the Eurodollar Rate, plus a margin of 1.50% for the Base Rate and 2.50% for
the Eurodollar Rate from August 13, 1999. Prior to August 13, 1999, borrowings
under the Old Bank Facility bore interest, at the Company's discretion, at
either the Base Rate, as defined, or at the Eurodollar Rate, plus a margin of
1.00% for the Base Rate and 2.00% for the Eurodollar Rate. In addition, a
commitment fee of 0.375% was charged against any unused balance of the Old Bank
Facility. The effective interest rate on borrowings under the Old Bank Facility
ranged from 9.00% to 10.00% as of December 31, 1999. Interest rates were
subject to increases or reductions based upon the Company meeting certain
financial tests. The proceeds of the Old Bank Facility were available for
working capital requirements and for general corporate purposes, including
permitted acquisitions. A portion of the Old Bank Facility not to exceed $5,000
was available for the issuance of letters of credit, which generally have an
initial term of one year or less. The Company had $852 and $673 in outstanding
letters of credit at December 31, 1999 and 1998, respectively. The Old Bank
Facility was secured by first priority security interests in all of the
tangible and intangible assets of the Company. In addition, the Old Bank
Facility contained certain restrictive covenants including, among other things,
the maintenance of certain debt coverage ratios, as well as restrictions on
additional indebtedness, dividends and certain other significant transactions.
At December 31, 1999, the Company was not in compliance with certain financial
covenants of its Old Bank Facility and received a waiver from its lenders. As
previously described, the Company replaced the Old Bank Facility with the new
Credit Facility, which is the basis for the classification of the debt as long-
term debt.
The Senior Notes mature on April 1, 2008 and bear interest at a rate of
9.25% per annum. The Senior Notes and the obligations of the Company under the
indenture governing the Senior Notes (the "Note Indenture") are unconditionally
guaranteed on a senior, unsecured basis by any Subsidiary Guarantor, of which
there are currently none. The Senior Notes are callable after five years at a
premium to par which declines to par after eight years. Upon a change of
control, as defined, the Company is required to offer to redeem the Senior
Notes at 101% of the principal amount plus accrued and unpaid interest.
Restrictive covenants contained in the Note Indenture include, among other
things, limitations on additional indebtedness, investments, dividends and
certain other significant transactions. The Company was in compliance with all
such covenants as of December 31, 1999.
Maturities of long-term debt are as follows:
<TABLE>
<S> <C>
2000................................................................ $ --
2001................................................................ --
2002................................................................ --
2003................................................................ --
2004................................................................ 7,500
Thereafter.......................................................... 100,000
--------
$107,500
========
</TABLE>
(5) Preferred Stock
On March 27, 1998, the Company's Board of Directors adopted a Certificate of
Designation creating $35,000 in Series A 12% Senior Redeemable Cumulative
Preferred Stock (the "Preferred Stock"). The Preferred Stock has a liquidation
preference over the Common Stock equal to the initial liquidation value of the
F-10
<PAGE>
DIAMOND TRIUMPH AUTO GLASS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1999, 1998 and 1997
(Dollars in Thousands)
Preferred Stock plus accrued and unpaid dividends thereon. The Preferred Stock
will be subject to mandatory redemption on April 1, 2010 at 100% of the
liquidation value plus accrued and unpaid dividends. The Company may, at its
option, redeem at any time the Preferred Stock, in whole or in part, at 100% of
the liquidation value plus accrued and unpaid dividends. Upon a Change of
Control (as defined), the Company must offer to repurchase the Preferred Stock
at 100% of its liquidation value plus accrued and unpaid dividends, provided,
however, that the Company shall not be obligated to (and shall not) offer to
repurchase the Preferred Stock if such repurchase would violate the terms of
the new Credit Facility or the terms of the Note Indenture.
The Preferred Stock bears cumulative quarterly dividends at a rate per annum
equal to 12.0% of the liquidation value. Dividends may, at the option of the
Company, be paid in cash or by adding to the then liquidation value of the
Preferred Stock an amount equal to the dividends then accrued and payable. The
terms of the Preferred Stock contain restrictions on distributions and on
purchases of junior securities. The Preferred Stock has no voting rights with
respect to general corporate matters except as provided by law or for certain
class voting rights in connection with the issuance of senior or parity equity
securities of the Company and any amendments to the Company's Certificate of
Incorporation that adversely affect the rights of the Preferred Stock.
At December 31, 1999 and 1998 the liquidation value of the Preferred Stock
recorded on the Company's Balance Sheet was $43,046 and $38,246, respectively,
which includes dividends of $8,046 and $3,246, respectively, added to the
liquidation value.
(6) Commitments and Related Party Transactions
The Company leases service center and warehouse space and is responsible for
all related occupancy costs. Rental expense in 1999, 1998 and 1997 aggregated
$4,419, $3,931 and $3,135, respectively, of which $556, $535 and $513,
respectively, were for realty owned by two stockholders and executive officers.
Certain of the leases with unrelated parties contain various renewal options,
and right of refusal purchase options.
In addition, the Company leases certain vehicles under operating leases
having lease terms of 367 days. The leases have renewal options for up to eight
years. Total rent expense for such leases amounted to $2,587, $1,808 and $539
for the years ended December 31, 1999, 1998 and 1997, respectively.
Total lease commitments, including vehicles, are as follows:
<TABLE>
<CAPTION>
Third Related
parties parties Total
------- ------- -----
<S> <C> <C> <C>
2000................................................... $5,764 562 6,326
2001................................................... 3,930 539 4,469
2002................................................... 2,368 561 2,929
2003................................................... 1,102 583 1,685
2004................................................... 333 606 939
</TABLE>
The Company entered into a Management Services Agreement on March 31, 1998
with a related party pursuant to which the Company pays an annual fee of $685.
Expense under this agreement was $685 and $514 in 1999 and 1998, respectively.
F-11
<PAGE>
DIAMOND TRIUMPH AUTO GLASS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1999, 1998 and 1997
(Dollars in Thousands)
The Company has employment agreements with certain of its executive officers
(some of whom are also stockholders) which expire on March 31, 2001 and 2003.
(7) Stock Option Plan
In September 1998, the Board of Directors and stockholders of the Company
approved and adopted the Diamond Triumph Auto Glass 1998 Stock Option Plan (the
"1998 Plan"). The 1998 Plan provides for the issuance of a total of 30,000
authorized and unissued shares of common stock. In 1998, the Board of Directors
granted 27,175 options to key employees of the Company with an exercise price
of $20.00 per share, which approximates fair value at the date of grant. No
options were granted in 1999. The options vest evenly over five years and may
not be exercised until the earlier of (a) 90 days after the Company's Common
Stock has become publicly traded or (b) 91 days prior to the tenth anniversary
of the date of the grant. The 1998 Plan expires in September 2008.
The Company applies APB Opinion No. 25 in accounting for the 1998 Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined its stock options under
SFAS No. 123, the Company's net income would have been changed to the pro forma
amounts indicated below.
<TABLE>
<CAPTION>
Years
Ended
December
31,
-----------
1999 1998
---- -----
<S> <C> <C>
Net income:
As reported..................................................... $ 9 7,987
Pro forma....................................................... (6) 7,985
</TABLE>
The per share fair value of stock options granted during fiscal 1998 was
$2.84 on the date of grant and was determined using the Black-Scholes option-
pricing model based upon the following assumptions:
<TABLE>
<CAPTION>
1998
-----
<S> <C>
Expected dividend yield................................................ 0.00%
Expected volatility.................................................... 0.00%
Risk-free rate......................................................... 4.65%
Expected life (in years)............................................... 9.75
</TABLE>
Summarized stock option data is as follows:
<TABLE>
<CAPTION>
Exercise Shares
Price Under Option
-------- ------------
<S> <C> <C>
Outstanding at December 31, 1997.......................... $ -- --
Granted................................................. 20.00 27,125
Exercised............................................... -- --
Cancelled............................................... -- --
------ ------
Outstanding at December 31, 1998.......................... -- 27,125
Granted................................................. -- --
Exercised............................................... -- --
Cancelled............................................... -- (3,000)
------ ------
Outstanding at December 31, 1999.......................... 20.00 24,125
====== ======
Exercisable............................................... $ -- --
</TABLE>
F-12
<PAGE>
DIAMOND TRIUMPH AUTO GLASS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1999, 1998 and 1997
(Dollars in Thousands)
(8) Income Taxes
Prior to the consummation of the Merger, all of the Affiliated Companies
were S Corporations and as such federal and state taxes were generally paid at
the stockholder level only. There was no provision for income taxes through the
consummation of the Merger on March 31, 1998.
As discussed in Note 2, the Company adopted SFAS No. 109 as of March 31,
1998. The effect of recognizing deferred tax assets and liabilities from other
than the Merger transaction as of March 31, 1998 was the recording of net
deferred tax assets of $1,643, reflected as a reduction in 1998 income tax
expense.
Upon consummation of the Merger, the Affiliated Companies terminated their S
Corporation status. The Merger of Diamond Auto Glass Works, Inc., Triumph Auto
Glass, Inc., A Above Average Auto Glass Company by Diamond, Inc., A-AA Triumph
Auto Glass, Inc., and Scranton Holding Co. into Diamond Triumph Auto Glass,
Inc. (formerly Triumph Auto Glass of Ohio, Inc.) was treated as a taxable asset
acquisition of the merged Affiliated Companies for Federal and state income tax
purposes and as a recapitalization for financial accounting purposes. For
Federal and state income tax purposes, the purchase price was allocated among
the various merged Affiliated Companies and their respective assets and
liabilities based on the respective fair values as of the closing of the
Merger. This resulted in different book and tax asset bases for the assets of
these companies, which resulted in deferred tax assets of approximately $44,801
credited to additional paid-in capital.
Income tax expense consists of:
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -----
<S> <C> <C> <C>
Year ended December 31, 1999:
Federal............................................. $ -- 107 107
State............................................... (144) 175 31
----- --- ---
$(144) 282 138
===== === ===
</TABLE>
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -----
<S> <C> <C> <C>
Year ended December 31, 1998:
Federal............................................ $161 (302) (141)
State.............................................. 446 (342) 104
---- ---- ----
$607 (644) (37)
==== ==== ====
</TABLE>
F-13
<PAGE>
DIAMOND TRIUMPH AUTO GLASS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1999, 1998 and 1997
(Dollars in Thousands)
Income tax expense differed from the amounts computed by applying the U.S.
federal income tax rate of 34 percent to pretax income as a result of the
following:
<TABLE>
<CAPTION>
1999 1998
---- ------
<S> <C> <C>
Computed "expected" tax expense............................... $ 50 2,704
Increase (reduction) in income taxes resulting from:
State income taxes, net of federal income tax benefit....... 21 68
Recognition of deferred tax due to change in tax status..... -- (1,643)
Pretax income applicable to portion of year as S Corporation
for which income taxes have not been provided.............. -- (1,572)
Permanent items............................................. 67 173
Other, net.................................................. -- 233
---- ------
$138 (37)
==== ======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred assets and deferred tax liabilities at December 31,
1999 and 1998 are presented below.
<TABLE>
<CAPTION>
1999 1998
------- ------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to allowance for doubtful
accounts..................................................... $ 382 320
Inventories, principally due to additional costs inventoried
for tax...................................................... 651 741
Intangibles................................................... 41,885 45,046
Prepaid Advertising expenses not yet deducted for tax
purposes..................................................... 1,650 1,501
Net operating loss and alternative minimum tax credit
carryforward................................................. 3,130 83
Liabilities and accruals for financial reporting purposes..... 420 269
------- ------
Total gross deferred tax assets............................. 48,118 47,960
------- ------
Deferred tax liabilities:
Plant and equipment, principally due to differences in
depreciation and capitalized interest........................ 955 515
------- ------
Total gross deferred tax liabilities........................ 955 515
------- ------
Net deferred tax assets..................................... $47,163 47,445
======= ======
</TABLE>
There was no valuation allowance for deferred tax assets as of December 31,
1999 or 1998, or March 31, 1999. In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income during periods in which those temporary differences become
deductible. Management considers the reversal of deferred tax liabilities,
projected future taxable income, and tax planning strategies in making this
assessment. In order to realize the deferred tax assets, the Company will need
to generate future taxable income of approximately $115,000 prior to expiration
of the 15-year amortization period for the intangible assets in 2012 and the
subsequent net operating loss carryforward period of 20 years. Taxable income
(loss) for the years ended December 31, 1999, 1998 and 1997 was $(8,000),
$4,500 and $9,000, respectively. Based upon the level of historical taxable
income and projections of future taxable income over the period the deferred
tax assets are deductible, management believes it is more likely than not the
Company will realize the benefits of these deductible differences. The
F-14
<PAGE>
DIAMOND TRIUMPH AUTO GLASS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1999, 1998 and 1997
(Dollars in Thousands)
amount of the deferred tax assets considered realizable, however, could be
reduced in the near term if estimates of future taxable income during the
amortization period are reduced.
(9) Employee Benefit Plans
The Company has a defined contribution plan covering all employees who meet
the age and service requirements. Contributions to the plan are determined by
the Company and are based upon a percentage of the annual compensation of all
participants. The expense related to the plan amounted to $292, $250 and $206
for 1999, 1998 and 1997, respectively.
(10) Supplemental Cash Flow Information
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ ----
<S> <C> <C> <C>
Interest paid............................................ $10,090 5,175 --
Income taxes paid........................................ -- 202 --
======= ====== ===
Noncash investing and financing activities:
Preferred stock dividends.............................. $ 4,800 3,246 --
Deferred tax assets.................................... -- 44,801 --
Distribution of preferred stock........................ -- 7,000 --
======= ====== ===
</TABLE>
(11) Legal Proceedings
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations or liquidity.
(12) Subsequent Event
On March 27, 2000, the Company entered into the new Credit Facility. The new
Credit Facility has an initial term of four years and provides for revolving
advances of up to the lesser of: (1) $25,000; (2) the sum of 85% of the
Company's Eligible Accounts Receivable (as defined in the new Credit Facility)
plus 85% of the Company's Eligible Inventory (as defined in the new Credit
Facility), less certain reserves; or (3) an amount equal to 1.5 times the
Company's EBITDA (as defined in the new Credit Facility) for the prior twelve
months. A portion of the new Credit Facility, not to exceed $3,000, is
available for the issuance of letters of credit. Borrowings under the new
Credit Facility bear interest, at the Company's discretion, at either the Chase
Manhattan Bank Rate (as defined in the new Credit Facility) or LIBOR, plus a
margin of 0.50% for the Chase Manhattan Rate and 2.25% for the LIBOR Rate. In
addition, a commitment fee of 0.25% is charged against any unused balance of
the new Credit Facility. Interest rates are subjected to increases or
reductions based upon the Company meeting certain EBITDA levels. The proceeds
of the new Credit Facility are available for working capital requirements and
for general corporate purposes. The new Credit Facility is secured by first
priority security interests in all of the tangible and intangible assets of the
Company. In addition, the new Credit Facility contains certain restrictive
covenants including, among other things, the maintenance of a minimum EBITDA
level for the prior twelve months, as well as restrictions on additional
indebtedness, dividends and certain other significant transactions.
F-15
<PAGE>
$100,000,000
DIAMOND TRIUMPH AUTO GLASS, INC.
Offer to Exchange
up to $100,000,000
9 1/4% Senior Notes due 2008
for any and all outstanding
9 1/4% Senior Notes due 2008
[LOGO OF DIAMOND TRIUMPH AUTO GLASS]
----------------
PROSPECTUS
----------------
April 27, 2000
