<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
FILED BY THE REGISTRANT /X/ FILED BY A PARTY OTHER THAN THE REGISTRANT / /
- --------------------------------------------------------------------------------
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
BIRD CORPORATION
(Name of Registrant as Specified In Its Charter)
BIRD CORPORATION
(Name of Person(s) Filing Proxy Statement)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
Not Applicable
2) Aggregate number of securities to which transaction applies:
Not Applicable
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act
Rule 0-11: $10,056.00, representing one-fiftieth of one percent of
$50,280,000.00.
4) Proposed maximum aggregate value of transaction: $50,280,000.00
/X/ Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: $10,056.00
2) Form, Schedule or Registration Statement No.: Schedule 14a
3) Filing Party: BIRD CORPORATION
4) Date Filed: October 21, 1994.
- --------------------------------------------------------------------------------
<PAGE> 2
CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY.
AMENDED PRELIMINARY PROXY STATEMENT
[LETTERHEAD OF BIRD CORPORATION]
February 10, 1995
To Our Stockholders:
You are cordially invited to attend a Special Meeting of the stockholders
of Bird Corporation (the "Company"), to be held on March 7, 1995 at 10:00 a.m.
local time, in the East Room of the Holiday Inn, 55 Ariadne Road (at the
junction of Route 1 South and Route 128), Dedham, Massachusetts 02026.
At the Special Meeting, those of you who are holders of the Company's
Common Stock will be asked to consider and vote upon a proposal to approve the
sale by the Company and its wholly-owned subsidiary, Bird Incorporated ("Bird"),
of substantially all of the assets of Bird that are related to Bird's vinyl
business as conducted at its Bardstown, Kentucky facility (the "Vinyl Business")
to Jannock, Inc., a Delaware corporation (the "Purchaser"), for $47,500,000
(subject to certain adjustments downward) in cash and the assumption of
specified liabilities of the Vinyl Business. This transaction is to be effected
pursuant to an Asset Purchase Agreement dated as of September 23, 1994 among the
Company, Bird and the Purchaser (the "Bardstown Sale"). Approval of the
Bardstown Sale will include approval of the grant of an option to the Purchaser
to purchase, and, if the option is exercised, of the sale to the Purchaser of
all of the Company's stock (the "Holding Stock") in Bird-Kensington Holding
Corp. ("Holding"). The Purchaser has agreed to pay up to $2,780,000 in the
aggregate upon the closing of any such sale of the Holding Stock. Holding
currently holds a 90% interest in Kensington Partners, which engages in the
manufacture and sale of vinyl replacement windows. In connection with the
proposed sale of the Holding Stock to the Purchaser, the Company is currently
negotiating the terms of an agreement with Holding's minority partner pursuant
to which such minority partner will waive its rights to acquire an additional
40% of the ownership interests in Kensington Partners (to bring its total
interest up to 50%), as well as any and all rights it has to acquire Holding's
partnership interest, and will agree to assign and sell its interest in such
partnership to Holding in exchange for a payment of 50% of the proceeds of the
sale (if any) of the Holding Stock to the Purchaser. The Bardstown Sale and the
sale of the Holding Stock are referred to herein collectively as the "Combined
Sale Transaction." Details of the Combined Sale Transaction are set forth in the
enclosed Proxy Statement, which you are urged to read carefully.
Your Board of Directors believes that the Combined Sale Transaction is in
the best interests of the Company and its stockholders. In arriving at its
decision to recommend the Combined Sale Transaction, the Board carefully
reviewed and considered the terms and conditions of the Combined Sale
Transaction and the factors described in the enclosed Proxy Statement.
Approval of the Combined Sale Transaction requires the affirmative vote of
the holders of sixty-six and two-thirds percent (66 2/3%) of the Company's
issued and outstanding shares of Common Stock. YOUR BOARD OF DIRECTORS HAS
UNANIMOUSLY APPROVED THE COMBINED SALE TRANSACTION AND RECOMMENDS THAT HOLDERS
OF COMMON STOCK VOTE FOR APPROVAL OF THE COMBINED SALE TRANSACTION.
In its capacity as sole stockholder of Bird, the Company has approved the
Combined Sale Transaction and authorized Bird's consummation thereof, contingent
on the approval by the Company's stockholders of the Combined Sale Transaction.
<PAGE> 3
CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY.
If you are a holder of the Company's Common Stock, whether or not you plan
to attend the meeting, please fill in the appropriate blanks, sign and date the
enclosed proxy card and return it in the envelope provided for that purpose. If
you attend the meeting and wish to vote in person, you may do so by withdrawing
your proxy prior to the meeting. Under Massachusetts law, if you abstain from
voting, your abstention will be treated as a "no" vote for purposes of
determining whether approval of the Combined Sale Transaction has been obtained.
Your abstention will not, by itself, affect your rights as a dissenting
stockholder. Holders of other classes of the Company's stock are receiving
notice of, and may attend but not vote at, the Special Meeting.
Sincerely,
Joseph D. Vecchiolla
President, Director and
Chief Executive Officer
<PAGE> 4
CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY.
AMENDED PRELIMINARY PROXY STATEMENT
BIRD CORPORATION
980 WASHINGTON STREET, SUITE 120
DEDHAM, MASSACHUSETTS 02026
(617) 461-1414
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 7, 1995
------------------------
Notice is hereby given that a Special Meeting of the stockholders (the
"Special Meeting") of Bird Corporation, a Massachusetts corporation (the
"Company"), will be held on March 7, 1995 at 10:00 a.m. local time, in the East
Room of the Holiday Inn, 55 Ariadne Road (at the junction of Route 1 South and
Route 128), Dedham, Massachusetts 02026, for the purpose of considering and
voting upon the following matters:
1. A proposal to approve the sale by the Company and its wholly-owned
subsidiary, Bird Incorporated, a Massachusetts corporation ("Bird"), of
substantially all of the assets of Bird that are used directly in, or arise
directly from, or are related directly to, Bird's business of manufacturing
and selling vinyl siding, vinyl window profiles, soffit, fascia and
associated accessories, as well as the purchase for resale of vinyl
products, as conducted at its Bardstown, Kentucky facility (the "Vinyl
Business") to Jannock, Inc., a Delaware corporation (the "Purchaser"), for
$47,500,000 (subject to adjustment downward) in cash and the assumption of
specified liabilities of the Vinyl Business. This transaction is to be
effected pursuant to an Asset Purchase Agreement (as amended, the "Purchase
Agreement") dated as of September 23, 1994 among the Company, Bird and the
Purchaser (the "Bardstown Sale"). Approval of the Bardstown Sale will
include approval of the grant of an option to the Purchaser to purchase,
and, if the option is exercised, of the sale to the Purchaser pursuant to
the Purchase Agreement of all of the issued and outstanding stock in
Bird-Kensington Holding Corp., a Delaware corporation ("Holding"). The
Purchaser has agreed to pay up to $2,780,000 in the aggregate upon the
closing of any such sale of the Holding Stock. Holding currently holds a
90% interest in Kensington Partners, a Pennsylvania general partnership
engaged in the manufacture and sale of vinyl replacement windows at its
Leechburg, Pennsylvania facility. In connection with the proposed sale of
the Holding Stock to the Purchaser, the Company is currently negotiating
the terms of an agreement with Holding's minority partner pursuant to which
such minority partner will waive its rights to acquire an additional 40% of
the ownership interests in Kensington Partners (to bring its total interest
up to 50%), as well as any and all rights it has to acquire Holding's
partnership interest, and will agree to assign and sell its interests in
such partnership to Holding in exchange for a payment of 50% of the
proceeds of the sale (if any) of the Holding Stock to the Purchaser.
2. Such other business as may properly come before the Special Meeting
and any adjournment thereof.
Holders of record of the Company's common stock, par value $1.00 per share
(the "Common Stock"), at the close of business on February 6, 1995 (the "Record
Date"), are entitled to notice of, and to vote at, the Special Meeting and any
adjournment thereof. Holders of record of the Company's 5% Cumulative Preferred
Stock, par value $100 per share (the "5% Preferred Stock"), and of the Company's
$1.85 Cumulative Convertible Preference Stock, par value $1.00 per share (the
"Preference Stock"), at the close of business on the Record Date, are entitled
to notice of, but not to vote at, the Special Meeting.
<PAGE> 5
CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY.
If the actions proposed herein are approved by the holders of the Common
Stock at the Special Meeting and effected by the Company, any stockholder (i)
who files with the Company, before the taking of the vote on the approval of
such action, written objection to the proposed actions stating that such
stockholder intends to demand payment for its shares if the actions are taken,
and (ii) in the case of any holder of Common Stock, whose shares are not voted
in favor of such actions, has or may have the right to demand in writing from
the Company, within twenty (20) days after the date of mailing to such
stockholder of notice in writing that the corporate actions have become
effective, payment for such stockholder's shares and an appraisal of the value
thereof. The Company and any such stockholder (including an abstaining
stockholder, whose abstention will be treated as a "no" vote for purposes of
determining whether the Combined Sale Transaction has been approved) shall in
such cases have the rights and duties and shall follow the procedure set forth
in Sections 88 to 98, inclusive, of Chapter 156B of the General Laws of the
Commonwealth of Massachusetts regarding dissenters' rights.
If you are a holder of Common Stock, please fill in the appropriate blanks,
sign, date and return the enclosed proxy card, whether or not you plan to attend
the Special Meeting. If you attend the meeting and wish to vote in person, you
may do so by withdrawing your proxy prior to the Special Meeting.
By order of the Board of Directors,
Frank S. Anthony
Clerk
February 10, 1995
2
<PAGE> 6
CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY.
AMENDED PRELIMINARY PROXY STATEMENT
BIRD CORPORATION
980 WASHINGTON STREET, SUITE 120
DEDHAM, MASSACHUSETTS 02026
(617) 461-1414
------------------------
PROXY STATEMENT
FOR
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 7, 1995
------------------------
This Proxy Statement is being furnished to the holders as of the Record
Date (as defined below) of common stock, par value $1.00 per share (the "Common
Stock"), of Bird Corporation, a Massachusetts corporation (the "Company"), in
connection with the solicitation of proxies by the Company's Board of Directors
(the "Board" or the "Board of Directors"), for use at a Special Meeting of
stockholders of the Company (the "Special Meeting") to be held on March 7, 1995
at 10:00 a.m. local time, in the East Room of the Holiday Inn, 55 Ariadne Road
(at the junction of Route 1 South and Route 128), Dedham, Massachusetts 02026,
and at any adjournment thereof. This Proxy Statement is also being furnished to
the holders as of the Record Date of the Company's 5% Cumulative Preferred
Stock, par value $100 per share (the "5% Preferred Stock"), and the Company's
$1.85 Cumulative Convertible Preference Stock, par value $1.00 per share (the
"Preference Stock"), who are entitled to notice of, but not to vote at, the
Special Meeting. This Proxy Statement and the accompanying Proxy Card are first
being mailed to stockholders of the Company on or about February 10, 1995.
At the Special Meeting, holders of the Common Stock will be asked to
consider and vote upon a proposal to approve the sale by the Company and its
wholly-owned subsidiary, Bird Incorporated, a Massachusetts corporation
("Bird"), of substantially all of the assets of Bird that are used directly in,
or arise directly from, or are related directly to, Bird's business of
manufacturing and selling vinyl siding, vinyl window profiles, soffit, fascia
and associated accessories, as well as the purchase for resale of vinyl
products, as conducted at its Bardstown, Kentucky facility (the "Vinyl
Business") to Jannock, Inc., a Delaware corporation (the "Purchaser"). This
transaction is to be effected pursuant to an Asset Purchase Agreement (as
amended, the "Purchase Agreement") dated as of September 23, 1994 among the
Company, Bird and the Purchaser (the "Bardstown Sale"). Approval of the
Bardstown Sale will include approval of the grant of an option to the Purchaser
to purchase and, if the option is exercised, of the sale to the Purchaser
pursuant to the Purchase Agreement of all of the issued and outstanding stock
(the "Holding Stock") of Bird-Kensington Holding Corp., a Delaware corporation
("Holding"). The Purchaser has agreed to pay up to $2,780,000 in the aggregate
upon the closing of any such sale of the Holding Stock. Holding currently holds
a 90% interest in Kensington Partners, a Pennsylvania general partnership
engaged in the manufacture and sale of vinyl replacement windows at its
Leechburg, Pennsylvania facility ("Kensington"). In connection with the proposed
sale of the Holding Stock to the Purchaser, the Company is currently negotiating
the terms of an agreement with Holding's minority partner pursuant to which such
minority partner will waive its rights to acquire an additional 40% of the
ownership interests in Kensington (to bring its total interest up to 50%), as
well as any and all rights it has to acquire Holding's partnership interest, and
will agree to assign and sell its interests in such partnership to Holding in
exchange for a payment of 50% of the proceeds of the sale (if any) of the
Holding Stock to the Purchaser. The Bardstown Sale and the sale of the Holding
Stock are referred to herein, collectively, as the "Combined Sale Transaction."
In connection with the closing of the Bardstown Sale, Bird will enter into a
Non-Competition Agreement (the "Non-Competition Agreement") and a License
Agreement regarding certain trademark rights (the "License Agreement") with the
Purchaser. The Combined Sale Transaction is described more thoroughly in this
Proxy Statement and in the documents attached hereto which
<PAGE> 7
CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY.
stockholders are urged to read carefully. It should be noted that, even if the
Combined Sale Transaction is approved and the Bardstown Sale is completed, the
sale of the Holding Stock would still be subject to the exercise by the
Purchaser of its option regarding such Holding Stock and other contingencies, as
explained more fully in this Proxy Statement. THE COMPANY'S BOARD OF DIRECTORS
HAS UNANIMOUSLY APPROVED THE COMBINED SALE TRANSACTION AND RECOMMENDS A VOTE FOR
THE APPROVAL OF THE COMBINED SALE TRANSACTION.
<PAGE> 8
CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY.
No person has been authorized to give any information or to make any
representation other than those contained in this Proxy Statement in connection
with the solicitation of proxies made hereby and, if given or made, such
information or representation must not be relied upon as having been authorized
by the Company or any other person. All information pertaining to the Purchaser
and its affiliates contained in this Proxy Statement has been supplied by the
Purchaser.
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
----
<S> <C>
SUMMARY............................................................................... iii
THE SPECIAL MEETING................................................................... 1
Time, Date and Place............................................................. 1
Matters to be Considered at the Special Meeting.................................. 1
Voting and Record Date........................................................... 1
Proxies.......................................................................... 1
THE COMBINED SALE TRANSACTION......................................................... 3
The Company...................................................................... 3
The Purchaser.................................................................... 3
Background and Reasons For the Combined Sale Transaction......................... 3
Recommendation of the Board of Directors......................................... 7
Opinion of Financial Advisor..................................................... 9
Interests of Certain Persons in the Combined Sale Transaction.................... 13
Regulatory Approvals............................................................. 15
Accounting Treatment............................................................. 16
Certain Income Tax Consequences.................................................. 16
Dissenting Stockholders' Rights.................................................. 16
Effect of the Combined Sale Transaction on the Company's Stockholders............ 18
Proceeds of the Combined Sale Transaction........................................ 18
Plans for the Operation of the Company Following the Combined Sale Transaction... 19
THE ASSET PURCHASE AGREEMENT.......................................................... 21
The Bardstown Sale............................................................... 21
Assets........................................................................... 21
Assumed Liabilities.............................................................. 21
Retained Assets and Retained Liabilities......................................... 22
Sale of Holding Stock............................................................ 22
Consideration.................................................................... 22
The Closing and the Kensington Closing........................................... 23
Representations and Warranties................................................... 23
Certain Covenants................................................................ 24
Covenants Regarding Certain Employee Matters..................................... 25
Covenants Regarding Environmental Matters........................................ 26
Conditions to Closing............................................................ 26
Certain Operative Agreements..................................................... 27
Indemnification.................................................................. 29
Termination...................................................................... 30
Termination Fee.................................................................. 30
</TABLE>
i
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
MARKET PRICE DATA AND RELATED MATTERS................................................. 31
Common Stock Information......................................................... 31
Dividends........................................................................ 31
Comparative Per Share Data....................................................... 32
SELECTED CONSOLIDATED FINANCIAL INFORMATION OF THE COMPANY............................ 33
SELECTED UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION OF THE COMPANY........ 36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................................................... 43
Financial Condition.............................................................. 43
Results of Operations............................................................ 47
Certain Tax and Benefits Matters................................................. 52
Certain Environmental Matters.................................................... 52
ADDITIONAL INFORMATION ABOUT THE COMPANY.............................................. 55
The Company's Business........................................................... 55
Employees........................................................................ 59
Properties....................................................................... 59
Legal Proceedings................................................................ 60
Security Ownership of Certain Beneficial Owners and Management................... 61
STOCKHOLDER PROPOSALS................................................................. 65
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS........................................... A-1
AUDITED CONSOLIDATED FINANCIAL STATEMENTS............................................. F-1
EXHIBIT A - OPINION OF DILLON, READ & CO. INC.
EXHIBIT B - ASSET PURCHASE AGREEMENT
EXHIBIT C - MASSACHUSETTS BUSINESS CORPORATION LAW
SECTION 76 AND SECTIONS 86 to 98
</TABLE>
ii
<PAGE> 10
CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY.
SUMMARY
The following is a brief summary of information contained elsewhere in this
Proxy Statement. This summary is not a complete statement of all information,
facts or materials relevant to a stockholder's decision with respect to the
matters to be voted on at the Special Meeting. This summary should only be read
in conjunction with, and is qualified in its entirety by reference to, the more
detailed information contained in this Proxy Statement and the Exhibits hereto.
Unless otherwise defined, capitalized terms used in this summary have the
respective meanings ascribed to them elsewhere in this Proxy Statement.
Stockholders are urged to review carefully this Proxy Statement and the Exhibits
hereto in their entirety.
THE PARTIES TO THE COMBINED SALE TRANSACTION
The Companies................. The Companies (i.e., Bird Corporation and Bird
Incorporated) are currently primarily engaged
in the business of manufacturing and marketing
roofing materials at Bird's Norwood,
Massachusetts facility and in conducting the
Vinyl Business, as well as in manufacturing
vinyl replacement windows and related
accessories through Kensington, at Kensington's
Leechburg, Pennsylvania facility. The Companies
are in the process of completing their
withdrawal from the environmental remediation
business, the remainder of which business is
currently under contract for sale. The
Companies recently completed their withdrawal
from the building materials distribution
business. The principal executive offices of
the Companies are located at 980 Washington
Street, Dedham, Massachusetts 02026-6714 and
their telephone number is (617) 461-1414. See
"THE COMBINED SALE TRANSACTION -- The
Companies" and "ADDITIONAL INFORMATION ABOUT
THE COMPANY -- The Company's Business."
The Purchaser................. The Purchaser is a Delaware corporation and a
wholly-owned subsidiary of Jannock Limited, an
Ontario corporation. The principal executive
offices of the Purchaser are located at Foster
Plaza Seven, 661 Andersen Drive, Pittsburgh,
Pennsylvania 15220 and its telephone number is
(412) 928-5740. The principal executive offices
of Jannock Limited are located at Suite 5205,
Scotia Plaza, 40 King Street West, Toronto,
Ontario M5H 3Y2 and its telephone number is
(416) 364-8586. See "THE COMBINED SALE
TRANSACTION -- The Purchaser."
THE SPECIAL MEETING
Time, Date and Place.......... The Special Meeting will be held in the East
Room of the Holiday Inn, 55 Ariadne Road (at
the junction of Route 1 South and Route 128),
Dedham, Massachusetts 02026 on March 7, 1995
commencing at 10:00 a.m., local time.
Matters to be Considered at
the Special Meeting......... At the Special Meeting, the stockholders of the
Company will be asked to consider and vote upon
the Combined Sale Transaction.
iii
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CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY.
Record Date; Shares Entitled
to Vote..................... Holders of record of shares of the Common Stock
at the close of business on February 6, 1995
are entitled to notice of and to vote at the
Special Meeting.
Vote Required................. Under the laws of the Commonwealth of
Massachusetts, the affirmative vote of the
holders of sixty-six and two-thirds percent
(66 2/3%) of the Common Stock issued and
outstanding on the Record Date is required to
authorize the Combined Sale Transaction.
Abstentions will be treated as "no" votes for
purposes of determining whether approval of the
Combined Sale Transaction has been obtained.
See "THE SPECIAL MEETING -- Voting and Record
Date."
THE COMBINED SALE TRANSACTION
Background and Reasons for the
Combined Sale Transaction... The Combined Sale Transaction represents the
culmination of numerous steps taken by the
Company over the past year in an effort to stem
continuing losses, to reduce debt and to
refocus the operations of the Company or, as an
alternative, to sell or find a strategic
partner for all or a substantial part of the
Company. See "THE COMBINED SALE
TRANSACTION -- Background and Reasons for the
Combined Sale Transaction."
Recommendation of the
Board of Directors.......... The Board of Directors has unanimously approved
the Combined Sale Transaction and recommends to
the Company's stockholders that they vote FOR
its approval. The Board of Directors has
determined that the Combined Sale Transaction
represents an attractive opportunity to sell
the Vinyl Business and possibly the Holding
Stock at favorable valuations. See "THE
COMBINED SALE TRANSACTION -- Recommendation of
the Board of Directors."
Opinion of Financial
Advisor....................... Dillon, Read & Co. Inc. ("Dillon Read") has
delivered its written opinion, dated September
23, 1994, to the Board of Directors that,
subject to the matters set forth therein, the
consideration to be received by the Company
pursuant to the Combined Sale Transaction, as
reflected in the Purchase Agreement, is fair,
from a financial point of view, to the
stockholders of the Company. A copy of the
written opinion of Dillon Read, which sets
forth the assumptions made, matters considered
and limits of its review, is attached to this
Proxy Statement as Exhibit A and should be read
in its entirety. Dillon Read will be entitled
to receive a fee of $640,000 if the Combined
Sale Transaction is consummated. See "THE
COMBINED SALE TRANSACTION -- Opinion of
Financial Advisor."
Interests of Certain Persons
in the Combined Sale
Transaction................. Certain of the Company's executive officers and
other employees are entitled, if their
employment is terminated following the
iv
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CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY.
Bardstown Sale, to receive severance benefits
and to the acceleration of rights in respect of
certain stock options and other employee
incentive and benefit plans due to the deemed
occurrence of a change in control in connection
with the Bardstown Sale. See "THE COMBINED SALE
TRANSACTION -- Interests of Certain Persons in
the Combined Sale Transaction."
Regulatory Approvals.......... The parties were granted "early termination" of
the applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act") as of October
18, 1994. See "THE COMBINED SALE
TRANSACTION -- Regulatory Approvals."
Accounting Treatment.......... Each sale included in the Combined Sale
Transaction will be accounted for as a sale of
certain assets and an assignment of certain
liabilities. The excess of the sum of the
consideration received by Bird and the
liabilities assumed by the Purchaser over the
book value of the assets sold will be
recognized as a gain on the Company's books.
See "THE COMBINED SALE
TRANSACTION -- Accounting Treatment."
Certain Income Tax
Consequences.................. Each sale included in the Combined Sale
Transaction will be a taxable transaction to
the Company. The Combined Sale Transaction will
not result in any direct federal or state
income tax consequences to stockholders of the
Company, except those who perfect their
dissenting stockholders' rights. See "THE
COMBINED SALE TRANSACTION -- Certain Income Tax
Consequences" and "-- Dissenting Stockholders'
Rights."
Dissenting Stockholders'
Rights........................ All stockholders of the Company (including
holders of the 5% Preferred Stock and the
Preference Stock) on the Record Date will be
entitled to exercise dissenting stockholders'
rights in accordance with Massachusetts law
with respect to the transactions included in
the Combined Sale Transaction. Abstentions, by
themselves, will not negatively affect the
dissenters' rights of abstaining stockholders.
See "THE COMBINED SALE
TRANSACTION -- Dissenting Stockholders'
Rights."
Effect of the Combined Sale
Transaction on the
Company's Stockholders...... If either or both of the transactions included
in the Combined Sale Transaction are
consummated, the stockholders of the Company
will retain their equity interests in the
Company. Neither the consummation of the
Bardstown Sale alone, nor of the Combined Sale
Transaction, will result in any changes in the
rights of stockholders of the Company.
Proceeds of the Combined Sale
Transaction................. The proceeds of the Combined Sale Transaction
will be applied to reduce the Company's
indebtedness, to make required severance
payments, to pay transaction-related costs and
expenses, as well as for other general
corporate purposes. See "THE COMBINED
v
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CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY.
SALE TRANSACTION -- Proceeds of the Combined
Sale Transaction" and "THE ASSET PURCHASE
AGREEMENT -- Consideration."
Plans for Operation of the
Company following the
Combined Sale Transaction... Following the closing of the Bardstown Sale and
the subsequent closing, if any, of the sale of
the Holding Stock, the Company plans to
continue its roofing manufacturing operations,
which historically constituted the Company's
core business. The Company's remaining interest
in the environmental remediation business
(primarily the San Leon Hydrocarbon Recycling
Center (the "San Leon Facility")), is currently
under contract for sale, but the Company plans
to operate this business until the sale of the
related assets has been consummated. See "THE
COMBINED SALE TRANSACTION -- Plans for the
Operation of the Company Following the Combined
Sale Transaction."
THE ASSET PURCHASE AGREEMENT
The Bardstown Sale............ Upon the terms and subject to the conditions of
the Purchase Agreement, Bird will sell and
transfer, and the Purchaser will purchase and
acquire, the Assets (as defined in the Purchase
Agreement), and Bird will assign to the
Purchaser, and the Purchaser will assume and
agree to pay, perform and discharge, the
Assumed Liabilities (as defined in the Purchase
Agreement). The Assets include all of Bird's
right, title and interest in and to: all assets
and properties of the Vinyl Business (sometimes
referred to herein as the "Activity"),
including: (i) certain Real Property (as
defined in the Purchase Agreement), (ii) all
Inventory (as defined in the Purchase
Agreement), (iii) books and records Related to
the Activity (as defined in the Purchase
Agreement), (iv) certain Licenses (as defined
in the Purchase Agreement), (v) certain
vehicles which are owned or leased by Bird,
(vi) all rights of Bird as of and subsequent to
the Closing Date (as defined in the Purchase
Agreement) under or pursuant to certain
warranties, representations and guaranties made
by suppliers or others in connection with
products or services furnished to Bird prior to
the Closing Date and Related to the Activity,
(vii) all rights of Bird to existing, pending
or executory contracts and purchase orders and
commitments which are Related to the Activity,
(viii) all accounts receivable Related to the
Activity, (ix) all goodwill Related to the
Activity, (x) certain rights to use the "Bird"
name and logo pursuant to the License
Agreement, (xi) all prepaid expenses Related to
the Activity and (xii) all Intellectual
Property (as defined in the Purchase
Agreement). Assumed Liabilities include
liabilities and obligations of Bird Related to
the Activity which (A) are reflected in the
Closing Balance Sheet (as defined in the
Purchase Agreement) and are included in the
calculation of Working Capital (as defined in
the Purchase Agreement), (B) arise from product
warranty claims related to goods manufac-
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tured and sold by Bird as part of the Activity
that are asserted after the Closing Date, (C)
are related to certain Licenses, leases,
agreements, purchase orders, contracts and
commitments which are not required under
generally accepted accounting principles to be
reflected on a balance sheet of Bird as of the
Closing Date, (D) relate to certain
environmental matters and (E) are otherwise
expressly assumed by the Purchaser under the
Purchase Agreement, as more fully described
therein. See "THE ASSET PURCHASE
AGREEMENT -- The Bardstown Sale," "-- Assets,"
"-- Assumed Liabilities" and "-- Retained
Assets and Retained Liabilities."
Sale of Holding Stock......... The Purchaser has been granted an option,
exercisable in writing at any time within the
thirty (30) day period commencing on the
Closing Date, to purchase and acquire the
Holding Stock, in accordance with the terms of
the Purchase Agreement. See "THE ASSET PURCHASE
AGREEMENT -- Sale of Holding Stock."
Consideration................. In consideration for the purchase of the
Assets, the Purchaser will pay to Bird
$47,500,000 in cash, subject to certain
downward purchase price adjustments in
accordance with the Purchase Agreement, and
will assume all of the Assumed Liabilities. If
the Purchaser exercises its option to acquire
the Holding Stock, in consideration for its
purchase thereof, the Purchaser will (i) pay to
Bird a purchase price from which Bird expects
to net an additional sum of up to $1,390,000
(as more fully described under "THE COMBINED
SALE TRANSACTION -- Proceeds of the Combined
Sale Transaction") and (ii) will assume the
Companies' obligations to guarantee or perform
certain obligations of Holding and Kensington
relating to such entities' operations. See "THE
ASSET PURCHASE AGREEMENT -- Consideration."
Certain Operative
Agreements.................... Pursuant to the Purchase Agreement, the
Purchaser and Bird will execute and deliver the
Non-Competition Agreement and the License
Agreement. See "THE ASSET PURCHASE
AGREEMENT -- Certain Operative Agreements."
Termination and Certain Other
Provisions.................. The Purchase Agreement contains certain
representations, warranties, covenants,
conditions and indemnification agreements of
the Companies and the Purchaser customary for
transactions of the type contemplated by the
Purchase Agreement. See "THE ASSET PURCHASE
AGREEMENT -- Representations and Warranties,"
"-- Certain Covenants," "-- Covenants Regarding
Certain Employee Matters," "-- Covenants
Regarding Environmental Matters,"
"-- Conditions to Closing,"
"-- Indemnification," "-- Termination" and
"-- Termination Fee".
The Purchase Agreement may be terminated at any
time prior to the Closing Date if: (i) the
parties mutually consent, (ii) the Closing (as
defined in the Purchase Agreement) has not
occurred by March 31, 1995, (iii) requisite
approval of the Company's
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CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY.
stockholders and the Senior Secured Lenders (as
defined in the Purchase Agreement) is not
obtained, (iv) certain defaults occur, (v) the
Board withdraws or changes its recommendation
in respect of the Combined Sale Transaction or
the Companies accept a Superior Proposal (as
defined in the Purchase Agreement), precluding
completion of the Combined Sale Transaction or
(vi) the Final Remedial Amount (as defined in
the Purchase Agreement) exceeds $1,500,000. The
Purchase Agreement may be terminated at any
time prior to the Kensington Closing Date (as
defined in the Purchase Agreement) with respect
to the proposed sale of the Holding Stock if
(i) the Kensington Final Remedial Amount (as
defined in the Purchase Agreement) exceeds
$500,000, (ii) the Kensington Closing (as
defined in the Purchase Agreement) shall not
have occurred by July 31, 1995 (or by the
expiration of the 105-day period following the
exercise by the Purchaser of its option to
purchase the Holding Stock, as applicable) or
(iii) any party (other than the Purchaser)
exercises any rights such party may have
pursuant to the Kensington Partnership
Agreement (as defined in the Purchase
Agreement) to purchase the Holding Stock. See
"THE ASSET PURCHASE AGREEMENT -- Termination."
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THE SPECIAL MEETING
TIME, DATE AND PLACE
This Proxy Statement is being furnished to the holders as of the Record
Date (as hereinafter defined) of the Common Stock in connection with the
solicitation of proxies by the Board of Directors for use at the Special Meeting
to be held on March 7, 1995 at 10:00 a.m. local time, in the East Room of the
Holiday Inn, 55 Ariadne Road (at the junction of Route 1 South and Route 128),
Dedham, Massachusetts 02026 and at any adjournment thereof. This Proxy Statement
is also being furnished to the holders as of the Record Date of the 5% Preferred
Stock and the Preference Stock, all of which are entitled to notice of, but not
to vote at, the Special Meeting.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, the holders of the Common Stock will be asked to
consider and vote upon (i) the Combined Sale Transaction and (ii) such other
business as may properly come before the meeting and any adjournment thereof.
VOTING AND RECORD DATE
The Board of Directors has fixed February 6, 1995, 1994 as the record date
("Record Date") for determining holders of Common Stock of record entitled to
receive notice of and to vote at the Special Meeting. Accordingly, only holders
of record of Common Stock who are holders of such securities as of the Record
Date will be entitled to notice of and to vote at the Special Meeting. As of the
Record Date, there were 4,098,967 shares of Common Stock outstanding and
entitled to vote.
Each holder of record of Common Stock on the Record Date is entitled to
cast one vote per share, exercisable in person or by a properly executed proxy,
with respect to the approval of the Combined Sale Transaction and any other
matter to be submitted to a vote of stockholders at the Special Meeting.
The presence at the Special Meeting, in person or by a proxy, of the
holders of a majority of the shares of Common Stock outstanding on the Record
Date will constitute a quorum at the Special Meeting. Votes cast by proxy or in
person at the Special Meeting will be counted by the persons appointed by the
Company to act as the inspectors for the meeting. Shares represented by proxies
that reflect abstentions or include "broker non-votes" will be treated as shares
that are present and entitled to vote for purposes of determining the presence
of a quorum. Under the laws of the Commonwealth of Massachusetts, the
affirmative vote of the holders of sixty-six and two-thirds percent (66 2/3%) of
the Common Stock issued and outstanding on the Record Date is required to
authorize the Combined Sale Transaction. Abstentions and "broker non-votes" will
be included in the calculation for purposes of determining whether the Combined
Sale Transaction has been approved and will be treated as "no" votes.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE COMBINED SALE
TRANSACTION AND RECOMMENDS A VOTE FOR THE APPROVAL OF THE COMBINED SALE
TRANSACTION. THE COMPANY IS SEEKING STOCKHOLDER APPROVAL OF THE COMBINED SALE
TRANSACTION. If the Company fails to obtain approval of the Combined Sale
Transaction by the Company's stockholders, the Company will not proceed with
such transaction and the Purchase Agreement may be terminated. The Company will
not be required to pay a termination or "break-up" fee upon such termination,
however, unless certain specified circumstances described under "THE ASSET
PURCHASE AGREEMENT -- Termination Fee" below occur.
PROXIES
All shares of Common Stock which are represented at the Special Meeting by
properly executed proxies received prior to or at the Special Meeting, and not
duly and timely revoked, will be voted at the Special
<PAGE> 17
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Meeting in accordance with the choices marked thereon by the stockholders.
Unless a contrary choice is marked, the shares will be voted FOR approval of the
Combined Sale Transaction.
At the time this Proxy Statement was filed with the Securities and Exchange
Commission (the "SEC"), the Board of Directors was not aware that any other
matters not referred to herein would be presented for action at the Special
Meeting. If any other matters properly come before the Special Meeting, the
persons designated in the proxy intend to vote the shares represented thereby in
accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Clerk of the Company at or before the taking of the vote of the Special
Meeting, a written notice of revocation bearing a later date than the proxy,
(ii) duly executing a later-dated proxy relating to the same shares and
delivering it to the Clerk of the Company before the taking of the vote at the
Special Meeting or (iii) attending the Special Meeting and voting in person
(although attendance at the Special Meeting will not in and of itself constitute
a revocation of a proxy).
All expenses of this solicitation, including the cost of preparing and
mailing this Proxy Statement, will be borne by the Company. In addition to
solicitation by mail, arrangements will be made with brokers and other
custodians, nominees and fiduciaries to forward proxy solicitation materials to
beneficial owners of shares of Common Stock held of record by such brokers,
custodians, nominees and fiduciaries, and the Company may reimburse such
brokers, custodians, nominees and fiduciaries for their reasonable expenses
incurred in connection therewith. Directors and employees of the Company may
also solicit proxies in person or by telephone without receiving any
compensation in addition to their regular compensation as directors and
employees.
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THE COMBINED SALE TRANSACTION
THE COMPANY
The Company, which commenced its business operations in 1795, conducts its
business and operations through Bird and Bird's direct and indirect
subsidiaries. Through Bird, the Company is currently primarily engaged in the
business of manufacturing roofing materials at Bird's Norwood, Massachusetts
plant and in conducting the Vinyl Business. Through its ownership of Holding,
which currently holds a 90% interest in Kensington, the Company is also engaged
in the production and sale of vinyl replacement windows and related accessories
at Kensington's Leechburg, Pennsylvania facility. The Company is in the process
of completing its withdrawal from the environmental remediation business it
presently conducts at the San Leon Facility, as further described under
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" and "ADDITIONAL INFORMATION ABOUT THE COMPANY -- The Company's
Business." The Company recently completed the sale of its building materials
distribution business, including the portion of such business previously
operated by its subsidiary, Southland Building Products, Inc. ("Southland"), as
more fully described under "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" and "ADDITIONAL INFORMATION ABOUT THE
COMPANY -- The Company's Business." All references to the "Company" include the
Company and its subsidiaries unless otherwise indicated by the context. The
Company and Bird are collectively referred to herein as the "Companies."
The principal executive offices of the Company are located at 980
Washington Street, Suite 120, Dedham, Massachusetts 02026-6714 and its telephone
number is (617) 461-1414.
THE PURCHASER
The Purchaser, a Delaware corporation incorporated in 1993, together with
its affiliates, manufactures and distributes building products for the Canadian
and United States construction markets. The Purchaser is a wholly-owned
subsidiary of Jannock Limited, an Ontario corporation incorporated in 1973
("Purchaser's Parent"). There are no affiliations among the Purchaser and the
Purchaser's Parent, on the one hand, and the Company, on the other hand.
The principal executive offices of the Purchaser are located at Foster
Plaza Seven, 661 Andersen Drive, Pittsburgh, Pennsylvania 15220 and its
telephone number is (412) 928-5740. The principal executive offices of the
Purchaser's Parent are located at Suite 5205, Scotia Plaza, 40 King Street West,
Toronto, Ontario M5H 3Y2 and the telephone number is (416) 364-8586.
BACKGROUND AND REASONS FOR THE COMBINED SALE TRANSACTION
The Combined Sale Transaction represents the culmination of numerous steps
undertaken by the Company over the past year in an effort to stem continuing
losses, to reduce debt and to refocus the operations of the Company, or, as an
alternative, to sell to a suitable purchaser or to find a strategic partner to
invest in the operations of all or a substantial part of the Company.
In 1993, the Company experienced severe financial setbacks which caused the
Company to default in the performance of certain operating and other covenants
contained in the Second Amended and Restated Revolving Credit Agreement (the
"Second Amended Credit Agreement") with its lending banks and required the
Company to classify the related debt as current on its September 30, 1993
balance sheet. Unless aggressively addressed, it was possible that such setbacks
could threaten the on-going viability of the Company. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." In
response to these problems, during 1993, the Company embarked, with the
assistance of the Corporate Recovery Services Group of Price Waterhouse LLP, on
a program which included refocusing the Company on its core businesses (i.e.,
its building materials manufacturing businesses), the elimination of unrelated
and nonessential functions, the imposition of strict cost control measures
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and the restructuring of its bank lines of credit. The Company's perception of
its core businesses -- its building materials manufacturing (i.e., vinyl and
roofing) businesses -- has remained constant throughout the period in which it
has contended with financial difficulties.
In furtherance of this program, the Company eliminated non-core businesses
by (i) withdrawing from its on-site environmental remediation business pursuant
to a series of minor asset sales and winding down and closing the balance of
such business in August 1994, (ii) selling all of its building materials
distribution business to two subsidiaries of Cameron Ashley, Inc. (each, a
"Cameron Subsidiary") for an aggregate purchase price of approximately
$28,000,000 in two transactions which closed on August 22, 1994 and November 28,
1994, respectively (as more fully described under "ADDITIONAL INFORMATION ABOUT
THE COMPANY -- The Company's Business" and "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS") and (iii) agreeing to sell
the Company's interest in the San Leon Facility to the minority stockholders in
such venture for a purchase price of $7.5 million payable in cash at the closing
of such transaction, which closing the parties have agreed will occur on or
before February 28, 1995. (See "-- Plans for the Operation of the Company
Following the Combined Sale Transaction" and "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS"). The agreement of
the Company and the minority stockholders regarding the proposed sale of the San
Leon Facility is subject to the buyers' raising necessary financing. In light of
this financing contingency, the Company's desire to exit from the environmental
remediation business without undue delay and the terms of the Company's
settlement agreement with the minority stockholders, pursuant to which the
Company reserves to itself the right to sell its interest in the San Leon
Facility to third parties, the Company's interest in the San Leon Facility is
currently being marketed with the cooperation of the minority stockholders,
while such parties continue their efforts to obtain requisite financing. See
"-- Plans for the Operation of the Company Following the Combined Sale
Transaction" and "ADDITIONAL INFORMATION ABOUT THE COMPANY -- The Company's
Business." Until the final disposition of the San Leon Facility, the operating
results of the San Leon Facility will be classified as discontinued operations
by the Company. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS." No assurance can be given that the Company's
activities in connection with the sale of its interest in the San Leon Facility
will be successfully completed or, if completed, will be on terms which are
advantageous to the Company.
In addition, and as part of its restructuring program, the Company
renegotiated its bank lines of credit, entering into a Third Amended and
Restated Revolving Credit and Term Loan Agreement on March 4, 1994 which amended
the Second Amended Credit Agreement (the "Third Amended Credit Agreement") (see
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS"). The Company has also undertaken capital expenditures to construct
an asphalt oxidizing plant as an expansion at its Norwood, Massachusetts
facility. The cost of this plant expansion is anticipated to be approximately
$4,900,000, of which approximately $3,400,000 has been expended through
September 30, 1994. The Company believes that, once completed, this project will
(i) result in a reduction of the Company's operating costs, including a
reduction of approximately $2,000,000 annually in costs associated with
obtaining raw materials from suppliers in other states, and (ii) ensure that the
Company has a convenient and reliable source of raw materials for use in the
Company's roofing manufacturing operations. See "ADDITIONAL INFORMATION ABOUT
THE COMPANY -- The Company's Business" and "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
Notwithstanding the aforementioned actions of the Company and its
additional efforts to reduce both working capital and corporate staffing and
overhead (all of which resulted in a reduction in 1993, as compared with 1992,
of peak or seasonal working capital of nearly $10 million), the deterioration of
the Company's financial condition continued into 1994. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
Consequently, in April 1994, the Company expanded the scope of its restructuring
efforts by commencing an active search to find a buyer or
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merger partner for the Company as a whole. Dillon Read, the Company's financial
advisor, was engaged to assist it in these efforts. In light of the intensive
nature of these efforts, on May 26, 1994, the Board formed the Strategic
Planning Committee, a special committee of the Board, the purpose of which was
to focus its attention on the Company's efforts to attract a purchaser of the
Company's stock or assets and to make appropriate recommendations and reports to
the full Board regarding such process. The full Board is ultimately responsible
for approving any transaction recommended by the Strategic Planning Committee.
The Strategic Committee of the Board is comprised of three members, Joseph D.
Vecchiolla, the Company's President, and two outside directors, Robert P. Bass,
Jr. and Guy W. Fiske.
As the Company's efforts progressed, the Company's management, the Board,
the Strategic Planning Committee, Dillon Read and the Company's legal advisors,
Paul, Hastings, Janofsky & Walker and Warner & Stackpole, met together and
individually on numerous occasions between May and September 1994 to reevaluate
the Company's alternatives, including the possibility of a substantial
down-sizing of the Company through a sale of the Vinyl Business and the
Company's interests in Kensington (the Vinyl Business and the Company's
interests in Kensington and such entity's business operations, taken as a whole,
are referred to herein as the "Combined Vinyl Business"), although the Combined
Vinyl Business was considered previously to be part of the Company's core
business. The sale of the Combined Vinyl Business was proposed to enable the
Company to achieve a significant reduction in, or the elimination of, the
Company's debt.
In May and June 1994, management of the Company held various meetings with
a small number of potential acquirors and engaged in extensive negotiations with
certain of such parties. Ultimately, the Company focused its attention on a
party which had proposed a merger with the Company at a cash price of $13 per
share (plus a contingent purchase price of up to $1.25 per share) of Common
Stock. Such transaction would also have included the redemption of the 5%
Preferred Stock and the Preference Stock. However, no letter of intent or
similar written understanding was entered into with respect to such proposed
transaction.
In late June and early July 1994, management of the Company and of such
other party negotiated extensively and attempted to finalize definitive merger
documentation. The parties met on July 8, 1994 to finalize and execute such
documentation. On such date, the potential acquiror stated that its principal
interest was in acquiring the Company's roofing manufacturing business and that,
as a whole, the Company had assets unrelated to its core roofing business and
contingent liabilities associated with such "non-core" assets in amounts which,
in the aggregate, were unacceptable to such party. As a result, the proposed
acquiror informed the Company on such date of its decision not to execute the
merger agreement and not to proceed further with the proposed merger
transaction. At such time, neither the Company nor the potential acquiror
proposed an alternative transaction. Accordingly, the Company and such party
terminated their negotiations on July 8, 1994. Since such date, this party has
expressed its continuing interest in exploring an acquisition of the Company's
roofing business at an unspecified future time, but the Company has not received
a formal written proposal in this regard. Although the Company has no current
intention to sell all or any portion of its roofing manufacturing business, it
will give due consideration to any proposal made with respect to the Company's
roofing business and to the potential effects of any proposed transaction on the
stockholders of the Company.
On July 12, 1994, the Company received an offer from another party for the
purchase of the Combined Vinyl Business. During July and through early September
1994, the Company also received offers from other potential purchasers to
acquire the entire Company, the Combined Vinyl Business or the Company's roofing
manufacturing business. Such offers included an informal, verbal proposal made
by the Purchaser for a stock-for-stock merger with the Purchaser and another
party's written proposal to make a cash tender offer to the Company's
stockholders at a price of $9 per share of Common Stock (the "$9 Offer"). The
proponent of the $9 Offer also proposed to purchase, for $47,500,000, the assets
of the Combined Vinyl Business as either a stand alone transaction or an
alternative transaction in the event the $9 Offer transaction was not
consummated. In August and September 1994, negotiations were held with certain
of these parties. In particular, the Company focused its attention on (i) the $9
Offer, (ii) the proposal of another party (the "Other Party") to purchase the
Vinyl Business alone for $52,500,000 (subject to a financing contingency) and
(iii) the offer of the Purchaser with respect to the Combined Sale Transaction.
5
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In late August and early September 1994, the Board and the Strategic
Planning Committee met on several occasions with senior management, Dillon Read
and the Company's independent legal counsel, Paul, Hastings, Janofsky & Walker
and Warner & Stackpole, to discuss the Company's options in light of the various
offers described in the preceding paragraph. The Company engaged in extensive
negotiations and discussions with the proponent of the $9 Offer as to the terms
of such offer and the antitrust implications of the proposed transaction. After
significant deliberation and numerous consultations with its legal advisors, the
Company concluded that there were material antitrust concerns relating to the $9
Offer transaction. Therefore, serious doubts existed as to whether the parties
would be able to obtain governmental clearance under the HSR Act with respect to
the $9 Offer within a time frame consistent with the schedule for performance by
the Company of its obligations to its lending banks, if at all. The Company also
believed that the Massachusetts Attorney General might object to, and attempt to
prevent, the consummation of the $9 Offer transaction on state and/or federal
law grounds.
In addition, management of the Company was concerned that because the
Company and the proponent of the $9 Offer have a number of major customers in
common, the Company's roofing manufacturing business could suffer a significant
loss of customers upon any public announcement of the $9 Offer due, in
particular, to the policy of many of such customers of maintaining at least two
independent suppliers at all times. The Company further believed a prolonged
review of HSR Act issues could potentially result in a loss of market share and
value, as customers might perceive the transaction negatively and seek
alternative sources of supply. Any such loss of customers would materially and
adversely impact the Company's operations. The Board, the Strategic Planning
Committee and the Company's senior management further believed that the terms of
the $9 Offer were not sufficiently favorable to the Company's stockholders to
risk pursuing such transaction unless the proponent of the $9 Offer
significantly improved its offer or provided satisfactory security to the
Company in the case of a failure of the transaction, which such party declined
on several occasions to do. Based on the foregoing considerations, including the
fact that the Company had received a significantly superior offer (the $13 per
share offer described above) shortly before the $9 Offer was made and that the
proponent of the $9 Offer had been the second highest bidder (at $12 per share
in cash, plus a contingent payment) during the period in which the $13 offer was
made, and also based on the Board's deliberations and on the fact that the
proponent of the $9 Offer failed to improve the terms of the $9 Offer materially
notwithstanding the concerns of the Company and such party's prior bid for the
Company, the Company permitted such proponent's final iteration of the $9 Offer
to expire by its terms on September 12, 1994. As a result, the proponent of the
$9 Offer terminated negotiations with the Company.
The Company continued negotiations through the end of August and the early
part of September 1994 with both the Purchaser and the Other Party. The
Purchaser withdrew its stock-for-stock proposal on September 7, 1994 in favor of
its pursuit of the Combined Sale Transaction.
During the course of its discussions with the Other Party, the Other Party
revised the terms of its original offer to purchase the Combined Vinyl Business
for a price of $45 million and in September 1994 offered to purchase the Vinyl
Business alone for a price of $47,500,000, which was raised to $50,000,000 and
ultimately to $52,500,000 (in each case subject to a financing contingency). The
Other Party indicated to the Company that its exclusion of Kensington from its
offer was based on the Other Party's view that the losses incurred by Kensington
would cause difficulty with respect to the Other Party's financing of the
proposed acquisition, and that the existence of certain rights of the minority
partner in Kensington would negatively affect the ability of the parties to
complete a sale of the Kensington operations within a reasonable time frame.
Although the Other Party's proposal to purchase the Vinyl Business for
$52,500,000, if successfully completed, would have provided proceeds to the
Company greater than the proceeds from the Combined Sale Transaction, such
proposal was contingent upon senior debt and high-yield note financing while the
Purchaser's proposal was not. The lenders and financial advisors of the Other
Party could not provide a bank commitment letter for senior debt and a note
financing "highly confident" letter which gave sufficient assurance to the
Company and its advisors to justify foregoing the Combined Sale Transaction with
the Purchaser. Therefore, in light of the considerations outlined above and
described under "-- Recommendation
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of the Board of Directors," the Board concluded that the Combined Sale
Transaction with the Purchaser offered the better terms for the Company and its
stockholders, and on September 23, 1994 the Company declined the Other Party's
offer.
Accordingly, the Companies and the Purchaser commenced the drafting and
negotiation of definitive documentation. From early September through September
23, 1994, the Companies and the Purchaser engaged in extensive discussions
regarding the Combined Sale Transaction, and circulated and revised various
drafts of definitive documentation. Discussions among such parties related to a
wide range of issues, including the structure and timing of the proposed sale of
the Holding Stock, environmental matters, employee benefits matters,
indemnification issues, the valuation of Kensington and the Holding Stock, price
and adjustments to price and other related items. During this time, the
Purchaser also conducted a significant review of the Combined Vinyl Business.
The parties agreed upon the purchase price to be paid in respect of the Combined
Sale Transaction shortly before the Board's approval thereof.
On September 20, 1994, the Board approved the Combined Sale Transaction
based, in part, on Dillon Read's opinion delivered orally (and confirmed in
writing on September 23, 1994) to the Company's Board as of such dates that,
subject to the matters set forth therein, the consideration to be received by
Bird pursuant to the Combined Sale Transaction was fair to the stockholders of
the Company from a financial point of view. See "-- Opinion of Financial
Advisor."
The definitive Purchase Agreement was executed and delivered by the parties
on September 23, 1994. A copy of such document is attached to this Proxy
Statement as Exhibit B.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors believes that the Combined Sale Transaction is fair
to and in the best interests of the Company and its stockholders. Accordingly,
the Board of Directors has unanimously approved the Combined Sale Transaction
and recommends to the Company's stockholders that they vote FOR the approval of
the Combined Sale Transaction.
In reaching its conclusions, the Board of Directors considered, among other
things, the following material factors:
(1) A wide range of alternative strategic options (including sales of
assets or the entire Company, elimination or reduction of costs and finding
strategic partners to invest in the operations of the Company), out of
which options the Combined Sale Transaction presented the most benefits to
the Company and the best value to its stockholders, constituting the
highest-priced offer for the Combined Vinyl Business that was not subject
to a financing contingency, and a superior offer to the $9 Offer (the only
offer for the entire Company) for the reasons described above, all as more
fully described under "-- Background and Reasons for the Combined Sale
Transaction"; current industry, economic and market conditions and trends
relative to the vinyl industry which the Board considered to be negative,
including the impact on the industry of higher long term resin costs
resulting from foreign competition for resin and lower price potential due
to the commoditization of vinyl products, increased competition resulting
from industry consolidation and the potentially adverse affect of
increasing interest rates on the Company in the absence of a reduction in
the Company's indebtedness; and the Company's projected future value and
prospects absent the consummation of the Combined Sale Transaction,
particularly given the likelihood that the Company could significantly
reduce or eliminate its indebtedness if the Combined Sale Transaction was
consummated and in light of prospects that, in the absence of the
consummation of such transaction, the Company would be required to
undertake the expense of upgrading its equipment and expanding its product
base to compete in the vinyl industry with multi-national firms having
significantly greater resources than the Company's (as described more fully
under "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- Results of Operations" and "ADDITIONAL INFORMATION
ABOUT THE COMPANY -- The Company's Business").
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(2) The Company's intention to focus on its roofing manufacturing
operations and its ability following the closing of the Combined Sale
Transaction to invest further in such operations, including by expanding
its Norwood, Massachusetts plant with an asphalt oxidizing facility and by
purchasing previously leased equipment. See "-- Plans for the Operation of
the Company Following the Combined Sale Transaction."
(3) Information concerning the financial performance, condition
(including serious negative balance sheet indicators), business operations
and prospects of the Companies, including the possibility that the Company
would not be able to meet its debt repayment obligations. See
"-- Background and Reasons for the Combined Sale Transaction" and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
(4) The relatively small number of potential acquirors and the
inability of the Company to negotiate with any of such potential acquirors
a definitive agreement with terms more favorable than the Combined Sale
Transaction (including a sale of all or substantially all of the issued and
outstanding capital stock of the Company).
(5) The proposed terms and structure of the Combined Sale Transaction
and the terms and conditions of the License Agreement, the Non-Competition
Agreement and the Purchase Agreement. In this regard the Board also
considered the ability of the Company to terminate the Purchase Agreement,
notwithstanding the non-solicitation provisions contained therein, upon the
occurrence or non-occurrence of certain events (including upon the failure
of the Company's stockholders to approve the transaction), and the limited
application of the provisions contained in the Purchase Agreement
pertaining to the $1,500,000 termination or "break-up" fee, as described
more fully under the captions "THE ASSET PURCHASE AGREEMENT -- Termination"
and "-- Termination Fee."
(6) The effect of the Combined Sale Transaction on the stockholders of
the Company, as well as on the Company's employees and lenders. See
"-- Interests of Certain Persons in the Combined Sale Transaction" and
"-- Effect of the Combined Sale Transaction on the Company's Stockholders."
(7) The opinion dated September 23, 1994 delivered by Dillon Read to
the Board that, subject to the matters set forth therein, the consideration
to be received pursuant to the Combined Sale Transaction is fair to the
stockholders of the Company from a financial point of view. See "-- Opinion
of Financial Advisor."
(8) The experience, favorable reputation and perceived motivation of
the Purchaser and its executives and the Purchaser's financial condition,
which factors demonstrated the Purchaser's financial ability and
underscored the Purchaser's earnest intent to consummate the Combined Sale
Transaction.
(9) The recommendation of the Board's Strategic Planning Committee and
of the Company's management to enter into the Combined Sale Transaction.
(10) The Board's expectation that completion of the Combined Sale
Transaction would substantially eliminate the Company's indebtedness and
would enhance the Company's ability to obtain financing and to focus on its
roofing manufacturing operations.
(11) The need for expeditious, but deliberate and well-considered
action to (i) continue to improve the Company's financial condition and
(ii) enhance the Company's attractiveness to prospective lenders
(particularly prior to the Company's opportunity to obtain financing from
Barclays Business Credit, Inc. ("Barclays") which financing was facilitated
primarily by the Company's sale of its building materials distribution
business, as such financing is described under "-- Proceeds of the Combined
Sale Transaction") for purposes of obtaining new financing on terms
reasonably favorable to the Company. See "-- Background and Reasons for the
Combined Sale Transaction" and "-- Proceeds of the Combined Sale
Transaction."
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In light of the Company's determination to concentrate on its roofing
manufacturing operations, its debt obligations and other liabilities and the
consideration to be received in connection with the Combined Sale Transaction,
the Board determined that the Combined Sale Transaction is in the best interests
of the Company and its stockholders. The Board took into account the fact that
(i) only a relatively small number of parties expressed interest in acquiring
all or a part of the Company and (ii) following its extensive but unsuccessful
negotiations with certain of such interested parties in late 1994, it was
reasonably unlikely that the Company would receive, in the foreseeable future,
offers to engage in alternative transactions on terms more favorable to the
Company and its stockholders than those offered by the Purchaser. The Board
believes that the possibility that the Companies would be obligated to pay any
"break-up" fee under the Purchase Agreement is, therefore, correspondingly
limited. See "-- Voting and Record Date" above and "THE ASSET PURCHASE
AGREEMENT -- Certain Covenants" and "-- Termination Fee." Furthermore,
notwithstanding the recent asset sales by and streamlining efforts of the
Company, in the Board's opinion the Combined Sale Transaction presents an
attractive opportunity to sell the remainder of the Company's non-roofing assets
at a favorable valuation.
The Board has contemplated a number of other factors in making its decision
to focus on its roofing manufacturing operations, rather than the Combined Vinyl
Business, as its principal business in the future. In particular, the Board took
into account certain significant competitive advantages enjoyed by the roofing
manufacturing business, including, but not limited to its significant market
share and its ability to maintain low costs in its production due to (i) its
modern plant, (ii) its internal supply of granules from its own quarry and
granule plant, (iii) future cost savings expected to result from its recent
below-market purchase of its roofing machine and (iv) the anticipated completion
of the construction of its asphalt oxidizing plant expansion. Comparatively, the
Combined Vinyl Business exhibits relatively few competitive advantages; for
example, the Company has a significantly smaller market share in such industry
segment. The Board also took into account the fact that as a result of industry
consolidation, the Combined Vinyl Business was more likely to generate a premium
valuation than the roofing business.
The Board believes that the Company will be well-positioned to maximize
profitability in its roofing manufacturing operations following the closing of
the Bardstown Sale and of any sale of the Holding Stock. The Board further
believes that the Company would benefit more from operating a financially strong
roofing manufacturing business than from operating as a highly leveraged company
with roofing and vinyl operations in different locations. The Board analyzed and
considered the foregoing and certain other factors discussed herein in comparing
its alternatives to the Combined Sale Transaction and in evaluating the merits
of the Combined Sale Transaction, including the opinion of Dillon Read. See
"-- Opinion of Financial Advisor."
The Company has, in its capacity as sole stockholder of Bird, approved the
Combined Sale Transaction and has authorized Bird's consummation thereof,
contingent on the approval by the Company's stockholders of the Combined Sale
Transaction.
OPINION OF FINANCIAL ADVISOR
Dillon Read has delivered its written opinion to the Board that, as of
September 23, 1994, the consideration to be received by the Company in
connection with the Combined Sale Transaction is fair, from a financial point of
view, to the stockholders of the Company.
The full text of the opinion of Dillon Read, which sets forth the
assumptions made, matters considered and limits on the review undertaken, is
attached hereto as Exhibit A. Dillon Read's opinion is directed only to the
consideration to be received in the Combined Sale Transaction and does not
constitute a recommendation to any stockholder as to how such stockholder should
vote at the Special Meeting. The summary of the opinion of Dillon Read set forth
in this Proxy Statement is qualified in its entirety by reference to the full
text of such opinion.
In arriving at Dillon Read's opinion, among other things, Dillon Read: (i)
reviewed the audited consolidated financial statements of the Company, (ii)
reviewed unaudited historical financial information
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relating to the Combined Vinyl Business, (iii) reviewed certain other publicly
available information concerning the Company and the assets to be sold in the
Combined Sale Transaction, (iv) analyzed certain financial forecasts provided to
Dillon Read by the Company and performed discounted cash flow analyses based
upon those forecasts, (v) reviewed current operating statistics, financial
results, the financial positions and common stock market prices of companies in
lines of business Dillon Read considered generally comparable to the Combined
Vinyl Business, (vi) reviewed recent business combinations which Dillon Read
considered relevant, (vii) reviewed drafts of the Purchase Agreement, (viii)
considered the sequence of events leading up to the Combined Sale Transaction,
including the consideration by the Company of various other transactions (such
as other offers relating to the Combined Vinyl Business and the $9 Offer, which
$9 Offer did not constitute a practical opportunity given the Company's
assessment of certain material legal and business impediments to the
consummation of such proposed transaction), (ix) held discussions with certain
senior officers, directors and members of the Company's management regarding the
business and prospects of the Company and the assets to be sold in the Combined
Sale Transaction and (x) conducted such other financial studies, analyses,
examinations and inquiries as Dillon Read deemed necessary or appropriate.
In connection with its review, Dillon Read did not independently verify any
of the foregoing information and relied on its being complete and accurate in
all material respects. Dillon Read did not make an independent evaluation or
appraisal of any assets or liabilities (contingent or otherwise) of the Company,
nor was Dillon Read furnished with any such appraisals. With respect to
financial forecasts, Dillon Read assumed that they were reasonably prepared on
bases reflecting the best available estimates and judgments of the Company's
management at the time of preparation as to the expected future financial
performance of the Company. Dillon Read's opinion is based on the economic,
monetary and market conditions, and the terms of the Combined Sale Transaction,
existing on the date thereof.
In connection with rendering its opinion, Dillon Read performed certain
financial and comparative analyses. The following paragraphs summarize these
analyses. The following does not purport to be a complete description of the
analyses performed, or the matters considered by Dillon Read in arriving at its
opinion. These analyses constitute the material analyses performed by Dillon
Read. The consideration to be received by the Company in connection with the
Combined Sale Transaction falls within or exceeds the range of values determined
pursuant to each such analysis. These analyses, therefore, considered in the
aggregate, support Dillon Read's opinion.
Discounted Cash Flow Analysis. Dillon Read performed a discounted cash
flow valuation of the Combined Vinyl Business and of the Vinyl Business alone,
based on projections provided by the Company's management through the year 1995
and extrapolated by Dillon Read through the year 2000 following discussions with
the management of the Company. Projections provided by the Company to Dillon
Read were based on a number of assumptions made by the Company, including
assumptions with respect to sales growth, capital spending requirements,
profitability, pricing and market share (as such assumptions are more fully
described under "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- Results of Operations" and "ADDITIONAL INFORMATION
ABOUT THE COMPANY -- The Company's Business"). Dillon Read discounted to the
present at selected discount rates from 14.0% to 16.0% (which rates were
selected based upon an analysis of the weighted average cost of capital for
comparable publicly traded companies, adjusted for differences in capital
structures) (i) the projected stream of unlevered after-tax cash flows through
the year 2000 and (ii) the projected terminal value at such year based upon
multiples of projected earnings before interest, taxes, depreciation and
amortization ("EBITDA") ranging from 4.0 to 7.0 (based upon Dillon Read's
knowledge of the building materials industry and consistent with the comparable
company and comparable transaction analysis). Such analysis indicated values for
the Combined Vinyl Business ranging from $33.1 million to $48.6 million.
Similarly, the analysis for the Vinyl Business alone indicated values less than
the consideration to be received by Bird in connection with the proposed sale of
the Vinyl Business.
Comparable Company Analysis. Dillon Read analyzed certain multiples and
ratios derived from selected stock price, earnings and other financial
information of certain companies in the building materials
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industry, focusing particularly on publicly-traded companies that it considered
most comparable to the Company's Combined Vinyl Business: ABT Building Products
Corporation, Drew Industries Incorporated, Elcor Corporation, Emco Limited,
Instrument Systems Corporation, International Aluminum Corporation, Morgan
Products Ltd., Nortek, Inc., Patrick Industries, Inc., Ply-Gem Industries, Inc.,
Premdor Inc., Thermal Industries, Inc., TJ International, Inc. and Triangle
Pacific Corp. (collectively the "Comparable Companies"). Dillon Read considered
numerous factors in selecting companies for comparison, including scope of
business operations, size, financial condition and rate of growth. Dillon Read
analyzed the unlevered market value, which includes net debt (deemed to be
substantially comparable to aggregate consideration) of these companies as
multiples of their latest twelve month ("LTM") and projected revenues, EBITDA
and earnings before interest and taxes ("EBIT"), where forecasted data was
publicly available. The results of these analyses are set forth in the following
table:
<TABLE>
<CAPTION>
AGGREGATE
CONSIDERATION
FOR COMBINED CONSIDERATION
UNLEVERED MARKET SALE FOR BARDSTOWN
VALUE TO: AVERAGE MEDIAN HIGH LOW TRANSACTION SALE ALONE
- ----------------------------------------- ------- ------ ------ ------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
LTM revenues............................. 0.55x 0.54x 1.02x 0.23x 0.69x 1.03x
1994 estimated revenues.................. 0.71x 0.66x 1.02x 0.25x 0.66x 0.98x
1995 estimated revenues.................. 0.86x 0.59x 0.96x 0.36x 0.62x 0.95x
LTM EBITDA............................... 6.2x 6.7x 13.2x 2.8x 38.5x 6.5x
1994 estimated EBITDA.................... 6.1x 7.1x 10.2x 4.1x 7.1x 6.5x
1995 estimated EBITDA.................... 6.3x 5.4x 6.2x 3.9x 6.9x 6.8x
LTM EBIT................................. 8.2x 9.1x 14.5x 3.7x (1) 8.5x
1994 estimated EBIT...................... 7.8x 9.0x 15.9x 4.8x 10.5x 8.5x
1995 estimated EBIT...................... 7.7x 6.9x 10.5x 4.5x 10.7x 9.4x
</TABLE>
- ---------------
(1) Unmeaningful ratio due to negative LTM EBIT for the Combined Vinyl Business
Dillon Read believes that these multiples supported Dillon Read's view that
the consideration to be received by the Company is fair, from a financial point
of view, to the stockholders of the Company, as the ratios of unlevered market
value to selected operating financial statistics for the Combined Sale
Transaction and the Bardstown Sale alone were within the range of, or exceeded,
equivalent multiples of the Comparable Companies.
In analyzing the Combined Sale Transaction, Dillon Read assumed the
aggregate consideration included $2,500,000 in respect of the Company's 90%
interest in Kensington (which payment does not take into account any payment to
be made by the Company to the minority partners in exchange for such partner's
waiver of its rights to acquire ownership interests in Kensington). (See "THE
COMBINED SALE TRANSACTION -- Proceeds of the Combined Sale Transaction" for a
discussion of recent negotiations between the minority partner in Kensington and
the Company relating to the allocation of consideration to be received for the
Holding Stock as between such partners.) The assumptions underlying the implicit
growth rates of revenue, EBITDA and EBIT of the Vinyl Business and the Combined
Vinyl Business over the years 1994 and 1995 provided by the Company to Dillon
Read included assumptions made by the Company with respect to sales growth,
capital spending requirements, profitability, pricing and market share (as such
assumptions are more fully described under "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Results of Operations" and
"ADDITIONAL INFORMATION ABOUT THE COMPANY -- The Company's Business").
Comparable Acquisition Transaction Analysis. Dillon Read also reviewed
publicly available financial information for selected mergers and acquisitions
(including both stock and asset acquisitions) of building materials companies,
including the acquisition of Norandex Inc. by Fibreboard Corporation, the
acquisition of Abitibi-Price Building Products by Kohlberg & Co., and the
acquisition of CertainTeed Corporation by
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Compagnie de Saint-Gobain. Dillon Read considered numerous factors in selecting
comparable transactions, including the scope of the entities' business
operations and the position of the entities in their business cycle. Dillon Read
analyzed the acquisition price of the target entity or assets being acquired,
including assumed net debt (the unlevered market value) of these entities or
assets, as multiples of LTM revenues, EBITDA and EBIT. An analysis of unlevered
market value to LTM revenues yielded an average of 0.74x and a median of 0.62x
(with a high value of 1.67x and a low value of 0.28x) which compares to 0.69x
for the aggregate consideration for the Combined Sale Transaction, and 1.03x for
the consideration for the Bardstown Sale alone. An analysis of unlevered market
value to LTM EBITDA yielded an average of 7.3x and a median of 6.9x (with a high
value of 10.3x and a low value of 5.2x) which compares to 38.5x for the
aggregate consideration for the Combined Sale Transaction, and 6.5x for the
consideration for the Bardstown Sale alone. An analysis of unlevered market
value to LTM EBIT yielded an average of 10.5x and a median of 9.4x (with a high
value of 29.6x and a low value of 5.7x) which compares to an unmeaningful ratio
(because of a negative LTM EBIT for the Combined Vinyl Business) for the
aggregate consideration for the Combined Sale Transaction, and 8.5x for the
consideration for the Bardstown Sale alone. Dillon Read believes that these
multiples supported Dillon Read's view that the consideration to be reached by
the Company is fair, from a financial point of view, to the stockholders of the
Company, as the ratios of the unlevered market value to selected financial
statistics for the Vinyl Business were within the range of selected acquisition
multiples. In analyzing the Combined Sale Transaction, Dillon Read assumed the
aggregate consideration included $2,500,000 in respect of the Company's 90%
interest in Kensington (which payment does not take into account any payment to
be made by the Company to the minority partner in exchange for such partner's
waiver of its rights to acquire additional ownership interests in Kensington).
See "THE COMBINED SALE TRANSACTION -- Proceeds of the Combined Sale Transaction"
for a discussion of recent negotiations between the minority partner in
Kensington and the Company relating to the allocation of consideration to be
received for the Holding Stock as between such partners.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant methods of financial analysis and the
application of those methods to the particular circumstances and, therefore,
such an opinion is not susceptible to summary description. In arriving at its
opinion, Dillon Read did not attribute any particular weight to any analysis or
factor considered by it, but rather made qualitative judgments as to the
significance and relevance of each analysis and factor. Accordingly, Dillon Read
believes that its analyses and summary set forth above must be considered as a
whole and that the selection of portions of its analyses, of the factors
considered or of the above summary, without considering all factors and
analyses, could create a misleading or incomplete view of the processes
underlying Dillon Read's opinion.
Dillon Read is an investment banking firm engaged, among other things, in
the valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities and private placements. The
Company selected Dillon Read as its financial advisor because Dillon Read is an
internationally recognized investment banking firm and because the principals of
Dillon Read have substantial experience in transactions similar to the Combined
Sale Transaction and are familiar with the Company and its business. Dillon Read
has rendered from time to time various investment banking services to the
Company, including acting as financial advisor to the Company in the sale of a
portion of the Company's on-site environmental remediation business in 1993 and
the sale of substantially all of the Company's building materials distribution
business earlier this year. During the last two years, Dillon Read earned
compensation with respect to all such services, other than the fees described
below, of $961,502. These fees included fees paid to Dillon Read pursuant to its
engagement letter dated April 1, 1994 (the "Letter") upon the sale of
substantially all of the business or assets of any of Southwest Roofing Supply,
Inc., Southwest Express, Inc. and Atlantic Building Products Company (the
"Distribution Companies"), which transactions were consummated on August 22,
1994. In addition, a fee in the amount of $100,125 is payable to Dillon Read in
connection with the post-closing adjustment recently made to the purchase price
paid to the Company by a Cameron Subsidiary in connection with such party's
August 22, 1994 purchase of certain building materials distribution business
assets and the purchase by
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another Cameron Subsidiary of Southland's assets from the Company. The
adjustment amount was remitted to the Company on November 17, 1994, as more
fully described under "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- Financial Condition."
Pursuant to the Letter, the Company agreed to pay Dillon Read a fee of
$150,000 if the Board requested Dillon Read to render an opinion as to the
fairness, from a financial point of view, of the consideration to be received by
the Company in connection with the sale of any assets, other than assets related
to the San Leon Facility or other de minimis assets of the Company. Dillon Read
is due such $150,000 for the issuance of its fairness opinion in connection with
the Combined Sale Transaction. The Letter also requires the Company to pay
Dillon Read a fee upon the sale of substantially all of the business or assets
of any of the Distribution Companies or the stock or substantially all of the
assets of the Company (excluding the assets associated with the San Leon
Facility or other de minimis assets of the Company) at any time before twelve
months following the termination of the Letter by the Company. The foregoing fee
is based upon the value of the sale and, with respect to any sale of assets of
the Distribution Companies, whether the sale was consummated by the Company with
a Cameron Subsidiary as the purchaser. In accordance with the Letter, upon the
consummation of the Combined Sale Transaction, Dillon Read will receive an
additional fee of $640,000 in connection with financial advisory services it
rendered with respect to the Combined Sale Transaction ($615,000 in the event
only the Bardstown Sale is closed). In addition, the Company has agreed to
reimburse Dillon Read for its reasonable out-of-pocket expenses, including the
reasonable fees and disbursements of its counsel, and to indemnify Dillon Read
against any losses, claims, damages or liabilities arising out of its
engagement, except to the extent such losses, claims, damages or liabilities
result from the gross negligence or bad faith of Dillon Read in performing the
services which are the subject of the Letter.
INTERESTS OF CERTAIN PERSONS IN THE COMBINED SALE TRANSACTION
In considering the recommendation of the Board with respect to the Combined
Sale Transaction, stockholders should be aware that certain of the executive
officers and certain of the directors of the Company have interests in the
Bardstown Sale that are in addition to or different from the interests of
stockholders of the Company generally. These interests are discussed below.
Virtually all of the Company's executives and its non-employee directors
are entitled to certain accelerated benefits under employee benefit plans and
certain executives are entitled to severance benefits payments upon the
termination of their employment following the occurrence of a deemed "change in
control" of the Company. For purposes of most of these plans and contracts, a
"change in control" includes the disposition of all or substantially all of the
business of the Company pursuant to a partial or complete liquidation or a sale
of assets, unless the Board decides by resolution to characterize such
disposition as part of a restructuring or redeployment of assets. The Board
believes that the Combined Sale Transaction, taken together with the various
asset sales effected by the Company over the past year, represents the
disposition of substantially all of the business of the Company for the purposes
of the "change in control" provisions discussed herein. Accordingly, the Board
has elected not to adopt a resolution characterizing the Bardstown Sale as part
of a restructuring or redeployment of assets for purposes of such "change in
control" provisions.
The standard "change in control" definition set forth above applies under
the two forms of severance contracts and severance benefits agreements which are
in effect with respect to substantially all of the executive officers of the
Company, under the Company's stock option plans and under the Company's Long
Term Incentive Plan (the "LTIP") and 401(k) Employee Savings and Profit Sharing
Plan (the "Savings Plan"). If a change in control occurs, the effect varies
under the various plans and contracts, as follows:
Executive Severance Contracts and Provisions. The Company's executive
severance contracts typically include one of two alternative provisions. Under
the so-called "single trigger" contracts (which are held only by Joseph D.
Vecchiolla, the Company's President and Chief Executive Officer and a director
of the Company, and by Frank S. Anthony, the Company's Vice President, General
Counsel and Clerk), the
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relevant executive officer is entitled to payment of severance benefits if such
individual's employment is terminated after a change in control, whether by the
Company (other than for disability or "Cause," as such term is defined in the
severance contracts) or by the executive voluntarily for any reason (other than
death or retirement). Under the second form of severance contract (the so-called
"double-trigger" agreements) held by the other executives of the Company,
severance benefits are not payable unless, after a change in control, the
employment of the executive is terminated either by the Company (other than for
disability or "Cause") or by the executive for "Good Reason." A down-grading of
an employee's duties or compensation without such employee's consent constitutes
"Good Reason" under these contracts. The Bardstown Sale would have an immediate
impact on one executive officer (William C. Kinsey) with a "double trigger"
agreement who is employed solely in the Vinyl Business. Mr. Kinsey will be
considered terminated upon consummation of the Bardstown Sale and will therefore
be entitled to receive payment of severance benefits. The Company estimates that
aggregate severance payments that will be due in respect of Mr. Kinsey will be
approximately $375,000.
Severance benefits are not payable in the event of the termination of an
executive's employment by virtue of death, disability or retirement. Once the
right to receive benefits is triggered, the executive officer would be entitled
to receive severance pay in an amount of up to two times the sum of (i) the
executive's current annual base salary and (ii) the amount of any bonus paid
(which for severance purposes, includes any distributions made under the terms
of the LTIP and any discretionary bonuses awarded to such executive by the
Compensation Committee of the Board based solely on such executive's performance
against management objectives, and the amount paid to such executive pursuant to
the Company's Management Incentive Compensation Plan (as such term is defined in
each such executive's severance contract)) in the year preceding the
termination. Bonus compensation payable to Messrs. Vecchiolla and Anthony under
the Management Incentive Compensation Plan is based upon the performance of the
Company (i.e., operating income and cash flow) and such executive's individual
performance against management objectives. Messrs. Vecchiolla and Anthony are
eligible for bonuses of up to 60% and 35% of their respective annual base
salaries, as well as for any additional bonus which may be awarded to such
executives in a particular year at the discretion of the Compensation Committee
of the Board as described above. In addition, executives entitled to receive
severance benefits would also receive a lump sum payment equal to any incentive
compensation or other award allocated, but not paid, to such executive for any
prior year and a pro rata portion of all contingent bonus awards to which such
individual might be entitled in the year of termination.
If the Bardstown Sale is consummated and the employment of Messrs.
Vecchiolla and Anthony is terminated (either by the Company (other than for
disability or for "Cause") or by either such executive voluntarily for any
reason (other than death or retirement)) within the term of each executive's
applicable contract, the Company estimates such persons would be entitled to
receive approximately $700,000 and $425,000, respectively, under such severance
contracts.
Stock Option Plans. Under the Company's 1982 and 1992 Stock Option Plans,
the vesting of all options to purchase Common Stock outstanding but not yet
exercisable will be accelerated upon a change in control. Each optionee will
have, for a period of thirty (30) days after the change in control occurs, the
right (the "Cash-Out Right"), with respect to all or a part of the shares
subject to the options or stock appreciation rights of such person, to receive
an amount in cash in lieu of such optionee's right to exercise all options in
full, equal to the product of (i) the number of shares as to which the employee
exercises the Cash-Out Right and (ii) the amount by which the purchase price of
each such share under the applicable option or stock appreciation right is
exceeded by the greater of (x) the fair market value of such shares on the date
the employee exercises the Cash-Out Right or (y) the highest purchase price paid
or offered per share in any bona fide transaction related to the change in
control of the Company at any time during the preceding 60-day period (as
determined by the Compensation Committee of the Board). The Company estimates
that the vesting schedules of options to purchase 304,450 shares of Common Stock
in the aggregate will be accelerated if the Bardstown Sale is consummated. Such
accelerated options have exercise prices ranging from $8.375 to
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$17.50 per share. For information with respect to the market price relating to
the Common Stock, see "MARKET PRICE DATA AND RELATED MATTERS."
Non-Employee Directors Stock Option Plans. Any non-employee director whose
service on the Board is terminated by reason of a change in control will have
the right to exercise all outstanding options during the one-year period
following such termination. Since the Combined Sale Transaction will not result
in a change in the ownership of the Company, such transaction, alone, will have
no direct effect on the term of office of the non-employee directors. If,
however, the term of office of any non-employee director is terminated, in
connection with the Combined Sale Transaction (e.g. as a result of a reduction
in the size of the full Board in connection with the Combined Sale Transaction),
the vesting schedule of options to purchase 2,500 shares of Common Stock will be
accelerated for each such non-employee director. The options which might
therefore be subject to acceleration have an exercise price of $10.00 per share.
Long Term Incentive Plan. Upon a change in control, all restrictions on up
to 23,560 shares of Common Stock held under the LTIP automatically lapse and
such shares become immediately distributable to the intended recipients. Persons
entitled to a distribution of shares under these circumstances may also be
entitled to receive a cash payment equal to 25% of the value of their shares
based on the highest average closing price attained by the Common Stock for any
period of thirty (30) consecutive days during the year preceding such payment.
Savings and Profit Sharing Plan. Upon a change in control, all unvested
amounts will vest under the Savings Plan. This plan is fully funded.
The security ownership of certain directors and executive officers of the
Company is described more fully under the caption "ADDITIONAL INFORMATION ABOUT
THE COMPANY -- Security Ownership of Certain Beneficial Owners and Management."
The Purchaser has agreed to offer employment to substantially all of the
Company's employees in the Vinyl Business following the Bardstown Sale. In
accordance with the Purchase Agreement, such individuals will be paid wages and
salaries substantially equal to the respective wages and salaries payable to
such persons immediately prior to the closing of the Bardstown Sale and will be
employed on terms and conditions, other than with respect to wages, similar to
those under which similarly situated employees of the Purchaser are employed as
of the closing of the Bardstown Sale, as set forth in the Purchase Agreement.
The Board of Directors was aware of the foregoing interests and considered
them, among other matters, in approving the Purchase Agreement and the Combined
Sale Transaction. Other than as described above, the Board of Directors is not
aware of any potential material conflicts of interest management may have in
relation to the Combined Sale Transaction.
REGULATORY APPROVALS
Under the HSR Act and the rules promulgated thereunder by the Federal Trade
Commission (the "FTC"), the Combined Sale Transaction may not be consummated
until notification has been given and certain information has been furnished to
the FTC and the Antitrust Division of the Department of Justice (the "Antitrust
Division"). Pursuant to the HSR Act, the Company and the Purchaser filed
notification and report forms with the FTC and the Antitrust Division on October
7, 1994. The Company requested early termination of the waiting period required
by the HSR Act, and such request was granted as of October 18, 1994.
At any time before or after the consummation of any part of the Combined
Sale Transaction, and notwithstanding the early termination of the waiting
period under the HSR Act by the relevant regulatory authorities, state antitrust
and other governmental authorities may take such action under the antitrust laws
as they deem necessary or desirable in the public interest. Such action might
include seeking to enjoin the consummation of the Bardstown Sale or the sale of
the Holding Stock, or both, or requiring the divestiture by the Purchaser of all
or part of the assets acquired by the Purchaser pursuant to either or both of
such
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transactions. Private parties may also seek to take legal action under the
antitrust laws under certain circumstances.
ACCOUNTING TREATMENT
Each sale included in the Combined Sale Transaction will be accounted for
as a sale of certain assets and a transfer of certain liabilities. Upon the
consummation thereof, the excess of the sum of the consideration received by
Bird and the liabilities assumed by the Purchaser over the book value of the
assets sold will be recognized as a gain on the Company's books.
The Company expects that representatives of its principal accountants,
Price Waterhouse LLP, will be present at the Special Meeting, will have the
opportunity to make a statement regarding the matters described in this Proxy
Statement if they desire to do so and will be available to respond to reasonable
and appropriate questions.
CERTAIN INCOME TAX CONSEQUENCES
Each sale included in the Combined Sale Transaction will be a taxable
transaction for federal and state income tax purposes. The Company expects to
recognize net taxable income with respect to such sales, but also expects that
such income will be substantially offset for federal income tax purposes and to
a lesser extent for state income tax purposes by unrelated deductions and
losses, including an offset for certain net operating loss carryforwards which
the Company previously incurred. Neither sale included in the Combined Sale
Transaction will result in any direct federal or state income tax consequences
to the stockholders of the Company, except for those who perfect their rights as
dissenting stockholders.
DISSENTING STOCKHOLDERS' RIGHTS
The following discussion is not a complete statement of the law pertaining
to dissenters' rights under the Massachusetts Business Corporation Law (the
"MBCL") and is qualified in its entirety by reference to the full text of
Chapter 156B, Sections 86 through 98 of the MBCL setting forth the rights of
stockholders who object to the Combined Sale Transaction. Stockholders wishing
to exercise such dissenters' rights or to preserve their rights to do so
("Dissenting Stockholders") should review the following discussion and the
provisions of Section 76 and Sections 86 through 98 of the MBCL with counsel. A
copy of the relevant sections of the MBCL is attached to this Proxy Statement as
Exhibit C. The failure of Dissenting Stockholders to comply in a timely and
proper manner with the procedures set forth in the MBCL will result in the loss
of dissenters' rights with respect to the Combined Sale Transaction.
Sections 86 through 98 of the MBCL set forth the rights of stockholders of
the Company who object to the Combined Sale Transaction. Any holder of Common
Stock who does not vote in favor of the Combined Sale Transaction (including any
such holder who abstains from voting), or who duly revokes a vote in favor of
such transaction, and (in either case) who objects to the Combined Sale
Transaction, and any holder of the 5% Preferred Stock or of the Preference Stock
who objects to the Combined Sale Transaction, may, if the Bardstown Sale is
consummated, obtain payment, in cash, for the fair market value of its shares by
complying with the requirements of Sections 86 through 98 of the MBCL. HOLDERS
OF COMMON STOCK ARE NOT ELIGIBLE TO EXERCISE THEIR DISSENTERS' RIGHTS UNLESS
THEY ARE STOCKHOLDERS ON THE RECORD DATE AND HAVE NOT VOTED IN FAVOR OF THE
COMBINED SALE TRANSACTION. Holders of the 5% Preferred Stock and of the
Preference Stock are not eligible to exercise their dissenters' rights unless
they are stockholders on the Record Date.
BEFORE THE TAKING OF THE VOTE ON THE COMBINED SALE TRANSACTION AT THE
SPECIAL MEETING, EACH DISSENTING STOCKHOLDER MUST FILE WITH THE COMPANY A
WRITTEN OBJECTION TO THE COMBINED SALE TRANSACTION STATING THAT IT INTENDS TO
DEMAND PAYMENT IN RESPECT OF THE SHARES OF ANY CLASS HELD BY IT IF THE COMBINED
SALE TRANSACTION IS CONSUMMATED. A written objection must be filed with the
Company by holders of Common Stock who wish to dissent even if they vote against
the Combined Sale Transaction. Such written
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objections should be addressed to: Frank S. Anthony, Clerk, Bird Corporation,
980 Washington Street, Suite 120, Dedham, Massachusetts 02026-6714.
Within ten days after the date of the Closing (as defined in the Purchase
Agreement), the Company must provide written notice to each Dissenting
Stockholder that the Bardstown Sale has been consummated. To exercise
dissenters' rights, each Dissenting Stockholder must, no later than 20 days
after the mailing of such notice that the Bardstown Sale has been consummated,
mail a written demand for payment for its shares. The Company's notice will
specify the date by which a Dissenting Stockholder's written demand for payment
must be made. Such written demand must specify the Dissenting Stockholder's
address, the number and class of shares as to which the Dissenting Stockholder
is exercising its dissenter's rights, and the amount claimed as the fair value
of the shares. Such written demands should be addressed to: Frank S. Anthony,
Clerk, Bird Corporation, 980 Washington Street, Suite 120, Dedham, Massachusetts
02026-6714. Subject to the following paragraph, within 30 days following the
expiration of such 20-day period, the Company must pay to the Dissenting
Stockholder fair value for its shares, such fair value to be determined as of
the date preceding the date upon which the Combined Sale Transaction has been
approved by the Company's stockholders.
The Company will accept a Dissenting Stockholder's objections to the
Combined Sale Transaction or demand for payment for its shares by facsimile
transmission, provided such facsimile is confirmed by a written objection or
demand, as the case may be, sent by certified or registered mail to the Company
at the address specified above within 24 hours after transmission of the
facsimile. Facsimile communications should be addressed to: Frank S. Anthony,
Clerk, Bird Corporation, and the appropriate facsimile connection is to (617)
461-1619.
In the event that the Company and any Dissenting Stockholder are unable to
agree as to fair value within such 30-day period, Chapter 156B, Section 90 of
the MBCL provides that a court proceeding may be commenced by the Company or the
Dissenting Stockholder by the filing of a bill in equity, within four months
after the expiration of such 30-day period, in the Superior Court for Norfolk
County, Commonwealth of Massachusetts, demanding a determination of the value of
the shares of all Dissenting Stockholders who have not agreed with the Company
as to the fair value of their shares. The Company has not determined whether it
will initiate such court proceedings in the event the Company and any Dissenting
Stockholder cannot agree on the fair value of the Company's stock. A Dissenting
Stockholder should accordingly be prepared to commence such proceedings on its
own behalf.
All Dissenting Stockholders will be parties to any court proceeding which
is commenced either by the Company or by a Dissenting Stockholder. The relief
sought in either case is a decree determining the fair value of the stock of all
Dissenting Stockholders and ordering payment by the Company of that value with
interest in exchange for the certificates for the stock held by the Dissenting
Stockholders. The court will determine such value based on such factors,
including market price, earnings value, or net asset value, as it determines
appropriate for the class of stock of the Company which is being valued. Such
determination of value will be made as of the day preceding the date of the
meeting at which the Combined Sale Transaction is approved, exclusive of any
element of value arising from the expectation of consummating the Combined Sale
Transaction. The value determined by the court may be more or less than, or
equal to, the market price of the Common Stock, Preferred Stock or Preference
Stock, as the case may be, on the day preceding the date of the Special Meeting.
A negative vote on the Combined Sale Transaction does not constitute a
"written objection" to be filed by a Dissenting Stockholder. A Dissenting
Stockholder's abstention from voting on the Combined Sale Transaction or failure
to specify any vote on the accompanying proxy will not constitute a waiver of
such stockholder's rights under Sections 86 through 98 of the MBCL, provided
that a written objection has been properly filed. A vote in favor of the
Combined Sale Transaction will constitute a waiver of such stockholder's
dissenters' rights, however, even if a written objection has been filed.
For federal income tax purposes, a Dissenting Stockholder who received
payment for its shares upon exercise of its dissenter's rights will recognize
capital gain or loss thereon measured by the difference between
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the basis for its shares and the amount of payment received. Due to the
individual nature of tax consequences, each Dissenting Stockholder is urged to
consult with its own tax advisor as to the particular tax consequences to such
Dissenting Stockholder of dissenting from the Combined Sale Transaction,
including the effect and applicability of federal, state, local and foreign tax
laws.
EFFECT OF THE COMBINED SALE TRANSACTION ON THE COMPANY'S STOCKHOLDERS
If either or both of the sales included in the Combined Sale Transaction
are consummated, the stockholders of the Company will retain their equity
interest in the Company. Neither of such sales will result in any changes in the
rights of the Company's stockholders.
PROCEEDS OF THE COMBINED SALE TRANSACTION
It is estimated that Bird will receive approximately $47,500,000 in cash
proceeds at the closing of the Bardstown Sale. Bird will also be entitled to
receive $2,780,000 from the Purchaser in respect of the Holding Stock if the
Purchaser and Bird consummate the sale of the Holding Stock. The exact amount of
proceeds of the sale of Holding Stock that the Company will net following the
closing of such sale will depend upon the outcome of negotiations currently
ongoing between the Company and the minority partner in Kensington. Those
negotiations relate to the terms of a proposed agreement between the Company and
such minority partner pursuant to which such minority partner will agree to
assign and sell its interests in Kensington to the Company in contemplation of
the sale of the Holding Stock to the Purchaser, waiving its rights to acquire an
additional 40% of the ownership interests in Kensington (to bring its total
interest up to 50%) and any and all rights it has to acquire Holding's
partnership interest, as described more fully under "ADDITIONAL INFORMATION
ABOUT THE COMPANY -- The Company's Business." In consideration for its agreement
to sell and assign its interest in Kensington to the Company and for its
complete release of the Company from any and all obligations and liability
arising in connection therewith, the Company proposes to pay its minority
partner up to 50% of the proceeds of sale of the Holding Stock (which amount
shall not exceed $1,390,000). The minority partner's consent to and cooperation
in connection with the proposed sale of the Holding Stock is essential to the
consummation of that transaction, particularly in light of the minority
partner's right of first refusal with respect to Holding's interest in
Kensington under the terms of the Kensington Partnership Agreement, which right
would become operative upon the Purchaser's election to purchase the Holding
Stock. If the minority partner fails to waive its right of first refusal, the
Kensington Closing could be delayed for the entire 90 day period in which such
right would be effective, during which period, in order to ensure that
Kensington has sufficient working capital to conduct its operations and
sufficient funds for capital expenditure purposes, the Company could be required
to fund additional capital contributions to Kensington in amounts which could
exceed that portion of the proceeds of the proposed sale of the Holding Stock
which the Company proposes to pay to the minority partner.
Of the expected net proceeds of the Combined Sale Transaction, the Company
anticipates utilizing (i) approximately $10,000,000 to eliminate an outstanding
term loan (in the principal amount of $7.5 million), and to reduce amounts
outstanding under a second term loan made under the Loan and Security Agreement
dated November 30, 1994 (the "Barclays Agreement") between the Company and
Barclays, its new lender, and to decrease amounts outstanding under the
revolving credit and letter of credit facility provided pursuant to the Barclays
Agreement as required thereunder, and as described under "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," (ii)
approximately $1,500,000 to make required severance payments to certain key
executive officers, as well as any additional amounts which may be required to
make other necessary severance payments in connection with the elimination of
non-essential corporate functions, (iii) approximately $1,200,000 to pay state
income taxes related to the gain resulting from the sales included in the
Combined Sale Transaction and (iv) approximately $1,350,000 as payment for
expenses and costs incurred in connection with the Combined Sale Transaction and
other matters, including legal fees and the fees of Dillon Read. In addition,
the Company currently intends to pay dividends accruing on the 5% Preferred
Stock following the
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transactions described herein, subject to the limitations set forth in the
Barclays Agreement. For a discussion of the limitations on the Company's right
to pay dividends, see "MARKET PRICE DATA AND RELATED MATTERS -- Dividends." The
interest rates applicable as of November 30, 1994 to the revolving credit line
(of which $12,316,600 was outstanding as of November 30, 1994) and the term loan
(of which $15 million was outstanding as of November 30, 1994) portions of the
Company's outstanding indebtedness under the Barclays Agreement were 9.5% and
9.75%, respectively. Such indebtedness matures on November 30, 1997. The term of
the Barclays Agreement will be extended automatically on an annual basis, unless
expressly terminated. Barclays has consented to the consummation of the Combined
Sale Transaction.
The Company intends to use the proceeds from the Combined Sale Transaction
remaining after the estimated payments outlined above for working capital
purposes, including for the payment of the capital expenditures relating to the
construction of the asphalt oxidizing plant at the Company's Norwood,
Massachusetts facility. See "-- Background and Reasons for the Combined Sale
Transaction" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- Financial Condition." The Company intends to invest
such remaining proceeds in U.S. Treasury and other short term obligations until
the use of such funds is required by the Company. The Company does not currently
intend to pay any dividends or make any distribution to the holders of Common
Stock or any other class of the Company's stock (other than as described above)
out of the remaining proceeds.
PLANS FOR THE OPERATION OF THE COMPANY FOLLOWING THE COMBINED SALE TRANSACTION
Following the closing of the Bardstown Sale, and any subsequent closing
with respect to the sale of the Holding Stock, the Company plans to continue to
operate its roofing manufacturing business (which historically constituted the
Company's core business). In connection with its decision in the second quarter
of 1994 to withdraw from its environmental business to stem losses arising from
the operation of this business, the Company decided to divest itself of its
interests in the San Leon Facility. In this regard, the Company accepted a
buy-out proposal from the minority stockholders in such venture as part of its
settlement of a breach of contract suit with such parties. Pursuant to its
settlement agreement with the minority stockholders, the Company agreed to sell
the San Leon Facility to such minority stockholders for a price of $7.5 million,
subject to the prospective purchasers' ability to obtain necessary financing.
(See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Financial Condition"). In light of this financing contingency, the
Company's desire to exit from the environmental remediation business without
undue delay and the terms of the Company's settlement agreement with the
minority stockholders, pursuant to which the Company reserves to itself the
right to sell its interest in the San Leon Facility to third parties, the
Company's interest in the San Leon Facility is currently being marketed with the
cooperation of such minority stockholders, while such parties continue their
efforts to obtain the requisite financing. In the event the Company sells its
interest in the San Leon Facility to a third party, the Company will be required
to pay a break-up fee of $750,000 to the minority stockholders. The Company
plans to continue to hold its interests in the San Leon Facility until a sale to
a strategic investor or to the minority stockholders in such venture is
completed. No assurance can be given that the Company's activities in connection
with the sale of its interest in the San Leon Facility will be successfully
completed or, if completed, will be on terms which are advantageous to the
Company.
Following the Combined Sale Transaction, the Company intends to
significantly scale down and eliminate nonessential corporate functions and to
focus on the conduct of its roofing manufacturing operations. The Company
believes that the Combined Sale Transaction, together with the planned
disposition of other non-strategic assets, will enable the Company to reposition
itself for operation as a single-plant, single-industry company. See "ADDITIONAL
INFORMATION ABOUT THE COMPANY -- The Company's Business."
If the Purchaser fails to exercise its option to acquire the Holding Stock,
the Company intends to commit the necessary funds for working capital and
capital expenditure purposes to improve the productivity and
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profitability of Kensington's Leechburg, Pennsylvania facility. The prospects of
this facility are favorable based upon the fact that the market for vinyl
replacement windows is one of the fastest growing segments of the building
materials market and the Kensington and Bird brands of windows are noted for
their premium quality. The prospects for selling the Kensington business as a
stand-alone operation are limited, however, unless the investments described
above are made and result in substantial turnaround in such company's
performance.
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THE ASSET PURCHASE AGREEMENT
The following is a summary of the material provisions of the Purchase
Agreement and is qualified in its entirety by reference to the complete text of
the Purchase Agreement, a copy of which is attached (including exhibits thereto,
but excluding schedules) as Exhibit B. Terms which are not otherwise defined in
the summary or elsewhere in this Proxy Statement shall have the meanings set
forth in the Purchase Agreement.
THE BARDSTOWN SALE
Upon the terms and subject to the conditions of the Purchase Agreement,
effective on the Closing Date, (i) Bird will sell and transfer, and the
Purchaser will purchase and acquire, the Assets (as described below) and (ii)
Bird will assign and delegate to the Purchaser and the Purchaser will assume and
agree to pay, perform and discharge (to the extent not paid, performed or
discharged prior to the Closing Date) the Assumed Liabilities (as described
below).
ASSETS
The Assets being transferred pursuant to the Purchase Agreement include all
of Bird's right, title and interest in and to all assets and properties of the
Vinyl Business including: (i) certain Real Property (including Bird's production
facility located in Bardstown, Kentucky), (ii) all Inventory, (iii) in each case
solely to the extent Related to the Activity: copies of all of Bird's books and
records, files and papers; customer mailing lists, customer credit, collection
and sales records; warranty records; Bird's computer software and computer
programs used in connection with the Activity and all materials related thereto;
real and personal property Tax Returns and assessments; drawings and
specifications, engineering, design and manufacturing information; processes and
prototypes; manuals, data and know-how; spare parts lists; research and
development records; product testing records; personnel, employment and records
pertaining to Employees to be offered employment by the Purchaser; shipping
records, manifests, reports or other books and records relating to on-site or
off-site disposal of waste and other Hazardous Materials; purchasing records and
supplier lists; and supplier contracts, agreements, commitments or orders for
the purchase of raw materials, supplies, components, equipment, packaging
material or other items Related to the Activity, (iv) certain specified
Licenses, (v) certain vehicles which, as of the Closing Date, are owned or
leased by Bird, (vi) all rights of Bird as of and subsequent to the Closing Date
under or pursuant to all warranties, representations and guarantees made by
suppliers or others in connection with products or services furnished to Bird
prior to the Closing Date and Related to the Activity, except for those related
to Retained Assets, (vii) all rights and interests of Bird to existing, pending
or executory contracts and purchase orders and commitments which are Related to
the Activity, including all contracts, agreements and commitments of Bird
Related to the Activity which are entered into between the date of the Purchase
Agreement and the Closing Date in the ordinary course of business, (viii) all
accounts receivable Related to the Activity, (ix) the benefit of all prepaid
expenses Related to the Activity, (x) all goodwill Related to the Activity, (xi)
the right to use the "Bird" name and logo pursuant to the License Agreement to
be executed by the Purchaser and Bird in accordance with the Purchase Agreement
(the terms of the License Agreement are more fully described under the caption
"-- Certain Operative Agreements"), and (xii) all Intellectual Property.
ASSUMED LIABILITIES
The Assumed Liabilities include all liabilities and obligations of Bird
Related to the Activity which (i) are required under generally accepted
accounting principles, consistently applied, to be reflected on the Closing
Balance Sheet and are included in the calculation of Working Capital, (ii) arise
from product warranty claims related to goods manufactured and sold by Bird as
part of the Activity that are asserted after the Closing Date (other than those
included in Retained Liabilities), (iii) relate to the Licenses, leases,
agreements, purchase orders, contracts and commitments transferred to the
Purchaser under the Purchase Agreement which are not required under generally
accepted accounting principles to be reflected on a balance sheet of Bird as of
the Closing Date, and which, in the case of certain liabilities relating to
employee benefits
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plans (as discussed more fully under the caption "-- Covenants Regarding Certain
Employee Matters"), are expressly assumed by the Purchaser, (iv) relate to
environmental claims and the remediation of environmental problems (as described
more fully under the caption "-- Covenants Regarding Environmental Matters") or
(v) constitute certain other liabilities related to employment matters that are
expressly specified and assumed by the Purchaser pursuant to the Purchase
Agreement.
RETAINED ASSETS AND RETAINED LIABILITIES
The Purchase Agreement excludes from the Assets the following Retained
Assets: (i) certain unliquidated and contingent claims of Bird Related to the
Activity, (ii) any right to use intellectual property of Bird other than the
Intellectual Property, and, specifically, any right or privilege to use in any
manner whatsoever the trademark, trade name, service mark or service name "Bird"
in logo type or in any other style or any other trademark, trade name, service
mark or service name owned, used by, belonging to or registered in Bird's name
(except pursuant to the License Agreement), (iii) all cash, bank deposits,
security deposits and cash equivalents, (iv) all technology, product formulae,
manufacturing and production methods, processes, designs, written records of
Inventory, and know-how, other than those Related to the Activity, (v) all
utility deposits for water, gas, telephone, electricity and other utilities,
(vi) all assets owned by any of the Plans, (vii) Bird's Articles of Organization
and other corporate documents, and (viii) certain other specified assets.
The Purchaser will not assume any liabilities or obligations of Bird other
than the Assumed Liabilities. Without limiting the generality of the foregoing,
Bird will retain the Retained Liabilities, which include certain liabilities of
Bird (i) for taxes on income from the Activity attributable to periods ending
before the Closing Date, (ii) relating to any indebtedness not reflected on the
Closing Balance Sheet and (iii) that are Related to the Activity and arise out
of litigation or administrative proceedings commenced or instituted, or that
relate to claims by any Employee which claims arose from the conduct of the
Activity or the ownership or use of the Assets, on or before the Closing Date.
SALE OF HOLDING STOCK
Pursuant to the Purchase Agreement, the Purchaser may, at its option
exercisable in writing at any time within the thirty (30) day period commencing
on the Closing Date (the "Option Period"), purchase and acquire the Holding
Stock subject to the outcome of certain negotiations currently ongoing between
the Company and its minority partner and, in the event the parties to such
negotiations fail to resolve all material issues raised therein, to the rights
of Kensington's minority partner under the Kensington Partnership Agreement (as
such negotiations and rights are described more fully under "THE COMBINED SALE
TRANSACTION -- Proceeds of the Combined Sale Transaction" and "ADDITIONAL
INFORMATION ABOUT THE COMPANY -- The Company's Business").
CONSIDERATION
In consideration for the purchase of the Assets, the Purchaser will pay to
Bird an amount equal to $47,500,000 in cash at the Closing (the "Purchase
Price"), and will assume all of the Assumed Liabilities.
The Purchase Agreement contemplates that the Purchase Price may be reduced
based on the Final Working Capital as of the Closing Date as set forth on a
Closing Balance Sheet delivered by Bird to the Purchaser within thirty (30) days
following the Closing Date. Pursuant to the Purchase Agreement, if the Final
Working Capital as of the Closing Date is less than $15,000,000, Bird will pay
to the Purchaser any shortfall between the Final Working Capital and $15,000,000
(together with interest thereon from the Closing Date to the date of payment).
Disputes regarding the Working Capital and otherwise with respect to the Closing
Balance Sheet will be resolved by the parties or, if the parties cannot agree,
by submission of any such disputes to independent public accountants.
If the Purchaser elects to so purchase the Holding Stock, in consideration
for its purchase thereof, the Purchaser is required to pay to Bird an amount
equal to $2,780,000 in the aggregate at the Kensington Closing
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(which amount does not take into account any payment to be made by the Company
to the minority partner in exchange for such partner's waiver of its rights to
acquire additional ownership interests in Kensington) as described under the
caption "THE COMBINED SALE TRANSACTION -- Proceeds of the Combined Sale
Transaction" above. As additional consideration for the Holding Stock, the
Purchaser will assume the Companies' obligations to guarantee or perform certain
obligations of Holding and Kensington relating to such entities' operations in
the ordinary course, and to indemnify certain Persons on behalf of either such
entity in connection with normal and customary obligations of such entities
pursuant to the agreements specified in certain schedules attached to the
Purchase Agreement.
THE CLOSING AND THE KENSINGTON CLOSING
It is anticipated that the sale and transfer of the Assets to, and the
assumption of the Assumed Liabilities by, the Purchaser will take place on
February 28, 1995 or at such other time as the Company, Bird and the Purchaser
agree in writing. In any event, the Closing is to occur on or before March 31,
1995. See "-- Conditions to Closing." The date of the Closing is referred to
herein as the "Closing Date."
The closing of the sale to the Purchaser of the Holding Stock, if any, is
required, pursuant to the Purchase Agreement, to occur at such time as the
parties to the Purchase Agreement agree in writing provided that the Kensington
Closing must occur (i) as soon as practicable after expiration of the Option
Period and in any case on or before July 31, 1995, if the minority partner in
Kensington has waived its right of first refusal under the Kensington
Partnership Agreement (as described under "THE COMBINED SALE TRANSACTION --
Proceeds of the Combined Sale Transaction") or (ii) within 105 days of the
Purchaser's exercise of its option to purchase the Holding Stock, if such
minority partner fails to waive its right of first refusal as described under
clause (i) above.
REPRESENTATIONS AND WARRANTIES
The Purchase Agreement contains certain representations and warranties of
the Companies relating to, among other things: (i) their organization and good
standing; (ii) the execution, delivery and performance of the Purchase Agreement
by the Companies, the legality, validity and enforceability thereof against the
Companies, and the non-contravention of, and lack of conflict with, the Articles
of Organization or by-laws of the Companies, the terms of any Lien or any
Contract Related to the Activity to which either of the Companies is bound, or
any provision of any statute, law, ordinance or administrative rule or
regulation, License or order of any Governmental Authority or any judicial,
administrative or arbitration order, award, judgment, writ, injunction or
decree, in each case Related to the Activity; (iii) the receipt of requisite
consents and approvals; (iv) title to the Assets; (v) the condition of the
Assets; (vi) the absence of litigation and other legal proceedings; (vii) the
legality, validity and enforceability of material Contracts; (viii) the accuracy
of certain financial statements of Bird Related to the Activity; (ix) the
absence of any material litigation; (x) Bird's conduct of the Activity in
accordance with applicable laws and its authority under certain required
Licenses and permits; (xi) the absence of any material changes in the operation
of the Activity; (xii) certain environmental and employment matters; (xiii)
certain tax matters; (xiv) the Inventory; and (xv) the Intellectual Property.
The Purchase Agreement also contains certain representations and warranties
of the Companies relating to Holding and Kensington, including, among other
things: (i) their organization and good standing; (ii) Kensington's title to its
assets; (iii) the absence of material litigation relating to the Kensington
Partners Business; (iv) the legality, validity and enforceability of certain
material contracts relating to the Kensington Partners Business; (v) compliance
with laws and with all Kensington Licenses; (vi) the accuracy of certain
financial statements of Kensington; (vii) the absence of certain material
changes; (viii) certain environmental matters; (ix) certain tax matters; (x) the
capitalization of Holding and the Holding Stock; (xi) the condition of and
certain matters relating to the inventory of Kensington; (xii) certain
intellectual property of Kensington; (xiii) the conduct of the Kensington
Partners Business; and (xiv) brokerage fees.
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The Purchase Agreement contains certain representations and warranties of
the Purchaser relating to, among other things: (i) the organization and good
standing of the Purchaser; (ii) the execution, delivery and performance of the
Purchase Agreement and the Buyer Documents by the Purchaser, the legality,
validity and enforceability of such documents against the Purchaser, and the
non-contravention of, and lack of conflict with, the Certificate of
Incorporation or by-laws of the Purchaser, or any contract to which the
Purchaser is party or any Lien affecting the Purchaser or any law, order, writ,
judgment, injunction, decree, statute, rule or regulation applicable to the
Purchaser; (iii) government approvals; and (iv) brokerage fees.
CERTAIN COVENANTS
The Purchase Agreement contains certain covenants and agreements of the
Companies to the Purchaser that are customary for transactions similar to the
Bardstown Sale and the sale of the Holding Stock and include the Companies'
agreement, among other things: (i) to allow the Purchaser reasonable access to
its books, records, facilities, documents and personnel Related to the Activity
and to Holding and Kensington; (ii) to carry on the conduct of the Activity in
the ordinary and regular course, substantially in the manner theretofore
conducted in all material respects, and not to take certain actions with respect
to such operations, as well as their agreement to preserve the condition of the
Activity and the Assets in conformity with past practices; (iii) (w) not to
grant any increases in rates of pay to any Employee or any employee employed by
Holding nor to increase any benefits under any Plan or other contract other than
in the ordinary course of business, (x) to maintain current insurance policies,
(y) to continue to use and operate the Assets in the ordinary course of the
Activity and (z) to promptly notify the Purchaser of any material legal
proceedings; (iv) to facilitate an orderly transfer of the Assets and Assumed
Liabilities and, at their sole expense, to cooperate with the Purchaser and use
reasonable efforts to obtain all requisite consents and approvals and otherwise
to effect the consummation of the transactions contemplated by the Purchase
Agreement, including with respect to the filing of any documents required to be
submitted to any Governmental Authority; (v) to cause Holding to use
commercially reasonable efforts to cause Kensington to carry on the conduct of
the Kensington Partners Business in the ordinary and regular course of business
and not to take certain actions with respect thereto other than in the ordinary
course or other than as necessary, in a commercially reasonable manner, in light
of the operational and financial condition of Holding and Kensington at the time
the Companies determine such action is necessary (subject to notice to and
consultation with the Purchaser); (vi) to cause Holding to use commercially
reasonable efforts to cause Kensington (x) not to increase the rates of pay of
any employee employed by Kensington nor to increase the benefits under any Plan,
(y) to maintain its current insurance policies and (z) to continue to use and
operate all of Kensington's property in the ordinary course; (vii) to cause
Holding to use commercially reasonable efforts to cause Kensington promptly to
notify the Purchaser of any material legal proceedings; (viii) to supplement
certain of the schedules to the Agreement; (ix) to call and hold a stockholders
meeting and to use best efforts to solicit proxies from the stockholders of the
Company in favor of the transactions contemplated by the Purchase Agreement and
to obtain such other consents as are necessary under Massachusetts law; and (x)
otherwise to use reasonable efforts to cause the conditions to Closing to be
satisfied and to close the transactions contemplated by the Purchase Agreement,
subject to the fiduciary duty of the Board and of Bird's Board of Directors.
In addition, the Companies have agreed to refrain from soliciting or
encouraging inquiries or proposals regarding a sale of all or a portion of the
Assets, subject to the rights of the Companies' respective Boards of Directors
to solicit proposals regarding a sale or transfer of all or a portion of the
capital stock or assets of either of the Companies (subject to the completion of
the transactions contemplated by the Purchase Agreement), or to apprise an
inquiring party regarding the non-solicitation provisions contained in the
Purchase Agreement, and subject further to the Companies' rights to consider, to
negotiate and recommend to their stockholders other unsolicited bona fide offers
relating to the Assets (including in connection with the sale of all or
substantially all of the assets of either of the Companies by tender offer for
the securities of the Company or by merger, consolidation or other similar
transaction of either of the Companies with a Person other than the Purchaser)
if the Board of Directors of the Company determines in good faith that it is
required to do so to discharge properly its fiduciary duties and that such
proposed transaction would be more favorable
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<PAGE> 40
CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY.
to the Company's stockholders than the transactions contemplated by the Purchase
Agreement (any such unsolicited offer or proposal being a "Superior Proposal").
The Companies have also agreed (i) to cause Holding to initiate the
buy-sell procedure contained in the Kensington Partnership Agreement with
respect to Holding's interest in Kensington upon the exercise by the Purchaser
of its option to purchase the Holding Stock and, as applicable, to use
commercially reasonable efforts to acquire its partner's interest in Kensington
(as more fully described under "THE COMBINED SALE TRANSACTION -- Proceeds of the
Combined Sale Transaction"); (ii) to guarantee payment to the Purchaser by
Kensington of any account receivable from Kensington included in the Assets
effective from the Closing Date through the Kensington Closing Date and to pay
to the Purchaser on (x) August 5, 1995 any portion of such account receivable
which is past due as of July 31, 1995, if the Kensington Closing has not
occurred on such latter date and the minority partner in Kensington has waived
its right of first refusal under the Kensington Partnership Agreement or (y) the
fifth day after the expiration of the 105 day period following the exercise by
the Partnership of its option to purchase the Holding Stock, if the Kensington
Closing has not occurred at the expiration of such 105 day period and the
minority partner in Kensington has not waived its right of first refusal under
the Kensington Partnership Agreement; and (iii) to pay any severance costs
payable pursuant to Bird's severance policies and to comply with COBRA
requirements.
The Purchaser has agreed: (i) to use reasonable efforts to obtain all
necessary consents, approvals and waivers in connection with the consummation of
the transactions contemplated by the Purchase Agreement and to assist and
cooperate with the Companies and use reasonable efforts in the preparation and
filing of all documents required to be submitted to any Governmental Authority;
(ii) to facilitate an orderly transfer of the Assets and Assumed Liabilities by
cooperating with and assisting Bird, at its sole expense, in obtaining all
requisite consents and approvals; and otherwise to use reasonable efforts to
cause the conditions to Closing to be satisfied and to close the transactions
contemplated by the Purchase Agreement; (iii) to indemnify and hold the
Companies harmless against the imposition of any secondary liability with
respect to any benefit plan that is a Multiemployer Plan or any withdrawal
liability resulting from the Purchaser's failure to provide a bond, letter of
credit, escrow or other security required pursuant to the Purchase Agreement;
(iv) to provide to the Companies reasonable access to the books, records,
contracts and documents transferred to the Purchaser under the Purchase
Agreement for the Companies' accounting, tax and legal purposes; and (v) to pay
and perform and discharge the Assumed Liabilities.
COVENANTS REGARDING CERTAIN EMPLOYEE MATTERS
In addition to its covenants described above, the Purchaser has agreed to
offer employment, as a "successor employer," to certain Employees on terms and
conditions with respect to wages that are substantially similar to those under
which such Employees are employed as of the Closing Date, and on other terms and
conditions other than with respect to wages substantially similar to those under
which similarly situated employees of the Purchaser are employed as of the
Closing Date. The Purchaser is not required to offer employment to any Employee
on paid leave of absence or disability leave as of the Closing Date until any
such Employee returns from such leave. The Purchaser has no obligation to offer
employment to any Employee who remains on such leave 12 months or longer after
the Closing Date.
The Purchaser will pay any severance payments to any Employee hired by the
Purchaser that are payable pursuant to the Purchaser's severance policies and
will assume all contribution obligations of the Companies under the Union Plan
and make all contributions required under the Union Plan and any benefit plan
that is a Multiemployer Plan after the Closing Date substantially in accordance
with the Union Contract. The Purchaser further agrees, among other things, to
indemnify and hold Bird harmless from and against any withdrawal liability under
any Multiemployer Plan arising out of the sale of the assets and the operations
Related to the Activity and resulting from the exercise by the Purchaser of its
right to discharge, lay off or hire employees or otherwise to manage the
operations Related to the Activity, including the right to amend, revise or
terminate any collective bargaining agreement currently in effect and
consequently to reduce the number of contribution base units with respect to
which the Purchaser has an obligation to contribute to any Plan.
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<PAGE> 41
CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY.
COVENANTS REGARDING ENVIRONMENTAL MATTERS
In accordance with its covenants under the Purchase Agreement, the
Purchaser has caused Scott Smith Environmental to undertake a "Phase I"
environmental risk audit of the real property at which the Activity is conducted
(i.e., the Bardstown, Kentucky facility) and is negotiating in good faith with
the Companies to determine definitively the amount required to be expended in
connection with the remediation of the environmental problems described in the
Phase I Report (the "Final Remedial Amount"). Based on the Phase I Report, the
parties estimate the present value of the costs and expenditures needed to
undertake cleanup or remediation in accordance with the requirements of
appropriate Governmental Authorities will not exceed $500,000 (the "Remedial
Amount") and believe that the Final Remedial Amount will fall between $150,000
and $500,000.
In accordance with the terms of the Purchase Agreement, if the Final
Remedial Amount exceeds $1,500,000, the Purchaser is entitled to terminate the
Purchase Agreement. If (i) the Final Remedial Amount exceeds $100,000 but is
less than $1,500,000 or (ii) the Final Remedial Amount is greater than
$1,500,000 and the Purchaser agrees to pay all amounts in excess of $1,500,000,
Bird will indemnify the Purchaser against all costs and expenses in excess of
$100,000 (up to $1,500,000) incurred in connection with the remediation or
clean-up of items included in the Final Remedial Amount in accordance with the
procedures set forth in the indemnification provisions set forth in the Purchase
Agreement. If the Final Remedial Amount is less than $100,000, no
indemnification will be required and, if all other conditions to the Closing
shall have been met, the Purchaser must consummate the Bardstown Sale.
If the Purchaser elects, at its expense and subsequent to the exercise by
it of its option to purchase the Holding Stock, it may cause a Phase I Report to
be prepared with regard to the real property at which the Kensington Partners
Business is conducted (i.e., Kensington's Leechburg, Pennsylvania facility).
After the Purchaser has delivered to Bird copies of such Phase I Report, the
Purchaser and Bird are required to determine the cost of actions deemed
necessary to effect clean-up, remediation and closure of the environmental
problems identified as being related to the Kensington Partners Business (the
"Kensington Final Remedial Amount"). If the Companies and the Purchaser are not
able to agree on the Kensington Final Remedial Amount within 30 days after the
completion of the Phase I Report regarding the Kensington facility, they must
submit such disagreements to an environmental consultant jointly selected by
them who will, within ten days of such submission, definitively determine the
amount required to be expended in connection with remediation of the
environmental problems described in such Phase I Report.
If the Kensington Final Remedial Amount is greater than $500,000, then the
Purchaser may terminate the Purchase Agreement with respect to the Kensington
Closing only. If (i) the Kensington Final Remedial Amount exceeds $100,000
(including any amounts expended by the Purchaser with respect to any Bardstown
Environmental Problems) but is less than $500,000 or (ii) the Kensington Final
Remedial Amount exceeds $500,000 and the Purchaser agrees to pay all amounts in
excess of $500,000, then Bird must indemnify the Purchaser against all costs and
expenses in excess of $100,000 (including any amount expended by the Purchaser
with respect to any Bardstown Environmental Problems) and up to $500,000
incurred in connection with the clean-up, remediation or closure of items
included in the Kensington Final Remedial Amount. If the Kensington Final
Remedial Amount is less than $100,000 (including any amount expended by the
Purchaser with respect to any Bardstown Environmental Problems) then Bird is not
required to provide any indemnity and, if all other conditions to the Kensington
Closing are met, the Purchaser must consummate the purchase of the Holding
Stock. The environmental indemnities described above are in addition to the
general indemnity described below under the caption "-- Indemnification."
CONDITIONS TO CLOSING
The obligations of the Purchaser to consummate the Bardstown Sale on the
Closing Date and to be performed at the Kensington Closing shall be subject to
the prior satisfaction (or waiver) of certain conditions including: (i) all
representations and warranties of Bird in the Purchase Agreement being accurate
in all
26
<PAGE> 42
CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY.
material respects, the performance by Bird and the absence or cure of any breach
in any material respect by Bird of its covenants or agreements and the absence
of any material adverse change relating to the Assets, Holding or Kensington, in
each case, relating to the Closing or the Kensington Closing as the case may be,
(ii) with respect to the Closing, the absence of any material change in the
financial condition, business, operations or properties Related to the Activity
which would have a Material Adverse Effect, and (iii) with respect to the
Kensington Closing only: the prior occurrence of the Closing, the net
partnership equity of Kensington being at least $1,150,000, the Purchaser's
satisfaction with the representations and warranties set forth in the Purchase
Agreement and the schedules attached thereto which relate to Kensington, as such
representations, warranties and schedules may have been modified by Bird after
the date of the Purchase Agreement, and the absence of any factoring
arrangements with respect to the accounts receivable of Kensington that continue
post-Closing.
The obligations of the Company and Bird to consummate the Bardstown Sale
are subject to the prior satisfaction (or waiver by the Company and Bird) of
certain conditions, including: (i) all representations and warranties of the
Purchaser in the Purchase Agreement being accurate in all material respects, and
the performance by the Purchaser of all covenants to be performed by the
Purchaser in all material respects and the absence or cure of any breach in any
material respect by the Purchaser of its covenants or agreements and (ii) solely
with respect to the Kensington Closing, the prior occurrence of the Closing and
the Purchaser's assumption of, and indemnification of the Companies with respect
to, the liabilities of the Companies relating to Kensington pursuant to a
binding agreement reasonably acceptable to Bird.
The respective obligations of the Company, Bird and the Purchaser to
consummate the Combined Sale Transaction are subject to the satisfaction (or
waiver) of the following conditions: (i) the failure of any statute, rule,
regulation or order to have been enacted by any Governmental Authority
prohibiting the payment for or acceptance of payment for some or all of the
Assets, making the acceptance for payment or payment for some or all of the
Assets illegal, or otherwise prohibiting consummation of the transactions
contemplated by the Purchase Agreement or, solely as a condition to the
obligations of the Purchaser, imposing any material limitation on the ability of
the Purchaser effectively to acquire, hold or operate the Activity or to
exercise full rights of ownership over the Assets; (ii) the absence of any
Proceeding, pending or threatened, to challenge, modify or set aside any
authorization of the transactions provided for in the Purchase Agreement or any
approvals or consents thereunder or any action to enjoin or prevent the
consummation of the transactions contemplated by the Purchase Agreement; (iii)
receipt by the Company of all material authorizations, consents and approvals of
its stockholders; and (iv) receipt by Bird of all authorizations, consents and
approvals from the Senior Secured Lenders with respect to the Closing and all
other material authorizations, consents and approvals required in connection
with the purchase and sale of the Holding Stock as contemplated by the Purchase
Agreement. In addition, Bird's obligations with respect to the Kensington
Closing are conditioned upon Bird's prior fulfillment of all of its obligations
under Kensington's Partnership Agreement.
CERTAIN OPERATIVE AGREEMENTS
The Purchase Agreement contemplates that Bird and the Purchaser shall
execute and deliver at the closing certain operative agreements described more
fully below.
Non-Competition Agreement. The Non-Competition Agreement to be executed by
Bird and the Purchaser in connection with the Closing is, pursuant to its terms,
an essential part of the consideration being received by the Purchaser in
connection with the Bardstown Sale and the delivery of such Non-Competition
Agreement is a condition to the Purchaser's obligations under the Purchase
Agreement. The Non-Competition Agreement provides that (i) Bird will not and
will not permit any of its Affiliates (as defined in the Non-Competition
Agreement), to use, appropriate or misappropriate any of the confidential and
proprietary information Related to the Activity (the "Confidential
Information"), or to disclose or make available to any Person other than the
Purchaser any of the Confidential Information, except in certain limited,
specified circumstances and (ii) that Bird will not, for a period of five years
commencing on the date
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<PAGE> 43
CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY.
of the Non-Competition Agreement, and will not permit any of its Affiliates to,
in any portion of the United States of America or Canada, engage directly or
indirectly, whether alone or in association with any other Person, in the
production and/or sale of vinyl siding, soffit, fascia, and/or associated
accessories and/or vinyl window profiles and/or accessories.
Pursuant to the Non-Competition Agreement, Bird also agrees that during
such five year period it will not, nor will it permit any of its Affiliates to,
directly or indirectly (i) solicit the trade of any customer, prospective
customer, supplier or prospective supplier of the Activity for any business
purpose which is in competition with the Activity as carried out by the
Purchaser following the Closing or (ii) knowingly solicit or induce, or attempt
to solicit or induce, any employee of the Purchaser or any of its Affiliates to
leave the Purchaser or any of its Affiliates for any reason whatsoever, or to
hire any employee of Purchaser or any of its Affiliates, provided that the
foregoing restrictions will not apply to any solicitation by general
advertisement, or to persons who resign voluntarily from the employ of the
Purchaser or any of its Affiliates (without solicitation by Bird) or who are
terminated by Purchaser or any of its Affiliates. Bird is free to engage in any
line of business engaged in by Bird or any Affiliate of Bird immediately
following the Closing (including Bird's marketing of vinyl shutters currently
marketed through its roofing division) and the restrictions contained in the
Non-Competition Agreement do not apply to any Person that purchases all or a
substantial portion of the capital stock or assets of Bird, or to such Person's
Affiliates.
The Purchaser is entitled to injunctive relief against Bird in the event of
any breach of the Non-Competition Agreement and may institute proceedings for
specific performance of the Non-Competition Agreement by Bird.
Pursuant to the Purchase Agreement, a portion of the Purchase Price equal
to $25,000 is allocated as consideration for Bird's agreements under the
Non-Competition Agreement.
License Agreement. Under the License Agreement to be executed by Bird as
of the Closing Date, Bird will grant to the Purchaser an exclusive,
royalty-free, paid-up license to use the "Bird" name and logo and all
registration applications therefor (the "Trademark") and to sublicense the
Trademark in connection with the Activity within the United States of America
and Canada (the "Territory"). The License Agreement permits Bird to retain the
right to use the Trademark concurrently with the Purchaser in connection with
the activities of Bird not transferred to the Purchaser (including in connection
with the marketing of vinyl shutters by Bird's roofing division).
The License Agreement restricts the Purchaser's use of the Trademark to the
Territory and requires such use to be in connection with the Activity. The term
of the License Agreement is perpetual, but the License Agreement is subject to
termination by Bird if and when (i) the Purchaser uses the Trademark in
connection with any product other than the Vinyl Products (as such term is
defined in the License Agreement), (ii) the Purchaser uses the Trademark in
connection with any activity other than the Activity, (iii) the Purchaser
attempts or purports to sublicense or assign the License Agreement or the rights
granted thereunder other than as permitted or (iv) the Purchaser breaches any
other obligation that it may have under the License Agreement (including, but
not limited to, Purchaser's obligation to maintain quality standards) and fails
to cure such breach within 60 days of written notice. Upon termination of the
License Agreement for any reason, all rights granted thereunder in the Trademark
will automatically revert to Bird, and the Purchaser must cease and thereafter
refrain from all use of the Trademark, all sublicensing thereof and any
reference to itself or any of its affiliates or sublicensees as "formerly Bird"
or words of similar meaning.
If Bird ceases to do business or to exist, it must, prior to the effective
date of any such change, convey its rights in and to the Trademark to the
Purchaser in exchange for $1.00.
Sublicensees of the Trademark from the Purchaser must agree in writing to
be bound by the terms and conditions of the License Agreement.
The License Agreement contains representations of Bird as to its title to
the Trademark and as to the absence of any infringement on proprietary rights of
any other person in the Territory. Pursuant to the License
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<PAGE> 44
CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY.
Agreement, the Purchaser represents, warrants and covenants to maintain certain
quality levels and standards with respect to all Vinyl Products, to require its
sublicensees to maintain similar quality standards and to provide Bird with
reasonable access to the Purchaser's and its sublicensees' facilities and to the
Vinyl Products in order to inspect and verify quality levels.
INDEMNIFICATION
The Companies agree in the Purchase Agreement that they shall jointly and
severally indemnify and hold harmless the Purchaser from and against any Damages
suffered by the Purchaser (including, without limitation, reasonable fees and
expenses of attorneys, accountants, consultants and experts) resulting from,
arising out of or incurred with respect to, or in the case of claims asserted
against the Purchaser by third parties, alleged to result from, arise out of or
have been incurred with respect to (i) the falsity or the breach of any
representation (except the representations regarding environmental matters, with
respect to which Bird's indemnity obligations are described under " -- Covenants
Regarding Environmental Matters"), covenant, warranty or agreement made by Bird
in the Purchase Agreement, (ii) the Retained Liabilities, (iii) the Retained
Assets, (iv) after the Kensington Closing, any liability of Holding for Taxes or
matters arising under ERISA which arise as a result of Holding being a member of
the Company's consolidated group and (v) prior to the Kensington Closing,
irrespective of whether or not the Purchaser's aggregate Damages exceed
$1,000,000 (the "Basket Amount"), any failure of Kensington to pay any account
receivable included in the Assets.
The Purchaser agrees to indemnify and hold harmless the Companies from and
against any Damages suffered by the Companies (including, without limitation,
reasonable fees and expenses of attorneys, accountants, consultants and experts)
resulting from, arising out of, or incurred with respect to, or in the case of
claims asserted against the Companies by third parties, alleged to result from,
arise out of or have been incurred with respect to (i) the falsity or the breach
of any representation, covenant, warranty or agreement made by Buyer in the
Purchase Agreement, (ii) the Assumed Liabilities, (iii) the ownership, use or
operation of the Assets or the conduct of the Activity by the Purchaser on or
subsequent to the Closing Date or (iv) the conduct of the business of Holding
and the Kensington Partners Business prior to, on or subsequent to the
Kensington Closing Date, including but not limited to all liabilities reflected
on Holding's and Kensington's respective balance sheets as of the Kensington
Closing Date.
The parties' respective representations and warranties contained in the
Purchase Agreement will survive any investigation made by, in the case of any
representations and warranties of the Companies, the Purchaser, and, in the case
of representations and warranties of the Purchaser, Bird, and will, in each
case, survive the Closing only through the one-year period following the Closing
Date, except that Bird's representations and warranties regarding tax matters
will survive until the expiration of the applicable statute of limitations and
Bird's representations and warranties as to title to the Assets will survive
without expiration. Neither Bird (except with respect to Bird's representations
and warranties regarding environmental and tax matters) nor the Purchaser has
any obligation to indemnify the other unless a specific claim is made or an
action at law or at equity is commenced within six months from the date the
party claiming indemnification has actual knowledge of the state of facts based
on which such party may assert a claim against the other party. Indemnification
claims made by the Purchaser for a breach of Bird's representations and
warranties relating specifically to the Kensington Closing may not be made until
the Purchaser has properly exercised its option to purchase the Holding Stock.
Bird is not liable with respect to its indemnification obligations until
the Purchaser's Damages exceed the Basket Amount and, in such case, only to the
extent of such excess. The Final Remedial Amount and the Kensington Final
Remedial Amount will, to the extent any such amount is paid by the Purchaser,
reduce the Basket Amount on a dollar-for-dollar basis. The obligations of Bird
for any indemnification claims will not exceed $4,000,000 in the aggregate.
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<PAGE> 45
CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY.
TERMINATION
The Purchase Agreement may be terminated (i) at any time by mutual consent
of Bird and the Purchaser; (ii) by Bird or the Purchaser if (x) the Board of
Directors fails to recommend, or withdraws, modifies or changes its
recommendation of, the Purchase Agreement in a manner adverse to the Purchaser
or resolves to do any of the foregoing or (y) Bird or the Company accepts a
Superior Proposal precluding the completion of the transactions contemplated by
the Purchase Agreement; (iii) by either the Purchaser or the Companies upon
written notice given to the other parties after (x) March 31, 1995, if the
Closing shall not have occurred on or before such date or (y) with respect to
the Kensington Closing only, July 31, 1995 (or the expiration of the 105-day
period following the exercise by the Purchaser of its option to purchase the
Holding Stock, as applicable), if the Kensington Closing shall not have occurred
on or before such date; (iv) by the Purchaser or the Companies if the Company
fails to receive required approvals from its stockholders or the Senior Secured
Lenders by the Closing Date; (v) by the Purchaser or the Companies (provided the
terminating party is not then in default in any material respect under the
Purchase Agreement), upon the failure of the other party to fulfill a condition
to Closing by the Closing Date or if the other party is in default in any
material respect under the Purchase Agreement; (vi) by the Purchaser, upon
written notice to the Companies if (x) prior to the Closing Date, the Final
Remedial Amount exceeds $1,500,000 or (y) with respect to the Kensington Closing
only, prior to the Kensington Closing Date, the Kensington Final Remedial Amount
exceeds $500,000; or (vii) insofar as it relates to the sale and purchase of the
Holding Stock, by Bird in the event any party exercises any rights such party
may have pursuant to the Kensington Partnership Agreement to purchase the
Holding Stock. See "-- Termination Fee."
TERMINATION FEE
Bird will pay the Purchaser a fee of $1,500,000 (the "Termination Fee")
upon (i) the termination of the Purchase Agreement for the reasons specified in
clause (ii) under the caption "-- Termination" above or (ii) the consummation of
an Acquisition Transaction relating to the Company or Bird within the twelve
(12) month period following any such termination (x) by the Purchaser for the
reasons specified in clause (v) under the caption "-- Termination" above or (y)
by Bird, the Company or the Purchaser for the reasons specified in clause (iv)
under the caption "-- Termination" above if (A) Bird, the Company or the
Company's stockholders shall have received an offer or proposal from any Person
(other than the Purchaser or an Affiliate of the Purchaser) to enter into an
Acquisition Transaction or (B) any Person (other than the Purchaser or an
Affiliate of the Purchaser) shall have purchased, after the date of the Purchase
Agreement and prior to such termination, securities representing 10% or more of
the voting power of Bird or the Company.
The Termination Fee is payable within five (5) Business Days after the
occurrence of the event giving rise to such payment.
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CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY.
MARKET PRICE DATA AND RELATED MATTERS
COMMON STOCK INFORMATION
The Company had 2,214 common stockholders of record as of September 30,
1994. On September 23, 1994, the business day first preceding public
announcement of the Combined Sale Transaction, the high and low bid prices for
the Common Stock were both $7.25. On December 30, 1994, the high and low bid
prices for the Common Stock were $9.125 and $8.50.
<TABLE>
<CAPTION>
The Common Stock is quoted in the NASDAQ National Market System under the
symbol "BIRD." The range of high and low bid prices for the Common Stock as
reported by NASDAQ for the periods indicated is set forth below.
FISCAL YEAR HIGH LOW
- ------------------------------------------------------------------------ ---- ----
<S> <C> <C> <C>
1992 First Quarter.................................................... 18 3/4 14 1/4
Second Quarter................................................... 18 12
Third Quarter.................................................... 14 11 1/4
Fourth Quarter................................................... 13 1/2 11
1993 First Quarter.................................................... 14 1/4 11 3/4
Second Quarter................................................... 13 1/2 11 1/2
Third Quarter.................................................... 13 1/4 11 1/2
Fourth Quarter................................................... 13 1/2 6 1/2
1994 First Quarter.................................................... 12 1/4 8
Second Quarter................................................... 11 1/4 8 1/2
Third Quarter.................................................... 10 1/2 7
Fourth Quarter................................................... 10 8
</TABLE>
DIVIDENDS
The Company paid a cash dividend of five cents per share of Common Stock in
each quarter during 1992 and 1993. At the end of 1993, the Company suspended
dividends on all classes of stock until further notice.
In accordance with the Third Amended Credit Agreement, on October 13, 1994,
the Company requested that its lending banks consent to the payment of dividends
of $1.25 on the 5% Preferred Stock on December 1, 1994, as well as to subsequent
declarations and payments with respect to the 5% Preferred Stock. These lenders
granted the Company's request in part, consenting solely to the declaration and
payment of the December 1, 1994 dividends on the 5% Preferred Stock.
Accordingly, the Company declared a quarterly dividend on the 5% Preferred Stock
on November 4, 1994, and paid such dividend, in the amount of $7,275, on
December 1, 1994. The Third Amended Credit Agreement limited the declaration and
payment of cash dividends on the 5% Preferred Stock to $350,000 per year, and on
the Preference Stock to $1,550,000 per year, in each case provided no default
was continuing thereunder.
Under the terms of the Barclays Agreement, the payment of dividends is
generally proscribed, except that the Company may declare and pay cash dividends
up to $35,000 in any fiscal year on the 5% Preferred Stock and may declare and
pay dividends generally on its capital stock to the extent such dividends are
payable solely in such capital stock. The Barclays Agreement further permits
Bird to pay dividends to the Company to enable the Company to pay permitted
dividends on the 5% Preferred Stock. In accordance with the terms of the
Barclays Agreement, dividends on the 5% Preferred Stock may only be paid if no
event of default has occurred and is continuing thereunder or would occur after
giving effect to such payment.
The Company is currently in arrears in its payment of quarterly dividends
on the 5% Preferred Stock for three quarterly periods in 1994 (having paid a
quarterly dividend on December 1, 1994) and on the Preference Stock for the last
four quarterly periods in which dividends on the Preference Stock were due. The
amount of
31
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CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY.
dividends in arrears on the 5% Preferred Stock and the Preference Stock is
$21,825 and $1,506,452 respectively, as of December 31, 1994.
In the event the Company fails to pay quarterly dividends with respect to
the 5% Preferred Stock for four quarters (which need not be consecutive), the
holders of the 5% Preferred Stock will be entitled to one vote per share
concurrent with the Common Stock on all matters during the period in which the
Company's default continues uncured. In connection with any such default, the
holders of the 5% Preferred Stock will also have the right, voting separately
and as a class, to elect two directors by majority vote. In the event the
Company fails to pay quarterly dividends with respect to the Preference Stock
for six quarters (which need not be consecutive), holders of the Preference
Stock will be entitled to elect two directors who shall serve for the period
during which the Company's default with respect to such dividends continues
uncured. The Articles of Organization of the Company provide that as long as any
arrearage on the payment of dividends on the 5% Preferred Stock exists, no
dividends may be declared or paid on any other class of stock of the Company.
The Articles of Organization also provide that in the event that full cumulative
dividends on the Preference Stock have not been declared and paid, the Company
may not declare or pay any dividends or make any distributions on, or make
payment on account of the purchase, redemption, or other requirement of, its
Common Stock, until full cumulative dividends on the Preference Stock are
declared and paid or set aside for payment.
COMPARATIVE PER SHARE DATA
The following table presents selected comparative per share data for the
Company based upon historical and unaudited pro forma financial information
contained elsewhere in this Proxy Statement. The pro forma data gives effect to
the Combined Sale Transaction and certain other transactions described in
footnotes to the unaudited pro forma consolidated statements of operations
appearing elsewhere herein. The unaudited pro forma data is based on certain
assumptions and includes estimated unaudited pro forma adjustments. Reference is
made to the unaudited pro forma consolidated financial statements and the notes
thereto for a description of these assumptions and adjustments. The unaudited
pro forma consolidated financial statements and financial data are provided for
comparative purposes only. The selected unaudited pro forma financial data does
not purport to be indicative of the results which actually would have been
obtained if the Combined Sale Transaction were to be effected on the dates
indicated or of those results which may be obtained in the future.
BIRD CORPORATION AND SUBSIDIARIES
COMPARATIVE PER SHARE DATA(1)
Primary earnings (loss) per common and common equivalent share from
continuing operations:(2)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL AS ADJUSTED
---------- -----------
<S> <C> <C>
Year ended December 31, 1993................................. ($1.51) ($ 2.61)
Nine months ended September 30, 1994......................... ($0.67) ($ 1.40)
Book Value per Common Share as of September 30, 1994(3)...... $3.73 $ 8.51
</TABLE>
- ---------------
(1) This comparison should be read in conjunction with the unaudited
consolidated pro forma financial information and consolidated financial
statements and the notes thereto appearing elsewhere herein.
(2) The "historical" and "pro forma as adjusted" earnings (loss) per share
amounts have been determined after deducting the dividend requirement for
the 5% Preferred Stock and Preference Stock. Earnings (loss) per share are
based on the weighted average number of shares of Common Stock outstanding
and exclude Common Stock equivalents since they are anti-dilutive.
(3) Adjusted for the liquidating values for the 5% Preferred Stock and
Preference Stock and based on the number of shares of Common Stock
outstanding on the respective dates.
32
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CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY.
SELECTED CONSOLIDATED FINANCIAL INFORMATION OF THE COMPANY
The selected consolidated financial data set forth below for the five years
ended December 31, 1993 have been derived from the audited consolidated
financial statements of the Company. The statement of operations data with
respect to the years ended December 31, 1993, 1992 and 1991 and the balance
sheet data as of December 31, 1993 and 1992 have been derived from the audited
financial statements of the Company as included in this Proxy Statement. The
statement of operations data with respect to the years ended December 31, 1990
and 1989 and the balance sheet data as of December 31, 1991, 1990 and 1989 have
been derived from the audited financial statements of the Company previously
filed with the SEC but not incorporated by reference or included elsewhere in
this Proxy Statement. The selected consolidated financial data set forth for the
nine months ended September 30, 1994 have been derived from the unaudited
consolidated financial statements of the Company included elsewhere in this
Proxy Statement. The selected consolidated financial data set forth below are
qualified in their entirety by and should be read in conjunction with the
financial statements and the notes related thereto included elsewhere in this
Proxy Statement. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS." See also "Bird Corporation and
Subsidiaries Audited Consolidated Financial Information" included on pages F-2
through F-27 and the Company's interim financial statements for the period ended
September 30, 1994 included in pages A-2 through A-11 of this Proxy Statement.
33
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CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY.
BIRD CORPORATION
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following tables set forth certain financial data and are qualified in
their entirety by the more detailed Consolidated Financial Statements and
information included elsewhere herein:
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED STATEMENT OF OPERATIONS DATA
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------------- ------------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- -------- --------
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales......................... $141,595 $140,512 $187,745 $164,202 $137,059 $128,997 $122,013
Costs and expenses:
Cost of sales................... 114,813 111,574 151,664 128,371 107,226 99,811 95,450
Selling, general and
administrative expenses....... 22,371 23,065 32,716 27,811 23,023 21,588 20,506
Interest expense................ 4,138 1,485 2,472 1,506 1,026 414 1,562
Discontinued business activities
(income)...................... (1,416)(1) 0 268 178 189 (681) (6,478)
Non-recurring Income............ 0 (1,377)(2) 0 0 0 0 0
Other (income) expense.......... 3,263(3) 2,223(3) 5,903(4) (197) (331) (547) (1,323)
Earnings (loss) from continuing
operations before income
taxes........................... (1,574) 3,542 (5,278) 6,533 5,926 8,412 12,296
Provision (benefit) for income
Earnings (loss) from continuing
operations...................... (1,574) 3,114 (4,641) 5,664 5,428 7,798 11,233
Discontinued operations:(6)
Gain (loss) from operations of
discontinued businesses, net
of taxes...................... 2,019 (5,378) (15,414) (2,573) (249) (1,073) (1,347)
Gain (loss) on disposal of
businesses.................... (9,384) 0 (11,000) 0 0 0 9,806(5)
Net gain (loss) from discontinued
operations...................... (7,365) (5,378) (26,414) (2,573) (249) (1,073) 8,459
Cumulative effect of accounting
change.......................... 0 2,733 (7) 2,733 (7) 0 0 0 0
Net earnings (loss)............... $ (8,939) $ 469 $(28,322) $ 3,091 $ 5,179 $ 6,725 $ 19,692
Primary earnings (loss) per common
share:
Continuing operations............. $ (0.67) $ 0.48 $ (1.51) $ 1.00 $ 1.01 $ 1.73 $ 2.43
Discontinued operations........... (1.82) (1.32) (6.45) (0.62) (0.06) (0.30) 2.12
Cumulative effect of accounting
change.......................... 0.00 0.67 0.67 0.00 0.00 0.00 0.00
Net earnings (loss)............... $ (2.49) $ (0.17) $ (7.29) $ 0.38 $ 0.95 $ 1.43 $ 4.55
Fully diluted earnings (loss) per
common share:
Continuing operations........... $ (0.33) $ 0.64 $ (1.51) $ 1.00 $ 1.01 $ 1.73 $ 2.08
Discontinued operations......... (1.54) (1.12) (6.45) (0.62) (0.06) (0.30) 2.08
Cumulative effect of accounting
change........................ 0.00 0.57 0.67 0.00 0.00 0.00 0.00
Net earnings (loss)............... $ (1.87) $ 0.09 $ (7.29) $ 0.38 $ 0.95 $ 1.43 $ 4.16
Cash dividend per common share.... $ 0.00 $ 0.15 $ 0.15 $ 0.20 $ 0.20 $ 0.20 $ 0.00
Book Value Per Common Share....... $ 3.73 $ 5.73 $ 5.75 $ 12.83 $ 12.61 $ 11.59 $ 10.36
Total assets...................... $ 83,399 $137,925 $123,229 $119,075 $ 99,904 $ 80,835 $ 76,383
Working capital................... $ (7,867) $ 12,698 $ 30,090 $ 43,782 $ 34,179 $ 32,022 $ 29,333
Long-term debt, excluding current
portion......................... $ 1,140 $ 1,904 $ 43,127 $ 30,374 $ 12,150 $ 4,492 $ 1,370
Stockholders' equity.............. $ 32,157 $ 68,929 $ 40,561 $ 69,101 $ 68,602 $ 60,323 $ 55,410
</TABLE>
34
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BIRD CORPORATION
SELECTED CONSOLIDATED FINANCIAL INFORMATION
FOOTNOTES
- ---------------
(1) Reflects the $1,261,000 loss on the sale of the Company's interest in
Mid-South Building Supply, Inc. and the gain of $2,677,000 on the sale of
virtually all of the Company's building materials distribution businesses to
Cameron.
(2) Represents a net gain from a settlement of a claim against a former vendor.
(3) Reflects the Company's portion of the results of operations of Kensington
amounting to $1,644,000 and $859,000 for the nine months ended September 30,
1994 and 1993, respectively, as well as certain charges primarily associated
with executive compensation plans.
(4) Represents certain non-recurring charges more fully described in the Notes
to the 1993 consolidated financial statements included elsewhere herein.
(5) Relates to the disposal of a former subsidiary, Bird Machine Company.
(6) Except as noted in footnote (5) above, the discontinued operations relate to
the "off-site" and "on-site" environmental remediation businesses.
(7) Relates to the adoption of Financial Accounting Standards Board Statement
No. 109, "Accounting for Income Taxes".
35
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CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY.
SELECTED UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL INFORMATION OF THE COMPANY
The following selected unaudited pro forma consolidated financial
information of the Company is based on and should be read in conjunction with
the audited consolidated financial statements and other financial information of
the Company included elsewhere in this Proxy Statement. The unaudited pro forma
consolidated statement of operations for the nine months ended September 30,
1994 and the year ended December 31, 1993 gives effect to the Combined Sale
Transaction and to the sale of all of the building materials distribution
business to two Cameron Subsidiaries as if such sales had occurred on January 1,
1993. The unaudited pro forma consolidated balance sheet as of September 30,
1994 gives effect to the Combined Sale Transaction and to the recent sale of
Southland's assets to a Cameron Subsidiary as if such sales had occurred on
September 30, 1994. Additionally, the proceeds from the Combined Sale
Transaction are treated as if they had been used to reduce the Company's
outstanding indebtedness and accordingly, no interest expense is shown on a pro
forma basis, as adjusted. The unaudited pro forma consolidated balance sheet
also reflects the Company's earlier decisions to close its on-site environmental
remediation business (shown as "adjustments"), as well as the sale of its
building materials distribution business assets to two Cameron Subsidiaries.
Proceeds from the sale of the distribution business to the Cameron Subsidiary in
August 1994, as well as the subsequent sale of Southland's assets to another
Cameron Subsidiary in November 1994, have been reflected as reductions in the
Company's indebtedness.
The unaudited pro forma adjustments are based upon available information
and certain assumptions that management believes are reasonable in the
circumstances. The unaudited pro forma consolidated financial information
purports neither to represent what the Company's financial position or results
of operations would actually have been if the Combined Sale Transaction and the
August and November 1994 sales to Cameron Subsidiaries had occurred on January
1, 1993 or September 30, 1994 nor to project the Company's financial position or
results of operations for any future date or period.
36
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CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY.
BIRD CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1994
-----------------------------------------------------------
SALE OF PROPOSED SALE
DISTRIBUTION OF COMBINED PRO FORMA
HISTORICAL COMPANIES(1) VINYL BUSINESS(2) AS ADJUSTED
---------- ------------ ----------------- -----------
(000) OMITTED (EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
Net Sales.................................. $ 141,595 $ 65,891 $36,348 $ 39,356
---------- ------------ ----------------- -----------
Costs and expenses:
Cost of sales............................ 114,813 53,205 27,783 33,825
Selling, general and administrative
expense(3)............................ 22,371 11,020 4,455 6,896
Net interest expense..................... 4,138 2,329 1,809 0
Net discontinued business activities
expense............................... (1,416) (1,416)(7) 0 0
Equity losses from partnership........... 1,644 0 0 1,644
Other expense............................ 1,619 94 0 1,525
---------- ------------ ----------------- -----------
Total costs and expenses............ 143,169 65,232 34,047 43,890
---------- ------------ ----------------- -----------
Earnings (loss) from continuing operations
before income taxes...................... (1,574) 659 2,301 (4,534)
Provision (benefit) for income taxes(5).... 0 0 0 0
---------- ------------ ----------------- -----------
Earnings (loss) from continuing
operations............................... $ (1,574) $ 659 $ 2,301 $ (4,534)
========== =============
Cumulative Preferred and Preference
dividends................................ 1,152 1,152
---------- -----------
Earnings (loss) from continuing operations
applicable to common stock............... $ (2,726) $ (5,686)
========= =========
Earnings (loss) from continuing operations
per common share:(6)
Primary.................................. $ (0.67) $ (1.40)
Average number of shares used in primary
earnings per share computation........... 4,051,050 4,051,050
</TABLE>
37
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CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY.
BIRD CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
DECEMBER 31, 1993
-----------------------------------------------------------------
SALE OF PROPOSED SALE
DISTRIBUTION OF COMBINED PRO FORMA
HISTORICAL COMPANIES(1) VINYL BUSINESS(2) AS ADJUSTED
---------- ------------ ----------------- -----------
(000) OMITTED (EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
Net Sales............................. $ 187,745 $ 96,497 $43,836 $ 47,412
---------- ------------ ----------------- -----------
Costs and expenses:
Cost of sales....................... 151,664 77,630 33,322 40,712
Selling, general and administrative
expense(3)....................... 32,716 16,626 5,647 10,443
Net interest expense................ 2,472 1,406 1,066 0
Net discontinued business
activities....................... 268 0 0 268
Equity losses from partnership...... 2,625 0 0 2,625
Other expense(4).................... 3,278 129 0 3,149
---------- ------------ ----------------- -----------
Total costs and expenses....... 193,023 95,791 40,035 57,197
---------- ------------ ----------------- -----------
Earnings (loss) from continuing
operations before income taxes...... (5,278) 706 3,801 (9,785)
Provision (benefit) for income
taxes(5)............................ (637) 0 0 (637)
---------- ------------ ----------------- -----------
Earnings (loss) from continuing
operations.......................... $ (4,641) $ 706 $ 3,801 $ (9,148)
========== =============
Cumulative Preferred and Preference
dividends........................... 1,536 1,536
---------- -----------
Earnings (loss) from continuing
operations applicable to common
stock............................... $ (6,177) $ (10,684)
========= =========
Earnings (loss) from continuing
operations per common share:(6)
Primary............................. $ (1.51) $ (2.61)
Average number of shares used in
primary earnings per share
computation......................... 4,097,999 4,097,999
</TABLE>
38
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CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY.
BIRD CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1994
----------------------------------------------------------------------------------
SALE OF PROPOSED SALE
DISTRIBUTION OF COMBINED PRO FORMA
HISTORICAL ADJUSTMENTS COMPANY(10) VINYL BUSINESS(11) AS ADJUSTED
---------- ----------- ------------ ------------------ -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and equivalents................. $ 200 $ 0 $ 0 $ 18,888(8) $19,088
Accounts and notes receivable........ 28,541 (908)(9) (653) (13,583) 13,397
Allowance for doubtful accounts.... (3,344) 208(9) 126 697 (2,313)
Inventories.......................... 10,767 0 (1,804) (5,497) 3,466
Prepaid Expenses..................... 2,632 (33)(9) (22) (1,103) 1,474
Receivable from sale of assets....... 1,996 0 (99) 0 1,897
Deferred income tax.................. 170 0 0 0 170
---------- ----------- ------------ ---------- -----------
Total current assets............. 40,962 (733) (2,452) (598) 37,179
---------- ----------- ------------ ---------- -----------
Property, Plant and Equipment:
Land and land improvements........... 3,145 0 0 (174) 2,971
Buildings............................ 11,437 0 (68) (4,805) 6,564
Machinery and equipment.............. 29,686 0 (318) (10,677) 18,691
Construction in progress............. 4,480 0 0 (60) 4,420
---------- ----------- ------------ ---------- -----------
48,748 0 (386) (15,716) 32,646
Less -- Depreciation and
amortization....................... 23,390 0 (302) (10,192) 12,896
---------- ----------- ------------ ---------- -----------
25,358 0 (84) (5,524) 19,750
---------- ----------- ------------ ---------- -----------
Other investments...................... 2,868 (96)(9) 0 0 2,772
Assets held for sale................... 7,500 0 0 0 7,500
Other assets........................... 1,660 0 230 (211) 1,679
Deferred income tax.................... 5,051 0 0 (3,600)(8) 1,451
---------- ----------- ------------ ---------- -----------
$ 83,399 $ (829) $ (2,306) $ (9,933) $70,331
======== ========== ========== =============== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Long-term debt, portion due within
one year........................... $ 666 $ 0 $ 0 $ (296)(8) $ 370
Long-term debt in default, classified
as current......................... 28,158 0 (1,657) (26,113)(8) 388
Accounts payable and accrued
expenses........................... 16,392 1,655(9) (553) (4,105) 13,389
Retirement plan contributions
payable............................ 384 0 0 (71) 313
Income taxes payable................. 452 (124)(9) 0 1,200(8) 1,528
Dividends Payable.................... 0 0 0 0 0
Liquidation Reserve.................. 2,777 (2,360)(9) 0 0 417
---------- ----------- ------------ ---------- -----------
Total current liabilities........ 48,829 (829) (2,210) (29,385) 16,405
---------- ----------- ------------ ---------- -----------
Long-term Debt, Portion Due After
One Year............................. 1,140 0 0 (61)(8) 1,079
---------- ----------- ------------ ---------- -----------
Other Liabilities...................... 1,250 0 (146) 0 1,104
---------- ----------- ------------ ---------- -----------
Deferred Income Taxes.................. 23 0 0 0 23
---------- ----------- ------------ ---------- -----------
Stockholders' Equity
Preferred and Preference stocks at
par value.......................... 1,396 0 0 0 1,396
Common stock at par value............ 4,339 0 0 0 4,339
Other Stockholders' Equity(12)....... 26,422 0 50 19,513(8) 45,985
---------- ----------- ------------ ---------- -----------
32,157 0 50 19,513 51,720
---------- ----------- ------------ ---------- -----------
$ 83,399 $ (829) $ (2,306) $ (9,933) $70,331
======== ========== ========== =============== =========
</TABLE>
39
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BIRD CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
FOOTNOTES
- ---------------
(1) Reflects the sale of the building materials distribution business to
Cameron on August 22, 1994 including the pending sale of substantially all
the assets of Southland Building Products, Inc. to Cameron. Proceeds from
the sales were used to reduce the Company's indebtedness under the Third
Amended Credit Agreement by approximately $25 million. As of September 30,
1994, the revolving credit line commitment totaled $25,825,000 and the
total principal outstanding on the term loan totaled $14,928,000. The
average interest rate for the twelve month period ending December 31, 1993
was 4.92%. The average interest rates on the revolving credit line and term
loan under the Third Amended Agreement were 10.78% and 11.55% respectively
for the nine month period ended September 30, 1994. Interest expense was
adjusted by $1.3 million and $2.3 million for the twelve months ended
December 31, 1993 and the nine months ended September 30, 1994,
respectively, to reflect the indebtedness reduced by such proceeds. The pro
forma results of operations for the period ended September 30, 1994 do not
include any interest income on such proceeds or the anticipated gain on the
sale of Southland. Such gain amount is presented as an adjustment to
retained earnings on the pro forma consolidated balance sheet as of
September 30, 1994. The amount of the gain on the sale of distribution
included in retained earnings at September 30, 1994 was $2,677,000 on the
sale of assets to Cameron and a loss of $1,261,000 on the sale of the
Company's 40% interest in Mid-South Building Supply, Inc.
(2) Reflects the results of operations relating to the proposed sale of the
Vinyl Business (excluding Kensington) (see "The Combined Sale
Transaction -- Proceeds of the Combined Sale Transaction"). The proceeds
will be applied to reduce the Company's indebtedness under the Loan and
Security Agreement. As of November 30, 1994, the revolving credit line
commitment totaled $24 million and the total principal outstanding on the
term loans totaled $15 million. The interest rates on the revolving credit
line and the term loan under the Barclays Agreement dated November 30, 1994
between the Company and Barclays were 9.5% and 9.75%, respectively. The
anticipated gain of $19.5 million attributable to the transaction is not
presented in the pro forma consolidated statements of operations. Such gain
amount is presented as an adjustment to retained earnings on the pro forma
consolidated balance sheet as of September 30, 1994. Interest expense for
the twelve months ended December 31, 1993 and the nine months ended
September 30, 1994 was virtually eliminated as a result of reducing the
Company's indebtedness. No amount relating to interest income on such
proceeds is included in the pro forma results presented.
(3) SG&A expenses for the distribution businesses and the vinyl business
include historical allocations of corporate overhead expenses amounting to
$856,000 and $1,060,000, respectively, for the year ended December 31,
1993, and $368,000 and $703,000, respectively, for the nine months ended
September 30, 1994. Such expenses represent the estimated reduction to be
realized in on-going corporate SG&A including payroll-related costs for
headcount reductions, facilities expenses and systems support, due to the
sales of these businesses.
(4) Represents certain non-recurring charges more fully described in Note 8 to
the 1993 consolidated financial statements included elsewhere in this Proxy
Statement.
(5) The provision (benefit) for income taxes is based on the Company's
historical effective tax rate and results for the nine months ended
September 30, 1994 and recalculated based on the results from continuing
operations for the twelve months ended December 31, 1993.
(6) The "historical" and "pro forma as adjusted" earnings(loss) per share
amounts have been determined after deducting the dividend requirement for
the Company's preferred and preference stock. Earnings (loss) per share are
based on the weighted average number of common shares outstanding and
exclude common stock equivalents since they are anti-dilutive.
40
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CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY.
BIRD CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
FOOTNOTES -- (CONTINUED)
(7) Reflects an approximate $2.7 million gain on the sale of substantially all
of the Company's building material distribution businesses and the loss of
approximately $1.3 million on sale of the Company's interest in Mid-South
Building Supply, Inc. Historical results of operations for this business
were breakeven for the twelve months ended December 31, 1993 and the period
ended September 30, 1994.
(8) Cash proceeds and the anticipated gain on the transaction have been reduced
by approximately $2.5 million representing estimated legal costs, severance
and financial advisor payments and other expenses and costs associated with
the Combined Sale Transaction and by approximately $706,000 representing
unamortized deferred debt issuance costs. In addition, proceeds amounting
to approximately $27.6 million are reflected as a reduction in the
Company's indebtedness. The anticipated gain, which is not reflected on the
pro forma consolidated statements of operations, also reflects the tax
effect of the transaction and, accordingly, has been reduced by
approximately $1.2 million and approximately $3.6 million for the estimated
state income taxes payable and deferred income taxes, respectively. The
Company is required under the Purchase Agreement to perform a closing
balance sheet audit, that may or may not, result in an adjustment to the
anticipated gain.
COMPUTATION OF CASH PROCEEDS AND THE GAIN ON THE SALE ARE PRESENTED BELOW:
Computation of Net Cash Proceeds from Combined Sale Transaction
<TABLE>
<S> <C> <C> <C>
Gross proceeds................................... $47,500
Less:
Legal.......................................... 210
Severance...................................... 1,500
Financial Advisor.............................. 790 2,500
-----
Long-term debt in default, classified as
current..................................... 26,113 28,613
------ -------
Net proceeds..................................... $18,887
=======
</TABLE>
CALCULATION OF GAIN ON SALE REFLECTED IN PRO FORMA STOCKHOLDERS EQUITY
<TABLE>
<S> <C> <C>
Gross proceeds............................................ $47,500
Less:
Net book value of assets sold........................... 19,981
Severance, legal, financial advisor, etc................ 2,500 22,481
------ -------
Gain on sale before taxes................................. 25,019
Provision for income taxes.............................. 4,800
-------
20,219
Less unamortized debt issuance costs.................... 706
-------
Net gain on sale reflected as an adjustment to
stockholders equity..................................... $19,513
=======
</TABLE>
(9) In June 1994, the Company and the Board of Directors agreed to sell its
share in BEGCI, the "off-site" environmental business, to the minority
shareholders resulting in a write-down of approximately $9 million to its
net estimated realizable value of $7.5 million. These adjustments reflect
this decision and, accordingly, the net estimated realizable value is shown
in other assets as "assets held for sale" on the September 30, 1994 pro
forma consolidated balance sheet. In addition, the assets and liabilities
of the entire environmental business segment have been netted and are shown
as "assets held for sale" for
41
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BIRD CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
FOOTNOTES -- (CONTINUED)
BEGCI on the pro forma balance sheet. The remaining liquidation reserve
represents severance payments due former employees of the environmental
business.
(10) Reflects the pending sale of substantially all of the assets of Southland
to Cameron. This sale closed on November 28, 1994.
(11) Reflects the proposed sale of the Combined Vinyl Business (see "THE
COMBINED SALE TRANSACTION" included elsewhere in this Proxy Statement).
(12) Includes unearned compensation amounting to approximately $300,000 at
September 30, 1994 that will be recognized as a reduction of the
anticipated gain from the Combined Sale Transaction upon closing. However,
there will be no impact on total stockholders' equity. Such compensation
relates to the restricted stock under the LTIP (discussed elsewhere in the
Proxy Statement) that will become exercisable as a direct result of the
Combined Sale Transaction.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Prior to November 30, 1994, the Company's external financial needs were
satisfied by borrowing under the Second and Third Amended Credit Agreements with
The First National Bank of Boston, Philadelphia National Bank incorporated as
Corestates Bank, N.A. and The Bank of Tokyo Trust Company. Effective as of
November 30, 1994, such needs will be satisfied primarily by borrowings under
the Barclays Agreement. In addition, the Company's cash requirements have been
supplemented recently by the sale of certain assets and/or businesses.
The Second Amended Credit Agreement contained financial and operating
covenants which, among other things, required the Company to maintain prescribed
levels of pre-tax earnings, net worth, ratios of debt to net worth and ratios of
current assets to current liabilities. As of September 30, 1993, the Company was
in default in the performance of its obligations with respect to certain of its
covenants under the Second Amended Credit Agreement regarding the ratio of
adjusted earnings, permitted capital expenditures and investments by the Company
in Kensington. The banks were under no obligation to make revolving credit loans
under the Second Amended Credit Agreement following the occurrence and during
the continuance of a default or event of default. The banks continued to lend
notwithstanding the foregoing defaults. The Company classified the related debt
as current on its September 30, 1993 balance sheet in light of the fact that the
Second Amended Credit Agreement provided for automatic acceleration of the
indebtedness upon the occurrence of a default or event of default. No such
acceleration occurred.
On February 14, 1994, the Company's bank group entered into an agreement to
forbear from exercising their rights and remedies under the Second Amended
Credit Agreement and to continue to extend credit under the Second Amended
Credit Agreement through March 15, 1994. During this period of time, certain
operating and financial covenants in the forbearance agreement were operative,
and the Company agreed to collateralize the loans with the accounts receivable
of two of its roofing distribution companies.
On March 4, 1994, the Company and its lending banks executed the Third
Amended Credit Agreement, pursuant to which the Company was permitted to borrow
up to $65 million until January 31, 1996. Loans under the Third Amended Credit
Agreement, which were secured by substantially all of the Company's assets, were
made pursuant to a $40 million revolving credit line commitment for working
capital, letters of credit and a $25,000,000 term loan for general corporate
purposes. The revolving credit line availability was determined with reference
to a percentage of accounts receivable and inventory which were pledged to the
banks.
On August 22, 1994, the Company sold substantially all of the assets of its
building materials distribution businesses to a Cameron Subsidiary for a
purchase price of $24,245,000 based on the July 31, 1994 net book value.
Concurrently, the Company exercised its right under the Third Amended Credit
Agreement to reduce the revolving credit commitment by $13,000,000 to
$25,825,000, thereby reducing fees charged on the unused portion of the
facility. The purchase price with respect to assets acquired by a Cameron
Subsidiary at the August 22, 1994 closing was subject to later adjustment based
on an audit of the net book value of the acquired assets and assumed liabilities
as of the closing date. Due to the increase in the net book value for the period
from July 31, 1994 through August 31, 1994, the Company received an additional
$1,897,000 in respect of such adjustment, which amount was paid to the Company
on November 17, 1994. On November 28, 1994, Ashley Aluminum, Inc., a Cameron
Subsidiary, acquired the net assets of Southland, the Company's sole remaining
building materials distribution business, for a purchase price of $2,134,000
(which does not take into account $193,000 paid for a minority interest acquired
by the Company in contemplation of the closing of the sale). There was an
insignificant gain on this sale.
The Company used proceeds from the sale of the assets of its building
materials distribution business to reduce the term loan under the Third Amended
Credit Agreement from $25,000,000 to $11,999,000 as of November 29, 1994 and to
reduce the amount outstanding under the revolving credit line to $11,529,000 as
of
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the same date. Under the terms of the Third Amended Credit Agreement, the term
loan was to be further reduced by a principal payment of $11,200,000 on April
30, 1995 with the balance of the term loan payable on January 31, 1996.
Under the Third Amended Credit Agreement and prior to the execution of the
Barclays Agreement on November 30, 1994, repayment of the term loan was also
required to be made from excess proceeds of future asset sales (calculated as
the amount remaining after net asset sale proceeds were used to reduce revolving
credit loans to less than borrowing base availability, with borrowing base
availability being calculated after the effect of such an asset sale). The term
loan was also required to be reduced on any date other than the payment due
dates specified in the preceding paragraph by the amount (if any) by which the
term loan exceeded 70% of the fair market value of all of the Company's fixed
assets.
The Third Amended Credit Agreement contained financial and operating
covenants which, among other things, (i) required the Company to maintain
prescribed levels of tangible net worth, net cash flow, earnings before
interest, taxes, depreciation and amortization, and ratio of current assets to
current liabilities, and (ii) limited capital expenditures by the Company. The
Third Amended Credit Agreement also contained restrictions on indebtedness,
liens, investments, distributions (including payment of dividends), mergers,
acquisitions and disposition of assets.
In a letter dated April 11, 1994, the Company was notified by the agent
under the Third Amended Credit Agreement of certain alleged defaults with
respect to certain post-closing undertakings (that were primarily administrative
in nature), including but not limited to, delivery of certain legal opinions and
the issuance of certain certificates of title and title policies. By letters
dated April 20, 1994, July 20, 1994, August 17, 1994, September 1, 1994 and
September 13, 1994, the Company was notified by the agent bank under the Third
Amended Credit Agreement of the continuation of the defaults under certain of
the above-mentioned administrative covenants, as well as certain alleged
defaults and events of default resulting from the fact that the Company did not
meet its minimum net worth covenant as of June 30, 1994. The Company's failure
to satisfy the minimum net worth covenant was due to the $8,477,000 write-down
in the recorded value of Bird Environmental Gulf Coast, Inc. ("BEGCI"). The
banks were under no obligation to extend credit under the Third Amended Credit
Agreement following the occurrence and during the continuance of a default or
event of default. Although not formalized in the form of a written amendment,
waiver or forbearance, the banks continued to lend, and the Company continued to
take action necessary to cure certain of the alleged defaults and events of
default. The Company requested the banks to waive or to forbear from asserting
the remainder of the alleged defaults and events of default. During the
existence of these alleged defaults and events of default, the Company continued
to meet its payment obligations as required. As a result of the alleged defaults
and events of default, all loans under the Third Amended Credit Agreement have
been classified as current on the September 30, 1994 balance sheet.
Interest on the revolving credit line under the Third Amended Credit
Agreement accrued at the base rate (as specified in such agreement) plus 1% on
all borrowings and 1/2% on any unused portion. The interest on the term loan
portion accrued at the base rate plus 2%. Due to the Company's defaults under
the Third Amended Credit Agreement, however, except for a short period following
the August 22, 1994 closing of the sale of assets to the Cameron Subsidiary,
from April 11, 1994 until November 30, 1994, the banks charged interest on the
loans under the Third Amended Credit Agreement at a rate equal to 4% above the
rate otherwise applicable to each such loan. Therefore, the interest rate for
outstanding loans under the revolving credit line was 12.75%, and was 13.75% for
the term loan, at September 30, 1994.
On November 30, 1994, Bird Incorporated entered into the three-year
$39,000,000 Barclays Agreement. At the end of the three year period, the
Barclays Agreement will be automatically renewed for additional one-year terms,
unless expressly terminated in writing. The Barclays Agreement consists of a
$24,000,000 revolving credit commitment and two equal term loans (Term Loan A
and Term Loan B, as defined in the Barclays Agreement) totaling $15,000,000. Up
to $5,000,000 of the revolving credit facility can be used for letters of
credit. Letters of credit outstanding as of November 30, 1994 totaled
$2,927,000. Intercompany loans
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and advances to affiliates including BEGCI and Kensington are permitted under
the Barclays Agreement. Borrowings by Bird under the Barclays Agreement are
guaranteed by the Company and the Company's other subsidiaries and are secured
by substantially all of the assets of the Company and its subsidiaries. The
revolving credit line availability is determined with reference to a percentage
of accounts receivable and inventory which are pledged to Barclays. During the
period January 1 through April 30, the Barclays Agreement provides a $2,000,000
over-advance on accounts receivable and inventories in order to assist the
Company in funding the seasonal build-up of accounts receivable which may occur
under certain sales programs which may be offered during the winter months.
Currently, the availability calculation does not allow borrowings to the full
extent of the revolving credit commitment, due to the seasonality of the
building materials manufacturing business. As of November 30, 1994, an aggregate
of $22,294,000 was available to the Company under the terms of the revolving
facility under the Barclays Agreement. The Barclays Agreement contains financial
and operating covenants which, among other things, (i) require the Company to
maintain prescribed levels of tangible net worth, net cash flow and working
capital and (ii) place limits on the Company's capital expenditures. The
Barclays Agreement also contains restrictions on indebtedness, liens,
investments, distributions (including payment of common and preference
dividends), mergers, acquisitions and disposition of assets (except that the
Company is not precluded from consummating the Combined Sale Transaction or a
sale of the San Leon Facility). The proceeds of the initial borrowings under the
Barclays Agreement were used to pay in full the outstanding loan balances under
the Third Amended Credit Agreement. A commitment fee of $150,000 was due and was
paid by the Company to Barclays as of the closing date of the Barclays
Agreement.
Interest on the revolving credit commitment under the Barclays Agreement
accrues at Barclays' base rate (as specified in such Barclays Agreement) plus 1%
on all borrowings and the greater of $25,000 per annum or 1/4% on any unused
portion of the commitment payable monthly in arrears. Interest on Term Loan A
and Term Loan B accrues at the base rate plus 1 1/2%. The combined repayment of
the principal on Term Loan A and Term Loan B is $125,000 per month in year one
and $142,800 per month in years two and three with a final principal payment of
$10,072,800 due on November 30, 1997. Proceeds in excess of $100,000 from the
sale of fixed assets may, at Barclays' discretion, be applied to the outstanding
principal payments of the term loans.
In the event of a sale of the Company's 80% interest in BEGCI (the San Leon
Facility), proceeds would be applied to the outstanding principal balance of
Term Loan A. In the event of a sale of the assets of the vinyl division,
proceeds of such sale would first be applied against any outstanding balance
remaining under Term Loan A, second, to the repayment of Term Loan B so that the
outstanding principal balance under Term Loan B would be reduced to $5,000,000
and third, to the outstanding revolving credit loans, with the balance of the
proceeds retained by the Company. Upon such payments, the revolving credit
commitment would be reduced to $15,000,000, at which time interest rates on all
loans would accrue at either the base rate or the London Interbank Offering Rate
plus 275 basis points, at the borrower's election.
On January 25, 1994, the bank that was party to Kensington's Credit
Agreement dated October 25, 1993 gave notice that Kensington had breached
certain financial covenants including the ratio of Current Assets to Current
Liabilities, Tangible Net Worth and Total Liabilities to Tangible Net Worth, in
each case as defined therein (although it continued to meet its payment
obligations throughout the term of the Credit Agreement). Subsequently, the bank
agreed to forbear from exercising its rights and remedies under such agreement
until August 31, 1994. In accordance with this forbearance agreement, interest
accrued at 3% above the bank's prime lending rate. On May 2, 1994, this bank
applied the Company's $750,000 cash deposit, which was held by the bank as
collateral, against the total amount owed which was then $2,158,000. A payment
schedule was established to repay the remainder of the loan. The loan
availability calculation was amended to allow aggregate borrowings equal to the
lesser of the borrowing base calculation or a set borrowing schedule over a
prescribed time frame. The borrowing availability schedule began April 29, 1994
at $1,550,000 and was periodically reduced to $475,000 through August 31, 1994,
at which time the outstanding balance was paid in full.
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This reduced borrowing availability schedule required Kensington to seek a
new lending arrangement. As of June 15, 1994, the partnership entered into a
financing/factoring agreement with Bankers Capital of Chicago, Illinois. On July
20, 1994, the Company's banks amended the Third Amended Credit Agreement to
permit the refinancing of Kensington with Bankers Capital. Under the terms of
the agreement, Bankers Capital agreed to provide up to $2.5 million in financing
based on the value of certain acceptable receivables. The amount advanced at any
one time cannot exceed 80% of the value of these receivables. Interest on the
amount advanced is at the prime lending rate plus 1 1/2%. Additionally, Bankers
Capital charges a fee ranging from 1.0% to 3.45% of the total amount of the
value of acceptable receivables used to extend financing and based on the age of
such receivables. As the receivables age, the applicable fee percentage
increases. In light of the interest and fees described above, the average
borrowing rate was approximately 18 1/2% at September 30, 1994. The financing by
Bankers Capital is co-guaranteed by the Company and the minority partner in
Kensington. Bankers Capital initially funded Kensington on August 25, 1994,
which funding included payment in full of the outstanding loan balance with
Kensington's previous lender.
On June 18, 1994, the Company entered into a Settlement Agreement and Full
and Final Release (the "Settlement Agreement") with the minority stockholders of
BEGCI, the owner of the San Leon Facility, thus resolving a suit filed by such
minority stockholders claiming a breach of contract and a countersuit filed by
the Company in January 1994. The claim settled pursuant to the Settlement
Agreement was based on the minority stockholders' allegations that the Company,
without minority stockholder approval, caused BEGCI to fund the construction of
a solid waste treatment facility featuring desorption technology owned by one of
the minority stockholders rather than funding a less costly liquid waste
treatment facility featuring centrifuge technology. Pursuant to the Settlement
Agreement, the Company has agreed to sell its 80% interest in BEGCI to the
minority stockholders for approximately $7.5 million in cash on or before
February 28, 1995. Such proposed sale is subject to financing and also allows
the Company to sell all of its interest in BEGCI to another buyer, provided that
the shares of common stock of BEGCI owned by the minority stockholders are also
sold at no less than the same price per share. The minority stockholders
continue to discuss financing with various interested parties. However, the
minority stockholders and the Company are working together to sell the Company's
interest or the entire facility to any of a number of potential acquirors who
are in various stages of their due diligence reviews. As the Board of Directors'
decision to sell BEGCI and this Settlement Agreement established a measurement
date for financial accounting purposes, the Company has written down the
recorded value of BEGCI as of June 30, 1994 to $7.5 million.
Until the Company's purchase of the roofing machine at the Company's
Norwood, Massachusetts facility on November 30, 1994, the operating lease on
such machine was collateralized by a mortgage on the Norwood property. The
mortgage required the consent of the lessor to allow a second mortgage on the
real property. The terms of the Third Amended Credit Agreement required security
on all of the Company's assets, and as a result, a second mortgage in favor of
the banks was placed on the Norwood property without obtaining the lessor's
consent. The Company was notified by letter dated April 25, 1994 that the lessor
was declaring the Equipment Leasing Agreement dated as of December 28, 1984 (as
amended) to be in default, and by letter dated May 23, 1994, the lessor declared
the lease terminated. The Company and the lessor entered into an agreement
pursuant to which the Company agreed to purchase the leased equipment for a
purchase price of approximately $4.0 million payable in installments between
August 30, 1994 and January 15, 1995, by which date the final payment of
approximately $2.3 million had to be made. Concurrent with the Company's
refinancing with Barclays on November 30, 1994, the Company satisfied all
outstanding obligations with respect to the purchase agreement it had entered
into with the lessor and acquired title to the roofing machine.
In order to control its cost and supply of asphalt, the Company is
continuing the construction of an asphalt oxidizer plant expansion at its
roofing facility in Norwood, Massachusetts. The Company's decision to build the
oxidizer was triggered by the decision of Exxon (the only remaining supplier of
asphalt in New England) to exit the New England market. The expected cost of
this plant expansion is anticipated to be approximately $4.9 million, of which
the Company has spent $3.4 million through September 30, 1994. Until the
oxidizer is complete, the Company faces significantly higher costs in obtaining
raw materials and risks the
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possibility of production delays due to its reliance on suppliers in other
states. Currently, the Company's asphalt needs are being supplied on a timely
basis and there have been no significant delays in production. The Company was
not able to pass along the additional freight costs to customers in 1994 since
several of the other suppliers of roofing in New England produce their product
in the mid-Atlantic area and were not subject to the increased asphalt costs.
Net cash and cash equivalents decreased during the nine month period ended
September 30, 1994 by $7,318,000 to $200,000. The cash used by continuing
operations for the nine month period ended September 30, 1993 increased
$5,110,000 from $6,960,000 to $12,070,000. The change was attributable primarily
to the fact that at September 30, 1993 the Company reported net earnings of
$469,000 as compared to a net loss of $8,939,000 for the period ended September
30, 1994. In addition, there were several significant changes in the balance
sheet items, such as a decrease of approximately $6 million in trade accounts
receivable, a decrease of approximately $5 million in liabilities not relating
to financing activities and an increase of $5 million relating to the
establishment of the liquidation reserve. The Company also recorded a charge of
$9,348,000 relating to the disposal of the environmental business for the period
ended September 30, 1994. The Company had approximately $20.8 million of net
cash provided from investing activities for the period ended September 30, 1994
as compared to a total of approximately $4 million of net cash used in investing
activities for the period ended September 30, 1993. The change is primarily the
result of $27 million of cash receipts from the proceeds of the sale of certain
of the Company's assets (including, primarily, the sale of the assets of the
Distribution Companies to a Cameron Subsidiary in August 1994), offset by cash
used for capital expenditures. The net cash resulting from financing activities
changed by $24 million for the period ended September 30, 1994 as compared to
the period ended September 30, 1993. The change is attributable to the fact that
during 1994 the Company repaid significant amounts of debt by approximately $17
million in excess of borrowings, as compared to 1993 when the Company borrowed
approximately $10 million in excess of repayments.
There were several significant changes in the balance sheet accounts
between September 30, 1994 and December 31, 1993. The inventory balance
decreased by $11,390,000 to $10,767,000 at September 30, 1994 from $22,157,000
at December 31, 1993. The decrease was due to management's deliberate decision
to reduce working capital and manage the level of inventories. Due to the
seasonality of the business, the winter months are historically the time when
the Company builds its inventory in anticipation of sales for the summer months.
The prepaid balance at September 30, 1994 decreased by approximately $1.4
million to $2,632,000 from $4,046,000 at December 31, 1993 due primarily to the
capitalization of refinancing costs incurred relating to the Third Amended
Credit Agreement which had been classified as prepaid expenses at the end of
1993. Other investments balance at September 30, 1994 was $2,868,000 and
$5,551,000 at December 31, 1993. The decrease of approximately $2.7 million is
due primarily to the sale of the Company's 40% interest in Mid-South Building
Supply, Inc. ("Mid-South") on June 10, 1994. The decrease in the Company's
liquidation reserve reflects the fact that, during the nine months ended
September 30, 1994, the Company was able to either complete or terminate all of
the contracts related to the "on-site" environmental business, sell the related
assets, close the facilities and offices and terminate a significant number of
employees. The Company anticipates that the remaining portion of this reserve
will be utilized by the end of 1994.
RESULTS OF OPERATIONS
The Company is focusing on its roofing manufacturing operations as its
primary business. The Company acknowledges that as a result of this decision,
its future prospects and sales will be tied solely to one line of business which
will, at least in the near future and in the absence of any current plans of the
Company to expand significantly its operations and enter new markets, be
dependent upon the economy in the northeastern United States, the territory
which currently constitutes the Company's current market, and produce all of its
output at a single plant which currently relies on one major supplier for
certain critical raw materials (i.e., glass mat). Nevertheless, the Company
believes it has significant competitive advantages in this business. These
advantages stem from and are expected to continue in light of the Company's
leading market share, its
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low cost production abilities resulting from a state-of-the-art plant, its
internal supply of granules from its own quarry and granule plant, future cost
improvements which will result from the purchase of its roofing machine from the
former lessor and the expected completion of its construction of an asphalt
oxidizing plant.
The Company's recent cash flow difficulties slowed down the construction of
the asphalt oxidizer, thus extending the period during which the Company has
been required to purchase asphalt from more costly outside vendors. In addition,
due to the Company's limited working capital and to its difficulty in obtaining
an adequate supply of asphalt for "off-hours" and weekend production during
peak-production times, the roofing manufacturing facility was forced to operate
at less than full capacity at certain times during the year, resulting in
limited inventory. Although the Company was not always able to meet customers'
demand for its roofing products on a timely basis due to such circumstances,
market share did not decrease significantly. However, the Company's limited cash
flow has hindered the Company's ability to attract new customers.
The Company believes that the vinyl products industry as a whole exhibits a
trend towards continued growth, projected to be in the range of approximately 6%
per year through the balance of the decade. Although all trade factors within
the industry are projected by the Company to grow, the largest growth during the
next few years is expected to be in the home center/lumber yard segment and in
new construction. It is estimated that "commodity" or low-end, lower-priced
products currently account for 35% to 40% of the industry, which percentage
portion is expected to increase more rapidly than that of standard and premium
products with better performance characteristics and greater aesthetic appeal.
The Company currently does not participate significantly in the commodity,
or lower-end, lower-margin product market, including in the very low-margin
manufactured housing segment. It currently sells less than 10% of its products
to lumber yards through a two-step distribution process. The bulk of the
Company's volume consists of standard and premium products sold to specialty
distributors serving professional siding and remodeling contractors. The Company
would have to complete development of and introduce several new siding products,
including new lower-priced, commodity-type siding, in order to penetrate
profitably the expanding market for commodity products, incrementally increasing
its volume. The Company believes that its future growth prospects and sales in
the vinyl industry (absent the consummation of the Combined Sale Transaction)
would also be affected by its ability to make significant capital expenditures
to upgrade its equipment as well as its continued vigilance in its efforts to
compensate for its ineligibility for volume discounts, all as more fully
described under "ADDITIONAL INFORMATION ABOUT THE COMPANY -- The Company's
Business."
Nine Months Ended September 30, 1994 and 1993. Net sales from continuing
operations increased .8% from $140,512,000 to $141,595,000 for the first nine
months of 1994, as compared to the same period in the prior year. Sales from the
Company's roofing manufacturing business and its Vinyl Business increased 8.1%
and 9.4%, respectively. Improved weather conditions and renewed strength in the
remodeling market caused by low interest rates and a generally favorable economy
contributed to the improvement in these businesses. However, a decrease in sales
volume due to the sale of substantially all of the Company's building materials
distribution businesses in August 1994 significantly offset the improvement
attained by the roofing and vinyl segments. For the three month period ended
September 30, 1994, net sales from continuing operations decreased 13.5% from
$53,438,000 to $46,246,000, as compared to the same period in the prior year.
The decline in sales is attributable to the sale of the Company's building
materials distribution business in the third quarter of 1994. For the applicable
three month periods, sales from the Company's roofing manufacturing business and
vinyl business increased 17.0% and 9.3%, respectively. The increase during such
period was primarily attributable to improved weather conditions and to the
renewed strength in the remodeling market caused by low interest rates and a
generally favorable economy.
The Company's cost of sales from continuing operations compared to the same
period in the prior year increased 2.9% from $111,574,000 to $114,813,000 for
the nine months of 1994. For the nine month period cost of sales for the roofing
and vinyl businesses increased 11.8% and 13.2%, respectively. Cost of sales
increased due to increased manufacturing costs related to volume and higher raw
materials costs related to the
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increase in resin prices for the vinyl business and higher asphalt prices for
the roofing manufacturing business. The increase was more than offset by the
decline in cost of sales due to the August 1994 sale of the Company's building
materials distribution business which caused costs of sales for the three month
period ending September 30, 1994 to decrease 13.1% from $42,652,000 to
$37,077,000. However, cost of sales from continuing operations in the roofing
and vinyl manufacturing businesses increased 17.7% and 8.8%, respectively, as
compared to the prior periods, primarily reflecting the increased sales volume
and higher raw material prices as previously indicated.
For the nine months ended September 30, 1994, the roofing manufacturing
business cost of sales as a percentage of sales increased 2.8% from 83.1% to
85.9%, as compared to the same period in the prior year. For the three months
ended September 30, 1994, the percentage of cost of sales to sales as compared
to the same period in the prior year remained relatively constant at 82.6% and
82.1%, respectively.
The Vinyl Business cost of sales as a percentage of sales for the nine
months ended September 30, 1994, increased from 74.3% to 76.9%, or 2.6% over the
comparable period in the prior year. Cost of sales as a percentage of sales for
the three month period ended September 30, 1994 decreased slightly from 76% to
75.6% as compared to the same period in the prior year.
Selling, general and administrative ("SG&A") expenses for the three months
ended September 30, 1994 decreased 16.8% from $7,799,000 to $6,492,000 and
decreased 3.0% for the nine month comparative period from $23,065,000 to
$22,371,000. The decrease was primarily attributable to the sale of the
Company's building materials distribution businesses. The SG&A expenses of the
Company's roofing and vinyl manufacturing businesses, on a combined basis,
decreased 7.5% from year-to-year. However, SG&A expenses (expressed as a
percentage of sales) remained relatively constant at approximately 9% for the
three month comparative period and approximately 10.5% for the nine month
comparative period.
Interest expense increased approximately 195% from $547,000 to $1,612,000
for the three months ended September 30, 1994 and increased approximately 179%,
or $2,653,000, for the nine month comparative period. The increased interest
expense reflects the nearly $10,000,000 increased debt level and higher overall
interest costs in 1994. Since April 11, 1994, the Company has been required to
pay a default interest rate of 4% above the rate otherwise applicable to the
revolving credit and term loans compared to an approximate rate of 4.5% to 5%
for the first nine months of 1993. Default interest expense totaled $381,917 and
$842,634 during the three and nine month periods ended September 30, 1994,
respectively.
On June 10, 1994, the Company's 40% interest in Mid-South was redeemed for
$1,000,000 in cash. In addition, the Company sold virtually all of its building
material distribution businesses to a Cameron Subsidiary on August 22, 1994 for
approximately $24,245,000, subject to adjustment. The resulting gain of
$2,677,000 on the sale of the building materials distribution business and the
loss of $1,261,000 on the sale of Mid-South were recorded as discontinued
business activities.
Kensington incurred losses in the amount of $1,936,000 in the nine month
period ended September 30, 1994, of which $1,644,000 was allocable to the
Company in respect of its ownership interest in the partnership.
Other expenses for the third quarter increased approximately $255,000 for
the nine month period ended September 30, 1994 as compared to the same period in
the prior year. The increase was due primarily to amortized refinancing costs
associated with the Third Amended Credit Agreement.
The Company's effective income tax rate from continuing operations
decreased to zero for the nine months ended September 30, 1994 due to the loss
incurred for such period.
In connection with the Board of Directors' decision to sell BEGCI and the
Company's agreement on June 18, 1994 to sell its shares in BEGCI to the minority
stockholders on or before February 28, 1995, subject to financing, the Company
reclassified BEGCI results as a discontinued operation as of June 30, 1994 and
adjusted its book value, resulting in an aggregate charge for the nine months
ended September 30, 1994 of $11,226,000. The Company intends to operate the San
Leon Facility until the sale of its interest in BEGCI is
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consummated. Closing of such sale is expected to occur during the first quarter
of 1995. No assurance can be given that such sale will be successfully completed
or, if completed, that such sale will be on terms which are advantageous to the
Company.
Due to the Company's decision to exit the off-site environmental business
by selling its interest in the San Leon Facility as described under " --
Financial Condition" above, the Company has completely withdrawn from the
environmental business. As a result, historical results of operations for all of
the environmental businesses have been classified as discontinued operations. In
1993, in connection with its decision to withdraw from the "on-site"
environmental remediation business, the Company charged the results of
operations for the write-down of assets, the expected loss from operations and
general expenses related to closing of such "on-site" remediation business (see
Notes to Consolidated Financial Statements). Based upon the outcome of the sales
of assets and results of operations, excess costs of $3,861,000 charged in 1993
have been reversed and are recorded as discontinued operations in the
consolidated statement of operations for the nine months ending September 30,
1994.
1993 Compared with 1992. Losses from continuing operations before income
taxes in 1993 were approximately $5.3 million compared to earnings of
approximately $6.5 million in 1992. The write-off of non-performing assets and
other corporate charges were significant contributing factors to the 1993
aggregate loss.
Net sales from continuing operations in fiscal year 1993 increased
approximately $23.5 million or 14.3% over fiscal year 1992. The increase in net
sales was mostly due to the building products distribution business. The
year-to-year comparison also reflects the sale of the municipal sludge business
in mid-1993. During fiscal year 1993, it was the Company's intention to focus
its future efforts on its roofing manufacturing business and its vinyl business.
However, the Company was required to devote a greater amount of working capital
to support its environmental remediation business due to prior contractual
commitments to provide remediation services. Cost of sales in 1993 was
approximately $151.7 million as compared to approximately $128.4 million in
1992, constituting an increase of 18%. Cost of sales stated as a percentage of
net sales was 80.8% in 1993 as compared to 78.2% in 1992. The major contributing
factor in such percentage increase was the increased expense of raw materials
primarily related to the roofing manufacturing business and, to a lesser degree,
to the Vinyl Business. The significant increase in cost of sales in the fourth
quarter in comparison to the third quarter related to losses on contracts in the
on-site environmental remediation business.
Interest expense was approximately $2.5 million in 1993 as compared to
approximately $1.5 million in 1992, constituting a 64% increase. The increase
was a result of the Company requiring a consistently higher debt level
throughout 1993, mainly to support its environmental remediation business. This
segment of business used more working capital in 1993 than 1992 and also needed
funds to complete the San Leon Facility. The increased debt levels and higher
interest rates resulted in higher interest expense. Cash flow projections
indicated that with the closing of the on-site business, completion of the San
Leon Facility, the amendment of the Second Amended Credit Agreement and other
cash conservation measures, debt levels would be rendered manageable.
Other non-recurring expenses totalled $6.0 million (net of income of
approximately $1.3 million from a settlement with a former vendor and of
approximately $2,625,000 constituting that portion of expenses incurred by
Kensington which are allocable to the Company) in 1993 compared to other income
of $200,000 in 1992. A series of non-recurring items at the end of 1993 required
the Company to record a number of special charges to 1993 results of operations.
The principal items relating to such charges are outlined in the following
paragraphs:
- The Company increased by $500,000 a reserve for its environmental cleanup
of the Fulton Terminal Superfund Site described under " -- Certain
Environmental Matters" below, based on site assessments and on Bird's
estimated share of the proportionate costs, without regard to anticipated
insurance proceeds.
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- The Company wrote off approximately $1.3 million in real property
investments it deemed imprudent to pursue in light of current financing
considerations. This write-off was based on the estimated net realizable
value of the property.
- A promissory note in the principal amount of approximately $1.3 million
previously accepted by the Company to satisfy the remaining portion of an
outstanding receivable, which note was collateralized by a second
interest in an unsecured portfolio of home improvement loans, was deemed
to be of no value, based on an assessment of the portfolio and the
bankruptcy of the debtor; therefore, it was written off.
- In connection with its termination of George J. Haufler, the former Chief
Executive Officer of Bird, the Company established an $850,000 reserve to
cover a cash settlement provided for under Mr. Haufler's employment
agreement (which settlement has been paid in full) and the Company's
agreement to pay health insurance premiums until 1997. The Company's
obligations in this respect have terminated in light of Mr. Haufler's
recent death.
Kensington experienced severe operational problems due to a rapid increase
in business and product line changes in the latter part of 1993. This resulted
in a loss of approximately $5.2 million, half of which was allocable to the
Company under the terms of the Kensington Partnership Agreement (as defined in
the Purchase Agreement).
In the third quarter of 1993, the restructuring reserve initially
established in 1992 to cover expenses related to severance payments, office
closure, relocation and other contractual liabilities for the consolidation and
reorganization of the environmental business was increased by $2.0 million. (See
the Notes to the 1993 Consolidated Financial Statements). On July 22, 1993, the
Company sold its environmental municipal sludge disposal business aggregating a
net pre-tax gain of $858,000 which is included in the loss from operations of
discontinued businesses. Additionally, the Company recorded a provision
totalling approximately $11.0 million which represented the estimated net costs
associated with the closing of the "on-site" business. These costs include the
write-down of assets to net realizable value, the expected loss from operations
resulting from projects being closed and general expenses associated with
closing a business and are shown as a loss in connection with the disposal of
the "on-site" business in the 1993 results. (See the Notes to the 1993
Consolidated Financial Statements). All other results of the Company's
environmental operations for the comparative periods were reclassified as
discontinued operations upon the Company's decision to exit the off-site
environmental remediation business as described above.
A 12.1% tax benefit from continuing operations was booked in 1993 as
compared to a 13.3% tax provision in 1992. The Company's decision to record an
approximately $9.0 million valuation reserve in 1993 in accordance with the
Statement of Financial Accounting Standard No. 109, "Accounting for Income
Taxes" ("FAS 109") issued by the Financial Accounting Standards Board in
February 1992 (as further described in Note 4 of the Notes to the 1993
Consolidated Financial Statements) was the primary reason the effective rate was
lower than the statutory rate.
1992 Compared with 1991. Earnings from continuing operations before income
taxes amounted to $6.5 million compared to $5.9 million in 1991.
Net sales of approximately $164.2 million were approximately $27.1 million
higher than in 1991, constituting an increase of 19.8%. The increase in sales
related to acquisitions by, and increased business (primarily in the Southwest)
of, the Company's roofing manufacturing business and its Vinyl Business. Cost of
sales in 1992 was approximately $128.4 million compared with approximately
$107.2 million for 1991. Gross profit (expressed as a percentage of sales for
1992) remained constant at 21.8%.
SG&A expenses in 1992 were approximately $27.8 million as compared to
approximately $23.0 million for 1991. The 20.8% increase in SG&A expenses was a
result of acquisitions in the roofing manufacturing business and the Vinyl
Business. SG&A expenses (expressed as a percentage of net sales) were 16.9% in
1992 and 16.8% in 1991.
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Interest expense of approximately $1.5 million in 1992 increased $480,000
over that in 1991 as a result of increased bank debt to fund new acquisitions
and capital expenditures made to expand the Company's environmental remediation
business.
The Company's effective tax rate from continuing operations and related tax
provision for the fiscal year ended December 31, 1992 increased from the
comparable 1991 period due primarily to an increase in the alternative minimum
tax (the "AMT") as a result of the full utilization of AMT net operating loss
carryforwards in 1992.
Due to the Company's decision to exit completely from the environmental
business in June 1994, results of operations from all environmental business in
1992 and 1991 have been reclassified as discontinued operations.
CERTAIN TAX AND BENEFITS MATTERS
In December 1990, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("FAS 106"). This statement
establishes accounting standards principally for employers accounting for
post-retirement health care and life insurance benefits. It requires the accrual
of the expected cost of providing those benefits during the period that employee
services are rendered. The Company adopted FAS 106 in 1993. Adoption of the new
statement did not have a material effect on the Company's financial position or
results of operations.
In addition, under FAS 109, the Company is required to recognize income tax
benefits for loss carryforwards, credit carryforwards and temporary differences
for which tax benefits have not previously been recorded. The Company adopted
the asset and liability method articulated in FAS 109 in 1993 and recorded the
cumulative effect of the change in accounting principle of approximately $2.7
million as a benefit in the results of operations for the first quarter of 1993.
The Company did not restate prior years' financial statements upon adoption of
FAS 109. This accounting change also requires the recording of a valuation
reserve if it is more likely than not that the Company will not be able to
realize the benefits of recorded deferred tax assets. At December 31, 1993, the
Company recorded a net deferred tax asset of approximately $14.2 million and a
valuation reserve of $9,000,000. As required under FAS 109, this valuation
reserve was determined based upon the Company's review of all available evidence
including projections of future taxable income. The Company's environmental
remediation business was the main cause of poor earnings performance in 1993. As
the effects of the closing of this segment and other cost cutting measures
produce favorable results, the deferred tax asset and related valuation reserve
will be reviewed, as discussed more fully in the Notes to the 1993 Consolidated
Financial Statements.
CERTAIN ENVIRONMENTAL MATTERS
The Company monitors its compliance with environmental regulations on an
ongoing basis. Periodically (at least twice a year), the Company's general
counsel receives environmental site assessments from the operating managers
responsible for site environmental compliance. Appropriate action is undertaken
where needed. In addition, when environmental claims are asserted against the
Company, the claims are evaluated by the Company's general counsel and operating
management in conjunction with external legal counsel and environmental
engineers as necessary, and action is taken with respect to all known sites, as
appropriate. The Company is currently engaged in proceedings relating to or has
received notice of the following environmental matters:
In March 1994, the Company received a notice of violation from the Texas
Natural Resource Conservation Commission ("TNRCC"). The notice alleged that the
Company was not in compliance with regulations of the TNRCC relating to
labeling, permitting, storage and disposal of certain hazardous waste. The
notice proposed certain corrective action on the part of the Company as well as
payment of certain unqualified administrative penalties. The Company is aware of
former uses at the site which may have resulted in the release of oil and/or
hazardous substances and materials, and which may become the subject of
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corrective actions required by law. The Company has met with the TNRCC to assess
the nature and extent of any corrective action which may be required with
respect thereto, and to ascertain whether any penalties would be asserted. There
has been no subsequent communication from the TNRCC, however. Based on
management's preliminary estimate, the penalties, if any, would be immaterial.
Accordingly, no amounts have been accrued for this matter at September 30, 1994.
On March 15, 1994, the Company received a draft of an Administrative
Consent Order and Notice of Noncompliance from the Massachusetts Department of
Environmental Protection ("DEP") concerning operations at its Norwood,
Massachusetts manufacturing facility and associated rock granule processing
facility. The draft alleged that the Company was not in compliance with
regulations of the DEP relating to air emissions, granule plant operation, and
labeling, handling and storage of certain hazardous waste. The draft proposed
certain corrective action on the part of the Company and sought payment of an
administrative penalty. On June 10, 1994, the Company's roofing division entered
into an administrative consent order and notice of noncompliance with respect to
the alleged violations. The consent order requires the Company to undertake
certain modifications and corrective actions with respect to certain hazardous
waste handling and storage facilities at the Norwood facility, to conduct an
environmental audit of its operations at such facility and to undertake various
modifications of air pollution control equipment. In addition, the Company is
required to pay an administrative penalty of $30,000. The Company estimates that
the cost of corrective action to be taken by it in accordance with the consent
order will be approximately $100,000.
On March 25, 1994, the Company received a notice from the United States
Environmental Protection Agency (the "EPA") regarding a site inspection
prioritization report prepared by DEP. The notice alleges a potential release of
hazardous substances into the environment at the Company's former mill site in
East Walpole, Massachusetts. The EPA has reserved the right to conduct further
site tests on the location. In the opinion of management and based on
management's understanding that the alleged releases are in de minimis
quantities, this matter should not have a material adverse affect on the
Company's financial position or on the results of its operations.
In 1986, the Company, along with numerous other companies, was named by the
EPA and other governmental agencies responsible for regulation of the
environment as a Potentially Responsible Person ("PRP") pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended, 42 U.S.C. Paragraph 9601, et seq. ("CERCLA") in connection with
hazardous substances at a site known as the Fulton Terminal Superfund site
located in Fulton, Oswego County, New York. On September 28, 1990, the Company
and a number of other PRPs reached a negotiated settlement with the EPA pursuant
to which the settling PRPs agreed to pay the costs of certain expenses in
connection with the proceedings and to pay certain other expenses, including the
costs and expenses of administering a trust fund to be established by the
settling PRPs. The settlement agreement is embodied in a consent decree lodged
with the United States District Court for the Western District of New York and
fixes the Company's proportionate share of the total expenses. The ultimate cost
to the Company of the remedial work and other expenses covered by the settlement
agreement is estimated to be between $1,000,000 to $2,000,000 payable over a
period of 3 to 15 years (depending upon the duration of remediation efforts).
The Company has provided a reserve of approximately $1 million at September 30,
1994 to offset its proportionate share (i.e., 16.5%) of the ultimate cost of
cleanup. Under a cost-sharing arrangement set forth in a consent decree with the
EPA, the other PRPs have agreed to incur 83.5% of the aggregate cost of
remediation of this site. Based on its recent successes in litigating the
liability of its insurance carriers in respect of this site, and the subsequent
payment by such insurers of approximately $550,000, reducing the Company's
exposure to the current amounts described above, the Company believes that the
unpaid claims pending against its insurance carriers will be successful and that
amounts recovered will suffice to cover the Company's liability.
The Company has been named as a PRP with respect to certain other sites
which are being investigated by federal or state agencies responsible for
regulation of the environment. As a consequence of its status as a PRP, the
Company may be jointly and severally liable for all of the potential monetary
sanctions and remediation costs applicable to each site. In assessing the
potential liability of the Company at each site, management has considered,
among other things, the aggregate potential cleanup costs of each site; the
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apparent involvement of the Company at each site and its prospective share of
the remediation costs attributable thereto; the number of PRPs identified with
respect to each site and their financial ability to contribute their
proportionate shares of the remediation costs for such site; the availability of
insurance coverage for the Company's involvement at each site and the likelihood
that such coverage may be contested; and whether and to what extent potential
sources of contribution from other PRPs or indemnification by insurance
companies constitute reliable sources of recovery for the Company. Similar
consideration has been given in determining the exposure and potential liability
of the Company in connection with other significant legal proceedings to which
the Company is a party. On the basis of such considerations, management has
determined that such environmental matters will not have a material adverse
effect on the Company's financial position or results of operations. The Company
has provided an aggregate reserve amounting to approximately $200,000 for its
estimated share of the ultimate cost of clean-up for claims (without taking into
account any potential indemnification or recovery from third parties).
The Company's roofing facility at Norwood, Massachusetts is one of 4,000
sites on the DEP list. The site was inspected by the DEP in the early 1980s when
capital improvements were being made to the roofing plant. At that time, the DEP
requested that the Company perform certain remediation measures. The Company
complied with such request. The environmental condition of the site was studied
in 1985 by an independent engineering firm. The assessment was prompted by the
request of a potential lender which planned to take a mortgage on the property
to collateralize a line of credit to the Company. Upon review of the study, the
lender extended credit to the Company secured by a mortgage on the site. The DEP
significantly revised the regulations that govern the reporting, assessment and
remediation of hazardous waste sites in Massachusetts. The new Massachusetts
Contingency Plan ("MCP") however, does not alter the ultimate liability for any
remediation that may be necessary at the Norwood facility. Under the new MCP,
the roofing facility is again listed on the August 1993 "Transition List of
Confirmed Disposal Sites and Locations to be Investigated."
Site assessments performed for the Company by its environmental consultants
GZA GeoEnvironmental, Inc. in connection with the construction of the new
asphalt oxidizer at the Norwood roofing facility indicated the presence of
reportable quantities of hazardous or toxic material, most of which has since
been removed. The Company must complete certain additional remedial activities
described in the new MCP on or before August 2, 1996. In the opinion of
management, any costs associated with these additional remedial activities will
not have a material effect on the results of operations and liquidity of the
Company.
On June 21, 1994, the Arizona Department of Environmental Quality (the
"ADEQ") issued a notice of violation ("NV") to Southwest Roofing Supply, a
division of Bird ("Southwest") which directed Southwest to conduct a site
investigation of property formerly leased by Southwest. Receipt of the NV
prompted negotiations between the ADEQ, Southwest and Bird. The negotiation
resulted in a consent order between the ADEQ and Bird on September 23, 1994.
Pursuant to the consent order, Bird agreed to submit a work plan with a view to
remediating the soil and ground water that may have been contaminated by leaks
from an underground storage tank previously removed by Bird. In accordance with
the work plan, Bird expects to remediate soil and ground water where and if
necessary. The Company's management believes that the cost to Bird of such
remediation will range from $200,000 to $700,000, $200,000 of which amount the
Company anticipates will be reimbursed to Bird by the ADEQ in accordance with
Arizona law and regulation. The Company has provided approximately $400,000 at
September 30, 1994 to offset its share of the estimated cost of clean-up.
Since 1981 Bird has been named as a defendant in approximately 450 product
liability cases throughout the United States by persons claiming to have
suffered asbestos-related diseases as a result of alleged exposure to asbestos
in products manufactured and sold by Bird. Approximately 140 of these cases are
currently pending and costs of approximately $1.4 million in the aggregate have
been incurred in the defense of these claims since 1981. Employers Insurance of
Wausau ("Wausau") has accepted the defense of these cases under an agreement for
sharing of the costs of defense, settlements and judgments, if any. In light of
the Company's insurance coverage and the nature and merits of the claims
alleged, in the opinion of management, the resolution of these claims will not
have a material effect on the results of operations and liquidity of the
Company.
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ADDITIONAL INFORMATION ABOUT THE COMPANY
THE COMPANY'S BUSINESS
General Description. The Company's current manufacturing operations
comprise two primary business units: (i) roofing manufacturing and marketing and
(ii) vinyl siding and window profile manufacturing and marketing and vinyl
window fabrication and marketing. Products currently manufactured at the
Company's facilities include asphalt shingles, roll roofing, vinyl siding, vinyl
window profiles and windows and other exterior building products for commercial
and residential use. These products are marketed directly and through
independent wholesalers, including wholesalers whose primary customers are
roofing and vinyl siding contractors. Prior to the recent sale of substantially
all of the Company's building materials distribution business (as described
under the caption "-- Recent Business Developments" in this section), the
Company also marketed its vinyl and roofing products through Company-owned
building materials distribution centers.
The Company sells approximately 75% of its vinyl siding products to short
line specialty distributors serving both re-siding and new construction markets.
About 19% of its vinyl siding products are sold to home centers and lumber
yards, and about 6% to the manufactured housing market.
In addition to the foregoing, pending the possible consummation of the sale
of the Company's interest in BEGCI, the Company has continued to operate the San
Leon Facility. The San Leon Facility provides off-site processing capabilities
for numerous classifications of refinery waste that are not economically
treatable at the point of origin. The process at the San Leon Facility is
designed to recover commercial grade fuel oil and hazardous waste derived fuels
for cement kiln operations and to reduce the volume of residual waste material
for incineration. Although the San Leon Facility is currently operating at
approximately 50% of its current operating capacity, the Company believes the
prospects for the sale of the San Leon Facility are primarily dependent on
factors other than San Leon's current operations and operating capacity. The
Company believes the facility's permits, ultimate build-out, location, customer
base and offered services are as important as (if not more important than) the
current level of operating capacity as determinants of the San Leon Facility's
value to prospective acquirors.
Recent Business Developments. There have been a number of significant
developments in the business of the Company in 1993 and 1994, including the
following:
- Pursuant to the Barclays Agreement, Barclays agreed to provide the
Company with a revolving credit and letter of credit facility and two
term loan facilities, as described more fully under "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
- Pursuant to an Asset Purchase Agreement dated August 19, 1994, a Cameron
Subsidiary acquired substantially all of the assets and business
operations of the Distribution Companies, several subsidiaries of the
Company which were engaged in the building materials distribution
business, in exchange for a payment of approximately $24.2 million and
the assumption of certain liabilities of such subsidiaries in a
transaction which closed on August 22, 1994. The amount payable to the
Company in respect of this sale was subject to later adjustment based on
an audit of the net book value of the acquired assets and assumed
liabilities as of the closing date. Accordingly, as the audit indicated
an increase in the net book value of the transferred assets, the
purchasing Cameron Subsidiary paid the Company an additional $1,897,000
on November 17, 1994. The Company sold substantially all of the assets of
Southland, constituting the remaining assets of its building materials
business, to another Cameron Subsidiary for a net purchase price of
$1,903,000 (which takes into account approximately $230,000 paid for the
minority interest acquired by the Company in contemplation of the closing
of such sale) on November 28, 1994 pursuant to an Asset Purchase
Agreement of even date with such closing. Pursuant to these transactions,
the Company has withdrawn from the building materials distribution
business.
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- Pursuant to a June 18, 1994 agreement with BEGCI's minority stockholders,
the Company agreed to sell its 80% interest in BEGCI to such
stockholders, subject to financing and to the Company's right to solicit
other purchasers of the BEGCI interests prior to February 28, 1995. The
Company and the minority stockholders in BEGCI recently commenced
solicitation of investors to purchase the Company's interest in BEGCI. No
assurance can be given that the sale of the Company's interest in BEGCI
will be completed or, if completed, that such sale will be on terms which
are advantageous to the Company. See "THE COMBINED SALE
TRANSACTION -- Background and Reasons for the Combined Sale Transaction"
and "-- Plans for the Operation of the Company Following the Combined
Sale Transaction." See also "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
- In April, July and September 1994 the Company was notified in writing by
the agent bank under the Third Amended Credit Agreement of certain
defaults and events of default under such agreement. As a result of the
defaults and events of default, all loans under the Third Amended Credit
Agreement were classified as current liabilities on the June 30, 1994
balance sheet of the Company. The Company used initial borrowings under
the Barclays Agreement to pay in full the outstanding loan balances under
the Third Amended Credit Agreement. A description of certain of the
principal provisions of the Third Amended Credit Agreement appears under
the heading, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS."
- The Company sold its municipal sludge disposal business to
Browning-Ferris Industries, Inc. on July 22, 1993 for approximately $10
million. The Company decided to withdraw entirely from its on-site
environmental remediation business in December 1993.
- In 1993, Kensington became financially and operationally overextended. At
such time, Holding had a 50% partnership interest in Kensington. As a
result of the over-extension, Kensington allegedly violated certain
covenants in a loan agreement with its financing bank, which loan was
guaranteed by the Company. After negotiating with its partner, an
unrelated company, Holding agreed to make an additional cash investment
in Kensington and to provide cash collateral to the lending bank in
exchange for a temporary increase in Holding's ownership in Kensington to
90%, control of the partnership's operations and other significant
changes in its contractual arrangements with its partner. Under the terms
of the amended Kensington Partnership Agreement, Holding's partner is
entitled to reacquire an additional 40% ownership interest in Kensington
(to bring its total interest up to 50%) if, before the later of December
31, 1994 or six months following Holding's last investment, such partner
can match the additional investments made by Holding in the partnership.
As of December 31, 1994, the minority partner had not made any such
additional contributions to the partnership. The Company believes the
minority partner would be required to contribute at least $1,250,000 to
reacquire up to a 50% interest in Kensington. The actual amount of such
contribution would depend in part on the manner in which the Company
accounts for Holding's contributions to date and the resolution of
certain other issues between Holding and the minority partner including
in relation to the pricing of windows to be purchased by the minority
partner under a supply agreement with Kensington. The Company is
currently negotiating the terms of an agreement with the minority partner
in Kensington pursuant to which such partner will waive its rights to
increase its ownership interests in the partnership (whether by acquiring
additional interests therein or by exercising any and all other rights it
has to acquire Holding's interest therein) in exchange for a payment of
50% of the proceeds of the sale (if any) of the Holding Stock. See "THE
COMBINED SALE TRANSACTION -- Proceeds of the Combined Sale Transaction"
and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS." For further information, also see Note 10 of the
Notes to Consolidated Financial Statements for the year ended December
31, 1993 filed herewith.
- In April 1994, the Company's local supplier of asphalt saturants and
coatings used in the manufacture of roofing products discontinued its
production of asphalt. After investigating a number of alternatives
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to insure a continuous supply of this raw material on an economical
basis, the Company decided to make a significant capital expenditure to
build an asphalt oxidizing facility as an expansion at its Norwood,
Massachusetts plant for this purpose, as described more fully under "THE
COMBINED SALE TRANSACTION -- Background and Reasons for the Combined Sale
Transaction" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS." Construction is currently
continuing and is expected to be complete in February 1995.
Principal Products. Asphalt roofing products are manufactured at the
Company's facilities in Norwood, Massachusetts. Asphalt shingles and roll
roofing are produced by coating a fiberglass mat with a mixture of hot asphalt
and crushed rock filler and covering the coated mat with rhyolite granules.
Residential and commercial roofing products are marketed primarily in the
Northeastern United States.
Vinyl products are currently produced at the Company's plant in Bardstown,
Kentucky by the process of high pressure extrusion of polyvinyl chloride resin
through dies. Vinyl siding products are sold both directly and through wholesale
one-step distributors, with principal sales in states east of the Rocky
Mountains. To date, the Company has directed its resources and production
efforts to the production and sale of standard and premium products rather than
commodity-type products (as described more fully under "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Results of
Operations"). Commodity products are generally purchased by home centers, new
construction and installer-type contractors, whereas the higher-end products are
generally sold to professional siding and remodeling contractors. The Company
would have to introduce several commodity-type siding products in order to
penetrate the home center and new construction markets, and thereby increase its
volume.
Vinyl window profiles are primarily produced for Kensington. Kensington is
a major fabricator of vinyl windows for installers of replacement windows.
Kensington fabricates vinyl replacement windows at its Leechburg, Pennsylvania
facility. From the latter part of 1993 through mid-1994, as a result of major
manufacturing and other operational problems, Kensington was unable to satisfy
demand, in particular for its high-end "Bird Window" product. As a result,
Kensington suffered the loss of a major account and a weakening in its position
with another major account in mid-1994. The Company believes that Kensington has
substantially corrected its production problems and if and when provided with
additional funds for working capital and capital expenditure purposes to further
improve productivity will be better positioned to serve efficiently its existing
account base, to recover lost volume and to begin solicitation of new customers
for this high-end product.
The building materials business is seasonal to the extent that outside
repair and remodeling and new construction decline in many areas during the
winter months. To reduce the impact of this seasonal factor, the Company
generally employs what it believes to be an industry-wide practice of "winter
dating," pursuant to which extended or discounted payment terms are offered to
credit-worthy customers who order and accept delivery of roofing and vinyl
products during specified periods of time in the slow season.
Raw Materials. The principal raw materials used in the manufacture of
asphalt roofing products are fiberglass mat, asphalt saturants and coatings and
crushed rhyolite granules. The Company's requirements for fiberglass mat are met
primarily under a Glass Mat Supply Agreement with one vendor which expires on
December 31, 1995. Fiberglass mat is also generally available in adequate
quantities from a number of outside suppliers. Asphalt saturants and coatings
were, until recently, purchased from a major oil refinery. These materials are
also available from other sources at a higher delivered cost. Since the
refinery's discontinuation of its production of asphalt in April 1994, the
Company has been relying on a number of alternative sources for this raw
material. Upon completion of construction of its asphalt oxidizer, which is
anticipated to occur in the first quarter of 1995, the Company will be able to
process asphalt at its roofing facility, thereby reducing its costs and
decreasing the potential for temporary interruptions in its manufacturing
operations. The Company believes that it can produce all of its current granule
requirements at its quarry in Massachusetts.
57
<PAGE> 73
CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY.
The principal raw material used in the manufacture of vinyl products is
polyvinyl chloride resin, a petroleum derivative. This resin is purchased
primarily from two suppliers and is available in sufficient quantities from
several outside sources. Raw materials and packaging costs increased
substantially during 1994, including an increase in the cost of polyvinyl
chloride resin due to heightened domestic and export demand. Further increases
are projected for 1995, but to a lesser degree than in 1994. The Company
believes that, as compared to industry leaders, it is disadvantaged on a cost
basis by as much as 4% to 5% with respect to raw materials such as polyvinyl
chloride resin due to the fact that it is unable to take advantage of volume
discounts to which raw materials used to manufacture vinyl siding are often
subject. The Company believes that the raw materials requirements of the
Company's larger competitors in this industry are five to six times that of the
Company. The Company believes that it has been able to compensate substantially
for its raw materials cost disadvantages through well-managed SG&A costs and by
passing along the bulk of such increased raw materials costs to the Company's
customers.
Backlog. Order backlog is not a meaningful measure of the Company's
building materials business because there are fewer sales during the last
quarter of the fiscal year and the order-to-shipment cycle is relatively short.
Additionally, it is very rare, at any time, to require more than 30 days from
the receipt of a product order to delivery of the product.
Competition. The building materials business is, to a large degree, a
commodities-type business and is highly competitive with respect to price as
well in other aspects, such as delivery terms and consistent product quality.
Many of the Company's competitors are larger and financially stronger than the
Company, but none is dominant in any of its markets. Upon closing of the
Combined Sale Transaction, the Company anticipates that it will be
well-positioned to be competitive with respect to all of the principal
competitive elements mentioned above.
The Company's competitive strengths and weaknesses in its roofing
manufacturing operations are described under " -- Recent Business Developments"
herein and under "THE COMBINED SALE TRANSACTION" and "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" above. The
strengths of its vinyl business arise, in part, from the unique marketing
programs the Company directs toward its indirect customer base, professional
siding and remodeling contractors, combined with an industry-wide reputation of
providing quality products with a high level of service. The Company's
comprehensive contractor marketing program is designed to support the position
of the Company's contractors in the industry. Such marketing program includes a
special system for in-home sales promotions and an exclusive Household
International homeowner financing program. Pursuant to its exclusive
certification program, the Company also certifies contractors who have recorded
five (5) successful years in business, who provide the Company with names of
customers for quality checks, sign a letter of ethics, have a good credit
history, warrant their workmanship for two (2) years, attend annual training
meetings and supply Bird siding on at least 85% of the jobs they install.
Contractors must pay a fee to be certified and must be recertified annually.
Certified contractors are supplied with a wide array of marketing materials,
including customized sample cases, special mailers and custom job site signs.
Certain competitive disadvantages affecting the Company's Vinyl Business are
discussed under " -- Raw Materials" and " -- Intellectual Property."
Intellectual Property. The Company owns a number of trademarks, as well
as significant technology and know-how, which it utilizes in connection with its
building materials business. The Company believes that its trademarks are strong
and well recognized in the industry.
The Company is not aware of any significant proprietary technology in the
vinyl siding industry. However, within the last two years, several leading vinyl
products manufacturers have upgraded their extrusion equipment, thereby
increasing the efficiency and relative productivity of such equipment. Due to
its financial constraints during such period, the Company has not kept pace with
the conversion to higher speed machines. Given adequate financial resources, the
Company could be competitive from a manufacturing standpoint.
58
<PAGE> 74
CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY.
Notwithstanding its failure to upgrade its equipment to date, the Company
believes that it has been able to compensate substantially for any productivity
deficiencies through high standard and premium product sales.
Environmental Products and Services. The Company markets the products and
services of its environmental business primarily in the Gulf Coast of the United
States, focusing solely on petrochemical waste streams requiring special
processing. Processing is performed at the San Leon Facility.
Financial and Related Information about Industry Segments. While the
Company formerly operated in two major business segments, its housing segment
and its environmental segment, the Company no longer operates its environmental
segment. For financial information regarding the industry segments in which the
Company previously operated, see the Company's consolidated financial statements
for 1993 filed herewith.
Compliance with Certain Environmental Laws. The Company has expended and
expects to continue to expend funds to comply with federal, state and local
provisions and orders which relate to the environment. Based on the information
available to the Company at this time, the Company believes that the effect of
compliance with these provisions on the capital expenditures, earnings and
competitive position of the Company is not material. Litigation and other
proceedings involving environmental matters are described under the heading
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS." See also, " -- Legal Proceedings," below.
EMPLOYEES
At November 30, 1994, the Company employed 710 people. This includes 44 San
Leon Facility employees, 236 Kensington employees and 240 Vinyl Business
employees. The balance of such employees are employed at Bird's roofing facility
in Norwood, Massachusetts and in its corporate office in Dedham, Massachusetts.
PROPERTIES
The Company's executive offices are located in Dedham, Massachusetts and
are leased. The Company believes that its plant and facilities, as described
below, are suitable and adequate for its current and anticipated business.
Operating capacity can be increased by additional man hours, changing product
mix, and/or minimal capital investment should the need arise. All facilities are
well maintained, in sound operating condition, and in regular use.
Roofing Manufacturing Facility. The Company owns its asphalt roofing
manufacturing facility in Norwood, Massachusetts. The Norwood plant includes the
manufacturing facility, a granule plant, a rhyolite quarry and a Company-owned
landfill for the Company's use. The Company formerly leased its roofing machine
and purchased such equipment from the former lessor in November 1995. The
Company also leases an industrial laminator and certain other equipment which
were fabricated for use in its roofing plant. The laminator lease expires in
1998. As mentioned above, the Company is in the process of constructing an
asphalt oxidizer plant expansion at the Norwood premises to ensure a continuous
supply of asphalt. The Company also leases storage and terminal facilities in
Providence, Rhode Island.
Vinyl Siding and Window Manufacturing Facilities. The Company owns its
vinyl product plant in Bardstown, Kentucky. Such plant was constructed in 1967
with the proceeds of an industrial revenue bond issue. Kensington leases its
manufacturing facility in Leechburg, Pennsylvania.
BEGCI's Environmental Business. The Company's on-site environmental
remediation business closed its leased offices located in Houston, Texas and
Trumbull, Connecticut in mid-1994 when the Company completed the disposal of the
on-site environmental business. The San Leon Facility is owned by BEGCI.
59
<PAGE> 75
CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY.
LEGAL PROCEEDINGS
The following is a brief description of material legal proceedings pending
with respect to the Company.
Insurance and Product Liability Claims. In 1991, the Company commenced an
action against Wausau, and Wausau and Continental Casualty Company, in turn,
independently commenced certain actions against the Company seeking declarations
as to the obligations of the insurers under the terms of liability insurance
policies issued by the insurers to Bird or the Logan-Long Company (which latter
company was acquired by and merged into Bird in 1976) to defend and indemnify
Bird with respect to certain claims and liabilities arising out of environmental
conditions at and adjacent to various locations including property formerly
owned by Bird in Fulton, New York and Franklin, Ohio and property located in
Kingston, New Hampshire. The suits involving Wausau were brought in the Superior
Court for Norfolk County, Massachusetts, and the Continental Casualty actions
were commenced in the Supreme Court of New York, County of New York.
On June 1, 1993, Wausau commenced another action in the Superior Court for
Norfolk County, Massachusetts, against Bird seeking a declaratory judgment that
certain built-up roofing and glass shingle claims made against Bird are not
covered by liability insurance policies issued by Wausau. Bird asserts that the
claims are covered and has answered the complaint. A trial is scheduled for
1996.
In the opinion of management, the pending litigation involving Wausau is
too preliminary to assess the impact on the results of operations and liquidity
of the Company.
Environmental Claims. A discussion of legal and regulatory proceedings
involving the Company and regarding environmental claims and related matters is
included under the caption "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- Certain Environmental Matters."
60
<PAGE> 76
CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table lists the stockholders known to the Company's
management to be the beneficial owners of more than 5% of the outstanding Common
Stock as of December 31, 1994.(1)
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
---------------------------------------------------- -------------------- --------
<S> <C> <C>
The Entwistle Company............................... 546,139 shares(2) 13.3%
Bigelow Street
Hudson, MA 01749
Mellon Bank Corporation and its Subsidiaries........ 363,000 shares(3)(4) 8.9%
One Mellon Bank Center
Pittsburgh, PA 15258
Charles S. Bird III................................. 305,358 shares(4) 7.4%
East Walpole, MA 02032
Quest Advisory Corp................................. 302,200 shares(5) 7.4%
Quest Management Company
Charles M. Royce
1414 Avenue of the Americas
New York, NY 10019
Estate of George J. Haufler......................... 300,927 shares(6) 7.3%
1266 Round Hill Road,
Bryn Mawr, PA 19010
Dimensional Fund Advisors Inc....................... 227,500 shares(7) 5.6%
1299 Ocean Avenue
11th Floor
Santa Monica, CA 90401
FMR Corp............................................ 226,817 shares(8) 5.4%
Fidelity Management & Research Company
Edward C. Johnson 3d
82 Devonshire Street
Boston, MA 02109
</TABLE>
- ---------------
(1) On December 31, 1994, 4,098,767 shares of Common Stock were outstanding.
(2) Based on information contained in an amended Schedule 13D filed with the SEC
on April 1, 1987. The Schedule 13D reports that The Entwistle Company had
sole voting and dispositive power with respect to all shares, including
8,539 shares it had the right to acquire upon conversion of the Company's
Preference Stock.
(3) Based on information contained in a Schedule 13G amended through March 25,
1994 filed with the SEC. The Schedule 13G reports that Mellon Bank
Corporation and its subsidiaries, including Boston Safe Deposit and Trust
Company, had sole voting and dispositive power with respect to 23,000
shares, shared voting power with respect to 295,000 shares, and shared
dispositive power with respect to 340,000 shares.
(4) Includes 274,929 shares held in a trust of which Boston Safe Deposit and
Trust Company and Charles S. Bird III are co-trustees, with shared voting
and dispositive power. See footnote 3 to the following table regarding
security ownership by management.
(5) Based on information contained in a Schedule 13G amended through February 8,
1994 filed with the SEC. The Schedule 13G reports that Quest Advisory Corp.
had sole voting and dispositive power with respect to 269,500 shares and
Quest Management Company had sole voting and dispositive power with respect
to 32,700 shares.
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CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY.
(6) Based on information contained in a Schedule 13D amended through July 7,
1994. Mr. Hauler's Estate had sole voting and dispositive power with respect
to all shares, including 10,113 shares which may be acquired upon conversion
of Preferred Stock.
(7) Based on information contained in a Schedule 13G dated February 9, 1994
filed with the SEC. The Schedule 13G reports that Dimensional Fund Advisors
Inc. had sole voting power with respect to 158,600 shares and sole
dispositive power with respect to 227,500 shares and that persons who are
officers of Dimensional Fund Advisors Inc. had voting power in their
capacities as officers of certain related entities with respect to 68,900
shares.
(8) Based on information contained in a Schedule 13G dated February 11, 1994
filed with the SEC. The Schedule 13G reports that FMR Corp. had sole voting
power with respect to 29,600 shares and that FMR Corp., Fidelity Management
& Research Company and Edward C. Johnson III each had sole dispositive power
with respect to 197,217 shares (including 113,617 shares which may be
acquired upon conversion of the Preference Stock).
62
<PAGE> 78
CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY.
The table below sets forth information provided by individuals named
therein as to the amount of the Common Stock beneficially owned by such
directors and officers individually, and the directors and executive officers of
the Company as a group, all as of December 31, 1994 except as otherwise noted.
Unless otherwise indicated in the footnotes, each of the named persons and
members of the group had sole voting and investment power with respect to the
shares shown.
<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK SHARES
BENEFICIALLY SUBJECT TO
OWNED (EXCLUDING STOCK PERCENT
NAME STOCK OPTIONS) OPTIONS(1) TOTAL OF CLASS
------------------------------------------ ----------------- ---------- ------- --------
<S> <C> <C> <C> <C>
Robert P. Bass, Jr........................ 48,586(2) 15,000 63,586 1.5%
Charles S. Bird, III...................... 292,858(3) 12,500 305,358 7.4%
Robert L. Cooper.......................... 3,690 22,050 25,740 *
Francis J. Dunleavy....................... 1,000(4) 20,000 21,000 *
John T. Dunlop............................ 2,000(5) 17,500 19,500 *
Guy W. Fiske.............................. 6,000 20,000 26,000 *
Joseph D. Vecchiolla...................... 1,200(6) 11,000 12,200 *
Loren R. Watts............................ 1,000 7,500 8,500 *
Frank S. Anthony.......................... 31,113(7) 20,000 51,113 1.2%
Joseph M. Grigelevich, Jr................. 8,968(8) 1,500 10,468 *
William C. Kinsey......................... 22,833(9) 13,000 35,833 *
Richard C. Maloof......................... 37,118(10) 22,500 59,618 1.5%
All directors and executive officers as a
group (12 persons)...................... 456,336(11) 182,550 638,916 14.9%
</TABLE>
- ---------------
* Less than 1% of the outstanding Common Stock.
(1) Represents shares which the individual has a right to acquire by exercise
of stock options exercisable on December 31, 1994 or within 60 days
thereafter (assuming no change of control occurs within 60 days
thereafter). Upon the consummation of the Bardstown Sale, the vesting
schedules of unvested options held by directors and executive officers will
accelerate and such holders may, if their employment is thereafter
terminated, be entitled to exercise such options or, in certain cases in
lieu of such exercise, cash-out some or all of such options, all as more
fully discussed under "THE COMBINED SALE TRANSACTION -- Interests of
Certain Persons in the Combined Sale Transaction."
(2) Includes 2,696 shares which may be acquired upon conversion of the
Preference Stock. Includes 16,000 shares as to which Mr. Bass shares voting
and investment power.
(3) Includes 274,929 shares as to which Mr. Bird shares voting and investment
power (see the table immediately preceding this table in this Proxy
Statement) and 3,595 shares which may be acquired upon conversion of
Preference Stock.
(4) Does not include 10 shares owned by a child of Mr. Dunleavy, as to which he
disclaims any beneficial interest.
(5) Represents shares as to which Mr. Dunlop shares voting and investment
power.
(6) Represents 1,200 shares allocated to his account under the Savings Plan as
of December 31, 1994.
(7) Includes 5,700 shares held pursuant to the LTIP as to which he has voting
but not investment power and 1,897 shares allocated to his account under
the Savings Plan as of December 31, 1994.
(8) Includes 45 shares which may be acquired upon conversion of Preference
Stock and 4,478 shares allocated to his account under the Savings Plan as
of December 31, 1994.
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CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY.
(9) Includes 853 shares which may be acquired upon conversion of Preference
Stock, 5,320 shares held pursuant to the LTIP, and 2,185 shares allocated
to his account under the Savings Plan as of December 31, 1994.
(10) Includes 9,500 shares held pursuant to the LTIP, 2,106 shares allocated to
his account under the Savings Plan as of December 31, 1994 and 625 shares
held jointly with members of his family.
(11) Includes 293,554 shares as to which persons included in the group have
shared voting and investment power, 7,189 shares which may be acquired upon
conversion of Preference Stock, 20,520 shares held pursuant to the LTIP,
and 11,886 shares allocated to the accounts of officers under the Savings
Plan as of December 31, 1994.
64
<PAGE> 80
CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY.
STOCKHOLDER PROPOSALS
Stockholders have been advised that any proposals regarding matters which
any stockholder desires to present at the next annual meeting of the
stockholders were to be received by the Company at the Company's principal
executive offices for inclusion in the Company's proxy statement and form of
proxy relating to such annual meeting by December 22, 1994.
65
<PAGE> 81
<TABLE>
<CAPTION>
BIRD CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTH PERIOD ENDED AS OF SEPTEMBER 30, 1994
PAGE
----
<S> <C>
Unaudited Financial Statements for the Third Quarter of 1994:
Consolidated Balance Sheets as of September 30, 1994 and December 31, 1993.......... A-2
Consolidated Statement of Operations for the Three and Nine Months Ended September
30, 1994 and 1993................................................................ A-3
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1994
and 1993......................................................................... A-4
Notes to Consolidated Financial Statements.......................................... A-5
</TABLE>
A-1
<PAGE> 82
<TABLE>
<CAPTION>
BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
1994 1993
------------- ------------
(000) OMITTED (EXCEPT SHARE
DATA)
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents..................................................... $ 200 $ 7,518
Accounts and notes receivable............................................ 28,541 36,969
Allowance for doubtful accounts........................................ (3,344) (4,273)
Inventories.............................................................. 10,767 22,157
Prepaid Expenses......................................................... 2,632 4,046
Receivable from sale of assets........................................... 1,996 0
Deferred income tax...................................................... 170 170
------------- ------------
Total current assets................................................. 40,962 66,587
------------- ------------
Property, Plant and Equipment:
Land and land improvements............................................... 3,145 4,716
Buildings................................................................ 11,437 14,700
Machinery and equipment.................................................. 29,686 40,686
Construction in progress................................................. 4,480 14,882
------------- ------------
48,748 74,984
Less -- Depreciation and amortization.................................... 23,390 30,410
------------- ------------
25,358 44,574
------------- ------------
Other investments.......................................................... 2,868 5,551
Assets held for sale....................................................... 7,500 0
Other assets............................................................... 1,660 1,466
Deferred income tax........................................................ 5,051 5,051
------------- ------------
$83,399 $123,229
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Long-term debt, portion due within one year.............................. $ 666 $ 3,400
Long-term debt in default, classified as current......................... 28,158 0
Accounts payable and accrued expenses.................................... 16,392 26,377
Retirement plan contributions payable.................................... 384 513
Income taxes payable..................................................... 452 809
Liquidation Reserve...................................................... 2,777 5,398
------------- ------------
Total current liabilities......................................... 48,829 36,497
------------- ------------
Long-term Debt, Portion Due After One Year................................. 1,140 43,127
------------- ------------
Other Liabilities.......................................................... 1,250 3,021
------------- ------------
Deferred Income Taxes...................................................... 23 23
------------- ------------
Stockholders' Equity
5% cumulative preferred stock, par value $100. Authorized 15,000 shares;
issued 5,820 shares (liquidating preference $110 per share, aggregating
$640 before dividends)................................................. 582 582
Preference stock, par value $1. Authorized 1,500,000 shares; issued
814,300 shares of $1.85 cumulative convertible preference stock
(liquidating preference $20 per share, aggregating $16,286 before
dividends)............................................................. 814 814
Common stock, par value $1. Authorized 15,000,000 shares; issued
4,338,550 shares in 1994, 4,291,565 shares in 1993..................... 4,339 4,291
Other capital............................................................ 26,899 26,456
Retained earnings........................................................ 2,611 11,551
------------- ------------
35,245 43,694
Less -- Treasury stock, at cost:
Common -- 249,664 shares in 1994 and 163,791 in 1993................... (2,795) (2,179)
Unearned compensation.................................................. (293) (954)
------------- ------------
32,157 40,561
------------- ------------
$83,399 $123,229
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
A-2
<PAGE> 83
<TABLE>
<CAPTION>
BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- -----------------------
1994 1993 1994 1993
------- ------- -------- --------
(000) OMITTED (EXCEPT SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C>
Net Sales................................... $46,246 $53,438 $141,595 $140,512
------- ------- -------- --------
Costs and expenses:
Cost of sales............................. 37,077 42,652 114,813 111,574
Selling, general and administrative
expense................................ 6,492 7,799 22,371 23,065
Interest expense.......................... 1,612 547 4,138 1,485
Net discontinued business activities
(income)............................... (2,677) 0 (1,416) 0
Non recurring income...................... 0 0 0 (1,377)
Equity losses from partnership............ 206 297 1,644 859
Other expense............................. 232 354 1,619 1,364
------- ------- -------- --------
Total costs and expenses............... 42,942 51,649 143,169 136,970
------- ------- -------- --------
Earnings (loss) from continuing operations
before income taxes....................... 3,304 1,789 (1,574) 3,542
Provision for income taxes.................. 0 216 0 428
------- ------- -------- --------
Earnings (loss) from continuing
operations................................ 3,304 1,573 (1,574) 3,114
======= ======= ======== ========
Discontinued operation:
Earnings (loss) from operations of
discontinued environmental business.... 0 (2,857) 2,019 (5,378)
Loss on disposal of environmental
business............................... (907) 0 (9,384) 0
------- ------- -------- --------
Net loss from discontinued operation........ (907) (2,857) (7,365) (5,378)
------- ------- -------- --------
Cumulative effect of accounting change...... 0 0 0 2,733
------- ------- -------- --------
Net earnings (loss) before dividends........ $ 2,397 $(1,284) $ (8,939) $ 469
Preferred and preference stock cumulative
dividends................................. 384 384 1,152 1,152
------- ------- -------- --------
Net earnings (loss) applicable to common
stockholders.............................. $ 2,013 $(1,668) $(10,091) $ (683)
======= ======= ======== ========
Primary earnings (loss) per common share:
Continuing operations..................... $ 0.76 $ 0.29 $ (0.67) $ 0.48
Discontinued operation.................... $ (0.24) $ (0.70) $ (1.82) $ (1.32)
Cumulative effect of accounting change.... $ 0.00 $ 0.00 $ 0.00 $ 0.67
------- ------- -------- --------
Net earnings (loss) after dividends......... $ 0.52 $ (0.41) $ (2.49) $ (0.17)
======= ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
A-3
<PAGE> 84
<TABLE>
<CAPTION>
BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1994 1993
--------- -----------
(000) OMITTED
(UNAUDITED)
<S> <C> <C>
Cash flow provided (used) by operations:
Net earnings (loss)................................................ $ (8,939) $ 469
Adjustments to reconcile to net cash used by operations:
Depreciation and amortization.................................... 4,070 4,680
Provision for losses on accounts receivable...................... 1,044 1,585
Cumulative effect of accounting change........................... 0 (2,733)
Gain on sale of distribution business............................ (1,416) 0
Loss (gain) on disposal of environmental business................ 9,384 (825)
Changes in balance sheet items:
Accounts receivable.............................................. (5,566) (15,157)
Inventories...................................................... 603 (2,003)
Prepaid expenses................................................. (2,727) (2,232)
Liquidation reserve.............................................. (4,461) 0
Liabilities not related to financing activities.................. (4,722) 8,312
Other assets..................................................... 660 944
--------- -----------
Cash flow used by operations....................................... (12,070) (6,960)
--------- -----------
Cash flows from investing activities:
Acquisition of property, plant and equipment..................... (5,055) (11,328)
Proceeds from disposal of assets................................. 27,195 9,141
Other investments................................................ (1,313) (1,861)
--------- -----------
Net cash provided by (used in) investing activities................ 20,827 (4,048)
--------- -----------
Cash flows from financing activities:
Debt proceeds.................................................... 119,451 1,030,600
Debt repayments.................................................. (136,014) (1,020,648)
Dividends paid................................................... 0 (1,770)
Other equity changes............................................. 488 303
--------- -----------
Net cash provided by (used in) financing activities................ (16,075) 8,485
--------- -----------
Net decrease in cash and equivalents............................... (7,318) (2,523)
Cash and cash equivalents at beginning of year..................... 7,518 3,223
--------- -----------
Cash and cash equivalents at end of period......................... $ 200 $ 700
========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
A-4
<PAGE> 85
BIRD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited Consolidated
Financial Statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly its financial position as
of September 30, 1994 and December 31, 1993 and the results of its
operations and cash flows for the three and nine month periods ended
September 30, 1994 and 1993.
2. The Company's business is seasonal to the extent that activity in the
outside repair and remodeling business and in new construction declines in
certain areas of the country during the winter months. Accordingly, the
results of operations for the three and nine month periods ended September
30, 1994 and 1993 are not necessarily indicative of the results to be
expected for the full year.
3. Primary earnings (loss) per common share are determined after deducting the
dividend requirements of the preferred and preference shares and are based
on the weighted average number of common shares outstanding during each
period increased by the effect of dilutive stock options. Fully diluted
earnings (loss) per common share also give effect to the reduction in
earnings per share which would result from the conversion of the $1.85
cumulative convertible preference stock at the beginning of each period.
Fully diluted loss per share amounted to $1.87 for the nine month period
ended September 30, 1994.
4. It is not practical to separate LIFO inventories by raw materials and
finished goods components; however, the following table presents these
components on a current cost basis with the LIFO reserve shown as a
reduction.
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1994 1993
------------- ------------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Current Costs:
Raw Materials................................................ $ 3,304 $ 3,541
Finished goods............................................... 9,144 20,297
------------- ----------
12,448 23,838
Less: LIFO reserve........................................... 1,681 1,681
------------- ----------
$10,767 $22,157
========== ==========
</TABLE>
5. The Company's borrowing and debt obligations are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1994 1993
------------- ------------
<S> <C> <C>
(THOUSANDS OF DOLLARS)
Long-term debt:
Revolving Credit Agreement............................... $28,158 $44,000
Notes payable............................................ 0 56
Obligations under capital leases......................... 1,806 2,471
----------- ----------
29,964 46,527
Less -- portion due within one year...................... 666 3,400
----------- ----------
29,298 43,127
Less -- long term debt in default, classified as
current................................................ 28,158 0
---------- ----------
Long term debt........................................... $ 1,140 $43,127
========== ==========
</TABLE>
Prior to November 30, 1994, the Company's external financial needs were
satisfied by borrowing under the Second and Third Amended Credit Agreements with
the First National Bank of Boston, Philadelphia National Bank, incorporated as
Corestates Bank, N.A. and the Bank of Tokyo Trust Company (the "Banks").
Effective as of November 30, 1994, such needs are satisfied primarily by
borrowing under the Loan And
A-5
<PAGE> 86
BIRD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Security Agreement between the Company and Barclays Business Credit, Inc. of
Glastonbury, Connecticut ("Barclays").
The Second Amended Credit Agreement contained financial and operating
covenants which, among other things, required the Company to maintain prescribed
levels of pre-tax earnings, net worth, ratios of debt to net worth and ratios of
current assets to current liabilities. There were also restrictions on
indebtedness, liens, investments, acquisitions, dispositions, mergers, and
payment of dividends.
On March 4, 1994, the Banks executed the Third Amended Credit Agreement to
allow the Company to borrow up to $65 million until January 31, 1996. The loan,
which was secured by substantially all of the Company's assets, was defined as a
$40 million revolving credit line commitment for working capital and letters of
credit and a $25 million term loan for general corporate purposes.
On July 12, 1994, the Company used proceeds from the sale of assets to
reduce its revolving credit line commitment to $38,825,000. On August 22, 1994
the revolving credit line commitment was further reduced to $25,825,000
concurrent with the sale of the assets of substantially all of the Company's
building materials distribution businesses (see note 12). The revolving credit
availability was determined with reference to a percentage of accounts
receivable and inventory which were pledged to the Banks. The Company believed
that the referenced availability formula was sufficient to support the Company's
financing requirements at that time. Proceeds from the sale of assets were also
used to reduce the amount outstanding under the term loan from $25,000,000 to
$14,828,000 as of September 30, 1994 and to $11,999,000 as of November 29, 1994.
Under the Third Amended Credit Agreement, the term loan had to be reduced by
$11,200,000 on April 30, 1995 with any balance payable on January 31, 1996.
By letters dated April 11, 1994, April 20, 1994, July 20, 1994, August 17,
1994, September 1, 1994 and September 13, 1994 the Company was notified by the
Agent Bank under the Third Amended Credit Agreement of certain alleged covenant
defaults and events of default under the Third Amended Credit Agreement. As a
result of the write-down in the recorded value of BEGCI (defined below), the
Company did not meet its minimum net worth covenant as of June 30, 1994. The
Banks were under no obligation to make revolving credit loans under the Third
Amended Credit Agreement following the occurrence and during the continuance of
a default or event of default. The Banks continued to lend, and the Company
continued to take necessary action to cure certain of the alleged defaults and
events of default and requested the Banks to waive or to forbear from asserting
the remainder of the alleged defaults and events of default. As a result of
these alleged defaults and events of default, all loans under the Third Amended
Credit Agreement are classified as current on the September 30, 1994 balance
sheet.
Except for a short period following the sale of assets to Cameron, since
April 11, 1994, the Banks charged interest on any loan under the Third Amended
Credit Agreement at a rate of interest equal to 4% above the rate otherwise
applicable to such loans. As a result, the interest for the revolving credit
portion of the loan was 12.75% and 13.75% for the term portion of the loan at
September 30, 1994.
On November 30, 1994, Bird Incorporated entered into a $39,000,000, three
year Loan and Security Agreement (the "Loan Agreement") with Barclays. At the
end of the three year period, the Loan Agreement is automatically renewed
annually for a one year period unless terminated specifically in writing. The
Loan Agreement consists of a $24,000,000 revolving credit commitment and two
equal term loans (Term Loan A and Term Loan B) totaling $15,000,000. Up to
$5,000,000 of the revolving credit facility can be used for letters of credit.
Letters of Credit outstanding as of November 30, 1994 totaled $2,927,000.
Borrowings by Bird Incorporated under the Loan Agreement are guaranteed by the
Company and its other subsidiaries and are secured by substantially all of the
assets of the Company and its subsidiaries. The revolving credit line
availability is determined with reference to a percentage of accounts receivable
and inventory which are pledged to the lender. During the period January 1
through April 30, the Loan Agreement provides a $2,000,000 over advance on
accounts receivable and inventories in order to assist the Company in adequate
funding of the seasonal build up of accounts receivable which may occur under
sales programs which may be
A-6
<PAGE> 87
BIRD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
offered during the winter months. Currently, the availability calculation does
not allow borrowings to the full extent of the revolving credit commitment, due
to the seasonality of the building materials manufacturing business. As of
November 30, 1994, the calculated availability consistent with the terms of the
Loan Agreement totaled $22,294,000. The Loan Agreement contains financial and
operating covenants which, among other things, (i) require the Company to
maintain prescribed levels of tangible net worth, net cash flow and working
capital and (ii) place limits on capital expenditures. The Loan Agreement also
contains restrictions on indebtedness, liens, investments, distributions
(including payment of common and preference dividends), mergers, acquisitions
and disposition of assets. The proceeds of the initial borrowings under the Loan
Agreement were used to pay in full the outstanding loan balances under the Third
Amended Credit Agreement. A commitment fee of $150,000 was due and paid to
Barclays as of the closing date of the Loan Agreement.
Interest on the revolving credit commitment under the Loan Agreement
accrues at the Barclays base rate (as specified in the Agreement) plus 1% on all
borrowings and the greater of $25,000 per annum or 1/4% on any unused portion
of the commitment payable monthly in arrears. Interest on Term Loan A and Term
Loan B accrues at the base rate plus 1 1/2%. The combined repayment of the
principal on Term Loan A and Term Loan B is $125,000 per month in year one and
$142,800 per month in years two and three with a final principal payment of
$10,072,800 due on November 30, 1997. Proceeds in excess of $100,000 from the
sale of fixed assets may, at Barclays' discretion, be applied to the outstanding
principal payments of the term loan(s).
In the event of a sale of the Company's 80% interest in BEGCI, proceeds
would be applied to the outstanding principal balance of Term Loan A. In the
event of a sale of the assets of the Vinyl division, Term Loan B would be
reduced to $5,000,000 and the revolving credit commitment would be reduced to
$15,000,000 at which time interest rates on the loans would accrue at either the
base rate or at the London Interbank Offering Rate ("LIBOR") plus 275 basis
points.
On June 18, 1994, the Company entered into a Settlement Agreement and Full
and Final Release ("Settlement") with the minority shareholders of the Company's
Bird Environmental Gulf Coast, Inc. ("BEGCI") subsidiary, thus resolving a suit
filed by the minority shareholders of the subsidiary claiming breach of contract
and a countersuit filed by the Company in 1994. Pursuant to the Settlement, the
Company has agreed to sell its 80% interest in BEGCI to the minority
shareholders on or before February 28, 1995, subject to financing. During that
period, the Company retains the right to sell all of its interest in BEGCI to
another buyer provided that the shares of common stock of BEGCI owned by the
minority shareholders are also sold at no less than the same price per share.
Since the decision by the Company's Board of Directors to enter into the
Settlement Agreement and the execution of the Settlement Agreement itself
established a measurement date (see Note 11), the Company has written down the
recorded value of BEGCI as of June 30, 1994. The remaining net asset value of
this business of $7.5 million is shown as "Assets Held for Sale" on the
September 30, 1994 balance sheet.
The operating lease on the roofing machine at the Company's Norwood,
Massachusetts facility was collateralized by a mortgage on the Norwood property.
The mortgage required the consent of the lessor to allow a second mortgage on
the real property. The terms of the Third Amended Credit Agreement required
security on all of the Company's assets, and as a result, a second mortgage in
favor of the Banks was placed on the Norwood property. The lessor's consent had
not been obtained. The Company was notified by letter dated April 25, 1994 that
the lessor was declaring the Equipment Leasing Agreement dated as of December
28, 1984 (as amended) to be in default, and by letter dated May 23, 1994, the
lessor declared the lease terminated. On August 30, 1994, the Company and the
lessor entered into an agreement pursuant to which the Company would purchase
the leased equipment for a purchase price of approximately $4 million payable in
installments between August 30, 1994 and January 15, 1995 by which date the
final payment of approximately $2.3 million had to be made. Concurrent with the
Company's refinancing with Barclays Business Credit, Inc. on November 30, 1994,
the Company satisfied all outstanding obligations with respect to the purchase
agreement it had entered into with the lessor.
A-7
<PAGE> 88
BIRD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. On July 1, 1992, the Company entered into a 50% joint venture with ZES,
Inc. (formerly known as Kensington Manufacturing Company), to manufacture
vinyl replacement windows through Kensington Partners ("Kensington"). After
negotiating with its partner, in early 1994 Bird Corporation agreed to
invest additional cash in return for temporarily increasing its ownership
in Kensington to 90%. The terms of the new agreement allow Kensington to
return to an equal partnership if, before the later of December 31, 1994 or
six months following the Company's last investment, its partner can match
the additional investment made by the Company. Under the terms of the
Kensington Partnership Agreement, a Management Committee was established to
oversee the operations of the partnership. The agreement required, among
other things, unanimous approval of the Management Committee for the
following: (a) any distributions; (b) the incurrence of any indebtedness;
(c) the creation of any form of encumbrance; (d) the adoption or
modification of the partnership's annual plan and operating budget; and (e)
any transaction requiring expenditures in excess of $15,000 and not
contemplated or provided for in the annual business plan or operating
budget. Each partner is entitled to name two of the five members of the
Management Committee with the fifth member being the President of
Kensington. Significant operating decisions require unanimous approval as
noted above. Approval from both partners was required to hire the President
of Kensington. Accordingly, the Company does not possess unilateral control
and, as a result, the partnership is accounted for on the equity method.
The following table presents unaudited summarized financial information for
Kensington Partners for the nine months ended September 30, 1994 and 1993.
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1994 1993
------------- -------------
<S> <C> <C>
(THOUSANDS OF DOLLARS)
Current Assets.......................................... $ 8,944 $10,267
Property and Equipment 3,239 2,472
Other Assets............................................ 384 393
------------- -------------
Total Assets.................................. $12,567 $13,132
========== ==========
Current Liabilities..................................... $11,300 $ 9,593
Other Liabilities....................................... 1,249 204
------------- -------------
Total Liabilities............................. $12,549 $ 9,797
========== ==========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1994 1993
------- -------
<S> <C> <C>
Net Sales.................................................... $19,277 $14,693
Gross Profit................................................. $ 2,246 $ 2,284
Net Loss..................................................... $(1,936) $(1,717)
</TABLE>
On January 25, 1994, the bank servicing the Kensington Credit Agreement
dated October 25, 1993 gave notice that Kensington had breached certain
covenants. Subsequently, the bank agreed to forbear from exercising its rights
and remedies under the loan agreement until August 31, 1994. In accordance with
this forbearance agreement interest accrued at 3% above the prime lending rate.
On May 2, 1994, the bank applied the Company's $750,000 cash deposit which was
held by the bank as collateral against the total amount owed which was then
$2,158,000. A payment schedule was established to repay the remainder of the
loan. The loan availability calculation was amended to allow aggregate
borrowings equal to the lesser of the borrowing base calculation or a set
borrowing schedule over a prescribed time frame. The borrowing availability
schedule began April 29, 1994 at $1,550,000 and was periodically reduced to
$475,000 through August 31, 1994, at which time the outstanding balance was paid
in full.
A-8
<PAGE> 89
BIRD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
This reduced borrowing availability schedule required Kensington to find a
new lending arrangement. As of June 15, 1994, the partnership entered into a
financing agreement with Bankers Capital of Chicago, Illinois. Under the terms
of the agreement, Bankers Capital agreed to provide up to $2.5 million in
financing based on the value of certain acceptable receivables. The amount
advanced at any one time cannot exceed 80% of the value of these receivables.
Interest on the amount advanced is at the prime lending rate plus 1 1/2%.
Additionally, Bankers Capital charges a fee ranging from 1.0% to 3.5% of the
total amount of the value of acceptable receivables used to extend financing and
the age of such receivables. As a result, interest and fees result in an average
borrowing rate of approximately 18 1/2% at September 30, 1994. The financing by
Bankers Capital is co-guaranteed by the Company. Bankers Capital initially
funded Kensington on August 25, 1994 including payment in full of the
outstanding loan balance with Kensington's previous lender.
7. In 1986, the Company, along with numerous other companies, was named by the
Environmental Protection Agency ("EPA") as a Potentially Responsible Party
("PRP") under the Comprehensive Environmental Response, Compensation, and
Liability Act, as amended, 42 U.S.C. Paragraph 9601, et seq. ("CERCLA"), in
connection with the existence of hazardous substances at a site known as
the Fulton Terminal Superfund site located in Fulton, Oswego County, New
York. On September 28, 1990 the Company and a number of other PRPs reached
a negotiated settlement with the EPA pursuant to which the settling PRPs
agreed to pay the costs of certain expenses in connection with the
proceedings, and to pay certain other expenses including the costs and
expenses of administering a trust fund to be established by the settling
PRPs. The settlement agreement is embodied in a consent decree lodged with
the United States District Court for the Western District of New York and
fixed the Company's proportionate share of the total expenses. The ultimate
cost of the remedial work and other expenses covered by the settlement
agreement can only be estimated. At September 30, 1994, the Company has
provided a reserve totalling $953,000 to offset its proportionate share of
the estimated ultimate cost of cleanup.
On June 21, 1994, the Arizona Department of Environmental Quality (the
"ADEQ") issued a notice of violation ("NV") to Southwest Roofing Supply, a
division of the Company ("Southwest") which directed Southwest to conduct a site
investigation of property formerly leased by Southwest. Receipt of the NV
prompted negotiations between the ADEQ, Southwest and the Company. The
negotiation resulted in a consent order between the ADEQ and the Company on
September 23, 1994. Pursuant to the consent order, the Company agreed to submit
a work plan with a view to remediating the soil and ground water that may have
been contaminated by leaks from an underground storage tank previously removed
by the Company. In accordance with the work plan, the Company expects to
remediate soil and ground water where and if necessary. The Company's management
believes that the cost to the Company of such remediation will be in the range
from $200,000 to $700,000. The Company has provided a reserve totalling $400,000
for its proportionate share of the estimated ultimate cost of cleanup at
September 30, 1994 based on management's best estimate of the costs to be
incurred. The Company anticipates that $200,000 will be reimbursed to the
Company by the ADEQ in accordance with Arizona law and regulation. This
potential recovery has not been recorded as of September 30, 1994.
8. Non-recurring income in the nine months ended September 30, 1993 represents
a net gain from a settlement with an insurance provider relating to product
liability claims.
9. Restrictions on the payment of dividends were imposed by the terms of the
Third Amended Credit Agreement. As a result of the defaults under the Third
Amended Credit Agreement, the Company suspended dividends on all classes of
its stock after the third quarter of 1993. As of September 30, 1994,
dividends would have had to have been paid (or declared and set apart for
payment) in the amount of $22,000 on the Preferred Stock and $1,506,000 on
the Preference Stock before any dividends could have been paid or declared
on the Common Stock. On October 31, 1994, the Banks consented to payment of
the fourth quarter, 1994 dividend on the Preferred Stock. The quarterly
dividend on the Preferred Stock due December 1, 1994 was declared and paid
in full as of that date. Restrictions on the payment of
A-9
<PAGE> 90
BIRD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
dividends on Common and Preference Stock are imposed by the terms of the
Agreement dated November 30, 1994 with Barclays Business Credit, Inc.
Payment of dividends on Preferred Stock are permitted under the Agreement.
10. On June 10, 1994, the Company's 40% interest in Mid-South Building Supply,
Inc. was redeemed for $1,000,000 in cash. The resulting loss of $1,261,000
is reflected as a discontinued business activities expense in the
accompanying consolidated statement of operations.
11. On June 18, 1994, the Company agreed to sell its 80% interest in BEGCI to
the minority shareholders thereof, subject to financing, resulting in the
complete withdrawal from the environmental business. Accordingly, the
Company, as of June 30, 1994, recorded the operating results of BEGCI as a
discontinued operation. In conjunction with this decision, the Company
recorded an aggregate charge of $9,569,000 to adjust its book value to
approximate the net realizable value of $7.5 million at June 30, 1994. In
June 1994, the Company estimated that the results of operations from the
"off-site" environmental business would be breakeven through the disposal
date and, accordingly, no liability for anticipated losses from the
measurement date to the disposal date was recorded. Currently, the expected
disposal date is by the end of the first quarter of 1995. The Company
continues to believe that by the disposal date, the results of operations
will be breakeven. However, at September 30, 1994, the Company had invested
an additional $907,000 in BEGCI which, based on the Company's assessment,
would not be recoverable and was accordingly written-off, thus maintaining
the Company's investment at $7.5 million.
In 1993, the Company decided to close the "on-site" environmental
remediation business. As a result of that decision, the Company recorded a
provision totaling approximately $11 million which represented the estimated net
costs associated with the closing including a $5.8 million write-down of assets
to net realizable value, $4 million for the expected losses from operations
resulting from projects being closed and $100,000 of general expenses associated
with closing the business. As a result, historical results of operations for all
of the environmental businesses have been classified as discontinued operations.
Based upon the actual results of the environmental "on-site" remediation
operations and the sale of its assets, excess costs of $3,861,000 charged in
1993 have been reversed and are recorded as discontinued operations in the
consolidated statement of operations for the nine months ended September 30,
1994.
As of September 30, 1994, the remaining assets and liabilities relating to
the "on-site" environmental remediation business approximated $569,000 and $1.4
million, respectively. The assets relate primarily to accounts receivable due to
holdbacks on asset sales and the liabilities relate primarily to severance
payments, a disputed trade payable and certain other obligations such as for
taxes and workers compensation. The estimated net realizable value of its
investment in the "off-site" environmental remediation business totaled $7.5
million and is shown as "Assets held for sale" on the consolidated balance
sheet.
12. On August 22, 1994, the Company sold the assets of substantially all of its
distribution businesses to Wm. Cameron & Co. for a purchase price consisting
of cash in the amount of $24,245,000 (based on the July 31, 1994 net book
value), including $1,300,000 held in escrow to pay any indemnification
claims arising under the purchase and sale agreement, and the assumption of
certain liabilities of the selling companies. The sale will result in a gain
of $2,677,000. The purchase price was subject to adjustment based on an
audit of the book value of the acquired assets and assumed liabilities as of
the closing date. Adjustments to the book value for the period August 1,
1994 through August 22, 1994 resulted in an increase in the purchase price
of $1,897,000, payable to the Company as of November 17, 1994. Sales of
$67,089,000 were recorded for these businesses for the nine month period
ending September 30, 1994.
On November 28, 1994, the Company sold its last remaining building
materials distribution business, Southland Building Products, Inc. to Ashley
Aluminum, Inc. for a purchase price of $2,134,000. The sale will result in a
modest gain. The purchase price is subject to adjustment based on an audit of
the book value of the acquired assets and assumed liabilities as of the closing
date. Sales for the current calendar year of $9,092,000 were recorded for this
business for the cumulative period ending November 27, 1994.
A-10
<PAGE> 91
BIRD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. On September 26, 1994, the Company announced that it had signed a definitive
agreement to sell the assets of its vinyl building products manufacturing
operation located in Bardstown, Kentucky to Jannock Limited for $47.5
million which will result in a significant gain. The transaction also
includes Jannock's assumption of balance sheet and certain other liabilities
related to this business. Sales for the nine month period ending September
30, 1994 for the vinyl building manufacturing operation totalled
$36,348,000. This transaction also includes an option to purchase the
Company's interest in Kensington Partners for a purchase price which will
net the Company up to an additional $1,390,000. Kensington Partners operates
a vinyl window fabrication business in Leechburg, Pennsylvania. The sale is
subject to approval by the shareholders of the Company, which will be sought
at a special meeting expected to be held in March, 1995 for purposes of
acting on the proposed sale. Proceeds from the sale would be used to pay
down debt under the Loan Agreement with Barclays with any cash balance held
in short term investments until the Company's management and its Board of
Directors have had sufficient time to review longer term options.
A-11
<PAGE> 92
<TABLE>
<CAPTION>
BIRD CORPORATION AND SUBSIDIARIES
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
<S> <C>
Consolidated Financial Statements for 1993:
Report of independent accountants................................................... F-2
Balance sheets at December 31, 1993 and 1992........................................ F-3
Statements of operations for each of the three years in the period
ended December 31, 1993.......................................................... F-4
Statements of stockholders equity for each of the three years in the period
ended December 31, 1993.......................................................... F-5
Statements of cash flows for each of the three years in the period
ended December 31, 1993.......................................................... F-8
Notes to consolidated financial statements.......................................... F-9
Kensington Partners and Affiliate financial statements.............................. F-28
</TABLE>
F-1
<PAGE> 93
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Bird Corporation
We have audited the consolidated balance sheets of Bird Corporation and its
subsidiaries as of December 31, 1993 and 1992, and the related consolidated
statements of operations, of stockholders' equity and of cash flows for the
three years in the period ended December 31, 1993. 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 did not
audit the financial statements of Kensington Partners, a 50% owned joint
venture, which statements reflect total assets of $11.3 million and $7.8 million
at December 31, 1993 and 1992, respectively, total revenues of $21.4 million and
$10.4 million and net losses of $5.2 million and $36,000 for the year ended
December 31, 1993 and the six months ended December 31, 1992, respectively.
Those statements were audited by other auditors whose report has been furnished
to us, and our opinion, insofar as it relates to the amounts included for
Kensington Partners, is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Bird Corporation and its
subsidiaries as of December 31, 1993 and 1992, and the results of their
operations and their cash flows for the three years in the period ended December
31, 1993 in conformity with generally accepted accounting principles.
As explained in Note 9, in June 1994, the Company agreed to sell its
interest in the San Leon Recycling Center resulting in a write-down of
approximately $9 million to its estimated realizable value. The consolidated
financial statements as of December 31, 1993 do not reflect any such adjustment
to the recorded investment in this facility.
As discussed in Note 1 to the consolidated financial statements, the
Company changed its method of accounting for income taxes in 1993 to comply with
a new pronouncement issued by the Financial Accounting Standards Board.
Boston, Massachusetts
March 10, 1994, except as to
Note 9, which is as of
June 18, 1994
F-2
<PAGE> 94
<TABLE>
<CAPTION>
BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-----------------------------
1993 1992
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents.................................................... $ 7,518,000 $ 3,223,000
Accounts and notes receivable, less allowances -- $4,273,000 in 1993 and
$2,978,000 in 1992.................................................... 32,696,000 29,991,000
Inventories............................................................. 22,157,000 26,702,000
Prepaid expenses........................................................ 4,046,000 2,134,000
Deferred income tax..................................................... 170,000 0
------------ ------------
Total current assets................................................ 66,587,000 62,050,000
------------ ------------
Property, Plant and Equipment:
Land and land improvements.............................................. 4,716,000 3,718,000
Buildings............................................................... 14,700,000 14,436,000
Machinery and equipment................................................. 40,686,000 45,470,000
Construction in progress................................................ 14,882,000 3,032,000
------------ ------------
74,984,000 66,656,000
Less -- Depreciation and amortization................................... 30,410,000 29,105,000
------------ ------------
44,574,000 37,551,000
------------ ------------
Other investments......................................................... 5,551,000 12,742,000
Deferred tax asset........................................................ 5,051,000 0
Other assets.............................................................. 1,466,000 6,732,000
------------ ------------
$123,229,000 $119,075,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses................................... $ 26,377,000 $ 16,453,000
Long-term debt, portion due within one year............................. 3,400,000 1,041,000
Retirement plan contributions payable................................... 513,000 507,000
Income taxes payable.................................................... 809,000 267,000
Liquidation reserve..................................................... 5,398,000 0
------------ ------------
Total current liabilities........................................... 36,497,000 18,268,000
------------ ------------
Long-term debt, portion due after one year................................ 43,127,000 30,374,000
------------ ------------
Other liabilities......................................................... 3,021,000 996,000
------------ ------------
Deferred income taxes..................................................... 23,000 336,000
------------ ------------
Total liabilities......................................................... 82,668,000 49,974,000
------------ ------------
STOCKHOLDERS' EQUITY
5% cumulative preferred stock, par value $100. Authorized 15,000 shares;
issued 5,820 shares in 1993 and 1992 (liquidating preference $110 per
share, aggregating $640,000).......................................... 582,000 582,000
Preference stock, par value $1. Authorized 1,500,000 shares; issued
814,300 shares of $1.85 cumulative convertible preference stock in
1993 and 1992 (liquidating value $20 per share, aggregating
$16,286,000).......................................................... 814,000 814,000
Common stock, par value $1. Authorized 15,000,000 shares; 4,291,565
shares issued in 1993 and 4,267,166 shares issued in 1992............. 4,291,000 4,267,000
Other capital........................................................... 26,456,000 25,401,000
Retained earnings....................................................... 11,551,000 41,645,000
------------ ------------
43,694,000 72,709,000
Less --
Treasury stock, at cost, Common:
163,791 shares in 1993 and 153,672 in 1992............................ (2,179,000) (2,059,000)
Unearned compensation................................................. (954,000) (1,549,000)
------------ ------------
40,561,000 69,101,000
------------ ------------
COMMITMENTS AND CONTINGENCIES (NOTE 13)
$123,229,000 $119,075,000
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 95
<TABLE>
<CAPTION>
BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
----------------------------------------------
1993 1992 1991
------------ ------------ ------------
<S> <C> <C> <C>
Net Sales.................................................. $187,745,000 $164,202,000 $137,059,000
------------ ------------ ------------
Costs and expenses:
Cost of sales............................................ 151,664,000 128,371,000 107,226,000
Selling, general and administrative expense.............. 32,716,000 27,811,000 23,023,000
Interest expense......................................... 2,472,000 1,506,000 1,026,000
Discontinued business activities expense................. 268,000 178,000 189,000
Equity losses from partnership........................... 2,625,000 0 0
Other (income) expense................................... 3,278,000 (197,000) (331,000)
------------ ------------ ------------
Total costs and expenses............................. 193,023,000 157,669,000 131,133,000
------------ ------------ ------------
Earnings (loss) from continuing operations before income
taxes.................................................... (5,278,000) 6,533,000 5,926,000
Provision (benefit) for income taxes....................... (637,000) 869,000 498,000
------------ ------------ ------------
Earnings (loss) from continuing operations before
cumulative effect of accounting change................... (4,641,000) 5,664,000 5,428,000
------------ ------------ ------------
Discontinued operations (Note 9):
Loss from operations of discontinued businesses, net of
taxes................................................ (15,414,000) (2,573,000) (249,000)
Loss on disposal of environmental business, including
provision of $5,200,000 for operating losses during
phase out period, net of taxes....................... (11,000,000) 0 0
------------ ------------ ------------
Net loss from discontinued operations.................. (26,414,000) (2,573,000) (249,000)
------------ ------------ ------------
Cumulative effect of accounting change..................... 2,733,000 0 0
------------ ------------ ------------
Net earnings (loss) before dividends....................... (28,322,000) 3,091,000 5,179,000
Preferred and preference stock cumulative dividends........ 1,536,000 1,536,000 1,536,000
------------ ------------ ------------
Net earnings (loss) applicable to common stockholders...... $(29,858,000) $ 1,555,000 $ 3,643,000
============= ============= =============
Primary earnings (loss) per common share:
Continuing operations...................................... $ (1.51) $ 1.00 $ 1.01
Discontinued operations.................................... $ (6.45) $ (0.62) $ (0.06)
Cumulative effect of accounting change..................... $ 0.67 $ 0.00 $ 0.00
------------ ------------ ------------
Net earnings (loss) after dividends........................ $ (7.29) $ 0.38 $ 0.95
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 96
<TABLE>
<CAPTION>
BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
$1.85
5% CUMULATIVE
CUMULATIVE CONVERTIBLE COMMON TOTAL
PREFERRED PREFERENCE COMMON OTHER RETAINED STOCK IN UNEARNED STOCKHOLDERS'
STOCK STOCK STOCK CAPITAL EARNINGS TREASURY COMPENSATION EQUITY
---------- ----------- ---------- ----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance January 1,
1991................. $590,000 $814,000 $3,752,000 $19,419,000 $38,052,000 $(106,000) $(2,198,000) $60,323,000
Net earnings.......... 5,179,000 5,179,000
Cash dividends
declared:
5% cumulative
preferred
stock -- $5 per
share............. (29,000) (29,000)
$1.85 cumulative
convertible
preference
stock -- $1.85 per
share............. (1,506,000) (1,506,000)
Common stock -- $.20
per share........... (790,000) (790,000)
Common stock issued
principally in
connection with
acquisitions -- 313,817
shares.............. 314,000 4,534,000 4,848,000
Common stock issued as
compensation -- 1,200
shares.............. 1,000 15,000 2,000 18,000
Common stock issued
for contributions to
employees' saving
plan -- 9,619
shares.............. 10,000 131,000 141,000
Common stock and note
issued upon exercise
of stock options
136,140 shares...... 136,000 801,000 937,000
Purchase of 52,751
shares of common
stock............... (772,000) (772,000)
Amortization of
unearned
compensation........ 253,000 253,000
---------- ----------- ---------- ---------- ----------- --------- ----------- -----------
Balance December 31,
1991................ $590,000 $814,000 $4,213,000 $24,900,000 $40,906,000 $(876,000) $(1,945,000) $68,602,000
========= ======== ========= ========== ========== ========= ========== ==========
</TABLE>
F-5
<PAGE> 97
<TABLE>
<CAPTION>
BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
$1.85
5% CUMULATIVE
CUMULATIVE CONVERTIBLE COMMON TOTAL
PREFERRED PREFERENCE COMMON OTHER RETAINED STOCK IN UNEARNED STOCKHOLDERS'
STOCK STOCK STOCK CAPITAL EARNINGS TREASURY COMPENSATION EQUITY
---------- ----------- ---------- ----------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance January
1, 1992......... $590,000 $814,000 $4,213,000 $24,900,000 $40,906,000 $ (876,000) $(1,945,000) $68,602,000
Net earnings..... 3,091,000 3,091,000
Cash dividends
declared:
5% cumulative
preferred
stock -- $5
per share.... (29,000) 29,000)
$1.85
cumulative
convertible
preference
stock -- $1.85
per share.... (1,506,000) (1,506,000)
Common
stock -- $.20
per share...... (817,000) (817,000)
Common stock
issued
principally in
connection with
acquisitions --
12,820
shares......... 13,000 153,000 166,000
Common stock
issued as
compensation -- 1,200
shares......... 1,000 19,000 20,000
Common stock
issued for
contributions
to employees'
saving
plan -- 14,355
shares......... 14,000 195,000 209,000
Common stock
issued upon
exercise of
stock
options -- 26,250
shares......... 26,000 178,000 204,000
Purchase of
91,981 shares
of common
stock.......... (1,183,000) (1,183,000)
Amortization of
unearned
compensation... 396,000 396,000
5% cumulative
preferred stock
purchased and
retired -- 86
shares......... (8,000) 4,000 (4,000)
Cumulative
foreign
currency
translation.... (48,000) (48,000)
-------- -------- ---------- ----------- ----------- ----------- ------------ ------------
Balance December
31, 1992....... $582,000 $814,000 $4,267,000 $25,401,000 $41,645,000 $(2,059,000) $(1,549,000) $69,101,000
======== ======== ========= ========== ========== ========== =========== ===========
</TABLE>
F-6
<PAGE> 98
<TABLE>
<CAPTION>
BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
$1.85
5% CUMULATIVE
CUMULATIVE CONVERTIBLE COMMON TOTAL
PREFERRED PREFERENCE COMMON OTHER RETAINED STOCK IN UNEARNED STOCKHOLDERS'
STOCK STOCK STOCK CAPITAL EARNINGS TREASURY COMPENSATION EQUITY
---------- ----------- ---------- ----------- ------------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance January
1, 1993......... $582,000 $814,000 $4,267,000 $25,401,000 $ 41,645,000 $(2,059,000) $(1,549,000) $69,101,000
Net (loss)....... (28,322,000) (28,322,000)
Cash dividends
declared:
5% cumulative
preferred
stock -- $5
per share.... (29,000) (29,000)
$1.85
cumulative
convertible
preference
stock $1.85
per share.... (1,130,000) (1,130,000)
Common stock $.15
per share...... (613,000) (613,000)
Common stock
issued as
compensation -- 1,200
shares......... 1,000 13,000 14,000
Common stock
issued for
contributions
to employees'
saving
plan -- 19,119
shares......... 19,000 210,000 229,000
Common stock
issued and note
repayment upon
exercise of
stock
options -- 4,080
shares......... 4,000 210,000 214,000
Purchase of
10,119 shares
of common
stock.......... (120,000) (120,000)
Amortization of
unearned
compensation... 595,000 595,000
Cumulative effect
of accounting
change......... 323,000 323,000
Tax effect of
stock options
exercised...... 303,000 303,000
Cumulative
foreign
currency
translation.... (4,000) (4,000)
---------- ----------- ---------- ----------- ------------ ----------- ------------ ------------
Balance December
31, 1993....... $582,000 $814,000 $4,291,000 $26,456,000 $ 11,551,000 $(2,179,000) $ (954,000) $40,561,000
========= ========= ========= ========== =========== ========== =========== ===========
</TABLE>
F-7
<PAGE> 99
BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
(BRACKETS DENOTE CASH OUTFLOWS) 1993 1992 1991
--------------- ------------- -------------
<S> <C> <C> <C>
Cash flow provided (used) by continuing
operations:
Earnings from continuing operations......... $ (28,322,000) $ 3,091,000 $ 5,179,000
Adjustments to reconcile to net cash
provided by continuing operations:
Writedown of assets to net realizable
value.................................. 5,800,000 0 0
Depreciation and amortization............. 8,714,000 6,150,000 4,488,000
Provision for losses on accounts
receivable............................. 2,162,000 1,365,000 1,015,000
Deferred income taxes..................... (1,044,000) 196,000 9,000
Cumulative effect of accounting change.... (2,733,000) 0 0
Gain on sale of assets.................... (858,000) 0 0
Changes in balance sheet items:
Accounts receivable....................... (8,199,000) (4,031,000) (1,994,000)
Inventories............................... 4,538,000 (6,373,000) 1,653,000
Prepaid expenses.......................... (2,039,000) (324,000) (529,000)
Liabilities not related to financing
activities............................. 11,646,000 (1,290,000) (2,251,000)
Liquidation reserve....................... 5,398,000 0 0
Other assets.............................. 2,564,000 526,000 (611,000)
--------------- ------------- -------------
Cash flow provided (used) by continuing
operations:............................... (2,373,000) (690,000) 6,959,000
Cash flow used by discontinued operations... 0 (100,000) 0
--------------- ------------- -------------
Net cash provided (used) by operating
activities................................ $ (2,373,000) $ (790,000) $ 6,959,000
--------------- ------------- -------------
Cash flows from investing activities:
Acquisition of property, plant and
equipment,net.......................... (16,251,000) (6,482,000) (5,488,000)
Acquisition of businesses, less cash
acquired............................... 0 (2,800,000) (8,757,000)
Proceeds from disposal of assets.......... 9,141,000 0 0
Other investments......................... 159,000 (4,715,000) (894,000)
--------------- ------------- -------------
Net cash used in investing activities....... (6,951,000) (13,997,000) (15,139,000)
--------------- ------------- -------------
Cash flows from financing activities:
Debt proceeds............................. 1,286,500,000 723,489,000 496,034,000
Debt repayments........................... (1,270,987,000) (705,938,000) (488,361,000)
Dividends paid............................ (2,351,000) (2,353,000) (2,325,000)
Purchase of treasury stock................ (120,000) (1,183,000) (770,000)
Other equity changes...................... 577,000 381,000 1,279,000
--------------- ------------- -------------
Net cash provided by financing activities... 13,619,000 14,396,000 5,857,000
--------------- ------------- -------------
Net increase (decrease) in cash and
equivalents............................... 4,295,000 (391,000) (2,323,000)
Cash and cash equivalents at beginning of
year...................................... 3,223,000 3,614,000 5,937,000
--------------- ------------- -------------
Cash and cash equivalents at end of year.... $ 7,518,000 $ 3,223,000 $ 3,614,000
============== ============ ============
Supplemental Disclosures:
Cash paid during the year for:
Interest.................................. $ 2,160,000 $ 1,521,000 $ 1,061,000
Income taxes.............................. 291,000 1,762,000 755,000
Non-cash investing and financing activities:
Acquisition of businesses:
Fair value of assets...................... 0 5,281,000 18,272,000
Stock issued for acquisitions............. 0 166,000 4,848,000
Cash paid................................. 0 2,800,000 9,065,000
--------------- ------------- -------------
Liabilities assumed....................... $ 0 $ 2,315,000 $ 4,359,000
============== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 100
BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Bird Corporation and its majority-owned subsidiaries (the Company). All material
intercompany activity has been eliminated from the financial statements.
Investments in less than majority-owned companies are accounted for by the
equity method. Certain prior year amounts have been reclassified to conform with
the 1993 presentation.
REVENUE RECOGNITION
The Company recognizes revenue when products are shipped or services are
performed.
STATEMENT OF CASH FLOWS
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined
for a large portion of the inventories by the last-in, first-out (LIFO) method
computed using the dollar value method for natural business unit pools. The cost
of the remaining inventories is determined generally on a first-in, first-out
(FIFO) basis.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation has been
provided in the financial statements primarily on the straight-line method at
rates, based on reasonable estimates of useful lives, which fall within the
following ranges for major asset classifications:
<TABLE>
<S> <C>
Land improvements..................................... 10 to 20 years
Buildings............................................. 20 to 40 years
Machinery and equipment............................... 5 to 20 years
</TABLE>
Maintenance, repairs and minor renewals are charged to earnings in the year
in which the expense is incurred. Additions, improvements and major renewals are
capitalized. The cost of assets retired or sold, together with the related
accumulated depreciation, are removed from the accounts, and any gain or loss on
disposition is credited or charged to earnings. The Company capitalizes interest
cost on construction projects while in progress. The capitalized interest is
recorded as part of the asset to which it is related and is amortized over the
asset's estimated useful life.
RETIREMENT PLANS
The Company has a defined contribution plan covering substantially all
eligible non-union salaried and non-union hourly employees. Annual contributions
are made to the plan based on rates identified in the plan agreement.
INCOME TAXES
The Company changed its method of accounting for income taxes from the
liability method under Statement of Financial Accounting Standards No. 96 to the
asset and liability method required by Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("FAS 109"), effective January
1, 1993. As permitted under the new rules, prior years' financial statements
have not been restated. FAS 109
F-9
<PAGE> 101
BIRD CORPORATION AND SUBSIDIARIES -- (CONTINUED)
requires the recognition of deferred taxes for the difference between financial
statement and tax basis of assets and liabilities utilizing current tax rates.
Additionally, FAS 109 allows the recognition of a deferred tax asset for the
estimated future tax effect attributable to carryforwards.
EARNINGS (LOSS) PER COMMON SHARE
Primary earnings (loss) per common share are determined after deducting the
dividend requirements of the preferred and preference shares and are based on
the weighted average number of common shares outstanding during each period
increased by the effect of dilutive stock options. Fully diluted earnings (loss)
per common share also give effect to the reduction in earnings per share, if
any, which would result from the conversion of the $1.85 cumulative convertible
preference stock at the beginning of each period if the effect is dilutive.
ENVIRONMENTAL MATTERS
The Company records a liability for environmental matters when it is
probable that a liability has been incurred and the amount of the liability can
be reasonably estimated based on the available evidence and site assessments. If
an amount is likely to fall within a range and no amount within that range can
be determined to be the better estimate, the minimum amount of the range is
recorded. In addition, the liability excludes claims for recoveries from
insurance companies and other third parties until such claims for recoveries are
probable of realization at which point they would be classified separately as a
receivable.
WARRANTY COSTS
The Company warrants under certain circumstances that its building material
products meet certain manufacturing and material specifications. The warranty
policy is unique to each product, ranges from twenty to forty years, is
generally for the material cost and requires the owner to meet specific criteria
such as proof of purchase. The Company offers the original manufacturer's
warranty only as part of the original sale and at no additional cost to the
customer. In addition, for marketing considerations, the Company makes elective
settlements in response to customer complaints. The Company records the
liability for warranty claims and elective customer settlements when it
determines that a specific liability exists or a payment will be made.
2. INVENTORIES
The percentages of inventories valued on the LIFO method were 47% and 54%
at December 31, 1993 and 1992, respectively. It is not practical to separate
LIFO inventories by raw materials and finished goods components; however, the
following table presents these components on a current cost basis with the LIFO
reserve shown as a reduction.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1993 1992
----------- -----------
<S> <C> <C>
Current costs:
Raw materials........................................... $ 3,541,000 $ 5,470,000
Finished goods.......................................... 20,297,000 21,813,000
----------- -----------
23,838,000 27,283,000
Less LIFO reserve....................................... 1,681,000 581,000
----------- -----------
$22,157,000 $26,702,000
========== ==========
</TABLE>
F-10
<PAGE> 102
BIRD CORPORATION AND SUBSIDIARIES -- (CONTINUED)
Inventories, classified by business segment (see Note 13), were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1993 1992
----------- -----------
<S> <C> <C>
Housing Group............................................. $21,788,000 $25,628,000
Environmental Systems..................................... 369,000 1,074,000
----------- -----------
$22,157,000 $26,702,000
========== ==========
</TABLE>
3. DEBT
At December 31, the Company's borrowings and debt obligations are
summarized as follows:
<TABLE>
<CAPTION>
1993 1992
----------- -----------
<S> <C> <C>
Long Term Debt:
Revolving Credit Agreement.............................. $44,000,000 $27,500,000
Notes payable........................................... 56,000 91,000
Obligations under capital leases........................ 2,471,000 3,824,000
----------- -----------
46,527,000 31,415,000
Less -- portion due within one year.................. 3,400,000 1,041,000
----------- -----------
$43,127,000 $30,374,000
========== ==========
</TABLE>
On June 29, 1992 the Company and its lending banks entered into the Second
Amended Credit Agreement which provided the Company $50 million credit line
until June 1995.
The Second Amended Credit Agreement contains financial and operating
covenants which, among other things, require the Company to maintain prescribed
levels of pre-tax earnings, net worth, ratios of debt to net worth and ratios of
current assets to current liabilities. There are also restrictions on
indebtedness, liens, investments, acquisitions, dispositions, mergers, and the
payment of dividends. As of September 30, 1993, covenants regarding the ratio of
adjusted earnings before interest and taxes to total interest expense, maximum
permitted capital expenditures and investments by the Company in Kensington had
been breached. As a result of these defaults in the Second Amended Agreement,
the related debt was classified as current on the September 30, 1993 balance
sheet. The banks consented to payment of the dividend payable on November 15,
1993 to holders of the Company's $1.85 cumulative convertible preference stock.
On February 14, 1994, the Company's lending banks agreed to forbear from
exercising their rights and remedies under the Second Amended Credit Agreement
and continue to extend credit through March 15, 1994. For this period of time
certain default criteria were specified and the Company agreed to collateralize
the loan with the accounts receivable of its roofing distribution companies.
During this forbearance period any loans by the Company bore interest of base
rate plus one and one half percent (1 1/2%) or a total of 7 1/2%.
On March 4, 1994 the banks and the Company amended the Second Amended
Credit Agreement by the execution of the Third Amended Credit Agreement to allow
the Company to borrow up to $65 million until January 31, 1996. The loan, which
is secured by substantially all of the Company's assets, is defined as a $40
million revolving credit line for working capital and letters of credit and a
$25 million term loan for general corporate purposes. The revolving credit
availability is determined with reference to a percentage, as defined by the
Third Amended Credit Agreement, of accounts receivable and inventory which are
pledged to the banks. The term loan must be reduced by $2.6 million on October
31, 1994, by $11.2 million on April 30, 1995 and by $11.2 million on January 31,
1996.
Repayment may also be required from excess proceeds from asset sales
(calculated as the amount remaining after net asset sale proceeds are used to
reduce revolving credit loans to less than borrowing base availability with
borrowing base availability being calculated after the effect of such an asset
sale). The
F-11
<PAGE> 103
BIRD CORPORATION AND SUBSIDIARIES -- (CONTINUED)
difference of excess proceeds and the reductions as described in the paragraph
above shall be applied to the term loan in inverse order of maturity. The term
loan may also be required to be reduced on any other date by the amount (if any)
by which the term loan exceeds 70% of the fair market value of all of the
Company's fixed assets.
The Company believes these terms are adequate to allow for the ongoing
restructuring to be completed. Interest on the revolving credit portion of the
Third Amended Credit Agreement will be base rate (as specified on such
agreement) plus 1% on all borrowings plus 1/2% on any unused portion. The
interest on the term portion accrued at the base rate plus 2%. A restructuring
fee of $200,000 on the revolving portion of the loan and $250,000 on the term
loan is to be paid in eight equal quarterly installments. Additional fees
associated with the debt refinancing paid at closing will be amortized pro rata
over the period of the loan agreement. In the event the revolving credit and
term loan are repaid prior to maturity, any remaining installments of the fee
will be paid at that time.
The Third Amended Credit Agreement allows for up to $5,000,000 in letters
of credit. Current outstanding letters of credit approximate $2,761,000 compared
to $3,792,000 in December 1992.
Average interest rates, the interest rate at December 31 and the average
and maximum borrowings in thousands of dollars for the three years ended
December 31, 1993, 1992 and 1991 under the Company's Revolving Credit
Agreements, are shown below:
<TABLE>
<CAPTION>
1993 1992 1991
-------------- --------------- ---------------
<S> <C> <C> <C>
Interest rates:
Average during period................... 4.92% 4.49% 6.67%
At December 31.......................... $44,000 @ 10% $9,000 @ 4.06% $7,000 @ 5.56%
$2,500 @ 4.75% $2,000 @ 5.75%
$8,000 @ 4.09%
$8,000 @ 4.20%
Average borrowings...................... $38,439 $22,966 $8,094
Maximum borrowings...................... $44,000 $33,500 $16,200
</TABLE>
The Company has indemnified an advanced payment bond of approximately $3.5
million for a business owned by a minority shareholder of the Company's fixed
site facility in San Leon, Texas.
The Company has capital lease obligations (see Note 13) with payments that
extend to 1998 at interest rates which vary between 3.9% and 9.8% per annum. The
principal balance of these obligations amounted to $2,471,000 and $3,824,000 at
December 31, 1993 and 1992, respectively.
F-12
<PAGE> 104
BIRD CORPORATION AND SUBSIDIARIES -- (CONTINUED)
Maturities of long-term debt for each of the five years subsequent to
December 31, 1993 are as follows: 1994 -- $3,383,000; 1995 -- $11,858,000;
1996 -- $30,604,000; 1997 -- $403,000; 1998 -- $260,000. The Company incurred
net interest expense of $2,472,000 in 1993 (net of $345,000 capitalized
interest), $1,506,000 in 1992, and $1,026,000 in 1991.
4. INCOME TAXES
Earnings(loss) from continuing operations before income taxes and the
provision(benefit) for income taxes are shown below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1993 1992 1991
----------- ---------- ----------
<S> <C> <C> <C>
Earnings(loss) from continuing operations before
income taxes:
Domestic............................................ $(5,278,000) $6,533,000 $5,926,000
Foreign............................................. 0 0 0
----------- ---------- ----------
$(5,278,000) $6,533,000 $5,926,000
========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1993 1992 1991
----------- ---------- --------
<S> <C> <C> <C>
Provision (benefit) for continuing operations:
Domestic:
Currently payable.................................... $ 765,000 $1,544,000 $489,000
Deferred............................................. (1,402,000) (675,000) 9,000
----------- ---------- --------
$ (637,000) $ 869,000 $498,000
========== ========= ========
</TABLE>
The total provision (benefit) for income taxes varied from the U.S. federal
statutory rate for the following reasons:
<TABLE>
<CAPTION>
1993 1992 1991
----- ----- -----
<S> <C> <C> <C>
Continuing operations:
U.S. federal statutory rate........................................ (34.0)% 34.0% 34.0%
State income taxes................................................. 0.6 3.0 2.3
Alternative minimum tax............................................ 0.0 0.0 1.4
Utilization of NOL carryforward.................................... 0.0 (19.3) (28.9)
Valuation reserve.................................................. 22.3 0.0 0.0
Other.............................................................. (1.0) (4.4) (.4)
----- ----- -----
(12.1)% 13.3% 8.4%
===== ===== =====
</TABLE>
The provision (benefit) for income taxes related to discontinued operations
amounted to ($304,000), $621,000 and $77,000 for 1993, 1992 and 1991,
respectively.
F-13
<PAGE> 105
BIRD CORPORATION AND SUBSIDIARIES -- (CONTINUED)
The deferred income tax asset recorded in the consolidated balance sheet
results from differences between financial statement and tax reporting of income
and deductions. A summary of the composition of the deferred income tax asset at
December 31, 1993 is as follows:
<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
Deferred tax assets:
Bad debt reserves.......................................... $ 1,150
Compensation/pension accruals.............................. 1,683
Inventory valuation accounts............................... 675
Reserves for liquidation & restructuring................... 5,109
Net operating loss......................................... 5,349
Investment tax credit...................................... 1,233
Minimum tax credit......................................... 1,091
Other reserves & accruals.................................. 597
--------------
Total deferred tax assets............................... $ 16,887
--------------
Deferred tax liabilities:
Depreciation............................................... (2,219)
Corporate owned life insurance............................. (470)
--------------
Total deferred tax liabilities.......................... (2,689)
--------------
Net deferred tax asset before valuation reserve.............. 14,198
Less: Valuation reserve...................................... (9,000)
--------------
Net deferred tax asset....................................... $ 5,198
=============
</TABLE>
The Company has available for federal income tax purposes unused net
operating loss and investment tax credit carryforwards, which may provide future
tax benefits, expiring as follows:
<TABLE>
<CAPTION>
YEAR OF NET INVESTMENT
EXPIRATION OPERATING LOSS TAX CREDIT
----------------------------------------------- -------------- -----------
<S> <C> <C>
1996........................................... $ 0 $ 97,000
1997........................................... 0 317,000
1998........................................... 0 135,000
1999........................................... 0 212,000
2000........................................... 0 297,000
2001........................................... 0 175,000
2002........................................... 138,000 0
2008........................................... 15,140,000 0
-------------- -----------
$ 15,278,000 $ 1,233,000
=========== ==========
</TABLE>
Additionally, for federal income tax purposes, at December 31, 1993 the
Company had available for carryforward minimum tax credits aggregating
$1,091,000. If certain substantial changes in the Company's ownership should
occur, there would be an annual limitation on the amounts of the carryforward
which can be utilized.
The Company adopted FAS 109 in 1993 and has recorded the cumulative effect
of the change in accounting principle of approximately $2.7 million as a benefit
in the results of operations for the first quarter of 1993. This accounting
change also requires the booking of a valuation reserve if it is more likely
than not that the Company may not be able to realize the benefits of recorded
deferred tax assets. At December 31, 1993 the company recorded a net deferred
tax asset of approximately $14.2 million and a valuation reserve of
F-14
<PAGE> 106
BIRD CORPORATION AND SUBSIDIARIES -- (CONTINUED)
$9.0 million. As required under FAS 109, this valuation reserve was determined
based upon the Company's review of all available evidence including projections
of future taxable income. The Company expects the Housing Group to remain
profitable and to be a significant contributor of future taxable income. In
addition, the net deferred tax asset includes $1.1 million of minimum tax
credits which do not expire. The Company has announced the closing of the
majority of the environmental business. This segment of the Company was the main
cause of recent poor earnings performance. As the effects of this action and
other cost cutting measures produce favorable results, the deferred tax asset
and related valuation reserve will be reviewed.
5. STOCKHOLDERS' EQUITY
The $1.85 cumulative convertible preference stock is redeemable, in whole
or in part, at the option of the Company, at a redemption price of $20.00 per
share on and after May 15, 1993. The convertible preference stock has a
liquidation value of $20 per share and is convertible at the option of the
holder into common stock of the Company at a conversion price of $22.25 per
share, subject to adjustment in certain events. Dividends are cumulative from
the date of issue and are payable quarterly. Dividends have been paid through
the quarterly payment due on November 15, 1993. The Company's 5% cumulative
preferred stock ranks senior to the convertible preference stock as to dividends
and upon liquidation.
On June 18, 1992 the Company announced that its Board of Directors
authorized it to buy back, on the open market or in privately negotiated
transactions, up to 400,000 of its outstanding shares of common stock at prices
available from time to time that the Company deems attractive. Since this
announcement the Company has repurchased 92,007 shares in 1992 and 5,364 shares
in 1993.
Under the 1992 stock option plan described in Note 6, 1,078,195 shares of
common stock are reserved for issuance upon exercise of options and stock
appreciation rights.
Under the terms of the Third Amended Agreement described in Note 3, annual
cash dividends on the Company's preference stock are limited to $1,550,000.
Redemptions of preference stock are prohibited without the banks' consent. Cash
dividends and redemptions with respect to the Company's 5% cumulative preferred
stock are limited to $350,000 annually in the aggregate. The Company has
suspended declaring dividends on all classes of stock. At December 31, 1993,
dividends in arrears for the preferred and preference stock amounted to
$377,000.
6. EMPLOYEE BENEFIT PLANS
RETIREMENT PLANS
The Company's "Bird Employees' Savings and Profit Sharing Plan" provides
for a defined base contribution and profit sharing and savings contributions.
DEFINED BASE CONTRIBUTION
The Company contributes annually 2-7% of plan participants' basic
compensation depending upon their age and employment status as of December 31,
1984. Vesting accrues at 20% per year of service. Contributions for continuing
operations for the years ended December 31, 1993, 1992, and 1991 amounted to
$352,000, $329,000, and $314,000, respectively.
PROFIT SHARING CONTRIBUTION
Profit sharing contributions are made annually, if earned, based upon
certain defined levels of return on equity by the Company and its business
units. The distribution of the contribution to the plan's participants is based
upon annual basic compensation. Contributions for continuing operations for the
years ended December 31, 1993, 1992, and 1991 amounted to $145,000, $148,000,
and $151,000, respectively.
F-15
<PAGE> 107
BIRD CORPORATION AND SUBSIDIARIES -- (CONTINUED)
SAVINGS CONTRIBUTION
The Company's savings plan provides that eligible employees may contribute
to the plan any whole percentage of their basic compensation varying from 2 to
15%. The Company may make discretionary matching contributions not exceeding 6%
of the participant's basic compensation during the plan year. Such matching
Company contributions are invested in shares of the Company's common stock. The
Company's contributions for continuing operations for the years ended December
31, 1993, 1992, and 1991 amounted to $155,000, $141,000, and $121,000,
respectively.
POST RETIREMENT BENEFITS
Certain health care and life insurance benefits are provided for
substantially all of the Company's retired employees, except those covered under
union plans. Benefits are provided by the payment of premiums for life insurance
benefits and the reimbursement for eligible employees of a portion of their
health care premiums. The Company's cost for the years 1993, 1992, and 1991
amounted to $71,000, $71,000, and $102,000, respectively.
In December 1990, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("FAS 106"). This statement
establishes accounting standards principally for employers' accounting for
postretirement health care and life insurance benefits. It requires the accrual
of the expected cost of providing those benefits during the period that employee
services are rendered. The Company adopted FAS 106 effective January 1, 1993.
Adoption of the new statement did not materially effect the Company's financial
position or results of operations.
EMPLOYEE INCENTIVE PLANS
Under the 1982 Stock Option Plan, as amended, options to purchase shares of
the Company's common stock may be granted to officers, directors and key
employees upon terms and conditions determined by a committee of the Board of
Directors which administers the plan. The 1989 amendment increased from 700,000
to 900,000 the aggregate number of shares available for grant under the plan. In
1993 the Company adopted a new stock option plan which allows the issuance of up
to 450,000 stock options in addition to the unissued shares approved for
issuance under the 1982 plan. The new plan will expire in 2002 and no further
options will be granted under the former plan. A Non-Employee Directors' Stock
Option Plan was also adopted in 1993 which will automatically provide grants of
options to each non-employee director serving on the Board of Directors at the
time of such grant. Each annual grant will cover 2,500 shares of common stock
and any recipient may not receive option grants exceeding a total of 30,000
shares. An aggregate of 100,000 shares of common stock will be available for
grants under the Non-Employee Directors' Stock Option Plan.
Options granted by the committee may be designated as either incentive
stock options, as defined under the current tax laws, or non-qualified options.
The committee may also grant stock appreciation rights, either singly or in
tandem with stock options. A right entitles the holder to benefit from market
appreciation in the Company's common stock subject to the right between the date
of the grant and the date of exercise without any payment on the part of the
holder. Upon exercise of a right, the holder surrenders the option and receives
an amount of common stock (or, at the election of the committee, cash) equal in
value to the amount of such appreciation.
The exercise price of option specified by the committee must be at least
100% of the fair market value of the Company's common stock as of the date of
grant. All options and rights granted become exercisable at the rate of 20 to
25% per year, on a cumulative basis, beginning with the first anniversary of the
date of grant for options granted under the Stock Option Plan and in full one
year after grant for option granted under the Non-Employee Directors' Stock
Option Plan. In case of termination of employment, options and grants vested,
but
F-16
<PAGE> 108
BIRD CORPORATION AND SUBSIDIARIES -- (CONTINUED)
not yet exercised, are subject to forfeiture under the Stock Option Plan and
exercisable up to 90 days after termination for the Non-Employee Directors'
Stock Option Plan.
<TABLE>
Transactions involving the Stock Option Plan are summarized as follows for
the years ended December 31, 1991, 1992 and 1993:
<CAPTION>
STOCK OPTIONS
-------------
<S> <C>
Outstanding January 1, 1991 ($5.00 to $18.875 per share)........................ 479,270
Granted ($12.25 to $15.00 per share)............................................ 70,500
Exercised ($5.00 to $13.00 per share)........................................... (135,340)
Canceled ($5.00 to $18.875 per share)........................................... (2,900)
---------
Outstanding December 31, 1991 ($5.00 to $18.875 per share)...................... 411,530
=========
Outstanding January 1, 1992 ($5.00 to $18.875 per share)........................ 411,530
Granted ($12.50 to $17.50 per share)............................................ 20,500
Exercised ($5.50 to $11.50 per share)........................................... (24,250)
Canceled ($11.50 per share)..................................................... (1,800)
---------
Outstanding December 31, 1992 ($5.00 to $18.875 per share)...................... 405,980
=========
Outstanding January 1, 1993 ($5.00 to $18.875 per share)........................ 405,980
Granted ($8.375 to $12.625 per share)........................................... 419,500
Exercised ($6.50 to $11.125 per share).......................................... (5,080)
Canceled ($8.875 to $18.875 per share).......................................... (21,600)
---------
Outstanding December 31, 1993 ($5.00 to $17.50 per share)....................... 798,800
=========
Exercisable December 31, 1993 ($5.00 to $17.50 per share)....................... 360,100
Shares available for granting options:
January 1, 1993............................................................... 127,295
December 31, 1993............................................................. 279,395
</TABLE>
In tandem with the stock options there are 147,820 stock appreciation
rights at December 31, 1993.
LONG TERM INCENTIVE COMPENSATION
Under the terms of a Long Term Incentive Compensation Plan, certain
officers and key management employees shall receive common stock of the Company
on a restricted time lapse grant basis. At December 31, 1993, 219,375 shares of
the Company's common stock had been issued from treasury stock and are being
held in escrow by the Company. These shares are released from escrow and
delivered to the plan's participants when and if the market price of the
Company's common stock has achieved certain designated levels between $12 and
$24 per share for 30 consecutive days prior to June 28, 1994 or in any event if
the participant has remained in the continuous employ of the Company through
June 2003. Certain market prices were achieved and maintained for the required
30-day period during 1993, 1992, and 1991. Therefore, 45,630, 54,405, and 31,590
shares of the Company's common stock were released in June of 1993, 1992, and
1991, respectively, to the plan's participants.
Amortization of unearned compensation under this agreement for the years
1993, 1992, and 1991 amounted to $595,000, $396,000 and $253,000, respectively.
The unamortized value of the shares granted is shown in the accompanying balance
sheet as unearned compensation.
F-17
<PAGE> 109
BIRD CORPORATION AND SUBSIDIARIES -- (CONTINUED)
7. DISCONTINUED BUSINESS ACTIVITIES
The Company records income and expenses associated with former business
activities on the Consolidated Statement of Operations under the caption
"Discontinued Business Activities". The Company recorded expenses related to
discontinued business activities of $268,000, $178,000, and $189,000 for the
years 1993, 1992, and 1991, respectively. These charges against earnings include
warranty claims and other costs directly related to discontinued business
activities.
8. OTHER INCOME AND EXPENSE
Other expense was $3.3 million in 1993 compared to other income of $.2
million in 1992. A series of non-recurring items developed at the end of 1993
that required a number of charges to 1993 results of operations. The majority of
these are outlined in the following paragraphs:
Accounting requirements associated with the responsible parties on an
environmental cleanup require the Company to maintain a reserve sufficient
enough to absorb the full cost of the Company's portion of the cleanup. Based on
recent site assessments, the Company increased the cleanup reserve by $500,000
based on the Company's estimated share of the proportionate costs.
The Company was previously considering the development of real property
which, as a result of the recent cash and bank situation, no further development
is possible. Based on the estimated net realizable value of the property, the
Company wrote-off its $1.3 million investment. To satisfy the remaining portion
of an outstanding receivable, the Company previously accepted a $1.3 million
note, collateralized by a secondary interest in a mortgage portfolio. A recent
assessment of the portfolio and the bankruptcy of the debtor, indicated the note
to be of no value, therefore it was written off.
The recent termination of the former Chief Executive Officer of the Company
resulted in a $850,000 reserve to cover a cash settlement under the employment
agreement amounting to $776,190 and health insurance premiums until 1997 when he
will be 65 years of age.
The remainder of "Other (Income)/Expense" is comprised of other
miscellaneous adjustments of a more normal nature and income of approximately
$1.3 million from a settlement with an insurance provider relating to product
liability claims.
9. DISCONTINUED OPERATIONS
Environmental Businesses
On June 18, 1994, the Company agreed to sell its interest in BEGCI, the
"off-site" business, to the minority shareholders on or before February 28,
1995, subject to financing, resulting in a write-down of approximately $9
million to its estimated net realizable value. The accompanying consolidated
financial statements do not reflect any such adjustment to the recorded
investment in this facility. This agreement represented the complete withdrawal
from the environmental business by the Company. Accordingly, the operating
results, for all years presented, relating to the environmental businesses have
been recorded as discontinued operations. Net sales relating to these
environmental businesses amounted to $24,681,000, $31,334,000 and $14,328,000
for 1993, 1992 and 1991, respectively.
Additionally, in 1993 the Company decided to close the "on-site"
environmental remediation business. This business involved environmental
remediation projects such as the processing of oily waste sites at a refinery,
operations and management of waste processing sites and the removal and
remediation of sludge. The contracts with customers are generally fixed price
and usually for periods less than one year. As a result of the decision to exit,
the Company recorded a provision totaling approximately $11 million. Included in
this provision is a $5.8 million write-down of certain assets to net realizable
value, $2.1 million for certain contracts including any additional amounts due
to stipulated buyouts, $635,000 for severance-related payments, $740,000 for
inventory and other assets, $1 million for the write-off of intangible assets
and $700,000 for other
F-18
<PAGE> 110
BIRD CORPORATION AND SUBSIDIARIES -- (CONTINUED)
expenses due to lease buyouts, fees and other general expenses. The Company is
not accepting any new contracts and expects the phase-out period to end by July
31, 1994.
Included in the 1993 environmental results is a restructuring reserve of $2
million relating primarily to the east coast environmental business. Included in
this provision is $300,000 for severance and benefit payments, $700,000 for
lease buyouts, $650,000 for expected losses on exiting certain contracts, and
$350,000 of other costs. This charge was offset by a $858,000 gain on the sale
of the municipal sludge business. These amounts, including the operating
results, are recorded as discontinued operations.
The $1,150,000 restructuring reserve established in 1992 included $400,000
for severance payments, $150,000 for office closure, $100,000 for relocations,
and $500,000 for other expenses. This reserve is primarily related to the
consolidation of the environmental business. This amount, including the
operating results of the environmental businesses, is recorded as discontinued
operations. In addition, included in the 1991 loss from discontinued operations
is $315,000 (after-tax) relating to the operations of the environmental
businesses.
Bird Machine Company
In 1991, the Company was a co-defendant in an action brought by TRW, Inc.
seeking damages in connection with the alleged non-performance of ten industrial
centrifuges purchased from the former subsidiary, Bird Machine Company, Inc. The
cost associated with the defense of this case amounting to $564,000 has been
included in the consolidated statement of operations as a loss from discontinued
operations in 1991. On April 24, 1992, the court dismissed the Company from the
lawsuit by granting the Company's motion for a directed verdict.
10. ACQUISITIONS
In January 1991, the Company acquired a minority interest in Mid-South
Building Supply, Inc., a distributor of building materials products, for cash.
This investment has been accounted for under the equity method and the Company's
share of its results of operations since the date of acquisition are included in
the Consolidated Financial Statements. In September 1991, the Company also
acquired the assets and operations of Barnstable County Supply Co., a
distributor of building materials products, for shares of Bird Corporation's
common stock. This acquisition has been accounted for as a purchase and the net
assets and results of operations since the date of acquisition are included in
the Consolidated Financial Statements. The cost of the acquired business in the
year acquired was not material to the financial condition of the Company and had
the acquisition occurred at the beginning of that year, the results of
operations would not have been materially affected.
In March of 1992, the Company acquired certain assets of a Connecticut
distributor of building materials products. The cost of this acquisition was not
material to the financial condition of the Company. This acquisition, with
Atlantic Building Products Corporation of Vermont and Massachusetts, provides
the Company with the capacity for captive distribution of its housing products
in certain markets throughout the Northeast.
On July 1, 1992 the Company entered into a 50% joint venture with
Kensington Manufacturing Company, to manufacturer vinyl replacement windows
through Kensington Partners ("Kensington"). The Company's portion of the joint
venture results have been reported using the equity method. In 1993, Kensington
accepted significant contracts which provided an immediate impact of new orders.
Additionally, Kensington greatly improved the design of its windows by
introducing a new manufacturing process. The combination of the rapid increase
of business and manufacturing changes caused unusual delays in meeting customer
needs and therefore sales and profits were negatively impacted. As a result,
Kensington experienced serious cash needs which further hampered production
requirements. On January 25, 1994 the bank servicing the Kensington loan gave
notice that Kensington had breached certain financial covenants. Subsequently,
the financing bank agreed to forbear from exercising their rights and remedies
under the loan agreement until
F-19
<PAGE> 111
BIRD CORPORATION AND SUBSIDIARIES -- (CONTINUED)
April 30, 1994. Primarily as a result of the recent loss and this financing
situation, Kensington's independent accountants have issued a "going concern"
opinion at December 31, 1993. After negotiating with its partner, Bird
Corporation agreed to invest additional cash in return for temporarily
increasing ownership in Kensington to 90%. The terms of the new agreement (which
expires on December 31, 2012) allow Kensington to return to an equal partnership
if, before the later of December 31, 1994 or six months following the Company's
last investment, its partner can match the additional investment made by the
Company. Under the terms of the Kensington Partnership Agreement, a Management
Committee was established to oversee the operations of the partnership. The
agreement required, among other things, unanimous approval of the Management
Committee for the following: (a) any distributions; (b) the incurrence of any
indebtedness; (c) the creation of any form of encumbrance; (d) the adoption or
modification of the partnership's annual plan and operating budget; and (e) any
transaction requiring expenditures in excess of $15,000 and not contemplated in
or provided for in the annual business plan or operating budget. Each partner is
entitled to name two of the five members of the Management Committee with the
fifth member being the President of Kensington. Significant operating decisions
require unanimous approval as noted above. Approval from both partners was
required to hire the President of Kensington. Accordingly, the Company does not
possess unilateral control and, as a result, the partnership is accounted for on
the equity method. The new management committee formed by the partners has been
established to oversee the turnaround of the partnership's operations. Also, the
partners hired a new management team to run the partnership and report to the
management committee.
<TABLE>
The following table represents summarized financial information for
Kensington Partners. The 1992 numbers represent six months.
<CAPTION>
DECEMBER DECEMBER
1993 1992
------- ------
(000) OMITTED
<S> <C> <C>
Current assets........................................ $ 7,101 $5,035
Property and Equipment................................ 2,870 2,453
Other Assets.......................................... 1,377 321
------- ------
Total Assets................................ $11,348 $7,809
======= ======
Current Liabilities................................... $10,072 $3,209
Other Liabilities..................................... 1,471 146
------- ------
Total Liabilities........................... $11,543 $3,355
======= ======
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
-----------------------
1993 1992
------- -------
<S> <C> <C>
Net Sales.......................................... $21,255 $10,199
Gross Profit....................................... 1,469 2,252
Net Loss........................................... (5,249) (36)
</TABLE>
The Company recorded fifty percent of the loss from operations under the
equity method which is shown separately on the consolidated statement of
operations. The Company's investment in Kensington is $666,000 at December 31,
1993 which represents cost in excess of acquired assets and is being amortized
over the term of the current partnership agreement. In 1994, the Company
increased its investment by contributing capital of $750,000 and by
collateralizing $750,000 through a deposit in Kensington's bank. In September
1993, the Company also co-guaranteed a $2,500,000 line of credit and a $1.3
million capital lease. Accordingly, any default by Kensington will cause a
default on the Company's credit agreement with its banks.
In September of 1992, the Company foreclosed on a security interest held by
it on collateral provided by a distributor of building material products serving
Long Island, New York. The Company now operates that business under the name of
New York Building Products, as part of its distribution business.
F-20
<PAGE> 112
BIRD CORPORATION AND SUBSIDIARIES -- (CONTINUED)
<TABLE>
11. ADDITIONAL FINANCIAL INFORMATION
The following table sets forth additional financial information from
continuing operations:
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Maintenance and Repairs........................ $5,530,000 $5,063,000 $4,401,000
Depreciation of Property, Plant and
Equipment.................................... $3,757,000 $3,600,000 $3,292,000
Advertising.................................... $1,230,000 $1,051,000 $1,037,000
</TABLE>
Amortization of intangible assets, pre-operating costs and similar
deferrals, taxes other than payroll and income taxes, royalties and research and
development expenses were less than 1% of net sales.
<TABLE>
The following items included in the consolidated balance sheet under the
caption "Accounts Payable and Accrued Expenses" amounted to 5% or more of the
total of current liabilities caption at December 31, 1993 and 1992.
<CAPTION>
1993 1992
----------- -----------
<S> <C> <C>
Accounts payable.......................................... $11,186,000 $ 7,771,000
Remuneration and related items............................ $ 1,095,000 $ 2,087,000
Accrued expenses.......................................... $ 9,346,000 $ 6,595,000
Reserve for environmental contract loss................... $ 4,750,000 $ 0
----------- -----------
$26,377,000 $16,453,000
=========== ===========
</TABLE>
The Company warrants under certain circumstances that its Housing Group's
products meet certain manufacturing and material specifications. In addition,
for marketing considerations, the Company makes elective settlements in response
to customer complaints. The Company records the liability for warranty claims
and elective customer settlements when it determines that a specific liability
exists or a payment will be made. During 1993, 1992 and 1991, the Company
recorded (exclusive of those claims included in discontinued business
activities) approximately $3,196,000, $2,585,000, and $1,829,000 respectively,
in warranty expenses and elective customer settlements. The warranty related
expense included in discontinued business activities for 1993, 1992 and 1991
amounted to approximately $104,000, $93,000 and $62,000, respectively. Based
upon analyses performed by the Company's management together with an outside
consulting statistician, a reasonably possible range of potential liability from
unasserted warranty obligations for all products sold prior to December 31, 1993
is estimated to be between $3.3 million and $17.5 million. However, the Company
has not recorded any liability for these future unasserted claims or complaints
because management has concluded, based on such analyses, that no particular
estimate within this range is probable.
12. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company leases certain manufacturing, administrative, warehousing,
transportation equipment and other facilities. The leases generally provide that
the Company pay the taxes, insurance and maintenance expenses related to the
leased assets.
F-21
<PAGE> 113
BIRD CORPORATION AND SUBSIDIARIES -- (CONTINUED)
At December 31, 1993 minimum lease commitments under noncancelable
operating leases are as follows:
<TABLE>
<CAPTION>
YEAR REAL ESTATE EQUIPMENT TOTAL
--------------------------------------- ----------- ---------- ----------
<S> <C> <C> <C>
1994................................... $ 570,000 $2,490,000 $3,060,000
1995................................... 462,000 978,000 1,440,000
1996................................... 237,000 224,000 461,000
1997................................... 116,000 35,000 151,000
1998................................... 3,000 0 3,000
Later years............................ 43,000 0 43,000
----------- ---------- ----------
$ 1,431,000 $3,727,000 $5,158,000
========= ========= =========
</TABLE>
Total rental expense for continuing operations, exclusive of taxes,
insurance and other expenses paid by the lessee related to all operating leases
(including those with terms of less than one year) was as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
----------------------------------------------- ----------
<S> <C>
1993........................................... $3,202,000
1992........................................... $3,050,000
1991........................................... $3,204,000
</TABLE>
The following represents property under capital leases:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1993 1992
---------- ----------
<S> <C> <C>
Machinery and equipment............................. $5,090,000 $5,892,000
Less, accumulated depreciation...................... 1,742,000 1,566,000
---------- ----------
$3,348,000 $4,326,000
========= =========
</TABLE>
At December 31, 1993 minimum lease commitments under capital leases are as
follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
----------------------------------------------------------------- ----------
<S> <C>
1994............................................................. $ 916,000
1995............................................................. 752,000
1996............................................................. 465,000
1997............................................................. 437,000
1998............................................................. 235,000
----------
Total minimum lease payments..................................... 2,805,000
Imputed interest................................................. (334,000)
----------
Total future principal payments of lease obligations............. $2,471,000
=========
</TABLE>
LITIGATION
Since 1981, the Company has been named as a defendant in approximately 450
product liability cases throughout the United States by persons claiming to have
suffered asbestos-related diseases as a result of alleged exposure to asbestos
in products manufactured and sold by the Company. Approximately 140 of these
cases are currently pending and costs of approximately $1.4 million in the
aggregate have been incurred in the defense of these claims since 1981. The
Company's insurance provider has accepted the defense of these cases under an
agreement for sharing of the costs of defense, settlements and judgements, if
any. The anticipated resolution of the pending claims will not, in the opinion
of management, have a material impact on the Company's consolidated financial
position and results of operations.
F-22
<PAGE> 114
BIRD CORPORATION AND SUBSIDIARIES -- (CONTINUED)
In 1986, the Company, along with numerous other companies, was named by the
United States Environmental Protection Agency ("EPA") as a Potentially
Responsible Party ("PRP") under the Comprehensive Environmental Response,
Compensation, and Liability Act, as amended, 42 U.S.C. Paragraph 9601, et seq.
("CERCLA"), in connection with the existence of hazardous substances at a site
known as the Fulton Terminal Superfund site located in Fulton, Oswego County,
New York. On September 28, 1990 the Company and a number of other PRPs reached a
negotiated settlement with the EPA pursuant to which the settling PRPs agreed to
pay the costs of certain expenses in connection with the proceedings, and to pay
certain other expenses including the costs and expenses of administering a trust
fund to be established by the settling PRPs. The settlement agreement is
embodied in a consent decree lodged with the United States District Court for
the Western District of New York. The ultimate cost of the remedial work and
other expenses covered by the settlement agreement can only be estimated. The
Company has provided a reserve amounting to $920,000 at December 31, 1993 for
its estimated share of the ultimate cost of cleanup.
The Company has been named as a PRP with respect to certain other sites
which are being investigated by federal or state agencies responsible for
regulation of the environment. Status as a PRP means that the Company may be
jointly and severally liable for all of the potential monetary sanctions and
remediation costs applicable to each site. In assessing the potential liability
of the Company at each site, management has considered, among other things, the
aggregate potential cleanup costs of each site; the apparent involvement of the
Company at each site and its prospective share of the remediation costs
attributable thereto; the number of the PRPs identified with respect to each
site and their financial ability to contribute their proportionate shares of the
remediation costs for such site; the availability of insurance coverage for the
Company's involvement at each site and the likelihood that such coverage may be
contested; and whether and to what extent potential sources of contribution from
other PRPs or indemnification by insurance companies constitute reliable sources
of recovery for the Company. On the basis of such consideration, management has
determined that such environmental matters will not have a material affect on
the Company's financial position or results of operations. The Company has
provided an aggregate reserve amounting to $206,000 at December 31, 1993 for its
estimated share of the ultimate cost of cleanup for such claims excluding any
potential sources of indemnification or recovery from third parties.
In March 1994, the Company received a notice of violation from the Texas
Natural Resource Conservation Commission ("TNRCC"). The notice alleges that the
Company was not in compliance with regulations of the TNRCC relating to
labeling, permitting, storage and disposal of certain hazardous waste. The
notice proposes certain corrective action on the part of the Company as well as
payment of administrative penalties.
The Company is in the early stages of discussions with the TNRCC and,
accordingly, is unable to assess the nature and extent of any corrective action
which is likely to be required with respect thereto. Accordingly, such
administrative penalties can not be reasonably estimated at this point in time.
The Company is also exposed to a number of other asserted and unasserted
potential claims encountered in the normal course of business and unrelated to
environmental matters. In the opinion of management, the resolution of such
claims will not have a material adverse affect on the Company's financial
position or results of operations.
13. OPERATIONS IN DIFFERENT INDUSTRIES
The Company has had two business segments which it defined as the Housing
Group and the Environmental Group.
The Housing Group manufactures and markets residential and commercial
roofing products in the Northeastern United States, including a full line of
fiberglass based asphalt shingles and roll roofing. The Group also manufactures
vinyl siding, window profiles, trim and accessories which are distributed
nationwide. The Group operates distribution centers primarily in the
Southeastern and Southwestern markets for vinyl
F-23
<PAGE> 115
BIRD CORPORATION AND SUBSIDIARIES -- (CONTINUED)
siding and in the Arizona and Northeastern markets for roofing and other
building materials products. Until recently the Company's Environmental Group
provided recycling, remediation, and beneficial re-use services for applications
as diverse as food processing waste streams, oily waste recovery and the
treatment of municipal wastes. Generally, these on-site services recover
valuable constituents, remove wastes and reduce the volume of materials which
must be disposed of by other means. In December 1993, the Company decided to
close this portion of the environmental segment and dedicate this group to
operating BEGCI, the fixed site facility in Texas. As discussed in Note 9, the
company agreed to sell its interest in BEGCI to the minority shareholders.
Accordingly, due to the Company's exit from the environmental business in its
entirety, the results of operations have been recorded as discontinued
operations.
Net sales represent sales to unaffiliated customers. Identifiable assets
are those that are used in the Company's operations in each industry segment.
Corporate assets are principally cash investments and equivalents, certain notes
receivable and property maintained for general corporate purposes. As discussed
in Note 9, the results of operations for the environmental group for the three
years ended December 31, 1993 have been recorded as discontinued operations.
Accordingly, net sales, cost of sales and SG&A relating to this segment are not
shown below.
F-24
<PAGE> 116
BIRD CORPORATION AND SUBSIDIARIES -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1993 1992 1991
-------- -------- --------
(000 OMITTED)
----------------------------------
<S> <C> <C> <C>
HOUSING GROUP
Net Sales.................................................. $187,745 $164,202 $137,059
======== ======== ========
Cost of Sales.............................................. $151,664 $128,371 $107,226
======== ======== ========
S.G.& A.................................................... $ 25,746 $ 22,493 $ 17,417
======== ======== ========
Earnings (loss) from continuing operations before income
taxes:
Housing group operating income........................... $ 7,121 $ 13,338 $ 12,416
Other income............................................. 0 197 331
Other non-recurring income............................... 877 0 0
-------- -------- --------
7,998 13,535 12,747
Interest expense......................................... (2,472) (1,506) (1,026)
Other write offs......................................... (3,834) 0 0
Corporate office expenses................................ (6,970) (5,496) (5,795)
-------- -------- --------
$ (5,278) $ 6,533 $ 5,926
======== ======== ========
Identifiable assets:
Housing group............................................ $ 95,663 $ 79,568 $ 66,406
Environmental group...................................... 23,250 25,935 19,669
Corporate office......................................... 4,316 13,028 13,829
-------- -------- --------
$123,229 $118,531 $ 99,904
======== ======== ========
Depreciation:
Housing group............................................ $ 3,670 $ 3,488 $ 3,182
Environmental group...................................... 1,686 1,620 732
Corporate office......................................... 87 112 110
-------- -------- --------
$ 5,443 $ 5,220 $ 4,024
======== ======== ========
Capital expenditures:
Housing group............................................ $ 4,505 $ 3,683 $ 4,009
Environmental group...................................... 12,251 3,201 1,437
Corporate office......................................... 56 63 42
-------- -------- --------
$ 16,812 $ 6,947 $ 5,488
======== ======== ========
</TABLE>
F-25
<PAGE> 117
BIRD CORPORATION AND SUBSIDIARIES -- (CONTINUED)
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1993 and 1992 is shown below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- ------- -------- --------
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
1993
Net sales......................................... $34,943 $52,131 $ 53,438 $ 47,233
Gross profit...................................... $ 7,230 $10,922 $ 10,786 $ 7,143(1)
Earnings (loss):
Continuing Operations........................... $ 245 $ 1,296 $ 1,573 $ (7,753)
Discontinued Operations......................... $(1,407 ) $(1,114) $ (2,857) $(21,038)
Cumulative effect of accounting change.......... $ 2,733
-------- ------- -------- --------
Net earnings (loss)............................... $ 1,571 $ 182 $ (1,284) $(28,791)
======= ======= ======= ========
Earnings per share data:
Primary earnings (loss) per common share:
Continuing operations........................... $ (0.04 ) $ 0.22 $ 0.29 $ (1.97)
Discontinued operations......................... $ (0.34 ) $ (0.27) $ (0.70) $ (5.10)
Cumulative effect of accounting change.......... $ 0.67 $ 0.00 $ 0.00 $ 0.00
-------- ------- -------- --------
Net earnings (loss)............................. $ 0.29 $ (0.05) $ (0.41) $ (7.07)
======= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- ------- -------- --------
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
1992
Net sales......................................... $30,916 $45,645 $ 47,930 $ 39,711
Gross profit...................................... $ 7,460 $ 9,934 $ 10,526 $ 7,911
Earnings (loss):
Continuing Operations........................... $ 655 $ 2,089 $ 2,754 $ 165
Discontinued Operations......................... $ (645 ) $ 61 $ (1,282) $ (706)
-------- ------- -------- --------
Net earnings (loss)............................... $ 10 $ 2,150 $ 1,472 $ (541)
======= ======= ======= ========
Earnings per share data:
Primary earnings (loss) per common share:
Continuing operations........................... $ 0.07 $ 0.42 $ 0.59 $ (0.06)
Discontinued operations......................... $ (0.16 ) $ 0.01 $ (0.32) $ (0.17)
-------- ------- -------- --------
Net earnings (loss)............................. $ (0.09 ) $ 0.43 $ 0.27 $ (0.23)
======= ======= ======= ========
</TABLE>
- ---------------
(1) Decrease in gross profit in the fourth quarter compared to the previous
quarter is due primarily to increased raw material costs that could not be
passed on via price increases.
F-26
<PAGE> 118
BIRD CORPORATION AND SUBSIDIARIES -- (CONTINUED)
SUPPLEMENTAL FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1994 is shown below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------
SEPTEMBER 30, JUNE 30, MARCH 31,
------------- -------- ---------
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
1994
Net Sales............................................. $ 46,246 $ 58,486 $ 36,863
Gross Profit (Loss)................................... $ 9,169 $ 10,943 $ 6,670
Earnings (Loss)
Continuing Operations............................... $ 3,304 $ (1,480) $ (3,398)
Discontinued Operations............................. $ (907) $ (5,708) $ (750)
Net Earnings (loss)................................. $ 2,397 $ (7,188) $ (4,148)
Earnings per share data:
Primary earnings (loss) per Common Share:
Continuing Operations............................... $ 0.76 $ (0.45) $ (0.92)
Discontinued Operations............................. $ (0.24) $ (1.37) $ (0.18)
Net earnings (loss)................................. $ 0.52 $ (1.82) $ (1.10)
</TABLE>
F-27
<PAGE> 119
KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
COMBINED FINANCIAL STATEMENTS
AND SUPPLEMENTAL INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1993
AND THE PERIOD JULY 1, 1992 (INCEPTION)
TO DECEMBER 31, 1992
F-28
<PAGE> 120
KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1993 AND THE PERIOD
JULY 1, 1992 (INCEPTION) TO DECEMBER 31, 1992
TABLE OF CONTENTS
<TABLE>
<S> <C>
FINANCIAL STATEMENTS
Independent Auditors' Report........................................................ F-30
Combined Balance Sheets............................................................. F-31
Combined Statements of Operations and Partners' Capital (Deficit)................... F-32
Combined Statements of Cash Flows................................................... F-33
Notes to the Combined Financial Statements.......................................... F-34
SUPPLEMENTAL INFORMATION
Independent Auditors' Report on Financial Statement Schedule........................ F-46
Financial Statement Schedule VIII................................................... F-47
</TABLE>
F-29
<PAGE> 121
INDEPENDENT AUDITORS' REPORT
TO THE PARTNERS
KENSINGTON PARTNERS AND AFFILIATE
(Joint Venture Partnerships)
Leechburg, Pennsylvania
We have audited the accompanying combined balance sheets of Kensington
Partners and Affiliate as of December 31, 1993 and 1992 and the related combined
statements of operations, changes in partners' capital (deficit), and cash flows
for the year ended December 31, 1993 and the period from July 1, 1992
(Inception) to December 31, 1992. These financial statements are the
responsibility of the Partnerships' management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Kensington Partners
and Affiliate as of December 31, 1993 and 1992, and the results of their
operations and their cash flows for the year ended December 31, 1993 and the
period from July 1, 1992 (Inception) to December 31, 1992, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
Kensington Partners and Affiliate will continue as going concerns. As discussed
in Note 3 to the financial statements, the Companies have incurred significant
operating losses, current liabilities exceed current assets and their line of
credit was under a forbearance agreement with their lender. Those conditions
raise substantial doubt about the Companies' ability to continue as going
concerns. Management's plans regarding those matters are also described in Note
3. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
Alpern, Rosenthal & Company
Pittsburgh, Pennsylvania
February 19, 1994 (Except for the last three paragraphs of
Note 8, the second paragraph of Note 13B, and Note 14, as
to which the date is September 14, 1994.)
F-30
<PAGE> 122
KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1993 1992
------------ -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash............................................................. $ 15,518 $ 23,718
Accounts receivable
Trade -- net of allowance for doubtful accounts of $195,000 in
1994 and $66,000 in 1993 -- Note 4........................... 2,763,207 1,553,029
Related parties -- Note 13B................................... 1,231,094 1,217,433
Inventories -- Note 5............................................ 2,956,397 2,082,834
Prepaid expenses................................................. 134,320 158,392
------------ -----------
TOTAL CURRENT ASSETS..................................... 7,100,536 5,035,406
------------ -----------
PROPERTY AND EQUIPMENT -- At cost -- net of accumulated
depreciation of $642,433 and $199,850 as of December 31, 1993 and
1992 -- Note 6................................................... 2,870,341 2,452,756
------------ -----------
OTHER ASSETS
Notes receivable -- related party -- Note 13E.................... 100,000 --
Other assets -- Note 7........................................... 1,277,233 320,552
------------ -----------
1,377,233 320,522
------------ -----------
TOTAL ASSETS............................................. $ 11,348,110 $ 7,808,714
========== =========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES
Demand notes payable -- Note 8................................... $ 2,245,580 $ 910,580
Current maturities of capital lease obligations and long-term
debt -- Note 9................................................ 415,500 229,723
Accounts payable
Trade......................................................... 3,927,881 1,150,455
Related parties -- Note 13A................................... 2,681,579 612,766
Accrued expenses -- Note 10...................................... 801,751 305,624
------------ -----------
TOTAL CURRENT LIABILITIES................................ 10,072,291 3,209,148
------------ -----------
LONG-TERM LIABILITIES
Capital lease obligations and long-term debt -- net of current
maturities -- Note 9.......................................... 1,096,480 145,665
Other long-term liabilities -- related parties -- Note 13........ 374,865 --
------------ -----------
TOTAL LONG-TERM LIABILITIES.............................. 1,471,345 145,665
------------ -----------
TOTAL LIABILITIES........................................ 11,543,636 3,354,813
PARTNERS' CAPITAL (DEFICIT)........................................ (195,526) 4,453,901
COMMITMENTS AND CONTINGENCIES (NOTES 12 AND 14).................... -- --
------------ -----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL.................. $ 11,348,110 $ 7,808,714
========== =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-31
<PAGE> 123
KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
COMBINED STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL (DEFICIT)
<TABLE>
<CAPTION>
FOR THE YEAR AND
SIX MONTHS ENDED DECEMBER
31,
---------------------------
1993 1992
----------- -----------
<S> <C> <C>
NET SALES (approximately 34% in 1993 and
33% in 1992 sold to related parties)............................ $21,254,549 $10,198,563
COST OF GOODS SOLD (approximately 29% in 1993 and
25% in 1992 purchased from related parties)..................... 19,785,555 7,946,321
----------- -----------
GROSS PROFIT............................................ 1,468,994 2,252,242
OPERATING EXPENSES (approximately 15% in 1993 and
17% in 1992 to related parties)................................. 6,012,508 2,079,567
----------- -----------
INCOME (LOSS) FROM OPERATIONS........................... (4,543,514) 172,675
----------- -----------
OTHER EXPENSE
Interest expense................................................ (155,452) (31,371)
Loss from equity investment..................................... (69,578) (--)
Bad debt expense................................................ (202,154) (45,842)
Other expense, net.............................................. (278,729) (131,533)
----------- -----------
TOTAL OTHER EXPENSE..................................... (705,913) (208,746)
----------- -----------
NET LOSS................................................ (5,249,427) (36,071)
PARTNERS' CAPITAL -- Beginning of year............................ 4,453,901 4,489,972
Capital Contributions........................................... 600,000 --
----------- -----------
PARTNERS' CAPITAL (DEFICIT) -- End of year........................ $ (195,526) $ 4,453,901
========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-32
<PAGE> 124
KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR AND
SIX MONTHS ENDED
DECEMBER 31,
---------------------------
1993 1992
----------- -----------
<S> <C> <C>
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES
Net loss.................................................................. $(5,249,427) $ (36,071)
Adjustments to reconcile net loss to net cash provided by (used for)
operating activities
Depreciation and amortization........................................... 540,921 224,726
Loss from equity investment............................................. 68,578 --
Changes in
Accounts receivable
Trade.............................................................. (1,210,178) 268,123
Related parties.................................................... (13,661) (416,137)
Inventories........................................................... (873,563) (189,952)
Other current assets and liabilities.................................. 520,199 108,386
Accounts payable
Trade.............................................................. 2,777,426 (1,263,416)
Related parties.................................................... 2,068,813 612,766
----------- -----------
NET CASH USED FOR OPERATING ACTIVITIES............................. (1,370,892) (691,575)
----------- -----------
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES
Purchase of property and equipment........................................ (132,650) (37,527)
Cash value of life insurance.............................................. 23,155 (18,513)
Other assets.............................................................. (303,663) (40,860)
Notes receivable -- related parties....................................... (100,000) --
----------- -----------
NET CASH USED FOR INVESTING ACTIVITIES............................. (513,158) (96,900)
----------- -----------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES
Cash contributed by the partners -- Note 2................................ 600,000 2,835,305
Reduction in payables to Jones & Brown -- Note 2.......................... -- (2,800,000)
Demand notes payable...................................................... 1,335,000 910,580
Proceeds from long-term debt.............................................. 34,107 --
Payments on long-term debt................................................ (399,543) (133,692)
Other liabilities -- related parties...................................... 306,286 --
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES.......................... 1,875,850 812,193
----------- -----------
INCREASE (DECREASE) IN CASH................................................. (8,200) 23,718
CASH -- Beginning of year................................................... 23,718 --
----------- -----------
CASH -- End of year......................................................... $ 15,518 $ 23,718
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest.................................... $ 152,341 $ 29,438
============ ============
NONCASH INVESTING AND FINANCING ACTIVITIES
Capital lease and debt obligations incurred for acquisition of equipment.... $ 1,502,028 $ 34,379
============ ============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-33
<PAGE> 125
KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
NOTES TO THE COMBINED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. PRINCIPLES OF COMBINATION
The accompanying 1993 combined financial statements include the accounts of
Kensington Partners (KP) combined with the accounts of North American
Installations Company (NAICO). NAICO is owned 100% by common owners of KP. All
significant intercompany balances and transactions have been eliminated in the
preparation of the combined financial statements. The combined group is herein
referred to as "the Companies".
NAICO was formed in May, 1993 as a joint venture partnership to install
windows sold by KP to a significant customer. The 1992 financial statements
reflect only the accounts of KP.
B. NATURE OF BUSINESS
Kensington Partners operates in one principal industry segment: the
manufacture of vinyl replacement windows for wholesalers and home remodelers.
The Partnership grants credit to its customers substantially all of which are
retail and wholesale resellers of windows located in the eastern half of the
United States.
NAICO is an exclusive installer of KP windows for a significant customer of
KP, a retail seller of windows to end users, which has sales throughout the
United States.
The Companies grant credit to the customer and not the end user of the
window.
C. CASH AND CASH EQUIVALENTS
Interest-bearing deposits and other investments with original maturities of
three months or less are considered short-term cash investments. At December 31,
1993 and 1992, the Company has an overdraft position of approximately $345,000
and $99,700, respectively, at a bank, caused by outstanding checks. The
overdraft is included in accounts payable.
D. ACCOUNTS RECEIVABLE
The Company provides for estimated losses on uncollectible accounts
receivable based on historical data and management's evaluation of individual
accounts receivable balances at the end of the year.
E. INVENTORIES
The Company values all of its inventories at the lower of cost or market.
Raw materials are determined on the last-in, first-out (LIFO) method.
Work-in-process and finished goods inventories are determined on a first-in,
first-out (FIFO) method.
F-34
<PAGE> 126
KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
F. DEPRECIATION
Depreciation is computed by the straight-line method at rates intended to
distribute the cost of the assets over their estimated useful lives. Property
under capital lease is being amortized over the life of the lease in accordance
with generally accepted accounting principles. Rates used by principal
classifications are as follows:
<TABLE>
<CAPTION>
RATE
(YEARS)
-------
<S> <C>
Warehouse and manufacturing equipment............................... 3-10
Furniture and fixtures.............................................. 5-10
Leasehold improvements.............................................. 3-15
Transportation equipment............................................ 3-6
</TABLE>
Maintenance and repairs which are not considered to extend the useful lives
of assets are charged to operations as incurred. Upon sale or retirement, the
cost of assets and related allowances are removed from the accounts and any
resulting gains or losses are included in other income (expense) for the year.
G. INVESTMENT IN AFFILIATED COMPANY
The Companies' investment in a joint venture partnership is carried on the
equity basis, which approximates the Companies' equity in the underlying net
book value. The Companies' share of losses exceed the original cost of the
investment. The investment has been reduced to reflect the Companies' share of
possible guaranteed obligations. (See Note 13E.)
H. AMORTIZATION
Software and system development and other programming costs have been
capitalized and are being amortized over their remaining useful lives.
Accumulated amortization at December 31, 1993 and 1992 is approximately
$75,000 and $25,000, respectively.
I. INCOME TAXES
The Companies are being treated as partnerships for Federal and state
income tax purposes. Under the Internal Revenue Code provisions for
partnerships, the partners reflect their proportionate share of the Company's
taxable income or loss on their respective income tax returns, and the Companies
are not liable for income taxes.
NOTE 2 -- ORGANIZATION
Effective July 1, 1992, Kensington Manufacturing Company (KMC) entered into
an agreement with Bird Corporation (Bird) through one of its indirect
subsidiaries to form a joint venture partnership, Kensington Partners (KP), for
the purpose of manufacturing and selling custom windows, a business previously
conducted by KMC. KMC's capital contribution to KP consisted of all of its
assets subject to certain of its liabilities, including $2,800,000 owed to Jones
and Brown, Inc. (J&B), a related party. Bird's capital contribution consisted of
$2,800,000, in cash, which was used to pay off the amount owed by KP to J&B,
subsequent to the inception of the Partnership.
F-35
<PAGE> 127
KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- ORGANIZATION -- (CONTINUED)
The Company has accounted for the contribution of capital using the current
value of the tangible assets and liabilities contributed by KMC and Bird. The
fair value of these assets and liabilities are summarized as follows:
<TABLE>
<S> <C>
Cash -- contributed by Bird............................................. $ 2,800,000
Assets and (Liabilities) contributed by KMC:
Cash.................................................................. 35,000
Accounts receivable................................................... 2,678,000
Inventories........................................................... 1,893,000
Other current assets.................................................. 51,000
Property and equipment................................................ 2,578,000
Other assets.......................................................... 286,000
Long-term debt........................................................ (474,000)
Accounts payable and accrued expenses................................. (5,358,000)
-----------
Net Assets Contributed............................................. $ 4,489,000
==========
</TABLE>
In accordance with the Partnership Agreement, KMC and Bird each owned 50%
of the Partnership. KP had also entered into a management agreement with J&B to
manage the Partnership in exchange for a fee. As discussed in Note 3, subsequent
to December 31, 1993, the partners entered into an agreement to restructure
these arrangements.
KP and Bird have entered into a supply agreement which requires KP to buy
specified quantities of raw materials from Bird beginning in 1993 and ending in
the year 2002. Minimum purchases for the next five years are 1994, $700,000;
1995, $900,000; 1996, $1,100,000; 1997, $1,300,000; and 1998 the greater of
$1,300,000 or actual amounts purchased in 1997. The agreement includes penalties
for shortfalls in purchases on a per year basis. Shortfalls can be offset with
credits from years when excess volume is purchased.
NOTE 3 -- OPERATIONS AND LIQUIDITY
The Companies' combined financial statements have been presented on the
basis that they are going concerns, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business. The
Companies incurred net losses of approximately $5,249,000 and negative cash
flows from operations of approximately $1,371,000 for 1993, and at December 31,
1993, the balance sheet reflects an excess of current liabilities over current
assets of approximately $2,972,000.
In addition, the Companies' line of credit (Note 8) was called and the
Companies are currently operating under a bank forbearance agreement which
expires April 30, 1994. Various debt and lease agreements are in default as a
result of late or no payments being made and certain payroll taxes are
delinquent.
Management believes the above mentioned losses and the associated balance
sheet deficiencies are a result of adding new products which required different
manufacturing processes and a significant increase in orders, which put strain
on the existing systems. The combination of the above resulted in manufacturing
inefficiencies, low asset performance, excessive delivery costs and inadequate
management information.
In December 1993, management embarked on a program to correct the problems
associated with operations, financing and managing the Companies by hiring a
consulting firm specializing in turnaround
F-36
<PAGE> 128
KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- OPERATIONS AND LIQUIDITY -- (CONTINUED)
situations. The consulting firm evaluated the Companies, analyzed the problems
and developed a turnaround program which has been adopted by the Companies. The
major components of the plan are as follows:
1. Employ a new management team including a president and chief executive
officer, vice president of production and a vice president of
operations (accomplished).
2. Implement a production plan to increase direct labor productivity and
reduce the labor force.
3. Restructure pricing on various products to improve contribution margin.
4. Discontinue installation of windows currently performed by NAICO. The
operations of NAICO are to be transferred to the customer who receives
these services.
5. Reduce selling, general and administrative costs by reducing the work
force.
6. Correct production inefficiencies by restructuring plant layout,
improving production scheduling, modernizing equipment, reducing scrap
and improving information systems.
7. Pursue refinancing with an asset based lender with an aim to replace
the current line of credit and to increase credit availability by
$1,500,000.
8. Design and implement a payment plan for unsecured creditors. The plan
includes paying COD for current purchases and obtaining deferred
payment terms on existing balances.
9. Reduce in-house trucking operation and sub-contract delivery of
windows.
10. Improve information, production and financial reporting by purchasing
new computer software.
The plan includes a detailed operational plan for the immediate future, a
one year operational plan, and financial, operational and cash flow projections.
In addition, subsequent to December 31, 1993, the partners entered into an
agreement to restructure the partnership agreement of KP and to make capital
contributions. Each partner's ownership percentage is to be adjusted plus or
minus 2% for each $50,000 of capital contributed or collateral provided on the
bank loan, but in no event should a partner be diluted below 10%. A diluted
partner is entitled to cure any shortfall between their capital account and the
other partner's capital account by contributing the capital necessary to
equalize each partner's capital account by the later of December 31, 1994 or six
months from the date of any capital contribution made on or before December 31,
1994.
Pursuant to the agreement, Bird contributed $750,000 in cash and provided
additional cash collateral of $750,000 to secure the line of credit (Note 8).
KMC has contributed $250,000 in cash. KMC is also required to contribute
$250,000 of inventory to KP within 45 days of the agreement. The agreement also
allows for additional inventory and cash contributions based on KP's needs.
The agreement also terminated the management agreement (Note 2) with J&B
effective December 31, 1993, required J&B to enter into a five year purchase
agreement, deferred the payment of approximately $181,000 due Bird (Note 13)
until after December 31, 1994 and required KP to enter into a purchase agreement
with Domken (Note 13).
The Companies' continued existence is dependent on implementing the items
outlined in the turnaround plan along with the capital infusion that occurred
subsequent to December 31, 1993, by meeting the operational and financial
projections, and obtaining alternate financing.
F-37
<PAGE> 129
KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- OPERATIONS AND LIQUIDITY -- (CONTINUED)
The outcome of these uncertainties cannot be predicted at this time. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts and classification
of liabilities that might be necessary should the Company be unable to continue
in existence.
NOTE 4 -- ACCOUNTS RECEIVABLE
At December 31, 1993, accounts receivable -- trade from three customers
were approximately 73% of trade receivables. Sales to these unrelated customers
comprised 51% of total sales during December 31, 1993.
At December 31, 1992, receivables from one customer were approximately 20%
of trade receivables. Sales to this unrelated customer comprised 30% of total
sales during December 31, 1992.
NOTE 5 -- INVENTORIES
Inventories at December 31, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
1993 1992
---------- ----------
<S> <C> <C>
Raw materials, at LIFO which approximates FIFO...... $1,505,825 $1,406,763
Work-in-process..................................... 1,030,514 503,416
Finished goods...................................... 420,058 172,655
---------- ----------
Total Inventories......................... $2,956,397 $2,082,834
========= =========
</TABLE>
The effect of using the LIFO method was to increase the net loss
approximately $30,000 for the year ended December 31, 1993. The effect of using
the LIFO method was not material for 1992.
NOTE 6 -- PROPERTY AND EQUIPMENT
Property and Equipment at December 31, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
1993 1992
---------- ----------
<S> <C> <C>
Equipment under capital leases -- Note 9............ $1,790,203 $ 408,875
Warehouse and manufacturing equipment............... 857,144 1,477,724
Furniture and fixtures.............................. 290,258 203,326
Leasehold improvements.............................. 419,791 415,803
Transportation equipment............................ 155,378 146,878
---------- ----------
3,512,774 2,652,606
Less: Accumulated depreciation...................... 642,433 199,850
---------- ----------
Total Property and Equipment.............. $2,870,341 $2,452,756
========= =========
</TABLE>
F-38
<PAGE> 130
KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- OTHER ASSETS
Other assets at December 31, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
1993 1992
---------- --------
<S> <C> <C>
Deferred software and programming cost -- net of
accumulated amortization........................... $ 12,886 $ 62,638
Cash value of life insurance......................... 25,243 48,398
Notes receivable..................................... -- 39,566
Sample windows....................................... 152,324 26,004
Deposits............................................. 816,638 16,242
Other assets......................................... 150,653 --
Marketing supplies inventory......................... 119,489 127,704
---------- --------
$1,277,233 $320,552
========= ========
</TABLE>
Deposits at December 31, 1993 consist primarily of deposits on equipment
purchases.
The Company maintains split-dollar life insurance policies for certain key
employees of the Company. The Company's equity in the policies represents its
portion of the premium payments on the policies which it is to recover from the
proceeds of the policies. The cash value is net of policy loans and accrued
interest of $5,434 and $1,077 at December 31, 1993 and 1992, respectively.
NOTE 8 -- DEMAND NOTES
The Companies have a line-of-credit, with maximum borrowings of $2,500,000,
with a bank that was due to expire June 30, 1994. Interest was payable monthly
at the bank's basic rate plus 1% (7% at December 31, 1993). The borrowings on
the line are collateralized by substantially all the assets of the Companies.
The line has been guaranteed by the partners of the Companies.
The line contains various covenants which, among other things, require the
Company to maintain minimum financial ratios including minimum net worth, debt
to net worth and limit capital expenditures and amounts owing to certain
vendors.
Subsequent to December 31, 1993, the bank cited three defaults under the
line of credit agreement and made demand for payment. On February 9, 1994, the
Companies and the bank entered into a letter agreement that provided for the
bank to forebear collection and set a due date of April 30, 1994. In addition,
the interest rate was changed to the bank's basic rate plus 3%, the Companies
were required to pay a facility fee of $25,000, and Bird was required to assign
a $750,000 deposit account as additional collateral (Note 3).
On April 30, 1994, the Company and the bank entered into an extended
forbearance agreement which was to expire on August 31, 1994. Under the extended
agreement, Bird was required to apply the $750,000 deposit used as collateral
(Note 3) to the line and was required to make weekly principal payments of
$50,000 through the end of June and $75,000 through the end of August at which
time the entire balance was to be liquidated. The payments by Bird will be
recorded as capital contributions to the partnership.
On June 15, 1994, the Company entered into a financing/factoring agreement
with another lending institution to sell, on an ongoing basis, up to 80% or
$2,500,000, whichever is less, of acceptable trade accounts receivable. All
accounts receivable that remain unpaid after 90 days of the purchase by the
lender are subject to recourse at the lender's discretion. The agreement, which
expires in six months, is subject to renewal. The loan was funded on August 26,
1994 with $1,000,000, at which time the original line of credit was paid in
full.
F-39
<PAGE> 131
KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- DEMAND NOTES -- (CONTINUED)
Under the terms of the new agreement, fees ranging from 1% to 3 1/2% are
based on the number of days to collect the trade receivable, with a guaranteed
minimum monthly fee of $5,000. In addition, interest is charged on any amounts
advanced under the agreement, at the rate of prime plus 1 1/2%. Under the terms
of this agreement, Bird has guaranteed $1,250,000 of this debt.
NOTE 9 -- CAPITAL LEASE OBLIGATIONS AND LONG-TERM DEBT
The following is a schedule by years of future minimum lease under capital
leases and installment notes together with the present value of the net minimum
lease payments and note payments as of December 31, 1993:
<TABLE>
<S> <C>
1994............................................................. $ 451,736
1995............................................................. 356,334
1996............................................................. 288,053
1997............................................................. 277,906
1998............................................................. 322,135
Thereafter....................................................... 12,294
-----------
Net Minimum Lease Payments..................................... 1,708,458
Less: Amount representing interest............................... 257,590
-----------
Present value of net minimum lease payments................. 1,450,868
Long-term debt principal payments -- all due within one year..... 61,112
-----------
Net Obligations under Capital Leases and Notes Payable......... 1,511,980
Less: Current portion............................................ 415,500
-----------
Long-term Obligations under Capital Leases and Notes Payable... $ 1,096,480
=========
</TABLE>
Interest expense charged to operations on capital lease obligations, notes
payable and demand notes was approximately $155,000 and $31,000 for the periods
ended December 31, 1993 and 1992 respectively. The partners have guaranteed a
lease with a net present value of minimum lease payments of approximately
$1,200,000.
Assets under capital lease are capitalized using interest rates appropriate
at the inception of each lease. The following is an analysis of the Companies'
assets under capital lease obligations at December 31, 1993 and 1992:
<TABLE>
<CAPTION>
1993 1992
---------- --------
<S> <C> <C>
Warehouse and manufacturing equipment................ $1,605,062 $345,062
Transportation equipment............................. 185,141 63,813
---------- --------
1,790,203 408,875
Less: Accumulated amortization....................... 128,976 27,860
---------- --------
Total...................................... $1,661,227 $381,015
========= ========
</TABLE>
F-40
<PAGE> 132
KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- ACCRUED EXPENSES
Accrued expenses at December 31, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Accrued payroll and payroll taxes...................... $423,855 $ 77,641
Accrued vacation....................................... 143,717 113,416
Accrued promotion costs................................ 4,270 11,450
Other accrued expenses................................. 229,909 103,117
-------- --------
Total Accrued Expenses....................... $801,751 $305,624
======== ========
</TABLE>
NOTE 11 -- PENSION PLAN
The Company participates in a multi-employer defined benefit pension plan
for the electrician's union employees. Plan contributions are determined by the
union labor agreement.
The Company contributed approximately $163,000 to this plan during the year
ended December 31, 1993 and $60,000 during the period ended December 31, 1992.
NOTE 12 -- COMMITMENTS
A. OPERATING LEASES
The Company leases various operating facilities from related and unrelated
parties and transportation equipment from unrelated parties under various
operating leases. Rent expense for the period ended December 31, 1993 and 1992
is as follows:
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Facilities leases -- primarily related party........... $263,000 $128,000
Transportation equipment............................... 67,000 48,000
-------- --------
$330,000 $176,000
======== ========
</TABLE>
The following are the approximate future minimum operating lease payments
at December 31, 1993, substantially all of which are due to a related party:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31 AMOUNT
----------------------------------------------------------------- ----------
<S> <C>
1994........................................................... $ 245,000
1995........................................................... 215,000
1996........................................................... 215,000
1997........................................................... 215,000
1998........................................................... 215,000
Thereafter..................................................... 1,495,000
----------
Total minimum lease payments........................... $2,600,000
=========
</TABLE>
The Companies are currently in default on their lease for their primary
operating facilities as a result of not making the required rent payments as
they became due. Rent of approximately $66,000, due a related party, is included
in accounts payable in the accompanying balance sheets at December 31, 1993
(Note 13).
F-41
<PAGE> 133
KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12 -- COMMITMENTS -- (CONTINUED)
B. PRODUCT WARRANTIES
The Companies provide limited warranties for parts and/or labor based on
the type of window sold. Prior to 1993, the Companies did not provide labor as
part of their warranties. The Companies have not provided a liability for
warranties as the Companies do not have an adequate history for estimation.
However, management believes that any liability would not be material. The
Companies' current policy is to expense costs of warranty coverage in the period
that the service is provided.
NOTE 13 -- RELATED PARTY TRANSACTIONS
The Companies have entered into various transactions with related parties
during the year ended December 31, 1993 and the six months ended December 31,
1992. The transactions are as follows:
A. PURCHASES AND PAYABLES
The Companies have purchases for raw materials, advertising services, and
commissions from the following related parties as of and for the periods ended
December 31, 1993 and 1992:
<TABLE>
<CAPTION>
PURCHASES
--------------------------
1993 1992
----------- -----------
<S> <C> <C>
Vinyl Division of Bird, Inc......................... $ 2,052,514 $ 85,298
Design Matrix, Inc. (DMI) -- Advertising............ $ 146,562 $ 53,116
Domken Plastics Limited (DPL)....................... $ 2,964,398 $ 1,759,686
Quantum II Partners (see below)..................... $ 440,074 $ --
</TABLE>
Accounts payable to related parties at December 31,1993 and 1992 are as
follows:
<TABLE>
<CAPTION>
ACCOUNTS PAYABLE
--------------------------
1993 1992
----------- -----------
<S> <C> <C>
Vinyl Division of Bird, Inc......................... $ 1,218,732 $ 30,162
Design Matrix, Inc. (DMI) -- Advertising............ 17,483 2,443
Domken Plastics Limited (DPL)....................... 1,209,519 580,161
Other related parties............................... 72,703 --
Quantum II (Notes 13E and 14)....................... 163,142 --
----------- -----------
$ 2,681,579 $ 612,766
========= =========
</TABLE>
DMI and DPL are related through common ownership with KMC.
A stockholder of KMC was compensated approximately $143,000 and $105,000
during the year ended December 31, 1993 and the six months ended December 31,
1992, respectively, for services rendered in assisting with the acquisition of
raw materials at discounted amounts. At December 31, 1993, approximately $48,000
was due to the related party and is included in other accrued liabilities. In
addition, J&B was also compensated $86,000 during 1993 for similar services.
F-42
<PAGE> 134
KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13 -- RELATED PARTY TRANSACTIONS -- (CONTINUED)
B. SALES AND RECEIVABLES
The Companies had sales to Jones & Brown, Inc. (J&B), a related party
through common ownership with KMC, of approximately $7,255,000 and $3,327,000
for 1993 and 1992, respectively. Accounts receivable from related parties are as
follows as of December 31, 1993 and 1992:
<TABLE>
<CAPTION>
1993 1992
---------- ----------
<S> <C> <C>
J&B................................................. $ 987,000 $1,203,000
Quantum II Partners (Note 13E)...................... 225,000 --
Other............................................... 19,000 14,000
---------- ----------
Total.......................................... $1,231,000 $1,217,000
========= =========
</TABLE>
At December 31, 1993 and through June 1994, J&B's line of credit was
subject to a forbearance agreement with its bank. In June 1994, J&B negotiated a
new financing agreement with a different bank.
C. RENTS
The Company rents facilities from related parties (Note 12).
D. MANAGEMENT FEES
Management fees of approximately $488,000 and $224,000 were paid to J&B
under a management contract for the year ended December 31, 1993 and the six
months ended December 31, 1992, respectively.
In addition, a management fee of approximately $181,000 is due to Bird at
December 31, 1993. The amount is included in the accompanying combined balance
sheets in other long-term liabilities (Note 3).
E. OTHER
Kensington Partners owns a 50% equity investment in Quantum II Partners
(Note 14). Quantum II was formed during 1993 to be the exclusive marketing
representative to sell Quantum II replacement windows manufactured by KP.
Quantum II Partners reported losses and a net partnership deficit of
approximately $138,000 for 1993. KP has reflected its share of Quantum's excess
of liabilities over assets in other long-term liabilities.
During the year ended December 31, 1993, KP advanced Quantum II $377,000.
At December 31, 1993, the remaining advance of approximately $325,000 is due to
KP, of which, $100,000 is included in other assets as a note receivable. The
remaining balance is included in accounts receivable (Note 13B).
Included in other long-term liabilities is $125,000 due to a stockholder of
KMC. Subsequent to December 31, 1993, the amount was transferred by the
stockholder to KMC and then contributed by KMC to KP's capital (Note 3).
NOTE 14 -- SUBSEQUENT EVENTS
On September 13, 1994, a complaint was filed in Massachusetts Superior
Court by the other 50% owner of Quantum II Partners (Note 13E) and others,
including Quantum II Partners (collectively, the plaintiffs), against Kensington
Partners, Bird Vinyl Products, Inc. and Quantum II Partners (collectively, the
defendants). The plaintiffs allege various breaches of contract on the part of
the several defendants including breach of a partnership agreement, a supply
agreement and an employment agreement along with other complaints
F-43
<PAGE> 135
KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14 -- SUBSEQUENT EVENTS -- (CONTINUED)
under the Massachusetts Unfair Trade Practices Act. The plaintiffs are seeking
relief of actual damages in an unspecified amount and a doubling or trebling of
such damages as provided in the Unfair Trade Practices Act.
On September 14, 1994, the defendants filed a complaint in Federal Court
alleging various breaches of contract by the plaintiffs and seeking collection
of outstanding balances due to the Company from the plaintiffs of approximately
$570,000, all of which arose in 1994.
The Company believes that the claims filed by the plaintiffs have no merit,
the Company denies any liability and will vigorously defend against the
litigation. With respect to the litigation filed by the Company for the
collection of the 1994 balances receivable, management estimates some loss may
occur but is unable to determine a range of amounts based on the current status
of the litigation. While the ultimate results of the various other actions
cannot be determined, management does not expect these matters will have a
material adverse effect on the financial position of the Company.
F-44
<PAGE> 136
SUPPLEMENTAL INFORMATION
F-45
<PAGE> 137
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE
To the Partners
Kensington Partners and Affiliate
We have audited the combined financial statements of Kensington Partners
and Affiliate as of December 31, 1993 and 1992, and for the year ended December
31, 1993 and the period from July 1, 1992 (Inception) to December 31, 1992, and
have issued our report thereon dated February 19, 1994. Our audits also included
the accompanying financial statement schedule VIII for the year ended December
31, 1993 and the period July 1, 1992 (Inception) to December 31, 1992 of
Kensington Partners and Affiliate. This financial statement schedule is the
responsibility of the Partnerships' management. Our responsibility is to express
an opinion based on our audits. In our opinion, such financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
Alpern, Rosenthal & Company
Pittsburgh, Pennsylvania
February 19, 1994
F-46
<PAGE> 138
KENSINGTON PARTNERS AND AFFILIATE
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED DECEMBER 31, 1993 AND THE
PERIOD JULY 1, 1992 (INCEPTION) TO DECEMBER 31, 1992
<TABLE>
<CAPTION>
ADDITIONS
-----------------------
BALANCE CHARGED TO CHARGED TO BALANCE
BEGINNING COST AND OTHER AT END
OF YEAR EXPENSES ACCOUNTS DEDUCTIONS(1) OF YEAR
--------- ---------- ---------- ------------- --------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1993:
Allowance for doubtful accounts......... $66,000 $202,000 $ -- $ 73,000 $195,000
======= ======== ======== ========== ========
PERIOD JULY 1, 1992 (INCEPTION) TO
DECEMBER 31, 1992:
Allowance for doubtful accounts......... $59,000 $ 46,000 $ -- $39,000 $ 66,000
======= ======== ======== ========== ========
</TABLE>
- ---------------
(1) Uncollectible accounts written off.
F-47
<PAGE> 139
EXHIBIT A
OPINION OF DILLON, READ & CO. INC.
<PAGE> 140
[PASTE UP LETTERHEAD -- DILLON, READ & CO.]
September 23, 1994
Board of Directors
Bird Corporation
980 Washington Street
Suite 120
Dedham, MA 02026-6714
Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the stockholders of Bird Corporation ("Bird" or the "Company") of the
consideration to be received by Bird in connection with the proposed sale of
certain assets (the "Transaction") relating to the vinyl siding business (such
assets and business being hereinafter referred to as "Bardstown") and, provided
certain conditions are met, also relating to the window business (such assets
and business being hereinafter referred to as "Kensington") to
Jannock, Inc.
The terms of the Transaction, as we understand them, are set forth in the
Asset Purchase Agreement among Bird and Jannock, Inc. dated September 23, 1994
(the "Agreement").
In arriving at our opinion, we have, among other things:
(a) reviewed the audited consolidated financial statements of Bird for the
five years ended December 31, 1993;
(b) reviewed unaudited historical business segment financial information of
Bardstown and Kensington for the five years ended December 31, 1993 and
for the seven months ended July 31, 1994;
(c) reviewed certain other publicly available information regarding Bird,
Bardstown and Kensington;
(d) analyzed certain financial forecasts provided to us by Bird and
performed discounted cash flow analyses based upon those forecasts;
(e) reviewed current operating statistics, financial results, financial
position and common stock market prices of companies in lines of
business we consider generally comparable in certain respects to
Bardstown and Kensington;
(f) reviewed recent business combinations which we felt were relevant;
(g) reviewed drafts of the Agreement;
(h) considered the sequence of events leading up to the Transaction,
including the consideration by Bird of various other transactions such
as other offers relating to Bardstown and an offer to purchase all of
the stock of Bird at $9.00 per share, which stock purchase offer was
not a practical opportunity given Bird's assessment of certain material
legal and business impediments to the offer;
<PAGE> 141
(i) held discussions with certain senior officers, directors and members of
Bird management regarding the business and prospects of Bird, Bardstown
and Kensington; and
(j) conducted such other financial studies, analyses, examinations and
inquiries as we have deemed necessary or appropriate.
In connection with our review, we have not independently verified any of
the foregoing information and have, with your consent, relied on its being
complete and accurate in all material respects. We have not made an independent
evaluation or appraisal of any of the assets or liabilities (contingent or
otherwise) of Bird, nor have we been furnished with any such appraisals. With
respect to the financial forecasts, we have assumed that they have been
reasonably prepared on bases reflecting the best available estimates and
judgments of Bird management at the time of preparation as to the expected
future financial performance of Bird. Further, our opinion is based on the
economic, monetary and market conditions, and the terms of the Transaction,
existing as of the date hereof.
Dillon, Read & Co. Inc. has acted as financial advisor to Bird in
connection with the Transaction. In the course of our engagement, we have
participated in negotiations with respect to the Transaction. In addition, we
performed investment banking services for Bird during 1993, for which we
received compensation of $460,377, and in 1994, for which we received
compensation of $501,125.
Based upon and subject to the foregoing, it is our opinion, as of the date
hereof, that the consideration to be received by Bird pursuant to the Agreement
is fair to the stockholders of Bird from a financial point of view.
Very truly yours,
DILLON, READ & CO. INC.
<PAGE> 142
EXHIBIT B
ASSET PURCHASE AGREEMENT
<PAGE> 143
January 31, 1995
Jannock, Inc.
Foster Plaza Seven
661 Andersen Drive
Pittsburgh, Pennsylvania 15230
Reference is made to that certain Asset Purchase Agreement dated as of
September 23, 1994, as amended by the Amendment to The Asset Purchase Agreement
dated as of the 24th day of January, 1995 (as amended, the "Purchase
Agreement"). In order to clarify certain of the terms specified in the Purchase
Agreement, the undersigned, Bird Corporation and Bird Incorporated, hereby agree
to amend the Purchase Agreement as follows:
The second sentence of Section 11.02 of the Purchase Agreement is hereby
deleted and replaced with the following:
"Either Buyer or Seller and the Parent may terminate this Agreement as
to the sale and the purchase of the Holding Stock at any time by written
notice given to the other parties after (i) July 31, 1995, if the
Kensington Closing has not occurred on or before such date and the other
partner in Kensington has waived its right of first refusal under the
Partnership Agreement (such waiver to be made within three days after
exercise by Buyer of its option to purchase the Holding Stock) or (ii) the
expiration of the 105 day period commencing upon the date of Buyer's
exercise of its option to purchase the Holding Stock hereunder, if the
other partner in Kensington shall not have waived its right of first
refusal under the Partnership Agreement."
The proviso at the end of Section 6.06 is hereby also deleted and replaced
with the following:
"provided, that the Parent will pay to Buyer any portion of any such
account receivable which is past due (i) on July 31, 1995, if the
provisions of Section 13.01(i) apply and if the Kensington Closing has not
occurred by such date, such payment to be made by the Parent on August 5,
1995, or (ii) on the date of the day upon which the 105 day period
described under Section 13.01(ii) expires, if the provisions of such clause
apply and the Kensington Closing has not occurred by such date, such
payment to be made by the Parent within 5 days after the expiration of such
105 day period."
Kindly indicate your adoption of and agreement with the above amendments by
affixing your signature in the space provided below. Upon your execution hereof,
this letter shall constitute the entire agreement of Jannock, Inc., Bird
Corporation and Bird Incorporated with respect to the matters described herein.
BIRD CORPORATION
By:...................................
BIRD INCORPORATED
By:...................................
Adopted and agreed to by:
JANNOCK, INC.
By:...................................
<PAGE> 144
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AMENDMENT TO
ASSET PURCHASE AGREEMENT
AMONG
BIRD CORPORATION
BIRD INCORPORATED
AND
JANNOCK, INC.
DATED AS OF JANUARY 24, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 145
THIS AMENDMENT TO THE ASSET PURCHASE AGREEMENT (the "Amendment") is made as
of the day of January, 1995, among Bird Corporation, a Massachusetts corporation
("Parent"), Bird Incorporated, a Massachusetts corporation ("Seller") and
Jannock, Inc., a Delaware corporation ("Buyer").
WHEREAS, the Parent, Seller and Buyer have heretofore entered into an Asset
Purchase Agreement dated as of September 23, 1994 (the "Purchase Agreement");
and
WHEREAS, the Parent, Seller and Buyer wish to amend the Purchase Agreement.
NOW THEREFORE, the Parent, Seller and Buyer hereby agree to amend the
Purchase Agreement as follows:
1. Holding Stock. Section 1.03 of the Purchase Agreement is hereby
amended to read in its entirety as follows:
"1.03 Holding Stock. In addition, Buyer shall have the option, subject to
the fulfillment by Holding of its obligations under the Partnership Agreement,
to purchase, accept and acquire all of Seller's right, title and interest in and
to the Holding Stock. Such option may be exercised in writing by Buyer to Seller
at any time within thirty (30) days following the Closing Date (such 30 day
period, hereinafter, the "Option Period")."
2. Expiration. The first sentence of Section 11.02 of the Purchase
Agreement is hereby amended to read in its entirety as follows:
"If the Closing has not occurred on or before March 15, 1995, either Buyer
or Seller and the Parent may terminate this Agreement at any time thereafter by
giving written notice to the other parties."
3. Bardstown Closing. Section 12.01 of the Purchase Agreement is hereby
amended to read in its entirety as follows:
"12.01 Time and Place. The closing of the sale and purchase of the Assets
(the "Closing") shall take place at the offices of Paul, Hastings, Janofsky &
Walker at 399 Park Avenue, New York, New York 10022, at 9:00 a.m., on February
25, 1995 or at such other time and place as the parties hereto shall agree upon
in writing (the "Closing Date"), but in any event no later than March 15, 1995."
4. Kensington Closing. Section 13.01 of the Purchase Agreement is hereby
amended to read in its entirety as follows:
"13.01 Time and Place. The Kensington Closing shall take place at the
offices of Paul, Hastings, Janofsky & Walker at 399 Park Avenue, New York, New
York 10022, at such time and place as the parties hereto shall agree upon in
writing (the "Kensington Closing Date"), provided, that (i) if the other partner
in Kensington Partners waives its right of first refusal under the Partnership
Agreement, the Kensington Closing shall occur as soon as practicable after
expiration of the Option Period, and (ii) if the other partner in Kensington
Partners fails to waive its right of first refusal under the Partnership
Agreement, the Kensington Closing shall occur within 105 days of Buyer's
exercise of its option to purchase the Holding Stock."
5. Ratification. Except as provided herein, all provisions, terms and
conditions of the Purchase Agreement shall remain in full force and effect. As
amended hereby, the Purchase Agreement is ratified and confirmed in all
respects.
<PAGE> 146
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date and year first above written.
BIRD CORPORATION
By:...................................
Name:.................................
Title:................................
BIRD INCORPORATED
By:...................................
Name:.................................
Title:................................
JANNOCK, INC.
By:...................................
Name:.................................
Title:................................
<PAGE> 147
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT
AMONG
BIRD CORPORATION
BIRD INCORPORATED
AND
JANNOCK, INC.
DATED AS OF SEPTEMBER 23, 1994
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 148
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
I. ASSETS........................................................................... 5
1.01 Assets to be Transferred................................................. 5
1.02 Assets to be Retained.................................................... 7
1.03 Holding Stock............................................................ 7
</TABLE>
<TABLE>
<S> <C> <C> <C>
II. LIABILITIES...................................................................... 7
2.01 Retained Liabilities..................................................... 7
2.02 Assumed Liabilities...................................................... 8
III. PURCHASE PRICE AND ADJUSTMENTS................................................... 8
3.01 Payment of Purchase Price................................................ 8
3.02 Resolution of Disputes................................................... 9
3.03 Allocation............................................................... 9
3.04 Non-Competition Agreement................................................ 9
IV. REPRESENTATIONS AND WARRANTIES OF SELLER......................................... 10
4.01 Seller's Organization and Authority...................................... 10
4.02 Performance of Agreements................................................ 10
4.03 Good Title............................................................... 11
4.04 Condition of Assets...................................................... 11
4.05 Litigation............................................................... 11
4.06 Material Contracts....................................................... 11
4.07 Authorization and Compliance with Laws................................... 11
4.08 Balance Sheet............................................................ 11
4.09 Absence of Certain Changes............................................... 12
4.10 Environmental Matters.................................................... 12
4.11 Taxes.................................................................... 12
4.12 Inventory................................................................ 12
4.13 Transferred Intellectual Property........................................ 12
4.14 Holding's Organization and Authority; Subsidiaries....................... 13
4.15 Title.................................................................... 13
4.16 Holding Litigation....................................................... 13
4.17 Contracts................................................................ 13
4.18 Compliance with Laws..................................................... 13
4.19 Kensington Balance Sheet................................................. 14
4.20 Certain Changes.......................................................... 14
4.21 Environmental Matters.................................................... 14
4.22 Taxes.................................................................... 14
4.23 Capitalization of Holding; Interest in Kensington Partners............... 15
4.24 Kensington Inventory..................................................... 15
4.25 Kensington Intellectual Property......................................... 15
4.26 Business of Kensington Partners.......................................... 15
4.27 Brokerage................................................................ 16
V. REPRESENTATIONS AND WARRANTIES OF BUYER.......................................... 16
5.01 Buyer's Organization and Authority....................................... 16
5.02 Performance of this Agreement............................................ 16
5.03 Government Approvals..................................................... 16
5.04 Brokerage................................................................ 16
VI. COVENANTS OF SELLER AND THE PARENT............................................... 16
6.01 Access to Information.................................................... 16
6.02 Actions by Seller and the Parent......................................... 17
6.03 General Assistance....................................................... 19
</TABLE>
i
<PAGE> 149
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
6.04 Solicitation............................................................. 19
6.05 Kensington Partners Interest............................................. 20
6.06 Kensington Receivables................................................... 20
VII. COVENANTS OF BUYER............................................................... 20
7.01 Consents and Approvals................................................... 20
7.02 General Assistance....................................................... 20
7.03 Employee Matters......................................................... 20
7.04 Access to Information.................................................... 22
7.05 Assumed Liabilities...................................................... 22
7.06 Environmental Investigation.............................................. 22
VIII. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS...................................... 24
8.01 Representations and Warranties; Covenants................................ 24
8.02 Governmental Action; Litigation.......................................... 24
8.03 Material Adverse Change.................................................. 24
8.04 Shareholder Approval..................................................... 24
8.05 Other Approvals.......................................................... 24
8.06 Representations and Warranties; Covenants................................ 24
8.07 Governmental Action; Litigation.......................................... 24
8.08 Material Adverse Change.................................................. 25
8.09 Shareholder Approval..................................................... 25
8.10 Other Approvals.......................................................... 25
8.11 The Closing.............................................................. 25
8.12 Partnership Equity....................................................... 25
8.13 Disclosure............................................................... 25
8.14 Kensington Factoring Arrangements........................................ 25
IX. CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS..................................... 25
9.01 Representations and Warranties; Covenants................................ 25
9.02 Governmental Action; Litigation.......................................... 25
9.03 Shareholder Approval..................................................... 25
9.04 Other Approvals.......................................................... 25
9.05 Representations and Warranties; Covenants................................ 26
9.06 Governmental Actions; Litigation......................................... 26
9.07 Shareholder Approval..................................................... 26
9.08 Other Approvals.......................................................... 26
9.09 The Closing.............................................................. 26
9.10 Assumption............................................................... 26
X. INDEMNIFICATION.................................................................. 26
10.01 Indemnification.......................................................... 26
10.02 Notice and Resolution of Claim........................................... 27
10.03 Payment.................................................................. 28
10.04 Limits on Indemnification................................................ 28
XI. TERMINATION...................................................................... 29
XII. CLOSING.......................................................................... 30
12.01 Time and Place........................................................... 30
12.02 Items to be Delivered by Seller.......................................... 30
12.03 Items to be Delivered by Buyer........................................... 31
XIII. KENSINGTON CLOSING............................................................... 31
13.01 Time and Place........................................................... 31
13.02 Items to be Delivered by Seller.......................................... 31
13.03 Items to be Delivered by Buyer........................................... 32
</TABLE>
ii
<PAGE> 150
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
XIV. MISCELLANEOUS.................................................................... 32
14.01 Law Governing............................................................ 32
14.02 Assignment............................................................... 32
14.03 Amendment and Modification............................................... 32
14.04 Expenses................................................................. 32
14.05 Notices.................................................................. 32
14.06 Press Release............................................................ 33
14.07 Confidentiality.......................................................... 33
14.08 Counterparts............................................................. 34
14.09 Headings................................................................. 34
14.10 Severability............................................................. 34
14.11 Bulk Sales............................................................... 34
14.12 Waiver................................................................... 34
14.13 No Third Party Beneficiaries............................................. 34
14.14 Transfer Taxes........................................................... 34
14.15 Cross-License............................................................ 34
14.16 Entire Agreement......................................................... 34
</TABLE>
iii
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SCHEDULES
<TABLE>
<S> <C>
1 -- Individuals with Knowledge
1.01(b) -- Owned Real Property
1.01(e) -- Licenses
1.01(h) -- Contracts to be Assigned
1.01(1) -- Name and Logo
1.02(c) -- Additional Retained Assets
2 -- List of Certain Encumbrances
2.02 -- Additional Assumed Liabilities
3.01(b) -- Guarantees and Indemnities on Behalf of Holding or Kensington Partners
4.02(d) -- Consents
4.03 -- Permitted Encumbrances
4.04 -- Personal Property
4.05 -- Litigation
4.06 -- Material Contracts
4.07 -- Compliance with Laws
4.08(c) -- Accounts Receivable; Deferred Payment
4.09 -- Changes in Business
4.10 -- Environmental Matters
4.12 -- Inventory
4.13 -- Intellectual Property
4.15 -- Holding Title Matters
4.16 -- Holding Litigation
4.17 -- Holding Contracts
4.18 -- Compliance with Laws by Holding
4.20 -- Kensington Changes
4.21 -- Kensington Environmental Matters
4.22(a) -- Kensington Tax Matters
4.23(b) -- Holding Securities Matters
4.23(c) -- Activities of Holding
4.24 -- Kensington Inventory
4.25 -- Kensington Intellectual Property
4.26 -- Activities of Holding
4.26 -- Kensington Investments, Joint Ventures, etc.
5.03 -- Governmental Approvals
7.03 -- Employees
8.05 -- Required Consents
8.10 -- Kensington Required Consents
</TABLE>
iv
<PAGE> 152
EXHIBITS
<TABLE>
<C> <S>
1 -- Non-Competition Agreement
2 -- License Agreement
</TABLE>
v
<PAGE> 153
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (together with the schedules and exhibits
attached hereto, the "Agreement") is made as of the 23rd day of September, 1994,
among Bird Corporation, a Massachusetts corporation ("Parent"), Bird
Incorporated, a Massachusetts corporation ("Seller") and Jannock, Inc., a
Delaware corporation ("Buyer").
RECITALS
WHEREAS, Seller is a wholly-owned subsidiary of Parent;
WHEREAS, Seller is engaged in the production and sale of vinyl siding,
soffit, fascia and associated accessories and vinyl window profiles at its
facility in Bardstown, Kentucky (the "Plant");
WHEREAS, Bird-Kensington Holding Corp., formerly known as Bird Vinyl
Products, Inc., a Delaware corporation ("Holding"), is a wholly-owned subsidiary
of Seller;
WHEREAS, Holding owns a ninety percent (90%) interest in Kensington
Partners, a Pennsylvania general partnership ("Kensington Partners"), which is
engaged in the production and sale of polyvinyl chloride replacement windows at
Kensington Partners' facility in Leechburg, Pennsylvania (the "Kensington
Partners Facility");
WHEREAS, Buyer is a corporation engaged in the production and sale of
building products; and
WHEREAS, (i) Seller desires to sell and Buyer desires to purchase all of
the fixed assets and inventory, wherever located, owned by Seller and used by
Seller exclusively in the Activity and (ii) Buyer desires to have the option,
subject to the fulfillment by Seller of certain obligations, to purchase all of
the issued and outstanding capital stock (the "Holding Stock") of Holding, as
more fully set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound hereby, Seller, the Parent and
Buyer agree as follows:
DEFINITIONS
When capitalized herein, the following terms shall have the following
meanings:
"Account" shall have the meaning assigned to such term in Section 3.01(c)
hereof.
"Accountants" shall mean Ernst & Young, LLP or one of the other "Big Six"
accounting firms mutually agreed upon by Seller and Buyer.
"Accounts Payable" shall mean accounts payable Related to the Activity
incurred in the ordinary course of Seller's business and recorded on Seller's
books and records in accordance with generally accepted accounting principles
consistently applied.
"Activity" shall mean the production and sale of vinyl siding, soffit,
fascia and associated accessories and vinyl window profiles and accessories and
the purchase for resale of vinyl products by Seller.
"Acquisition Proposal" shall have the meaning assigned to such term in
Section 6.04(a) hereof.
"Additional Purchase Price" shall mean $2,780,000.
"Agreement" shall have the meaning assigned to such term in the preamble
hereto.
"Anti-Trust Division" shall mean the Anti-Trust Division of the United
States Department of Justice.
"Assets" shall have the meaning assigned to such term in Section 1.01
hereof, but, in any event, shall not refer to any of the Retained Assets.
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<PAGE> 154
"Assumed Liabilities" shall have the meaning assigned to such term in
Section 2.02 hereof, but, in any event, shall not refer to any of the Retained
Liabilities.
"Balance Sheet" shall mean the unaudited balance sheet Related to the
Activity for the eight (8) month period ending on the Balance Sheet Date.
"Balance Sheet Date" shall mean August 31, 1994.
"Bardstown Environmental Problems" shall mean environmental problems
identified in connection with the Phase I investigation conducted pursuant to
Section 7.06(a) hereof.
"Basket Amount" shall have the meaning assigned to such term in Section
10.04(c) hereof.
"Business Day" shall mean any day that is not a Saturday or Sunday and that
in Boston, Massachusetts or New York, New York is not a day on which banking
institutions are generally authorized or obligated by law to close.
"Buyer" shall have the meaning assigned to such term in the preamble
hereto.
"Buyer Documents" shall mean all documents, instruments and agreements as
may be entered into by Buyer in connection herewith (other than this Agreement).
"Buyer's Welfare Plans" shall have the meaning assigned to such term in
Section 7.03(a) hereof.
"CERCLA" shall mean the Comprehensive Environmental Response, Compensation
and Liability Act (42 U.S.C. sec. 9601 et seq.).
"Closing" shall have the meaning assigned to such term in Section 12.01
hereof.
"Closing Balance Sheet" shall have the meaning assigned to such term in
Section 3.01(c)(i) hereof.
"Closing Date" shall have the meaning assigned to such term in Section
12.01 hereof.
"COBRA" shall mean the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Consultant" shall have the meaning assigned to such term in Section
7.06(b) hereof.
"Contribution Period" shall have the meaning assigned to such term in
Section 7.03(c) hereof.
"Damages" shall mean all out-of-pocket costs and expenses (not including
lost profits or other indirect, speculative, incidental, special or
consequential damages) resulting from any actions, suits, proceedings, demands,
assessments, claims, judgments, losses, remedial action requirements,
enforcement actions, costs, expenses, fines, penalties or other damages
(including, but not limited to, claims for personal injury or property damage).
"Employee" shall mean, as at any time, each employee of Seller then engaged
and employed solely in connection with the Activity, including such employees
who are at the time of determination on a paid leave of absence or disability
leave, whether short-term or long-term.
"Environmental Laws" shall mean all federal, state, county or local
statutes, laws, regulations, rules, ordinances, codes, judgments, decrees,
orders, licenses, permits or authorizations of any Governmental Authority
relating to environmental matters in existence as of the date hereof, including,
but not limited to, those relating to emissions, deposits, disposals, discharges
or releases of Hazardous Materials into the environment (including, but not
limited to, ambient air, surface water, ground water, land surface or subsurface
strata) or otherwise relating to the generation, manufacture, processing,
distribution, use, treatment, storage, decontamination, clean-up, disposal,
transport or handling of all Hazardous Materials; such term shall not include
any Federal Occupational Safety and Health Administration regulations or
analogous state laws or regulations.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
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<PAGE> 155
"Final Working Capital" shall have the meaning assigned to such term in
Section 3.01(c)(ii) hereof.
"FTC" shall mean the Federal Trade Commission.
"Fee" shall have the meaning assigned to such term in Section 11.08 hereof.
"Final Remedial Amounts" shall have the meaning assigned to such term in
Section 7.06(b) hereof.
"Governmental Authority" shall have the meaning assigned to such term in
Section 4.02(d)(iv) hereof.
"Hazardous Materials" shall mean all toxic and hazardous substances and
wastes and petroleum products.
"Holding" shall have the meaning assigned to such term in the recitals
hereto.
"Holding Stock" shall have the meaning assigned to such term in the
recitals hereto.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"HSR Reports" shall mean the notification and report forms required to be
filed by Buyer and Seller under the HSR Act with respect to the transactions
contemplated hereby.
"Interim Financial Statements" shall have the meaning assigned to such term
in Section 4.08(a) hereof.
"Intellectual Property" means all patents and patent rights, trademarks and
trademark rights, trade names and trade name rights, service marks and service
mark rights, service names and service name rights, inventions, copyrights and
copyright rights, formulae, trade dress, logos, trade secrets, processes,
designs, methodologies and related documentation, manufacturing, engineering and
technical drawings and know-how including any goodwill connected with or
symbolized by the foregoing, in each case solely to the extent any of the
foregoing is Related to the Activity, including but not limited to the items
identified on Schedule 4.13.
"Inventory" shall mean all inventory Related to the Activity or the
Kensington Partners Business, as the case may be, including finished products,
work in progress, raw materials and shop supplies, on and as of the Closing
Date, or the Kensington Closing Date, as the case may be.
"Kensington Balance Sheet" shall mean the unaudited balance sheet of
Kensington Partners for the eight (8) month period ending on the Balance Sheet
Date.
"Kensington Closing" shall mean the closing with respect to the Holding
Stock.
"Kensington Closing Date" shall mean the date on which the Kensington
Closing occurs.
"Kensington Final Remedial Amount" shall have the meaning assigned to such
term in Section 7.06(e) hereof.
" Kensington Interim Financial Statements" shall have the meaning assigned
to such term in Section 4.19 hereof.
"Kensington Licenses" shall have the meaning assigned to such term in
Section 4.18 hereof.
"Kensington Partners" shall have the meaning assigned to such term in the
recitals hereto.
"Kensington Partners Business" shall mean the business of Kensington
Partners.
"Kensington Partners Facility" shall have the meaning assigned to such term
in the recitals hereto.
"Knowledge" of Seller shall mean the actual knowledge, after due inquiry,
of the individuals listed on Schedule 1 hereto.
"Licenses" shall mean all (i) licenses, permits, certificates,
registrations, authorizations, approvals and orders of any Governmental
Authority related to environmental matters and Related to the Activity and (ii)
licenses, permits, certificates, registrations, authorizations, approvals,
orders of any Governmental Authority to own, occupy, use, construct, operate,
maintain and/or sell any building, fixture, facility, equipment, vehicle,
machinery or installation Related to the Activity or to manufacture the products
of the Activity and otherwise
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<PAGE> 156
conduct the Activity or use the Assets; including, but not limited to, those
listed on Schedule 1.01(e) attached hereto but only to the extent Related to the
Activity.
"Lien" shall have the meaning assigned to such term in Section 4.02(d)(ii)
hereof.
"Material Adverse Effect" with respect to Seller or another Person shall
mean (i) a material adverse effect on the business, assets, properties,
condition (financial or other) or results of operations of Seller Related to the
Activity, or of another Person, as the case may be or (ii) a material adverse
effect on the ability of Seller, or such other Person, as the case may be, to
carry out the transactions contemplated by this Agreement.
"Multiemployer Plans" shall have the meaning assigned to such term in
Section 7.03(c) hereof.
"Non-Competition Agreement" shall mean that certain Non-Competition
Agreement in the form of Exhibit 1 hereto.
"Parent" shall have the meaning assigned to such term in the preamble
hereto.
"Partnership Agreement" shall mean the First Amended and Restated
Partnership Agreement by and between ZES, Inc. (f/k/a/ Kensington Manufacturing
Company) and Holding, dated as of February 1, 1994.
"PBGC" shall have the meaning assigned to such term in Section 7.03(c) and
Schedule 4.15 hereof.
"Permitted Encumbrances" shall mean (i) Liens for Taxes and assessments or
charges or levies by any Governmental Authority not at the time due or in
respect of which the validity thereof shall currently be contested in good faith
by appropriate Proceedings, (ii) Liens in respect of pledges or deposits under
workers' compensation laws or similar legislation, carriers', warehousemen's,
mechanics', laborers' and materialmen's and similar Liens, (iii) Liens
incidental to, or in the ordinary course of business of, the Activity which do
not in the aggregate materially detract from the value of the Assets or
materially impair the use thereof in the Activity, (iv) recorded easements,
covenants and other restrictions on the Real Property which will not materially
impair the current use, occupancy, value or marketability of title thereof and
(v) any Liens which are listed on Schedule 2 attached hereto.
"Person" shall mean any individual, partnership, corporation, trust,
unincorporated organization, Governmental Authority or any other entity.
"Phase I Report" shall have the meaning assigned to such term in Section
7.06(a) hereof.
"Plan" shall have the meaning assigned to such term in Section 7.03 hereof.
"Plant" shall have the meaning assigned to such term in the recitals
hereto.
"Prevailing Rate" shall mean the rate announced from time to time by The
Chase Manhattan Bank, N.A., in New York City as its prime rate.
"Proceeding" shall mean any examination, action, hearing, asserted claim,
investigation or lawsuit involving the Activity or the Assets, or the Kensington
Partners Business, as the case may be, by any Governmental Authority.
"Purchase Price" shall mean $47,500,000 in cash.
"Real Property" shall mean the real property owned by Seller in Bardstown,
Kentucky, as described or listed on Schedule 1.01(b) attached hereto.
"Related to the Activity" shall mean used directly by Seller in, arising
directly from or relating directly to the Activity.
"Remedial Amount" shall have the meaning assigned to such term in Section
7.06(b) hereof.
"Retained Assets" shall have the meaning assigned to such term in Section
1.02 hereof.
"Retained Liabilities" shall have the meaning assigned to such term in
Section 2.01 hereof, but, in any event, shall not include the Assumed
Liabilities.
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<PAGE> 157
"Seller" shall have the meaning assigned to such term in the preamble
hereto.
"Senior Secured Lenders" shall mean The Bank of Boston, CoreStates Bank,
N.A. and The Bank of Tokyo.
"Superior Proposal" shall have the meaning assigned to such term in Section
6.04(a) hereof.
"Tax" or "Taxes" shall mean all United States federal, state, local or
foreign gains, gross receipts, value added, windfall profits, severance,
property, ad valorem, production, sales, use, stamp, recording, transfer,
License, excise, franchise, payroll, employment, withholding or other taxes,
charges, fees, duties, levies or other assessments, together with any interest,
additions or penalties with respect thereto and any interest in respect of such
additions or penalties.
"Tax Return" or "Tax Returns" shall mean all tax returns, reports,
declarations, filings, forms or similar items (including any extensions or
amendments related thereto) required to be filed with any taxing authority and
Related to the Activity or arising in connection with the Assets.
Notwithstanding any provision herein to the contrary, such term does not include
any income tax returns.
"Transfer Tax Return" shall have the meaning assigned to such term in
Section 14.14 hereof.
"Union Contract" shall mean the Agreement dated May 1, 1994 between Bird,
Incorporated and General Drivers, Warehousemen and Helpers, Local Union No. 89,
affiliated with the International Brotherhood of Teamsters, Chauffeurs,
Warehousemen and Helpers of America.
"Union Plan" means the Central States, Southeast and Southwest Areas
Pension Plans referenced in Article XV of the Union Contract.
"WARN" shall mean the Worker Adjustment and Retraining Notification Act (29
U.S.C. sec. 2101 et seq.).
"Working Capital" shall mean balance sheet amounts related to the
following: the sum of (i) trade accounts receivable generated in the ordinary
course of business (minus an adequate reserve for doubtful accounts); Inventory
(minus adequate reserves for excess and obsolete Inventory, as well as
appropriate LIFO reserves); prepaid expenses which will benefit the Activity
within twelve (12) months of the Closing, net of amortization; performing trade
notes receivable from customers with terms no longer than twenty-four (24)
months; minus the sum of (ii) Accounts Payable, including amounts payable
related to multi-employer benefit plan obligations being assumed by Buyer under
this Agreement; capital lease obligations payable, whether classified as current
or non-current for purposes of the balance sheet; accrued expenses incurred in
the ordinary course of business, including but not limited to expenses, payroll
and wages, purchases, capital commitments, bonuses, commissions, real estate
taxes, warranty claims, accrued up to the Closing Date but unpaid as of such
date and accruals for all earned but unpaid vacations for Employees who accept
employment with Buyer, such accruals to be measured as of the Closing Date.
"Working Capital" will specifically exclude cash and cash equivalents, reserves
for losses related to Seller's insurance programs, intercompany accounts
receivable and/or payable, and amounts owed to any Plan not transferred to or
assumed by the Buyer.
I. ASSETS
1.01 Assets to be Transferred. On the Closing Date, Seller shall sell,
convey, transfer, assign and deliver to Buyer and Buyer shall purchase, accept
and acquire all of Seller's right, title and interest in and to all of Seller's
assets and properties, wherever located, that are Related to the Activity,
including without limitation the items described in this Section 1.01 but not
including the assets and properties set forth in Section 1.02 hereof, and all
rights and privileges of the character and description set forth below, whether
real or personal, whether tangible or intangible and whether accrued or
otherwise (together, the "Assets"):
(a) All assets and properties Related to the Activity including, but
not limited to, all office, groundskeeping, furnace and heating,
ventilation and air conditioning equipment, furniture and fixtures, and all
manufacturing and material handling equipment, accessories, tooling and
dies located at the Plant.
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(b) Fee title, by general warranty deed, free and clear of all Liens
(other than Permitted Encumbrances), to all of the Real Property, as set
forth on Schedule 1.01(b) attached hereto, including all improvements,
structures and fixtures thereon, and all easements, tenements,
hereditaments, appurtenances and rights of way pertaining thereto and any
award made or to be made in lieu thereof and in and to any unpaid award for
damages for the taking of any portion of the Real Property.
(c) All Inventory, including work-in-progress and all materials, hand
tools, supplies and spare parts Related to the Activity.
(d) In each case solely to the extent Related to the Activity: copies
of all of Seller's books and records, files and papers Related to the
Activity, including, but not limited to a current list of customers and a
customer mailing list; customer credit, collection and sales records;
warranty records; Seller's computer software and computer programs used in
connection with the Activity and all documentation, narrative description,
data processing tapes and records related thereto; real and personal
property Tax Returns and assessments; drawings and specifications,
engineering, design and manufacturing information; processes and
prototypes; manuals, data and know-how; spare parts lists; research and
development records; product testing records; personnel, employment and
records pertaining to Employees to be offered employment by Buyer; shipping
records, manifests, reports or other books and records relating to on-site
or off-site disposal of waste and other Hazardous Materials; purchasing
records and supplier lists; and supplier contracts, agreements, commitments
or orders for the purchase of raw materials, supplies, components,
equipment, packaging material or other items Related to the Activity.
(e) All of the Licenses listed on Schedule 1.01(e) attached hereto.
(f) Title to, or Seller's leasehold interest in, all automobiles, vans
and such other transportation equipment which, as of the Closing Date, are
owned or leased by Seller and Related to the Activity, except those listed
on Schedule 1.02(c) attached hereto.
(g) All rights of Seller as of and subsequent to the Closing Date
under or pursuant to all warranties, representations and guarantees made by
suppliers or others in connection with products or services furnished to
Seller prior to the Closing Date and Related to the Activity, except for
those related to assets to be retained by Seller, as described in Section
1.02 hereof.
(h) Subject to Section 1.02 hereof, all rights and interests of Seller
to all existing, pending or executory contracts and purchase orders and
commitments which are Related to the Activity, including but not limited to
(i) those contracts listed on Schedule 1.01(h)attached hereto and (ii)
those contracts with respect to personal property,
construction-in-progress, the purchase of materials, supplies and services
from independent contractors, and all contracts, agreements and commitments
of Seller Related to the Activity which are entered into between the date
of this Agreement and the Closing Date in the ordinary course of business
in accordance with Section 6.02 hereof.
(i) All accounts receivable Related to the Activity.
(j) The benefit of all prepaid expenses Related to the Activity.
(k) All goodwill Related to the Activity.
(l) The right, in accordance with a License Agreement, in the form of
Exhibit 2 attached hereto, to be entered into between Seller and Buyer, to
use the "Bird" name and logo, as identified on Schedule 1.01(1) attached
hereto, for products, promotional literature, advertising and services
offered in connection with the sale and marketing of vinyl siding and
window profiles and the purchase for resale of vinyl products.
(m) All Intellectual Property.
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1.02 Assets to be Retained. Seller shall not sell or transfer and Buyer
shall not purchase or accept the following (collectively, the "Retained
Assets"):
(a) All unliquidated and contingent claims of Seller of every kind and
description Related to the Activity, including, but not limited to, volume
discounts, claims against suppliers or others in connection with products
or services furnished to Seller prior to the Closing Date, claims under
insurance policies, rebates, utility rate refunds, Tax refunds or credits
(including but not limited to income tax refunds or credits), which Seller
may have against any party in connection with the conduct of the Activity
prior to the Closing Date; provided, however, that, with respect to any
asset reflected on the balance sheet included in the Interim Financial
Statement which is not reflected on the Closing Balance Sheet because such
asset is subject to a casualty occurring between the Balance Sheet Date and
the Closing Date, Buyer shall be entitled to all of Seller's rights under
Seller's insurance policies with respect to such asset.
(b) Except as provided in Section 1.01(m) hereof, any right to use
intellectual property of Seller. Specifically, except as expressly provided
in the License Agreement, nothing in this Agreement shall be construed as
granting to Buyer any right or privilege to use in any manner whatsoever
the trademark, trade name, service mark or service name "Bird" in logo type
or in any other style or any other trademark, trade name, service mark or
service name owned, used by, belonging to or registered in the name of
Seller.
(c) All of the assets set forth on Schedule 1.02(c) attached hereto.
(d) All cash, bank deposits, security deposits and cash equivalents.
(e) All technology, product formulae, manufacturing and production
methods, processes, designs, written records of Inventory, and know-how,
other than those Related to the Activity.
(f) All utility deposits for water, gas, telephone, electricity and
other utilities.
(g) All assets owned by any of the Plans.
(h) The charter documents, minute books, stock transfer books, and
corporate seal of Seller.
1.03 Holding Stock. In addition, Buyer shall have the option, subject to
the fulfillment by Holding of its obligations under the Partnership Agreement,
to purchase, accept and acquire all of Seller's right, title and interest in and
to the Holding Stock. Such option may be exercised in writing by Buyer to Seller
at any time after February 2, 1995 and prior to February 28, 1995.
II. LIABILITIES
2.01 Retained Liabilities. Buyer shall not assume any liabilities or
obligations, whether fixed, unliquidated, absolute, contingent or otherwise,
other than those described in Sections 2.02 or 7.03 hereof or set forth on
Schedule 2.02 attached hereto, and Seller shall retain and be responsible for
all liabilities and obligations of Seller Related to the Activity not assumed by
Buyer. Without limiting the generality of the foregoing, Buyer shall not assume
any, and Seller shall retain and be responsible for all, of the following
liabilities and obligations of Seller, all of which will be included in the term
"Retained Liabilities", whether or not asserted and whether or not ripe,
inchoate, contingent or liquidated:
(a) any liability or obligation of Seller for income taxes or charges
by any Governmental Authority (or payments with respect thereto) relating
to income derived by Seller from the Activity and attributable to periods
ending before the Closing Date.
(b) any indebtedness of Seller which is not reflected on the Closing
Balance Sheet; provided, that Buyer shall be responsible for and shall pay
all Accounts Payable Related to the Activity and reflected on the Closing
Balance Sheet.
(c) any liability or obligation of Seller Related to the Activity
arising out of litigation or administrative proceedings commenced or
instituted on or before, or any liability or obligation of Seller
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relating to claims by any Employee which claims arose from the conduct of
the Activity or the ownership or use of the Assets on or before, the
Closing Date.
2.02 Assumed Liabilities. Buyer hereby assumes and agrees that on the
Closing Date, Buyer shall by appropriate instruments assume and agree to pay,
perform and discharge when due the outstanding liabilities and obligations of
Seller Related to the Activity which (i) are required under generally accepted
accounting principles, consistently applied, to be reflected on the Closing
Balance Sheet and which are included in the calculation of Working Capital, (ii)
arise from any product warranty claims related to goods manufactured and sold by
Seller as part of the Activity asserted after the Closing Date other than those
referred to in Section 2.01(c), (iii) are related to the Licenses, leases,
agreements, purchase orders, contracts and commitments transferred to Buyer
pursuant hereto, and which are not required under generally accepted accounting
principles to be reflected on a balance sheet of Seller as of the Closing Date
and which, in the case of matters covered by Section 7.03 hereof, are expressly
assumed pursuant to such Section, (iv) relate to environmental claims or
remediation, (v) are set forth on Schedule 2.02 attached hereto, or (vi) are
expressly assumed pursuant to Section 7.03 hereof (together, the "Assumed
Liabilities").
III. PURCHASE PRICE AND ADJUSTMENTS
3.01 Payment of Purchase Price.
(a) The consideration to be given by Buyer to Seller at Closing for the
Assets shall be (i) the payment of the Purchase Price, and (ii) the assumption
of the Assumed Liabilities. The Purchase Price shall be paid to Seller by wire
transfer of immediately available funds at Closing to such account with a bank
which is located within the United States of America and is a member of the
Federal Reserve System as may be specified in writing by Seller (the "Account").
(b) In the event that the Purchaser makes the election provided for in
Section 1.03, and the Kensington Closing occurs, the consideration to be given
to Seller at the Kensington Closing for the Holding Stock shall be (i) the
payment of the Additional Purchase Price and (ii) the assumption by Buyer,
pursuant to appropriate instruments of assumption, of all obligations of Seller
and the Parent to guarantee or perform any obligation of Holding or Kensington
Partners or to indemnify any Person on behalf of Holding or Kensington Partners
under the agreements specified on Schedule 3.01(b) attached hereto. Buyer shall
pay the Additional Purchase Price to Seller by wire transfer of immediately
available funds at the Kensington Closing to the Account.
(c) The total consideration payable pursuant hereto for the Assets shall be
adjusted as follows:
(i) Within thirty (30) days following the Closing Date, Seller shall
cause to be delivered to Buyer a balance sheet reflecting the assets and
liabilities of Seller Related to the Activity as of the Closing Date (the
"Closing Balance Sheet"), which Closing Balance Sheet shall set forth the
Working Capital as of the Closing Date, shall be prepared in accordance
with generally accepted accounting principles following an actual inventory
count at the Plant conducted by Seller (and observed by Buyer) on the
Closing Date. The "Schedule of Working Capital" reflected on such Closing
Balance Sheet shall be audited by Seller's accountants (such audit to
include the issuance of a special report indicating that such "Schedule of
Working Capital" has been prepared in accordance with generally accepted
accounting principles consistently applied by the Seller and the relevant
definitions under this Agreement, except for the fact that such Schedule
will not include the footnotes normally required by generally accepted
accounting principles). Buyer's accountants may participate in and observe
the preparation of the Closing Balance Sheet and in the review by Seller's
accountants. Seller and Seller's accountants shall, upon Buyer's request,
make all of their work papers and other relevant documents in connection
with the preparation of the Closing Balance Sheet available to Buyer and
Buyer's accountants, and shall make, upon Buyer's request, the person in
charge of the preparation of the Closing Balance Sheet available for
reasonable inquiry by Buyer and Buyer's accountants. Seller and Buyer shall
share equally the cost of such audit by Seller's accountants; provided that
Buyer shall not be required to pay more than $15,000 therefor. If Buyer
fails to timely notify Seller of its disagreement with the Working Capital
set forth on the Closing
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Balance Sheet in accordance with the first sentence of the next succeeding
paragraph, such Working Capital shall be final and binding on Seller and
Buyer for purposes of this paragraph (c).
(ii) To the extent that the Working Capital as of the Closing Date
determined in accordance herewith (the "Final Working Capital"), is less
than $15 million, then Seller shall, within five (5) days following the
date of the determination of the Final Working Capital, pay the difference
between the Final Working Capital and $15 million (together with interest
thereon at the Prevailing Rate for the period from the Closing Date to and
including the date of such payment) to Buyer by wire transfer of
immediately available funds.
3.02 Resolution of Disputes.
(a) Buyer shall notify Seller in writing within twenty (20) days following
receipt of the Closing Balance Sheet if it does not agree with the Working
Capital set forth thereon, in which case Seller and Buyer will use good faith
efforts during the fifteen (15) day period following the date of such written
notice to resolve any differences they may have as to such Working Capital. Such
written notice will identify with specificity the calculations with which Buyer
disagrees or other bases for such disagreement. If Seller and Buyer cannot reach
agreement during such fifteen (15) day period, their disagreements shall be
promptly submitted to the Accountants, which shall conduct such additional
review as is necessary to resolve the specific disagreements referred to it and
shall determine the Working Capital as of the Closing Date. The review of the
Accountants shall be conducted in accordance with Seller's accounting policies
and procedures, and will be restricted as to scope to address only those matters
as to which Seller and Buyer have not reached agreement pursuant to the
preceding sentence. The Accountants' determination of the Working Capital as of
the Closing Date, which shall be completed as promptly as practicable but in no
event later than thirty (30) days following referral of the dispute to the
Accountants, shall be confirmed by the Accountants in writing to, and shall be
final and binding on, Seller and Buyer for purposes of this paragraph (a).
(b) Notwithstanding anything in this Agreement to the contrary, no party
may contest any amount set forth in the Closing Balance Sheet unless the
aggregate amount in dispute for all such items exceeds Two Hundred Thousand
Dollars ($200,000).
3.03 Allocation. The Purchase Price and the amount of Assumed Liabilities
hereunder shall be allocated among the Assets to be transferred hereunder in
accordance with Section 1060 of the Code and the Treasury Regulations
promulgated thereunder, in an allocation agreement to be prepared by Buyer and
agreed to by Seller, and such allocation shall be included on Internal Revenue
Service Form 8594. Buyer and Seller shall agree on the allocation of the
Purchase Price and the Assumed Liabilities to be included on Form 8594 prior to
the Closing Date. Any adjustment to the Purchase Price shall be made prior to
the earliest date that either Buyer or Seller is required to file a Tax Return
after the Closing Date. Any such adjustment shall result in a corresponding
adjustment to the allocations contained in the allocation agreement described
above on a basis consistent with Section 1060 of the Code and the Treasury
Regulations promulgated thereunder.
Buyer and Seller agree to act in accordance with the computations and
calculations contained in the allocation agreement described above in any
relevant Tax Returns or similar filings (including Form 8594 or any other forms
or reports required to be filed pursuant to Section 1060 of the Code or the
Treasury Regulations promulgated thereunder) and to cooperate in the preparation
of any such forms or reports and to file such forms or reports in the manner
required by applicable law.
3.04 Non-Competition Agreement. Upon the terms and subject to the
conditions set forth in this Agreement and in consideration of the payment of
$25,000 of the Purchase Price payable pursuant to Section 3.01 hereof to Seller
at the Closing, Buyer and Seller shall each execute and deliver to the other
counterparts of the Non-Competition Agreement. The amount allocated pursuant to
this Section 3.04 shall be used for all Tax purposes by Buyer and Seller.
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IV. REPRESENTATIONS AND WARRANTIES OF SELLER AND THE PARENT
Seller and the Parent make the following representations and warranties to
Buyer, each of which is true and correct on the date hereof, and Seller and the
Parent acknowledge Buyer's reliance on the truth and correctness of such
representations and warranties:
A. Relating to the Assets, Assumed Liabilities and the Activity.
4.01 Seller's Organization and Authority. Each of Seller and the Parent
(i) is a corporation duly organized and validly existing and in good standing
under the laws of the Commonwealth of Massachusetts, (ii) has the corporate
power and authority to own, lease, convey and assign the Assets and the Assumed
Liabilities, in the case of Seller, and its respective assets, in the case of
the Parent, to carry on the Activity, in the case of Seller, and its business,
in the case of the Parent, as it is now being conducted and to enter into and
perform the transactions contemplated by this Agreement and (iii) is duly
qualified to do business and is in good standing in Kentucky, in the case of
Seller, and, in the case of Seller and the Parent, in every other state in which
the failure to so qualify would have a Material Adverse Effect.
4.02 Performance of Agreements.
(a) Each of Seller and the Parent has requisite corporate power and
authority to execute and deliver this Agreement, and, subject to the
satisfaction of the conditions set forth herein, to consummate the transactions
contemplated hereby.
(b) This Agreement has been approved by the Board of Directors of each of
Seller and the Parent and, except for any required approval of the shareholders
of the Parent, no other corporate proceeding on the part of Seller or the Parent
is necessary to authorize this Agreement or to consummate the transactions
contemplated hereby.
(c) This Agreement has been duly and validly executed and delivered by each
of Seller and the Parent and is a valid and binding agreement of each of Seller
and the Parent, enforceable against each of Seller and the Parent in accordance
with its terms, except in each case as such enforceability may be limited by
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
similar laws now or hereafter in effect relating to creditors' rights generally,
and by equitable principles (whether considered in a proceeding at law or in
equity).
(d) Except as set forth on Schedule 4.02(d) attached hereto, neither the
execution and delivery by Seller or the Parent of this Agreement nor the
consummation by Seller or the Parent of the transactions contemplated hereby
will:
(i) conflict with or result in a breach of any provision of the
respective articles of organization or by-laws of such Person;
(ii) result in the creation of any material lien, mortgage, charge,
option, security interest, claim, restriction, easement, covenant, lease or
encumbrance ("Lien") upon any of the assets of such Person;
(iii) with or without the giving of notice or the passage of time, or
both, violate, or conflict with, or constitute a default under, or result
in the termination or in a right of termination of, result in a breach of
any term or provision of, or accelerate or permit the acceleration of the
performance required by, or give any other Person a basis for increased
rights or termination or nonperformance under, or require any consent,
authorization or approval under, any term or provision of any Lien or any
contract Related to the Activity to which such Person is a party or by
which such Person is bound;
(iv) violate in any respect any provision of, or require any consent,
authorization or approval under, any statute, law, ordinance, or
administrative rule or regulation, License, or order of any governmental
agency, body or instrumentality (whether Federal, state, local or foreign)
("Governmental Authority"), or any judicial, administrative or arbitration
order, award, judgment, writ, injunction or decree, in each case Related to
the Activity; or require any declaration, filing or registration with, any
Governmental Authority, to be made or obtained by or on behalf of such
Person except (i) as required by the Securities
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Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder and (ii) filings with the FTC and with the Anti-Trust Division
pursuant to the HSR Act.
4.03 Good Title. Except as set forth in Schedule 4.03 attached hereto,
Seller owns and, except for and subject to Permitted Encumbrances, Seller will
convey on the Closing Date, good and valid (and in the case of Real Property,
marketable and fee simple, and in the case of personal property good and
marketable) title to all of the Assets owned by it and all of Seller's rights
in, to and under the Assets not owned by Seller, free and clear of any Liens,
except for Permitted Encumbrances. Seller has received no written notice and has
no knowledge of any taking or proposed taking of all or any portion of the Real
Property.
4.04. Condition of Assets. The Assets, together with the assets described
in Section 1.02 hereof, include all assets which are currently being used by
Seller in connection with the conduct of the Activity as presently conducted.
Seller has adequate rights of ingress and egress to the Real Property for the
conduct of the Activity in the ordinary course. No personal property used by
Seller Related to the Activity is held under any lease, security agreement,
conditional sales contract, or other title retention or security arrangement or
is subject to any mortgage, loan or other encumbrance, or is located other than
in the possession of Seller, except as set forth in Schedule 4.04 attached
hereto. The tangible Assets (other than the Real Property), taken as a whole,
are in good and serviceable condition (ordinary wear and tear excepted) and have
been maintained in the ordinary course of business in accordance with industry
standards. Except as set forth in Section 4.10 hereof and as expressly provided
in Section 4.04 hereof, no representation or warranty is made with respect to
the physical condition of the Real Property, which shall be transferred to Buyer
"as is".
4.05 Litigation. Except as set forth in Schedule 4.05 attached hereto,
Seller is not engaged in, and there is not pending, nor has Seller received
written notice of, any legal action, suit, investigation, inquiry or Proceeding
by any Person which relates to the Activity in which the amount claimed or at
issue exceeds One Hundred Thousand Dollars ($100,000).
4.06 Material Contracts. Seller has heretofore delivered or made
available to Buyer true and complete copies of each contract, agreement,
commitment, and lease Related to the Activity, which requires payments or the
giving of consideration or value by Seller in excess of One Hundred Thousand
Dollars ($100,000), except for contracts for the purchase of inventory or
supplies or utility services which are terminable at will or with not greater
than sixty (60) days notice, and purchase orders and other contracts entered
into in the ordinary course of business. All of such contracts, agreements,
leases and commitments are listed in Schedule 4.06 attached hereto. Such
contracts, agreements, commitments, and leases are legal, valid and binding
obligations of Seller. Except as set forth on Schedule 4.06, neither Seller nor,
to the knowledge of Seller, any third party, is in default under any such
contract, agreement, commitment or lease.
4.07 Authorization and Compliance with Laws. Except as disclosed on
Schedules 4.07 and 4.10 attached hereto, Seller is currently conducting the
Activity in accordance with all applicable laws and is not the subject of any
Proceeding (or resulting order or decree) involving the United States Equal
Opportunity Commission, the United States Department of Labor or the Americans
with Disabilities Act. Schedule 1.01(e) attached hereto sets forth a correct and
complete list of all Licenses of any domestic or foreign Governmental Authority,
which are presently held by or issued in the name of Seller in connection with
and Relating to the Activity. To the best of Seller's knowledge none of such
Licenses is currently subject to any proceeding or warning relating to any
violation or any failure of any condition. This Section 4.07 does not relate to
environmental representations and warranties, which matters are exclusively the
subject of Section 4.10.
4.08 Balance Sheet.
(a) Seller has previously delivered to Buyer the Balance Sheet as of the
Balance Sheet Date, and the related consolidated statements of income and cash
flows for the eight (8) month period then ended (the "Interim Financial
Statements"). The Interim Financial Statements present fairly, in all material
respects, the financial position and results of operations of Seller Related to
the Activity in accordance with generally accepted accounting principles,
consistently applied with prior periods, except that the Interim Financial
Statements do not contain footnotes and will be subject to normal year-end
adjustments.
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(b) Seller has previously delivered to Buyer audited year-end balance
sheets and statements of income and cash flow Related to the Activity as of
December 31, 1993, 1992 and 1991. Such balance sheets and the notes thereto, if
any, present fairly, in all material respects the financial position of Seller
Related to the Activity as at the respective dates thereof, and such statements
of operations and cash flow and the notes thereto, if any, present fairly, in
all material respects, the results of operations of Seller Related to the
Activity for the periods therein referred to in accordance with generally
accepted accounting principles, consistently applied with prior periods.
(c) All accounts receivable included in the Assets, whether reflected on
the Balance Sheet or subsequently created, have arisen from bona fide
transactions in the ordinary course of business and, except as disclosed on
Schedule 4.08(c), none of such accounts receivable is subject to any deferred
payment arrangement.
4.09 Absence of Certain Changes. Except as set forth on Schedule 4.09
attached hereto, since the Balance Sheet Date, Seller has conducted its business
in the ordinary course, and there has not been (i) any event, change or
circumstance causing, or reasonably anticipated to cause in the future, any
Material Adverse Effect or (ii) any damage, destruction or loss, whether or not
covered by insurance, that has or could have a Material Adverse Effect.
4.10 Environmental Matters.
(a) Except as disclosed on Schedule 4.10 attached hereto, the Assets and
their existing uses comply with, and Seller is not in violation, breach or
default under, any applicable Environmental Laws in connection with the
ownership, use, maintenance or operation of any of the Assets and the conduct of
the Activity on the Real Property.
(b) Except as disclosed in Schedule 4.10 attached hereto, since January 1,
1993, Seller has not received any written notice, communication or claim under
any Environmental Law from any regulatory agency having responsibility under
such laws purporting to require any construction or capital expenditures,
correction, repair, alteration or modification of the conduct of the Activity or
the use of the Assets.
(c) Except as set forth in Schedule 4.10 attached hereto, since January 1,
1993, Seller has not received any written notice from any person that it is a
potentially responsible party under CERCLA or any analogous state law as the
result of any disposal of any material, waste or substance used in the Activity
at a location other than the Real Property, nor has Seller received notice in
writing that the Real Property is listed on any federal, state, county or local
list of properties on which any Hazardous Materials are present or any violation
of any Environmental Law has occurred or is threatened.
(d) Except as set forth in Schedule 4.10 there are no above-ground or
underground storage tanks on the Real Property.
4.11 Taxes. Seller is not a "foreign person" as that term is defined in
Section 1445(f)(3) of the Code.
4.12 Inventory. Except as disclosed in Schedule 4.12 attached hereto, all
items included in the Inventory are the property of Seller, free and clear of
any Liens (other than Permitted Encumbrances), have not been pledged as
collateral and are not held by Seller on consignment from others. Except as
disclosed in Schedule 4.12 attached hereto, the Inventory is of a quality usable
or saleable in the ordinary course of business consistent with industry
practices, subject to normal and customary allowances by Seller for spoilage,
damage and outdated items. To the knowledge of Seller, no condition exists with
respect to the Activity and the products produced in connection with the
Activity which is reasonably likely to expose the owner of the Activity to an
increase in product warranty claims after the Closing, as compared to the period
prior to the Closing.
4.13 Transferred Intellectual Property. Schedule 4.13 attached hereto
contains a list of all patents, trademarks and copyrights relating specifically
to the Activity, identifies whether such Intellectual Property is owned by
Seller, an Affiliate of Seller or any other Person and lists any contracts
pursuant to which Seller uses such Intellectual Property. Except as disclosed in
Schedule 4.13 attached hereto, (i) all registrations with and applications to
Governmental Authorities in respect of the Intellectual Property are valid and
in full force and
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effect, (ii) no Person has any right to receive, or any obligation to pay, any
royalty on such Intellectual Property, (iii) Seller is not, nor has it received
any notice that it is, in default (or, with the giving of notice or lapse of
time or both, would be in default) in any material respect under any contract to
use Intellectual Property, (iv) to Seller's knowledge, the Intellectual Property
is not being infringed by any other Person in any material respect and no other
Person is in default (or, with the giving of notice or lapse of time or both,
would be in default) in any material respect under any contract pursuant to
which Seller uses the Intellectual Property and (v) since January 1, 1993,
Seller has not received written notice that it is infringing, nor is Seller
currently infringing, any Intellectual Property or any other Person in any
material respect in connection with the operation of the Activity, other than
any claim of infringement that has been resolved.
B. Relating to Holding and Kensington Partners.
4.14 Holding's Organization and Authority; Subsidiaries. Holding (i) is a
corporation duly organized and validly existing and in good standing under the
laws of the State of Delaware, (ii) has the corporate power and authority to own
or lease its assets and to carry on its business and (iii) is duly qualified to
do business and is in good standing in every state in which the failure to so
qualify would have a Material Adverse Effect.
4.15 Title. Except as set forth in Schedule 4.15 attached hereto, Holding
and, to the knowledge of Seller, Kensington Partners owns good and valid (and in
the case of real property, marketable and fee simple and in the case of personal
property good and marketable) title to all of the assets owned by it, free and
clear of any Liens, except for Permitted Encumbrances. Holding and, to the
knowledge of Seller, Kensington Partners, has received no written notice and has
no knowledge of pending or contemplated condemnation Proceedings affecting any
real property owned or leased by it. The tangible assets (other than real
property), taken as a whole, of Holding, and to the knowledge of Seller,
Kensington Partners are in good and serviceable condition and have been
maintained in the ordinary course of business in accordance with industry
standards.
4.16 Holding Litigation. Except as set forth in Schedule 4.16 attached
hereto, neither Holding nor, to the knowledge of Seller, Kensington Partners is
engaged in, and there is not pending, nor has Holding nor, to the knowledge of
Seller, Kensington Partners, received written notice of, any legal action, suit,
investigation, inquiry or preceding by and Person which relates to the
Kensington Partners Business in which the amount claimed or at issue exceeds One
Hundred Thousand Dollars ($100,000).
4.17 Contracts. Seller has heretofore made available to Buyer true and
complete copies of each contract, agreement, commitment, and lease related to
the Kensington Partners Business which requires payments or the giving of
consideration or value in excess of One Hundred Thousand Dollars ($100,000),
except for contracts for the purchase of inventory or supplies or utility
services which are terminable at will or with not greater than sixty (60) days
notice, and purchase orders and other contracts entered into in the ordinary
course of business. To the knowledge of Seller, all of such contracts,
agreements, leases and commitments are listed in Schedule 4.17 attached hereto.
Such contracts, agreements, commitments, and leases are legal, valid and binding
obligations of Holding and, to the knowledge of Seller, Kensington Partners.
Holding is not and, to the knowledge of Seller, neither Kensington Partners nor
any third party, is in default under any such contract, agreement, commitment or
lease.
4.18 Compliance with Laws. Except as disclosed on Schedule 4.18 attached
hereto, Holding and, to the knowledge of Seller, Kensington Partners is
currently conducting business in accordance, in all material respects, with all
applicable laws and is not the subject of any Proceeding (or resulting order or
decree) involving the United States Equal Employment Opportunity Commission, the
United States Department of Labor or the Americans with Disabilities Act. To the
knowledge of Seller, Schedule 4.18 attached hereto sets forth a correct and
complete list of all licenses, permits, certificates, registrations,
authorizations, approvals and orders of any Governmental Authority related to
the Kensington Partners Business (the "Kensington Licenses"), which are
presently held by or issued in the name of Kensington Partners in connection
with and relating to the Kensington Partners Business. To Seller's knowledge,
none of such Kensington Licenses is currently subject to any Proceeding or
warning relating to any violation or any failure of any condition. This Section
4.18 does not relate to environmental representations and warranties, which are
exclusively the subject of Section 4.21.
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4.19 Kensington Balance Sheet. (a) Seller has previously delivered to
Buyer the Kensington Balance Sheet as of the Kensington Balance Sheet Date, and
the related consolidated statements of income, stockholders' equity and cash
flows for the eight (8) month period then ended (the "Kensington Interim
Financial Statements"). To the knowledge of Seller, the Kensington Interim
Financial Statements present fairly, in all material respects, the financial
position and results of operations of Kensington Partners in accordance with
generally accepted accounting principles, consistently applied with prior
periods, except that the Kensington Interim Financial Statements do not contain
footnotes and will be subject to normal year-end adjustments.
(b) Seller has previously delivered to Buyer audited year-end balance
sheets and statements of operation and cash flow as at December 31, 1992 and
1993. Such balance sheets and the notes thereto present fairly, in all material
respects the financial position of Kensington Partners as of the respective
dates thereof, and such statements of income and cash flow and the notes thereto
present fairly, in all material respects, the results of operations of the
Kensington Partners Business for the periods therein referred to in accordance
with generally accepted accounting principles, consistently applied with prior
periods.
4.20 Certain Changes. Except as set forth on Schedule 4.20 attached
hereto, since the Balance Sheet Date, Holding and, to the knowledge of Seller,
Kensington Partners has each conducted its business in the ordinary course, and
there has not been (i) any event, change or circumstance causing, or reasonably
anticipated to cause in the future, any Material Adverse Effect or (ii) any
damage, destruction or loss, whether or not covered by insurance, that has or
could have a Material Adverse Effect. Holdings has not, since the Balance Sheet
Date, declared, paid or set aside for payment any dividend or distribution in
respect of its capital stock.
4.21 Environmental Matters.
(a) Except as disclosed on Schedule 4.21 attached hereto, neither Holding
nor, to the knowledge of Seller, Kensington Partners is in violation, breach or
default in any material respect of, in connection with the ownership, use,
maintenance or operation of any of its material assets and the conduct of the
Kensington Partners Business, any applicable Environmental Laws.
(b) Except as disclosed in Schedule 4.21 attached hereto, since January 1,
1993, neither Holding nor, to the knowledge of Seller, Kensington Partners, has
received any written notice, communication or claim under any Environmental Law
from any regulatory agency having responsibility under such laws purporting to
require any construction or capital expenditures, correction, repair, alteration
or modification of the conduct of Holding or Kensington Partners.
(c) Except as set forth in Schedule 4.21 attached hereto, since January 1,
1993, neither Holding nor, to the knowledge of Seller, Kensington Partners, has
received any written notice from any person that it is a potentially responsible
party under CERCLA or any analogous state law as the result of any disposal of
any material, waste or substance used in the Kensington Partners Business, nor
to the knowledge of Seller is any real property used in the Kensington Partners
Business listed on any federal, state, county or local list of properties on
which any Hazardous Materials are present or any violation of any Environmental
Law has occurred or is threatened.
(d) To the knowledge of Seller, except as set forth on Schedule 4.21, there
are no above-ground or underground storage tanks on the real property owned or
operated by Kensington Partners in connection with the Kensington Partners
Business.
4.22 Taxes.
(a) Except as set forth on Schedule 4.22(a) attached hereto, as of the
Closing Date all Tax Returns required to be filed by Holding and, to the
knowledge of Seller, Kensington Partners have been duly and timely filed and all
Taxes stated as due under such Tax Returns have been fully paid. Except for such
Taxes, if any, as may be contested in good faith and as to which adequate
reserves have been provided in accordance with generally accepted accounting
principles, Holding and, to the knowledge of Seller, Kensington Partners
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has each paid, or will pay, all Taxes, the non-payment of which could result in
a Lien, except Permitted Encumbrances and as disclosed on Schedule 4.22(a), on
any of its respective material assets.
(b) Neither Holding nor, to the knowledge of Seller, Kensington Partners,
is a "foreign person" as that term is defined in Section 1445(f)(3) of the Code.
4.23 Capitalization of Holding; Interest in Kensington Partners.
(a) The authorized capital stock of Holding consists of 1,000 shares of
common stock of Holding. As of the date hereof, 100 shares of common stock were
issued and are outstanding. All of such shares are duly and validly issued and
outstanding, fully paid and nonassessable. Seller owns and will convey on the
Kensington Closing Date, good and marketable title to the Holding Stock, free
and clear of all Liens.
(b) Except as set forth in this Section 4.23 or on Schedule 4.23(b)
attached hereto, there are no other shares of capital stock of Holding, or
securities convertible into or exchangeable or exercisable for shares of capital
stock of Holding, outstanding, and there are no outstanding options, warrants,
rights, contracts, commitments, understandings, arrangements or claims of any
character by which Holding is or may become bound to issue, transfer, sell,
repurchase or otherwise acquire or retire any shares of capital stock or other
ownership interest of Holding, or any securities convertible into or
exchangeable or exercisable for any such shares or other ownership interest.
There are no voting trusts or other agreements or understandings to which
Holding or Seller is a party with respect to the voting of the capital stock of
Holding.
(c) Holding is a general partner in Kensington Partners, pursuant to and
with the rights and obligations set forth in the Partnership Agreement. A true,
correct and complete copy of the Partnership Agreement has been provided to
Buyer. Except for its general partner interest in Kensington Partners and as set
forth on Schedule 4.23(c), Holding conducts no material activities and has no
material assets or liabilities.
4.24 Kensington Inventory. Except as disclosed in Schedule 4.24 attached
hereto, to the knowledge of Seller, all items included in the inventory of
Kensington Partners are the property of Kensington Partners, free and clear of
any Liens (other than Permitted Encumbrances), have not been pledged as
collateral and are not held by Kensington Partners on consignment from others.
Except as disclosed in Schedule 4.24 attached hereto, to the knowledge of
Seller, such inventory is of a quality usable or saleable in the ordinary course
of business consistent with industry practices, subject to normal and customary
allowances in the industry for spoilage, damage and outdated items. To the
knowledge of Seller, no condition exists with respect to the Kensington Partners
Business and the products produced in connection with the Kensington Partners
Business which is reasonably likely to expose Kensington Partners to an increase
in product warranty claims after the Kensington Closing, as compared to the
period prior to the Kensington Closing.
4.25 Kensington Intellectual Property. To the knowledge of Seller,
Schedule 4.25 attached hereto contains a list of all patents, trademarks and
copyrights relating specifically to the Kensington Partners Business, identifies
whether such intellectual property is owned by Kensington Partners, an Affiliate
of Kensington Partners or any other Person and lists contracts pursuant to which
Kensington Partners uses such intellectual property. Except as disclosed in
Schedule 4.25 attached hereto, to Seller's knowledge, (i) all registrations with
and applications to Governmental Authorities in respect of such intellectual
property are valid and in full force and effect, (ii) no Person has any right to
receive, or any obligation to pay, any royalty on such Intellectual Property,
(iii) Kensington Partners, is not, nor has Kensington Partners received any
notice that it is, in default (or, with the giving of notice or lapse of time or
both, would be in default) in any material respect under any contract to use
such intellectual property, (iv) such intellectual property is not being
infringed by any other Person in any material respect and no other Person is in
default (or, with the giving of notice or lapse of time or both, would be in
default) in any material respect under any contract pursuant to which Kensington
Partners uses such intellectual property and (v) since January 1, 1993,
Kensington Partners has not received written notice that it is infringing, nor
is Kensington Partners currently infringing, any intellectual property of any
other Person in any material respect in connection with the operation of the
Kensington Partners Business, other than any claim of infringement that has been
resolved.
4.26 Business of Kensington Partners. The Kensington Partners Business
consists of the fabrication of vinyl windows at the Kensington Partners
Facility, the sale thereof and related activities and, except as set
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forth on Schedule 4.26, Kensington Partners has no investments in, or joint
ventures or partnerships with, any other Person or any liabilities resulting
from any prior such investments, joint ventures or partnerships.
4.27 Brokerage. There are and will be no claims against Buyer, the
Assets, Holding Stock or Kensington Partners Business for brokerage commissions,
finders' fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement binding
upon Seller or the Parent.
V. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer makes the following representations and warranties to Seller, each of
which is true and correct on the date hereof:
5.01 Buyer's Organization and Authority. Buyer (i) is a corporation duly
organized and validly existing and in good standing under the laws of the state
of Delaware, and (ii) has the corporate power and authority to own, purchase,
assume or lease the Assets and the Assumed Liabilities, to conduct the Activity
as it is now being conducted, and to enter into and perform the transactions
contemplated by this Agreement and the other Buyer Documents.
5.02 Performance of this Agreement. The execution, delivery and
performance by Buyer of this Agreement, and all of the Buyer Documents, has been
duly authorized and approved by all requisite corporate action of Buyer. This
Agreement has been duly executed and delivered by Buyer and constitutes, and the
Buyer Documents, when duly executed and delivered by Buyer, will constitute,
valid and binding obligations of Buyer enforceable against Buyer in accordance
with their respective terms, subject to applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance and moratorium and other laws of general
application affecting the application of creditors' rights generally, and to
equitable principles, whether applied at law or in equity. The execution and
delivery by Buyer of this Agreement and the Buyer Documents and Buyer's
consummation of the transactions contemplated hereby and thereby does not and
will not (i) conflict with or result in a breach or violation of any of the
terms, conditions or provisions of the certificate of incorporation or by-laws
of Buyer, or (ii) conflict with or result in a breach or violation of, or
default of any contract, agreement, indenture, mortgage, Lien, lease or other
instrument or restriction of any kind to which Buyer is a party or by which
Buyer is otherwise bound or affected, to the extent any such conflict, breach,
violation or default would prevent Buyer from performing this Agreement or any
of the Buyer Documents, or (iii) violate any law, order, writ, judgment,
injunction, decree, statute, rule or regulation applicable to Buyer.
5.03 Government Approvals. Buyer is not required to submit any notice,
report or other filing to any Government Authority with respect to the transfer
of the Assets from Seller to Buyer contemplated by this Agreement, except for
the notices, reports or filings required in connection with the HSR Act or
otherwise listed on Schedule 5.03 attached hereto.
5.04 Brokerage. There are and will be no claims against Seller or the
Parent for brokerage commissions, finders' fees or similar compensation in
connection with the transactions contemplated by this Agreement based on any
arrangement or agreement binding upon Buyer.
VI. COVENANTS OF SELLER AND THE PARENT
Seller and the Parent each hereby covenant and agree (and the Parent agrees
to cause Seller to fulfill the following covenants), until the earlier of the
termination of this Agreement or the Closing Date, in the case of the Closing,
and the earlier of the termination of this Agreement or the Kensington Closing
Date, in the case of the Kensington Closing Date, as the case may be, as
follows:
6.01 Access to Information. From and after the date of this Agreement and
until the Closing Date or the Kensington Closing Date, as the case may be, Buyer
and its authorized representatives shall have access at reasonable times upon
reasonable notice to the Plant and the Kensington Partners Facility, all
personnel at the Plant and the Kensington Partners Facility and all books,
records, contracts and documents of Seller and the Parent Related to the
Activity and relating to Kensington Partners, and Seller and the Parent shall
furnish or
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cause to be furnished to Buyer and its authorized representatives all
information with respect to the affairs and business of Seller Related to the
Activity and to Kensington Partners as Buyer may reasonably request.
6.02 Actions by Seller and the Parent. From and after the date of this
Agreement and until the Closing Date, with respect to the Activity, the Assets
and the Assumed Liabilities and until the Kensington Closing Date, with respect
to the Holding Stock and Kensington Partners:
(a) Seller shall carry on the conduct of the Activity in the ordinary
and regular course diligently and substantially in the same manner as
heretofore conducted in all material respects, and except with the prior
written consent of Buyer, Seller shall not (i) make or institute any
unusual or novel methods of trade, purchase, lease, sale, management,
accounting or operation; (ii) enter into any agreement, contract or
commitment not in the ordinary course of business for any capital
expenditure or other expenditure related to any of the material Assets for
which Buyer would be or become liable in excess of Two Hundred Fifty
Thousand Dollars ($250,000) in the aggregate for all such cases or in
excess of One Hundred Thousand Dollars ($100,000) in any such case (iii)
enter into any employment agreement; (iv) allow Holdings to issue or agree
to issue any shares of its capital stock, or declare, pay or set aside for
payment any dividend or distribution in respect of its capital stock; or
(v) sell any of its assets, except sales of inventory in the ordinary
course of business and except sales of obsolete or unusable assets. Seller
shall use its reasonable efforts to preserve the condition of the Activity
and the Assets in conformity with past practices and to preserve the good
relations of suppliers, customers and others with whom Seller has relations
Related to the Activity, and Seller shall provide, at its expense, routine
maintenance consistent with past practices in the ordinary course of the
Activity.
(b) Without the prior consent of Buyer (which shall not be
unreasonably withheld or delayed), other than in the ordinary course of
business, Seller will not grant any increase in the rates of pay of any
Employee or any employee employed by Holding, nor grant with respect to any
such employee any increase in the benefits under any Plan or other contract
or commitment.
(c) Seller shall maintain its current insurance policies and practices
regarding the Activity and the Assets and all property shall be used,
operated, maintained and repaired in the ordinary course of the Activity.
(d) Seller shall promptly notify Buyer of any material lawsuits,
claims, Proceedings, examinations or investigations of which it may become
aware that may be threatened, brought, asserted or commenced against it, or
its officers or directors involving the Activity.
(e) Seller and the Parent (a) shall use reasonable efforts to secure,
at their cost and expense, all approvals, authorizations, consents,
permits, orders, licenses, assignments, releases and/or waivers, if any,
that are necessary for them to effect the transactions contemplated herein
(including, but not limited to the fulfillment of all obligations which are
conditions precedent to the sale of the Holding Stock to Buyer); provided,
however, that, except with respect to filing fees to Governmental
Authorities, Seller and the Parent shall not be required to pay any amount
to third parties in order to obtain any of the foregoing; (b) shall
diligently assist and cooperate with Buyer in preparing and filing all
documents required to be submitted to any Governmental Authority, domestic
or foreign, in connection with such transactions and in obtaining any
consents which may be required to be obtained by any such Governmental
Authority in connection with such transactions, and (c) if not previously
filed, shall file the HSR Reports with the FTC and the Anti-Trust Division.
Seller and the Parent shall have filed the HSR Reports required to be filed
by them no later than the tenth Business Day following the date of this
Agreement. Seller and the Parent shall cooperate with Buyer to the extent
necessary to assist Buyer in the preparation of the HSR Reports, to request
early termination of the waiting period required by the HSR Act and, if
requested, to promptly amend or furnish additional information thereunder.
Anything in this Agreement to the contrary notwithstanding, this
Agreement shall not constitute an assignment of any Asset or any benefit
arising thereunder or resulting therefrom if an attempted assignment
thereof without the consent of any party thereto would constitute a breach
thereof or in any way adversely affect the rights to be assigned. Until
such consent is obtained, or if an attempted
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assignment thereof would be ineffective or would affect the rights of
Seller thereunder so that Buyer would not in fact receive all such rights,
Seller and Buyer will cooperate with each other to the extent practicable
to provide for Buyer the benefits or beneficial use of, any such Asset, as
if it were so assigned, including enforcement at the request of Buyer for
the benefit of Buyer of any and all rights of Seller against a third party
thereto arising out of the breach or cancellation thereof by such third
party or otherwise; and any transfer or assignment to Buyer by Seller of
any property or property rights or any contract or agreement which shall
require the consent or approval of any third party shall be made subject to
such consent or approval being obtained.
(f) Seller shall cause Holding to use commercially reasonable efforts
to cause Kensington Partners to carry on the conduct of the Kensington
Partners Business in the ordinary and regular course diligently and
substantially in the same manner as heretofore conducted in all material
respects, and not to make or institute any unusual or novel methods of
trade, purchase, lease, sale, management, accounting or operation or enter
into any agreement, contract or commitment not in the ordinary course of
business for any capital expenditure or other expenditure in excess of Two
Hundred Fifty Thousand Dollars ($250,000) in the aggregate for all such
cases or in excess of One Hundred Thousand Dollars ($100,000) in any such
case or enter into any employment agreement, other than in the ordinary
course. Notwithstanding anything in this Agreement to the contrary, Seller
shall be entitled to take any commercially reasonable action with respect
to Holding and Kensington Partners as Seller deems to be appropriate, in
light of the operational and financial condition of Holding and Kensington
Partners at the time of determination; provided, that Seller shall not take
any material action pursuant to this sentence unless Seller shall have
provided Buyer with ten (10) days prior written notice of such action and
consulted in good faith with Buyer with respect thereto, unless such action
is required to be taken more expeditiously by Seller or Holding to fulfill
its fiduciary duties to its stockholders or partners, as the case may be,
in which case Seller shall provide such notice and consultation as is
reasonably practicable. Seller shall cause Holding to use commercially
reasonable efforts to cause Kensington Partners to preserve the condition
of the Kensington Partners Business in conformity with past practices and
to preserve the good relations of suppliers, customers and others with whom
Kensington Partners has relations, and to provide, at its expense, routine
maintenance consistent with past practices in the ordinary course of
business. Notwithstanding anything herein to the contrary, Seller and the
Parent shall not be required to contribute or pay any amount to Holding or
Kensington Partners in connection with the transactions contemplated
hereby.
(g) Seller shall cause Holding to use commercially reasonable efforts
to cause Kensington Partners not to grant, other than in the ordinary
course, any increase in the rates of pay of any employee employed by
Kensington Partners, nor grant with respect to any such employee any
increase in the benefits under any Plan or other contract or commitment.
(h) Seller shall cause Holding to use commercially reasonable efforts
to cause Kensington Partners to maintain current insurance policies and
practices regarding the Kensington Partners Business and to use, operate,
maintain and repair all of Kensington Partners' property in the ordinary
course of the Kensington Partners Business.
(i) Seller shall cause Holding to use commercially reasonable efforts
to cause Kensington Partners promptly to notify Buyer of any material
lawsuits, claims, proceedings, examinations or investigations of which it
may become aware that may be threatened, brought, asserted or commenced
against it, or its officers or directors involving Holding or the
Kensington Partner Business.
(j) From time to time prior to the Closing Date, Seller will promptly
supplement or amend the schedules attached hereto with respect to any
matter hereafter arising which, if existing or occurring at the date of
this Agreement, would have been required to be set forth or described in
such Schedules. For purposes of determining the accuracy of any
representation or warranty contained in Sections 4.01 through 4.13 and 4.27
hereof, such representation or warranty shall be deemed to include any
subsequent modifications to any such disclosures resulting from any
alteration to the schedules made pursuant to this Section 6.02(j), unless
such modification is objected to by Buyer in writing to Seller within ten
(10) days
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after notice of such modification to Buyer. For purposes of determining the
accuracy of any representation or warranty contained in Sections 4.14
through 4.26 hereof, such representation or warranty shall be deemed to
include any subsequent modifications to any such disclosure as may be made
by Seller pursuant to this Section 6.02(j), and upon such modification such
representation and warranty shall be deemed to have been made, as so
modified, as of the date hereof. No such supplementing or amendment with
respect to information relating to Kensington Partners shall give Buyer any
right not to close the purchase and sale of the Assets contemplated hereby.
(k) The Parent shall call and hold a stockholder's meeting as promptly
as practicable for the purpose of voting upon the approval of the
transactions contemplated hereby. Each of Seller and the Parent shall use
its best efforts to solicit from the Parent's stockholders proxies in favor
of the transactions contemplated hereby, and shall take all other action
necessary or advisable to secure the vote or consent of stockholders
required by Massachusetts law to obtain such approval (including causing
the Board of Directors of the Parent to recommend that such stockholders
vote in favor or such transactions), unless otherwise necessary in
connection with and following receipt of a Superior Proposal under the
applicable fiduciary duties of the directors of Parent, as determined by
such directors in good faith after consultation with and based upon the
written advice of outside legal counsel.
6.03 General Assistance. To facilitate an orderly transfer of the Assets
and Assumed Liabilities, Seller and the Parent shall at the sole expense of
Seller and the Parent cooperate with and assist Buyer and use reasonable efforts
in obtaining all necessary approvals and consents to the transactions
contemplated hereby, and to otherwise use reasonable efforts to cause the
conditions to Closing hereunder to be satisfied and to close the transactions
contemplated hereby subject to the exercise by Seller's Board of Directors and
the Parent's Board of Directors, respectively, of its fiduciary duty. Such
assistance shall be made upon Buyer's reasonable request and provided in such a
manner as is reasonable to minimize interference with Seller's and the Parent's
ongoing operations.
6.04 Solicitation.
(a) Seller and the Parent shall not solicit or encourage the initiation of
any inquiries or proposals regarding any transaction involving the sale or
transfer of all or a portion of the Assets (any of the foregoing inquiries or
proposals being referred to herein as an "Acquisition Proposal"); provided,
however, that nothing contained in this Agreement shall prevent the Board of
Directors of Seller or the Parent from (i) soliciting or encouraging the
initiation of any inquiries or proposals regarding any transaction involving the
sale or transfer of all or a portion of the capital stock or assets of the
Parent or Seller (subject to the completion of the transactions contemplated
hereby), or (ii) referring any third party to this Section 6.04 or from making a
copy of this Section 6.04 available to any third party. Nothing contained in
this Section 6.04 shall prevent the Board of Directors of Seller or the Parent
from considering, negotiating, approving and recommending to the stockholders of
Seller or the Parent another unsolicited bona fide Acquisition Proposal or other
proposal related to the purchase of the Assets (including without limitation in
connection with the sale of all or substantially all of the assets of Seller or
the Parent, by tender offer for the securities of the Parent or by a merger,
consolidation or similar transaction of Seller or the Parent with any Person
other than Buyer) if the Board of Directors of the Parent determines in good
faith (after consultation with its financial advisors and after consultation
with and written advice from outside legal counsel) that (i) it is required to
do so in order to discharge properly its fiduciary duties and (ii) it would
result in a transaction more favorable to the Parent's stockholders than the
transaction contemplated by this Agreement (any such unsolicited Acquisition
Proposal or other proposal described above being referred to herein as a
"Superior Proposal").
(b) Seller shall immediately notify Buyer after receipt of any Acquisition
Proposal or any request for nonpublic information relating to Seller, the Parent
or Holding in connection with an Acquisition Proposal or for access to the
properties, books or records of Seller, the Parent or Holding by any Person that
informs the Board of Directors of Seller or the Parent that it is considering
making, or has made, an Acquisition Proposal. Such notice to Buyer shall
indicate in reasonable detail the identity of the offeror and the terms and
conditions of such proposal, inquiry or contact.
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(c) Seller and the Parent shall use commercially reasonable efforts to
ensure that their respective officers, directors and employees and any
investment banker or other advisor or representative retained by them are aware
of the restrictions described in this Section.
6.05 Kensington Partners Interest. Upon the exercise by Buyer of the
option provided for in Section 1.03 hereof, Seller shall cause Holding to
initiate the buy-sell procedure set forth in Section 4.9 of the Partnership
Agreement by offering to sell Holding's interest in Kensington Partners for
nine-tenths (9/10) of the Additional Purchase Price, and, if the other partner
in Kensington Partners declines to purchase Holding's interest in Kensington
Partners, to use commercially reasonable efforts to acquire such other partner's
interest in Kensington Partners pursuant to such Section 4.9; provided, however,
that Holding shall not be required to pay more than one-tenth (1/10) of the
Additional Purchase Price therefor.
6.06 Kensington Receivables. With respect to any account receivable from
Kensington Partners included in the Assets, Seller and the Parent agree to
guarantee payment by Kensington Partners of such account receivable, such
guarantee obligation to be effective from the Closing Date through the
Kensington Closing Date; provided, that if the Kensington Closing Date does not
occur by June 30, 1995, on July 5, 1995 Seller or the Parent will pay to Buyer
any portion of any such account receivable which is past due as of June 30,
1995.
VII. COVENANTS OF BUYER
7.01 Consents and Approvals. Buyer (a) shall use reasonable efforts to
secure, at its cost and expense, all approvals, authorizations, consents,
permits, orders, licenses, assignments, releases and/or waivers, if any, that
are necessary for it to effect the transactions contemplated herein; (b) shall
diligently assist and cooperate with Seller and use reasonable efforts in
preparing and filing all documents required to be submitted to any Governmental
Authority, domestic or foreign, in connection with such transactions and in
obtaining any consents which may be required to be obtained from such
Governmental Authorities in connection with such transactions, and (c) if not
previously filed, file with the FTC and the Anti-Trust Division the HSR Reports
required under the HSR Act with respect to the transactions contemplated hereby.
Buyer shall have filed the HSR Reports required to be filed by it no later than
the tenth Business Day following the date of this Agreement, and Buyer shall pay
all filing fees required in connection with such HSR Reports. Buyer shall
cooperate with Seller to the extent necessary to assist Seller in the
preparation of the HSR Reports, to request early termination of the waiting
period required by the HSR Act and, if requested, to promptly amend or furnish
additional information thereunder.
7.02 General Assistance. To facilitate an orderly transfer of the Assets
and Assumed Liabilities, Buyer shall at its sole expense cooperate with and
assist Seller in obtaining all necessary approvals and consents to the
transactions contemplated hereby, and to otherwise use its reasonable effort to
cause the conditions to Closing hereunder to be satisfied and to close the
transactions contemplated hereby. Such assistance shall be made available upon
Seller's reasonable request and provided in such manner as reasonable to
minimize interference with Buyer's ongoing obligations.
7.03 Employee Matters.
(a) Buyer, as a "successor employer", shall offer employment to all
Employees listed on Schedule 7.03(a) (which schedule shall include such
Employees' names and rates of pay) on terms and conditions with respect to wages
substantially similar to those under which such Employees are employed as of the
Closing Date hereof and on terms and conditions other than with respect to wages
substantially similar to those under which similarly situated employees of Buyer
are employed as of the Closing Date; provided, however, that Buyer shall have no
obligation to offer employment to any Employee on paid leave of absence or
disability leave as of the Closing Date until such time, if ever, as such
Employee returns from such leave, and in no event shall Buyer have any
obligation to offer employment where such Employee remains on such leave twelve
(12) months or longer after the Closing Date. With respect to all employee
benefit, pension, welfare and fringe benefit plans, programs and policies
established, maintained or contributed to by Buyer (collectively, the "Buyer's
Welfare Plans"), all Employees who accept Buyer's offer of employment shall
participate in such
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plans on an equal basis and subject to substantially similar terms and
conditions as other employees of Buyer and shall be given credit in determining
benefits under such Buyer's Welfare Plans (excluding service credit for benefit
accrual and/or contribution purposes under any defined benefit pension plan) for
the period during which they were employed by Seller and any of its affiliates
prior to the Closing Date. Buyer acknowledges and agrees that the acceptance by
Employees of offers of employment with Buyer shall not constitute a condition to
Buyer's obligation to close the transactions contemplated by this Agreement.
Seller shall pay any severance costs payable pursuant to Seller's severance
policies that may be suffered or incurred by Seller with respect to any
Employee, whether or not such Employee accepts Buyer's offer of employment.
Buyer shall be responsible for and hereby assumes the obligation to make any
severance payment payable pursuant to Buyer's severance policies to any Employee
hired by Buyer. Seller and Buyer will cooperate as to the timing of, and method
of, announcements to Employees of offers made pursuant to this Section 7.03.
Seller will comply with the notice and continuation coverage requirements of
COBRA in connection with the transactions contemplated hereby.
(b) Any Employees who accept offers of employment of Buyer and who begin
active employment with Buyer as of the Closing Date, effective as of the date of
such person's employment by Buyer, shall cease to participate in all of Seller's
employee benefit plans (the "Plans") that are employee welfare benefit plans and
shall be entitled to participate immediately in Buyer's Welfare Plans and not be
subject to any pre-existing condition exclusion in Buyer's Welfare Plans. All
such Employees shall receive credit, on an individual or a family coverage
basis, as appropriate, for the purpose of any applicable deductible and
out-of-pocket expense or similar limitations, as contained in the Buyer's
Welfare Plans, for all costs incurred by the Employees with respect to the Plans
under which they were covered immediately before the Closing Date and which were
incurred in the same calendar year in which the Closing Date falls (to the
extent the Employees coherence coverage under Buyer's Welfare Plans in such
calendar year) and which were incurred with respect to medical expenses which
would have been covered under Buyer's Welfare Plans. For purposes of Buyer's
vacation policy and other benefits, Buyer agrees to honor all vacation days
accrued as of the Closing Date by all Employees and to acknowledge the length of
employment prior to the Closing for purposes of all such Buyer's Welfare Plans.
(c) Notwithstanding anything to the contrary contained herein the
provisions hereof insofar as they relate to unionized Employees shall be subject
and subordinate to the provisions of the Union Contract. Upon the Closing, Buyer
shall assume all contribution obligations of Seller and its Affiliates under the
Union Plan and shall, immediately after the Closing Date, make all such
contributions under the Union Plan and to any Plan than is a Multiemployer Plan,
as defined in Section 3(37) of ERISA, and is subject to Title IV of ERISA
(collectively, the "Multiemployer Plans"), in accordance with the Union Contract
for substantially the same number of contribution base units with respect to the
operations that are Related to the Activity as the number of contribution base
units for which Seller and its affiliates had an obligation to contribute.
Nothing contained in this paragraph shall impair or limit Buyer's right to
discharge, lay off or hire employees or otherwise to manage the operations
Related to the Activity, including, but not limited to the right to amend,
revise or terminate any collective bargaining agreement currently in effect and,
as a consequence, reduce to any extent the number of contribution base units
with respect to which Buyer has an obligation to contribute to any Plan;
provided, that if, as a result of any such action by Buyer, Seller incurs, with
respect to, and arising out of the sale of, the Assets and the operations
Related to the Activity, any withdrawal liability under any Multiemployer Plan,
Buyer shall indemnify and hold Seller harmless from and against any such
liability. Buyer further agrees that it shall during the period commencing on
the first day of the plan year following the Closing Date and ending on the
expiration of the fifth such plan year (the "Contribution Period"), provide a
bond, letter of credit or escrow in an amount and manner described in Section
4204(a)(1)(B) of ERISA unless a proper variance or exemption from the
requirement to provide such a bond, letter of credit or escrow otherwise
required hereunder is granted by the Pension Benefit Guaranty Corporation (the
"PBGC") or the trustees of the Plan pursuant to Section 4204(c) of ERISA and the
regulations thereunder or exemption and any and all requirements of said
variance or exemption are met. Seller agrees to cooperate with Buyer in
connection with any application for such a variance or exemption made by Buyer
to the PBGC or the trustees of the Plan. The cost of any bond, letter of credit
or escrow provided under this Section 7.03(c) shall be paid by Buyer.
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(d) Seller agrees to be secondarily liable for any withdrawal liability it
would have had to any such Multiemployer Plan but for Section 4204(a)(1) of
ERISA if (i) Buyer withdraws or partially withdraws from the Multiemployer Plan
with respect to the operations Related to the Activity that are purchased from
Seller during the Contribution Period, and (ii) Buyer does not pay its liability
with respect to the Multiemployer Plan; provided that, if (A) Seller shall
become liable for its withdrawal liability by reason of Buyer's failure to pay
its liability within the meaning of Section 4204(a)(1)(C) or (a)(2) of ERISA,
and (B) Buyer's liability is less than Seller's withdrawal liability, Seller may
at its sole discretion pay Buyer's liability. Buyer agrees to provide Seller
with reasonable advance notice, in writing, of any action or event which could
result in the imposition of withdrawal liability contemplated by this Section
7.03(d), and in any event Buyer shall immediately furnish Seller with a copy of
any notice of withdrawal liability (and the pertinent details related thereto)
it may receive with respect to any of the Multiemployer Plans. In the event that
any such withdrawal liability shall be assessed against Buyer, Buyer further
agrees to provide Seller with reasonable advance notice, in writing, of any
intention on the part of Buyer not to make full payment of any withdrawal
liability when the same shall become due.
(e) Buyer shall indemnify and hold Seller harmless against the imposition
of any secondary liability, as set forth in Section 7.03(d), under Section 4204
of ERISA with respect to any Multiemployer Plan or any withdrawal liability with
respect to any Multiemployer Plan resulting from Buyer's failure to provide a
bond, letter of credit, escrow or other security pursuant to Section 7.03(c).
(f) Seller and Buyer agree that the provisions of this Section 7.03 are
intended to comply in all respects with the provisions of Section 4204 of ERISA
providing that a sale of assets by an employer to a purchaser in a bona fide
arms length sale will not result in the employer being deemed to have completely
or partially withdrawn from a Multiemployer Plan under ERISA.
(g) Except as specifically set forth herein, Buyer shall not be required
hereunder to offer employment to any specific employee of Seller or to assume
any obligation with respect to any Plan. Seller shall have sole responsibility
for and shall discharge its other obligations with respect to the Employees,
including but not limited to making payments of salaries, wages and benefits,
making payments required under any of the Plans, and withholding all amounts
required to be withheld from such employees under applicable laws. Seller agrees
to provide Buyer with such information regarding such employees as Buyer may
reasonably request. Buyer shall be liable for any and all violations of WARN
arising after the Closing Date and relating to Buyer's employees.
7.04 Access to Information. After the Closing, Seller and its authorized
representatives shall have full and complete access at reasonable times, upon
reasonable notice and subject to reasonable requirements related to
confidentiality, to all books, records, contracts and Documents transferred to
Buyer under this Agreement to the extent reasonably requested by Seller for its
accounting, Tax and legal purposes.
7.05 Assumed Liabilities. Buyer agrees to pay, perform and discharge the
Assumed Liabilities.
7.06 Environmental Investigation.
(a) Buyer shall, at Buyer's expense, cause a Phase I environmental risk
audit to be completed for all real property where the Activity is undertaken as
soon as practicable after the date hereof. The Phase I environmental audit shall
be conducted by Scott Smith Environmental or another environmental consultant
reasonable acceptable to Seller, and may consist of site visits (including
visual inspection of the site, interviews of appropriate facility personnel and
review of pertinent facility records), searches of computer data bases and,
where appropriate, contacts with regulatory agencies, and review of historical
and neighboring site usage, and a written report or reports thereon (the "Phase
I Report"). In the event that the Phase I Report identifies any potential or
actual environmental problem which is reasonably required to be further
investigated in order to ascertain the Remedial Amount, Buyer shall at Buyer's
expense be permitted to cause such additional investigation to be performed and
the results thereof shall be included in the "Phase I Report" for purposes of
this Agreement. Buyer shall promptly deliver to Seller copies of the Phase I
Report following its receipt by Buyer.
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(b) After Buyer has delivered to Seller copies of the Phase I Report,
representatives of Seller and Buyer shall meet with and negotiate, in good
faith, regarding the matters identified in the Phase I Report and the aggregate
dollar cost associated with such matters in order to agree upon an amount (the
"Remedial Amount") that reflects the present value of the costs and expenditures
the parties estimate are needed to undertake cleanup or remediation in
accordance with the requirements of any Governmental Authority possessing
jurisdiction under any Environmental Law. If, within thirty (30) days after
completion of the Phase I Report, Seller and Buyer have not been able to
negotiate the Remedial Amount, then their disagreement shall be promptly
submitted to an environmental consultant to be jointly selected by Seller and
Buyer (the "Consultant"). The Consultant shall, within ten (10) days of such
submission, determine the Remedial Amount. In determining the Remedial Amount,
the Consultant shall identify the remedy or remedies deemed to be necessary and
appropriate to effect clean-up, remediation and/or closure in accordance with
the requirement of any Governmental Authority and to a standard consistent with
the clean-up, remediation or closure which would be undertaken with respect to a
company in Seller's industry which has comparable environmental problems,
utilizing cost-effective current methods, standards, practices and technologies
that are available and generally acceptable by the professional and trade
communities conducting remedial action under and in accordance with applicable
Environmental Law, and assuming that the property involved will continue to be
used as it is currently. The Remedial Amount agreed to by Seller and Buyer, or
determined by the Consultant, is referred to herein as the "Final Remedial
Amount".
(c) If the Final Remedial Amount is greater than $1,500,000, then Buyer may
terminate this Agreement pursuant to Section 11.02. If (i) the Final Remedial
Amount exceeds $100,000 but is less than $1,500,000 or (ii) the Final Remedial
Amount is greater than $1,500,000 and Buyer agrees to pay all amounts in excess
of $1,500,000, then Seller shall indemnify Buyer against all costs and expenses
in excess of $100,000 (up to $1,500,000) incurred in connection with the
remediation or clean-up of items included in the Final Remedial Amount, in
accordance with the provisions for notice, resolution and payment of claims set
forth in Sections 10.02, 10.03 and 10.05 hereof. If the Final Remedial Amount is
less than $100,000 then no indemnification shall be required therefor and, if
all other conditions to Closing shall have been met, Buyer shall be required to
consummate the transactions contemplated hereby. Notwithstanding anything herein
to the contrary, any Remedial Amount paid by Buyer shall reduce the Basket
Amount on a dollar-for-dollar basis.
(d)(i) Buyer may, at Buyer's expense and subsequent to the exercise by
Buyer of the option provided for in Section 1.03 hereof, cause a Phase I Report
to be prepared with regard to all real property where the Kensington Partners
Business is conducted. Buyer shall promptly deliver to Seller copies of such
Phase I Report following its receipt by Buyer.
(ii) After Buyer has delivered to Seller copies of such Phase I Report,
representatives of Seller and Buyer shall determine, in the manner set forth in
Section 7.06(b) hereof, the cost deemed necessary to effect clean-up,
remediation and closure of the environmental problems identified as being
related to the Kensington Partners Business (the "Kensington Final Remedial
Amount").
(iii) If the Kensington Final Remedial Amount is greater than $500,000,
then Buyer may terminate this Agreement with respect to the Kensington Closing
only pursuant to Section 11.02. If (i) the Kensington Final Remedial Amount
exceeds $100,000 (which amount shall include any amount expended by Buyer with
respect to any Bardstown Environmental Problems) but is less than $500,000 or
(ii) the Kensington Final Remedial Amount exceeds $500,000 and Buyer agrees to
pay all amounts in excess of $500,000, then Seller shall indemnify Buyer against
all costs and expenses in excess of $100,000 (which amount shall include any
amount expended by Buyer with respect to any Bardstown Environmental Problems)
(up to $500,000) incurred in connection with the clean-up, remediation or
closure of items included in the Kensington Final Remedial Amount, in accordance
with the provisions for notice, resolution and payment of claims set forth in
Sections 10.02, 10.03 and 10.05 hereof. If the Kensington Final Remedial Amount
is less than $100,000 (which amount shall include any amount expended by Buyer
with respect to any Bardstown Environmental Problems) then no indemnification
shall be required therefor and, if all other conditions to the Kensington
Closing shall have been met, Buyer shall be required to consummate the
transactions contemplated hereby. Notwithstanding anything herein to the
contrary, Kensington Final Remedial Amount paid by Buyer shall reduce the Basket
Amount on a dollar-for-dollar basis.
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VIII. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
A. The Closing
Each and every obligation of Buyer to be performed on the Closing Date
shall be subject to the satisfaction prior thereto of the conditions set forth
in Sections 8.01 through 8.05, any or all of which may be waived by Buyer in
writing, in its sole discretion.
8.01 Representations and Warranties; Covenants. Seller shall not have
breached or failed to perform, in any material respect, its covenants or
agreements under this Agreement relating to the Closing or have failed to cure
such breach or failure within ten (10) days following receipt of written notice
from Buyer requesting such cure and no representation or warranty of Seller in
Sections 4.01 through 4.13 and 4.27 of this Agreement shall have been or shall
be incorrect in any material respect when made or on the Closing Date as if made
on and as of the Closing Date.
8.02 Governmental Action; Litigation. No statute, rule, regulation or
order shall have been enacted by any Governmental Authority which would (i)
render Buyer unable to accept for payment or pay for some or all of the Assets,
(ii) make the acceptance for payment or payment for some or all of the Assets
illegal, or otherwise prohibit consummation of the transactions contemplated
hereby or (iii) impose any material limitation on the ability of Buyer
effectively (A) to acquire, hold or operate the Activity or (B) to exercise full
rights of ownership of the Assets. No Proceeding shall be pending or threatened
to challenge, modify or set aside the authorization of the transactions provided
for herein, any approvals, consents or authorizations hereunder, or to enjoin or
prevent the consummation of the transactions contemplated hereby.
8.03 Material Adverse Change. There shall not have occurred any change in
the financial condition, business, operations or properties Related to the
Activity, which change, taken as a whole, results or has resulted in a Material
Adverse Effect.
8.04 Shareholder Approval. Seller and the Parent shall have received all
material authorizations, consents and approvals of their respective shareholders
required in connection with the transactions contemplated by this Agreement.
8.05 Other Approvals. Seller shall have received all authorizations,
consents and approvals from the Senior Secured Lenders or as set forth on
Schedule 8.05, required in connection with the purchase and sale of the Assets
contemplated by this Agreement.
B. The Kensington Closing
Each and every obligation of Buyer to be performed on the Kensington
Closing Date shall be subject to the satisfaction prior thereto of the
conditions set forth in Sections 8.06 through 8.14, any or all of which may be
waived by Buyer in writing, in its sole discretion:
8.06 Representations and Warranties; Covenants. Seller shall not have
breached or failed to perform, in any material respect, its covenants or
agreements under this Agreement relating to the Kensington Closing or have
failed to cure such breach or failure within ten (10) days following receipt of
written notice from Buyer requesting such cure and no representation or warranty
of Seller in Sections 4.14 through 4.26 of this Agreement shall have been or
shall be incorrect in any material respect when made or on the Closing Date as
if made on and as of the Closing Date.
8.07 Governmental Action; Litigation. No statute, rule, regulation or
order shall have been enacted by any Governmental Authority which would (i)
render Buyer unable to accept for payment or pay for some or all of the Holding
Stock, (ii) make the acceptance for payment or payment for some or all of the
Holding Stock illegal, or otherwise prohibit consummation of the transactions
contemplated hereby, or (iii) impose any material limitation on the ability of
Buyer effectively to exercise the right to vote the shares of Holding Stock
purchased by Buyer on matters properly presented to the shareholders of Holding
and the right to exercise all rights granted to Holdings in connection with
Kensington Partners. No Proceeding shall be pending or threatened to challenge,
modify or set aside the authorization of the transactions provided for
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herein, any approvals, consents or authorizations hereunder, or to enjoin or
prevent the consummation of the transactions contemplated hereby.
8.08 Material Adverse Change. There shall not have occurred any change in
the financial condition, business, operations or properties of Holding or
Kensington Partners, which change, taken as a whole, results or has resulted in
a Material Adverse Effect.
8.09 Shareholder Approval. Seller and the Parent shall have received all
material authorizations, consents and approvals of their respective
shareholders, required in connection with the purchase and sale of the Holding
Stock contemplated by this Agreement.
8.10 Other Approvals. Seller and the Parent shall have received all
authorizations, consents and approvals from the Senior Secured Lenders or as set
forth on Schedule 8.10, required in connection with the transactions
contemplated by this Agreement.
8.11 The Closing. The Closing shall have occurred.
8.12 Partnership Equity. Kensington Partners shall have net partnership
equity, as calculated in accordance with generally accepted accounting
principles, of at least $1,150,000.
8.13 Disclosure. Buyer shall be satisfied with the representations and
warranties set forth herein and the schedules attached hereto which relate to
Kensington Partners, as such representations, warranties and schedules may have
been modified by Seller after the date hereof.
8.14 Kensington Factoring Arrangements. None of the accounts receivable
of Kensington Partners shall be subject to any factoring arrangement with any
Person which would be binding on or after the Kensington Closing Date.
IX. CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS
A. The Closing
Each and every obligation of Seller to be performed on the Closing Date
shall be subject to the satisfaction prior thereto of the conditions set forth
in Sections 9.01 through 9.04, any or all of which may be waived by Seller in
writing, in its sole discretion:
9.01 Representations and warranties; Covenants. Buyer shall not have
breached or failed to perform, in any material respect, its covenants or
agreements under this Agreement or have failed to cure such breach or failure
within ten (10) days following receipt of written notice from Seller requesting
such cure and no representation or warranty of Buyer in this Agreement shall
have been or shall be incorrect in any material respect when made or on the
Closing Date as if made on and as of the Closing Date.
9.02 Governmental Action: Litigation. No statute, rule, regulation or
order shall have been enacted by any Governmental Authority which would (i)
render Seller unable to accept payment for or sell some or all of the Assets, or
(ii) make the acceptance for payment or payment for some or all of the Assets
illegal, or otherwise prohibit consummation of the transactions contemplated
hereby. No Proceeding shall be pending or threatened to challenge, modify or set
aside the authorization of the transactions provided for herein, any approvals,
consents or authorizations hereunder, or to enjoin or prevent the consummation
of the transactions contemplated hereby.
9.03 Shareholder Approval. Seller and the Parent shall have received all
authorizations, consents and approvals of their respective shareholders,
required in connection with the transactions contemplated by this Agreement.
9.04 Other Approvals. Seller shall have received all authorizations,
consents and approvals from the Senior Secured Lenders or set forth on Schedule
8.05, required in connection with the purchase and sale of the Assets
contemplated by this Agreement.
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B. The Kensington Closing
Each and every obligation of Seller to be performed on the Kensington
Closing Date shall be subject to the satisfaction prior thereto of the
conditions set forth in Section 9.05 through 9.10, any or all of which may be
waived by Seller in writing, in its sole discretion:
9.05 Representations and warranties; covenants. Buyer shall not have
breached or failed to perform, in any material respect, its covenants or
agreements under this Agreement or have failed to cure such breach or failure
within ten (10) days following receipt of written notice from Seller requesting
such cure and no representation or warranty of Buyer in this Agreement shall
have been or shall be incorrect in any material respect when made or on the
Closing Date as if made on and as of the Closing Date.
9.06 Governmental Actions; Litigation. No statute, rule, regulation or
order shall have been enacted by any Governmental Authority which would (i)
render Seller unable to accept payment for or sell some or all of the Holding
Stock or (ii) make the acceptance for payment or payment for some or all of the
Holding Stock illegal, or otherwise prohibit the consummation of the
transactions contemplated hereby. No Proceeding shall be pending or threatened
to challenge, modify or set aside the authorization of the transactions provided
for herein, any approvals, consents or authorizations hereunder, or to enjoin or
prevent the consummation of the transactions contemplated hereby.
9.07 Shareholder Approval. Seller and the Parent shall have received all
authorizations, consents and approvals of their respective shareholders,
required in connection with the transactions contemplated by this Agreement.
9.08 Other Approvals. Seller and the Parent shall have received all
material authorizations, consents and approvals of their respective shareholders
as set forth on Schedule 8.10, required in connection with the purchase and sale
of the Holding Stock contemplated by this Agreement. Seller shall have fulfilled
all of its obligations under the Partnership Agreement in connection with the
Kensington Closing.
9.09 The Closing. The Closing shall have occurred.
9.10 Assumption. Buyer shall have assumed and indemnified Seller and the
Parent with respect to the liabilities of Seller and the Parent described in
Section 3.01(b) hereof by virtue of a binding agreement reasonably acceptable to
Seller.
X. INDEMNIFICATION
10.01 Indemnification.
(a) Indemnification by Seller and the Parent. Seller and the Parent shall
jointly and severally indemnify and hold harmless Buyer from and against any
Damages suffered by Buyer (including, without limitation, reasonable fees and
expenses of attorneys, accountants, consultants and experts) resulting from,
arising out of, or incurred with respect to, or in the case of claims asserted
against Buyer by third parties, alleged to result from, arise out of or have
been incurred with respect to (i) the falsity or the breach of any
representation (except the representations set forth in Sections 4.10 and 4.21),
covenant, warranty or agreement made by Seller herein, (ii) the Retained
Liabilities, (iii) the Retained Assets, (iv) after the Kensington Closing, any
liability of Holding for Taxes or matters arising under ERISA which arise as a
result of Holding being a member of the Parent's consolidated group, and (v)
prior to the Kensington Closing, irrespective of whether or not Buyer has had
aggregate Damages in excess of the Basket Amount, any failure of Kensington
Partners to pay any account receivable included in the Assets.
(b) Indemnification by Buyer. Buyer shall indemnify and hold harmless
Seller and the Parent from and against any Damages suffered by Seller or the
Parent (including, without limitation, reasonable fees and expenses of
attorneys, accountants, consultants and experts) resulting from, arising out of,
or incurred with respect to or in the case of claims asserted against Seller or
the Parent by third parties, alleged to result from, arise out of or have been
incurred with respect to (i) the falsity or the breach of any representation,
covenant, warranty or agreement made by Buyer herein, (ii) the Assumed
Liabilities, (iii) the ownership, use or operation of the Assets or the conduct
of the Activity by Buyer on or subsequent to the Closing Date or (iv)
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the conduct of the business of Holding and the Kensington Partners Business
prior to, on or subsequent to the Kensington Closing Date, including but not
limited to all liabilities reflected on Holding's and Kensington Partners'
respective balance sheets as of the Kensington Closing Date.
(c) After the Closing, with respect to the transactions to be consummated
on the Closing Date, or after the Kensington Closing Date, with respect to the
transactions to be consummated on the Kensington Closing Date, as the case may
be, to the extent permitted by law, and except in respect of any fraud, willful
misconduct, intentional breach or bad faith of any party hereto, the indemnities
set forth in this Article X and in Section 14.11 hereof shall be the exclusive
remedies of Buyer, Seller and the Parent for any misrepresentation, breach of
warranty or nonfulfillment or failure to be performed of any covenant or
agreement contained in this Agreement, and the parties shall not be entitled to
a rescission of this Agreement or to any further indemnification rights or
claims of any nature whatsoever (except as expressly provided in Section 7.06
hereof) in respect thereof, all of which the parties hereto hereby waive.
10.02 Notice and Resolution of Claim.
(a) An indemnified party hereunder shall promptly give notice to the
indemnifying party after obtaining knowledge of any claim against the
indemnified party as to which recovery may be sought against the indemnifying
party because of the indemnity set forth above. If such indemnity shall arise
from the claim of a third party, the indemnified party shall permit the
indemnifying party to assume the defense of any such claim or any litigation
resulting from such claim. The failure to give notice as required by this
Section 10.02(a) in a timely fashion shall not result in a waiver of any right
to indemnification hereunder except to the extent the indemnifying party is
prejudiced thereby and then only to the extent of such prejudice.
(b) If the indemnifying party assumes the defense of such claim or
litigation, the obligations of the indemnifying party hereunder shall include
taking all steps reasonably necessary in the defense or settlement of such claim
or litigation and holding the indemnified party harmless from and against any
and all Damages caused by or arising out of any settlement approved by the
indemnifying party or any judgment in connection with such claim or litigation.
The indemnifying party shall not, in the defense of such claim or litigation,
consent to entry of any judgment unless the judgment provides only for monetary
damages to be paid by the indemnifying party or unless the indemnifying party
obtains the written consent of the indemnified party, or consent to entry of any
judgment or enter into any settlement (except with the written consent of the
indemnified party) which does not include as an unconditional term thereof the
giving by the claimant or the plaintiff to the indemnified party a release from
all liability in respect of such claim or litigation. In cases where the
indemnifying party has, by written instrument delivered to the indemnified
party, assumed the defense or a settlement with respect to a claim for which
indemnity is being sought, and is not in default, or otherwise unable to perform
its obligations, under this Article X, the indemnifying party shall be entitled
to assume the defense or settlement thereof with counsel of its own choosing,
which counsel shall be reasonably satisfactory to the indemnified party,
provided that the indemnified party (and its counsel) shall be entitled to
continue to participate at its own cost in any such action or proceeding or in
any negotiations or proceedings to settle or otherwise eliminate any claim for
which indemnification is being sought, and the indemnifying party shall consult
in good faith with the indemnified party upon the indemnified party's request
regarding the conduct of such action, proceeding or claim. If (1) the
indemnifying party does not so assume such defense , (2) the indemnifying party
is in default or otherwise unable to perform its obligations under this Article
X, or (3) the indemnified party reasonably concludes that there may be legal
defenses available to it that are different from or in addition to those
available to the indemnifying party, or that another conflict of interest exists
or may occur in the defense of such action, the indemnified party may assume
primary responsibility for the defense of the claims, and may select legal
counsel reasonably acceptable to the indemnifying party to conduct the defense
of such claims. If the indemnified party assumes and undertakes a defense of a
third party claim or claims in accordance with the immediately preceding
sentence, the indemnifying party shall be liable to the indemnified party for
any reasonable attorneys' fees and expenses incurred by the indemnified party in
connection with such matter, after receiving notice from the indemnified party
to the effect that it intends to take advantage of the provisions set forth in
the immediately preceding sentence; provided, however, that the indemnifying
party shall continue to have the right to participate in the defense of any such
action and to employ separate counsel in connection therewith, but the fees,
costs, and expenses related to such participation
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shall be at the expense of and paid by the indemnifying party. In the event the
indemnified party assumes primary responsibility for the defense of the claims,
the indemnifying party shall continue to pay the legal fees and expenses of
counsel for the indemnified party and the indemnifying party shall not have the
right to direct the defense of such action on behalf of the indemnified party.
The indemnified party shall have the right, with the consent of the indemnifying
party (which consent shall not be unreasonably withheld), to settle or
compromise any such action on terms satisfactory to it. Notwithstanding the
foregoing provisions of this Section 10.02(b), if the indemnifying party has
notified the indemnified party that the indemnifying party disputes its
liability hereunder to the indemnified party with respect to such claim and if
such dispute is resolved in favor of the indemnifying party, the indemnifying
party will not be required to bear the costs and expenses of the indemnified
party's defense pursuant to this Section 10.02(b) or of the indemnifying party's
participation therein at the indemnified party's request, and the indemnified
party will reimburse the indemnifying party in full for all reasonable costs and
expenses incurred by the indemnifying party in connection with such claim.
10.03 Payment. The indemnifying party shall promptly reimburse the
indemnified party for any Damages (including, without limitation, reasonable
attorneys' fees and expenses, except that where the indemnifying party is
defending an action, then the indemnifying party shall be liable for any
attorneys' fees and expenses incurred by it). The indemnifying party shall
promptly pay or reimburse the indemnified party for (i) the amount of any
judgment rendered or reasonable settlement (under the indemnified party's
circumstances at the time the settlement was entered into, which may be
different from the indemnifying party's circumstances if the indemnifying party
were conducting the settlement) entered into with respect to any claim by a
third party the defense of which was not assumed by the indemnifying party, (ii)
all reasonable Damages (as to settlement) and reasonable expenses, legal or
otherwise, incurred by the indemnified party in connection with the defense
against such third party claim or litigation and (iii) all reasonable costs
incurred by the indemnified party in the securing of such party's rights under
this indemnification agreement.
10.04 Limits on Indemnification.
(a) (i) Seller's and the Parent's representations and warranties contained
in this Agreement shall survive any investigation made by Buyer and shall
survive the Closing only through the one (1) year period following the Closing
Date, except for the representations and warranties of Section 4.11 hereof which
shall survive any investigation made by Buyer and shall survive until the
expiration of the applicable statute of limitations and except for the
representations and warranties of Section 4.03 hereof which shall survive
without expiration. Upon the expiration of such periods or dates, such
representations and warranties shall lapse and be of no further effect. Except
with respect to the representations and warranties in Section 4.10 and Section
4.11 hereof, Seller shall not have an obligation to indemnify Buyer pursuant to
Section 10.01(a) hereof unless a specific claim shall have been made or an
action at law or in equity shall have been commenced within six (6) months from
the date that Buyer has actual knowledge of a state of facts based upon which
Buyer may assert a claim against Seller under Section 10.01(a) hereof. Buyer may
make no claim for indemnification or otherwise in respect of the representations
and warranties set forth in Sections 4.14 through 4.26 unless and until it has
delivered the notice specified in Section 1.03 in the manner therein
contemplated, and then with respect only to such representations and warranties
and disclosures as modified through the date five (5) Business Days following
the delivery of such notice, as permitted under Section 6.02(j).
(ii) Buyer's representations and warranties contained in this Agreement
shall survive any investigation made by Seller and shall survive the Closing
only through the one (1) year period following of the Closing Date. Upon the
expiration of such period, such representations and warranties shall lapse and
be of no further effect. Buyer shall not have an obligation to indemnify Seller
pursuant to Section 10.01(b) hereof unless a specific claim shall have been made
or an action at law or in equity shall have been commenced within six (6) months
from the date that Seller has actual knowledge of a state of facts based upon
which Seller may assert a claim against Buyer under Section 10.01(b) hereof.
Nothing in this Section 10.04(a)(i) shall affect the obligations and indemnity
of Buyer with respect to covenants and agreements to be performed after such
period.
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(b) Notwithstanding any provision to the contrary in this Agreement, Buyer
shall have no right to seek indemnification for breach of a representation or
warranty by Seller if, as a result of the specific disclosure in this Agreement
or in a schedule to this Agreement of the facts underlying such breach, Buyer
had actual knowledge on the Closing Date that such representation or warranty
was false.
(c) Notwithstanding any other provision of this Agreement, indemnification
under Section 10.01 hereof shall be due only to the extent of Damages actually
suffered (less any offsetting or related payment, asset or service received and
by any recovery from any third party, such as an insurer, or by any Tax benefit
received), and then only to the extent of the excess over the Basket Amount. The
indemnifying party shall be subrogated to all rights of the indemnified party
against any third party with respect to any claim for which indemnity was paid.
Seller shall not be liable to Buyer in respect of the failure of any
representation or warranty in this Agreement to be true, under any of the
indemnities in this Agreement or in respect of any other obligations under this
Agreement, except to the extent that the aggregate of any Damages of Buyer under
this Agreement exceeds One Million Dollars ($1,000,000) (the "Basket Amount")
and, in such case, only to the extent such Damages exceed the Basket Amount. The
aggregate liability of Seller for any claims arising under Section 10.01(a)
hereof shall not exceed Four Million Dollars ($4,000,000).
XI. TERMINATION
11.01 Mutual Consent. This Agreement may be terminated at any time by the
mutual consent of Buyer and Seller.
11.02 Expiration and Environmental Matters. If the Closing has not
occurred on or before January 31, 1995, either Buyer or Seller and the Parent
may terminate this Agreement at any time thereafter by giving written notice to
the other parties. If the Kensington Closing has not occurred on or before June
30, 1995, either Buyer or Seller and the Parent may terminate this Agreement as
to the sale and purchase of the Holding Stock at any time thereafter by giving
written notice to the other parties. If the Final Remedial Amount is greater
than $1,500,000, Buyer may terminate this Agreement at any time after the Final
Remedial Amount has been determined and prior to the Closing Date, by giving
written notice to the other parties. If the Kensington Final Remedial Amount is
greater than $500,000, Buyer may terminate this Agreement with respect to the
Kensington Closing only at any time after the Kensington Final Remedial Amount
has been determined and prior to the Kensington Closing Date, by giving written
notice to the other parties.
11.03 Shareholder Approval. This Agreement may be terminated by Buyer or
Seller and the Parent if the Parent fails to receive required approvals from its
shareholders or the Senior Secured Lenders by the Closing Date.
11.04 Default. This Agreement may be terminated by either Buyer or Seller
and the Parent hereto if the other party fails to fulfill a condition to Closing
set forth herein by the Closing Date, or the other party is in default in any
material respect under this Agreement; provided that a party in default in any
material respect under this Agreement may not terminate this Agreement under
this Section 11.04.
11.05 Superior Proposal. This Agreement may be terminated by Buyer or
Seller if (i) the Board of Directors of the Parent shall fail to recommend, or
withdraw, modify or change its recommendation of, this Agreement in a manner
adverse to Buyer or shall have resolved to do any of the foregoing; or (ii)
Seller or Parent shall accept a Superior Proposal which would preclude the
completion of the transactions contemplated hereby.
11.06 Right of First Refusal. This Agreement, insofar as it relates to
the sale and purchase of the Holding Stock, may be terminated by Seller in the
event any party exercises any rights such party may have pursuant to the
Partnership Agreement to purchase the Holding Stock.
11.07 Exculpation. Except as otherwise provided in Section 11.08, upon
termination of this Agreement pursuant to the provisions of this Section 11,
each of Seller and Buyer thereupon shall be relieved of any further liability
each to the other.
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11.08 Fee. (a) Seller shall pay Buyer a fee of $1,500,000 (the "Fee")
upon (i) the termination of this Agreement pursuant to Section 11.05 or (ii) the
consummation of an Acquisition Transaction within twelve (12) months following
the termination of this Agreement if (A) such termination is by Buyer pursuant
to Section 11.04 hereof or (B) such termination is by Buyer or Seller or Parent
pursuant to Section 11.03 hereof and prior to the time of such termination
either (I) Seller or Parent or the shareholders of Parent shall have received an
offer or proposal from any Person (other than Buyer or an Affiliate of Buyer) to
enter into an Acquisition Transaction or (II) any Person other than Buyer or an
Affiliate of Buyer shall have purchased, after the date hereof and prior to such
termination, securities representing 10% or more of the voting power of Parent
or Seller. For purposes of this Agreement, "Acquisition Transaction" shall mean
(A) a merger or consolidation, or any similar transaction, involving Seller or
the Parent, (B) a purchase, lease or other acquisition of all or any substantial
portion of the Assets or all or substantially all of the assets of Seller or the
Parent, or (C) a purchase or other acquisition (including by way of merger,
consolidation, share exchange or otherwise) of securities representing 25% or
more of the voting power of Seller or the Parent.
(b) The Fees payable pursuant to Section 11.08(a) shall be paid within five
(5) Business Days after the occurrence of the events giving rise to such
payment.
XII. CLOSING
12.01 Time and Place. The closing of the sale and purchase of the Assets
(the "Closing") shall take place at the offices of Paul, Hastings, Janofsky &
Walker at 399 Park Avenue, New York, New York 10022, at 9:00 a.m., on December
15, 1994 or at such other time and place as the parties hereto shall agree upon
in writing (the "Closing Date"), but in any event no later than January 31,
1995.
12.02 Items to be Delivered by Seller. At the Closing, Seller shall
deliver to Buyer the following documents:
(a) A certificate signed by an officer of Seller to the effect that
the representations and warranties made by Seller in Sections 4.01 through
4.13 and 4.27 of this Agreement are true and correct on and as of the
Closing Date in all material respects with the same effect as though such
representations and warranties had been made on or given on and as of the
Closing Date. The delivery of such certificate shall be and constitute a
representation and warranty of Seller as of the Closing Date to each of the
facts stated therein.
(b) A written opinion in customary form from Paul, Hastings, Janofsky
& Walker, dated as of the Closing Date addressed to Buyer. Paul, Hastings,
Janofsky & Walker may rely on local counsel to Seller with respect to such
opinion.
(c) Such (i) bills of sale, endorsements, assignments and other
instruments of transfer and conveyance, (ii) original documents and (iii)
other documents, in form and substance reasonably satisfactory to Buyer, as
shall, in the reasonable judgment of Buyer or its counsel, be necessary to
vest in Buyer full right, title and interest in the Assets, including,
without limitation (x) a Bill of Sale in customary form, (y) a Deed to Real
Property in customary form, and (z) a License Agreement contemplated by
Section 1.01(l).
(d) A certified copy of the duly adopted resolutions of Seller's Board
of Directors authorizing the transaction contemplated by this Agreement.
(e) One or more general warranty deeds in statutory form for
recording, sufficient to convey the fee simple absolute title to the Real
Property free and clear of all defects in title or Liens, except for
Permitted Encumbrances.
(f) The books and records of Seller described in Section 1.01(d)
hereof.
(g) An executed counterpart of the Non-Competition Agreement
contemplated by Section 3.04 hereof.
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(h) Certificates of officers of the Seller to evidence compliance with
the conditions set forth in Article VIII hereof as may reasonably be
requested by Buyer.
(i) Such other documents, instruments, agreements, opinions, reports,
schedules and other information as may reasonably be requested by Buyer and
its counsel.
(j) A Certificate of Non-Foreign Status that meets the requirements of
Treasury Regulation Section 1.1445-2, stating that Seller is not a foreign
corporation for purposes of U.S. federal income taxation.
(k) If the Kensington Closing occurs simultaneously with the Closing,
the Holding Stock, together with stock powers and other transfer forms, as
applicable, duly executed in blank.
12.03 Items to be Delivered by Buyer. At the Closing (or earlier as set
forth herein), Buyer shall deliver to Seller, among other things:
(a) By wire transfer, the Purchase Price as specified in Section
3.01(a) hereof.
(b) A written opinion in customary form from counsel for Buyer dated
as of the Closing Date addressed to Seller.
(c) A certificate dated the Closing Date of the secretary or other
appropriate officer of Buyer certifying as to (i) the attached corporate
charter, by-laws and other constituent documents of Buyer, recently
certified, in the case of any such document filed with the Secretary of
State of Delaware, (ii) the duly adopted resolutions of Buyer's Board of
Directors authorizing the transactions contemplated by this Agreement and
(iii) recent official evidence from appropriate Governmental Authorities as
to constituent documents on file, good standing, payment of franchise Taxes
and qualifications to do business in the jurisdiction in which Buyer is
organized.
(d) An executed counterpart of the Assumption and Assignment Agreement
in customary form.
(e) An executed counterpart of the Non- Competition Agreement
contemplated by Section 3.04 hereof.
(f) An executed counterpart of the License Agreement contemplated by
Section 1.01(l) hereof.
XIII. KENSINGTON CLOSING
13.01 Time and Place. The Kensington Closing shall take place at the
offices of Paul, Hastings, Janofsky & Walker at 399 Park Avenue, New York, New
York 10022, at 9:00 a.m., or at such time and place as the parties hereto shall
agree upon in writing (the "Kensington Closing Date"), but in any event no later
than June 30, 1995.
13.02 Items to be Delivered by Seller. At the Kensington Closing, Seller
shall deliver to Buyer the following documents:
(a) A certificate signed by an officer of Seller to the effect that
the representations and warranties made by Seller in Sections 4.14 through
4.27 of this Agreement are true and correct on and as of the Kensington
Closing Date in all material respects with the same effect as though such
representations and warranties had been made on or given on and as of the
Kensington Closing Date. The delivery of such certificate shall be and
constitute a representation and warranty of Seller as of the Kensington
Closing Date to each of the facts stated therein.
(b) A written opinion in customary form from Paul, Hastings, Janofsky
& Walker, dated as of the Kensington Closing Date addressed to Buyer. Paul,
Hastings, Janofsky & Walker may rely on local counsel to Seller with
respect to such opinion.
(c) The Holding Stock, together with stock powers and other transfer
forms, as applicable, duly executed in blank.
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(d) A certified copy of the duly adopted resolutions of Seller's Board
of Directors authorizing the transaction contemplated by this Agreement.
(e) Certificates of officers of the Seller or others to evidence
compliance with the conditions-set forth in Article VIII hereof as may
reasonably be requested by Buyer.
(f) Such other documents, instruments, agreements, opinions, reports,
schedules and other information as may reasonably be requested by Buyer and
its counsel.
13.03 Items to be Delivered by Buyer. At the Kensington Closing (or
earlier as set forth herein), Buyer shall deliver to Seller, among other things:
(a) By wire transfer, the Additional Purchase Price as specified in
Section 3.01(b) hereof.
(b) A written opinion in customary form from counsel for Buyer dated
as of the Kensington Closing Date addressed to Seller.
(c) A certificate dated the Kensington Closing Date of the secretary
or other appropriate officer of Buyer certifying as to (i) the duly adopted
resolutions of Buyer's Board of Directors authorizing the transactions
contemplated by this Agreement and (ii) recent official evidence from
appropriate Governmental Authorities as to constituent documents on file,
good standing, payment of franchise Taxes and qualifications to do business
in the jurisdiction in which Buyer is organized.
XIV. MISCELLANEOUS
14.01 Law Governing. This Agreement shall be construed and interpreted
according to the internal laws of the State of New York without giving effect to
any principles of conflicts of laws.
14.02 Assignment. This Agreement shall not be assigned by any party
without the written consent of the other party and any attempted assignment
without such written consent shall be null and void and without legal effect;
provided, however, that Buyer may elect to have some or all of the Assets and
Assumed Liabilities transferred to one or more of Buyer's affiliates pursuant
hereto, but Buyer shall not thereby be relieved of any of its liabilities or
obligations hereunder or under any agreement or instrument executed pursuant
hereto. This Agreement shall be binding upon and inure to the benefit of the
respective parties hereto and their successors and assigns.
14.03 Amendment and Modification. Buyer and Seller may amend, modify and
supplement this Agreement in such manner as may be agreed upon by them in a
writing signed by Buyer and Seller.
14.04 Expenses. Buyer and Seller shall each bear their own accounting,
financial advisory, legal fees and other expenses in connection with the
negotiation and execution of this Agreement and the consummation of the
transactions contemplated hereby, subject to the provisions of Section 14.14
hereof.
14.05 Notices. All notices, demands, requests, consents or other
communications which may be or are required to be given, served, or sent by any
party to any other party pursuant to this Agreement shall be in writing and
shall be hand delivered, telegraphed, telecopied or mailed by first-class
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to Seller to:
Bird Corporation
980 Washington Street
Suite 120
Dedham, Massachusetts 02026
(Telecopy No. (617) 461-8331)
Attention: President
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With a Copy to:
Paul, Hastings, Janofsky & Walker
399 Park Avenue, 36th Floor
New York, New York 10022
(Telecopy No. (212) 319-4090)
Attention: Barry A. Brooks, Esq.
If to Buyer to:
Jannock, Inc.
Foster Plaza Seven
661 Andersen Drive
Pittsburgh, Pennsylvania 15220
(Telecopy No. (412) 925-5745)
Attention: R.H. Weir, Esq., General Counsel
With a Copy to:
Reed Smith Shaw & McClay
435 Sixth Avenue
P.O. Box 2009
Pittsburgh, Pennsylvania 15230
(Telecopy No. (412) 288-3063)
Attention: Thomas Todd, Esq.
Each party may designate by notice in writing a new address and/or telecopy
number to which any notice, demand, request, consent or communication may
thereafter be so given, served or sent. Each notice, demand, request, consent or
communication which shall be hand delivered, telecopied with receipt
acknowledged, mailed in the manner described above, or which shall be delivered
to a telegraph company, shall be deemed sufficiently given, served, sent,
received or delivered for all purposes at such time as it is delivered to the
addressee (with the return receipt, the receipt acknowledgment, the delivery
receipt or the affidavit of messenger being deemed conclusive evidence of such
delivery) or at such time as delivery is refused by the addressee upon
presentation.
14.06 Press Release. Buyer and Seller shall make a joint press release or
separate press releases approved by the other promptly following the execution
and delivery of this Agreement. Neither party hereto shall issue any other press
release or other public disclosure regarding this transaction without the prior
approval of the other party hereto except (i) with respect to disclosures to
Seller's and Buyer's respective lender(s) and other financing sources and (ii)
as and to the extent that such party shall be obligated to do so by any
Governmental Authority or applicable law, in which case the other party shall be
so advised and the parties shall use their reasonable efforts to cause a
mutually agreeable release or announcement to be issued.
14.07 Confidentiality. For a period of two (2) years following the
Closing Date, Seller shall hold in confidence with the same degree of care that
it uses with respect to its own confidential information and use reasonable
efforts to have Seller's officers, directors, affiliates, agents and employees
hold in confidence, all knowledge and information of a confidential nature
included in or regarding the Assets and will not disclose or publish same
without the consent of Buyer except (i) as otherwise required by applicable law,
(ii) as Seller may deem appropriate in connection with any Proceeding, subject
to notice thereof to Buyer and a reasonable opportunity for Buyer to obtain a
protective order with respect thereto, or (iii) unless and until, and not due to
the default hereunder by Seller or the disclosure of such knowledge or
information by its officers, directors, affiliates, agents and employees, such
knowledge and information shall have ceased to be confidential.
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Information shall not be considered confidential if such information is
available from public sources or is obtained from a third party not subject to
any obligation of confidentiality.
14.08 Counterparts. This Agreement may be executed in two or more
partially or fully executed counterparts each of which shall be deemed an
original and shall bind the signatory, but all of which together shall
constitute one and the same instrument.
14.09 Headings. The headings in this Agreement are inserted for
convenience only and shall not constitute a part hereof.
14.10 Severability. The parties agree that if any provision of this
Agreement shall under any circumstances be deemed invalid or inoperative, the
Agreement shall be construed with the invalid or inoperative provision deleted
and the rights and obligations of the parties shall be construed and enforced
accordingly.
14.11 Bulk Sales. The parties agree that no attempt will be made to
comply with any "bulk sales" or similar law that may be applicable to the
transactions contemplated hereby. Seller agrees to indemnify and hold Buyer
harmless with respect to any noncompliance with such laws.
14.12 Waiver. Either party to this Agreement may, by a specific written
notice to the other party hereto, waive any rights it has under any provision of
this Agreement. The waiver pursuant to this Section 14.12 by either party of a
breach of any provision of this Agreement or a failure of a party hereto to
enforce a right it may have hereunder shall not operate or be construed as a
waiver of any subsequent breach.
14.13 No Third Party Beneficiaries. Nothing in this Agreement shall
confer any rights upon any Person which is not a party or a successor or
permitted assignee of a party to this Agreement.
14.14 Transfer Taxes. Buyer and Seller shall each be responsible to pay
one-half of all transfer and sales Taxes arising out of or in connection with
the transactions contemplated by this Agreement. Seller shall file all Tax
Returns with respect to transfer Taxes arising out of or in connection with the
transactions effected pursuant to this Agreement ("Transfer Tax Returns") for
which either or both of Buyer and Seller may be held responsible. Seller shall
file all forms necessary for obtaining any exemptions under state and local
transfer Tax and sales and use Tax laws that may apply to the transactions
contemplated by this Agreement. Buyer shall promptly execute and deliver all
instruments, certificates and forms necessary to enable Seller to comply with
the foregoing in a timely manner and shall otherwise cooperate with Seller in
order to assist in the filing. Buyer shall complete resale or other exemption
certificates with respect to eligible Assets sold hereunder, and shall provide
Seller with executed copies thereof within seven (7) days after the closing
date. Seller shall provide Buyer with a reasonable opportunity to review and
approve any Transfer Tax Returns for which Buyer or both of Buyer and Seller may
be held responsible prior to their filing. Buyer shall reimburse Seller for
one-half of its out-of-pocket costs and expenses relating to the preparation and
filing of all Transfer Tax Returns. The provisions of this Section 14.14 shall
apply with respect to any additional transfer Taxes imposed by reason of any
indemnity payment under Article X hereof.
14.15 Cross-License. To the extent that any Intellectual Property (i)
transferred to Buyer by Seller pursuant to this Agreement incorporates images,
names, information or other property that is or has been used by Seller in its
business other than the Activity or (ii) retained by Seller is necessary for the
operation of the Activity, the parties shall use their commercially reasonable
best efforts to enter into mutually acceptable, royalty-free, perpetual licenses
with respect to such Intellectual Property.
14.16 Entire Agreement. This Agreement incorporates the entire agreement
between the parties hereto with respect to the transactions contemplated herein.
All prior negotiations and agreements between the parties are merged in, and
superseded by, this Agreement and there are no agreements, representations or
warranties between the parties other than those set forth or provided for
herein. Notwithstanding any provision herein to the contrary, nothing in this
Section 14.15 shall relieve Buyer of its obligations to comply with any prior
agreements with Seller relating to the non-disclosure of confidential
information.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date and year first above written.
BIRD CORPORATION
By:.................................
Name:...............................
Title:..............................
BIRD INCORPORATED
By:.................................
Name:...............................
Title:..............................
JANNOCK, INC.
By:.................................
Name:...............................
Title:..............................
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EXHIBIT 1
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT, made as of the day of
, 199 , by and between Jannock, Inc., a Delaware corporation
(together with any successors and assigns under the Purchase Agreement referred
to below, "Purchaser"), and Bird Incorporated, a Massachusetts corporation
("Seller").
RECITALS
WHEREAS, Purchaser, Seller and Bird Corporation ("Parent") have entered
into an Asset Purchase Agreement dated as of September , 1994 (the "Purchase
Agreement");
WHEREAS, pursuant to the Purchase Agreement, contemporaneously with the
execution hereof, Purchaser is purchasing the Assets, from Seller;
WHEREAS, Seller acknowledges and agrees that it is a condition to
Purchaser's obligation to purchase the Assets, and an essential part of the
consideration being received by Purchaser in connection with the purchase of the
Assets pursuant to the Purchase Agreement, that Seller enter into and perform
this Agreement; and
WHEREAS, capitalized terms used herein and not otherwise defined herein
shall have the meanings given to them in the Purchase Agreement.
NOW, THEREFORE, in consideration of the premises and intending to be
legally bound, Seller and Purchaser agree as follows:
ARTICLE I
SELLER'S ACKNOWLEDGMENTS
Seller recognizes and acknowledges that (a) Seller has developed and
acquired confidential and proprietary information Related to the Activity which
includes, in whole or in part, information concerning the sales, sales volume,
sales methods, sales proposals, customers and prospective customers, identity of
customers and prospective customers, identity of key personnel in the employ of
customers and prospective customers, sources of supply, purchasing records,
computer programs, system documentation, special hardware, product hardware,
related software development, manuals, formulae, processes, methods, machines,
compositions, ideas, improvements, inventions, drawings and specifications,
engineering design and manufacturing information, processes and prototypes, data
and know-how, spare parts lists, research and development records, product
testing records, manifests, reports or other books and records relating to
on-site or off-site disposal of waste and other Hazardous Materials and other
confidential or proprietary information Related to the Activity (such
confidential and proprietary information collectively referred to herein as the
"Confidential Information"), (b) the Confidential Information is part of the
Assets and has become the property of Purchaser, (c) the use, misappropriation
or disclosure of the Confidential Information by Seller would constitute a
breach of trust and could cause irreparable injury to Purchaser and (d) it is
essential to the protection of Purchaser's goodwill and to the maintenance of
Purchaser's competitive position that the Confidential Information be kept
secret and that Seller not disclose the Confidential Information to other
Persons or use the Confidential Information to Seller's own advantage or the
advantage of other Persons in violation of this Agreement.
Seller further recognizes and acknowledges that it is essential for the
proper protection of the business of Purchaser that Seller be restrained as
provided in this Agreement (a) from soliciting or inducing any employee of
Purchaser or any of its Affiliates (as hereinafter defined) to leave the employ
of Purchaser or such Affiliate, (b) from hiring or attempting to hire any
employee of Purchaser or such Affiliate, (c) from soliciting the trade of or
trading with the customers of Purchaser or any of its Affiliates for any
business
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purpose relating to any business competitive with the Activity and (d) from
competing against Purchaser or any of its Affiliates in the Activity for a
reasonable period following the purchase by Purchaser of the Assets.
ARTICLE II
SELLER'S COVENANTS AND AGREEMENTS
2.01. Non-Disclosure of Confidential Information. Seller covenants and
agrees that Seller shall not, and shall not permit any of its Affiliates to,
use, appropriate or misappropriate any of the Confidential Information, or
disclose or make available to any Person other than Purchaser any of the
Confidential Information; provided, however, that Seller or any of its
Affiliates may disclose or make available any such information if (i) prior to
such disclosure such information can be shown to be in the public domain through
no fault of Seller or any of its Affiliates or (ii) such disclosure is required
in order for Seller or any of its Affiliates to comply with any law or with an
order or ruling of a Governmental or Regulatory Authority.
2.02. Restrictions on Competition. Seller covenants and agrees that,
during the Non-Competition Period (as hereinafter defined), Seller shall not,
and shall not permit any of its Affiliates to, in any portion of the United
States of America or Canada, engage, directly or indirectly, whether as
principal or as agent, consultant, shareholder, partner, joint venturer or
otherwise, alone or in association with any other Person, in any Competing
Business. For purposes of this Agreement, the term "Competing Business" shall
mean the production and/or sale of vinyl siding, soffit, fascia and/or
associated accessories and/or vinyl window profiles and/or accessories.
2.03. Non-Solicitation of Customers and Suppliers. Seller agrees that,
during the Non-Competition Period, it shall not, and shall not permit any of its
Affiliates to, directly or indirectly, solicit the trade of, any customer,
prospective customer, supplier, or prospective supplier of the Activity for any
business purpose which is competitive with the Activity as carried on by
Purchaser after the Closing.
2.04. Non-Solicitation of Employees. Seller agrees that, during the
Non-Competition Period, Seller shall not, and shall not permit any of its
Affiliates to, directly or indirectly, knowingly solicit or induce, or attempt
to solicit or induce, any employee of Purchaser or any of its Affiliates to
leave Purchaser or any of its Affiliates, as the case may be, for any reason
whatsoever, or hire any employee of Purchaser or any of its Affiliates;
provided, however, that the foregoing restrictions shall not apply to any
solicitation by general advertisement, or to any person who resigns voluntarily
from Purchaser or any of its Affiliates (without solicitation by Seller) or is
terminated by Purchaser or any of its Affiliates.
2.05. Definition of "Non-Competition Period" and
"Affiliate". "Non-Competition Period" shall mean the period commencing on the
date hereof and ending on the fifth anniversary of the date hereof. "Affiliate"
shall mean any Person which directly or indirectly controls, is controlled by or
is under common control with another Person. The term "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
2.06. Exceptions. Notwithstanding anything to the contrary herein,
Purchaser acknowledges and agrees that the restrictions and agreements contained
herein shall not apply to any line of business engaged in by Seller or any
Affiliate of Seller immediately following the Closing, or to any Person that
purchases all or a substantial portion of Seller's or the Parent's capital stock
or assets or to such Person's Affiliates.
ARTICLE III
SELLER'S REPRESENTATIONS AND WARRANTIES
3.01. No Prior Agreements. Seller represents and warrants that it is not
a party to or otherwise subject to or bound by the terms of any contract,
agreement or understanding which in any manner would limit or otherwise affect
its ability to perform its obligations hereunder, including without limitation
any contract,
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agreement or understanding containing terms and provisions similar in any manner
to those contained in Article II hereof.
3.02. Irreparable Harm. Seller acknowledges that it would cause Purchaser
serious and irreparable injury and cost if Seller were to breach its obligations
contained in Article II.
3.03. Remedies. In the event of a breach by Seller of the terms of this
Agreement, Purchaser shall be entitled, if it shall so elect, to institute legal
proceedings to obtain damages for any such breach, or to enforce the specific
performance of this Agreement by Seller and to enjoin Seller from any further
violation of this Agreement and to exercise such remedies cumulatively or in
conjunction with all other rights and remedies provided by law. Seller
acknowledges, however, that the remedies at law for any breach by it of the
provisions of this Agreement may be inadequate and that Purchaser shall be
entitled to injunctive relief against it in the event of any breach.
ARTICLE IV
MISCELLANEOUS
4.01. Authorization to Modify Restrictions. It is the intention of the
parties that the provisions of Article II hereof shall be enforceable to the
fullest extent permissible under applicable law, but that the unenforceability
(or modification to conform to such law) of any provision or provisions hereof
shall not render unenforceable, or impair, the remainder thereof. If any
provision or provisions hereof shall be deemed invalid or unenforceable, either
in whole or in part, this Agreement shall be deemed amended to delete or modify,
as necessary, the offending provision or provisions and to alter the bounds
thereof in order to render it valid and enforceable.
4.02. Purchaser Violation Not a Defense. In an action by Purchaser to
enforce this Agreement any claims asserted by Seller against Purchaser shall not
constitute a defense to Purchaser's action.
4.03. Entire Agreement. This Agreement represents the entire agreement of
the parties with respect to the subject matter hereof and may be amended only by
a writing signed by each of them.
4.04. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
4.05. Agreement Binding. The obligations of Seller under this Agreement
shall be binding on its successors and assigns, except as provided herein, and
shall inure to the benefit of any successors and assigns of Purchaser, including
without limitation any entity to which Purchaser assigns its rights and
obligations under the Purchase Agreement or to which Purchaser or any such
assignee transfers all or any portion of the Assets.
4.10. Counterparts, Section Headings. This Agreement may be executed in
any number of counterparts, each of which shall be deemed to be an original, but
all of which together shall constitute one and the same instrument. The section
headings of this Agreement are for convenience of reference only and shall not
affect the construction or interpretation of any of the provisions hereof.
4.11. Notices. All notices, demands and other communications which may or
are required to be given hereunder or with respect hereto shall be made in
accordance with the provisions of the Purchase Agreement.
3
<PAGE> 191
IN WITNESS WHEREOF, the parties hereto have executed this Agreement or
caused this Agreement to be executed the day and year first above written.
BIRD INCORPORATED
980 Washington Street
Suite 120
Dedham, Massachusetts 02026
By:.................................
Name:...............................
Title:..............................
JANNOCK, INC.
Foster Plaza Seven
661 Andersen Drive
Pittsburgh, Pennsylvania 15220
By:.................................
Name:...............................
Title:..............................
In consideration of the purchase by Purchaser of the Assets and other
valuable consideration, Parent agrees with Purchaser to be bound by and to
comply with, and to cause each Affiliate of Parent to be bound by and to comply
with, the provisions of this Agreement binding on Seller. The obligations of
Parent hereunder shall be binding on its successors and assigns except as
provided herein.
BIRD CORPORATION
By:.................................
Name:...............................
Title:..............................
4
<PAGE> 192
EXHIBIT 2
LICENSE AGREEMENT
THIS LICENSE AGREEMENT, is made this day of
, 199 , between Bird Incorporated, a Massachusetts
corporation ("Seller") and Jannock, Inc., a Delaware corporation ("Buyer").
RECITALS
WHEREAS, Seller, its parent corporation, Bird Corporation, a Massachusetts
corporation, and Buyer have entered into an Asset Purchase Agreement dated
September , 1994 (the "Purchase Agreement") relating to the sale to Buyer of
the Assets for use in connection with the Activity;
WHEREAS, Seller is the sole owner of all rights, title and interest to, in
and under the "Bird" name and logo and all registrations or registration
applications therefor, if any ("Trademark"), as identified on Schedule 1.01(l)
of the Purchase Agreement and attached hereto as Exhibit A and as used by Seller
in connection with the Activity;
WHEREAS, pursuant to Section 1.01(l) of the Purchase Agreement, Seller
desires to grant to Buyer, and Buyer desires to receive from Seller, a
royalty-free, paid-up license to use the Trademark and to sublicense the
Trademark in connection with the Activity within the United States of America
and Canada (the "Territory"), according to the terms and conditions of this
License Agreement;
WHEREAS, Seller desires to retain the right to concurrently use with Buyer,
and Buyer recognizes Seller's right to concurrently use, the Trademark in
connection with the assets and the activities of Seller, or any of its
affiliates, not being transferred to Buyer pursuant to the Purchase Agreement,
including without limitation, in connection with the marketing of vinyl shutters
by the Roofing Division of Seller (the "Roofing Division"); and
WHEREAS, capitalized terms used herein which are not otherwise defined
shall have the meanings assigned to such term in the Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound hereby, Seller and Buyer agree
as follows:
AGREEMENT
1. GRANT OF RIGHTS.
1.1 Seller hereby grants to Buyer, and Buyer hereby accepts from Seller,
an exclusive, royalty-free, paid-up right to use the Trademark during the Term
in the Territory in connection with the Activity, including without limitation,
the right to use the Trademark in connection with producing, offering for sale,
selling, marketing, packaging, labeling or distributing vinyl siding, soffit,
fascia and associated accessories, vinyl window profiles and accessories and
other vinyl products ("Vinyl Products"). Notwithstanding any provision herein to
the contrary, Seller retains the right to use and Buyer recognizes Seller's
right to continue to use, the Trademark in connection with the activities of
Seller, or any of its affiliates, not being transferred to Buyer pursuant to the
Purchase Agreement, including, without limitation, in connection with the
marketing of vinyl shutters by the Roofing Division.
1.2 Seller hereby grants to Buyer, and Buyer hereby accepts from Seller,
an exclusive, royalty-free, paid-up right to sublicense the Trademark during the
Term in the Territory in connection with the Activity, including without
limitation, the right to sublicense the Trademark to an unlimited number of
Buyer's affiliates, in connection with producing, offering for sale, selling,
marketing, packaging, labeling or distributing Vinyl Products, provided that
such sublicensees agree in writing to be bound by the terms and conditions of
this License Agreement.
1
<PAGE> 193
1.3 Buyer and sublicensees of Buyer shall be entitled to request that
Seller register, for exclusive use by Buyer or such sublicensees in connection
with the Activity, any variations or modifications to the Trademark or new
trademark containing or incorporating the Trademark as Buyer or such sublicenses
may specify, and Seller shall not unreasonably withhold approval of such
request. Buyer's or sublicensee's exclusive use of any such variations,
modifications or new trademark shall inure to Seller's benefit for purposes of
determining priority of use with respect to third parties.
2. REPRESENTATIONS AND WARRANTIES; COVENANTS.
2.1 Seller represents and warrants that it is the sole owner of the
Trademark, in the United States of America and Canada and that it has all rights
necessary to grant to Buyer the rights hereunder.
2.2 Seller represents and warrants that the Trademark does not infringe
any proprietary rights of any other person in the United States of America and
Canada, including without limitation, any trademark, service mark or trade name
rights.
2.3 Buyer represents, warrants and covenants that it shall maintain the
quality and nature of all Vinyl Products produced by or for Buyer at least at
the level of quality and nature of the Vinyl Products as of the date of the
Purchase Agreement.
2.4 Buyer represents, warrants and covenants that it shall require its
sublicensees of the Trademark to maintain the quality and nature of all Vinyl
Products produced by or for such sublicensees at least at the level of quality
and nature of the Vinyl Products as of the date of the Purchase Agreement.
2.5 Buyer shall provide Seller with access, at reasonable times upon
reasonable notice from time to time, in a manner which does not unreasonably
interfere with Buyer's business, to Buyer's and its sublicensees' facilities and
to the Vinyl Products as Seller may reasonably request in order to inspect and
verify the level of quality and nature of the Vinyl Products produced by Buyer.
Seller shall have the right, in its reasonable discretion, to determine whether
or not the level of quality and nature of the Vinyl Products as set forth in
Section 2.3 has been maintained.
3. OWNERSHIP OF TRADEMARK BY SELLER. Buyer hereby acknowledges that
Seller is the owner of the Trademark and any variations or modifications of the
Trademark. All use of the Trademark by Buyer shall inure to the benefit of
Seller.
4. REGISTRATION. Seller shall be responsible for the execution, filing,
prosecution and maintenance of any trademark applications or registrations
pertaining the Trademark or any variations or modifications thereof or any new
trademark containing or incorporating the Trademark (the "Registration
Activities"). Buyer agrees to indemnify and hold harmless Seller from any costs
or expenses involving Registration Activities undertaken solely for the benefit
of Buyer or Buyer's sublicensees. Notwithstanding any provision herein to the
contrary, Buyer's exclusive remedy in the event of Sellers breach of this
Section 4 shall be to undertake the Registration Activities itself and to be
reimbursed for any actual expenses or costs reasonably incurred by Buyer in
undertaking the Registration Activities.
5. INFRINGEMENTS. If Buyer learns of any use by any person of any
material, product or service bearing any mark, name or designation similar to
the Trademark, it shall promptly notify Seller, and Buyer and Seller shall
confer to determine the nature of any action to be taken against any such
person. If requested by Seller, Buyer shall fully cooperate with Seller and join
with Seller in such action as Seller, in its reasonable discretion, may deem
advisable for the protection of the Trademark. If Seller elects not to take
action with respect to a possible infringement brought to Seller's attention by
Buyer within sixty (60) days of Seller's receipt of such notice, Buyer may take
such action at Buyer's expense as Buyer deems appropriate.
6. INDEMNIFICATION.
6.1 Seller agrees to appear and defend at its own cost, and to indemnify
and hold harmless Buyer, its officers, directors, shareholders, employees and
agents and Buyer's sublicensees, their officers, directors, shareholders,
employees and agents, from any claim, suit, liability, cost or expense,
including attorneys' fees, involving, arising out of or relating to (i)
infringement or unfair competition actions arising out of or relating to
2
<PAGE> 194
the use of the Trademark by Buyer or Buyer's sublicensees in connection with
Vinyl Products, according to the terms and conditions of this License Agreement
or (ii) any use of the Trademark by Seller or Seller's affiliates as provided by
Section 1.1.
6.2 Buyer agrees to appear and defend at its own cost, and to indemnify
and hold harmless Seller and its officers, directors, shareholders, employees
and agents, from any claim, suit, liability, cost or expense, including
reasonable attorneys' fees, involving, arising out of or relating to the use of
the Trademark by Buyer or Buyer's sublicensees; provide, however, that this
Section 6.2 shall not apply to claims or allegations described in Section 6.1
hereof which is based upon infringement or unfair competition actions arising
out of or relating to the use of such Trademark.
7. LEGENDS. Buyer shall use the notice (R), "tm", or such other legend as
Seller may reasonably specify and as may be appropriate under applicable laws,
in the location and manner designated by Seller on or in connection with the
Vinyl Products.
8. TERM. The term of this License Agreement shall be perpetual (the
"Term"), except as provided in Section 9 of this License Agreement. In the event
that Seller ceases to do business or exist, then prior to the effective date of
such change, Seller shall convey to Buyer or its designee all of its rights to
the Trademark in consideration of $1.00.
9. TERMINATION.
9.1 Seller shall have the right to terminate this License Agreement if (a)
Buyer uses the Trademark in connection with any product other than Vinyl
Products, (b) Buyer uses the Trademark in connection with any activity other
than the Activity, (c) Buyer attempts or purports to sublicense or assign this
License Agreement or the rights granted hereunder other than as permitted by
this License Agreement or (d) Buyer breaches any other obligation of this
License Agreement.
9.2 In the event of a breach of this License Agreement, Seller shall
notify Buyer of such breach in writing promptly after learning of such breach,
specifying the nature of the breach. Buyer shall have sixty (60) days from
receipt of such notice to correct the deficiency to the reasonable satisfaction
of Seller. If the cure of the breach is not affected by such date, this License
Agreement shall terminate.
9.3 Upon the termination of this License Agreement for any reason, all
rights granted hereunder in the Trademark shall automatically revert to Seller,
and Buyer will cease and thereafter refrain from (i) all use of the Trademark,
(ii) all sublicensing of the Trademark and (iii) any reference to itself or any
of its affiliates or sublicensees as "formerly Bird" or words of similar
meaning.
10. NOTICES. All communications, inquiries, notices for requests for
approvals shall be sent, first class, postage prepaid, to the parties at the
addresses set forth below, or such address as the parties may designate:
If to Seller to:
Bird Incorporated
980 Washington Street, Suite 120
Dedham, Massachusetts 02026
Attention: President
If to Buyer to:
Jannock, Inc.
Foster Plaza Seven
661 Andersen Drive
Pittsburgh, Pennsylvania 15220
Attention: R.H. Weir, Esq., General Counsel
Notice given under the provisions of this Section shall be deemed given when
sent.
3
<PAGE> 195
11. ASSIGNMENT.
11.1 Buyer shall have the right to assign this License Agreement or its
rights granted hereunder in connection with a sale of the Vinyl Products
business, provided it receives the prior written approval of Seller, such
written approval not to be unreasonably withheld, and provided that any such
assignee agrees in writing to be bound by the terms and conditions of this
License Agreement. In the event such an assignment is made, Seller shall remain
bound to all of the sublicenses made by Buyer prior to the assignment.
11.2 Seller shall have the right to assign this License Agreement or its
rights granted hereunder in connection with a sale of all or a substantial part
of its business, provided that any such assignee agrees in writing to be bound
by the terms and conditions of this License Agreement (including any sublicenses
granted by Buyer hereunder).
12. APPLICABLE LAW. This Agreement shall be governed by and under the
laws of the Commonwealth of Pennsylvania, and to the extent applicable, the
United States of America.
13. NO WAIVER. The waiver or failure of Seller or buyer to exercise any
right provided hereunder shall not be deemed a waiver of any further right
hereunder.
14. MERGER. This License Agreement supersedes any prior understandings,
whether written or oral, between the parties regarding the subject matter of
this License Agreement.
15. HEADINGS. Headings are for the convenience of the parties and have no
legal effect.
16. NO MODIFICATION. This License Agreement may not be modified except in
writing signed by both parties.
17. INJUNCTIVE RELIEF. Buyer acknowledges that it would be difficult or
impossible to calculate and ascertain accurately or definitively the damages
which would be sustained by Seller as a result of a breach by Buyer or Buyer's
sublicensees of its obligations pursuant to Sections 2.3, 2.4 or 2.5 of this
License Agreement. Accordingly, Seller shall have the right to obtain a
temporary restraining order and preliminary and permanent injunctions
restraining and enjoining Buyer and Buyer's sublicensees from initiating or
continuing any breach of any such Section. If any court shall determine that
Seller is entitled to temporary or other preliminary injunctive relief, Seller
shall not be required to furnish a bond to obtain such preliminary or temporary
relief.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their properly and duly authorized representatives.
BIRD INCORPORATED
By:.................................
Name:...............................
Title:..............................
JANNOCK, INC.
By:.................................
Name:...............................
Title:..............................
4
<PAGE> 196
EXHIBIT A
LICENSE AGREEMENT
[LOGO]
VINYL PRODUCTS
<PAGE> 197
EXHIBIT C
MASSACHUSETTS BUSINESS CORPORATION LAW
SECTION 76 AND SECTIONS 86 TO 98
<PAGE> 198
SECTION 76. Rights of Minority Stockholder, Etc. -- A stockholder in any
corporation which shall have voted to sell, lease or exchange all or
substantially all its property and assets, or which shall have adopted any
amendment of its articles of organization which adversely affects the rights of
such stockholder, who objects to such action, in the manner provided in section
eighty-six, shall be entitled, if such sale, lease or exchange shall have been
consummated or such amendment shall have become effective, as the case may be,
to demand payment for his stock from the corporation and an appraisal thereof in
accordance with the provisions of sections eighty-six to ninety-eight,
inclusive, and such stockholder and the corporation shall have the rights and
duties and follow the procedure set forth in those sections.
SECTION 86. Right of Appraisal. -- If a corporation proposes to take a
corporate action as to which any section of this chapter provides that a
stockholder who objects to such action shall have the right to demand payment
for his shares and an appraisal thereof, sections eighty-seven to ninety-eight,
inclusive, shall apply except as otherwise specifically provided in any section
of this chapter. Except as provided in sections eighty-two and eighty-three, no
stockholder shall have such right unless (1) he files with the corporation
before the taking of the vote of the shareholders on such corporate action,
written objection to the proposed action 1stating that he intends to demand
payment for his shares if the action is taken and (2) his shares are not voted
in favor of the proposed action.
SECTION 87. Notice of Stockholders Meeting to Contain Statement as to
Appraisal Rights. -- The notice of the meeting of stockholders at which the
approval of such proposed action is to be considered shall contain a statement
of the rights of objecting stockholders. The giving of such notice shall not be
deemed to create any rights in any stockholder receiving the same to demand
payment for his stock, and the directors may authorize the inclusion in any such
notice of a statement of opinion by the management as to the existence or
non-existence of the right of the stockholders to demand payment for their stock
on account of the proposed corporate action. The notice may be in such form as
the directors or officers calling the meeting deem advisable, but the following
form of notice shall be sufficient to comply with this section:
"If the action proposed is approved by the stockholders at the meeting and
effected by the corporation, any stockholder (1) who files with the corporation
1before the taking of the vote on the approval of such action, written objection
to the proposed action stating that he intends to demand payment for his shares
if the action is taken and (2) whose shares are not voted in favor of such
action has or may have the right to demand in writing from the corporation (or
in the case of a consolidation or merger, the name of the resulting or surviving
corporation shall be inserted), within twenty days after the date of mailing to
him of notice in writing that the corporate action has become effective, payment
for his shares and an appraisal of the value thereof. Such corporation and any
such stockholder shall in such cases have the rights and duties and shall follow
the procedure set forth in Sections 88 to 98 inclusive, of chapter 156B of the
General Laws of Massachusetts."
SECTION 88. Notice to Objecting Stockholder that Corporate Action has
Become Effective. -- The corporation taking such action, or in the case of a
merger or consolidation the surviving or resulting corporation, shall, within
ten days after the date on which such corporate action became effective, notify
each stockholder who filed written objection 1 meeting the requirements of
section eighty-six and whose shares were not voted in favor of the approval of
such action, that the action approved at the meeting of the corporation of which
he is a stockholder has become effective. The giving of such notice shall not be
deemed to create any rights in any stockholder receiving the same to demand
payment for his stock. The notice shall be sent by registered or certified mail,
addressed to the stockholder at his last known address as it appears in the
records of the corporation.
SECTION 89. Demand for Payment by Objecting Stockholder. -- If 1within
twenty days after the date of mailing of a notice under subsection (e) of
section eighty-two, subsection (f) of section eighty-three, or section
eighty-eight any stockholder to whom the corporation was required to give such
notice shall demand in writing from the corporation taking such action, or in
the case of a consolidation or merger from the resulting or surviving
corporation, payment for his stock, the corporation upon which such demand is
made shall pay to him the fair value of his stock within thirty days after the
expiration of the period during which such demand may be made.
<PAGE> 199
SECTION 90. Determination of Value of Stock by Superior Court. -- If
during the period of thirty days provided for in section eighty-nine the
corporation upon which such demand is made and any such objecting stockholder
fail to agree as to the value of such stock, such corporation or any such
stockholder may within four months after the expiration of such thirty-day
period demand a determination of the value of the stock of all such objecting
stockholders by a bill in equity filed in the superior court in the county where
the corporation in which such objecting stockholder held stock had or has its
principal office in the commonwealth.
SECTION 91. Bill in Equity to Determine Value of Stock of Objecting
Stockholders on Failure to Agree on Value Thereof Etc; Parties to Bill Etc;
Service of Bill on Corporation; Notice to Stockholder Parties Etc. -- If the
bill is filed by the corporation, it shall name as parties respondent all
stockholders who have demanded payment for their shares and with whom the
corporation has not reached agreement as to the value thereof. If the bill is
filed by a stockholder, he shall bring the bill in his own behalf and in behalf
of all other stockholders who have demanded payment for their shares and with
whom the corporation has not reached agreement as to the value thereof, and
service of the bill shall be made upon the corporation by subpoena with a copy
of the bill annexed. The corporation shall file with its answer a duly verified
list of all such other stockholders, and such stockholders shall thereupon be
deemed to have been added as parties to the bill. The corporation shall give
notice in such form and returnable on such date as the court shall order to each
stockholder party to the bill by registered or certified mail, addressed to the
last known address of such stockholder as shown in the records of the
corporation, and the court may order such additional notice by publication or
otherwise as it deems advisable. Each stockholder who makes demand as provided
in section eighty-nine shall be deemed to have consented to the provisions of
this section relating to notice, and the giving of notice by the corporation to
any such stockholder in compliance with the order of the court shall be a
sufficient service of process on him. Failure to give notice to any stockholder
making demand shall not invalidate the proceedings as to other stockholders to
whom notice was properly given, and the court may at any time before the entry
of a final decree make supplementary orders of notice.
SECTION 92. Bill in Equity to Determine Value of Stock of Objecting
Stockholders on Failure to Agree on Value Thereof, Etc; Entry of Decree
Determining Value of Stock; Date on which Value is to be Determined. -- After
hearing the court shall enter a decree determining the fair value of the stock
of those stockholders who have become entitled to the valuation of and payment
for their shares, and shall order the corporation to make payment of such value,
together with interest, if any, its hereinafter provided, to the stockholders
entitled thereto upon the transfer by them to the corporation of the
certificates representing such stock if certificated or if uncertificated, upon
receipt of an instruction transferring such stock to the corporation. For this
purpose, the value of the shares shall be determined as of the day preceding the
date of the vote approving the proposed corporate action and shall be exclusive
of any element of value arising from the expectation or accomplishment of the
proposed corporate action.
SECTION 93. Bill in Equity to Determine Value of Stock of Objecting
Stockholders on Failure to Agree on Value Thereof, Etc.; Court May Refer Bill,
Etc., To Special Master to Hear Parties, Etc. -- The court in its discretion may
refer the bill or any question arising thereunder to a special master to hear
the parties, make findings and report the same to the court, all in accordance
with the usual practice in suits in equity in the superior court.
SECTION 94. Bill in Equity to Determine Value of Stock of Objecting
Stockholders on Failure to Agree on Value Thereof, Etc.; Stockholder Parties may
be Required to Submit Their Stock Certificates for Notation Thereon of Pendency
of Bill, Etc. -- On motion the court may order stockholder parties to the bill
to submit their certificates of stock to the corporation for notation thereon of
the pendency of the bill, and may order the corporation to note such pendency in
its records with respect to any uncertificated shares held by such stockholder
parties, and may on motion dismiss the bill as to any stockholder who fails to
comply with such order.
SECTION 95. Bill in Equity to Determine Value of Stock of Objecting
Stockholders on Failure to Agree on Value Thereof, Etc.; Taxation of Costs,
Etc.; Interest on Award, Etc. -- The costs of the bill, including the reasonable
compensation and expenses of any master appointed by the court, but exclusive of
fees of counsel or of experts retained by any party, shall be determined by the
court and taxed upon the parties to the bill, or
<PAGE> 200
any of them, in such manner as appears to be equitable, except that all costs of
giving notice to stockholders as provided in this chapter shall be paid by the
corporation. Interest shall be paid upon any award from the date of the vote
approving the proposed corporate action, and the court may on application of any
interested party determine the amount of interest to be paid in the case of any
stockholder.
SECTION 96. Stockholder Demanding Payment for Stock not Entitled to Notice
of Stockholders' Meetings or to Vote Stock or to Receive Dividends, Etc.;
Exceptions. -- Any stockholder who has demanded payment for his stock as
provided in this chapter shall not thereafter be entitled to notice of any
meeting of stockholders or to vote such stock for any purpose and shall not be
entitled to the payment of dividends or other distribution on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the date of the vote approving the proposed corporate action)
unless:
(1) A bill shall not be filed within the time provided in section ninety;
(2) A bill, if filed, shall be dismissed as to such stockholder; or
(3) Such stockholder shall with the written approval of the corporation, or
in the case of a consolidation or merger, the resulting or surviving
corporation, deliver to it a written withdrawal of his objections to
and an acceptance of such corporate action
Notwithstanding the provisions of clauses (1) to (3), inclusive, said
stockholder shall have only the rights of a stockholder who did not so demand
payment for his stock as provided in this chapter.
SECTION 97. Certain Shares Paid for by Corporation to have Status of
Treasury Stock, Etc. -- The shares of the corporation paid for by the
corporation pursuant to the provisions of this chapter shall have the status of
treasury stock or in the case of a consolidation or merger the shares or the
securities of the resulting or surviving corporation into which the shares of
such objecting stockholder would have been converted had he not objected to such
consolidation or merger shall have the status of treasury stock or securities.
SECTION 98. Enforcement by Stockholder of Right to Receive Payment for His
Shares to be Exclusive Remedy; Exception. -- The enforcement by a stockholder of
his right to receive payment for his shares in the manner provided in this
chapter shall be an exclusive remedy except that this chapter shall not exclude
the right of such stockholder to bring or maintain an appropriate proceeding to
obtain relief on the ground that such corporate action will be or is illegal or
fraudulent as to him.
<PAGE> 201
1995 PROXY CARD
BIRD CORPORATION
SPECIAL MEETING -- MARCH 7, 1995
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned does hereby constitute and appoint Joseph D. Vecchiolla and
Frank S. Anthony, or either one of them, the attorney(s) of the undersigned,
with full power of substitution, with all the powers which the undersigned would
possess if personally present, to vote all stock of Bird Corporation which the
undersigned is entitled to vote at the special meeting of stockholders of Bird
Corporation to be held in the East Room of the Holiday Inn, 55 Ariadne Road (at
the junction of Route 1 South and Route 128), Dedham, Massachusetts 02026, on
March 7, 1995 at 10:00 o'clock a.m. and at any adjournment thereof, hereby
acknowledging receipt of the Proxy Statement for such meeting and revoking all
previous proxies.
This Proxy, when properly executed, will be voted as directed. If no
direction is made, this Proxy will be voted FOR the Combined Sale Transaction
pursuant to an Asset Purchase Agreement dated September 23, 1994 (as further
described in the Proxy Statement) and, in the case of any other matters that
legally come before the meeting, as said attorney(s) may deem advisable.
CHANGE OF ADDRESS:
(CONTINUED, AND TO BE SIGNED AND DATED ON REVERSE SIDE.)
<PAGE> 202
(CONTINUED FROM OTHER SIDE)
PLEASE VOTE, SIGN, DATE, AND RETURN THE PROXY CARD PROMPTLY, USING THE ENCLOSED
ENVELOPE.
/ / FOR the Combined Sale Transaction / / AGAINST the Combined Sale
Transaction / / ABSTAIN the Combined Sale Transaction
<TABLE>
<S> <C>
CHECK HERE FOR ADDRESS CHANGE / / CHECK HERE IF YOU PLAN TO ATTEND THE MEETING / /
Please sign name exactly as name appears. When signing in a
fiduciary capacity, please give full title. Co-fiduciaries
and joint owners should each sign.
Signature:
Date:
Signature:
Date:
</TABLE>
