<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 13, 1998
REGISTRATION NO. 333-64555
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
AXIA INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
3496
3535
DELAWARE 3559 13-3205251
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL(I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER)
IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
LYLE J. FEYE
100 WEST 22ND STREET, SUITE 134 100 WEST 22ND STREET, SUITE 134
LOMBARD, ILLINOIS 60148 LOMBARD, ILLINOIS 60148
(630) 629-3360 (630) 629-3360
(ADDRESS, INCLUDING ZIP CODE, AND
TELEPHONE
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE OF PROCESS)
REGISTRANT'S
PRINCIPAL EXECUTIVE OFFICES)
--------------
COPY TO:
GARY W. ORLOFF
BRACEWELL & PATTERSON, L.L.P.
SOUTH TOWER PENNZOIL PLACE, SUITE 2900
711 LOUISIANA STREET
HOUSTON, TEXAS 77002-2781
PHONE: (713) 221-1306
FAX: (713) 221-1212
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company or there is compliance with
General Instruction G, check the following box. [_]
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE SHOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 13, 1998
AXIA INCORPORATED
OFFER TO EXCHANGE ITS
10 3/4% EXCHANGE SENIOR SUBORDINATED NOTES DUE 2008
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT
FOR ANY AND ALL OUTSTANDING
10 3/4% SENIOR SUBORDINATED NOTES DUE 2008
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW
YORK CITY TIME ON NOVEMBER 16, 1998, UNLESS
EXTENDED BY AXIA INCORPORATED IN ITS SOLE
DISCRETION (THE "EXPIRATION DATE"). ALTHOUGH
AXIA INCORPORATED HAS NO PRESENT INTENTION
TO CONDUCT ITS EXCHANGE OFFER LONGER THAN
30 DAYS, IT RESERVES THE RIGHT TO EXTEND
THE EXCHANGE OFFER.
AXIA Incorporated, a Delaware corporation (the "Company" or "AXIA"), hereby
offers, upon the terms and subject to the conditions set forth in the
Prospectus (the "Prospectus") and the accompanying Letter of Transmittal (the
"Letter of Transmittal" and, together with the Prospectus, the "Exchange
Offer"), to exchange $1,000 principal amount of its 10 3/4% Exchange Senior
Subordinated Notes due 2008 (the "Exchange Notes"), which have been registered
under the Securities Act of 1933, as amended (the "Securities Act"), pursuant
to a Registration Statement of which this Prospectus is a part, for each $1,000
principal amount of its outstanding 10 3/4% Senior Subordinated Notes due 2008
(the "Original Notes"), of which an aggregate of $100,000,000 principal amount
is outstanding.
The form and terms of the Exchange Notes are the same as the form and terms
of the Original Notes except that (i) the Exchange Notes will have been
registered under the Securities Act and, therefore, will not bear legends
restricting their transfer pursuant to the Securities Act, and (ii) holders of
the Exchange Notes generally will not be entitled to the rights of holders of
the Original Notes under the Registration Rights Agreement (as defined under
"Prospectus Summary--The Exchange Offer") following the consummation of the
Exchange Offer. See "The Exchange Offer--Registration Rights," "--Consequences
of Failure to Exchange" and "--Resale of the Exchange Notes; Plan of
Distribution." The Exchange Notes will evidence the same debt as the Original
Notes (which they replace) and will be issued under, and be entitled to the
benefits of the indenture governing the Exchange Notes.
The Company will accept for exchange any and all Original Notes validly
tendered and not withdrawn prior to the Expiration Date. Tenders of Original
Notes may be withdrawn at any time prior to the Expiration Date. The Exchange
Offer is subject to certain customary conditions. See "The Exchange Offer." The
Original Notes may be tendered only in integral multiples of $1,000 principal
amount.
(Prospectus cover continued on following page)
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SEE "RISK FACTORS" BEGINNING ON PAGE 16 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER AND AN
INVESTMENT IN THE EXCHANGE NOTES.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
-----------
The date of this Prospectus is October , 1998.
<PAGE>
The Original Notes and the Exchange Notes are referred to herein
collectively as the "Notes."
Interest on the Notes is payable semiannually on January 15 and July 15 of
each year, commencing January 15, 1999. Except as described below, the Notes
are not redeemable at the option of the Company prior to July 15, 2003.
Thereafter, the Notes will be redeemable, in whole or in part, at the option
of the Company, at the redemption prices set forth herein, together with
accrued and unpaid interest, if any, to the date of redemption. Up to 35% of
the original principal amount of the Notes will be redeemable at any time and
from time to time prior to July 15, 2001, at the option of the Company, with
the proceeds of any Public Equity Offerings (as defined under "Description of
the Notes--Certain Definitions") following which there is a Public Market (as
defined under "Description of the Notes--Certain Definitions") at a redemption
price equal to 110.75% of the principal amount thereof, together with accrued
and unpaid interest, if any, to the date of redemption; provided, however,
that at least $65 million aggregate principal amount of the Notes must remain
outstanding after each such redemption. Upon a Change in Control (as defined
under "Description of the Notes--Change of Control"), each holder of Notes may
require the Company to purchase all or a portion of such holder's Notes at
101% of the principal amount thereof, together with accrued and unpaid
interest, if any, to the date of purchase. The Notes are unsecured senior
subordinated obligations of the Company and will rank subordinate in right of
payment to all existing and future Senior Indebtedness (as defined under
"Description of the Notes--Certain Definitions") of the Company. As of June
30, 1998, on a pro forma basis after giving effect to the issuance of the
Notes and the application of the proceeds therefrom, the Company would have
had approximately $39.7 million of Senior Indebtedness outstanding. For a more
complete description of the Notes, see "Description of the Notes."
Based on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission" or the "SEC") set forth in no-action letters
issued to third parties, the Company believes, except as otherwise described
herein, the Exchange Notes issued pursuant to the Exchange Offer in exchange
for the Original Notes may be offered for resale, resold and otherwise
transferred by any holder thereof (other than any such holder which is an
"affiliate" of the Company within the meaning of Rule 405 of the Securities
Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such Exchange Notes are
acquired in the ordinary course of such holder's business and that such holder
does not intend to participate and there is no arrangement or understanding
with any person to participate, in the distribution of such Exchange Notes.
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-
dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from to time, may be used by a broker-dealer in connection with
resales of Exchange Notes received in exchange for Notes where such Notes were
acquired by such broker-dealer as a result of market-making activities or
other trading activities. The Issuer has agreed that, for a period of 180 days
after the Expiration Date, it will make this Prospectus available to any
broker-dealer for use in connection with any such resale. See "Exchange
Offer--Resale of the Exchange Notes; Plan of Distribution."
Prior to this offering, there has been no public market for the Notes. The
Notes are not, and are not expected to be, listed on any securities exchange
or authorized for trading on NASDAQ. The Company does not expect that an
active market for the Notes will develop. The Original Notes have been
eligible for trading in the Private Offerings, Resale and Trading through
Automated Linkages (PORTAL) Market of The Nasdaq Stock Market, Inc., but the
Exchange Notes will not be so eligible. To the extent that an active market
for Notes does develop, the market value thereof will depend on many factors,
including among other things, prevailing interest rates, general economic
conditions, the Company's financial condition and results of operations, the
volatility of the market for non-investment grade debt and other factors. Such
conditions might cause the Notes, to the extent that they are traded, to trade
at a discount. See "Risk Factors--Lack of Public Market for the Notes."
2
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement (which
term shall encompass any and all amendments thereto) on Form S-4 (the
"Registration Statement") under the Securities Act, with respect to, among
other things, the Exchange Notes offered hereby. This Prospectus, which is
part of the Registration Statement, does not contain all the information set
forth in the Registration Statement and the exhibits and schedules thereto,
certain items of which are omitted in accordance with the rules and
regulations of the Commission. Statements made in this Prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is
hereby made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference. For further information with respect to the Company and the
Notes, reference is hereby made to the Registration Statement and such
exhibits and schedules filed as a part thereof, which may be inspected,
without charge, at the Public Reference Section of the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the regional offices of the Commission located at 7 World Trade Center, Suite
1300, New York, New York 10048 and at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of all or any portion of the Registration
Statement may be obtained from the Public Reference Section of the Commission,
upon payment of prescribed fees. The Commission maintains a Web site that
contains reports and information regarding registrants that file
electronically with the Commission at Web site (http://www.sec.gov).
Pursuant to the Indenture (as defined under "Description of the Notes"), so
long as any of the Notes are outstanding, whether or not the Company is
subject to the reporting requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Company
is obligated to send to the Commission the annual reports, quarterly reports
and other documents that the Company would have been required to file with the
Commission pursuant to Section 13(a) or 15(d) if the Company were subject to
such reporting requirements. The Company is also obligated to provide to all
holders of the Notes, and file with the Trustee (as defined under "Description
of the Notes"), copies of such annual reports, quarterly reports and other
documents and, if filing such documents by the Company with the Commission is
not permitted under the Exchange Act, promptly upon written request supply
copies of such documents to any prospective purchaser of the Notes and to
securities analysts and broker-dealers upon their request.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and historical and pro forma
financial statements, including the notes thereto, appearing elsewhere in this
Prospectus. Unless otherwise indicated, industry data contained herein, other
than with respect to the Company, is derived from publicly available industry
trade journals and other publicly available industry sources, which the Company
has not independently verified, but which the Company believes to be reliable.
THE COMPANY
GENERAL
The Company is a leading designer, manufacturer, marketer and distributor of
a diverse range of products in several niche markets including productivity
enhancing construction tools, formed wire products, industrial bag closing
equipment and flexible conveyors. Management believes the Company possesses
strong market leadership positions in its primary markets. The Company believes
it is: (i) the largest U.S. supplier and distributor of automatic taping and
finishing ("ATF") tools; (ii) the largest U.S. independent manufacturer of
dishwasher racks; (iii) a leading worldwide manufacturer and marketer of bag
closing products and (iv) a leading manufacturer and marketer of flexible
conveyors and storage racks. The Company believes that its market leadership
positions, brand name recognition, established national and international
distribution networks, strong customer base and manufacturing expertise provide
significant opportunities to grow sales of new and existing products within
established markets, as well as expand into new markets. The Company also
believes that its diverse base of products and markets reduces exposure to any
particular industry, product market or geographic region. The Company operates
through three business units: Ames, Nestaway and Fischbein. For the twelve
months ended June 30, 1998, the Company had net revenues and pro forma EBITDA
of $109.3 million and $26.6 million, respectively.
Ames. Ames is the leading designer, manufacturer, marketer and distributor of
ATF tools, which are rented or sold to interior finishing contractors to finish
drywall joints prior to painting, wallpapering or other forms of final
treatment. ATF tools, invented by Ames in 1939, enable interior finishing
contractors to finish drywall joints three to four times faster than less
productive hand finishing methods. The Company is the leader in ATF tool
rentals and sales in the markets in which it serves. The primary business of
Ames is the rental and service of more than 135,000 ATF tools through its
extensive distribution network throughout the U.S. and Canada. Ames also sells
ATF tools under the TapeTech(R) and TapeMaster(R) brand names through an
established independent network of dealers in the U.S. and Canada. In addition,
Ames sells a variety of other drywall tools, finishing accessories and supplies
through its network of Company-managed stores. The Company believes it has
significant opportunities to increase Ames' revenues by expanding the use of
ATF tools in the fast growing factory-built housing market, which is
increasingly utilizing drywall rather than other materials. The Company also
believes it has a significant opportunity to expand the use of ATF tools by
converting interior finishing contractors from traditional hand finishing
methods, particularly in the eastern and midwestern U.S. where the use of ATF
tools is less prevalent than in the western U.S. For the twelve months ended
June 30, 1998, Ames had net revenues of $44.7 million.
Nestaway. Nestaway is a leading manufacturer of formed wire products which
are used for a variety of commercial and consumer product applications.
Nestaway is North America's largest independent manufacturer of coated wire
dishwasher racks and components which are sold to all the
4
<PAGE>
major U.S. dishwasher appliance manufacturers ("OEMs"). Approximately 75% of
dishwashers sold in the U.S. are replacements. In 1996, Nestaway produced an
estimated 68% of all independently manufactured dishwasher racks and an
estimated 17% of all dishwasher racks produced in the U.S. Nestaway's primary
OEM customers include Maytag, EBS-Bosch and Whirlpool/KitchenAid. Nestaway has
had relationships with all major OEMs for an average of approximately 19 years
and approximately 90% of Nestaway's 1997 revenues were generated pursuant to
contracts with terms extending through 2002. Nestaway also manufactures, on a
contract basis, other close tolerance, welded, non-coated or coated formed wire
products such as dish drainers, sink protectors, shower caddies, dryer racks,
golf cart baskets, bucket bails, medical baskets and small gauge axles. In
1994, Nestaway entered into an agreement with a major consumer products company
it has served for over 50 years to manufacture 100% of this customer's coated
formed wire dish drainers and sink protectors. In 1997, Nestaway entered into
an agreement with the same customer to manufacture 100% of its coated wire
shower caddies. The Company believes it has significant opportunities to
increase Nestaway's revenues through: (i) increasing sales to existing
customers; (ii) expanding its product offering and customer base by developing
new formed wire business; (iii) expanding production in international markets
and (iv) pursuing strategic acquisitions. For the twelve months ended June 30,
1998, Nestaway had net revenues of $37.4 million.
Fischbein. Fischbein is a leading worldwide manufacturer and marketer of
industrial bag closing and handling equipment and systems and a leading
manufacturer and marketer of flexible conveyors and storage racks. Bag closing
and handling systems products include: (i) portable and stationary industrial
sewing heads and sewing systems for paper, textile and woven polypropylene
bags; (ii) industrial heat sealing and bag handling systems for paper and
plastic bags; (iii) consumables, including thread and tape and (iv) service
parts. Service parts, which provide a recurring base of revenue, accounted for
approximately 20% of Fischbein's sales in 1997. Fischbein's bag closing
products are used across a broad range of industries for packaging chemicals,
minerals, agricultural and food products. In addition to bag closing products,
Fischbein manufactures extendible, flexible, gravity and motorized conveyors
and portable, nestable and stackable warehouse storage racks. Fischbein's
flexible conveyors are used by retailers for loading and unloading tractor
trailers at store sites and distribution centers. Storage racks are designed
for factory and warehouse storage where flexibility in racking is desired and
are sold to customers in various industries, including retail, distribution,
food, chemical, pharmaceutical and textile. The Company believes it has
significant opportunities to increase Fischbein's revenues by expanding the
product offerings that can be sold through its extensive distribution network
and by making strategic acquisitions. For the twelve months ended June 30,
1998, Fischbein had net revenues of $27.2 million.
COMPETITIVE STRENGTHS
Established Leadership Positions in Niche Markets. The Company believes that
its product quality, customer-driven product development and high levels of
customer service have allowed it to achieve strong market positions and brand
name recognition. Management believes the Company possesses strong market
leadership positions in its primary markets. The Company believes it is: (i)
the largest U.S. supplier and distributor of ATF tools; (ii) the largest U.S.
independent manufacturer of dishwasher racks; (iii) a leading worldwide
manufacturer and marketer of bag closing products and (iv) a leading
manufacturer and marketer of flexible conveyors and storage racks. Ames, which
invented the ATF tool in 1939, continues to be the leader in ATF tool rentals
and sales. Nestaway has been a leading independent supplier of dishwasher racks
to the U.S. dishwasher industry for over 50 years. Fischbein, which first
introduced a portable bag closer in 1943, is consistently recognized as a
leading global supplier of bag closing equipment. The Company believes its
leadership positions will
5
<PAGE>
allow it to: (i) broaden its product offerings to existing customers; (ii)
expand its customer base with both new and existing products and (iii)
diversify its geographic coverage to secure new customers and to meet the needs
of existing customers in additional markets.
Diverse Revenue Base. The Company's three business units provide revenue and
cash flow from a diverse base of products, customers and geographic regions.
The Company's products are sold through multiple distribution channels to
customers in over 100 countries in a wide variety of end-use markets. In 1997,
international sales accounted for approximately 15% of the Company's revenues.
This diversity of products and distribution channels provides the Company with
a broad base from which to increase sales and expand customer relationships and
reduces exposure to any particular industry, product market or geographic
region.
Manufacturing Expertise. The Company has a proven track record in product
manufacturing and development in each of its business units. The Company
utilizes this expertise in partnership with its customers both to improve
product performance and to reduce manufacturing costs. Ames invented ATF tools
and remains the leader in their design and development, and continues to make
its products easier to use, more productive and less costly to refurbish.
Nestaway frequently works directly with its OEM customers to design and
manufacture new dishwasher racks and other formed wire products in a cost-
effective manner. In addition, Nestaway develops and manufactures custom
designed tooling and other equipment used in high volume precision wire
forming, welding and coating, providing Nestaway with the ability to
manufacture quickly and efficiently both new and redesigned products. Fischbein
has successfully developed both new products and new features for existing
products that enhance customer productivity and reduce Fischbein's
manufacturing costs. The Company believes its manufacturing expertise enables
it to strengthen customer loyalty, improve the value of its products and reduce
manufacturing costs.
Established Distribution Networks. The Company has established broad
distribution networks serving both domestic and international markets. Ames'
rental ATF tools are distributed in the U.S. and Canada through over 125
separate and distinct distribution locations and Ames' sold ATF tools are
distributed in the U.S. and Canada through a network of over 250 dealers and
distributors. Fischbein's national and international distribution network
extends to over 100 countries through international and domestic distributors,
dealers and packaging machinery manufacturers. Management believes that its
distribution network provides it with an established base from which to
introduce new products, expand sales of existing product lines and achieve
operating efficiencies.
Proven and Committed Management Team. The Company has assembled a strong and
experienced management team at each of its business units. The Company's senior
operating managers have an average of over 14 years of experience in their
respective industries. Management has successfully enhanced operating margins
through the implementation of various production improvements and cost cutting
initiatives and as a result, EBITDA margins improved from 16.0% in 1993 to
23.0% in 1997.
STRATEGY
The Company's strategy is to increase revenues and cash flow in each of its
business units through both internal growth and by pursuing selective
acquisitions. Management believes the Company's market leadership positions,
brand name recognition, strong customer base, established distribution networks
and manufacturing expertise provide significant growth opportunities for the
Company.
Ames' primary business strategy is to pursue the expansion of ATF tool use in
the factory-built housing market and to continue to convert interior finishing
contractors utilizing traditional hand
6
<PAGE>
finishing drywall methods to the use of ATF tools. With regard to the continued
conversion from hand finishing to ATF tools, management believes there is a
significant opportunity to increase utilization rates in the eastern and
midwestern U.S. Ames has successfully increased its rental revenues in the
eastern and midwestern U.S. at a 15% compound annual growth rate since 1993 and
expects to continue to grow rental revenues in this market. Ames also plans to
continue to expand its presence in the fast growing factory-built housing
market which in 1996, accounted for 32% of all new single family homes and has
grown at a compound annual growth rate of 16% since 1991. Ames has established
relationships with major factory-built housing companies, including Fleetwood
Enterprises, Champion Enterprises and Oakwood Homes, and management believes
that the productivity enhancements associated with ATF tools provide Ames with
a significant opportunity to increase revenues in this market where hand
finishing is predominant.
Nestaway's primary business strategy is to increase sales to existing
dishwasher rack customers and to expand its product offerings of other formed
wire products. Management intends to continue to increase sales to existing
customers by supplying its customers as they expand production in domestic and
international markets and by further increasing its sales to OEMs that have in-
house manufacturing operations. Nestaway will continue to pursue new customer
relationships, and was recently awarded a new contract with EBS-Bosch, a
leading European manufacturer of high-end dishwashers that has recently
expanded operations in the U.S. In addition to dishwasher racks, Nestaway
continues to focus on providing new formed wire products to new and existing
customers for applications such as sporting goods, home organization, household
products, computer accessories, air conditioning, utility carts and other
formed wire products. Revenues from formed wire products other than dishwasher
racks increased from $4.5 million, or 11% of Nestaway's net revenues, in 1993
to $11.2 million, or 32% of Nestaway's net revenues, in 1997, a 26% compound
annual growth rate. Nestaway plans to pursue an acquisition strategy that
expands its current product offerings by leveraging Nestaway's core competency
of precision wire forming and coating.
Fischbein's primary business strategy is to expand its bagging product
offerings through both new product development and by acquiring companies that
manufacture complementary products in new and existing geographic markets.
Management believes that the Company has a significant opportunity to increase
sales of new products by leveraging its extensive national and international
distribution capabilities and existing customer base. Management also believes
that Fischbein has an opportunity to utilize its existing distribution network
to expand sales of its storage and flexible conveyor products in the packaging,
distribution and delivery industries.
7
<PAGE>
THE TRANSACTIONS
By agreement dated June 17, 1998, AXIA Acquisition Corp. ("Acquisition Co."),
a company organized to effect the Acquisition, entered into an Agreement and
Plan of Merger (the "Merger Agreement") with the Parent to effect the
Acquisition for a purchase price of $155,250,000 (including the repayment of
indebtedness), subject to certain post-closing adjustments. Upon completion of
the Transactions: (i) the Parent and the Company became direct and indirect
subsidiaries of AXIA Group (the parent company of Acquisition Co.) and (ii) the
Company became the primary obligor on the Original Notes and borrowings made
under the bank credit agreement (the "Bank Credit Agreement") as described in
"Description of the Bank Credit Agreement."
On the Closing Date (as defined), AXIA Group sold $28.0 million of its common
stock ("Common Stock") and contributed the proceeds thereof to Acquisition Co.
(the "Equity Investment"). Finance Co., an indirect subsidiary of AXIA Group,
borrowed approximately $39.3 million under the Bank Credit Agreement and
received approximately $100.0 million in gross proceeds from the Original
Notes. Such funds were used: (i) to effect the Acquisition pursuant to the
Merger Agreement; (ii) to fund the ESOP (as defined); (iii) to repay existing
indebtedness of the Company and (iv) to pay fees and expenses in connection
with the Transactions. The Offering, the execution of and initial borrowings
under the Bank Credit Agreement and the Equity Investment are collectively
referred to herein as the "Financings." The Financings, the Acquisition, the
establishment of the ESOP, the payment of certain fees and expenses and other
related transactions are collectively referred to herein as the "Transactions."
See "The Transactions" and "Management--Employee Stock Ownership Plan."
8
<PAGE>
The following table sets forth the sources and uses of funds used to effect
the Transactions as if the Transactions had occurred on June 30, 1998.
<TABLE>
<CAPTION>
AMOUNT
---------------------
(DOLLARS IN MILLIONS)
<S> <C>
SOURCES OF FUNDS:
Bank Credit Agreement(/1/)
Revolving Credit Facility............................. $ 3.2
Acquisition Facility.................................. --
Term Loan............................................. 35.0
ESOP Term Loan........................................ 1.5
Original Notes.......................................... 100.0
Equity Investment....................................... 28.0
------
Total Sources......................................... $167.7
======
USES OF FUNDS:
Equity purchase price................................... $131.1
Retirement of existing debt(/2/)........................ 26.6
Company ESOP Loan(/3/).................................. 1.5
Fees and expenses(/4/).................................. 8.5
------
Total Uses............................................ $167.7
======
</TABLE>
- --------
(1) The Company has available borrowings under the Revolving Credit Facility of
up to $15 million, subject to borrowing base limitations. The Company also
has available borrowings under the Acquisition Facility of $25 million,
subject to the terms thereof. See "Description of the Bank Credit
Agreement."
(2) Existing notes of the Company due 2001 were discharged on the day following
the closing of the Transactions.
(3) For a description of the Company ESOP Loan (as defined), see "Management--
Employee Stock Ownership Plan."
(4) Represents fees and expenses, including: (i) the discount paid to the
Initial Purchasers in connection with the Sale of the Original Notes; (ii)
legal, accounting and other professional fees payable in connection with
the Transactions, including fees to The Sterling Group, Inc., and (iii)
certain other expenses. See "Related Transactions."
THE INVESTORS
The equity portion of the financing for the Acquisition was provided by an
investor group (the "Investor Group") led by The Sterling Group, Inc.
("Sterling"). Sterling is a private financial organization engaged in the
acquisition and ownership of operating businesses. Since its formation in 1982,
Sterling has completed 35 acquisitions for total consideration of approximately
$6.3 billion. Sterling promotes employee ownership through the use of employee
stock ownership plans, direct equity ownership by management and key employees
as well as stock option plans. See "Related Transactions."
9
<PAGE>
THE EXCHANGE OFFER
Registration Rights
Agreement.................. To fund a portion of the Acquisition, the Company
sold $100 million in aggregate principal amount
of Original Notes to qualified institutional
buyers as defined in Rule 144A under the
Securities Act or to institutional accredited
investors within the meaning of Rule 501 under
the Securities Act, through Chase Securities,
Inc. and NationsBanc Montgomery Securities LLC,
as initial purchasers (the "Initial Purchasers").
The Company and the Initial Purchasers entered
into an Exchange and Registration Rights
Agreement dated as of July 22, 1998 (the
"Registration Rights Agreement"), which grants
the holders of the Original Notes certain
exchange and registration rights. The Exchange
Offer made hereby is intended to satisfy such
exchange rights.
The Exchange Offer.......... $1,000 principal amount of Exchange Notes in
exchange for each $1,000 principal amount of
Original Notes. As of the date hereof, $100
million aggregate principal amount of the
Original Notes are outstanding. The Company will
issue the Exchange Notes to holders on the
earliest practicable date following the
Expiration Date.
Resales of the Exchange
Notes...................... Based on an interpretation by the staff of the
Commission set forth in no-action letters issued
to third parties, the Company believes that,
except as described below, the Exchange Notes
issued pursuant to the Exchange Offer may be
offered for resale, resold and otherwise
transferred by a holder thereof (other than any
such holder that is an "affiliate" of the Company
within the meaning of Rule 405 under the
Securities Act) without compliance with the
registration and prospectus delivery provisions
of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary
course of such holder's business and that such
holder has no arrangement or understanding with
any person to participate in the distribution of
such Exchange Notes.
Each broker-dealer that receives Exchange Notes
pursuant to the Exchange Offer in exchange for
Original Notes that such broker-dealer acquired
for its own account as a result of market-making
activities or other trading activities (other
than Original Notes acquired directly from the
Company or its affiliates) must acknowledge that
it will deliver a prospectus in connection with
any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and
by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an
"underwriter" within the meaning of the
Securities Act. If the Company receives certain
notices in the Letter of Transmittal, this
Prospectus, as it may be amended or supplemented
from time to time, may be used for the period
described below by a broker-dealer in connection
with
10
<PAGE>
resales of Exchange Notes received in exchange
for Original Notes where such Original Notes were
acquired by such broker-dealer as a result of
market-making activities or other trading
activities and not acquired directly from the
Company. The Company has agreed that, if it
receives certain notices in the Letter of
Transmittal, for a period of 180 days after the
date on which the Registration Statement becomes
effective, it will make this Prospectus available
to any such broker-dealer for use in connection
with any such resale. The Letter of Transmittal
requires broker-dealers tendering Original Notes
in the Exchange Offer to indicate whether such
broker-dealer acquired such Original Notes for
its own account as a result of market-making
activities or other trading activities (other
than Original Notes acquired directly from the
Company or any of its affiliates), and if no
broker-dealer indicates that such Original Notes
were so acquired, the Company has no obligation
under the Registration Rights Agreement to
maintain the effectiveness of the Registration
Statement past the consummation of the Exchange
Offer or to allow the use of this Prospectus for
such resales. See "The Exchange Offer--Purpose
and Effect of the Exchange Offer"; "--
Registration Rights" and "--Resale of the
Exchange Notes; Plan of Distribution."
Expiration Date............. The Exchange Offer expires at 5:00 p.m., New York
City time, on , 1998, unless such Exchange
Offer is extended by the Company in its sole
discretion, in which case the term "Expiration
Date" means the latest date and time to which
such Exchange Offer is extended.
Conditions to the Exchange
Offer...................... The Exchange Offer is subject to certain
conditions, which may be waived by the Company.
See "The Exchange Offer--Conditions to the
Exchange Offer."
Procedures for Tendering
the Original Notes......... Each holder of Original Notes wishing to accept
the Exchange Offer must complete, sign and date
the accompanying Letter of Transmittal in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal together with the Original
Notes and any other required documentation to the
Exchange Agent (as defined below under "Exchange
Agent") at the address set forth herein. By
executing the Letter of Transmittal, a holder
will make certain representations to the Company.
See "The Exchange Offer--Registration Rights" and
"--Procedures for Tendering Original Notes."
Special Procedures for
Beneficial Owners.......... Any beneficial owner whose original Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender should
11
<PAGE>
contact such registered holder promptly and
instruct such registered holder to tender on such
beneficial owner's behalf. See "The Exchange
Offer--Procedures for Tendering Original Notes."
Guaranteed Delivery
Procedures................. Holders of Original Notes who wish to tender
their Original Notes when those securities are
not immediately available or who cannot deliver
their Original Notes, the Letter of Transmittal
or any other documents required by such Letter of
Transmittal to the Exchange Agent prior to the
Expiration Date, must tender their Original Notes
according to the guaranteed delivery procedures
set forth in "The Exchange Offer--Procedures for
Tendering Original Notes--Guaranteed Delivery."
Withdrawal Rights........... Tenders of Original Notes pursuant to the
Exchange Offer may be withdrawn at any time prior
to the Expiration Date.
Acceptance of Original
Notes and Delivery of
Exchange Notes............. The Company will accept for exchange any and all
Original Notes that are properly tendered in the
Exchange Offer, and not withdrawn, prior to the
Expiration Date. The Exchange Notes issued
pursuant to the Exchange Offer will be issued on
the earliest practicable date following the
acceptance for exchange of Original Notes by the
Company. See "The Exchange Offer--Terms of the
Exchange Offer."
Exchange Agent.............. State Street Bank & Trust Company is serving as
exchange agent (the "Exchange Agent") in
connection with the Exchange Offer.
Federal Income Tax
Considerations............. The Company has received an opinion of counsel
advising that the exchange of Original Notes for
Exchange Notes pursuant to the Exchange Offer
will not be treated as a taxable exchange for
federal income tax purposes. See "Certain Federal
Income Tax Considerations."
12
<PAGE>
THE NOTES
Maturity Date............... July 15, 2008.
Interest Payment Dates...... January 15 and July 15 of each year, commencing
January 15, 1999.
Optional Redemption......... The Notes may be redeemed at the option of the
Company, in whole or in part, at any time on or
after July 15, 2003 at the redemption prices set
forth herein plus accrued interest on the date of
redemption. Up to an aggregate of 35% of the
principal amount of the Notes may be redeemed
from time to time prior to July 15, 2001 at the
option of the Company at the redemption price set
forth herein plus accrued interest to the date of
redemption, with the net proceeds received after
the issuance of the Notes of one or more Public
Equity Offerings following which there is a
Public Market if at least $65 million principal
amount of the Notes remains outstanding after
each such redemption. See "Description of the
Notes--Optional Redemption."
Change of Control........... Upon a Change of Control, the Company will be
required to make an offer to repurchase all
outstanding Notes at 101% of the principal amount
thereof plus accrued interest to the date of
repurchase. See "Description of the Notes--Change
of Control."
Subsidiary Guarantees....... The Notes are guaranteed (the "Guarantees"),
jointly and severally on a senior subordinated
basis, by each of the Company's existing and
future direct and indirect Subsidiaries
(excluding Unrestricted Subsidiaries and Foreign
Subsidiaries). The Guarantees are general
unsecured obligations of the Guarantors. The
Guarantors also guarantee all obligations of the
Company under the Bank Credit Agreement. The
obligations of each Guarantor under its Guaranty
is subordinated in right of payment to the prior
payment in full of all Guarantor Senior
Indebtedness (as defined), including such
subsidiary's guarantee of indebtedness under the
Bank Credit Agreement, of such Guarantor to
substantially the same extent as the Notes are
subordinated to all existing and future Senior
Indebtedness of the Company. See "Description of
the Notes--Guarantees of the Notes."
Ranking..................... The Notes are unsecured senior subordinated
obligations of the Company and, as such, are
subordinated in right of payment to all existing
and future Senior Indebtedness of the Company.
The Notes rank pari passu in right of payment
with all senior subordinated indebtedness of the
Company, if any, and rank senior to any
subordinated indebtedness of the Company. As of
June 30, 1998, after giving pro forma effect
13
<PAGE>
to the Transactions as if they had occurred on
such date, the aggregate amount of Senior
Indebtedness of the Company would have been
approximately $39.7 million. See "Description of
the Notes--Ranking."
Restrictive Covenants....... The indenture under which the Notes were issued
and the Exchange Notes will be issued (the
"Indenture") contains certain covenants that,
among other things, limit the ability of the
Company and/or its Restricted Subsidiaries (as
defined) to (i) incur additional indebtedness,
(ii) pay dividends or make certain other
restricted payments, (iii) make investments, (iv)
enter into transactions with affiliates, (v) make
certain asset dispositions, and (vi) merge or
consolidate with, or transfer substantially all
of its assets to, another person. The Indenture
also limits the ability of the Company's
Restricted Subsidiaries to issue Capital Stock
(as defined) and to create restrictions on the
ability of such Restricted Subsidiaries to pay
dividends or make any other distributions. In
addition, the Company is obligated, under certain
circumstances, to offer to repurchase Notes at a
purchase price equal to 100% of the principal
amount thereof, plus accrued and unpaid interest,
if any, to the date of repurchase, with the net
cash proceeds of certain sales or other
dispositions of assets. However, all of these
limitations and prohibitions are subject to a
number of important qualifications. See
"Description of Notes--Certain Covenants."
RISK FACTORS
Prospective purchasers of the Notes should consider carefully the information
set forth under the caption "Risk Factors" and all other information set forth
in this Prospectus before making any investment in the Notes.
----------------
The Company's principal executive offices are located at 100 West 22nd
Street, Suite 134, Lombard, Illinois 60148. The Company's telephone number is
(630) 629-3360.
14
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The summary historical consolidated financial information presented below as
of and for each of the years ended December 31, 1995, 1996 and 1997 is derived
from the consolidated financial statements of the Company, which have been
audited by Arthur Andersen LLP, independent public accountants. The summary
historical consolidated financial information presented below for each of the
six months ended June 30, 1997 and 1998 is derived from the historical
unaudited financial statements of the Company. In the opinion of the Company's
management, the unaudited historical consolidated financial statements include
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of the Company's financial position and results of
operations for such periods. The summary pro forma financial information
presented below for the twelve months ended June 30, 1998 is derived from the
unaudited pro forma financial statements of the Company included herein. The
unaudited pro forma financial information for the twelve months ended June 30,
1998 and the unaudited operating results for the six months ended June 30, 1998
are not necessarily indicative of the results that may be expected for the full
year ending December 31, 1998. The information presented below should be read
in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the Consolidated Financial Statements of
the Company and the related notes thereto and the Unaudited Pro Forma Financial
Information and related notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
PRO FORMA
TWELVE
SIX MONTHS MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30, ENDED
---------------------------- ---------------- JUNE 30,
1995 1996 1997 1997 1998 1998
-------- -------- -------- ------- ------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues
Ames net revenues...... $ 33,854 $ 38,015 $ 42,428 $20,706 $22,954 $ 44,676
Nestaway net revenues.. 42,649 39,655 35,268 17,958 20,062 37,372
Fischbein net revenues. 27,823 27,117 27,104 13,044 13,184 27,244
-------- -------- -------- ------- ------- --------
Total net revenues.... 104,326 104,787 104,800 51,708 56,200 109,292
Cost of revenues........ 64,829 61,294 60,144 29,381 31,405 62,205
Selling, general and
administrative
expenses............... 24,181 25,146 25,302 12,843 13,294 27,096
-------- -------- -------- ------- ------- --------
Income from operations.. 15,316 18,347 19,354 9,484 11,501 19,991
Interest expense........ 6,596 5,123 3,710 2,029 1,393 14,815
Interest income......... (44) (39) (367) (14) (7) (360)
Other expense (income),
net.................... 537 57 404 (395) 171 970
-------- -------- -------- ------- ------- --------
Income before income
taxes and extraordinary
item................... 8,227 13,206 15,607 7,864 9,944 4,566
Provision for income
taxes.................. 3,338 5,730 6,412 3,375 3,954 2,790
-------- -------- -------- ------- ------- --------
Income before
extraordinary item..... 4,889 7,476 9,195 4,489 5,990 1,776
Loss on early
extinguishment of debt,
net.................... -- 614 772 772 300 300
-------- -------- -------- ------- ------- --------
Net income.............. $ 4,889 $ 6,862 $ 8,423 $ 3,717 $ 5,690 $ 1,476
======== ======== ======== ======= ======= ========
OTHER FINANCIAL DATA:
EBITDA(/1/)............. $ 20,783 $ 24,375 $ 24,069 $11,729 $13,873 $ 26,638
Depreciation and
amortization(/2/)...... 5,467 6,028 4,715 2,245 2,372 6,647
Capital expenditures.... 3,853 3,862 3,475 1,699 3,011 4,787
Cash interest expense... 13,932
Ratio of EBITDA to cash
interest expense....... 1.9x
Ratio of total debt to
EBITDA................. 5.2x
BALANCE SHEET DATA (END
OF PERIOD):
Cash and cash
equivalents............ $ 45 $ 1,716 $ 1,310 $ 426 $ 490 $ 490
Working capital......... 6,750 7,362 3,824 10,864 1,237 15,733
Total assets............ 103,288 99,331 96,773 98,449 99,643 191,167
Total debt.............. 50,157 41,195 31,364 37,836 26,624 139,746
Stockholder's equity.... 25,828 32,118 40,067 35,363 45,706 26,500
</TABLE>
- --------
(1) EBITDA is defined as income from operations plus depreciation and
amortization. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to incur and service debt. EBITDA should
not be considered by an investor as an alternative to income from
operations as determined in accordance with generally accepted accounting
principles as an indicator of the operating performance of the Company or
as an alternative to cash flows as a measure of liquidity.
(2) Depreciation and amortization does not include amortization of deferred
financing costs or the discount on the 2001 Notes (as defined) which are
included in interest expense.
15
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, purchasers of the
Notes offered hereby should consider carefully the risk factors set forth
below.
SUBSTANTIAL LEVERAGE
In connection with the consummation of the Transactions, the Company
incurred a significant amount of indebtedness outstanding and will have
significant debt service requirements. As of June 30, 1998, on a pro forma
basis after giving effect to the Transactions as if the Transactions had
occurred on such date, the Company would have had outstanding indebtedness of
approximately $139.7 million, including the Notes, and stockholder's equity of
$26.5 million. See "Capitalization." In addition, the Indenture will permit
the Company to incur or guarantee additional indebtedness, including
indebtedness under the Bank Credit Agreement, subject to certain limitations.
The Company will have additional borrowing capacity on a revolving credit
basis under the Bank Credit Agreement and on a term basis to fund future
acquisitions under the Acquisition Facility of the Bank Credit Agreement. See
"Description of the Bank Credit Agreement" and "Description of the Notes."
The Company's high degree of leverage could have important consequences to
the holders of the Notes, including but not limited to the following: (i) the
Company's ability to obtain additional financing for working capital, capital
expenditures, acquisitions, debt service requirements, general corporate
purposes or other purposes may be impaired in the future; (ii) a substantial
portion of the Company's cash flow from operations will be required to be
dedicated to the payment of principal and interest on its indebtedness,
thereby reducing the funds available to the Company for other purposes,
including its operations and future business opportunities; (iii) certain of
the Company's borrowings, including certain borrowings under the Bank Credit
Agreement, may be at variable rates of interest, which will expose the Company
to the risk of increased interest rates; (iv) the indebtedness outstanding
under the Bank Credit Agreement will be secured by substantially all the
assets of the Company and will mature prior to the maturity of the Notes and
(v) the Company's leveraged position and the covenants contained in its debt
instruments could limit the Company's flexibility to adjust to changing market
conditions and ability to withstand competitive pressures, and the Company may
be more vulnerable to a downturn in general economic conditions or in its
business or be unable to carry out capital spending that is important to its
growth and productivity improvement programs. See "Description of the Bank
Credit Agreement" and "Description of the Notes."
The Company will be required to make scheduled principal payments under the
Bank Credit Agreement commencing on December 31, 1998. See "Description of the
Bank Credit Agreement." The Company's ability to make scheduled payments or to
refinance its obligations with respect to its indebtedness, including the
Notes, will depend on its financial and operating performance, which is
subject to prevailing economic and competitive conditions and to certain
financial, business and other factors beyond its control, including interest
rates, unscheduled plant shutdowns, increased operating costs, raw material
and product prices, and regulatory developments. There can be no assurance
that the Company will maintain a level of cash flow from operations sufficient
to permit it to pay the principal, premium, if any, and interest on its
indebtedness (including the Notes).
If the Company's cash flow and capital resources are insufficient to fund
its debt service obligations, the Company may be forced to reduce or delay
capital expenditures, sell assets, or seek to obtain additional equity capital
or restructure or refinance its debt (including the Notes). There can be no
assurance that such alternative measures would be successful or would permit
the Company to meet its scheduled debt service obligations. In the absence of
such operating results and resources, the Company could face substantial
liquidity problems and might be required to dispose of material assets or
operations to meet its debt service and other obligations. The Bank Credit
16
<PAGE>
Agreement and the Indenture will restrict the Company's ability to sell assets
and use the proceeds therefrom. See "Description of the Bank Credit Agreement"
and "Description of the Notes." There can be no assurance as to the ability of
the Company to consummate such sales or the proceeds which the Company could
realize therefrom or that such proceeds would be adequate to meet the
obligations then due.
RESTRICTIVE FINANCING COVENANTS; CROSS-DEFAULT RISKS
The Bank Credit Agreement and the Indenture contain a number of significant
covenants that, among other things, restrict the ability of the Company to
dispose of assets or merge, incur additional indebtedness, incur guarantee
obligations, prepay the Notes or amend the Indenture, pay dividends, create
liens on assets, enter into sale and leaseback transactions, make investments,
loans or advances, make acquisitions, engage in mergers or consolidations,
make capital expenditures or engage in certain transactions with affiliates,
and will otherwise restrict corporate activities. In addition, under the Bank
Credit Agreement, the Company is required to comply with specified financial
ratios and tests, including a limitation on capital expenditures, an EBITDA to
fixed charges ratio, a minimum net worth test, a total debt to EBITDA ratio
and a minimum interest coverage test. See "Description of the Bank Credit
Agreement" and "Description of the Notes--Certain Covenants."
The Company's ability to comply with the covenants and restrictions
contained in the Bank Credit Agreement and the Indenture may be affected by
events beyond its control, including prevailing economic, financial and
industry conditions. The breach of any such covenants or restrictions could
result in a default under the Bank Credit Agreement or the Indenture which
would permit the lenders under the Bank Credit Agreement or the holders of the
Notes, as the case may be, to declare all amounts outstanding thereunder to be
due and payable, together with accrued and unpaid interest, and the
commitments of the lenders under the Bank Credit Agreement to make further
extensions of credit could be terminated. In addition, in the event of a
default under the Bank Credit Agreement, in certain circumstances the lenders
under the Bank Credit Agreement could prevent the Company from making any
payments on the Notes. See "Description of the Notes--Ranking." If the Company
were unable to repay its indebtedness to the lenders under the Bank Credit
Agreement, such lenders could proceed against the collateral securing such
indebtedness as described under "Description of the Bank Credit Agreement."
There can be no assurance that in the event of any such default the Company
will have adequate resources to repay in full principal, premium, if any, and
interest on the Notes.
SUBORDINATION OF THE NOTES; UNSECURED STATUS OF THE NOTES
The payment of principal, premium, if any, and interest on, and any other
amounts owing in respect of, the Notes will be subordinated in right of
payment to the prior payment in full of all existing and future Senior
Indebtedness of the Company, including all amounts owing under the Bank Credit
Agreement. As of June 30, 1998, on a pro forma basis after giving effect to
the Transactions as if they had occurred on such date, the aggregate principal
amount of such Senior Indebtedness of the Company would have been
approximately $39.7 million. Additional Senior Indebtedness may be incurred by
the Company from time to time, subject to certain restrictions. See
"Description of the Bank Credit Agreement" and "Description of the Notes--
Certain Covenants--Limitation on Indebtedness." Therefore, in the event of a
bankruptcy, liquidation, dissolution, reorganization or similar proceeding
with respect to the Company, the assets of the Company will be available to
pay obligations on the Notes only after all Senior Indebtedness of the Company
has been paid in full, and there can be no assurance that there will be
sufficient assets remaining to pay amounts due on all or any of the Notes. In
addition, the Company may not pay principal of, premium, if any, or interest
on the Notes, or purchase, redeem or otherwise retire the Notes, if any
principal, premium, if any, or interest on any Designated Senior Indebtedness
(as defined) is not paid when due (whether at final
17
<PAGE>
maturity, upon scheduled redemption or installment, acceleration or otherwise)
unless such default has been cured or waived or such Indebtedness has been
repaid in full. In addition, under certain circumstances, if any nonpayment
default exists with respect to Designated Senior Indebtedness, the Company may
not make any payments on the Notes for a specified period of time, unless such
default is cured or waived or such Designated Senior Indebtedness has been
repaid in full. See "Description of the Notes--Ranking."
The indebtedness evidenced by the Guarantees of the Notes by the Guarantors
will be subordinated in right of payment to the prior payment in full of all
existing and future Guarantor Senior Indebtedness of each such Guarantor,
including all amounts owing pursuant to their guarantees of the Bank Credit
Agreement, to substantially the same extent as the Notes are subordinated to
all existing and future Senior Indebtedness of the Company. See "Description
of the Notes--Subordination of the Notes" and "--Guarantees of the Notes."
The Indenture permits the Company to incur certain secured indebtedness,
including indebtedness under the Bank Credit Agreement, which will be secured
by a lien on substantially all of the assets of the Company and a pledge of
all of the capital stock of the Company. The Notes are unsecured and therefore
do not have the benefit of such collateral. Accordingly, if an event of
default occurs under the Bank Credit Agreement, the lenders under the Bank
Credit Agreement will have a prior right to the assets of the Company, and may
foreclose upon such collateral, to the exclusion of the holders of the Notes.
In such event, such assets would first be used to repay in full amounts
outstanding under the Bank Credit Agreement, resulting in all or a portion of
the Company's assets being unavailable to satisfy the claims of the holders of
Notes and other unsecured indebtedness.
FORWARD LOOKING STATEMENTS
This Prospectus contains certain estimates and forward looking statements.
Actual results could differ materially from those projected in the estimates
and forward looking statements as a result of any number of factors, including
the risk factors set forth in this Offering Memorandum. Therefore, undue
reliance should not be placed upon such estimates and statements. No assurance
can be given that any of such estimates or statements will be realized and
actual results may differ materially from those contemplated by such forward
looking statements. Factors that may cause such differences include: (i)
increased competition; (ii) increased costs; (iii) loss or retirement of key
members of management and (iv) changes in general economic conditions in the
markets in which the Company may from time to time compete. Many of such
factors will be beyond the control of the Company and its management.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will be required to
offer to purchase all of the outstanding Notes at a price equal to 101% of the
principal amount thereof at the date of purchase plus accrued and unpaid
interest, if any, to the date of purchase. The occurrence of certain of the
events which would constitute a Change of Control may constitute a default
under the Bank Credit Agreement or other indebtedness of the Company that may
be incurred in the future. In addition, the Bank Credit Agreement will
prohibit the purchase of the Notes by the Company in the event of a Change of
Control, unless and until such time as the indebtedness under the Bank Credit
Agreement is repaid in full. The Company's failure to purchase the Notes upon
the occurrence of a Change of Control would result in a default under the
Indenture and the Bank Credit Agreement. In the event of a Change of Control,
there can be no assurance that the Company would have sufficient assets to
satisfy all of its obligations under the Bank Credit Agreement and the Notes.
See "Description of the Notes--Offer to Purchase Upon Change of Control" and
"Description of the Bank Credit Agreement."
18
<PAGE>
COMPETITION
Each of the business units operates within competitive industries. The
Company is not aware of any single competitor that competes with the Company
along all three business lines.
Ames products compete with alternative methods of drywall finishing and
other products of ATF tool manufacturers and distributors. Ames' most
significant competition is from traditional hand finishing by individual
professional finishers. Ames stores also operate in a highly competitive
environment with respect to the sale of drywall related merchandise which is
generally based on price and convenience. Drywall related merchandise is
available from contractor supply yards, building material retailers and other
sources.
Nestaway's primary independent competitor is Ranger Metal Products. However,
the majority of dishwasher racks are internally manufactured by OEMs. There
can be no assurance that the Company's existing customers will not increase or
establish in-house dishwasher rack manufacturing capacity in the future. In
1996 and 1994, certain dishwasher rack customers decided to produce dishwasher
racks in-house, resulting in a material decline in the Company's revenues. See
"Risk Factors--Reliance on Major Customers" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." General Electric,
Frigidaire and Whirlpool/KitchenAid operate in-house dishwasher rack
manufacturing operations. Competition is generally based on quality,
flexibility, product design innovation, manufacturing efficiency and price.
Nestaway's other non-coated and coated formed wire products operate in a
highly competitive environment based on price, quality and delivery capability
that includes many companies, none of which compete with Nestaway across all
its product lines. There can be no assurance the Company will continue to
innovate its product offerings or continue to reduce manufacturing costs. Such
inability to continue to innovate products or pass on manufacturing cost
savings pursuant to contract terms or otherwise could lead to the loss of
certain customers or lower gross margins.
Fischbein competes with a variety of manufacturers, but does not compete
with any one company across all its product lines. In bag closing, Fischbein
competes with Newlong, Union Special and Doboy Packaging Machinery, Inc.
Competition for bag closing products is generally based on price, geographic
location, service, reliability and product innovation. With regard to flexible
conveyors, Fischbein primarily competes with Best Diversified Products, and
competition is generally based on price and functionality. In storage racks,
Fischbein competes with Jarke Corporation, Tier-Rack and Federal Prison
Industries, and competition is based primarily on price and geographic
location.
RELIANCE ON MAJOR CUSTOMERS
One of Nestaway's dishwasher rack customers accounted for 20%, 19% and 20%
of the Company's revenues for 1997, 1996 and 1995, respectively. Since the
contract with this customer requires cost reductions during its term, the
inability of the Company to continue to achieve manufacturing cost savings
could lead to lower gross margins. Another Nestaway customer which markets
dishdrainers and other products accounted for 10%, 11% and 8% of the Company's
revenues for 1997, 1996 and 1995, respectively. A loss of either or both of
these customers could have a material adverse effect on the Company.
In each of 1994 and 1996 the Company discontinued operations at certain of
its facilities, in each case as a result of a decision by certain major
dishwasher rack customers to produce dishwasher racks in-house. In each
instance the Company's revenues were adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations." No
assurance can be given that such actions by the Company's dishwasher rack
customers will not recur. Pursuant to the Company's requirement contracts, a
decrease in sales by the Company's customers may cause a decrease in the
revenues derived by the Company under such requirements contracts.
19
<PAGE>
RISKS RELATING TO ACQUISITION STRATEGY
The Company's strategy includes making acquisitions, but there can be no
assurance that suitable acquisition candidates will continue to be available.
In addition, acquisitions that the Company may make will involve risks,
including the successful integration and management of acquired technology,
operations and personnel. The integration of acquired businesses may also lead
to the loss of key employees of the acquired companies and diversion of
management attention from on-going business concerns. There can be no
assurance that any additional acquisitions will be made, that the Company will
be able to obtain additional financing needed for such transactions and, if
any acquisitions are so made, that they will be successful. See "Business--
Strategy."
FLUCTUATIONS IN RAW MATERIALS COST AND SUPPLY
The Company purchases steel, metal castings, aluminum and other raw
materials from various suppliers. There can be no assurance that severe
shortages of such materials will not occur in the future, which could increase
the cost of or delay the shipment of the Company's products and have a
material adverse effect on the Company's operating results. Because such
materials in the aggregate constitute significant components of the Company's
cost of goods sold, fluctuations in price could have a material adverse effect
on the Company's results of operations. Historically, the Company has passed
on any increases in prices of raw materials to its customers. However, there
can be no assurance that the Company will continue to be able to do so in the
future. See "Business--Raw Materials and Suppliers."
GENERAL ECONOMIC CONDITIONS
The industries in which the Company operates are affected by changes in
general economic conditions, including national, regional and local slowdowns
in home building, remodeling, construction and other industrial activity, all
of which are outside of the Company's control. There can be no assurance that
economic slowdowns, adverse economic conditions, cyclical trends, increases in
interest rates and other factors will not have a material adverse effect on
the Company's consolidated operating results or financial condition. See
"Business."
POTENTIAL LEGACY LIABILITIES
The Company has retained or assumed certain environmental liabilities and
risks of future liabilities associated with businesses previously operated or
acquired by it, including Bliss and Laughlin Steel Company. The Company does
not believe that these retained or assumed liabilities and risks would be
expected to have a material adverse effect on the Company's financial
condition or operating results. However, changes in laws or regulations,
liabilities identified or incurred in the future, or other circumstances,
might (individually or in the aggregate) have such an effect. In addition, the
Company is currently addressing certain legacy liabilities of this nature. See
"Business--Environmental Matters."
UNIONIZED EMPLOYEE RELATIONS
The Company employs approximately 150 unionized full-time employees under
two separate union contracts at two locations out of a total work force of
approximately 1,000 employees. The Company's inability to negotiate acceptable
contracts with these unions could result in, among other things, strikes, work
stoppages or other slowdowns by the affected workers and increased operating
costs as a result of higher wages or benefits paid to union members. If the
Company's unionized workers were to engage in a strike, work stoppage or other
slowdown, or other employees were to become unionized, the Company could
experience a significant disruption of its operations and/or higher ongoing
labor costs, which could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--
Employees."
20
<PAGE>
FOREIGN SALES AND OPERATIONS
In 1997 approximately 15% of the Company's net revenues were derived from
foreign sales and operations and export sales. A portion of these net revenues
are derived from sales in countries that have recently experienced economic
downturns. There can be no assurance that the Company's net revenues will not
be affected by these economic downturns in such countries. In addition, a
portion of the Company's anticipated growth is expected to come from foreign
sales and operations. Foreign sales and operations involve varying degrees of
risks and uncertainties inherent in doing business abroad. Such risks include
the possibility of unfavorable circumstances arising from host country laws or
regulations, including unexpected changes of interpretations thereof. Other
risks include partial or total expropriation; export duties and quotas;
currency exchange rate fluctuations; restrictions on repatriation of funds;
the disruption of operations from labor and political disturbances,
insurrection, or war; and the requirements of partial local ownership of
operations in certain countries. Furthermore, customer credit risks are
exacerbated in foreign sales and operations because there often is little
information available about the credit histories of customers in certain
countries.
The value of the Company's foreign sales and earnings may vary with currency
exchange rate fluctuations. To the extent that the Company does not take steps
to mitigate the effects of changes in relative values, changes in currency
exchange rates could have an adverse effect upon the Company's results of
operations, which in turn could adversely affect the ability of the Company to
meet its debt obligations, including payments on the Notes.
YEAR 2000 ISSUE
The Company faces "Year 2000" issues. Year 2000 issues exist when dates are
recorded using two digits (rather than four) and are then used for arithmetic
operations, comparisons or sorting. A two-digit recording may recognize a date
using "00" as 1900 rather than 2000, which could cause the Company's computer
systems to perform inaccurate computations. The Company has undertaken
substantial steps to eliminate Year 2000 risk, including determining which of
its systems require replacement or modification, and implementing an action
plan in response thereto, portions of which have been completed to date. The
Company's Year 2000 issues relate not only to its own systems but also to
those of its customers and suppliers. It is anticipated that systems
replacements and modifications will resolve the Year 2000 issue with respect
to the Company's internal systems. There is no guarantee, however, that such
systems replacements and modifications will be completed on time, which could
significantly impact the Company. In addition, the failure of the Company's
suppliers and customers to address the Year 2000 issue could also
significantly impact the Company. See "Management Discussion and Analysis of
Financial Condition and Results of Operations--Other Matters."
FRAUDULENT TRANSFER CONSIDERATIONS
In connection with the Transactions, the Company incurred substantial
indebtedness, including through its incurrence of indebtedness under the Bank
Credit Agreement and the Notes. If, under relevant federal and state
fraudulent transfer and conveyance statues, in a bankruptcy, reorganization or
rehabilitation case or similar preceding or a lawsuit by or on behalf of
unpaid creditors of the Company, a court were to find that, at the time the
Notes were issued by the Company, (a) the Company issued the Notes with the
intent of hindering, delaying or defrauding current or future creditors or (b)
(i) the Company received less than reasonably equivalent value or fair
consideration for issuing the Notes and (ii) the Company (A) was insolvent or
was rendered insolvent by reason of any of the Transactions, including the
incurrence of the indebtedness to fund the Transactions, (B) was engaged, or
about to engage, in a business or transaction for which its assets constituted
unreasonably small capital to carry on its business, or (C) intended to incur,
or believed or reasonably should have believed that it would incur, debts
beyond its ability to pay as such debts matured or became due (as all of the
foregoing terms are defined in or interpreted under the relevant fraudulent
21
<PAGE>
transfer or conveyance statutes), such court could avoid the obligations under
the Notes or subordinate the Notes to presently existing and future
indebtedness of the Company or take other action detrimental to the holders of
the Notes, including, under certain circumstances, invalidating the Notes. In
that event, there can be no assurance that any repayment on the Notes would
ever be recovered by holders of the Notes.
The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the law of the jurisdiction that is being applied in any
such proceeding. Generally, however, the Company would be considered insolvent
if, at the time it incurs the indebtedness constituting the Notes, either (i)
the sum of its debts (including contingent liabilities) is greater than its
assets, at a fair valuation, or (ii) the present fair saleable value of its
assets is less than the amount required to pay the probable liability on its
total existing debts and liabilities (including contingent liabilities) as
they become absolute and matured. There can be no assurance as to what
standards a court would use to determine whether the Company was solvent at
the relevant time, or whether, whatever standard was used, the Notes would not
be avoided on another of the grounds set forth above.
In addition, the Guarantees may be subject to review under fraudulent
conveyance statutes in a bankruptcy, reorganization or rehabilitation case or
similar proceedings or a lawsuit on behalf of other creditors of any of the
Guarantors. In such a case, the analysis set forth above would generally
apply, except that the Guarantees could also be subject to the claim that,
since the Guarantees were incurred for the benefit of the Company (and only
indirectly for the benefit of the Guarantors), they were incurred for less
than reasonably equivalent value or fair consideration. A court could
therefore subordinate the Guarantees to the other obligations of the
Guarantors, or take other action detrimental to holders of the Notes,
including, under certain circumstances, invalidating the Guarantees. See
"Description of the Bank Credit Agreement" and "Description of the Notes."
LACK OF PUBLIC MARKET FOR THE NOTES
The Original Notes have not been registered under the Securities Act, and
may not be resold by purchasers thereof unless the Original Notes are
subsequently registered or an exemption from the registration requirements of
the Securities Act is available. While the Original Notes are at present
eligible for trading in the PORTAL market of the Nasdaq Stock Market, Inc.,
the Exchange Notes will not be so eligible, and there can be no assurance,
even following registration or exchange of the Original Notes for Exchange
Notes, that an active trading market for the Original Notes or the Exchange
Notes will exist. At the time of the private placement of the Original Notes,
the Initial Purchasers advised the Company that they intended to make a market
in the Original Notes and, if issued, the Exchange Notes. However, the Initial
Purchasers are not obligated to make a market in the Original Notes or the
Exchange Notes, and any such market-making may be discontinued at any time at
the sole discretion of the Initial Purchasers. No assurance can be given as to
the liquidity of or trading market for the Original Notes or the Exchange
Notes.
CONSEQUENCES TO NON-TENDERED HOLDERS OF ORIGINAL NOTES
Consequences of Failure to Exchange. To the extent that Original Notes are
tendered and accepted for exchange pursuant to the Exchange Offer, the trading
market for Original Notes that remain outstanding may be significantly more
limited, which might adversely affect the liquidity of the Original Notes not
tendered for exchange. The extent of the market therefor and the availability
of price quotations would depend upon a number of factors, including the
number of holders of Original Notes remaining at such time and the interest in
maintaining a market in such Original Notes on the part of securities firms.
An issue of securities with a smaller outstanding market value available for
trading (the "float") may command a lower price than would a comparable issue
of securities with a greater float. Therefore, the market price for Original
Notes that are not exchanged in the Exchange Offer may be affected adversely
to the extent that the amount of Original Notes exchanged pursuant to the
Exchange Offer reduces the float. The reduced float also may tend to make the
trading price of the Original Notes that are not exchanged more volatile.
22
<PAGE>
Consequences of Failure to Properly Tender. Issuance of the Exchange Notes
in exchange for the Original Notes pursuant to the Exchange Offer will be made
following the prior satisfaction, or waiver, of the conditions set forth in
"The Exchange Offer--Conditions to the Exchange Offer" and only after timely
receipt by the Exchange Agent of such Original Notes, a properly completed and
duly executed Letter of Transmittal and all other required documents.
Therefore, holders of Original Notes desiring to tender such Original Notes in
exchange for Exchange Notes should allow sufficient time to ensure timely
delivery of all required documentation. Neither the Exchange Agent, the
Company or any other person is under any duty to give notification of defects
or irregularities with respect to the tenders of Original Notes for exchange.
Original Notes that may be tendered in the Exchange Offer but which are not
validly tendered will, following the consummation of the Exchange Offer,
remain outstanding and will continue to be subject to the same transfer
restrictions currently applicable to such Original Notes.
23
<PAGE>
THE TRANSACTIONS
Acquisition Co. entered into the Merger Agreement with the Parent and Cortec
Capital Corp., as representative of the stockholders of the Parent, to effect
the Acquisition for a purchase price of $155,250,000 (including the repayment
of indebtedness), subject to certain post-closing adjustments. Upon completion
of the Transactions, (i) the Parent and the Company became direct and indirect
subsidiaries of AXIA Group and (ii) the Company became the primary obligor on
the Notes and borrowings made under the Bank Credit Agreement.
On the Closing Date, AXIA Group sold $28.0 million in common stock to the
Investor Group, the ESOP, certain directors and officers of AXIA Group and the
Company, and certain employees of the Company (the "Equity Investment"), which
included Common Stock issued to the Rollover Investor (as defined under
"Related Transactions") in exchange for his contribution to AXIA Group of
capital stock of the Parent representing the aggregate fair value of such
shares. AXIA Group then contributed to Acquisition Co., its indirect wholly-
owned subsidiary, the cash received from the issuance of its Common Stock and
the capital stock of the Parent contributed to AXIA Group. On the Closing
Date, Finance Co. borrowed approximately $39.3 million under the Bank Credit
Agreement and received approximately $100.0 million in gross proceeds from the
consummation of the Offering. Acquisition Co. then borrowed most of such funds
from Finance Co. pursuant to an intercompany promissory note. The Equity
Investment, the net proceeds of the Original Notes and borrowings under the
Bank Credit Agreement were used: (i) to effect the Acquisition; (ii) to fund
the ESOP; (iii) to repay certain existing indebtedness of the Company and (iv)
to pay fees and expenses in connection with the Transactions.
THE MERGER AGREEMENT
The Merger Agreement contains customary provisions for such agreements,
including representations and warranties with respect to the condition and
operations of the business being acquired, covenants with respect to the
conduct of the business prior to the closing date and various closing
conditions.
Pursuant to the Merger Agreement, the purchase price for the Acquisition is
subject to adjustment within 60 days of the closing of the Acquisition based
on changes in working capital and certain tax liabilities. The Merger
Agreement contains indemnification provisions binding on each of the parties
to the Merger Agreement. Pursuant to such provisions each of the parties has
agreed to indemnify each other for breaches of representations, warranties and
covenants. In addition, the selling stockholders have agreed to indemnify the
Company for certain working capital deficiencies, increases in tax
liabilities, and for certain environmental and litigation matters. In
connection with the indemnity provisions, $15.0 million of the purchase price
has been placed into an escrow account, including $12.0 million to cover
specified indemnification claims and $3.0 million to cover purchase price
adjustments. See "Business--Environmental Matters." The indemnity provisions
are subject to certain deductibles and minimum thresholds, and the amounts in
escrow represent the maximum indemnity available from the selling
stockholders.
24
<PAGE>
The following table sets forth the sources and uses of funds used to effect
the Transactions as if the Transactions had occurred on June 30, 1998.
<TABLE>
<CAPTION>
AMOUNT
---------------------
(DOLLARS IN MILLIONS)
<S> <C>
SOURCES OF FUNDS:
Bank Credit Agreement(/1/)
Revolving Credit Facility............................. $ 3.2
Acquisition Facility.................................. --
Term Loan............................................. 35.0
ESOP Term Loan........................................ 1.5
Original Notes.......................................... 100.0
Equity Investment....................................... 28.0
------
Total Sources......................................... $167.7
======
USES OF FUNDS:
Equity purchase price................................... $131.1
Retirement of existing debt(/2/)........................ 26.6
Company ESOP Loan(/3/).................................. 1.5
Fees and expenses(/4/).................................. 8.5
------
Total Uses............................................ $167.7
======
</TABLE>
- --------
(1) The Company has available borrowings under the Revolving Credit Facility
of up to $15 million, subject to borrowing base limitations. The Company
also has available borrowings under the Acquisition Facility of $25
million, subject to the terms thereof. See "Description of the Bank Credit
Agreement."
(2) Existing notes of the Company due 2001 were discharged on the day
following the closing of the Transactions.
(3) For a description of the Company ESOP Loan, see "Management--Employee
Stock Ownership Plan."
(4) Represents fees and expenses, including: (i) the discount paid to the
Initial Purchasers in connection with the Sale of the Original Notes; (ii)
legal, accounting and other professional fees payable in connection with
the Transactions, including fees to Sterling, and (iii) certain other
expenses. See "Related Transactions."
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<PAGE>
THE EXCHANGE OFFER
REGISTRATION RIGHTS
At the Closing, the Company entered into the Registration Rights Agreement
with the Initial Purchasers pursuant to which the Company agreed, for the
benefit of the holders of the Original Notes, at its cost, (i) within 75 days
after the date of the original issue of the Original Notes, to file an
Exchange Offer Registration Statement with the Commission with respect to the
Exchange Offer for the Exchange Notes, and (ii) to use its reasonable efforts
to cause the Exchange Offer Registration Statement to be declared effective
under the Securities Act within 120 days after the date of original issuance
of the Original Notes. Upon the Exchange Offer Registration Statement being
declared effective, the Company agreed to offer the Exchange Notes in exchange
for surrender of the Original Notes. The Company agreed to keep the Exchange
Offer open for not less than 30 calendar days (or longer if required by
applicable law) after the date notice of the Exchange Offer is mailed to the
holders of the Original Notes. For each Original Note surrendered to the
Company pursuant to its Exchange Offer, the holder of such Original Note will
receive an Exchange Note having a principal amount equal to that of the
surrendered Note. Interest on each Exchange Note will accrue from the last
interest payment date on which interest was paid on the Original Note
surrendered in exchange therefor or, if no interest has been paid on such
Original Note, from the date of its original issue. The Registration Rights
Agreement also provides an agreement to include in the prospectus for the
Exchange Offer certain information necessary to allow a broker-dealer who
holds Original Notes that were acquired for its own account as a result of
market-making activities or other ordinary course trading activities (other
than Original Notes acquired directly from the Company or one of its
affiliates) to exchange such Original Notes pursuant to the Exchange Offer and
to satisfy the prospectus delivery requirements in connection with resales of
Exchange Notes received by such broker-dealer in the Exchange Offer, and to
maintain the effectiveness of the Registration Statement for such purposes for
90 days.
The foregoing agreement is needed because any broker-dealer who acquires
Original Notes for its own account as a result of market-making activities or
other trading activities is required to deliver a prospectus meeting the
requirements of the Securities Act. This Prospectus covers the offer and sale
of the Exchange Notes pursuant to the Exchange Offer made hereby and the
resale of Exchange Notes received in the Exchange Offer by any broker-dealer
who held Original Notes acquired for its own account as a result of market-
making activities or other trading activities (other than Original Notes
acquired directly from the Company or one of its affiliates).
Under existing interpretations of the staff of the Commission contained in
several no-action letters to third parties, the Exchange Notes would in
general be freely tradeable after the Exchange Offer without further
registration under the Securities Act. However, any purchaser of Original
Notes who is an "affiliate" of the Company or who intends to participate in
the Exchange Offer for the purpose of distributing the Exchange Notes (i) will
not be able to rely on the interpretation of the staff of the Commission, (ii)
will not be able to tender its Original Notes in the Exchange Offer and (iii)
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any sale or transfer of the Original Notes
unless such sale or transfer is made pursuant to an exemption from such
requirements.
Each holder of the Original Notes (other than certain specified holders) who
wishes to exchange Original Notes for Exchange Notes in the Exchange Offer
will be required to make certain representations, including that (i) it is not
an affiliate of the Company, (ii) any Exchange Notes to be received by it were
acquired in the ordinary course of its business and (iii) at the time of
commencement of the Exchange Offer, it has no arrangement with any person to
participate in the distribution (within the meaning of the Securities Act) of
the Exchange Notes.
26
<PAGE>
In the event that any changes in law or the applicable interpretations of
the staff of the Commission do not permit the Company to effect the Exchange
Offer, or if for any other reason the Exchange Offer is not consummated within
150 days of the date of issuance and sale of the Original Notes, or upon
request of the Initial Purchasers (under certain circumstances), the Company
will, at its cost, (i) as promptly as practicable, file a Shelf Registration
Statement (which may be an amendment of the Registration Statement of which
this Prospectus is a part) covering resales of the Original Notes, (ii) use
all reasonable efforts to cause the Shelf Registration Statement to be
declared effective under the Securities Act and (iii) use all reasonable
efforts to keep effective the Shelf Registration Statement until three years
after its effective date (or until one year after such effective date if such
Shelf Registration Statement is filed at the request of the Initial Purchasers
under certain circumstances). The Company will, in the event of the filing of
a Shelf Registration Statement, provide to each holder of the Original Notes
copies of the prospectus which is a part of the Shelf Registration Statement,
notify each such holder when the Shelf Registration Statement for the Original
Notes has become effective and take certain other actions as are required to
permit unrestricted resales of the Original Notes. A holder of Original Notes
that sells such Original Notes pursuant to the Shelf Registration Statement
generally will be required to be named as a selling security holder in the
related prospectus and to deliver a prospectus to purchasers, will be subject
to certain of the civil liability provisions under the Securities Act in
connection with such sales and will be bound by the provisions of the
Registration Rights Agreement which are applicable to such holder (including
certain indemnification obligations). In addition, each holder of the Original
Notes will be required to deliver information to be used in connection with
the Shelf Registration Statement and to provide comments on the Shelf
Registration Statement within the time periods set forth in the Registration
Rights Agreement in order to have their Original Notes included in the Shelf
Registration Statement and to benefit from the provisions regarding liquidated
damages set forth in the following paragraph.
In the event either (i) the Exchange Offer Registration Statement is not
filed with the Commission on or prior to the 75th calendar day following the
date of original issue of the Original Notes, (ii) the Exchange Offer
Registration Statement or, if required in lieu thereof, the Shelf Registration
Statement, is not declared effective on or prior to the 120th calendar day
following the date of original issue of the Original Notes or (iii) once
effective, the Exchange Offer Registration Statement or the Shelf Registration
Statement ceases to be effective or the prospectus ceases to be usable (under
certain circumstances), the interest rate borne by the Original Notes shall be
increased by one-half of one percent per annum following such 75-day period in
the case of (i) above, such 120-day period in the case of clause (ii) above or
any such period in the case of (iii) above, in each case payable in cash
semiannually, in arrears, on January 15 and July 15 of each year. Upon (x) the
filing of the Exchange Offer Registration Statement in the case of clause (i)
above, (y) the effectiveness of the Exchange Offer Registration Statement or
Shelf Registration Statement in the case of clause (ii) above or (z) the
reeffectiveness of the Exchange Offer Registration Statement or a Shelf
Registration Statement in the case of clause (iii) above, and provided that
none of the conditions set forth in clauses (i), (ii) and (iii) above
continues to exist, the interest rate borne by the Original Notes from the
date of such filing, effectiveness or reeffectiveness, as the case may be,
will be reduced to the original interest rate.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which is filed as an exhibit to the Registration
Statement.
Except as set forth above, after consummation of the Exchange Offer, holders
of Original Notes have no registration or exchange rights under the
Registration Rights Agreement. See "--Consequences of Failure to Exchange,"
and "--Resales of Exchange Notes; Plan of Distribution."
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<PAGE>
CONSEQUENCES OF FAILURE TO EXCHANGE
The Original Notes which are not exchanged for Exchange Notes pursuant to
the Exchange Offer and are not included in a resale prospectus which, if
required, will be filed as part of an amendment to the Registration Statement,
will remain restricted securities and subject to restrictions on transfer.
Accordingly, such Original Notes may be resold (i) to the Company (upon
redemption thereof or otherwise), (ii) so long as the Original Notes are
eligible for resale pursuant to Rule 144A, to a person whom the seller
reasonably believes is a qualified institutional buyer within the meaning of
Rule 144A under the Securities Act, purchasing for its own account or for the
account of a qualified institutional buyer to whom notice is given that the
resale, pledge or other transfer is being made in reliance on Rule 144A, (iii)
in an offshore transaction in accordance with Regulation S under the
Securities Act, (iv) pursuant to an exemption from registration in accordance
with Rule 144 (if available) under the Securities Act, (v) in reliance on
another exemption from the registration requirements of the Securities Act, or
(vi) pursuant to an effective registration statement under the Securities Act,
in each case in accordance with any applicable securities laws of any state of
the United States and subject to certain requirements of the registrar or co-
registrar being met, including receipt by the registrar or co-registrar of a
certification and (in the case of (iii), (vi) and (v)) an opinion of counsel
reasonably acceptable to the Company and the registrar.
To the extent Original Notes are tendered and accepted in the Exchange
Offer, the principal amount of outstanding Original Notes will decrease with a
resulting decrease in the liquidity in the market therefor. Accordingly, the
liquidity of the market of the Original Notes could be adversely affected. See
"Risk Factors--Consequences to Non-Tendering Holders of Original Notes."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in the Prospectus and
in the Letter of Transmittal, a copy of which is attached to this Prospectus
as Annex A, the Company will accept any and all Original Notes validly
tendered and not withdrawn prior to the Expiration Date. The Company will
issue $1,000 principal amount of Exchange Notes in exchange for each $1,000
principal amount of Original Notes accepted in the Exchange Offer. Holders may
tender some or all of their Original Notes pursuant to the Exchange Offer.
However, Original Notes may be tendered only in integral multiples of $1,000
principal amount.
The form and terms of the Exchange Notes are the same as the form and terms
of the Original Notes, except that (i) the Exchange Notes will have been
registered under the Securities Act and hence will not bear legends
restricting their transfer pursuant to the Securities Act, and (ii) except as
otherwise described above, holders of the Exchange Notes will not be entitled
to the rights of holders of Original Notes under the Registration Rights
Agreement. The Exchange Notes will evidence the same debt as the Original
Notes (which they replace), and will be issued under, and be entitled to the
benefits of, the Indenture which governs all of the Notes.
Solely for reasons of administration (and for no other purpose) the Company
has fixed the close of business on October 9, 1998 as the record date for the
Exchange Offer for purposes of determining the persons to whom this Prospectus
and the Letter of Transmittal will be mailed initially. Only a registered
holder of Original Notes (or such holder's legal representative or attorney-
in-fact) as reflected on the records of the trustee under the Indenture may
participate in the Exchange Offer. There will be no fixed record date for
determining registered holders of the Original Notes entitled to participate
in the Exchange Offer.
Holders of the Original Notes do not have any appraisal or dissenters'
rights under the Texas Business Corporation Act or the Indenture in connection
with the Exchange Offer. The Company
28
<PAGE>
intends to conduct the Exchange Offer in accordance with the applicable
requirements of the Exchange Act and the rules and regulations of the
Commission thereunder.
The Company shall be deemed to have accepted validly tendered Original Notes
when, as and if they have given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering holders of the
Original Notes for the purposes of receiving the Exchange Notes. The Exchange
Notes delivered pursuant to the Exchange Offer will be issued on the earliest
practicable date following the acceptance for exchange of Original Notes by
the Company.
If any tendered Original Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Original Notes will be
returned, without expense, to the tendering holder thereof as promptly as
practicable after the Expiration Date.
Holders who tender Original Notes in the Exchange Offer will not be required
to pay brokerage commissions of fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of the
Original Notes pursuant to the Exchange Offer. The Company will pay all
charges and expenses, other than certain applicable taxes, in connection with
the Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
November 16, 1998, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will make a public
announcement thereof, each prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Original Notes, (ii) to extend the Exchange Offer, (iii) if any
of the conditions set forth below under "--Conditions to the Exchange Offer"
shall not have been satisfied, to terminate the Exchange Offer, by giving oral
or written notice of such delay, extension or termination to the Exchange
Agent, or (iv) to amend the terms of the Exchange Offer in any manner. Except
as specified in the immediately preceding paragraph, any such delay in
acceptance, extension, termination or amendment will be followed as promptly
as practicable by a public announcement thereof. If the Exchange Offer is
amended in a manner determined by it to constitute a material change, the
Company will promptly disclose such amendment by means of a prospectus
supplement that will be distributed to the registered holders of the Original
Notes, and the Exchange Offer will be extended for a period of five to 10
business days, as required by law, depending upon the significance of the
amendment and the manner of disclosure to the registered holders, if the
Exchange Offer would otherwise expire during such five to 10 business day
period.
Without limiting the manner in which the Company may choose to make a public
announcement of any delay, extension, termination or amendment of its Exchange
Offer, the Company shall not have an obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely release thereof to the Dow Jones News Service.
PROCEDURES FOR TENDERING ORIGINAL NOTES
Tenders of Original Notes. The tender by a holder of Original Notes pursuant
to any of the procedures set forth below will constitute the tendering
holder's acceptance of the terms and
29
<PAGE>
conditions of the Exchange Offer. The Company's acceptance for exchange of
Original Notes tendered pursuant to any of the procedures described below will
constitute a binding agreement between such tendering holder and the Company
in accordance with the terms and subject to the conditions of the Exchange
Offer. Only holders are authorized to tender their Original Notes. The
procedures by which Original Notes may be tendered by beneficial owners that
are not holders will depend upon the manner in which the Original Notes are
held.
DTC has authorized DTC participants that are beneficial owners of Original
Notes through DTC to tender their Original Notes as if they were holders. To
effect a tender, DTC participants should either (i) complete and sign the
Letter of Transmittal (or a facsimile thereof), have the signature thereon
guaranteed if required by Instruction 1 of the Letter of Transmittal, and mail
or deliver the Letter of Transmittal or such facsimile pursuant to the
procedures for book-entry transfer set forth below under "--Book-Entry
Delivery Procedures," or (ii) transmit their acceptance to DTC through the DTC
Automated Tender Offer Program ("ATOP"), for which the transaction will be
eligible, and follow the procedures for book-entry transfer set forth below
under "--Book-Entry Delivery Procedures."
Tender of Original Notes Held in Physical Form. To tender effectively
Original Notes held in physical form pursuant to the Exchange Offer, a
properly completed Letter of Transmittal (or a facsimile thereof) duly
executed by the holder thereof, and any other documents required by the Letter
of Transmittal, must be received by the Exchange Agent at one of its addresses
set forth below, and tendered Original Notes must be received by the Exchange
Agent at such address (or delivery effected through the deposit of Original
Notes into the Exchange Agent's account with DTC and making book-entry
delivery as set forth below) on or prior to the Expiration Date, or the
tendering holder must comply with the guaranteed delivery procedure set forth
below. LETTERS OF TRANSMITTAL OR ORIGINAL NOTES SHOULD BE SENT ONLY TO THE
EXCHANGE AGENT AND SHOULD NOT BE SENT TO THE COMPANY.
Tender of Original Notes Held Through a Custodian. To tender effectively
Original Notes that are held of record by a custodian bank, depository,
broker, trust company or other nominee, the beneficial owner thereof must
instruct such holder to tender the Original Notes on the beneficial owner's
behalf. A Letter of Instructions from the record owner to the beneficial owner
may be included in the materials provided along with this Prospectus which may
be used by the beneficial owner in this process to instruct the registered
holder of such owner's Original Notes to effect the tender.
Tender of Original Notes Held Through DTC. To tender effectively Original
Notes that are held through DTC, DTC participants should either (i) properly
complete and duly execute the Letter of Transmittal (or a facsimile thereof),
and any other documents required by the Letter of Transmittal, and mail or
deliver the Letter of Transmittal or such facsimile pursuant to the procedures
for book-entry transfer set forth below or (ii) transmit their acceptance
through ATOP, for which the transaction will be eligible, and DTC will then
edit and verify the acceptance and send an Agent's Message to the Exchange
Agent for its acceptance. Delivery of tendering Original Notes held through
DTC must be made to the Exchange Agent pursuant to the book-entry delivery
procedures set forth below or the tendering DTC participant must comply with
the guaranteed delivery procedures set forth below.
THE METHOD OF DELIVERY OF ORIGINAL NOTES AND LETTERS OF TRANSMITTAL, ANY
REQUIRED SIGNATURE GUARANTEES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING
DELIVERY THROUGH DTC AND ANY ACCEPTANCE OR AGENT'S MESSAGE TRANSMITTED THROUGH
ATOP, IS AT THE ELECTION AND RISK OF THE PERSON TENDERING ORIGINAL NOTES AND
DELIVERING LETTERS OF TRANSMITTAL AND, EXCEPT AS OTHERWISE PROVIDED IN THE
LETTER OF TRANSMITTAL, DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY
RECEIVED BY THE EXCHANGE AGENT. IF DELIVERY IS BY MAIL, IT IS SUGGESTED THAT
THE HOLDER USE PROPERLY INSURED, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, AND THAT THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE
EXPIRATION DATE TO PERMIT DELIVERY TO THE EXCHANGE AGENT PRIOR TO SUCH DATE.
30
<PAGE>
Except as provided below, unless the Original Notes being tendered are
deposited with the Exchange Agent on or prior to the Expiration Date
(accompanied by a properly completed and duly executed Letter of Transmittal
or a properly transmitted Agent's Message), the Company may, at its option,
reject such tender. Exchange of Exchange Notes for the Original Notes will be
made only against deposit of the tendered Original Notes and delivery of all
other required documents.
Book-Entry Delivery Procedures. The Exchange Agent will establish accounts
with respect to the Original notes at DTC for purposes of the Exchange Offer
within two business days after the date of this Prospectus, and any financial
institution that is a participant in DTC may make book-entry delivery of the
Original Notes by causing DTC to transfer such Original Notes into the
Exchange Agent's account in accordance with DTC's procedures for such
transfer. However, although delivery of Original Notes may be effected through
book-entry at DTC, the Letter of Transmittal (or facsimile thereof), with any
required signature guarantees or an Agent's Message in connection with a book-
entry transfer, and any other required documents, must, in any case, be
transmitted to and received by the Exchange Agent at one or more of its
addresses set forth in this Prospectus on or prior to the Expiration Date, or
compliance must be made with the guaranteed delivery procedures described
below. Delivery of documents to DTC does not constitute delivery to the
Exchange Agent. The confirmation of a book-entry transfer into the Exchange
Agent's account at DTC as described above is referred to herein as a "Book-
Entry Confirmation."
The term "Agent's Message" means a message transmitted by DTC to, and
received by, the Exchange Agent and forming a part of the Book-Entry
Confirmation, which states that DTC has received an express acknowledgment
from each participant in DTC tendering the Original Notes and that such
participant has received the Letter of Transmittal and agrees to be bound by
the terms of the Letter of Transmittal and the Company may enforce such
agreement against such participant.
Signature Guarantees. Signatures on all Letters of Transmittal must be
guaranteed by a recognized member of the Medallion Signature Guarantee Program
or by any other "eligible guarantor institution," as such term is defined in
Rule 17Ad-15 promulgated under the Exchange Act (each of the foregoing, an
"Eligible Institution"), unless the Original Notes tendered thereby are
tendered (i) by a registered holder of Original Notes (or by a participant in
DTC whose name appears on a DTC security position listing as the owner of such
Original Notes) who has not completed either the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the Letter of
Transmittal, or (ii) for the account of an Eligible Institution. See
Instruction 1 of the Letter of Transmittal. If the Original Notes are
registered in the name of a person other than the signer of the Letter of
Transmittal or if Original Notes not accepted for exchange or not tendered are
to be returned to a person other than the registered holder, then the
signatures on the Letter of Transmittal accompanying the tendered Original
Notes must be guaranteed by an Eligible Institution as described above. See
Instructions 1 and 5 of the Letter of Transmittal.
Guaranteed Delivery. If a holder desires to tender Original Notes pursuant
to the Exchange Offer and time will not permit the Letter of Transmittal,
certificates representing such Original Notes and all other required documents
to reach the Exchange Agent, or the procedures for book-entry transfer cannot
be completed, on or prior to the Expiration Date, such Original Notes may
nevertheless be tendered if all the following conditions are satisfied:
(i) the tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by the Company herewith, or an
Agent's Message with respect to guaranteed delivery that is accepted by the
Company, is received by the Exchange Agent on or prior to the Expiration
Date, as provided below; and
31
<PAGE>
(iii) the certificates for the tendered Original Notes, in proper form
for transfer (or a Book-Entry Confirmation of the transfer of such Original
Notes into the Exchange Agent's account at DTC as described above),
together with a Letter of Transmittal (or facsimile thereof), property
completed and duly executed, with any required signature guarantees and any
other documents required by the Letter of Transmittal or a properly
transmitted Agent's Message, are received by the Exchange Agent within two
business days after the date of execution of the Notice of Guaranteed
Delivery.
The Notice of Guaranteed Delivery may be sent by hand delivery, telegram,
facsimile transmission or mail to the Exchange Agent and must include a
guarantee by an Eligible Institution in the form set forth in the Notice of
Guaranteed Delivery.
Notwithstanding any other provision hereof, delivery of Exchange Notes by
the Exchange Agent for Original Notes tendered and accepted for exchange
pursuant to the Exchange Offer will, in all cases, be made only after timely
receipt by the Exchange Agent of such Original Notes (or Book-Entry
Confirmation of the transfer of such Original Notes into the Exchange Agent's
account at DTC as described above), and a Letter of Transmittal (or facsimile
thereof) with respect to such Original Notes, properly completed and duly
executed, with any required signature guarantees and any other documents
required by the Letter of Transmittal, or a properly transmitted Agent's
Message.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt), acceptance and withdrawal of tendered
Original Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute
right to reject any and all Original Notes not properly tendered or any
Original Notes the Company's acceptance of which would, in the opinion of
counsel for the Company, be unlawful. The Company also reserves the right to
waive any defects, irregularities or conditions of tender as to particular
Original Notes. The interpretation of the terms and conditions of its Exchange
Offer (including the instructions in the Letter of Transmittal) by the Company
will be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Original Notes must be cured
within such time as the Company shall determine. Although the Company intends
to notify holders of defects or irregularities with respect to tenders of
Original Notes, neither the Company, the Exchange Agent nor any other person
is under any duty to give such notice, nor shall they incur any liability for
failure to give such notification. Tenders of Original Notes will not be
deemed to have been made until such defects or irregularities have been cured
or waived. Any Original Notes received by the Exchange Agent that are not
validly tendered and as to which the defects or irregularities have not been
cured or waived, or if Original Notes are submitted in a principal amount
greater than the principal amount of Original Notes being tendered by such
tendering holder, such unaccepted or non-exchanged Original Notes will be
returned by the Exchange Agent to the tendering holders (or, in the case of
Original Notes tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the book-entry
transfer procedures described below, such unaccepted or non-exchanged Original
Notes will be credited to an account maintained with such Book-Entry Transfer
Facility), unless otherwise provided in the Letter of Transmittal, as soon as
practicable following the Expiration Date.
By tendering, each registered holder will represent to the Company that,
among other things, (i) the Exchange Notes to be acquired by the holder and
any beneficial owner(s) of the Original Notes ("Beneficial Owner(s)") in
connection with the Exchange Offer are being acquired by the holder and any
Beneficial Owner(s) in the ordinary course of business of the holder and any
Beneficial Owner(s), (ii) the holder and each Beneficial Owner are not
participating, do not intend to participate, and have no arrangement or
understanding with any person to participate, in a distribution of the
Exchange Notes, (iii) the holder and each Beneficial Owner acknowledge and
agree that (x) any person participating in the Exchange Offer for the purpose
of distributing the Exchange Notes must comply
32
<PAGE>
with the registration and prospectus delivery requirements of the Securities
Act in connection with a secondary resale transaction with respect to the
Exchange Notes acquired by such person and cannot rely on the position of the
Staff of the Commission set forth in no-action letters that are discussed
herein under "--Resale of the Exchange Notes; Plan of Distribution," and (y)
any broker-dealer that receives Exchange Notes for its own account in exchange
for Original Notes pursuant to the Exchange Offer must delivery a prospectus
in connection with any resale of such Exchange Notes, but by so acknowledging,
the holder shall not be deemed to admit that, by delivering a prospectus, it
is an "underwriter" within the meaning of the Securities Act, (iv) neither the
holder nor any Beneficial Owner is an "affiliate," as defined under Rule 405
of the Securities Act, of the Company except as otherwise disclosed to the
Company in writing, and (v) the holder and each Beneficial Owner understands
that a secondary resale transaction described in clause (iii) above should be
covered by an effective registration statement containing the selling
securityholder information required by Item 507 of Regulation S-K of the
Commission.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Original Notes, where such Original Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "--Resale of the Exchange Notes;
Plan of Distribution."
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Original Notes pursuant to
the Exchange Offer may be withdrawn, unless theretofore accepted for exchange
as provided in the Exchange Offer, at any time prior to the Expiration Date.
To be effective, a written or facsimile transmission notice of withdrawal
must be received by the Exchange Agent at its address set forth herein prior
to the Expiration Date. Any such notice of withdrawal must (i) specify the
name of the person having deposited the Original Notes to be withdrawn (the
"Depositor"), (ii) identify the Original Notes to be withdrawn, including the
certificate number or numbers of the particular certificates evidencing the
Original Notes (unless such Original Notes were tendered by book-entry
transfer), and aggregate principal amount of such Original Notes, and (iii) be
signed by the holder in the same manner as the original signature on the
Letter of Transmittal (including any required signature guarantees) or be
accompanied by documents of transfer sufficient to have the Trustee under the
Indenture register the transfer of the Original Notes into the name of the
person withdrawing such Original Notes. If Original Notes have been delivered
pursuant to the procedures for book-entry transfer set forth in "--Procedures
for Tendering Original Notes--Book-Entry Delivery Procedures," any notice of
withdrawal must specify the name and number of the account at the appropriate
book-entry transfer facility to be credited with such withdrawn Original Notes
and must otherwise comply with such book-entry transfer facility's procedures.
If the Original Notes to be withdrawn have been delivered or otherwise
identified to the Exchange Agent, a signed notice of withdrawal meeting the
requirements above is effective immediately upon written or facsimile notice
of withdrawal even if physical release is not yet effected. A withdrawal of
Original Notes can only be accomplished in accordance with the foregoing
procedures.
All questions as to the validity, form and eligibility (including time of
receipt) of such notices will be determined by the Company in its sole
discretion, which determination shall be final and binding on all parties. No
withdrawal of Original Notes will be deemed to have been properly made until
all defects or irregularities have been cured or expressly waived. Neither the
Company nor the Exchange Agent or any other person will be under any duty to
give notification of any defects or irregularities in any notice of withdrawal
or revocation, nor shall they incur any liability for failure to give any such
notification. Any Original Notes so withdrawn will be deemed not to have been
validly tendered for
33
<PAGE>
purposes of the Exchange Offer and no Exchange Notes will be issued with
respect thereto unless the Original Notes so withdrawn are retendered.
Properly withdrawn Original Notes may be retendered by following one of the
procedures described above under "--Procedures for Tendering Original Notes"
at any time prior to the Expiration Date.
Any Original Notes which have been tendered but which are not accepted for
exchange due to the rejection of the tender due to uncured defects or the
prior termination of the Exchange Offer, or which have been validly withdrawn,
will be returned to the holder thereof (unless otherwise provided in the
Letter of Transmittal), as soon as practicable following the Expiration Date
or, if so requested in the notice of withdrawal, promptly after receipt by the
Company of notice of withdrawal without cost to such holder.
CONDITIONS TO THE EXCHANGE OFFER
The Exchange Offer shall not be subject to any conditions, other than that
(i) the Commission has issued an order or orders declaring the Indenture
governing the Notes qualified under the Trust Indenture Act of 1939, (ii) the
Exchange Offer, or the making of any exchange by a holder, does not violate
applicable law or any applicable interpretation of the staff of the
Commission, (iii) no action or proceeding shall have been instituted or
threatened in any court or by or before any governmental agency with respect
to the Exchange Offer, which, in the judgment of the Company, might impair the
ability of the Company to proceed with the Exchange Offer, (iv) there shall
not have been adopted or enacted any law, statute, rule or regulation which,
in the Company's judgment, would materially impair its ability to proceed with
the Exchange Offer or (v) there shall not have occurred any material change in
the financial markets in the United States or any outbreak of hostilities or
escalation thereof or other calamity or crisis the effect of which on the
financial markets of the United States, in the Company's judgment, would
materially impair its ability to proceed with the Exchange Offer.
If the Company determines in its sole discretion that any of the conditions
to the Exchange Offer are not satisfied, it may (i) refuse to accept any
Original Notes and return all tendered Original Notes to the tendering
holders, (ii) extend its Exchange Offer and retain all Original Notes tendered
prior to the Expiration Date, subject, however, to the rights of holders to
withdraw such Original Notes (see "--Withdrawal of Tenders") or (iii) waiver
such unsatisfied conditions with respect to the Exchange Offer and accept all
validly tendered Original Notes which have not been withdrawn. If such waiver
constitutes a material change to the Exchange Offer, the Company will promptly
disclose such waiver by means of a prospectus supplement that will be
distributed to the registered holders, and will extend the Exchange Offer for
a period of five to 10 business days, depending upon the significance of the
waiver and the manner of disclosure to the registered holders, if the Exchange
Offer would otherwise expire during such five to 10 business day period.
EXCHANGE AGENT
State Street Bank & Trust Company, the Trustee under the Indenture governing
the Notes, has been appointed as Exchange Agent for the Exchange Offer.
Questions and requests for assistance, requests for additional copies of this
Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery and other documents should be directed to the Exchange
Agent addressed as follows:
By Mail: By Facsimile: By Hand:
State Street Bank & Trust (617) 664-5395 State Street Bank & Trust
Company Company
Corporate Trust Department Corporate Trust Department
P.O. Box 778 Confirm by Telephone: Two International Place, 4th
Floor
Boston, Massachusetts 02102- (617) 664-5587 Boston, Massachusetts 02110
0078 Attention: Kellie Mullen
Attention: Kellie Mullen
34
<PAGE>
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Company and its affiliates.
No dealer-manager has been retained in connection with the Exchange Offer
and no payments will be made to brokers, dealers or others soliciting
acceptance of the Exchange Offer. However, reasonable and customary fees will
be paid to the Exchange Agent for its service and it will be reimbursed for
its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company and are estimated in the aggregate to be approximately
$300,000. Such expenses include fees and expenses of the Exchange Agent and
the trustee under the Indenture, accounting and legal fees and printing costs,
among others.
The Company will pay all transfer taxes, if any, applicable to the exchange
of its Original Notes pursuant to the Exchange Offer. If, however, a transfer
tax is imposed for any reason other than the exchange of its Original Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be
payable by the tendering holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with the Letter of Transmittal,
the amount of such transfer taxes will be billed directly to such tendering
holder.
ACCOUNTING TREATMENT
The carrying values of the Original Notes are not expected to be materially
different from the fair value of the Exchange Notes at the time of the
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized. The expenses of the Exchange Offer will be amortized over the term
of the Exchange Notes.
RESALE OF THE EXCHANGE NOTES; PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This Prospectus, as it may
be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of Exchange Notes received in exchange for Original
Notes where such Original Notes were acquired as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 180 days after the Expiration Date, it will make this prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale. In addition, until January 16, 1999, all dealers
effecting transactions in the Exchange Notes may be required to deliver a
prospectus.
The Company will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from
any such broker-dealer or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchanges Notes
35
<PAGE>
may be deemed to be an "underwriter" within the meaning of the Securities Act
and any profit on any such resale of Exchange Notes and any commission on
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that,
by acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Company will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the
Letter of Transmittal. The Company has agreed to pay all expenses incident to
the Exchange Offer (including the expenses approved in writing of one counsel
for the holders of the Notes) other than commissions or concessions of any
brokers or dealers and will indemnify the holders of the Notes (including any
broker-dealers) required to use this Prospectus in connection with their
resale of Exchange Notes as described above against certain liabilities,
including liabilities under the Securities Act.
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Registration Rights Agreement. The Company will not
receive any cash proceeds from the issuance of the Exchange Notes offered
hereby. In consideration for issuing the Exchange Notes as contemplated in
this Prospectus, the Company will receive in exchange Original Notes in like
principal amount, the form and terms of which are the same as the form and
terms of the Exchange Notes, except as otherwise described herein under "The
Exchange Offer--Terms of the Exchange Offer." The Original Notes surrendered
in exchange for the Exchange Notes will be retired and canceled and cannot be
reissued. Accordingly, issuance of the Exchange Notes will not result in any
increase in the indebtedness of the Company.
36
<PAGE>
CAPITALIZATION
The following table sets forth as of June 30, 1998 the capitalization of the
Company and its subsidiaries on a pro forma basis after giving effect to the
Transactions as if they had occurred on June 30, 1998. See "The Transactions."
The information set forth below should be read in conjunction with the
"Unaudited Pro Forma Financial Information" and the Consolidated Financial
Statements of the Company and its subsidiaries and related notes thereto
included elsewhere herein.
<TABLE>
<CAPTION>
AMOUNT
---------------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Bank Credit Agreement(/1/):
Revolving Credit Facility........................ $ 3.2
Term Loan........................................ 35.0
ESOP Term Loan................................... 1.5
Original Notes..................................... 100.0
------------
Total debt....................................... 139.7
Common stock held by ESOP(/2/)..................... 1.5
Less--Note receivable from ESOP.................. (1.5)
Total stockholder's equity......................... 26.5
------------
Total capitalization............................. $ 166.2
============
</TABLE>
- --------
(1) The Company has available borrowings under the Revolving Credit Facility
of up to $15 million, subject to borrowing base limitations. The Company
also has available borrowings under the Acquisition Facility of $25
million, subject to the terms thereof. See "Description of the Bank Credit
Agreement."
(2) For a description of the Company ESOP Loan, see "Management--Employee
Stock Ownership Plan."
37
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma financial information set forth below should be read
in conjunction with the historical Consolidated Financial Statements and notes
thereto of the Company and its subsidiaries included elsewhere in this
Prospectus and "Management's Discussion and Analysis of Financial Condition
and Results of Operations." The following unaudited pro forma consolidated
statements of operations for the year ended December 31, 1997, the six months
ended June 30, 1998 and the twelve month period ended June 30, 1998 give
effect to the Transactions as if they had occurred at January 1, 1997, and the
following unaudited pro forma consolidated balance sheet gives effect to the
Transactions as if they had occurred on June 30, 1998.
The pro forma adjustments are based upon available information and certain
assumptions that management believes are reasonable. Although management has
used its best judgment in estimating the fair value of the net assets, various
pending studies, analyses and operational decisions may result in significant
changes in the current estimates and corresponding changes of the goodwill
balance. The pro forma financial information is presented for informational
purposes only, and does not purport to represent what the results of
operations or financial condition would actually have been had the
Transactions in fact occurred on the dates set forth above or to project the
Company's results of operations or financial condition for any future period
or as of any date, respectively.
38
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THE COMPANY PRO FORMA THE COMPANY
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ----------- -----------
<S> <C> <C> <C>
Net sales................................ $ 77,418 -- $ 77,418
Net rentals.............................. 27,382 -- 27,382
-------- -------- --------
Net revenues........................... 104,800 -- 104,800
Cost of sales............................ 50,518 163 (a) 50,681
Cost of rentals.......................... 9,626 -- 9,626
Selling, general and administrative
expenses................................ 25,302 1,769 (b) 26,646
375 (c)
(800)(d)
-------- -------- --------
Income from operations................. 19,354 (1,507) 17,847
Interest expense......................... 3,710 11,105 (e) 14,815
Interest income.......................... (367) -- (367)
Other expense (income), net.............. 404 -- 404
-------- -------- --------
Income before income taxes and
extraordinary item.................... 15,607 (12,612) 2,995
Provision for income taxes (benefit)..... 6,412 (4,012)(f) 2,400
-------- -------- --------
Income before extraordinary item....... 9,195 (8,600) 595
-------- -------- --------
Extraordinary item....................... 772 -- 772
-------- -------- --------
Net income............................. $ 8,423 $ (8,600) $ (177)
======== ======== ========
EBITDA (g)............................... $ 24,069 $ 425 $ 24,494
======== ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statements of Operations
39
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THE THE
COMPANY PRO FORMA COMPANY
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Net sales................................... $41,725 -- $41,725
Net rentals................................. 14,475 -- 14,475
------- ------- -------
Net revenues.............................. 56,200 -- 56,200
Cost of sales............................... 26,259 77 (a) 26,336
Cost of rentals............................. 5,146 -- 5,146
Selling, general and administrative
expenses................................... 13,294 874 (b) 13,956
188 (c)
(400)(d)
------- ------- -------
Income from operations.................... 11,501 (739) 10,762
Interest expense............................ 1,393 6,015 (e) 7,408
Interest income............................. (7) -- (7)
Other expense (income), net................. 171 -- 171
------- ------- -------
Income before income taxes and
extraordinary item....................... 9,944 (6,754) 3,190
Provision for income taxes (benefit)........ 3,954 (2,176)(f) 1,778
------- ------- -------
Income before extraordinary item.......... $ 5,990 (4,578) 1,412
Extraordinary item.......................... 300 -- 300
------- ------- -------
Net income.................................. $ 5,690 $(4,578) $ 1,112
======= ======= =======
EBITDA (g).................................. $13,873 $ 212 $14,085
======= ======= =======
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statements of Operations
40
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE TWELVE MONTHS ENDED JUNE 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THE
THE COMPANY
COMPANY PRO FORMA PRO
HISTORICAL ADJUSTMENTS FORMA
---------- ----------- --------
<S> <C> <C> <C>
Net sales................................... $ 80,667 -- $ 80,667
Net rentals................................. 28,625 -- 28,625
-------- ------- --------
Net revenues.............................. 109,292 -- 109,292
Cost of sales............................... 52,092 37 (a) 52,129
Cost of rentals............................. 10,076 -- 10,076
Selling, general and administrative
expenses................................... 25,753 1,768 (b) 27,096
375 (c)
(800)(d)
-------- ------- --------
Income from operations.................... 21,371 (1,380) 19,991
Interest expense............................ 3,074 11,741 (e) 14,815
Interest income............................. (360) -- (360)
Other expense (income), net................. 970 -- 970
-------- ------- --------
Income before income taxes and
extraordinary item....................... 17,687 (13,121) 4,566
Provision for income taxes (benefit)........ 6,991 (4,201)(f) 2,790
-------- ------- --------
Income before extraordinary item.......... 10,696 (8,920) 1,776
-------- ------- --------
Extraordinary item.......................... 300 -- 300
-------- ------- --------
Net income.................................. $ 10,396 $(8,920) $ 1,476
======== ======= ========
EBITDA (g).................................. $ 26,213 $ 425 $ 26,638
======== ======= ========
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statements of Operations
41
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(a) Represents the change in depreciation expense resulting from the
preliminary purchase price allocation in accordance with the purchase
method of accounting. Of the $30.8 million allocated to property, plant
and equipment, $0.75 million was allocated to land, $3.75 million was
allocated to buildings (depreciated over a 30 year life) and $26.3 million
was allocated to machinery and equipment (depreciated over a 7 year life).
(b) Represents an increase in amortization resulting from the preliminary
purchase price allocation in accordance with the purchase method of
accounting. Goodwill is amortized over 40 years.
(c) Represents the estimated annual cost to maintain the ESOP.
(d) Reflects the elimination of certain management fees and an officer's
salary partially offset by the corresponding estimated costs of a new
Chairman and Board of Directors and the Sterling management fee, and the
cost savings related to the restructuring of certain insurance policies.
(e) Represents the elimination of interest expense related to the historical
debt outstanding and the incurrence of interest expense related to
borrowings under the Bank Credit Agreement and the issuance of the Notes.
<TABLE>
<CAPTION>
SIX TWELVE
MONTHS FISCAL YEAR MONTHS
ENDED ENDED ENDED
JUNE 30, DECEMBER 31, JUNE 30,
1998 1997 1998
-------- ------------ --------
<S> <C> <C> <C>
Interest expense on the Company's
historical debt.......................... $(1,393) $(3,710) $(3,074)
Interest expense on the Bank Credit
Agreement at an assumed rate of 8.0%..... 1,591 3,182 3,182
Interest expense on the Notes at a rate of
10 3/4%.................................. 5,375 10,750 10,750
Amortization of debt issuance costs....... 442 883 883
------- ------- -------
Total Company............................. $ 6,015 $11,105 $11,741
======= ======= =======
</TABLE>
Borrowings under the Bank Credit Agreement bear interest at a floating
rate based on either LIBOR or a prime rate. A 1/8% change in the interest
rate would change annual interest expense by approximately $50,000.
(f) Represents the tax effect of all adjustments, excluding the amortization
of non-deductible goodwill, using a combined statutory and federal
statutory income tax rate of approximately 37%.
(g) EBITDA is defined as income from operations plus depreciation and
amortization. EBITDA is presented because it is a widely accepted
financial indicator of a company's ability to incur and service debt.
EBITDA should not be considered by an investor as an alternative to income
from operations as determined in accordance with generally accepted
accounting principles as an indicator of the operating performance of the
Company or as an alternative to cash flows as a measure of liquidity.
42
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THE
THE COMPANY
COMPANY PRO FORMA PRO
ASSETS HISTORICAL ADJUSTMENTS FORMA
------ ---------- ----------- --------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................ $ 490 (158,946)(a) 490
158,946 (b)
Accounts receivables, net................ 14,643 -- 14,643
Inventories, net......................... 9,714 -- 9,714
Prepaid income taxes and other current
assets.................................. 503 -- 503
Current income tax receivable............ -- 1,353 (a) 1,353
Deferred income tax benefit.............. 2,847 -- 2,847
------- --------- --------
Total current assets................... 28,197 1,353 29,550
Plant and equipment, net................... 25,165 5,631 (a) 30,796
Other assets:
Goodwill, net............................ 33,055 73,958 (a) 110,582
3,569 (c)
Intangible assets, net................... 841 -- 841
Deferred charges, net.................... 12,348 (287)(a) 19,361
7,300 (b)
Other assets............................. 37 -- 37
------- --------- --------
Total other assets..................... 46,281 84,540 130,821
------- --------- --------
Total assets............................... $99,643 $ 91,524 $191,167
======= ========= ========
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
<S> <C> <C> <C>
Current Liabilities:
Current maturities of long-term debt..... $13,757 (13,757)(a) 2,875
2,875 (b)
Accounts payable......................... 4,653 -- 4,653
Accrued liabilities...................... 6,679 (390)(a) 6,289
Accrued income taxes..................... 1,871 (1,871)(a) --
------- --------- --------
Total current liabilities.............. 26,960 (13,143) 13,817
Non-Current Liabilities:
Long-term debt, less current maturities.. 12,867 (12,867)(a) --
Revolving Credit Facility................ -- 3,246 (b) 3,246
Term Loan................................ -- 32,500 (b) 32,500
Notes offered hereby..................... -- 100,000 (b) 100,000
ESOP Term Loan........................... -- 1,125 (b) 1,125
Other non-current liabilities............ 11,006 (3,700)(a) 7,306
Deferred income taxes.................... 3,104 3,569 (c) 6,673
------- --------- --------
Total non-current liabilities.......... 26,977 123,873 150,850
Common stock held by ESOP................ -- 1,500 (b) 1,500
Less: Note receivable from ESOP.......... -- (1,500)(b) (1,500)
Stockholder's Equity:
Common stock and additional paid-in
capital................................. 16,723 (16,723)(a) 26,500
26,500 (b)
Retained earnings........................ 29,508 (29,508)(a) --
Accumulated other comprehensive income... (525) 525 (a) --
------- --------- --------
Total stockholder's equity............. 45,706 (19,206) 26,500
------- --------- --------
Total liabilities and stockholder's equity. $99,643 $ 91,524 $191,167
======= ========= ========
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Balance Sheet
43
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(a) Represents the adjustment to record the acquisition in accordance with
purchase accounting.
<TABLE>
<S> <C>
Purchase price.................................................. $155,250
Preliminary adjustment for working capital...................... 2,496
Acquisition costs............................................... 1,200
--------
Total........................................................... $158,946
========
</TABLE>
The resultant pro forma purchase price entries are as follows:
<TABLE>
<S> <C>
Fixed assets.................................................. $ 5,631
Common stock and additional paid in capital................... 16,723
Retained earnings............................................. 29,508
Accumulated other comprehensive income........................ (525)
Elimination of historical debt
Current..................................................... 13,757
Long-term................................................... 12,867
Interest payable............................................ 309
Elimination of historical environmental liability............. 3,700
Elimination of historical deferred debt issuance costs........ (287)
Elimination of litigation accrual retained by seller.......... 81
Goodwill...................................................... 73,958
Current taxes
Current income tax receivable............................... 1,353(i)
Accrued income taxes........................................ 1,871(i)
--------
$158,946
========
</TABLE>
- --------
(i) Represents the change in accrued income taxes due to additional
deductible expenses of approximately $11.6 million resulting from the
Transactions, including bonus plans, the extinguishment of debt and
the exercise of stock options. Such amounts shall reduce the proceeds
paid to the selling stockholders.
(b) In order to finance the Acquisition and related fees and expenses, the
Company used the proceeds of the issuance of the Notes, the Equity
Investment and borrowings under the Bank Credit Agreement.
<TABLE>
<S> <C>
Proceeds of Original Notes.................................... $100,000
Proceeds of Equity Investment................................. 26,500
Proceeds of Common Stock held by ESOP......................... 1,500
Proceeds from initial borrowings under the Bank Credit
Agreement
Term Loan................................................... 35,000
Revolving Credit Facility................................... 3,246
ESOP Term Loan.............................................. 1,500
Deferred financing costs...................................... (7,300)
Loan made by the Company to the ESOP.......................... (1,500)
--------
$158,946
========
</TABLE>
(c) Represents the adjustment to deferred taxes resulting from the allocation
of purchase price to the fair values of assets and liabilities acquired.
44
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The selected historical consolidated financial information presented below
as of December 31, 1993, 1994, 1995, 1996 and 1997 and for the periods ended
December 31, 1993, March 15, 1994, December 31, 1994, 1995, 1996 and 1997 is
derived from the consolidated financial statements of the Company, which have
been audited by Arthur Andersen LLP, independent public accountants. The
Predecessor Company financial data presented in the table below represents
financial information for the Company prior to its acquisition by an investor
group led by Cortec Group on March 15, 1994. Due to the substantial change in
controlling interest in the Company, the Company reflected a complete change
in its accounting basis of its assets and liabilities from Predecessor Company
historical cost to estimated fair value as of March 15, 1994. The selected
consolidated financial information presented below as of and for each of the
six month periods ended June 30, 1997 and 1998 is derived from the unaudited
interim financial statements of the Company. In the opinion of management,
such unaudited interim financial statements include all adjustments
(consisting of only normal recurring adjustments) necessary for a fair
presentation of the Company's financial position and results of operations for
such periods. The unaudited operating results for the six months ended June
30, 1998 are not necessarily indicative of the results that may be expected
for the full year ending December 31, 1998. The information presented below
should be used in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and the consolidated financial
statements of the Company and the related notes thereto included elsewhere
herein.
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
------------------
YEAR PERIOD PERIOD SIX MONTHS ENDED
ENDED ENDED ENDED YEAR ENDED DECEMBER 31, JUNE 30,
DEC. 31, MAR. 15, DEC. 31, ---------------------------- -----------------------
1993 1994 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues............ $87,767 $18,593 $ 81,304 $104,326 $104,787 $104,800 $51,708 $56,200
Cost of revenues........ 56,594 11,869 51,662 64,829 61,294 60,144 29,381 31,405
Charges for
environmental
matter(/1/)............ 1,430 -- -- -- -- -- -- --
Selling, general &
administrative
expenses............... 20,728 4,587 17,883 24,181 25,146 25,302 12,843 13,294
------- ------- -------- -------- -------- -------- ------- -------
Income from operations.. 9,015 2,137 11,759 15,316 18,347 19,354 9,484 11,501
Interest expense........ 7,084 1,500 5,300 6,596 5,123 3,710 2,029 1,393
Interest income......... (75) (17) (61) (44) (39) (367) (14) (7)
Other expense (income),
net.................... (69) (105) (240) 537 57 404 (395) 171
------- ------- -------- -------- -------- -------- ------- -------
Income before income
taxes and extraordinary
item................... 2,075 759 6,760 8,227 13,206 15,607 $ 7,864 $ 9,944
Provision for income
taxes.................. 861 315 3,116 3,338 5,730 6,412 3,375 3,954
------- ------- -------- -------- -------- -------- ------- -------
Income before
extraordinary item..... 1,214 444 3,644 4,889 7,476 9,195 4,489 5,990
Loss on early
extinguishment of debt,
net.................... -- -- -- -- 614 772 772 300
------- ------- -------- -------- -------- -------- ------- -------
Net income.............. $ 1,214 $ 444 $ 3,644 $ 4,889 $ 6,862 $ 8,423 $ 3,717 $ 5,690
======= ======= ======== ======== ======== ======== ======= =======
OTHER FINANCIAL DATA:
EBITDA(/2/)............. $14,033 $ 3,182 $ 16,388 $ 20,783 $ 24,375 $ 24,069 $11,729 $13,873
Depreciation and
amortization(/3/)...... 5,018 1,045 4,629 5,467 6,028 4,715 2,245 2,372
Capital expenditures.... 3,532 445 2,676 3,853 3,862 3,475 1,699 3,011
Ratio of earnings to
fixed charges(/4/)..... 1.3x 1.5x 2.2x 2.1x 3.2x 4.5x 4.3x 6.5x
BALANCE SHEET DATA (END
OF PERIOD):
Cash and cash
equivalents............ $ 1,733 $ 2,227 $ 872 $ 45 $ 1,716 $ 1,310 $ 426 $ 490
Working capital......... 7,120 8,144 7,872 6,750 7,362 3,824 10,864 1,237
Total assets............ 67,963 69,165 104,397 103,288 99,331 96,773 98,449 99,643
Total debt.............. 50,109 49,368 57,063 50,157 41,195 31,364 37,836 26,624
Stockholder's
equity(/5/)............ (7,408) (7,058) 20,796 25,828 32,118 40,067 35,363 45,706
</TABLE>
See Notes to Selected Historical Financial Data
45
<PAGE>
NOTES TO SELECTED HISTORICAL FINANCIAL DATA
(1) Charges related to involvement in an environmental matter and action at a
property formerly owned by a predecessor of the Company.
(2) EBITDA is defined as income from operations plus depreciation and
amortization. EBITDA is presented because it is a widely accepted
financial indicator of a company's ability to incur and service debt.
EBITDA should not be considered by an investor as an alternative to income
from operations as determined in accordance with generally accepted
accounting principles as an indicator of the operating performance of the
Company or as an alternative to cash flows as a measure of liquidity.
(3) Depreciation and amortization does not include amortization of deferred
financing costs or the discount on the 2001 Notes which are included in
interest expense.
(4) The ratio of earnings to fixed charges is calculated as (a) income from
continuing operations before income taxes plus fixed charges, divided by
(b) fixed charges. Fixed charges include interest expense, capitalized
interest and the interest portion of rent expense. The interest portion of
rent expense is calculated as one-third of total rent expense.
(5) As part of the recapitalization of the Predecessor Company, which occurred
on December 21, 1989, the Company paid a $65,695,000 cash dividend on
common stock and recognized a $617,000 premium on the redemption of
previously outstanding shares of preferred stock, resulting in a
stockholder's deficit at the end of 1989 and the succeeding periods until
the acquisition of the Predecessor Company in 1994.
46
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company is a leading designer, manufacturer, marketer and distributor of
a diverse range of products in several niche markets including productivity
enhancing construction tools, formed wire products, industrial bag closing
equipment and flexible conveyors. The Company operates through three business
units: Ames, Nestaway and Fischbein. Ames is the leading designer,
manufacturer, marketer and distributor of ATF tools, which are rented or sold
to interior finishing contractors to finish drywall joints prior to painting,
wallpapering or other forms of final treatment. Nestaway is a leading
manufacturer of formed wire products which are used for a variety of
commercial and consumer product applications. Fischbein is a leading worldwide
manufacturer and marketer of industrial bag closing and handling equipment and
systems and a leading manufacturer of flexible conveyors and storage racks.
The Company distributes certain of its products through subsidiaries located
in Belgium, France, the United Kingdom, Singapore and Canada. The Company
accounts for gains and losses resulting from foreign currency transactions in
its consolidated statement of income. Income and expense items are translated
at the average exchange rate for the period. The assets and liabilities of
foreign subsidiaries are translated at the current rate of exchange at the
balance sheet date. Balance sheet translation adjustments have been excluded
from the results of operations and are reported as a separate component of
stockholder's equity. As the Company's foreign revenues accounted for
approximately 15% of the Company's net revenues, the results of the Company
may be favorably or unfavorably affected to the extent the U.S. dollar weakens
or strengthens versus the applicable corresponding foreign currency. The
Company currently does not enter into hedging programs in an attempt to
mitigate the fluctuations against the U.S. dollar.
During the periods discussed below, except as may be noted, inflation and
changing prices have not had, and are not expected to have, a material impact
on the Company's net revenues or its income from operations.
In 1997, the Company repurchased and extinguished $9.3 million in principal
of its 11% Senior Subordinated Notes due 2001 (the "2001 Notes"). The Company
recorded a charge of $1.3 million, $0.8 million net of tax, for the redemption
premium, the writeoff of unamortized capitalized financing costs associated
with the issuance of the 2001 Notes, the applicable original issue discount,
and the expenses of the transaction. In May 1998, the Company repurchased and
extinguished the remaining $5.3 million in principal of its 2001 Notes, and
similarly recorded a charge of $0.5 million, $0.3 million net of tax. As a
result of the refinancing of its bank debt in 1996, the Company recorded a
debt extinguishment charge of $1.0 million on a pretax basis, $0.6 million net
of tax, due to the writeoff of the unamortized capitalized financing costs
related to the previous bank agreement.
47
<PAGE>
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------- -------------------------
1995 1996 1997 1997 1998
------------ ------------ ----------- ------------ -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues
Ames net revenues..... $ 33.9 32.5% $ 38.0 36.2% $42.4 40.4% $20.7 40.0% $23.0 40.9%
Nestaway net revenues. 42.6 40.8 39.7 37.9 35.3 33.7 18.0 34.8 20.0 35.6
Fischbein net
revenues............. 27.8 26.7 27.1 25.9 27.1 25.9 13.0 25.2 13.2 23.5
------ ----- ------ ----- ----- ----- ----- ----- ----- -----
Total net revenues... 104.3 100.0 104.8 100.0 104.8 100.0 51.7 100.0 56.2 100.0
------ ----- ------ ----- ----- ----- ----- ----- ----- -----
Cost of revenues........ 64.8 62.1 61.3 58.5 60.1 57.3 29.4 56.9 31.4 55.9
------ ----- ------ ----- ----- ----- ----- ----- ----- -----
Gross profit............ 39.5 37.9 43.5 41.5 44.7 42.7 22.3 43.1 24.8 44.1
Selling, general,
administrative
expenses............... 24.2 23.2 25.2 24.0 25.3 24.2 12.8 24.7 13.3 23.6
------ ----- ------ ----- ----- ----- ----- ----- ----- -----
Income from operations.. 15.3 14.7 18.3 17.5 19.4 18.5 9.5 18.4 11.5 20.5
Interest expense........ 6.6 6.3 5.1 4.9 3.7 3.5 2.0 3.9 1.4 2.5
Other expense (income).. 0.5 0.5 -- 0.0 0.1 0.1 (0.4) (0.8) 0.2 0.4
------ ----- ------ ----- ----- ----- ----- ----- ----- -----
Income before income
taxes and extraordinary
item................... 8.2 7.9 13.2 12.6 15.6 14.9 7.9 15.3 9.9 17.6
Provision for income
taxes.................. 3.3 3.2 5.7 5.4 6.4 6.1 3.4 6.6 3.9 6.9
------ ----- ------ ----- ----- ----- ----- ----- ----- -----
Income before
extraordinary item..... 4.9 4.7 7.5 7.2 9.2 8.8 4.5 8.7 6.0 10.7
Extraordinary item...... -- -- 0.6 0.6 0.8 0.8 0.8 1.5 0.3 0.6
------ ----- ------ ----- ----- ----- ----- ----- ----- -----
Net income.............. $ 4.9 4.7% $ 6.9 6.6% $ 8.4 8.0% $ 3.7 7.2% $ 5.7 10.1%
====== ===== ====== ===== ===== ===== ===== ===== ===== =====
</TABLE>
Six months ended June 30, 1998 compared to six months ended June 30, 1997
Net Revenues. Net revenues for the six month period ended June 30, 1998
increased 8.7% to $56.2 million from $51.7 million in the comparable period in
1997. The increase in net revenues was a result of increased rentals and sales
of ATF tools and increased sales of drywall related merchandise, dishwasher
racks, other formed wire products and bag closing equipment.
Ames' net revenues increased 11.1% to $23.0 million in the six month period
ended June 30, 1998 from $20.7 million in the comparable period in 1997. The
increase was primarily the result of an increase in both price and volume of
rented ATF tools. Factory-built housing initiatives also resulted in higher
ATF rental revenues. In addition, Ames' revenues increased due to higher
demand for drywall related merchandise and ATF tool sales.
Nestaway's net revenues increased 11.1% to $20.0 million in the six month
period ended June 30, 1998 from $18.0 million in the comparable period in
1997. The increase was primarily due to growth in formed wire products
including dishdrainers and shower caddies, and several recent product
additions, such as golf cart baskets and dryer racks. Revenues from dishwasher
racks were also improved with the addition of a new OEM customer.
Fischbein's net revenues increased 1.5% to $13.2 million in the six month
period ended June 30, 1998 from $13.0 million in the comparable period in
1997. The increase was primarily due to increased bag closing equipment sales
in the U.S. and in Europe. This increase was partially offset by reduced
revenues in Asian markets. In addition, revenues derived from sales of
Fischbein's flexible conveyors declined due to lower market demand in the U.S.
48
<PAGE>
Gross Profit. Gross profit for the six month period ended June 30, 1998
increased 11.2% to $24.8 million from $22.3 million in the comparable period
in 1997. The increase in gross profit was attributable to the net revenue
increase discussed above. Gross profit as a percentage of net revenues
improved to 44.1% from 43.1% due to a favorable mix of higher margin products.
Ames' gross profit improved with revenues. This improvement was offset by
temporary operating inefficiencies as the Bensenville, Illinois and Tucker,
Georgia rental ATF tool repair operations were consolidated into a new
facility in Stone Mountain, Georgia. Nestaway's gross profit improved due to
revenue growth, a non-recurring refund and temporary reduction in workers'
compensation premiums, and a one-time favorable pricing adjustment.
Fischbein's gross profit also improved due to product mix.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the six month period ended June 30, 1998 increased
3.9% to $13.3 million from $12.8 million in the comparable period in 1997. As
a percentage of net revenues, selling, general and administrative expenses
declined from 24.8% to 23.7% due to improved overhead efficiency from
increased sales.
Interest Expense. Interest expense for the six month period ended June 30,
1998 decreased to $1.4 million from $2.0 million in the comparable period in
1997. The decrease was the result of both a reduction in outstanding debt and
the aforementioned repurchase of the 2001 Notes in May 1997 utilizing the
Company's lower interest revolving credit loan and the final repurchase of the
2001 Notes in May 1998. The repurchase of the 2001 Notes also reduced the
amortization of the original issue discount and capitalized financing costs.
Other Expense. Other expense was $0.2 million for the six month period ended
June 30, 1998 compared to other income of $0.4 million in 1997. The decrease
was primarily due to a $0.5 million gain from the sale of an investment during
the comparable period in 1997.
Income Taxes, Extraordinary Item and Net Income. The effective tax rate for
the six month period ended June 30, 1998 was 39.4% compared to 43.0% for the
prior year comparable period. This decrease in the effective tax rate was due
in part to a reduction in the impact of non-deductible amortization expense.
During the second quarter of 1998, the Company recorded a $0.3 million
extraordinary charge related to the loss on extinguishment of the 2001 Notes.
As a result of the above factors, net income was $5.7 million compared to $3.7
million for the prior comparable period.
Year ended December 31, 1997 compared to year ended December 31, 1996
Net Revenues. Net revenues were unchanged at $104.8 million in 1997 compared
to 1996. Excluding the loss of an OEM customer in the second quarter of 1996,
consolidated net revenues grew 4.3% over the prior year period. The loss of
the OEM customer was offset by the increase in the rental and sale of ATF
tools and drywall related merchandise sales through Company-managed stores. As
a result of targeted marketing activities, bag closing equipment revenues in
Latin America also increased. Currency changes resulted in a reduction in
revenues of $1.6 million from 1996.
Ames' net revenues increased 11.6% to $42.4 million in 1997 from $38.0
million in 1996. ATF tool rental sales increased $2.5 million primarily due to
both price and volume increases in rented ATF tools. Drywall related
merchandise sales also improved $0.9 million as product offerings were
expanded and additional marketing programs were developed to improve store
sales. ATF tool sales increased $1.0 million in part due to the addition of
new distribution locations.
Nestaway's net revenues decreased 11.1% to $35.3 million in 1997 from $39.7
million in 1996. The decrease was primarily attributable to the loss of the
aforementioned OEM customer, which resulted in a decline in revenues of $4.3
million. Offsetting this decline were increased sales to a new OEM which
accounted for $0.6 million in revenues in 1997.
49
<PAGE>
Fischbein's net revenues were unchanged at $27.1 million in 1997 compared to
1996. Fischbein recorded revenue growth in its bag closing product line in the
U.S., Latin America and Europe of $0.7 million. Revenues from Europe, however,
were negatively impacted by foreign currency translation rate changes which
reduced revenues by $1.6 million. Excluding this event, bag closing revenues
would have increased $2.3 million. Specific marketing programs directed
towards Latin American markets improved revenues by $1.1 million. Revenues
from storage racks declined $0.7 million primarily as a result of lower
demand.
Gross Profit. Gross profit increased 2.8% to $44.7 million in 1997 from
$43.5 million in 1996. The improvement was directly related to rental revenue
growth within the Ames business unit. Additionally, gross profit as a
percentage of net revenues improved to 42.7% from 41.5% as a result of a shift
towards higher margin products.
Ames' gross profit improved as a result of rental revenue increases together
with a reduction in tool refurbishment costs as a result of foreign
outsourcing of parts and programs to reduce parts consumption. Nestaway's
gross profit declined primarily due to product mix with a higher proportion of
sales in lower margin non-dishwasher rack formed wire products and the impact
of the startup of several new products including shower caddies, golf cart
baskets and dishwasher racks for a new OEM customer offset by the elimination
of certain fixed costs associated with the closure of a leased production
facility in 1996. Fischbein's profit margins continued to improve due to cost
reduction programs and improved operating efficiencies at the Statesville,
North Carolina bag closing production facility. Fischbein also implemented a
foreign parts sourcing program which resulted in lower components costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 0.4% to $25.3 million in 1997 from $25.2
million in 1996. This was primarily attributable to an increase in bad debt
expense accompanying increased revenue within the Ames business unit. The
Company also recorded an increase in administrative and selling compensation.
These increases were offset by lower insurance, benefits and amortization
expense. Ames also recorded lower facility rental expenses with the closure of
a training center. As a percentage of net revenues, selling, general and
administrative expenses increased slightly to 24.2% in 1997 from 24.0% in
1996.
Interest Expense. Interest expense decreased to $3.7 million in 1997 from
$5.1 million in 1996. The decrease was the result of a reduction in
outstanding debt, a reduction in the interest rate on its revolving credit
agreement as a result of a bank credit refinancing which occurred in June 1996
and the repurchase of a portion of the 2001 Notes in May 1997 utilizing a
lower cost bank line of credit.
Other Expense. Other expense was $0.1 million in 1997. In 1997, the Company
recorded a gain on the sale of an investment. This income was offset by
expenses related to efforts to sell one of the Company's divisions and the
loss incurred on disposal of fixed assets.
Income Taxes, Extraordinary Item and Net Income. The effective tax rate for
the year ended 1997 was 41.0% compared to 43.2% in 1996. The decrease was due
to a reduction in the estimate of state and foreign tax liabilities. During
1997, the Company recorded a $0.8 million extraordinary charge related to the
loss on extinguishment of a portion of the 2001 Notes. As a result of the
above factors, net income increased to $8.4 million in 1997 from $6.9 million
in 1996.
Year ended December 31, 1996 compared to year ended December 31, 1995
Net Revenues. Net revenues increased 0.5% to $104.8 million in 1996 from
$104.3 million in 1995. Revenue growth was primarily the result of increased
rental revenues of Ames' ATF tools and
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drywall related merchandise. This increase in revenues offset the loss of the
OEM customer in the second quarter of 1996 discussed above, which resulted in
a revenue decline of $3.5 million from 1995.
Ames' net revenues increased 12.1% to $38.0 million in 1996 from $33.9
million in 1995. The increase in revenues was attributable to increased ATF
tool rentals and increased sales of drywall merchandise. The increase in ATF
rentals was, in part, due to the expansion of distribution opportunities with
the addition of new franchises, a program begun in 1995. Increased rentals of
ATF tools in the eastern and midwestern U.S. also contributed to volume
increases. New product introductions and marketing programs facilitated a gain
in drywall related merchandise sales.
Nestaway's net revenues decreased 6.8% to $39.7 million in 1996 from $42.6
million in 1995. The decrease was primarily attributable to the loss of the
OEM customer discussed above. An additional OEM customer brought dishwasher
rack production in-house in the third quarter of 1996 contributing to a $1.7
million reduction in revenues. Other formed wire products contributed an
additional $2.7 million in revenues primarily from the dishdrainer product
line where Nestaway added coating capacity in 1995.
Fischbein's net revenues decreased 2.5% to $27.1 million in 1996 from $27.8
million in 1995. This decrease was due to the inclusion of an additional month
of sales in 1995 as the Company eliminated a one month financial reporting lag
(the impact on income from operations was not material), and by a $0.6 million
negative impact from translation changes. This decrease was offset by
increased revenues of bag closing equipment and flexible conveyors.
Gross Profit. Gross profit increased 10.1% to $43.5 million in 1996 from
$39.5 million in 1995. The gross profit improvement was primarily attributable
to changes in product and customer mix and cost reduction and efficiency
programs in each of the business units. The gross profit as a percentage of
net revenues improved to 41.5% in 1996 from 37.9% in 1995.
Gross profit improved at Ames due to the substantial growth in ATF rentals
and lower refurbishment costs resulting from foreign parts sourcing and parts
consumption reduction programs. Nestaway's gross profit increased due to
improved operating efficiencies, product mix and reductions in workers'
compensation premiums and real and personal property taxes. Fischbein also
recorded improved gross profit margins in part due to equipment acquisitions
which improved production capabilities and lowered production costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 4.1% to $25.2 million in 1996 from $24.2
million in 1995. This increase was primarily attributable to additional
marketing programs and bad debt expense incurred to support revenue growth,
particularly at Ames. Bad debt expense on a consolidated basis increased $0.4
million primarily due to revenue increases at Ames. Advertising and promotions
increased $0.1 million. As a percentage of net revenues, selling, general and
administrative expenses increased to 24.0% in 1996 from 23.2% in 1995.
Interest Expense. Interest expense decreased to $5.1 million in 1996 from
$6.6 million in 1995 due to a reduction in the interest rate on its revolving
credit agreement as a result of a refinancing which occurred in June 1996.
Other Expense. Other expense decreased from $0.5 million recorded in 1995.
The Company recorded income in 1996 of $0.2 million as a result of a
distribution relating to past claims received from the liquidation of an
insurance company. In 1995, the Company had recorded charges for the disposal
of fixed assets ($0.1 million) and the consolidation of two tool repair
centers ($0.2 million).
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Income Taxes, Extraordinary Item and Net Income. The effective tax rate in
1996 was 43.2% compared to 40.2% in 1995. This increase was due to an increase
in the estimate of state and foreign tax liabilities. During 1996, the Company
recorded a $0.6 million extraordinary charge related to the loss on
extinguishment of its bank debt. As a result of the above factors, net income
increased to $6.9 million from $4.9 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated cash from operations of $7.3 million for the six month
period ended June 30, 1998 compared to $3.0 million for the six month period
ended June 30, 1997, and had cash on hand of $0.5 million at June 30, 1998.
Cash from operations and cash on hand were utilized to fund capital
expenditures of $3.0 million and a $5.0 million repayment of debt.
At June 30, 1998, the Company had working capital of $1.2 million compared
to working capital of $3.8 million at December 31, 1997. The decline in
working capital was due to an increase in the current maturities of long-term
debt of $2.8 million. The Company classified amounts outstanding under its
revolving credit loan as a current liability. The Company increased its
borrowings by $3.2 million as a result of the repurchase and extinguishment of
$5.3 million of the 2001 Notes. Accounts receivable grew $1.9 million and
inventories $0.6 million. The growth in accounts receivable occurred primarily
at Nestaway. Due to the closure of many of its customer's plants during the
period between Christmas and New Year's Day, Nestaway's receivables decline at
year-end and increase in the first quarter as customer production activity
resumes to normal levels. Accrued income taxes increased $1.6 million as a
result of increased earnings and lower estimate payments.
During the six month period ended June 30, 1998, the Company utilized net
cash provided by operations to fund capital expenditures of $3.0 million
primarily for revenue maintenance and growth. Nestaway invested $0.7 million
as it continued to convert the production capacity of its Clinton, North
Carolina facility to produce dishwasher racks for a new customer and purchased
equipment to manufacture new formed wire products. Ames expended $1.2 million
on new ATF tools for the rental market and for wash systems for rental to
manufactured housing customers.
Upon consummation of the Transactions, interest payments on the Notes and
under the Bank Credit Agreement and amortization of the Term Loan will
represent significant obligations of the Company. The Company's remaining
liquidity demands relate to capital expenditures and working capital needs.
For the year ended December 31, 1997, the Company spent $3.5 million on
capital projects. The Company anticipates capital expenditures totaling $5.6
million in 1998. Of this amount, $3.0 million had been spent through June 30,
1998. Exclusive of the impact of any future acquisitions, the Company does not
expect its capital expenditure requirements to increase materially in the
foreseeable future.
The Company's primary sources of liquidity will be cash flows from
operations and borrowings under the Bank Credit Agreement. The Revolving
Credit Facility will provide the Company with $15.0 million of borrowings,
subject to availability under the borrowing base. The Acquisition Facility
will provide the Company with $25.0 million of borrowings, subject to
customary conditions. "See Description of the Bank Credit Agreement". The
Company believes that, based on current and anticipated financial performance,
cash flow from operations and borrowings under the Revolving Credit Facility
will be adequate to meet anticipated requirements for capital expenditures,
working capital and scheduled interest payments. However, the Company's
capital requirements may change, particularly if the Company should complete
any material acquisitions. The ability of the Company to satisfy its capital
requirements will be dependent upon the future financial performance of the
Company, which in turn will be subject to general economic conditions and to
financial, business and other factors, including factors beyond the Company's
control.
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ACCOUNTING CHANGES
In 1997, the Financial Accounting Standards Board issued two new disclosure
standards. Results of operations and financial position will be unaffected by
implementation of these new standards.
In 1998, the Company adopted Statement of Financial Accounting Standards No.
130 ("SFAS 130"), "Reporting Comprehensive Income," which requires companies
to report all changes in equity during a period, except those resulting from
investment by owners and distribution to owners, in a financial statement for
the period in which they are recognized. The Company has chosen to disclose
comprehensive income, which encompasses net income, minimum pension liability
and foreign currency translation adjustments, in the consolidated statements
of stockholder's equity. Prior periods have been restated to conform with SFAS
130 requirements.
Statement of Financial Accounting Standards No. 131, "Disclosure about
Segments of an Enterprise and Related Information" ("SFAS No. 131"), which
supersedes SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise," establishes standards for the way that public enterprises report
information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in interim
financial statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas, and major
customers. SFAS No. 131 defines operating segments as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. Due to the recent issuance of
this standard, management has been unable to fully evaluate the impact, if
any, it may have on future financial statement disclosure.
OTHER MATTERS
With the coming of the year 2000, there has been a great deal of publicity
concerning computer information reporting and equipment failure due to
hardware's and software's use of two-digit dates ("Year 2000"). Management is
responsible for identifying the Company's computer systems affected by the
Year 2000 issue and developing and executing a compliance plan. Each business
unit has prepared and is in the process of implementing plans to replace
current management information systems due to current hardware and software
language obsolescence and the need to upgrade system capacities to management
requirements. As a result, all business units expect their management
information systems to be Year 2000 compliant by the end of 1998 or in early
1999. The Company has spent approximately $0.6 million in 1997 and estimates
spending an additional $0.7 million in the aggregate in 1998 and 1999 to
upgrade its management information systems. There is no guarantee, however,
that such systems replacements and modifications will be completed on time.
The failure of the Company's suppliers and customers to address the Year 2000
issue could significantly impact the Company.
As a result of dishwasher rack sourcing decisions made by its customers in
1996, the Company shut down a leased production facility in Canal Winchester,
Ohio, and temporarily idled a second plant in Clinton, North Carolina. The
Clinton facility resumed operations in 1997 when the Company was awarded a
contract by a new dishwasher rack customer. The Beaver Dam, Kentucky plant,
shut down in 1994 due to a customer's decision to utilize an alternative
source of supply, was reopened in 1996 to produce dishwasher rack components,
lower volume dishwasher racks, and other formed and coated wire products.
During 1997 and 1996, the Company charged $0.6 million and $1.0 million,
respectively, of the costs incurred against a facility realignment reserve
established in prior periods. The Company has no further reserves for the
realignment of its production capacities as of December 31, 1997, and
management believes its current manufacturing operations are properly
positioned to service current and future customers.
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INDUSTRY
ATF TOOLS
Drywall construction was introduced in the U.S. in the 1930s as an
alternative to plaster walls and is the leading interior wall material used
today. Drywall has become the industry standard wall material due to its
desirable physical properties (e.g. durability, hardness), cost, and ease of
installation relative to plaster and is used in the vast majority of new
residential, commercial, and industrial construction projects, as well as
remodeling activity involving wall installation and replacement.
The installation of drywall requires taping and finishing at the joints of
the drywall construction. When drywall was first introduced, all taping and
finishing was done by hand. In 1939, the Ames brothers in California invented
the first ATF tools, which allowed drywall contractors to apply tape and
compound with more consistent quality and less waste. Currently, ATF finishing
techniques are generally three to four times faster than hand taping methods.
As a result of these benefits, once finishers are trained in the use of ATF
tools and have used them for a period of time, they typically do not revert
back to hand taping techniques.
Due primarily to Ames' historical focus on the western U.S., ATF tools are
more widely used in that market than in the eastern and midwestern U.S.
Management believes that ATF tools have the potential for significant
continued growth through increased sales efforts in the eastern and midwestern
U.S. markets.
In addition to the rate at which drywall professionals are converted from
hand taping methods to ATF tools, demand is also influenced by housing starts.
According to the U.S. Bureau of Census, total U.S. housing starts have grown
at a 6.4% compound annual growth rate since 1991, reaching 1.5 million in
1997. In addition, the median size of new, single family homes has increased
25% since 1985 and this trend is expected to continue, leading to further
growth in drywall shipments.
Drywall material is used in the construction of factory-built homes as well
as traditional homes. Factory-built homes represented approximately 32% of the
total number of single family homes sold in 1996 and shipments of factory-
built homes totaled approximately 363,000 units in 1996, a compound annual
growth rate of approximately 16% since 1991. Demand for factory-built homes is
increasing due to greater community acceptance, size and affordability. In
1996, management instituted a program to penetrate the factory-built housing
market and believes this market offers significant growth potential.
FORMED WIRE PRODUCTS
The formed wire products market includes a wide range of coated and non-
coated formed wire products for various consumer, commercial and industrial
applications including dishwasher racks, refrigerator racks, oven racks,
bakery racks, shelving, dishdrainers, sink protectors, shower caddies, fan
guards, dryer racks, golf cart baskets, bucket bails and medical baskets. The
Company's primary formed wire products are dishwasher racks which are used by
OEMs. The dishwasher rack is a key component for the OEMs and is an important
driver of consumer preference. Because the dishwasher rack is visible to the
consumer, it is a critical component for dishwasher manufacturers that utilize
rack design to differentiate their products from competitors and to
differentiate among their own models.
The market for dishwasher racks is expected to continue to grow as
dishwasher sales continue to increase. Dishwasher penetration among U.S.
households has increased steadily from approximately 34% in 1973 to
approximately 55% in 1996. This increased penetration has led to
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increased sales of dishwashers, which have grown at a compound annual rate of
approximately 6% since 1991 reaching 5.1 million dishwashers in 1997.
Replacements, which constitute 75% of dishwasher sales, and housing starts are
the two major factors driving the demand for dishwashers. The Company believes
it is the largest independent major supplier of dishwasher racks in North
America.
The U.S. market for formed wire products other than dishwasher racks is
extremely fragmented and is comprised of many companies manufacturing a wide
range of products. The Company believes there are no dominant manufacturers
serving the formed wire products industry, but certain suppliers have
established leading positions in certain niche markets.
BAG CLOSING EQUIPMENT
The bag closing equipment market includes equipment and consumables used in
the closing, sealing, and handling of paper, textile and plastic bags across a
wide variety of industries. 1996 U.S. manufacturers' shipments of bag opening,
filling and closing machinery (excluding heat sealing) were approximately $133
million, with bag closing and sealing machinery accounting for $61 million of
total shipments. 1996 U.S. shipments of shrink film and heat sealing machinery
were $124 million, with heat sealing equipment representing $68 million of the
total. Between 1994 and 1996, the U.S. machinery manufacturers' sales of bag
opening, filling and closing, grew at a compound annual growth rate of 6%,
while sales of shrink film and heat sealing machinery grew at a compound
annual growth rate of 10%. This growth is due to the increased productivity
provided by automated bag closing systems.
While data on the size and growth of the international markets for bag
closing equipment is not available, management believes that international
markets have exhibited higher rates of growth than the U.S. market due to the
relative underpenetration of automated bag closing systems in these markets.
Management expects global demand for bag closing and handling equipment and
systems to continue to grow.
FLEXIBLE CONVEYORS
Flexible conveyors are part of the $60 billion worldwide material handling
industry. The markets for flexible conveyors have grown at a 6.6% compound
annual growth rate since 1994, reaching an estimated $910 million in 1997.
This growth has been driven by trends towards greater efficiency and
improvements in employee safety. Flexible conveyor products constitute a small
portion of the overall conveyor equipment market, but are subject to the same
overall industry growth trends.
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BUSINESS
GENERAL
The Company is a leading designer, manufacturer, marketer and distributor of
a diverse range of products in several niche markets including productivity
enhancing construction tools, formed wire products, industrial bag closing
equipment and flexible conveyors. Management believes the Company possesses
strong market leadership positions in its primary markets. The Company
believes it is: (i) the largest U.S. supplier and distributor of ATF tools;
(ii) the largest U.S. independent manufacturer of dishwasher racks; (iii) a
leading worldwide manufacturer and marketer of bag closing products and (iv) a
leading manufacturer and marketer of flexible conveyors and warehouse storage
racks. The Company believes that its market leadership positions, brand name
recognition, established national and international distribution networks,
strong customer base and manufacturing expertise provide significant
opportunities to grow sales of new and existing products within established
markets, as well as expand into new markets. The Company also believes that
its diverse base of products and markets reduces exposure to any particular
industry, product market or geographic region. The Company operates through
three business units: Ames, Nestaway and Fischbein. For the twelve months
ended June 30, 1998, the Company had net revenues and pro forma EBITDA of
$109.3 million and $26.6 million, respectively.
Ames. Ames is the leading designer, manufacturer, marketer and distributor
of ATF tools, which are rented or sold to interior finishing contractors to
finish drywall joints prior to painting, wallpapering or other forms of final
treatment. ATF tools, invented by Ames in 1939, enable interior finishing
contractors to finish drywall joints three to four times faster than less
productive hand finishing methods. The Company is the leader in ATF tool
rentals and sales in the markets in which it serves. The primary business of
Ames is the rental and service of more than 135,000 ATF tools through its
extensive distribution network throughout the U.S. and Canada. Ames also sells
ATF tools under the TapeTech(R) and TapeMaster(R) brand names through an
established independent network of dealers in the U.S. and Canada. In
addition, Ames sells a variety of other drywall tools, finishing accessories
and supplies through its network of Company-managed stores. The Company
believes it has significant opportunities to increase Ames' revenues by
expanding the use of ATF tools in the fast growing factory-built housing
market, which is increasingly utilizing drywall rather than other materials.
The Company also believes it has a significant opportunity to expand the use
of ATF tools by converting interior finishing contractors from traditional
hand finishing methods, particularly in the eastern and midwestern U.S. where
the use of ATF tools is less prevalent than in the western U.S. For the twelve
months ended June 30, 1998, Ames had net revenues of $44.7 million.
Nestaway. Nestaway is a leading manufacturer of formed wire products which
are used for a variety of commercial and consumer product applications.
Nestaway is North America's largest independent manufacturer of coated wire
dishwasher racks and components which are sold to all the
major U.S. OEMs. Approximately 75% of dishwashers sold in the U.S. are
replacements. In 1996, Nestaway produced an estimated 68% of all independently
manufactured dishwasher racks and an estimated 17% of all dishwasher racks
produced in the U.S. Nestaway's primary OEM customers include Maytag, EBS-
Bosch and Whirlpool/KitchenAid. Nestaway has had relationships with all major
OEMs for an average of approximately 19 years and approximately 90% of
Nestaway's 1997 revenues were generated pursuant to requirements contracts
with terms extending through 2002. Nestaway also manufactures, on a contract
basis, other close tolerance, welded, non-coated or coated formed wire
products such as dish drainers, sink protectors, shower caddies, dryer racks,
golf cart baskets, bucket bails, medical baskets and small gauge axles. In
1994, Nestaway entered into an agreement with a major consumer products
company it has served for over 50 years to manufacture 100% of this customer's
coated formed wire dish drainers and sink protectors. In 1997, Nestaway
entered into an agreement with the same customer to manufacture 100% of its
coated wire shower caddies. The Company believes it has significant
opportunities to increase Nestaway's
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revenues through: (i) increasing sales to existing customers; (ii) expanding
its product offering and customer base by developing new formed wire business;
(iii) expanding production in international markets and (iv) pursuing
strategic acquisitions. For the twelve months ended June 30, 1998, Nestaway
had net revenues of $37.4 million.
Fischbein. Fischbein is a leading worldwide manufacturer and marketer of
industrial bag closing and handling equipment and systems and a leading
manufacturer and marketer of flexible conveyors and storage racks. Bag closing
and handling systems products include: (i) portable and stationary industrial
sewing heads and sewing systems for paper, textile and woven polypropylene
bags; (ii) industrial heat sealing and bag handling systems for paper and
plastic bags; (iii) consumables, including thread and tape and (iv) service
parts. Service parts, which provide a recurring base of revenue, accounted for
approximately 20% of Fischbein's sales in 1997. Fischbein's bag closing
products are used across a broad range of industries for packaging chemicals,
minerals, agricultural and food products. In addition to bag closing products,
Fischbein manufactures extendible, flexible, gravity and motorized conveyors
and portable, nestable and stackable warehouse storage racks. Fischbein's
flexible conveyors are used by retailers for loading and unloading tractor
trailers at store sites and distribution centers. Storage racks are designed
for factory and warehouse storage where flexibility in racking is desired and
are sold to customers in various industries, including retail, distribution,
food, chemical, pharmaceutical and textile. The Company believes it has
significant opportunities to increase Fischbein's revenues by expanding the
product offerings that can be sold through its extensive distribution network
and by making strategic acquisitions. For the twelve months ended June 30,
1998, Fischbein had net revenues of $27.2 million.
COMPETITIVE STRENGTHS
Established Leadership Positions in Niche Markets. The Company believes that
its product quality, customer-driven product development and high levels of
customer service have allowed it to achieve strong market positions and brand
name recognition. Management believes the Company possesses strong market
leadership positions in its primary markets. The Company believes it is: (i)
the largest U.S. supplier and distributor of ATF tools; (ii) the largest U.S.
independent manufacturer of dishwasher racks; (iii) a leading worldwide
manufacturer and marketer of bag closing products and (iv) a leading
manufacturer and marketer of flexible conveyors and storage racks. Ames, which
invented the ATF tool in 1939, continues to be the leader in ATF tool rentals
and sales. Nestaway has been a leading independent supplier of dishwasher
racks to the U.S. dishwasher industry for over 50 years. Fischbein, which
first introduced a portable bag closer in 1943, is consistently recognized as
a leading global supplier of bag closing equipment. The Company believes its
leadership positions will allow it to: (i) broaden its product offerings to
existing customers; (ii) expand its customer base with both new and existing
products and (iii) diversify its geographic coverage to secure new customers
and to meet the needs of existing customers in additional markets.
Diverse Revenue Base. The Company's three business units provide revenue and
cash flow from a diverse base of products, customers and geographic regions.
The Company's products are sold through multiple distribution channels to
customers in over 100 countries in a wide variety of end-use markets. In 1997,
international sales accounted for approximately 15% of the Company's revenues.
This diversity of products and distribution channels provides the Company with
a broad base from which to increase sales and expand customer relationships
and reduces exposure to any particular industry, product market or geographic
region.
Manufacturing Expertise. The Company has a proven track record in product
manufacturing and development in each of its business units. The Company
utilizes this expertise in partnership with its customers both to improve
product performance and to reduce manufacturing costs. Ames invented
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ATF tools and remains the leader in their design and development, and
continues to make its products easier to use, more productive and less costly
to refurbish. Nestaway frequently works directly with its OEM customers to
design and manufacture new dishwasher racks and other formed wire products in
a cost-effective manner. In addition, Nestaway develops and manufactures
custom designed tooling and other equipment used in high volume precision wire
forming, welding and coating, providing Nestaway with the ability to
manufacture quickly and efficiently both new and redesigned products.
Fischbein has successfully developed both new products and new features for
existing products that enhance customer productivity and reduce Fischbein's
manufacturing costs. The Company believes its manufacturing expertise enables
it to strengthen customer loyalty, improve the value of its products and
reduce manufacturing costs.
Established Distribution Networks. The Company has established broad
distribution networks serving both domestic and international markets. Ames'
rental ATF tools are distributed in the U.S. and Canada through over 125
separate and distinct distribution locations and Ames' sold ATF tools are
distributed in the U.S. and Canada through a network of over 250 dealers and
distributors. Fischbein's national and international distribution network
extends to over 100 countries through international and domestic distributors,
dealers and packaging machinery manufacturers. Management believes that its
distribution network provides it with an established base from which to
introduce new products, expand sales of existing product lines and achieve
operating efficiencies.
Proven and Committed Management Team. The Company has assembled a strong and
experienced management team at each of its business units. The Company's
senior operating managers have an average of over 14 years of experience in
their respective industries. Management has successfully enhanced operating
margins through the implementation of various production improvements and cost
cutting initiatives and as a result, EBITDA margins improved from 16.0% in
1993 to 23.0% in 1997.
STRATEGY
The Company's strategy is to increase revenues and cash flow in each of its
business units through both internal growth and by pursuing selective
acquisitions. Management believes the Company's market leadership positions,
brand name recognition, strong customer base, established distribution
networks and manufacturing expertise provide significant growth opportunities
for the Company.
Ames' primary business strategy is to pursue the expansion of ATF tool use
in the factory-built housing market and to continue to convert interior
finishing contractors utilizing traditional hand finishing drywall methods to
the use of ATF tools. With regard to the continued conversion from hand
finishing to ATF tools, management believes there is a significant opportunity
to increase utilization rates in the eastern and midwestern U.S. Ames has
successfully increased its rental revenues in the eastern and midwestern U.S.
at a 15% compound annual growth rate since 1993 and expects to continue to
grow rental revenues in this market. Ames also plans to continue to expand its
presence in the fast growing factory-built housing market which in 1996,
accounted for 32% of all new single family homes and has grown at a compound
annual growth rate of 16% since 1991. Ames has established relationships with
major factory-built housing companies, including Fleetwood Enterprises,
Champion Enterprises and Oakwood Homes, and management believes that the
productivity enhancements associated with ATF tools provide Ames with a
significant opportunity to increase revenues in this market where hand
finishing is predominant.
Nestaway's primary business strategy is to increase sales to existing
dishwasher rack customers and to expand its product offerings of other formed
wire products. Management intends to continue to increase sales to existing
customers by supplying its customers as they expand production in
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domestic and international markets and by further increasing its sales to OEMs
that have in-house manufacturing operations. Nestaway will continue to pursue
new customer relationships, and was recently awarded a new contract with EBS-
Bosch, a leading European manufacturer of high-end dishwashers that has
recently expanded operations in the U.S. In addition to dishwasher racks,
Nestaway continues to focus on providing new formed wire products to new and
existing customers for applications such as sporting goods, home organization,
household products, computer accessories, air conditioning, utility carts and
other formed wire products. Revenues from formed wire products other than
dishwasher racks increased from $4.5 million, or 11% of Nestaway's net
revenues, in 1993 to $11.3 million, or 32% of Nestaway's net revenues, in
1997, a 26% compound annual growth rate. Nestaway plans to pursue an
acquisition strategy that expands its current product offerings by leveraging
Nestaway's core competency of precision wire forming and coating.
Fischbein's primary business strategy is to expand its bagging product
offerings through both new product development and by acquiring companies that
manufacture complementary products in new and existing geographic markets.
Management believes that the Company has a significant opportunity to increase
sales of new products by leveraging its extensive national and international
distribution capabilities and existing customer base. Management also believes
that Fischbein has an opportunity to utilize its existing distribution network
to expand sales of its storage and flexible conveyor products in the
packaging, distribution and delivery industries.
PRODUCTS
Ames. Ames' ATF tools are used in the construction industry by professional
interior finishing contractors to finish and prepare drywall for painting or
other forms of final treatment. ATF tools simultaneously apply joint tape and
compound to all drywall joints and automatically dispense a controlled amount
of joint compound for fast, efficient operation. Ames offers three sizes of
ATF tools for rent to meet the needs of a variety of customers, including the
standard size ("Bazooka(R)"), the short size ("Minizooka(R)"), and the extra
long size ("Maxizooka(TM)"). For drywall finishers that prefer to purchase
their ATF tools, Ames markets ATF tools under the TapeTech(R) and
TapeMaster(R) brand names.
Ames also offers its customers a wide variety of other products used in
drywall finishing including corner rollers, flat finishers, corner finishers,
nail spotters, loading pumps and finisher handles. Corner rollers embed joint
tape firmly into an interior corner or ceiling angle with metal wheels,
forcing out excess compound and leaving the angle ready for finishing. Flat
finishers are used to apply a final coat of joint compound over taped joints
which does not require sanding. Corner finishers remove excess compound,
feathering both sides at once and apply the second coat of compound for inside
corners. Nail spotters apply compound to nail or screw head dimples, preparing
them for painting or other final treatment. Loading pumps are used to fill
Ames' ATF tools, nail spotters and flat finishers with joint compound.
Finisher handles are specifically designed for use with Ames' products and
allows the user to complete most of the taping and finishing work from the
floor instead of using scaffolding or stilts.
In addition, Ames' stores provide its customers with a variety of supplies
and other products including hand finishing drywall tools, drywall finishing
accessories, including spray rigs, power sanders, scaffolds and board handling
devices, and drywall supplies, including compound, paper and mesh joint tape
and corner bead.
Nestaway. Nestaway's products consist of formed, coated and non-coated wire
products used for a variety of commercial and consumer product applications.
Nestaway's primary focus is on producing dishwasher racks for OEMs. Nestaway
also manufactures, on a contract basis, other close tolerance, welded, non-
coated or coated formed wire products such as dishdrainers, sink protectors,
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<PAGE>
shower caddies, dryer racks, golf cart baskets, bucket bails, medical baskets
and small gauge axles. Nestaway's engineers frequently work with each
individual customer to design new or improved products which are tailored to
meet their customer's specific needs.
Fischbein. Fischbein manufactures a variety of bag closing equipment,
flexible conveyors and storage equipment. Fischbein's bag closing products
consist of a variety of hand-held and stationary industrial sewing and sealing
units which utilize portable sewing machines, industrial sewing heads, sewing
systems and heat sealing and handling systems. Portable sewing machines are
hand-held and lightweight for low and moderate volume applications and are
effective in closing a wide variety of bags, including paper and woven
polypropylene. Industrial sewing heads are designed for continuous use in
moderate to high volume applications and are used to close paper, textile and
woven polypropylene bags. Sewing systems consist of pedestal-mounted sewing
heads with integrated conveying capabilities. These systems can be integrated
into new or existing bagging lines and can be fully automated. Heat sealing
and handling systems are generally used for medium to high speed bag closing
and sealing applications. These systems incorporate programmable logic
controllers, pneumatics, airflow and hot melt adhesive technologies, and are
used to close polyethylene bags, paper bags, heat sealable inner liners, pinch
style bags and hot melt adhesive closures. Fischbein also provides service
parts, consumables, accessories, thread and tape used with Fischbein
equipment.
Fischbein also offers flexible conveyors and storage racks marketed under
the Nestaflex(R), Nestainer(R) and Postainer(TM) brand names. Nestaflex(R)
products include a full line of conveyors for a wide variety of material
handling applications where stationary conveyors do not provide adequate
flexibility. These products are used by major retailers for loading and
unloading tractor trailers at store sites, by distribution centers and also in
light manufacturing operations. Nestainer(R) and Postainer(TM) products
consist of large, welded steel racks designed for factory and warehouse
storage and transportation purposes where changes in stored products and
quantities make stationary racking inefficient or impractical. The stackable
and nestable features of both systems maximize vertical storage capacity and
their unique design allows for compact storage when not in use. Nestainer(R)
products are also used as containers for transporting products.
SALES AND MARKETING
The Company markets and sells its broad range of products to a wide variety
of customers through an extensive sales and marketing network which utilizes
full time sales representatives, franchisees and third party distributors.
These sales efforts are enhanced by its product development staff, who work
closely with customers to develop products which are customized to meet their
specific needs.
Ames. Ames' rental tool sales organization consists of over 100 individuals
engaged in sales and marketing activities throughout North America. Ames' ATF
rental tools reach drywall professionals in North America through over 125
distribution locations including 57 Company-managed stores and 53 franchised
operations. Ames sells ATF tools under the TapeTech(R) and Tapemaster(R) brand
names through a network of 263 dealers and distributors.
Ames utilizes franchises, rental stations, field specialists and mobile
operations to support its sales and marketing activities. Franchisees are
typically major drywall and construction material distributors who operate
multiple locations. Under its franchise arrangements, Ames trains franchisee
personnel to demonstrate the advantages of using ATF tools, supplies Ames
owned tools to the franchisee and uses the franchisees' employees to rent Ames
tools to interior drywall finishers. Rental stations are used in locations
where the usage of ATF tools cannot support stand-alone Company- managed
stores. Ames typically operates its rental stores within a drywall
distribution yard owned by a third party. Field specialists, who cover
territories in well marked Ames vans, serve as direct marketers and on-site
trainers, and operate as rental centers for job site customers. An important
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<PAGE>
component of Ames' marketing strategy is the demonstration of the advantages
and techniques of Ames' products for existing and potential customers. In
addition to training conducted by the field specialists during on-site
demonstrations, training is conducted through eight training centers located
at the Company's rental stores.
Nestaway. As a result of Nestaway's focus on large OEMs, senior executives
are directly involved in sales and marketing efforts. Nestaway's sales and
marketing efforts also include technical, engineering and manufacturing
employees who regularly communicate with their counterparts of the OEM
customer. As a result, the Company is able to customize its products to meet
the needs of the customer in a timely and efficient manner with regard to both
product development and assisting OEMs in developing more efficient
manufacturing processes. The Company believes Nestaway's sales and marketing
efforts are substantially enhanced by these inter-organizational
relationships.
Fischbein. Sales and marketing activities relating to Fischbein's bag
closing products are divided into two regions: Western Hemisphere and Eastern
Hemisphere. Western Hemisphere sales and marketing efforts are directed by the
Vice President of Sales and Marketing, a U.S. and Canadian sales manager and a
Latin American sales manager supported by three customer service specialists
and a nine person engineering department. Products are also marketed by 47
independent distributors and dealers, 20 packaging machinery manufacturers and
directly to national accounts. In the Eastern Hemisphere, Fischbein manages a
network of 67 independent distributors and dealers and 53 packaging machinery
manufacturers in Belgium, the United Kingdom, France and Singapore.
Fischbein's flexible conveyors and storage racks sales and marketing efforts
are directed by a sales manager with the assistance of four regional sales
managers and supported by three sales specialists who are focused on sales
support and customer service activities. Products are also sold through more
than 500 independent material handling dealers throughout the U.S. and to a
lesser extent in Canada and Latin America. Fischbein has sales partnership
arrangements with 18 material handling systems manufacturers and sells
directly to national end-user accounts. Fischbein supplements its sales
activity with trade advertising, training, demonstrations, application videos
and product literature and by participation in regional trade shows.
CUSTOMERS
The Company's customers are diversified across each of the Company's
business units. Ames' products are generally used by interior finishing
contractors and Ames currently has over 10,000 active customer accounts.
Nestaway's products are sold to dishwasher manufacturers and other marketers
of formed wire products, including major OEMs such as Maytag, Frigidaire, EBS-
Bosch, Whirlpool/Kitchen Aid and General Electric. The Company's most
significant OEM customer, Maytag, accounted for approximately 20% of the
Company's consolidated revenues in 1997. The Company's customers of other
formed wire products currently include the E-Z Go Division of Textron, Inc.,
Melex International, Allegiance Healthcare and a major consumer products
company. Fischbein's customers include companies in a variety of industries
including the food, chemical, agriculture and other industries.
OPERATIONS
Ames. Ames purchases proprietary ATF tool components from both domestic and
foreign suppliers and either assembles the parts into finished tools in the
Company's service centers or uses the parts to refurbish rental tools. These
tools are then rented or sold through Ames' national distribution network. In
addition, Ames cleans and refurbishes ATF tools at the end of each rental.
Nestaway. Nestaway operates four manufacturing plants which are located near
its major customers. Nestaway's manufacturing operations consist of wire
preparation and forming, welding,
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coating and assembly and packaging. These manufacturing operations are highly
automated and require high tolerance levels. The Company's processes include
the use of robotics, custom designed manufacturing processes and tooling, the
ability to weld up to 412 spots per unit and highly complex coating processes.
Fischbein. Fischbein's manufacturing processes include precision machining,
welding, final assembly and the integration of electronic controls. While most
orders are for standard products, Fischbein also designs and builds custom
systems.
RAW MATERIALS AND SUPPLIERS
The Company purchases steel, metal castings, aluminum and other raw
materials from various suppliers. While all such materials are available from
numerous independent suppliers, commodity raw materials are subject to
fluctuations in price. There can be no assurance that severe shortages of such
materials will not occur in the future, which could increase the cost of or
delay the shipment of the Company's products and have a material adverse
effect on the Company's operating results. Because such materials in the
aggregate constitute significant components of the Company's cost of goods
sold, fluctuations in price could have a material adverse effect on the
Company's results of operations. Historically, the Company has passed on any
increases in prices of raw materials to its customers. However, there can be
no assurance that the Company will continue to be able to do so in the future.
COMPETITION
Each of the business units operates within competitive industries. The
Company is not aware of any single competitor that competes with the Company
along all three business lines.
Ames products compete with alternative methods of drywall finishing and
other products of ATF tool manufacturers and distributors. Ames' most
significant competition is from traditional hand finishing by individual
professional finishers. Ames stores also operate in a highly competitive
environment with respect to the sale of drywall related merchandise which is
generally based on price and convenience. Drywall related merchandise is
available from contractor supply yards, building material retailers and other
sources.
Nestaway's primary independent competitor is Ranger Metal Products. However,
the majority of dishwasher racks are internally manufactured by OEMs. There
can be no assurance that the Company's existing customers will not increase or
establish in-house dishwasher rack manufacturing capacity in the future. In
1996 and 1994, certain dishwasher rack customers decided to produce dishwasher
racks in-house, resulting in a material decline in the Company's revenues. See
"Risk Factors--Reliance on Major Customers" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." General Electric,
Frigidaire and Whirlpool operate in-house dishwasher rack manufacturing
operations. Competition is generally based on quality, flexibility, product
design innovation, manufacturing efficiency and price. Nestaway's other non-
coated and coated formed wire products operate in a highly competitive
environment based on price, quality and delivery capability and includes many
companies, none of which compete with Nestaway across all its product lines.
There can be no assurance the Company will continue to innovate its product
offerings or continue to reduce manufacturing costs. Such inability to
continue to innovate products or pass on manufacturing cost savings pursuant
to contract terms or otherwise could lead to the loss of certain customers or
lower gross margins.
Fischbein competes with a variety of manufacturers, but does not compete
with any one company across all its product lines. In bag closing, Fischbein
competes with Newlong, Union Special and Doboy Packaging Machinery, Inc.
Competition for bag closing products is generally based on price, geographic
location, service, reliability and product innovation. With regard to flexible
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conveyors, Fischbein primarily competes with Best Diversified Products, and
competition is generally based on price and functionality. In storage racks,
Fischbein competes with Jarke Corporation, Tier-Rack and Federal Prison
Industries, and competition is based primarily on price and geographic
location.
ENVIRONMENTAL MATTERS
The Company is subject to various federal, state, local and foreign laws and
regulations governing environmental and employee health and safety matters,
including the handling, the use, discharge and disposal of hazardous materials
and pollutants. The Company believes that the conduct of its operations is in
substantial compliance with current applicable environmental laws and
regulations. Maintaining such compliance in the conduct of its operations has
not had, and is not expected to have, a material adverse effect on the
Company's financial condition or operating results. However, changes in laws
or regulations or other circumstances might, individually or in the aggregate,
have a material adverse effect on the Company's financial condition or
operating results.
On February 25, 1991, the New York State Department of Environmental
Conservation ("NYSDEC") sent a notice letter to the Company alleging that it
had documented the release and/or threatened release of "hazardous substances"
and/or the presence of "hazardous wastes" at a property located in Buffalo,
New York, formerly owned by Bliss and Laughlin Steel Company, a predecessor of
the Company. NYSDEC determined that the Company, among others, may be a
responsible party through its past ownership of the property. The site is
currently listed on the New York State Registry of Inactive Hazardous Waste
Disposal Sites. Environmental consultants engaged by the Company have
established a range of estimated remediation costs of approximately $1.0
million to $3.0 million, plus or minus 30% of those costs. The Company
established an accrual of $3.9 million for the remediation and associated
costs.
In 1997, the Company entered into an agreement with an adjoining landowner,
who is obligated by NYSDEC to address environmental concerns at his property.
By this agreement, the adjoining landowner agreed to accept responsibility for
remediating the property formerly owned by the Company if a particular remedy
for that property is ultimately approved by NYSDEC. On the advice of its
environmental consultants, provided after reviewing available data about the
Company's former property, the Company believes it is likely that NYSDEC will
approve the remedy in question, but the Company can give no assurance that
NYSDEC will in fact offer its approval. The Company paid the $520,000 payable
under the agreement and has an exposure under the agreement of up to an
additional $120,000 if contamination is more widespread than estimated by the
Company's environmental consultants. In the event NYSDEC does not approve the
remedy envisioned in the agreement with the adjoining landowner, the Company
may terminate the agreement and demand the return of its payment with
interest. In that case, the adjoining landowner would no longer be obligated
to undertake the remediation of the property formerly owned by the Company.
Of the consideration paid pursuant to the Merger Agreement, $5 million was
set aside in a special escrow account to cover environmental costs which may
be incurred by the Company in connection with cleanup of the site and any
damages or other required environmental expenditures relating to the site. The
balance in the account, after payment of such costs, will be released to the
former stockholders upon the first to occur of the approval by NYSDEC of the
proposed remediation action or the confirmation by NYSDEC that remediation at
the site has been completed in accordance with its then applicable decision in
the matter (the "Early Release Date"). If, however, the Early Release Date
occurs before the additional $120,000 is paid under the above-described
agreement, the special escrow account will continue as to that $120,000 until
it is paid or it has become clear that no claim will be made for such funds.
In addition, if certain additional specified cleanup activities are not
completed by the Early Release Date, an additional $80,000 will be withheld in
the special escrow account until such cleanup is completed. If all of the
funds in the special escrow account have
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not been released by the third anniversary of the Closing Date, the funds
remaining in the special escrow account will be disbursed to the Company to
cover the remaining estimated costs, with the balance to be distributed to the
former stockholders of the Company, in accordance with an agreement to be
reached by the Stockholder Representative and the Company, or upon failure of
such parties to agree, through an arbitration procedure.
The Company may also make claims against the warranty fund of the escrow
fund for breach of certain representations and warranties in the Merger
Agreement regarding other environmental matters for a period of 24 months
after Closing Date, subject to a specified threshold and deductible.
The Company is aware of other formerly-owned sites at which activities
similar to the operations previously conducted on the Buffalo, New York
property have taken place. However, the Company has received no claims in
connection with those sites, and has no information that would lead it to
believe that any such claim is likely to be made. The Company is also a part-
owner and landlord at a stainless steel and aluminum facility in Commerce,
California that is leased to and operated by an unrelated company. The Company
has received no claims against it in connection with this site, but the
Company cannot rule out the possibility that it might incur some liability
should a claim actually be made against it as current owner of the property.
The Buffalo, New York property formerly owned by the Company was at one time
used to mill uranium rods for the Atomic Energy Commission. The U.S.
Department of Energy has since identified residual radioactivity in a building
at the site. In 1996, the government estimated the costs of addressing the
residual radioactivity at $965,000. Given the available data, the Company and
its environmental consultants believe that a more likely total cost is less
than $100,000. To date, no clean up costs have been assessed against the
Company.
In addition, the Company has retained or assumed certain environmental
liabilities and risks of future liabilities associated with businesses
previously operated or acquired by it, including Bliss and Laughlin Steel
Company. The Company does not believe that these retained or assumed
liabilities and risks would be expected to have a material adverse effect on
the Company's financial condition or operating results. However, changes in
laws or regulations, liabilities identified or incurred in the future, or
other circumstances, might (individually or in the aggregate) have such an
effect.
EMPLOYEES
As of June 30, 1998, the Company had approximately 1,000 employees, of which
approximately 150 were represented by two unions under two contracts which
expire in 1999. The Company believes that its relations with its employees are
satisfactory.
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PROPERTIES AND FACILITIES
The Company believes it has adequate capacity to meet the current
requirements of its customers. The major properties of the Company are listed
below. The Company also leases several offices, two service centers, a
warehouse and 64 stores. These locations are historically leased on a short-
term basis of one to five years to provide maximum flexibility. The business
conducted at these leased locations is relocatable and no individual lease or
location is material to the Company.
<TABLE>
<CAPTION>
SIZE IN
SQ.
LOCATION FEET OWNED/LEASED DESCRIPTION
-------- ------- ------------ -------------------------------
<S> <C> <C> <C>
Garfield Heights,
Cleveland, Ohio.......... 120,000 Owned Fabrication of dishdrainer
racks, wire products and
storage racks and assembly of
flexible conveyors
McKenzie, Tennessee....... 79,000 Owned Fabrication of dishwasher racks
Beaver Dam, Kentucky...... 64,000 Owned Fabrication of dishwasher
racks, dishwasher rack
components and other formed
wire products
Clinton, North Carolina... 60,000 Owned Fabrication of dishwasher racks
Commerce, California(/1/). 54,500 Owned/Leased Subleased
Statesville, North
Carolina(/2/)............ 50,000 Leased Assembly and manufacture of
industrial sewing and packaging
Livermore, machines
California(/3/).......... 27,600 Leased Office and warehouse space for
the manufacture, distribution,
repair and maintenance of ATF
Stone Mountain, tools
Georgia(/2/)............. 18,200 Leased Office and warehouse space for
the manufacture, distribution,
repair and maintenance of ATF
tools
Duluth, Georgia(/4/)...... 11,896 Leased General office
Brussels, Belgium(/5/).... 11,000 Leased Assembly and warehousing of
packaging machines
Hayward, California(/6/).. 8,000 Leased Office, warehouse and parts
distribution
Union City,
California(/6/).......... 5,800 Leased Warehousing, distribution and
assembly of sold ATF tools
Paris, France............. 5,200 Owned Assembly and distribution of
packaging machines
Lombard, Illinois(/6/).... 4,800 Leased General office
</TABLE>
- --------
(1) Property is 50% owned and 50% leased on a monthly basis
(2) Lease expires in 2003
(3) Lease expires in 2008
(4) Lease expires in 2001
(5) Lease expires in 2006
(6) Lease expires in 1999
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LEGAL PROCEEDINGS
The Company is a defendant in a number of lawsuits incidental to its
business. Including the environmental matters discussed above and taking into
account the proceeds held in escrow pursuant to the Merger Agreement, the
Company believes that none of these proceedings, individually, or in the
aggregate, will have a material adverse effect on the Company's financial
condition or operating results. See "--Environmental Matters."
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age and position held by the
directors, and executive officers of AXIA Group and the Company. Each director
is elected for a one year term or until such person's successor is duly
elected and qualified.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Gary L. Rosenthal....... 48 Chairman of the Board
Lyle J. Feye............ 45 Vice President--Finance, Treasurer
and Chief Financial Officer
David H. Chesney........ 55 President and General Manager of Nestaway
Ian G. Wilkins.......... 59 President and General Manager of Fischbein
Robert G. Zdravecky..... 52 President and General Manager of Ames
Susan O. Rheney......... 39 Director
Dennis W. Sheehan....... 64 Director
</TABLE>
Gary L. Rosenthal became Chairman of the Board in July 1998. Mr. Rosenthal
is the President of Heaney Rosenthal, Inc., a private financial organization
specializing in the acquisition of businesses, a position he has held since
1994. From 1990 to 1994, he was Chairman, and in 1994 assumed the additional
titles of Chief Executive Officer and President of Wheatley TXT Corp., a
publicly-traded oilfield equipment manufacturer. From 1988 to 1990, he was a
principal of Sterling. From 1987 to 1988, he was a Senior Vice President of
Cain Chemical, Inc. Mr. Rosenthal currently serves as Chairman of the Board of
Diamond Products International, Inc. and is a director of Texas Petrochemical
Holdings, Inc. Mr. Rosenthal will continue to devote a substantial portion of
his time to Heaney Rosenthal, Inc.
Lyle J. Feye became Vice President--Finance, Treasurer and Chief Financial
Officer of the Company in March 1994. From 1988 to March 1994, Mr. Feye was
Corporate Controller and Assistant Treasurer of the Company. From 1975 to
1988, Mr. Feye served in various positions with the Continental Group Inc.
(formerly the Continental Can Company), including divisional financial and
accounting management.
David H. Chesney became President and General Manager of Nestaway in 1991.
From 1987 to 1991, Mr. Chesney served as General Manager of Lawrence
Industries, a division of Electrolux, an assembler of vacuum cleaners and
manufacturer of vacuum cleaner components, rubber and plastic hoses and
electrical cord sets and harnesses. From 1967 to 1987, Mr. Chesney worked for
General Electric Company where he held a variety of positions, the most recent
being Materials Manager & Quality Assurance Manager with the Major Appliance
Business Group.
Ian G. Wilkins became President and General Manager of Fischbein in May
1994. From 1988 to May 1994, Mr. Wilkins was Chief Operating Officer and
General Manager of HK Metalcraft Manufacturing, a manufacturer of metal
assemblies, components and other precision products primarily for the auto
industry. Mr. Wilkins' responsibilities included supervision of manufacturing,
sales and customer service. From 1984 to 1988, Mr. Wilkins had responsibility
for all operations of Scott Aviation, a Division of Figgie International, as
Vice President of Manufacturing.
Robert G. Zdravecky became President and General Manager of Ames in 1993.
Mr. Zdravecky first joined the Company in 1986 as General Manager of Sales and
Marketing for Ames. He was promoted to Vice President of the Construction Tool
Group, a position he held until 1992, when his
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employment with the Company terminated as a result of the sale of two of the
Company's divisions to The Stanley Works. He rejoined the Company in 1993 in
his current position. From 1981 to 1986, Mr. Zdravecky served as Vice
President-Marketing and Sales with Adhesive Engineering Co.
Susan O. Rheney has been a principal of Sterling since February 1992. She
worked as an independent financial consultant from December 1990 to January
1992. Prior to that time, from June 1987 to November 1990, she was an
associate at Sterling. Ms. Rheney is also a director of Texas Petrochemical
Holdings, Inc.
Dennis W. Sheehan was President and Chief Executive Officer of the Company
from 1984 to July 1998. He joined the Company in 1977 as Vice President,
General Counsel and Secretary. Mr. Sheehan is Chairman of the Board of
Directors of Allied Healthcare Products, Inc., St. Louis, Missouri, a
publicly-traded manufacturer and distributor of healthcare and related
products.
THE BOARD AND CERTAIN BOARD COMMITTEES
The Company's Board supervises the management of the Company as provided by
Delaware law.
AXIA Group's Board expects to establish the following committees:
The Executive Committee, which will possess all the powers and authority
of AXIA Group's Board with respect to the management and direction of the
business and affairs of AXIA Group, except as limited by law.
The Audit Committee, which will recommend independent public accountants
to AXIA Group's Board, review the annual audit reports of AXIA Group and
review the fees paid to AXIA Group's independent public accountants. The
Audit Committee will report its findings and recommendations to the Board
for ratification.
The Compensation Committee, which will be charged with the responsibility
for supervising AXIA Group's executive compensation policies, administering
the employee incentive plans, reviewing officers' salaries, approving
significant changes in executive employee benefits and recommending to the
Board such other forms of remuneration as it deems appropriate.
AXIA Group's Board, acting as a committee of the whole, will have the
responsibility for considering nominations for prospective AXIA Group Board
members. The Board will consider nominees recommended by other AXIA Group
directors, stockholders and management provided that nominations by
stockholders are made in accordance with AXIA Group's by-laws. AXIA Group's
Board may also establish other committees.
COMPENSATION OF DIRECTORS
Directors of AXIA Group and the Company who are not employees of the Company
receive an annual retainer of $15,000 and a fee of $500 for each meeting of
the Board or any committee thereof that they attend. Directors who are also
employees of the Company do not receive Director compensation.
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EXECUTIVE COMPENSATION
The following table sets forth the total value of compensation received by
the Chief Executive Officer and the four most highly compensated executive
officers, other than the Chief Executive Officer, who served as executive
officers of the Company as of December 31, 1997 (the "Named Executive
Officers") for services rendered in all capacities to the Company for the
years ended December 31, 1997, 1996 and 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
OTHER ANNUAL
NAME AND PRINCIPAL POSITION(/1/) YEAR SALARY BONUS(/2/) COMPENSATION(/3/)
-------------------------------- ---- -------- -------- ------------
<S> <C> <C> <C> <C>
Dennis W. Sheehan................ 1997 $336,000 $200,000 $19,837
President and Chief Executive
Officer(/4/) 1996 336,000 200,000 19,626
1995 336,000 100,000 20,243
Lyle J. Feye..................... 1997 $140,500 $ 45,000 $10,210
Vice President--Finance,
Treasurer and 1996 134,208 45,000 10,183
Chief Financial Officer 1995 127,709 28,000 10,150
Robert G. Zdravecky.............. 1997 $171,500 $ 62,640 $11,766
President and General Manager of
Ames 1996 163,333 67,500 11,664
1995 154,165 22,100 10,767
David H. Chesney................. 1997 $166,900 $ 25,000 $ 9,317
President and General Manager of
Nestaway 1996 158,875 114,000 9,202
1995 152,502 67,900 8,731
Ian G. Wilkins................... 1997 $163,083 $ 48,000 $ 8,958
President and General Manager of
Fischbein 1996 155,250 52,000 9,339
1995 145,835 22,100 9,145
</TABLE>
- --------
(1) Since 1994, these individuals have not received any restricted stock
awards or options. None of the executive officers has received
perquisites, the value of which exceeded the lesser of $50,000 or 10% of
the salary and bonus of such executive officer.
(2) The Company provides a bonus plan with bonus payments to be made in cash.
(3) Includes payments for life insurance and automobile allowance.
(4) In connection with the closing of the Transactions, Mr. Sheehan ceased to
serve as President and Chief Executive Officer.
Mr. Rosenthal will receive annual compensation of $150,000 for his services
as Chairman and will be eligible to participate in the Company's bonus plan
and the 1998 Stock Awards Plan (as defined herein).
EMPLOYEE STOCK OWNERSHIP AND 401(K) PLAN
All U.S. salaried and non-bargaining hourly employees, who have provided
service to AXIA Incorporated for one-half of a year and are at least age 21,
may participate in the AXIA Incorporated 401(k) Plan ("401(k) Plan"). The
401(k) Plan is designed to qualify under Section 401(k) of the Internal
Revenue Code of 1986, as amended (the "Code"). Each such employee has the
option to defer taxation of a portion of his or her earnings by directing AXIA
Incorporated to contribute a percentage of earnings to the 401(k) Plan
("Deferral Contributions"). A participant may defer up to 15% of eligible
earnings to the 401(k) Plan, subject to certain limitations set forth in the
401(k) Plan. A participant is always 100% vested in his or her Deferral
Contributions. A participant's Deferral Contributions become distributable
upon the termination of his or her employment for any reason.
In connection with the Transactions, the Company established an Employee
Stock Ownership Plan (the "ESOP"), covering substantially all full time
employees, including executive officers, of the Company who satisfy the
requirements described below. Following the Transactions, the 401(k) Plan
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will be merged into the ESOP, and an employee satisfying the eligibility
requirements under the 401(k) Plan will be able to make Deferral Contributions
to the ESOP as was allowed under the 401(k) Plan. The ESOP borrowed $1.5
million from Finance Co. (the "Company ESOP Loan") to purchase 15,000 shares
of Common Stock at the Closing. Finance Co. funded the Company ESOP Loan from
the ESOP Term Loan. The Company ESOP Loan matures on December 31, 2003 and
bears interest at interest rates based on the Alternative Base Rate (as
defined) or the LIBOR Rate (as defined). The outstanding principal of the
Company ESOP Loan is payable in 22 equal quarterly installments of $68,182
during the period beginning September 30, 1998. The 15,000 shares of Common
Stock purchased by the ESOP are pledged (the "ESOP Pledge") as security for
the Company ESOP Loan, and such shares will be released and allocated to ESOP
participants' accounts as the Company ESOP Loan is discharged. The Company
will make ESOP contributions in amounts sufficient to enable the ESOP to
discharge its indebtedness under the Company ESOP Loan. A percentage of the
shares released under the ESOP Pledge will be allocated to each participant
based on a percentage of such participant's Deferral Contributions ("Matching
Contributions"), and (ii) the remaining percentage of such shares released are
allocated to each participant based on such participant's compensation
relative to total compensation for all ESOP participants ("Discretionary
Contributions"). Until the Company ESOP Loan is paid in full, ESOP
Contributions will be used to pay the outstanding principal and interest on
the Company ESOP Loan. Participation begins as employees satisfy the
eligibility requirements to make Deferral Contributions.
A participant's ESOP account, which is such participant's allocation of
shares based on Matching or Discretionary Contributions, vests at the rate of
20% per year. Distributions from the participant's ESOP account are made in
cash or Common Stock upon a participant's retirement, death, disability or
termination of employment. In the event of retirement, death or disability,
the entire balance of a participant's ESOP account will become distributable
without regard to the ordinary vesting schedule. In the event of termination
of employment for any other reason, the vested portion of a participant's ESOP
account will become distributable and the remaining portion, if any, will be
forfeited. If Common Stock is distributed to a participant, the participant
may, within two 60-day periods, require the Company to purchase all or a
portion of such Common Stock at the fair market value of the Common Stock as
determined under the ESOP (the "Put Options"). The first 60-day period
commences on the date the participant receives a distribution of Common Stock
and the second 60-day period commences a year from such date. If a participant
fails to exercise either of the two Put Options, the participant may transfer
the shares of Common Stock only upon receipt of a bona fide third party offer
and only after first offering the shares to the ESOP and then to the Company.
Employees of the Company own approximately 5.4% of the outstanding Common
Stock through the ESOP.
RETIREMENT PLAN
Substantially all salaried and non-bargaining hourly employees participate
in the AXIA Incorporated Salaried Employees' Retirement Plan. Under the terms
of the Plan, each eligible employee receives a retirement benefit based on the
number of years of credited service with the Company and average total
earnings for the five consecutive years of highest earnings during the fifteen
years preceding termination of employment.
As of December 31, 1997, the number of years of credited service for the
indicated persons are: Mr. Sheehan, 19.08 years; Mr. Feye, 8.33 years; Mr.
Zdravecky, 9.08 years; Mr. Chesney, 5.83 years and Mr. Wilkins, 2.58 years.
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The amounts shown in the following table are estimated annual retirement
benefits (payable as a straight life annuity) for the respective compensation
levels and years of service, after deduction of an offset of anticipated
Social Security benefits as provided under the terms of the Plan:
<TABLE>
<CAPTION>
YEARS OF SERVICE
REMUNERATION 10 15 20 25 30
- ---------------
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$125,000 $22,568 $33,852 $45,136 $56,420 $67,704
$150,000 27,568 41,352 55,136 68,920 82,704
$175,000 32,568 48,852 65,136 81,420 97,704
$200,000 37,568 56,352 75,136 93,920 112,704
$225,000 42,568 63,852 85,136 106,420 127,704
</TABLE>
MEDICAL INSURANCE
Certain Company officers participate in a medical insurance plan covering up
to $100,000 per participant in annual medical expenses. The aggregate benefit
amount paid for such participants totaled $6,287 for 1997.
SALARY CONTINUATION
In order to attract and encourage key executives to remain with the Company,
the Company instituted a salary continuation program which provides certain
key executives with a death benefit, contingent upon employment or service as
a consultant with the Company until retirement or death. Upon the executive's
death, the Company will pay to his designated beneficiary, annually for a
period of ten years, an amount equal to 40% of the executive's current annual
salary or salary at date of retirement. The Company may terminate the death
benefit program and the agreement with any executive at any time prior to the
executive's death, disability or retirement, except that, during the three
year period following certain events involving a "change of control" of the
Company, only a portion of those benefits may be terminated. The Company has
purchased life insurance policies on the lives of the executives, naming the
Company as the sole beneficiary. The amount of such coverage is designed to
provide to the Company a source of funds to satisfy its obligations under the
program. Annual premiums paid in 1997 with respect to Mr. Sheehan, was
approximately $53,839; however, if current assumptions as to mortality
experience, policy dividends and other factors are realized, the Company will
recover, through tax deductions over the life of the program, all of its
payments to the insurance company and the executives. Mr. Sheehan was the last
active executive covered by this program.
MANAGEMENT INCENTIVE COMPENSATION PLAN
The Company has adopted an incentive plan which provides to certain
employees, including the executives listed above, an annual performance bonus.
These bonuses are calculated on the basis of the employee's base annual salary
and percentage eligibility as defined in the plan. Bonuses are paid in the
first quarter of the following year, assuming the Company meets a targeted
earnings improvement, revenues, gross margin, cash flow, and/or such other
measures as may be determined annually by the Company's directors.
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STOCK OPTIONS
The Parent has granted to certain employees stock options providing them the
option to purchase restricted shares of common stock of the Parent aggregating
approximately 4% of the common stock on a fully diluted basis. All stock
options were exercised prior to the closing of the Transactions and the new
stock awards plan described below was adopted.
1998 STOCK AWARDS PLAN
In connection with the closing of the Transactions, the Board of Directors
and the Company's stockholders approved the Company's 1998 Stock Awards Plan
(the "1998 Stock Awards Plan"). The 1998 Stock Awards Plan is intended to
provide employees, consultants and other service providers with an opportunity
to acquire a proprietary interest in AXIA Group and additional incentive and
reward opportunities based on the growth in the Common Stock price of AXIA
Group. The 1998 Stock Awards Plan provides for the granting of options (either
incentive stock options within the meaning of Code Section 422(b), or options
that do not constitute incentive stock options ("non-qualified stock
options")), restricted stock awards, stock appreciation rights, performance
awards and phantom stock awards, or any combination thereof. The number of
shares of Common Stock that may be subject to outstanding awards is 31,111
shares of Common Stock. Shares of Common Stock which are attributable to
awards which have expired, terminated or been canceled or forfeited are
available for issuance or use in connection with future awards.
Administration. The 1998 Stock Awards Plan will be administered by the
Compensation Committee of AXIA Group. The Compensation Committee will have the
power to determine which employees, consultants and other service providers
will receive an award, the time or times when such award will be made, the
type of the award and the number of shares of Common Stock to be issued under
the award or the value of the award. Only persons who at the time of the award
are employees of or service providers to AXIA Group or of any subsidiary of
AXIA Group will be eligible to receive awards under the 1998 Stock Awards
Plan. A director of AXIA Group is not eligible to receive an award under the
1998 Stock Awards Plan unless such director is an employee of AXIA Group or
any of its subsidiaries.
Options. The 1998 Stock Awards Plan provides for two types of options:
incentive stock options and non-qualified stock options. The Compensation
Committee will designate the persons to receive the options, the number of
shares subject to the options and the terms and conditions of each option
granted under the 1998 Stock Awards Plan. The term of any option granted under
the 1998 Stock Awards Plan shall be determined by the Compensation Committee;
provided, however, that an incentive stock option may only be awarded to an
employee and that the term of any incentive stock option cannot exceed ten
years from the date of the grant and any incentive stock option granted to an
employee who possesses more than 10.0% of the total combined voting power of
all classes of shares of AXIA Group or of its subsidiary within the meaning of
Section 422(b)(6) of the Code must not be exercisable after the expiration of
five years from the date of grant. The exercise price of options granted under
the 1998 Stock Awards Plan will be determined by the Compensation Committee;
provided, however, than an incentive stock option exercise price cannot be
less than the fair market value of a share of Common Stock on the date such
option is granted (subject to certain adjustments provided under the 1998
Stock Awards Plan). Further, the exercise price of any incentive stock option
granted to an employee who possesses more than 10.0% of the total combined
voting power of all classes of shares of AXIA Group or of its subsidiaries
within the meaning of Section 422(b)(6) of the Code must be at least 110% of
the fair market value of the Common Stock on the date such option is granted.
The exercise price of options granted under the 1998 Stock Awards Plan will be
paid in full in a manner prescribed by the Compensation Committee.
Restricted Stock Awards. Pursuant to a restricted stock award, Common Stock
will be granted to an eligible person at the time the award is made without
any cash payment to AXIA Group,
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except to the extent otherwise provided by the Compensation Committee or
required by law; provided, however, that such shares will be subject to
certain restrictions on the disposition thereof and certain obligations to
forfeit such shares to the Company as may be determined in the discretion of
the Compensation Committee. The restrictions on disposition may lapse based
upon (a) AXIA Group's attainment of specific performance targets established
by the Compensation Committee that are based on; (i) the fair market value of
a share of Common Stock; (ii) AXIA Group earnings per share; (iii) the
Company's revenue; (iv) the revenue of a business unit of AXIA Group
designated by the Compensation Committee; (v) the return on stockholders'
equity achieved by AXIA Group or (vi) AXIA Group's pre-tax cash flow from
operation (b) the grantee's tenure with AXIA Group, or (c) a combination of
factors. AXIA Group will retain custody of the Common Stock issued pursuant to
a restricted stock award until the disposition restrictions lapse. A grantee
may not sell, transfer, pledge, exchange, hypothecate, or otherwise dispose of
such shares until the expiration of the restriction period. However, upon the
issuance to the grantee of Common Stock pursuant to a restricted stock award,
except for the foregoing restrictions, such grantee will have all the rights
of a stockholder of the Company with respect to such shares, including the
right to vote such shares and to receive all dividends and other distributions
paid with respect to such shares.
Stock Appreciation Rights. A stock appreciation right permits the holder
thereof to receive an amount (in cash, Common Stock, or a combination thereof
(as determined by the Compensation Committee)), equal in value to the number
of stock appreciation rights exercised by the holder multiplied by the excess
of the fair market value of Common Stock on the exercise date over the stock
appreciation rights' exercise price. Stock appreciation rights may or may not
be granted in connection with the grant of an option and no stock appreciation
right may be exercised earlier than six months from the date of grant. A stock
appreciation right may be exercised in whole or in installments and at such
time as determined by the Compensation Committee.
Performance and Phantom Stock Awards. The 1998 Stock Awards Plan permits
grants of performance awards and phantom stock awards, which may be paid in
cash, Common Stock, or a combination thereof as determined by the Compensation
Committee. Performance awards granted under the 1998 Stock Awards Plan will
have a maximum value established by the Compensation Committee at the time of
the grant. A grantee's receipt of such amount will be contingent upon
satisfaction by AXIA Group, or any subsidiary, division or department thereof,
of performance conditions established by the Compensation Committee prior to
the beginning of the performance period. Future performance conditions may be
based on: (i) the price of a share of Common Stock; (ii) AXIA Group's earnings
per share; (iii) the Company's revenue; (iv) the revenue of a business unit of
AXIA Group designated by the Compensation Committee; (v) the return on
stockholder's equity achieved by AXIA Group; (vi) AXIA Group or business
unit's pre-tax cashflow from operations or (vii) a combination of such
factors. Such performance awards, however, may be subject to later revisions
as the Compensation Committee deems appropriate to reflect significant
unforeseen events or changes. A performance award will terminate if the
grantee's employment or service with the Company terminates during the
applicable performance period except as otherwise provided by the Compensation
Committee at the time of grant. Phantom stock awards granted under the 1998
Stock Awards Plan are awards of Common Stock or rights to receive amounts
equal to stock appreciation over a specific period of time. Such awards vest
over a period of time or upon the occurrence of a specific event(s)
established by the Compensation Committee, without payment of any amounts by
the holder thereof (except to the extent required by law) or satisfaction of
any performance criteria or objectives. Future performance conditions may be
based on (i) the price of a share of Common Stock; (ii) AXIA Group's earnings
per share; (iii) AXIA Group's revenue; (iv) the revenue of a business unit of
AXIA Group designated by the Compensation Committee; (v) the return on
stockholder's equity achieved by AXIA Group; (vi) AXIA Group or business
unit's pre-tax cashflow from operations or (vii) a combination of such
factors. A phantom stock award will terminate if the grantee's employment or
service with the Company terminates during the applicable vesting period or,
if applicable, the
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occurrence of a specific event(s), except as otherwise provided by the
Compensation Committee at the time of grant. In determining the value of
performance awards or phantom stock awards, the Compensation Committee must
take into account a grantee's responsibility level, performance, potential,
other awards under the 1998 Stock Awards Plan and such other considerations as
it deems appropriate. Such payment may be made in a lump sum or in
installments as prescribed by the Compensation Committee. Any payment made in
Common Stock will be based upon the fair market value of the Common Stock on
the payment date.
Income Tax Considerations. Upon the exercise of a nonqualified option, the
optionee will recognize ordinary taxable income on the amount by which the
fair market value of the Common Stock purchased exceeds the price paid for
such Common Stock under the option. The Company shall be able to deduct the
same amount for federal income tax purposes. The exercise of an incentive
stock option has no tax consequence to an optionee or the Company. At the time
the restrictions lapse on a restricted stock award, the holder of such award
will recognize ordinary taxable income in an amount equal to the fair market
value of the shares of Common Stock on which the restrictions lapse. The
amount of ordinary taxable income recognized by such holder of a restricted
stock award is deductible by the Company. Upon the exercise of a stock
appreciation right, the holder of such right must include in ordinary taxable
income the amount of cash or the fair market value of the shares of Common
Stock received. The amount of ordinary taxable income recognized by such
holder of the stock appreciation right is deductible by the Company. A holder
of a performance award or a phantom stock award will include in his or her
ordinary taxable income the fair market value of the shares of Common Stock
related to such award when the holder's rights in such award first becomes
transferable or is no longer subject to a substantial risk of forfeiture. The
amount of ordinary taxable income recognized by the holder of either award is
deductible by the Company.
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RELATED TRANSACTIONS
Sterling entered into an agreement with AXIA Group and Acquisition Co.
pursuant to which Sterling is to provide consulting and advisory services with
respect to the organization of AXIA Group, Acquisition Co. and Finance Co.,
the structuring of the Transactions, employee benefit and compensation
arrangements and other matters. The agreement also provides that AXIA Group
and Acquisition Co., jointly and severally, will indemnify Sterling against
liabilities relating to its services. At the Closing, the Company paid
Sterling a one-time transaction fee of $2.5 million for these services, and
reimbursed Sterling for its expenses. From the transaction fee received at
Closing, Sterling paid Gary Rosenthal a fee of $250,000 for consulting
services rendered in connection with the Transactions, and AXIA Group and the
Company will indemnify Mr. Rosenthal against liabilities related to his
services. In addition, through 2008 AXIA Group will pay Sterling an annual
management fee of $100,000 in cash and annually grant Sterling AXIA Group
Common Stock having a value of $100,000 calculated based upon the latest ESOP
valuation price. In addition, each of AXIA Group, and Acquisition Co. has
agreed that if any one or more of them or any of their subsidiaries determines
within ten years of the date of the closing of the Acquisition to dispose of
or acquire any assets or business having a value of $1 million or more (a
"Future Corporate Transaction") or to offer its securities for sale publicly
or privately to raise any debt or equity financing (a "Future Securities
Transaction"), either AXIA Group, Acquisition Co., or the relevant subsidiary
will retain Sterling as a consultant with respect to the transaction, provided
a principal, officer or director of Sterling or any of their respective
affiliates or family members owns any equity securities of AXIA Group or any
of its successors. For any Future Corporate Transactions, Sterling is entitled
to receive a fee in the amount of 1% of the aggregate consideration paid or
received plus the aggregate amount of any liabilities assumed in connection
with an acquisition or disposition and reimbursement of any expenses or fees
incurred by Sterling in connection therewith. For any Future Securities
Transactions, Sterling is entitled to receive a fee in the amount of 0.5% of
the aggregate gross selling price of such securities and, regardless of
whether such Future Securities Transaction is consummated, Sterling is
entitled to receive reimbursements of any expenses or fees incurred by
Sterling in connection therewith. The agreement is automatically renewable for
successive one-year periods, subject to notice of termination by either
Sterling or AXIA Group.
AXIA Group, Acquisition Co. and Finance Co. were organized by Sterling for
the purpose of effecting the Acquisition. Ms. Susan Rheney, a principal of
Sterling, is a director of AXIA Group, Acquisition Co. and the Company. See
"Management." Ms. Rheney, Mr. Hevrdejs and Mr. Oehmig, all associated with
Sterling, purchased 5,000 shares, 25,000 shares and 16,500 shares,
respectively, of AXIA Group Common Stock as part of the Equity Investment.
Additionally, Messrs. Chesney, Feye, Sheehan, Wilkins, Zdravecky and Rosenthal
(or a trust for his descendants) purchased 3,750 shares, 3,000 shares, 4,000
shares, 2,500 shares, 3,500 shares and 10,000 shares, respectively, of AXIA
Group Common Stock as part of the Equity Investment. All such purchases of
Common Stock were made at a price of $100 per share, the same price at which
all shares were sold in the Equity Investment referred to above. See
"Beneficial Ownership."
Messrs. Chesney, Feye, Wilkins and Zdravecky will receive proceeds from the
sale of stock of the Parent or stock option proceeds, or both, and payments
pursuant to various employee incentive bonus programs of approximately $2.0-
$2.4 million each. Mr. Sheehan will receive proceeds from the sale of stock of
the Parent and a payment pursuant to an employee incentive bonus program of
approximately $10.8 million.
Mr. Sheehan (the "Rollover Investor") contributed to AXIA Group
approximately $400,000 of existing shares of the Parent in exchange for shares
of AXIA Group's Common Stock. The Common Stock was valued at $100 per share,
the same price at which all shares were sold in the Equity Investment referred
to above. The merger consideration described in the "The Transactions" was
proportionately reduced.
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BENEFICIAL OWNERSHIP
The following table sets forth as of October 1, 1998, the number and
percentage of the outstanding shares of AXIA Group's Common Stock beneficially
owned by the ESOP, the Named Executive Officers, each director of AXIA Group
and the Company, all directors and officers as a group and each person who is
the beneficial owner of more than 5% of the outstanding Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE % OF
OF BENEFICIAL OWNERSHIP OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER OF COMMON STOCK COMMON STOCK
------------------------------------ ----------------------- ------------
<S> <C> <C>
David H. Chesney...................... 3,750 1.3%
9501 Granger Rd.
Cleveland, Ohio 44125
Lyle J. Feye.......................... 3,000 1.1%
100 West 22nd Street, Suite 134
Lombard, Illinois 60148
Susan O. Rheney....................... 5,000 1.8%
Eight Greenway Plaza, Suite 702
Houston, Texas 77046
Gary L. Rosenthal..................... 4,975(1) 1.8%
Eight Greenway Plaza, Suite 714
Houston, Texas 77046
Dennis W. Sheehan..................... 4,000 1.4%
100 West 22nd Street, Suite 134
Lombard, Illinois 60148
Ian G. Wilkins........................ 2,500 0.9%
151 Walker Road
Statesville, North Carolina 28625
Robert G. Zdravecky................... 3,500 1.3%
3305 Breckinridge Blvd., Suite 122
Duluth, Georgia 30096
All directors and Named Executive
Officers
as a group (7 persons)............... 28,750 10.3%
The CIT Group/Equity Investments,
Inc.................................. 25,000 8.9%
650 CIT Drive
Livingston, New Jersey 07039
Fayez Sarofim Investment Partnership
No. 7, L.P........................... 25,000 8.9%
Two Houston Center, Suite 2907
Houston, Texas 77010
Frank J. Hevrdejs..................... 25,000 8.9%
Eight Greenway Plaza, Suite 702
Houston, Texas 77046
Paribas North America................. 25,000 8.9%
787 Seventh Avenue
New York, New York 10019
Gordon A. Cain........................ 17,500 6.3%
Eight Greenway Plaza, Suite 702
Houston, Texas 77046
William C. Oehmig..................... 10,400 3.7%
Eight Greenway Plaza, Suite 702
Houston, Texas 77046
AXIA Incorporated Employee Stock
Ownership Plan ...................... 15,000 5.4%
</TABLE>
- --------
(1) Does not include 3,000 shares held in trust for Mr. Rosenthal's
descendants. Mr. Rosenthal disclaims beneficial ownership of such shares.
Any shares of Common Stock acquired by the ESOP in the Equity Investment
will be voted by the trustee of the ESOP (the "ESOP Trustee") pursuant to the
direction of the Board of Directors or by a committee to be designated by the
Board of Directors, except that participants will be entitled to direct the
ESOP Trustee to vote the shares of Common Stock allocated to their accounts
with respect to the approval or disapproval of any corporate merger or
consolidation, recapitalization, reclassification, liquidation, dissolution,
sale of substantially all assets of a trade or business or such similar
transaction as may be prescribed in regulations under the Code.
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DESCRIPTION OF THE BANK CREDIT AGREEMENT
GENERAL
Finance Co. and the Company entered into the Bank Credit Agreement with a
syndicate of lenders (the "Lenders"), and Paribas, as Agent for such Lenders
(the "Agent"), to make the initial borrowings described below on the Closing
Date. The following description summarizes the material provisions of the Bank
Credit Agreement and does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, the provisions of the Bank Credit
Agreement. All capitalized terms in this "Description of the Bank Credit
Agreement" section not defined in this Prospectus have the meanings assigned
thereto in the Bank Credit Agreement.
The Bank Credit Agreement provides for secured facilities consisting of a
$35 million Term Loan, a $1.5 million ESOP Term Loan, a $15 million Revolving
Credit Facility and a $25 million Acquisition Facility.
The Bank Credit Agreement permits, at the option of the Company, the
issuance of letters of credit in principal amounts of up to $2.0 million.
Borrowings under the Revolving Credit Facility will be subject to a borrowing
base consisting of the sum of (i) 85% of Eligible Domestic Accounts; (ii) 70%
of Eligible Foreign Accounts; and (iii) 60% of Eligible Inventory (the
"Borrowing Base"). Finance Co. used the proceeds of borrowings under the Bank
Credit Agreement to finance a portion of the purchase price of the
Acquisition, to repay existing indebtedness of the Company, and to pay a
portion of the fees and expenses related to the Transactions. Finance Co. also
borrowed the full amount of the ESOP Term Loan and then lent such amount to
the ESOP. The ESOP then used those funds to purchase Common Stock at the
Closing.
The Revolving Credit Facility, Acquisition Facility, Term Loan and ESOP Term
Loan (collectively, the "Loans") may bear interest at an Alternate Base Rate,
based in part on a Prime Rate, or at a LIBOR Rate, in each case plus an
applicable margin, which is initially 2.25% for LIBOR Rate Advances and 1.00%
for Alternate Base Rate Advances. The applicable margin may be adjusted based
on the ratio of Total Debt to EBITDA and will range from 0% to 1.00% for
Alternate Base Rate Advances and 1.00% to 2.25% for LIBOR Rate Advances. The
default rate is the sum of the Alternate Base Rate or LIBOR Rate plus the
applicable margin plus 2.00%.
AMORTIZATION; PREPAYMENTS
All principal and interest on the Loans are due in 2004, except the ESOP
Term Loan, which is due in 2002, and are subject to certain mandatory
prepayments and scheduled payments. Accrued interest under the Loans is due
quarterly (and at the end of the relevant interest period in the case of LIBOR
Rate Advances). The Term Loan matures June 30, 2004 with quarterly
amortization payments commencing December 31, 1998. Certain amounts of
principal on notes issued under the Acquisition Facility are due on the last
day of each September, December, March and June, from September 2001 to June
2004. The Bank Credit Agreement allows prepayments with notice and
reimbursement for certain costs, and requires prepayments to the extent cash
proceeds from certain events exceed amounts determined by certain formulas.
The Acquisition Facility Loans are subject to certain conditions precedent,
including delivering certain information to the Lenders about the proposed
acquisition, the delivery of guarantees and security documents as to the
proposed acquisition and the conformance of the acquisition to certain
criteria.
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FEES, EXPENSES AND COSTS
The Bank Credit Agreement requires the Company to pay the following fees:
(i) commitment fees to be paid to the Lenders in amounts equal to 0.375% of
the average daily unused amount under the Revolving Credit Facility and
Acquisition Facility, payable quarterly in arrears until such time as such
commitments thereunder are terminated; (ii) letter of credit fees and (iii)
administration fees payable annually to the Agent. In addition, the Company
paid various underwriting and arrangement fees and closing costs on the
Closing Date in connection with the origination and syndication of the Bank
Credit Agreement and other customary fees and expenses.
COVENANTS
The Bank Credit Agreement contains restrictive covenants limiting the
ability (subject to certain exceptions) of the Company and its Subsidiaries
to, among other things: (i) incur debt or contractual contingent obligations;
(ii) pay certain subordinated debt or amend subordinated debt documents
without the prior consent of the Lenders; (iii) create or allow to exist liens
or other encumbrances; (iv) transfer assets outside the Company except for
sales and other transfers of inventory or surplus, immaterial or obsolete
assets in the ordinary course of business of the Company; (v) enter into
mergers, consolidations and asset dispositions of all or substantially all of
its properties; (vi) make Investments; (vii) sell, transfer or otherwise
dispose of any class of stock or the voting rights of any subsidiary of the
Company; (viii) enter into transactions with related parties other than in the
ordinary course of business on an arm's-length basis on terms no less
favorable to the Company than those available from third parties; (ix) amend
certain agreements, unless such amendment is not expected to have a Material
Adverse Effect; (x) make any material change in the general nature of the
business conducted by the Company; (xi) pay cash dividends or redeem shares of
capital stock; (xii) make capital expenditures and (xiii) pay dividends or
repurchase stock.
Under the Bank Credit Agreement, the Company is required to satisfy the
following financial covenants: (i) a Fixed Charge Coverage Ratio of at least
1.05 to 1; (ii) a minimum Net Worth test (a) at September 30, 1998 of at least
$24 million and (b) at each quarter thereafter of at least $24 million plus
75% of positive net income plus 75% of any equity offering; (iii) a ratio of
Total Debt to EBITDA (a) at each quarter until June 30, 2001 of 5.75 to 1 and
(b) declining annually thereafter to 5.5 to 1 and 5.25 to 1; and (iv) a
Minimum Interest Coverage Ratio (a) at December 31, 1999 of at least 1.75 to 1
and (b) increasing thereafter semiannually to 1.85 to 1 and 1.95 to 1.
SECURITY; GUARANTIES
Obligations under the Bank Credit Agreement are guaranteed by the same
Subsidiaries that guarantee the Notes, and are secured by a first priority
lien on the capital stock of the Company and its Subsidiaries and on
substantially all of the assets of such companies (other than foreign
subsidiaries).
EVENTS OF DEFAULT
Events of Default under the Bank Credit Agreement include, subject to
applicable notice, grace and cure periods, the following: (i) a default in the
payment when due of any principal, interest or fees under the Bank Credit
Agreement; (ii) a default by the Company under any debt instruments in excess
of a certain amount, or the occurrence of any event or condition that enables
the holder of such debt to accelerate the maturity thereof; (iii) any material
breach of any representation, warranty or statement in, or failure to perform
any duty or covenant under the Bank Credit Agreement or any of the other Loan
Documents; (iv) commencement of voluntary or involuntary bankruptcy,
insolvency or similar proceedings by or against AXIA Group, the Company or any
subsidiary thereof; (v) the Loans cease to be secured by substantially all of
the assets of the Company and its domestic subsidiaries; (vi) material
defaults related to employee benefits plans subject to the Employee Retirement
Income Security Act of 1974, as amended; (vii) any uninsured judgment or order
in excess of a certain amount
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remaining undischarged or unstayed for longer than certain periods; (viii) a
default by the Company in the payment when due of principal, interest or
premium, if any, on the Notes, or the failure to observe, perform or comply
with any agreement beyond any grace period with respect thereto that enables
the holder of such debt to accelerate the maturity thereof or the Company
becoming obligated to redeem, repurchase, or repay all or any portion of any
principal, interest or premium on the Notes prior to its scheduled payment and
(ix) the occurrence of any change of control.
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DESCRIPTION OF THE NOTES
The Notes will be issued under an Indenture (the "Indenture") dated as of
July 22, 1998 among the Company, Finance Co., the Guarantors and State Street
Bank and Trust Company, as trustee (the "Trustee"). The following summary of
certain provisions of the Indenture and the Registration Rights Agreement does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"), and to all of the provisions of the Indenture and the
Registration Rights Agreement, including the definitions of certain terms
therein and those terms made a part of the Indenture by reference to the Trust
Indenture Act, as in effect on the date of the Indenture. The definitions of
certain capitalized terms used in the following summary are set forth below
under "Certain Definitions."
GENERAL
The Notes will be issued only in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. See "Book Entry;
Delivery and Form." The Company has appointed the Trustee to serve as
registrar and paying agent under the Indenture at its offices in the Borough
of Manhattan, the City of New York. No service charge will be made for any
registration of transfer or exchange of the Notes, except for any tax or other
governmental charge that may be imposed in connection therewith.
RANKING
The Notes will rank junior to, and be subordinated in right of payment to,
all existing and future Senior Indebtedness of the Company, pari passu in
right of payment with all senior subordinated Indebtedness of the Company and
senior in right of payment to all Subordinated Indebtedness of the Company. At
June 30, 1998, on a pro forma basis after giving effect to the Transactions,
the Company would have had approximately $39.7 million of Senior Indebtedness
outstanding. All debt incurred under the Bank Credit Agreement will be Senior
Indebtedness of the Company, will be guaranteed by each of the Guarantors on a
senior basis and will be secured by substantially all of the assets of the
Company and the Guarantors.
MATURITY, INTEREST AND PRINCIPAL OF THE NOTES
The maximum aggregate principal amount of Notes to be issued under the
Indenture will be $150.0 million, of which an aggregate principal amount of
$100.0 million of Original Notes were issued. Additional Notes may be issued
from time to time subject to the limitations set forth under "Certain
Covenants--Limitation on Indebtedness." The Notes will mature on July 15,
2008. Cash interest on the Notes will accrue at a rate of 10 3/4% per annum
and will be payable semi-annually in arrears on each January 15 and July 15,
commencing January 15, 1999, to the Holders of record of Notes at the close of
business on the January 1 and July 1, respectively, immediately preceding such
interest payment date. Cash interest will accrue from the most recent interest
payment date to which interest has been paid or, if no interest has been paid,
from July 22, 1998. Interest will be computed on the basis of a 360-day year
of twelve 30-day months.
OPTIONAL REDEMPTION
The Notes will be redeemable at the option of the Company, in whole or in
part, at any time on or after July 15, 2003, at the redemption prices
(expressed as a percentage of principal amount) set forth below, plus accrued
and unpaid interest thereon, if any, to the redemption date (subject to the
right of Holders of record on the relevant record date to receive interest due
on the relevant interest payment date), if redeemed during the twelve-month
period beginning on July 15 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2003........................................................... 105.375%
2004........................................................... 103.583%
2005........................................................... 101.792%
2006 and thereafter............................................ 100.000%
</TABLE>
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In addition, at any time and from time to time on or prior to July 15, 2001,
the Company may redeem in the aggregate up to 35% aggregate principal amount
of the Notes with the net proceeds of one or more Public Equity Offerings by
the Company or AXIA Group at a redemption price (expressed as a percentage of
principal amount) equal to 110.75% of the principal amount thereof, plus
accrued and unpaid interest thereon, if any, to the date of redemption;
provided, however, that at least 65% aggregate principal amount of the Notes
must remain outstanding immediately after giving effect to each such
redemption (excluding any Notes held by the Company or any of its Affiliates);
provided, further, that if the Public Equity Offering is by AXIA Group, the
proceeds thereof to be used to redeem the Notes shall have been contributed as
common equity or as a capital contribution to the Company on or prior to the
date of redemption. Notice of any such redemption must be given within 60 days
after the date of the closing of the relevant Public Equity Offering of the
Company.
The Bank Credit Agreement prohibits the Company from making an optional
redemption of the Notes without the consent of the Lenders.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Notes are to be redeemed at any time
pursuant to an optional redemption, selection of such Notes for redemption
will be made by the Trustee in compliance with the requirements of the
principal national securities exchange, if any, on which the Notes are listed
or, if the Notes are not then listed on a national securities exchange, on a
pro rata basis, by lot or by such method as the Trustee shall deem fair and
appropriate; provided, however, that no Notes of a principal amount of $1,000
or less shall be redeemed in part; provided, further, however, that if a
partial redemption is made with the net cash proceeds of a Public Equity
Offering by the Company, selection of the Notes or portions thereof for
redemption shall be made by the Trustee only on a pro rata basis or on as
nearly a pro rata basis as is practicable (subject to the procedures of The
Depository Trust Company), unless such method is otherwise prohibited. Notice
of redemption shall be mailed by first-class mail at least 30 but not more
than 60 days before the redemption date to each Holder of Notes to be redeemed
at its registered address. See "Book Entry; Delivery and Form." If any Note is
to be redeemed in part only, the notice of redemption that relates to such
Note shall state the portion of the principal amount thereof to be redeemed. A
new Note in a principal amount equal to the unredeemed portion thereof will be
issued in the name of the Holder thereof upon cancellation of the original
Note. On and after the redemption date, interest will cease to accrue on Notes
or portions thereof called for redemption as long as the Company has deposited
with the paying agent for the Notes funds in satisfaction of the applicable
redemption price pursuant to the Indenture.
SUBORDINATION OF THE NOTES
The payment of the principal of, premium, if any, and interest on the Notes
is subordinated in right of payment, to the extent and in the manner provided
in the Indenture, to the prior payment in full in cash of all Senior
Indebtedness.
Upon any payment or distribution of assets or securities of the Company of
any kind or character, whether in cash, property or securities (excluding any
payment or distribution of Permitted Junior Securities and excluding any
payment from the trust described under "Satisfaction and Discharge of
Indenture; Defeasance" (a "Defeasance Trust Payment")), upon any dissolution
or winding-up or total liquidation or reorganization of the Company, whether
voluntary or involuntary or in bankruptcy, insolvency, receivership or other
proceedings, all Senior Indebtedness shall first be paid in full in cash
before the Holders of the Notes or the Trustee on behalf of such Holders shall
be entitled to receive any payment by the Company of the principal of,
premium, if any, or interest on the Notes, or any payment by the Company to
acquire any of the Notes for cash, property or securities, or any distribution
by the Company with respect to the Notes of any cash, property or securities
(excluding
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any payment or distribution of Permitted Junior Securities and excluding any
Defeasance Trust Payment). Before any payment may be made by, or on behalf of,
the Company of the principal of, premium, if any, or interest on the Notes
upon any such dissolution or winding-up or total liquidation
or reorganization, any payment or distribution of assets or securities of the
Company of any kind or character, whether in cash, property or securities
(excluding any payment or distribution of Permitted Junior Securities and
excluding any Defeasance Trust Payment), to which the Holders of the Notes or
the Trustee on their behalf would be entitled, but for the subordination
provisions of the Indenture, shall be made by the Company or by any receiver,
trustee in bankruptcy, liquidation trustee, agent or other Person making such
payment or distribution, directly to the holders of the Senior Indebtedness
(pro rata to such holders on the basis of the respective amounts of Senior
Indebtedness held by such holders) or their representatives or to the trustee
or trustees or agent or agents under any agreement or indenture pursuant to
which any of such Senior Indebtedness may have been issued, as their
respective interests may appear, to the extent necessary to pay all such
Senior Indebtedness in full in cash after giving effect to any prior or
concurrent payment, distribution or provision therefor to or for the holders
of such Senior Indebtedness.
No direct or indirect payment (excluding any payment or distribution of
Permitted Junior Securities and excluding any Defeasance Trust Payment) by or
on behalf of the Company of principal of, premium, if any, or interest on the
Notes, whether pursuant to the terms of the Notes, upon acceleration, pursuant
to an Offer to Purchase or otherwise, will be made if, at the time of such
payment, there exists a default in the payment of all or any portion of the
obligations on any Designated Senior Indebtedness, whether at maturity, on
account of mandatory redemption or prepayment, acceleration or otherwise, and
such default shall not have been cured or waived or the benefits of this
sentence waived by or on behalf of the holders of such Designated Senior
Indebtedness. In addition, during the continuance of any non-payment event of
default with respect to any Designated Senior Indebtedness pursuant to which
the maturity thereof may be immediately accelerated, and upon receipt by the
Trustee of written notice (a "Payment Blockage Notice") from the holder or
holders of such Designated Senior Indebtedness or the trustee or agent acting
on behalf of the holders of such Designated Senior Indebtedness, then, unless
and until such event of default has been cured or waived or has ceased to
exist or such Designated Senior Indebtedness has been discharged or repaid in
full in cash or the benefits of these provisions have been waived by the
holders of such Designated Senior Indebtedness, no direct or indirect payment
(excluding any payment or distribution of Permitted Junior Securities and
excluding any Defeasance Trust Payment) will be made by or on behalf of the
Company of principal of, premium, if any, or interest on the Notes, to such
Holders, during a period (a "Payment Blockage Period") commencing on the date
of receipt of such notice by the Trustee and ending 179 days thereafter.
Notwithstanding anything in the subordination provisions of the Indenture or
the Notes to the contrary, (x) in no event will a Payment Blockage Period
extend beyond 179 days from the date the Payment Blockage Notice in respect
thereof was given, (y) there shall be a period of at least 181 consecutive
days in each 360-day period when no Payment Blockage Period is in effect and
(z) not more than one Payment Blockage Period may be commenced with respect to
the Notes during any period of 360 consecutive days. No event of default that
existed or was continuing on the date of commencement of any Payment Blockage
Period with respect to the Designated Senior Indebtedness initiating such
Payment Blockage Period (to the extent the holder of Designated Senior
Indebtedness, or trustee or agent, giving notice commencing such Payment
Blockage Period had knowledge of such existing or continuing event of default)
may be, or be made, the basis for the commencement of any other Payment
Blockage Period by the holder or holders of such Designated Senior
Indebtedness or the trustee or agent acting on behalf of such Designated
Senior Indebtedness, whether or not within a period of 360 consecutive days,
unless such event of default has been cured or waived for a period of not less
than 90 consecutive days.
The failure to make any payment or distribution for or on account of the
Notes by reason of the provisions of the Indenture described under this
"Subordination of the Notes" heading will not be
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construed as preventing the occurrence of any Event of Default in respect of
the Notes. See "Events of Default" below.
By reason of the subordination provisions described above, in the event of
insolvency of the Company, funds which would otherwise be payable to Holders
of the Notes will be paid to the holders of Senior Indebtedness to the extent
necessary to pay the Senior Indebtedness in full in cash, and the Company may
be unable to meet fully its obligations with respect to the Notes.
Subject to the restrictions set forth in the Indenture, in the future the
Company may issue additional Senior Indebtedness to refinance existing
Indebtedness or for other corporate purposes.
GUARANTEES OF THE NOTES
The Indenture provides that each of the Guarantors will unconditionally
guarantee on a joint and several basis (the "Guarantees") all of the Company's
obligations under the Notes, including its obligations to pay principal,
premium, if any, and interest with respect to the Notes. The Guarantors will
also be guaranteeing all obligations of the Company under the Bank Credit
Agreement, and each Guarantor will be granting a security interest in all or
substantially all of its assets to secure the obligations under the Bank
Credit Agreement. The obligations of each Guarantor are limited to the maximum
amount which, after giving effect to all other contingent and fixed
liabilities of such Guarantor and after giving effect to any collections from
or payments made by or on behalf of any other Guarantor in respect of the
obligations of such other Guarantor under its Guarantee or pursuant to its
contribution obligations under the Indenture, will result in the obligations
of such Guarantor under its Guarantee not constituting a fraudulent conveyance
or fraudulent transfer under Federal or state law. Each Guarantor that makes a
payment or distribution under a Guarantee shall be entitled to a contribution
from each other Guarantor in a pro rata amount based on the net assets of each
Guarantor determined in accordance with GAAP. Except as provided in "Certain
Covenants" below, the Company is not restricted from selling or otherwise
disposing of any of the Equity Interests of the Guarantors.
The Indenture provides that each of the Company's Subsidiaries (excluding
Unrestricted Subsidiaries and Foreign Subsidiaries) on the Issue Date and each
of the Company's Subsidiaries (excluding Unrestricted Subsidiaries and Foreign
Subsidiaries) formed or acquired thereafter are required to be Guarantors. The
Company shall cause each Restricted Subsidiary issuing a Guarantee after the
Issue Date to (i) execute and deliver to the Trustee a supplemental indenture
in form reasonably satisfactory to the Trustee pursuant to which such
Restricted Subsidiary shall become a party to the Indenture and thereby
unconditionally guarantee all of the Company's Obligations under the Notes and
the Indenture on the terms set forth therein and (ii) deliver to the Trustee
an opinion of counsel that such supplemental indenture has been duly
authorized, executed and delivered by such Restricted Subsidiary and
constitutes a legal, valid, binding and enforceable obligation of such
Restricted Subsidiary (which opinion may be subject to customary assumptions
and qualifications). Thereafter, such Restricted Subsidiary shall (unless
released in accordance with the terms of this Indenture) be a Guarantor for
all purposes of the Indenture.
The Indenture provides that if the Notes thereunder are defeased in
accordance with the terms of the Indenture, or if, subject to the requirements
of the first paragraph under "Certain Covenants--Merger, Sale of Assets,
Etc.," all or substantially all of the assets of any Guarantor or all of the
Equity Interests of any Guarantor are sold (including by issuance or
otherwise) by the Company in a transaction constituting an Asset Sale, and if
(x) the Net Cash Proceeds from such Asset Sale are used in accordance with the
covenant described under "Certain Covenants--Disposition of Proceeds of Asset
Sales" or (y) the Company delivers to the Trustee an Officers' Certificate
representing that the Net Cash Proceeds from such Asset Sale shall be used in
accordance with the covenant described under "Certain Covenants--Disposition
of Proceeds of Asset Sales" and within the time limits specified by such
covenant, then such Guarantor (in the event of a sale or other disposition of
all of the Equity Interests of such Guarantor) or the corporation acquiring
such assets (in the event of
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a sale or other disposition of all or substantially all of the assets of such
Guarantor) shall be automatically and unconditionally released and discharged
of its Guarantee obligations in respect of the Indenture and the Notes.
The Guarantees will be general unsecured obligations of the Guarantors. The
obligations of each Guarantor under its Guarantee will be subordinated and
junior in right of payment to the prior payment in full of all existing and
future Guarantor Senior Indebtedness of such Guarantor to substantially the
same extent as the Notes are subordinated to all existing and future Senior
Indebtedness. In particular, the Guarantee will rank subordinate to the
Guarantor's guarantee of obligations under the Bank Credit Agreement.
Any Guarantor that is designated an Unrestricted Subsidiary pursuant to and
in accordance with "Certain Covenants--Designation of Unrestricted
Subsidiaries" below shall upon such Designation be released and discharged of
its Guarantee obligations in respect of the Indenture and the Notes and any
Unrestricted Subsidiary (other than a Foreign Subsidiary) whose Designation is
revoked pursuant to "Certain Covenant--Designation of Unrestricted
Subsidiaries" below will be required to become a Guarantor in accordance with
the procedure described in the third preceding paragraph.
OFFER TO PURCHASE UPON CHANGE OF CONTROL
Following the occurrence of a Change of Control (the date of such occurrence
being the "Change of Control Date"), the Company shall notify the Holders of
the Notes of such occurrence in the manner prescribed by the Indenture and
shall, within 30 days after the Change of Control Date, make an Offer to
Purchase all Notes then outstanding, and shall purchase all Notes validly
tendered, at a purchase price in cash equal to 101% of the aggregate principal
amount thereof, plus accrued and unpaid interest thereon, if any, to the
Purchase Date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date).
If a Change of Control occurs which also constitutes an event of default
under the Bank Credit Agreement, the lenders under the Bank Credit Agreement
will be entitled to exercise the remedies available to a secured lender under
applicable law and pursuant to the terms of the Bank Credit Agreement.
Accordingly, any claims of such lenders with respect to the assets of the
Company will be prior to any claim of the Holders of the Notes with respect to
such assets.
If an Offer to Purchase is made, there can be no assurance that the Company
will have available funds sufficient to pay for all of the Notes that might be
tendered by Holders of Notes seeking to accept the Offer to Purchase. If the
Company fails to repurchase all of the Notes tendered for purchase, such
failure will constitute an Event of Default under the Indenture. See "Events
of Default" below.
If the Company makes an Offer to Purchase, the Company will comply with all
applicable tender offer laws and regulations, including, to the extent
applicable, Section 14(e) and Rule 14e-1 under the Exchange Act, and any other
applicable Federal or state securities laws and regulations and any applicable
requirements of any securities exchange on which the Notes are listed, and any
violation of the provisions of the Indenture relating to such Offer to
Purchase occurring as a result of such compliance shall not be deemed an Event
of Default or an event that, with the passing of time or giving of notice, or
both, would constitute an Event of Default.
The use of the terms "all or substantially all" and "substantially as an
entirety" in Indenture provisions such as clause (ii) of the definition of
"Change of Control" and under "--Merger, Sale of Assets, etc." has no clearly
established meaning under New York law (which governs the Indenture) and has
been the subject of limited judicial interpretation in few jurisdictions.
Accordingly, there may
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be a degree of uncertainty in ascertaining whether a particular transaction
would involve a disposition of "all or substantially all" of the assets of a
person, or a disposition of such assets "substantially as an entirety," which
uncertainty should be considered by prospective investors in the Notes.
The Change of Control purchase feature is a result of negotiations between
the Company and the Initial Purchasers. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Company or AXIA Group would decided to do so in the future. Subject
to the limitations discussed below, the Company could, in the future, enter
into certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control under the
Indenture, but that would increase the amount of indebtedness outstanding at
such time or otherwise affect the Company's or AXIA Group's capital structure
or credit ratings. Restrictions on the ability of the Company to incur
additional Indebtedness are contained in the covenant described under "--
Limitation on Indebtedness." Such restrictions can only be waived with the
consent of the Holders of a majority in principal amount of the Notes then
outstanding. Except for the limitations contained in such covenant, however,
the Indenture will not contain any covenants or protections that may afford
Holders of the Notes protection in the event of a highly leveraged
transaction. The Indenture will not contain covenants that restrict the
ability of AXIA Group to incur Indebtedness.
Except as described above with respect to a Change of Control, the Indenture
does not contain provisions that permit the Holders of the Notes to require
that the Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction.
CERTAIN COVENANTS
Limitation on Restricted Payments. The Company shall not, and shall not
cause or permit any Restricted Subsidiary to, directly or indirectly,
(i) declare or pay any dividend or any other distribution on any Equity
Interests of the Company or any Restricted Subsidiary or make any payment
or distribution to the direct or indirect holders (in their capacities as
such) of Equity Interests of the Company or any Restricted Subsidiary
(other than any dividends, distributions and payments made to the Company
or any Restricted Subsidiary and dividends or distributions payable to any
Person solely in Qualified Equity Interests of the Company or any
Restricted Subsidiary which is a Guarantor, or in options, warrants or
other rights to purchase Qualified Equity Interests of the Company and any
Restricted Subsidiary which is a Guarantor, and other than pro rata
dividends or distributions made by a Subsidiary that is not a wholly-owned
Subsidiary to minority stockholders (or owners of an equivalent interest in
the case of a Subsidiary that in not a corporation));
(ii) purchase, redeem or otherwise acquire or retire for value any Equity
Interests of the Company or any Restricted Subsidiary (other than any such
Equity Interests owned by the Company or any Restricted Subsidiary);
(iii) purchase, redeem, defease or retire for value, or make any
principal payment on, prior to any scheduled maturity, scheduled repayment
or scheduled sinking fund payment, any Subordinated Indebtedness (other
than any Subordinated Indebtedness held by the Company or any Restricted
Subsidiary or Subordinated Indebtedness purchased in anticipation of
satisfying a sinking fund payment due within two years of such
acquisition); or
(iv) make any Investment (other than Permitted Investments) in any Person
(other than in the Company, any Restricted Subsidiary or a Person that
becomes a Restricted Subsidiary, or is merged with or into or consolidated
with the Company or a Restricted Subsidiary (provided the Company or a
Restricted Subsidiary is the survivor), as a result of or in connection
with such Investment)
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(any such payment or any other action (other than any exception thereto)
described in (i), (ii), (iii) or (iv) each, a "Restricted Payment"), unless
(a) no Default shall have occurred and be continuing at the time or
immediately after giving effect to such Restricted Payment;
(b) immediately after giving effect to such Restricted Payment, the
Company would be able to Incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) under the Consolidated Coverage Ratio of
the first paragraph of "Limitation on Indebtedness" below; and
(c) immediately after giving effect to such Restricted Payment, the
aggregate amount of all Restricted Payments declared or made on or
after the Issue Date does not exceed an amount equal to the sum of (1)
50% of cumulative Consolidated Net Income determined for the period
(taken as one period) commencing on the Issue Date and ending on the
last day of the most recent fiscal quarter immediately preceding the
date of such Restricted Payment for which consolidated financial
information of the Company is available (or if such cumulative
Consolidated Net Income shall be a loss, minus 100% of such loss), plus
(2) the aggregate net cash proceeds received by the Company either (x)
as capital contributions to the Company after the Issue Date or (y)
from the issue and sale (other than to a Restricted Subsidiary) of its
Qualified Equity Interests after the Issue Date (excluding the net
proceeds from any issuance and sale of Qualified Equity Interests
financed, directly or indirectly, using funds borrowed from the Company
or any Restricted Subsidiary until and to the extent such borrowing is
repaid), plus (3) the principal amount (or accreted amount (determined
in accordance with GAAP), if less) of any Indebtedness of the Company
or any Restricted Subsidiary Incurred after the Issue Date which has
been converted into or exchanged for Qualified Equity Interests of the
Company, plus (4) in the case of the disposition or repayment of any
Investment constituting a Restricted Payment made after the Issue Date,
an amount (to the extent not included in the computation of
Consolidated Net Income) equal to the lesser of: (x) the return of
capital with respect to such Investment and (y) the amount of such
Investment which was treated as a Restricted Payment, in either case,
less the cost of the disposition of such Investment, plus (5) so long
as the Designation thereof was treated as a Restricted Payment made
after the Issue Date, with respect to any Unrestricted Subsidiary that
has been redesignated as a Restricted Subsidiary after the Issue Date
in accordance with "Designation of Unrestricted Subsidiaries" below,
the Company's proportionate interest in an amount equal to the excess
of (x) the total assets of such Subsidiary, valued on an aggregate
basis at Fair Market Value, over (y) the total liabilities of such
Subsidiary, determined in accordance with GAAP (and provided that such
amount shall not in any case exceed the Designation Amount with respect
to such Restricted Subsidiary upon its Designation), plus (6) (to the
extent not included in the computation of Consolidated Net Income) the
amount of cash dividends or cash distributions (other than to pay
taxes) received from any Unrestricted Subsidiary since the Issue Date,
minus (7) the greater of (x) $0 and (y) the Designation Amount
(measured as of the date of Designation) with respect to any Subsidiary
of the Company which has been designated as an Unrestricted Subsidiary
after the Issue Date in accordance with "Designation of Unrestricted
Subsidiaries" below.
The foregoing provisions will not prevent (i) the payment of any dividend or
distribution on, or redemption of, Equity Interests within 60 days after the
date of declaration of such dividend or distribution or the giving of formal
notice of such redemption, if at the date of such declaration or giving of
such formal notice such payment or redemption would comply with the provisions
of the Indenture; (ii) a payment to AXIA Group to allow AXIA Group to
purchase, redeem, retire or otherwise acquire any Equity Interests of AXIA
Group or the Company in exchange for, or out of the net cash proceeds of the
substantially concurrent issue and sale (other than to a Restricted
Subsidiary) of, Qualified Equity Interests of the Company or out of the net
cash proceeds received by the Company
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as capital contributions to the Company after the Issue Date; provided,
however, that any such net cash proceeds and the value of any Qualified Equity
Interests issued in exchange for such retired Equity Interests are excluded
from clause (c)(2) of the preceding paragraph (and were not included therein
at any time); (iii) the purchase, redemption, retirement, defeasance or other
acquisition of Subordinated Indebtedness, or any other payment thereon, made
in exchange for, or out of the net cash proceeds of, a substantially
concurrent issue and sale (other than to a Restricted Subsidiary) of (x)
Qualified Equity Interests of the Company or out of the net cash proceeds
received by the Company as capital contributions to the Company after the
Issue Date; provided, however, that any such net cash proceeds and the value
of any Qualified Equity Interests issued in exchange for Subordinated
Indebtedness are excluded from clauses (c)(2) and (c)(3) of the preceding
paragraph (and were not included therein at any time) or (y) other
Subordinated Indebtedness having no stated maturity for the payment of
principal thereof prior to the final stated maturity of the Notes; (iv) any
Investment to the extent that it is funded with the net cash proceeds of the
substantially concurrent issue and sale (other than to a Restricted
Subsidiary) of Qualified Equity Interests of the Company; provided, however,
that any such net cash proceeds are excluded from clause (c)(2) of the
preceding paragraph (and were not included therein at any time); (v) payments
to AXIA Group (for purposes of AXIA Group making payments to the ESOP) or to
the ESOP on behalf of the employees of the Company or its Restricted
Subsidiaries; provided, however, that all such payments by the Company and its
Restricted Subsidiaries may not exceed, during any fiscal year, 10% of the
aggregate compensation expense during such fiscal year attributable to
employees of the Company and its Restricted Subsidiaries who are eligible to
participate in the ESOP; (vi) a payment to AXIA Group to pay its operating and
administrative expenses including, without limitation, directors fees, legal
and audit expenses, SEC compliance expenses and corporate franchise and other
taxes, in an amount not to exceed the greater of $1.0 million per fiscal year
and 1% of revenues of the Company for the proceeding fiscal year; (vii) a
payment by the Company to AXIA Group or the ESOP, or directly by the Company,
to be used to repurchase the Equity Interests distributed to participants and
beneficiaries of the ESOP as required by and in accordance with the ESOP and
Section 409(h)(i)(B) of the Code and the regulations thereunder; (viii) a
payment by the Company to AXIA Group, any Restricted Subsidiary or the ESOP,
or directly by the Company, to be used to repurchase, redeem, acquire or
retired for value any Equity Interest of the Company pursuant to any
stockholder's agreement, management equity subscription plan or agreement,
stock option plan or agreement or employee benefit plan in effect as of the
Issue Date or such employee plan or agreement or employee benefit plan as may
be adopted by the Company or the Company from time to time, provided, however,
that the aggregate price paid for all Equity Interests repurchased, redeemed,
acquired or retired by the Company or on behalf of AXIA Group or the Company
shall not exceed $1.5 million in any fiscal year plus the aggregate amount
unused for such purpose in prior fiscal years; and provided, further, however,
that such amount, to the extent related to the ESOP, shall be excluded in the
calculation of Restricted Payments; (ix) a payment to AXIA Group pursuant to
the Tax Sharing Agreement as the same may be amended from time to time in a
manner not materially adverse to the Company; (x) any payment to AXIA Group to
permit AXIA Group to make payments for advisory services owned to Sterling
pursuant to the Management Agreement and (xi) Restricted Payments not to
exceed $5.0 million in the aggregate; provided, however, that in the case of
each of clauses (iii), (viii), (x), and (xi) (except in the case of any
Restricted Payments consisting of Investments), no Default shall have occurred
and be continuing or would arise therefrom.
In determining the amount of Restricted Payments permissible under this
covenant, amounts expended pursuant to clauses (i) and (xi) of the immediately
preceding paragraph shall be included as Restricted Payments and amounts
expended pursuant to clauses (ii), (iii), (iv), (v), (vi), (vii), (viii) (to
the extent set forth in the immediately preceding paragraph), (ix) and (x)
shall be excluded. The amount of any non-cash Restricted Payment shall be
deemed to be equal to the Fair Market Value thereof at the date of the making
of such Restricted Payment.
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Limitation on Indebtedness. The Company shall not, and shall not cause or
permit any Restricted Subsidiary to, directly or indirectly, Incur any
Indebtedness (including Acquired Indebtedness) or issue any Disqualified
Equity Interests, except for Permitted Indebtedness; provided, however, that
(i) the Company and any Restricted Subsidiary may Incur Indebtedness
(including Acquired Indebtedness) and (ii) the Company may issue Disqualified
Equity Interests if, in any such case, at the time of and immediately after
giving pro forma effect to such Incurrence of Indebtedness or issuance of
Disqualified Equity Interests and the application of the proceeds therefrom,
the Company's Consolidated Coverage Ratio would be greater than (a) 1.75 to
1.0, if such Incurrence occurs on or prior to July 15, 2000, or (b) 2.0 to
1.0, if such Incurrence occurs after July 15, 2000.
The foregoing limitations will not apply to the Incurrence of any of the
following (collectively, "Permitted Indebtedness"), each of which shall be
given independent effect:
(a) Indebtedness under the Notes issued hereby on the Issue Date, the
Guarantees and the Indenture;
(b) Existing Indebtedness;
(c) Indebtedness of the Company, and its Subsidiaries pursuant to (x) the
Term Loan Facilities of the Bank Credit Agreement in an aggregate principal
amount at any one time outstanding not to exceed $62.0 million and (y) the
revolving loan facilities of the Bank Credit Agreement in an aggregate
principal amount at any one time outstanding not to exceed the greater of
(I) $15.0 million and (II) the sum of (A) 85% of the net book value of the
accounts receivable of the Company and the Restricted Subsidiaries on a
consolidated basis in accordance with GAAP and (B) 50% of the net book
value (determined on a consolidated basis in accordance with GAAP) of (i)
the inventory of the Company and the Restricted Subsidiaries and (ii) the
ATF tools owned by the Company and its Restricted Subsidiaries;
(d) Indebtedness of any Restricted Subsidiary owed to and held by the
Company or any Restricted Subsidiary and Indebtedness of the Company owed
to and held by any Restricted Subsidiary, which Indebtedness is unsecured
and subordinated in right of payment to the payment and performance of the
Company's obligations under any Senior Indebtedness, the Indenture and the
Notes; provided, however, that an Incurrence of Indebtedness that is not
permitted by this clause (d) shall be deemed to have occurred upon (i) any
sale or other disposition of any Indebtedness of the Company or any
Restricted Subsidiary referred to in this clause (d) to a Person (other
than the Company or any Restricted Subsidiary), and (ii) the designation of
a Restricted Subsidiary which holds Indebtedness of the Company or any
other Restricted Subsidiary as an Unrestricted Subsidiary;
(e) the Guarantees and guarantees by any Guarantor of Indebtedness of the
Company; provided, however, that if such guarantee is of Subordinated
Indebtedness, then the Guarantee of such Guarantor shall be senior to such
Guarantor's guarantee of Subordinated Indebtedness;
(f) Hedging Obligations of the Company and the Restricted Subsidiaries;
(g) Purchase Money Indebtedness and Capitalized Lease Obligations (and
refinancings thereof) of the Company and the Restricted Subsidiaries which
do not exceed the greater of (x) $10.0 million in the aggregate or (y) 5%
of the consolidated tangible net assets of the Company at any one time
outstanding;
(h) Guarantees of the Company of Indebtedness incurred by Restricted
Subsidiaries;
(i) Indebtedness of the Company or any Restricted Subsidiary consisting
of guarantees, indemnities or obligations in respect of purchase price
adjustments in connection with the acquisition or disposition of assets
permitted under the Indenture;
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(j) Indebtedness of the Company or a Restricted Subsidiary to the extent
representing a replacement, renewal, refinancing or extension
(collectively, a "refinancing") of outstanding Indebtedness Incurred in
compliance with the Consolidated Coverage Ratio of the first paragraph of
this covenant or clause (a) or (b) of this paragraph of this covenant;
provided, however, that (i) any such refinancing shall not exceed the sum
of the principal amount (or accreted amount (determined in accordance with
GAAP), if less) of the Indebtedness or Disqualified Equity Interests being
refinanced, plus the amount of accrued interest or dividends thereon, plus
the amount of any prepayment premium necessary to accomplish such
refinancing and such reasonable fees and expenses incurred in connection
therewith, (ii) Indebtedness representing a refinancing of Indebtedness
other than Senior Indebtedness shall have a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of
the Indebtedness being refinanced; (iii) Indebtedness that is pari passu
with the Notes may only be refinanced with Indebtedness that is made pari
passu with or subordinate in right of payment to the Notes and Subordinated
Indebtedness may only be refinanced with Subordinated Indebtedness or
Disqualified Equity Interests and Disqualified Equity Interests may only be
refinanced with other Disqualified Equity Interests; and (iv) refinancing
Indebtedness incurred by a Restricted Subsidiary which is not a Guarantor
may only be used to refinance Indebtedness of a Restricted Subsidiary which
is not a Guarantor; and
(k) in addition to the items referred to in clauses (a) through (j)
above, Indebtedness of the Company (including any Indebtedness under the
Bank Credit Agreement that utilizes this subparagraph (k)) having an
aggregate principal amount not to exceed $15.0 million at any time
outstanding.
Limitation on Layering. The Company shall not, directly or indirectly, Incur
any Indebtedness that by its terms would expressly rank senior in right of
payment to the Notes and expressly rank subordinate in right of payment to any
other Indebtedness of the Company.
The Company shall not permit any Guarantor to, and no Guarantor shall,
directly or indirectly, Incur any Indebtedness that by its terms would
expressly rank senior in right of payment to the Guarantee of such Guarantor
and expressly rank subordinate in right of payment to any Guarantor Senior
Indebtedness of such Guarantor.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Company shall not, and shall not cause or permit any
Restricted Subsidiary to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to (a) pay dividends or make any other
distributions to the Company or any other Restricted Subsidiary on its Equity
Interests or with respect to any other interest or participation in, or
measured by, its profits, or pay any Indebtedness owed to the Company or any
other Restricted Subsidiary, (b) make loans or advances to, or guarantee any
Indebtedness or other obligations of, the Company or any other Restricted
Subsidiary or (c) transfer any of its properties or assets to the Company or
any other Restricted Subsidiary, except for such encumbrances or restrictions
existing under or by reason of (i) the Bank Credit Agreement, or any other
agreement of the Company or the Restricted Subsidiaries outstanding on the
Issue Date, in each case as in effect on the Issue Date, and any amendments,
restatements, renewals, replacements or refinancings thereof; provided,
however, that any such amendment, restatement, renewal, replacement or
refinancing is no more restrictive in the aggregate with respect to such
encumbrances or restrictions than those contained in the agreement being
amended, restated, renewed, replaced or refinanced; (ii) applicable law; (iii)
any instrument governing Indebtedness or Equity Interests of an Acquired
Person acquired by the Company or any Restricted Subsidiary as in effect at
the time of such acquisition (except to the extent any such Indebtedness or
Equity Interests were Incurred by such Acquired Person in connection with, as
a result of or in contemplation of such acquisition); provided, however, that
such encumbrances and restrictions are not applicable to any Restricted
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Subsidiary, or the properties or assets of any Restricted Subsidiary, other
than an Acquired Person; (iv) customary non-assignment provisions in leases
entered into in the ordinary course of business; (v) Purchase Money
Indebtedness for property acquired in the ordinary course of business that
only imposes encumbrances and restrictions on the property so acquired; (vi)
any agreement for the sale or disposition of the Equity Interests or assets of
any Restricted Subsidiary; provided, however, that such encumbrances and
restrictions described in this clause (vi) are only applicable to such
Restricted Subsidiary or assets, as applicable, and any such sale or
disposition is made in compliance with "Disposition of Proceeds of Asset
Sales" below to the extent applicable thereto; (vii) refinancing Indebtedness
permitted under clause (j) of the second paragraph of "Limitation on
Indebtedness" above; provided, however, that such encumbrances and
restrictions contained in the agreements governing such Indebtedness are no
more restrictive in the aggregate than those contained in the agreements
governing the Indebtedness being refinanced immediately prior to such
refinancing; (viii) the Indenture; or (ix) contained in any other indenture
governing debt securities that are no more restrictive than those contained in
the Indenture.
Designation of Unrestricted Subsidiaries. The Company may designate after
the Issue Date any Subsidiary of the Company as an "Unrestricted Subsidiary"
under the Indenture (a "Designation") only if (a) immediately prior to such
Designation the Subsidiary to be so designated has total assets of $10,000 or
less or (b):
(i) no Default or Event of Default shall have occurred and be continuing
at the time of or after giving effect to such Designation;
(ii) at the time of and after giving effect to such Designation, the
Company could Incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) under the Consolidated Coverage Ratio of the first paragraph
of "Limitation on Indebtedness" above; and
(iii) the Company would be permitted to make an Investment (other than a
Permitted Investment) at the time of Designation (assuming the
effectiveness of such Designation) pursuant to the first paragraph of
"Limitation on Restricted Payments" above in an amount (the "Designation
Amount") equal to the Fair Market Value of the Company's aggregate
Investment in such Subsidiary on such date.
Neither the Company nor any Restricted Subsidiary shall at any time (x)
provide credit support for, subject any of its property or assets (other than
the Equity Interests of any Unrestricted Subsidiary) to the satisfaction of,
or guarantee, any Indebtedness of any Unrestricted Subsidiary (including any
undertaking, agreement or instrument evidencing such Indebtedness), (y) be
directly or indirectly liable for any Indebtedness of any Unrestricted
Subsidiary or (z) be directly or indirectly liable for any Indebtedness which
provides that the holder thereof may (upon notice, lapse of time or both)
declare a default thereon or cause the payment thereof to be accelerated or
payable prior to its final scheduled maturity upon the occurrence of a default
with respect to any Indebtedness of any Unrestricted Subsidiary, except for
any non-recourse guarantee given solely to support the pledge by the Company
or any Restricted Subsidiary of the capital stock of any Unrestricted
Subsidiary. All Subsidiaries of Unrestricted Subsidiaries shall be
automatically deemed to be Unrestricted Subsidiaries.
The Company may revoke any Designation of a Subsidiary as an Unrestricted
Subsidiary (a "Revocation") if:
(i) no Default or Event of Default shall have occurred and be continuing
at the time of and after giving effect to such Revocation; and
(ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if Incurred at
such time, have been permitted to be Incurred for all purposes of the
Indenture.
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All Designations and Revocations must be evidenced by resolutions of the
Board of Directors of the Company, delivered to the Trustee certifying
compliance with the foregoing provisions.
Limitation on Liens. The Company shall not, and shall not cause or permit
any Restricted Subsidiary to, directly or indirectly, Incur or suffer to exist
any Liens of any kind against or upon any of their respective properties or
assets now owned or hereafter acquired, or any proceeds therefrom or any
income or profits therefrom, to secure any Indebtedness unless
contemporaneously therewith effective provision is made, in the case of the
Company, to secure the Notes, and in the case of a Restricted Subsidiary which
is a Guarantor, to secure such Restricted Subsidiary's Guarantee of the Notes,
equally and ratably with such Indebtedness (or, in the event that such
Indebtedness is subordinated in right of payment to the Notes or such
Guarantor's Guarantee, prior to such Indebtedness) with a Lien on the same
properties and assets securing such Indebtedness for so long as such
Indebtedness is secured by such Lien, except for (i) Liens securing any Senior
Indebtedness or any guarantee of Senior Indebtedness by any Guarantor; (ii)
Liens securing any Acquired Indebtedness properly incurred under the
Indenture, provided that any such Lien securing Acquired Indebtedness only
extends to the assets that were subject to such Lien prior to the related
acquisition by the Company or its Restricted Subsidiaries and was not created,
incurred or assumed in connection with or in contemplation of such transaction
and (iii) Permitted Liens.
Disposition of Proceeds of Asset Sales. The Company shall not, and shall not
cause or permit any Restricted Subsidiary to, directly or indirectly, make any
Asset Sale, unless (i) the Company or such Restricted Subsidiary, as the case
may be, receives consideration at the time of such Asset Sale at least equal
to the Fair Market Value of the assets sold or otherwise disposed of and (ii)
at least 75% of such consideration consists of (A) cash or Cash Equivalents,
(B) properties and capital assets to be used in the business of the Company,
or (C) Equity Interests in any Person which thereby becomes a Restricted
Subsidiary. The amount of any (i) Indebtedness (other than any Subordinated
Indebtedness) of the Company or any Restricted Subsidiary that is actually
assumed by the transferee in such Asset Sale and from which the Company and
the Restricted Subsidiaries are fully released shall be deemed to be cash for
purposes of determining the percentage of cash consideration received by the
Company or the Restricted Subsidiaries and (ii) notes or other similar
obligations received by the Company or the Restricted Subsidiaries from such
transferee that are immediately converted, sold or exchanged (or are
converted, sold or exchanged within 90 days of the related Asset Sale) by the
Company or the Restricted Subsidiaries into cash shall be deemed to be cash,
in an amount equal to the net cash proceeds realized upon such conversion,
sale or exchange for purposes of determining the percentage of cash
consideration received by the Company or the Restricted Subsidiaries.
The Company or such Restricted Subsidiary, as the case may be, may (i) apply
the Net Cash Proceeds of any Asset Sale within 365 days of receipt thereof to
repay Senior Indebtedness, (ii) commit in writing within 365 days of receipt
thereof to acquire, construct or improve properties and capital assets to be
used in a Related Business (and so apply such Net Cash Proceeds within 180
days after the commitment thereof) or (iii) apply the Net Cash Proceeds of any
Asset Sale within 365 days of receipt thereof or repay Pari Passu Debt not
exceeding the Pari Passu Debt Pro Rata Share.
To the extent all or part of the Net Cash Proceeds of any Asset Sale are not
applied as described in clause (i), (ii) or (iii) of the immediately preceding
paragraph (such Net Cash Proceeds, the "Unutilized Net Cash Proceeds"), the
Company shall, within 30 days after the expiration of such period, make an
Offer to Purchase outstanding Notes up to a maximum principal amount
(expressed as a multiple of $1,000) of Notes equal to such Unutilized Net Cash
Proceeds, at a purchase price in cash equal to 100% of the principal amount
thereof, plus accrued and unpaid interest thereon, if any, to the Purchase
Date; provided, however, that the Offer to Purchase may be deferred until
there are aggregate Unutilized Net Cash Proceeds equal to or in excess of $5.0
million, at which time the entire amount of such Unutilized Net Cash Proceeds,
and not just the amount in excess of $5.0 million, shall be applied as
required pursuant to this paragraph.
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After an Offer to Purchase has been made pursuant to the requirements of the
paragraph above, the Company may defer any future Offer to Purchase required
pursuant to an Asset Sale until there are new aggregate Unutilized Net Cash
Proceeds equal to or in excess of $5.0 million, at which time the entire
amount of such Unutilized Net Cash Proceeds and not just the amount in excess
of $5.0 million, shall be applied as required pursuant the paragraph above.
With respect to any Offer to Purchase effected pursuant to this covenant, to
the extent the aggregate principal amount of Notes tendered pursuant to such
Offer to Purchase exceeds the Unutilized Net Cash Proceeds to be applied to
the repurchase thereof, such Notes shall be purchased pro rata based on the
aggregate principal amount of such Notes tendered by each Holder. To the
extent the Unutilized Net Cash Proceeds exceed the aggregate amount of Notes
tendered by the Holders of the Notes pursuant to such Offer to Purchase, the
Company may retain and utilize any portion of the Unutilized Net Cash Proceeds
not applied to repurchase the Notes for any purpose consistent with the other
terms of the Indenture.
In the event that the Company makes an Offer to Purchase the Notes, the
Company shall comply with any applicable securities laws and regulations,
including any applicable requirements of Section 14(e) of, and Rule 14e-1
under, the Exchange Act, and any violation of the provisions of the Indenture
relating to such Offer to Purchase occurring as a result of such compliance
shall not be deemed an Event of Default or an event that with the passing of
time or giving of notice, or both, would constitute an Event of Default.
Each Holder shall be entitled to tender all or any portion of the Notes
owned by such Holder pursuant to the Offer to Purchase, subject to the
requirement that any portion of a Note tendered must be tendered in an
integral multiple of $1,000 principal amount and subject to any proration
among tendering Holders as described above.
Merger, Sale of Assets, etc. The Company shall not consolidate with or merge
with or into (whether or not the Company is the Surviving Person) any other
Person and the Company shall not directly or indirectly sell, convey, assign,
transfer, lease or otherwise dispose of all or substantially all of the
Company's and the Restricted Subsidiaries' properties and assets (determined
on a consolidated basis for the Company and the Restricted Subsidiaries) to
any entity in a single transaction or series of related transactions, unless:
(i) either (x) the Company shall be the Surviving Person or (y) the Surviving
Person (if other than the Company) shall be a Person organized and validly
existing under the laws of the United States of America or any State thereof
or the District of Columbia, and shall expressly assume by a supplemental
indenture, the due and punctual payment of the principal of, premium, if any,
and interest on all the Notes and the performance and observance of every
covenant of the Indenture and the Registration Rights Agreement to be
performed or observed on the part of the Company; (ii) immediately thereafter,
no Default or Event of Default shall have occurred and be continuing; (iii)
immediately after giving effect to any such transaction including the
Incurrence by the Company or any Restricted Subsidiary, directly or
indirectly, of additional Indebtedness (and treating any Indebtedness not
previously an obligation of the Company or any Restricted Subsidiary in
connection with or as a result of such transaction as having been Incurred at
the time of such transaction), the Surviving Person could Incur, on a pro
forma basis after giving effect to such transaction, at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) under the
Consolidated Coverage Ratio of the first paragraph of "Limitation on
Indebtedness" above; (iv) immediately after giving effect to such transaction,
the Surviving Person will have a Consolidated Net Worth in an amount which is
not less than the Consolidated Net Worth of the Company immediately prior to
such transaction; and (v) the Company will have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with the Indenture.
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Notwithstanding the foregoing clauses (iii) and (iv) of the immediately
preceding paragraph, any Restricted Subsidiary may consolidate with, merge
into or transfer all or part of its properties and assets to the Company. In
addition, at any time, and notwithstanding the provisions of the immediately
preceding paragraph, Acquisition Co. may merge with and into the Company;
provided, that, immediately prior to such merger, neither corporation has any
Indebtedness outstanding.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all the properties and assets of one or more Restricted
Subsidiaries the Equity Interests of which constitute all or substantially all
the properties and assets of the Company shall be deemed to be the transfer of
all or substantially all the properties and assets of the Company.
In the event of any transaction (other than a lease) described in and
complying with the conditions listed in the immediately preceding paragraphs
in which the Company or a Guarantor, as the case may be, is not the Surviving
Person and the Surviving Person is to assume all the Obligations of the
Company under the Notes, the Indenture and the Exchange and Registration
Rights Agreement or of such Guarantor under its Guarantee, the Indenture and
the Exchange and Registration Rights Agreement, as the case may be, pursuant
to a supplemental indenture, such Surviving Person shall succeed to, and be
substituted for, and may exercise every right and power of, the Company or
such Guarantor, as the case may be, and the Company shall be automatically and
unconditionally released and discharged from its Obligations under the
Indenture and the Notes or such Guarantor shall be automatically and
unconditionally released and discharged from its Obligations under the
Indenture and its Guarantee.
Transactions with Affiliates. The Company shall not, and shall not cause or
permit any Restricted Subsidiary to, directly or indirectly, conduct any
business or enter into any transaction (or series of related transactions)
with or for the benefit of any of their respective Affiliates of the Company
(each an "Affiliate Transaction"), unless (i) such Affiliate Transaction is on
terms which are no less favorable to the Company or such Restricted
Subsidiary, as the case may be, than would be available in a comparable
transaction with an unaffiliated third party and (ii) if such Affiliate
Transaction or series of related Affiliate Transactions (other than any such
Affiliate Transactions between the Company or a Restricted Subsidiary and an
Unrestricted Subsidiary or an Accounts Receivable Subsidiary in the ordinary
course of business) involves aggregate payments or other consideration having
a Fair Market Value in excess of $2.5 million, such Affiliate Transaction is
in writing and a majority of the disinterested members of the Board of
Directors of the Company shall have approved such Affiliate Transaction. In
addition, any Affiliate Transaction (other than an Affiliate Transaction
between the Company or a Restricted Subsidiary and an Unrestricted Subsidiary
or an Accounts Receivable Subsidiary in the ordinary course of business)
involving aggregate payments or other consideration having a Fair Market Value
in excess of $5.0 million will also require a written opinion from an
Independent Financial Advisor stating that the terms of such Affiliate
Transaction are fair, from a financial point of view, to the Company or the
Restricted Subsidiary involved in such Affiliate Transaction, as the case may
be.
Notwithstanding the foregoing, the restrictions set forth in this covenant
shall not apply to (i) transactions with or among the Company and any
Restricted Subsidiary or between or among Restricted Subsidiaries; (ii)
customary directors' fees, indemnification and similar arrangements,
consulting fees, employee salaries, bonuses or employment agreements,
compensation or employee benefit arrangements and incentive arrangements with
any officer, director or employee of the Company or any Restricted Subsidiary
entered into in the ordinary course of business (including customary benefits
thereunder) and payments under any indemnification arrangements permitted by
applicable law; (iii) payments to AXIA Group to permit AXIA Group to make
payments to The Sterling Group for advisory services pursuant to the
Management Agreement; (iv) the issue and sale by the Company to its
stockholders of Qualified Equity Interests; (v) any Restricted Payments made
in compliance with "Limitation on Restricted Payments" above; (vii)
intercompany sales between the
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Company and any of its Restricted Subsidiaries or exclusively between or among
such Restricted Subsidiaries provided that such sales are in the ordinary
course of business and on an arm's--length
basis; (vi) the Incurrence of intercompany Indebtedness permitted pursuant to
clause (d) of the second paragraph of "Limitation on Indebtedness" above and
(viii) loans or advances to employees in the ordinary course of business.
Limitation on the Sale or Issuance of Equity Interests of Restricted
Subsidiaries. The Company shall not sell any Equity Interest of a Restricted
Subsidiary, and shall not cause or permit any Restricted Subsidiary, directly
or indirectly, to issue or sell any Equity Interests, except: (i) to the
Company or a Wholly Owned Restricted Subsidiary; (ii) if, immediately after
giving effect to such issuance or sale, such Restricted Subsidiary remains a
Restricted Subsidiary; or (iii) if all Equity Interests of such Restricted
Subsidiary are sold or otherwise disposed of. Notwithstanding the foregoing,
the Company is permitted to sell all the Equity Interests of a Restricted
Subsidiary as long as the Company is in compliance with the terms of the
covenant described under "--Disposition of Proceeds of Asset Sales" above.
Provision of Financial Information. Whether or not the Company is subject to
Section 13(a) or 15(d) of the Exchange Act, or any successor provision
thereto, the Company shall file with the SEC (if permitted by SEC practice and
applicable law and regulations) the annual reports, quarterly reports and
other documents which the Company would have been required to file with the
SEC pursuant to such Section 13(a) or 15(d) (each, an "Exchange Act Report")
or any successor provision thereto if the Company were so subject, such
documents to be filed with the SEC on or prior to the respective dates (the
"Required Filing Dates") by which the Company would have been required so to
file such documents if the Company were so subject. If, at any time prior to
the consummation of the Exchange Offer when the Company is not subject to such
Section 13(a) or 15(d), the information which would be required in an Exchange
Act Report is included in a public filing of the Company under the Securities
Act at the applicable Required Filing Date, such public filing shall fulfill
the filing requirement with the SEC with respect to the applicable Exchange
Act Report. The Company shall also in any event (a) within 15 days of each
Required Filing Date (whether or not permitted or required to be filed with
the SEC) (i) transmit (or cause to be transmitted) by mail to all Holders, as
their names and addresses appear in the Note register, without cost to such
Holders, and (ii) file with the Trustee, copies of the annual reports,
quarterly reports and other documents which the Company is required to file
with the SEC pursuant to this covenant, or, if such filing is not so permitted
(or, prior to the consummation of the Exchange Offer, when the Company is not
subject to Section 13(d) or 15(d) of the Exchange Act), information and data
of a similar nature, and (b) if, notwithstanding the preceding sentence,
filing such documents by the Company with the SEC is not permitted by SEC
practice or applicable law or regulations, promptly upon written request
supply copies of such documents to any Holder. In addition, for so long as any
Notes remain outstanding, the Company will furnish to the Holders and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT
The occurrence of any of the following is defined as an "Event of Default"
under the Indenture: (a) failure to pay principal of (or premium, if any, on)
any Note when due (whether or not prohibited by the provisions of the
Indenture described under "Subordination of the Notes" above); (b) failure to
pay any interest on any Note when due, continued for 30 days or more (whether
or not prohibited by the provisions of the Indenture described under
"Subordination of the Notes" above); (c) default in the payment of principal
of or interest on any Note required to be purchased pursuant to any Offer to
Purchase required by the Indenture when due and payable or failure to pay on
the Purchase Date the Purchase Price for any Note validly tendered pursuant to
any Offer to Purchase (whether or not prohibited by the provisions of the
Indenture described under "Subordination of the Notes" above); (d) failure to
perform or comply with any of the provisions described under "Certain
Covenants--
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Merger, Sale of Assets, etc." above; (e) failure to comply for 30 days with
any covenants described under "Offer to Purchase upon Change of Control"
(other than a failure to purchase Notes), under "--Limitation on Restricted
Payments," under "--Limitation on Indebtedness," under "--Limitation on
Layering," under "--Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries," under "--Designation of Unrestricted
Subsidiaries," under "--Limitation on Liens," under "--Disposition of Proceeds
of Asset Sales," under "--Transactions with Affiliates," under "--Limitation
on the Sale or Issuance of Equity Interests of Restricted Subsidiaries," or
under "--Provision of Financial Information;" (f) failure for 60 days to
perform or comply with any other covenant or agreement of the Company under
the Indenture or in the Notes or of the Guarantors under the Indenture or in
the Guarantees; (g) default or defaults under the terms of one or more
instruments evidencing or securing Indebtedness of the Company or any of its
Significant Restricted Subsidiaries having an outstanding principal amount of
$5.0 million or more individually or in the aggregate that have resulted in
the acceleration of the payment of such Indebtedness or failure by the Company
or any of its Significant Restricted Subsidiaries to pay principal when due at
the stated maturity of any such Indebtedness; (h) the rendering of a final
judgment or judgments (not subject to appeal) against the Company or any of
its Significant Restricted Subsidiaries in an amount of $5.0 million or more
(net of any amounts covered by reputable and creditworthy insurance companies)
which remain undischarged or unstayed for a period of 60 days after the date
on which the right to appeal has expired; (i) certain events of bankruptcy,
insolvency or reorganization affecting the Company or any of its Significant
Restricted Subsidiaries; or (j) other than as provided in or pursuant to any
Guarantee or the Indenture, any Guarantee by any Significant Restricted
Subsidiary ceases to be in full force and effect or is declared null and void
and unenforceable or found to be invalid or any Guarantor denies its liability
under its Guarantee (other than by reason of termination of the Indenture or a
release of such Guarantor from its Guarantee in accordance with the terms of
the Indenture and such Guarantee). Subject to the provisions of the Indenture
relating to the duties of the Trustee, in case an Event of Default shall occur
and be continuing, the Trustee will be under no obligation to exercise any of
its rights or powers under the Indenture at the request or direction of any of
the Holders of Notes, unless such Holders shall have offered to the Trustee
reasonable indemnity. Subject to such provisions for the indemnification of
the Trustee, the Holders of a majority in aggregate principal amount of the
outstanding Notes will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on such Trustee.
If an Event of Default with respect to the Notes (other than an Event of
Default with respect to the Company described in clause (i) of the preceding
paragraph) occurs and is continuing, the Trustee or the Holders of at least
25% in aggregate principal amount of the outstanding Notes, by notice in
writing to the Company, may declare the unpaid principal of (and premium, if
any) and accrued interest to the date of acceleration on all the outstanding
Notes to be due and payable immediately and, upon any such declaration, such
principal amount (and premium, if any) and accrued interest, notwithstanding
anything contained in the Indenture or the Notes to the contrary, will become
immediately due and payable; provided, however, that so long as the Bank
Credit Agreement shall be in full force and effect, if an Event of Default
shall have occurred and be continuing (other than an Event of Default with
respect to the Company described in clause (i) of the preceding paragraph),
the Notes shall not become due and payable until the earlier to occur of (x)
five Business Days following delivery of written notice of such acceleration
of the Notes to the agent under the Bank Credit Agreement and (y) the
acceleration (ipso facto or otherwise) of any Indebtedness under the Bank
Credit Agreement. If an Event or Default specified in clause (i) of the
preceding paragraph with respect to the Company occurs under the Indenture,
the Notes will ipso facto become immediately due and payable without any
declaration or other act on the part of the Trustee or any Holder of the
Notes.
Any such declaration with respect to the Notes may be annulled by the
Holders of a majority in aggregate principal amount of the outstanding Notes
upon the conditions provided in the Indenture. For information as to waiver of
defaults, see "Modification and Waiver" below.
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The Indenture provides that the Trustee shall, within 30 days after the
occurrence of any Default or Event of Default with respect to the Notes
outstanding, give the Holders of the Notes thereof notice of all uncured
Defaults or Events of Default thereunder known to it; provided, however, that,
except in the case of a Default or an Event of Default in payment with respect
to the Notes or a Default or Event of Default in complying with "Certain
Covenants--Merger, Sale of Assets, etc." above, the Trustee shall be protected
in withholding such notice if and so long as a committee of its trust officers
in good faith determines that the withholding of such notice is in the
interest of the Holders of the Notes.
No Holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such Holder
shall have previously given to the Trustee written notice of a continuing
Event of Default thereunder and unless the Holders of at least 25% of the
aggregate principal amount of the outstanding Notes shall have made written
request, and offered reasonable indemnity, to the Trustee to institute such
proceeding, and the Trustee shall have not have received from the Holders of a
majority in aggregate principal amount of such outstanding Notes a direction
inconsistent with such request and shall have failed to institute such
proceeding within 60 days. However, such limitations do not apply to a suit
instituted by a Holder of such a Note for enforcement of payment of the
principal of and premium, if any, or interest on such Note on or after the
respective due dates expressed in such Note.
The Company is required to furnish to the Trustee annually a statement as to
the performance by it of certain of its obligations under the Indenture and as
to any default in such performance.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, INCORPORATOR AND
STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or any of its Affiliates, as such, shall have any liability for any
obligations of the Company or any of its Affiliates under the Notes or the
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each holder of Notes by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes.
SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE
The Company may terminate its and the Guarantors' substantive obligations in
respect of the Notes by delivering all outstanding Notes to the Trustee for
cancellation and paying all sums payable by it on account of principal of,
premium, if any, and interest on all Notes or otherwise. In addition to the
foregoing, the Company may, provided that no Default or Event of Default has
occurred and is continuing or would arise therefrom (or, with respect to a
Default or Event of Default specified in clause (i) of "Events of Default"
above, occurs at any time on or prior to the 91st calendar day after the date
of such deposit (it being understood that this condition shall not be deemed
satisfied until after such 91st day)) under the Indenture and provided that no
default under any Senior Indebtedness would result therefrom, terminate its
and the Guarantors' substantive obligations in respect of the Notes (except
for its obligations to pay the principal of (and premium, if any, on) and the
interest on the Notes and the Guarantors' Guarantee thereof) by (i) depositing
with the Trustee, under the terms of an irrevocable trust or escrow agreement,
money or United States Government Obligations or a combination thereof
sufficient (without reinvestment) to pay all remaining Indebtedness on such
Notes; (ii) delivering to the Trustee either an Opinion of Counsel or a ruling
of the Internal Revenue Service to the effect that the Holders of the Notes
will not recognize income, gain or loss for Federal income tax purposes as a
result of such deposit and termination of obligations; (iii) delivering to the
Trustee an Opinion of Counsel to the effect that the Company's exercise of its
option under this paragraph will not result in any of the Company, the Trustee
or the trust or escrow created by the Company's deposit of funds pursuant to
this provision becoming or being deemed to be an
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"investment company" under the Investment Company Act of 1940, as amended (the
"Investment Act"); and (iv) complying with certain other requirements set
forth in the Indenture (the foregoing being referred to as a "covenant
defeasance"). In addition, the Company may, provided that no Default or Event
of Default has occurred and is continuing or would arise therefrom (or, with
respect to a Default or Event of Default specified in clause (i) of "Events of
Default" above, occurs at any time on or prior to the 91st calendar day after
the date of such deposit (it being understood that this condition shall not be
deemed satisfied until after such 91st day)) under the Indenture and provided
that no default under any Senior Indebtedness would result therefrom,
terminate all of its and the Guarantors' substantive obligations in respect of
the Notes (including its obligations to pay the principal of (and premium, if
any, on) and interest on the Notes and the Guarantors' Guarantee thereof) by
(i) depositing with the Trustee, under the terms of an irrevocable trust
agreement, money or United States Government Obligations or a combination
thereof sufficient (without reinvestment) to pay all remaining Indebtedness on
the Notes; (ii) delivering to the Trustee either a ruling of the Internal
Revenue Service to the effect that the Holders of the Notes will not recognize
income, gain or loss for Federal income tax purposes as a result of such
deposit and termination of obligations or an Opinion of Counsel addressed to
the Trustee based upon such a ruling or based on a change in the applicable
Federal tax law since the date of the Indenture, to such effect; (iii)
delivering to the Trustee an Opinion of Counsel to the effect that the
Company's exercise of its option under this paragraph will not result in any
of the Company, the Trustee or the trust or escrow created by the Company's
deposit of funds pursuant to this provision becoming or being deemed to be an
"investment company" under the Investment Act; and (iv) complying with certain
other requirements set forth in the Indenture (the foregoing being referred to
as a "legal defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. In the event of either
covenant defeasance or legal defeasance, payment of the Notes may not be
accelerated because of an event specified as a Default or an Event of Default.
The Company may make an irrevocable deposit pursuant to this provision only
if at such time it is not prohibited from doing so under the subordination
provisions of the Indenture or certain covenants in the Senior Indebtedness
and the Company has delivered to the Trustee and any Paying Agent an Officers'
Certificate to that effect.
GOVERNING LAW
The Indenture, the Notes and the Guarantees are governed by the laws of the
State of New York without regard to principles of conflicts of laws.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company,
the Guarantors, and the Trustee with the consent of the Holders of a majority
in aggregate principal amount of the outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for the Notes);
provided, however, that no such modification or amendment to the Indenture
may, without the consent of the Holder of each Note affected thereby, (a)
change the maturity of the principal of or any installment of interest on any
such Note or alter the optional redemption or repurchase provisions of any
such Note or the Indenture in a manner adverse to the Holders of the Notes;
(b) reduce the principal amount of (or the premium) of any such Note; (c)
reduce the rate of or extend the time for payment of interest on any such
Note; (d) change the place or currency of payment of principal of (or premium,
if any) or interest on any such Note; (e) modify any provisions of the
Indenture relating to the waiver of past defaults (other than to add sections
of the Indenture or the Notes subject thereto) or the right of the Holders of
Notes to institute suit for the enforcement of any payment on or with respect
to any such Note or any Guarantee in respect thereof or the modification and
amendment provisions of the Indenture and the Notes (other than to add
sections
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of the Indenture or the Notes which may not be amended, supplemented or waived
without the consent of each Holder therein affected); (f) reduce the
percentage of the principal amount of outstanding Notes necessary for
amendment to or waiver of compliance with any provision of the Indenture or
the Notes or for waiver of any Default in respect thereof; (g) waive a default
in the payment of principal of, interest on, or redemption payment with
respect to, the Notes (except a rescission of acceleration of the Notes by the
Holders thereof as provided in the Indenture and a waiver of the payment
default that resulted from such acceleration); (h) modify the ranking or
priority of any Note or the Guarantee in respect thereof of any Guarantor or
modify the definition of Senior Indebtedness or Guarantor Senior Indebtedness
or amend or modify the subordination provisions of the Indenture, in any case
in any manner adverse to the Holders of the Notes; (i) modify the provisions
of any covenant (or the related definitions) in the Indenture requiring the
Company to make an Offer to Purchase following an event or circumstance which
may give rise to the requirement to make an Offer to Purchase in a manner
materially adverse to the Holders of Notes affected thereby otherwise than in
accordance with the Indenture; or (j) release any Guarantor from any of its
obligations under its Guarantee or the Indenture otherwise than in accordance
with the Indenture.
The Holders of a majority in aggregate principal amount of the outstanding
Notes, on behalf of all Holders of Notes, may waive compliance by the Company
and the Guarantors with certain restrictive provisions of the Indenture.
Subject to certain rights of the Trustee, as provided in the Indenture, the
Holders of a majority in aggregate principal amount of the Notes, on behalf of
all Holders, may waive any past default under the Indenture (including any
such waiver obtained in connection with a tender offer or exchange offer for
the Notes), except a default in the payment of principal, premium, if any, or
interest or a default arising from failure to purchase any Notes tendered
pursuant to an Offer to Purchase, or a default in respect of a provision that
under the Indenture cannot be modified or amended without the consent of the
Holder of each Note that is affected.
THE TRUSTEE
Except during the continuance of a Default, the Trustee will perform only
such duties as are specifically set forth in the Indenture. During the
existence of a Default, the Trustee will exercise such rights and powers
vested in it under the Indenture and use the same degree of care and skill in
its exercise as a prudent person would exercise under the circumstances in the
conduct of such person's own affairs.
The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee, should it
become a creditor of the Company, any Guarantor or any other obligor upon the
Notes, to obtain payment of claims in certain cases or to realize on certain
property received by it in respect of any such claim as security or otherwise.
The Trustee is permitted to engage in other transactions with the Company or
an Affiliate of the Company; provided, however, that if it acquires any
conflicting interest (as defined in the Indenture or in the Trust Indenture
Act), it must eliminate such conflict or resign.
The address of the Trustee is Goodwin Square, 225 Asylum Street, 23rd Floor,
Hartford, Connecticut 06103.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full definition of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Accounts Receivable Subsidiary" means any Subsidiary of the Company that
is, directly or indirectly, wholly owned by the Company (other than director
qualifying shares) and organized solely for the purpose of and engaged in (i)
purchasing, financing and collecting accounts receivable
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obligations of customers of the Company or its Subsidiaries, (ii) the sale or
financing of such accounts receivable or interest therein and (iii) other
activities incident thereto.
"Acquired Indebtedness" means Indebtedness of a Person (a) assumed in
connection with an Acquisition from such Person or (b) existing at the time
such Person becomes a Restricted Subsidiary or is merged or consolidated with
or into the Company or any Restricted Subsidiary.
"Acquired Person" means, with respect to any specified Person, any other
Person which merges with or into or becomes a Subsidiary of such specified
Person.
"Acquisition" means (i) any capital contribution (by means of transfers of
cash or other property to others or payments for property or services for the
account or use of others, or otherwise) by the Company or any Restricted
Subsidiary to any other Person, or any acquisition or purchase of Equity
Interests of any other Person by the Company or any Restricted Subsidiary, in
either case pursuant to which such Person shall become a Restricted Subsidiary
or shall be consolidated with or merged into the Company or any Restricted
Subsidiary or (ii) any acquisition by the Company or any Restricted Subsidiary
of the assets of any Person which constitute substantially all of an operating
unit or line of business of such Person or which is otherwise outside of the
ordinary course of business.
"Additional Interest" has the meaning provided in Section 4(a) of the
Registration Rights Agreement.
"Affiliate" of any specified person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled
by" and "under common control with"), as used with respect to any Person,
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such Person, whether
through the ownership of voting securities, by agreement or otherwise.
"Asset Sale" means any direct or indirect sale, conveyance, transfer, lease
(that has the effect of a disposition, including a sale leaseback transaction)
or other disposition (including, without limitation, by means of any merger or
consolidation) to any Person other than the Company or a Wholly Owned
Restricted Subsidiary, in one transaction or a series of related transactions,
of (i) any Equity Interest (other than directors' qualifying shares) of any
Restricted Subsidiary; (ii) any assets of the Company or any Restricted
Subsidiary which constitute substantially all of an operating unit or line of
business of the Company or any Restricted Subsidiary; or (iii) any other
property or asset of the Company or any Restricted Subsidiary outside of the
ordinary course of business, provided in each case that the aggregate
consideration for such sale, conveyance, transfer, lease or other disposition
is equal to $1.5 million or more. For the purposes of this definition, the
term "Asset Sale" shall not include (a) any transaction consummated in
compliance with "Certain Covenants--Merger, Sale of Assets, etc." above and
the creation of any Lien not prohibited by "Certain Covenants--Limitation on
Liens" above; provided, however, that any transaction consummated in
compliance with "Certain Covenants--Merger, Sale of Assets, etc." above
involving a sale, conveyance, assignment, transfer, lease or other disposal of
less than all of the properties or assets of the Company shall be deemed to be
an Asset Sale with respect to the properties or assets of the Company and the
Restricted Subsidiaries that are not so sold, conveyed, assigned, transferred,
leased or otherwise disposed of in such transaction; (b) sales of property or
equipment that has become worn out, obsolete or damaged or otherwise
unsuitable for use in connection with the business of the Company or any
Restricted Subsidiary; (c) any transaction consummated in compliance with
"Certain Covenants--Limitation on Restricted Payments" above; (d) sales of
accounts receivable for cash at fair market value; and (e) any sale,
conveyance or transfer of accounts receivable in the ordinary course of
business to an Accounts Receivable Subsidiary or to third parties that are not
Affiliates of the Company or any Subsidiary of the Company.
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"AXIA Group" means AXIA Group, Inc.
"Bank Credit Agreement" means the credit facility between the Company, the
Guarantors, the lenders named therein, and Paribas, as Administrative Agent,
including any deferrals, renewals, extensions, substitutions, replacements,
refinancings or refundings thereof, or amendments, modifications or
supplements thereto and any agreement providing therefor (including any
restatements thereof and any increases in the amount of commitments
thereunder), whether by or with the same or any other lender, creditor, group
of lenders or group of creditors, and including related notes, guarantee and
note agreements and other instruments and agreements executed in connection
therewith.
"Board Resolution" means, with respect to any Person, a duly adopted
resolution of the Board of Directors of such Person.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be so required to be capitalized on the balance sheet in
accordance with GAAP.
"Cash Equivalents" means with respect to the Company and its Restricted
Subsidiaries: (a) U.S. dollars and any other currency that is convertible into
U.S. dollars without legal restrictions; (b) securities issued or directly and
fully guaranteed or insured by the U.S. government or any agency or
instrumentality thereof; (c) certificates of deposit and time deposits with
maturities of one year or less from the date of acquisition, bankers'
acceptances with maturities not exceeding one year and overnight bank
deposits, in each case with any commercial bank having capital and surplus in
excess of $250.0 million (or the foreign currency equivalent thereof); (d)
repurchase obligations with a term of not more than 30 days for underlying
securities of the types described in clauses (b) and (c) above entered into
with any financial institution meeting the qualifications specified in clause
(c) above; (e) commercial paper rated P-1, A-1 or the equivalent thereof by
Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation
("S&P"), respectively, and in each case maturing within six months after the
date of acquisition; (f) with respect to any Foreign Subsidiary organized in
Canada; commercial paper of Canadian companies rated R-1 High or the
equivalent thereof by Dominion Bond Rating Services with maturities of less
than one year; and (g) with respect to Foreign Subsidiaries not organized in
Canada, government obligations of another country whose debt securities are
rated by S&P and/or Moody's "A-1" or "P-1", or the equivalent thereof (if a
short-term debt rating is provided by either) or at least "AA" or "AA2", or
the equivalent thereof (if a long-term unsecured debt rating is provided by
either), in each case, with maturities of less than 12 months.
"Change of Control" means the occurrence of any of the following events
(whether or not approved by the Board of Directors of the Company): (i) any
Person (as such term is used in Sections 13(d) and 14(d) of the Exchange Act,
including any group acting for the purpose of acquiring, holding or disposing
of securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act),
other than one or more Permitted Holders, is or becomes the "beneficial owner"
(as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a
Person shall be deemed to have "beneficial ownership" of all shares that any
such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time, upon the happening of an event
or otherwise), directly or indirectly, of more than 50% of the total voting
power of the then outstanding Voting Equity Interests of the Company or, so
long as AXIA Group owns a majority of the Voting Equity Interests of the
Company, AXIA Group; (ii) the Company consolidates with, or merges with or
into, another Person (other than a Guarantor which is a Wholly Owned
Restricted Subsidiary or a Person that is controlled by the Permitted Holders)
or the Company directly or indirectly sells, assigns, conveys, transfers,
leases or otherwise disposes of all or substantially all of the assets of the
Company and the Restricted Subsidiaries (determined on a consolidated basis)
to any Person (other than the Company or a Guarantor which is a Wholly Owned
Restricted Subsidiary or a Person that is controlled by the
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Permitted Holders), in each case other than any such transaction where
immediately after such transaction the Person or Persons that "beneficially
owned" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except
that a Person shall be deemed to have "beneficial ownership" of all securities
that such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time) immediately prior to such
transaction, directly or indirectly, the then outstanding Voting Equity
Interests of the Company "beneficially own" (as so determined), directly or
indirectly, a majority of the total voting power of the then outstanding
Voting Equity Interests of the surviving or transferee Person; or (iii)
following the first public offering of $20.0 million or more of Voting Equity
Interests of the Company, during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board of
Directors of the Company (together with any new directors whose election by
such Board of Directors or whose nomination for election by the shareholders
of the Company was approved by a vote of a majority of the directors of the
Company then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors of the Company then in office.
"Change of Control Date" has the meaning set forth under "Offer to Purchase
upon Change of Control" above.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of Consolidated EBITDA for the four quarter
period of the most recent four consecutive fiscal quarters ending prior to the
date of such determination (the "Four Quarter Period") to (ii) Consolidated
Interest Expense for such Four Quarter Period; provided, however, that (1) if
the Company or any Restricted Subsidiary has Incurred any Indebtedness since
the beginning of such Four Quarter Period that remains outstanding on such
date of determination or if the transaction giving rise to the need to
calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or
both, Consolidated EBITDA and Consolidated Interest Expense for such Four
Quarter Period shall be calculated after giving effect on a pro forma basis to
such Indebtedness as if such Indebtedness had been Incurred on the first day
of such Four Quarter Period and the discharge of any other Indebtedness
repaid, repurchased, defeased or otherwise discharged with the proceeds of
such new Indebtedness as if such discharge had occurred on the first day of
such Four Quarter Period, (2) if since the beginning of such Four Quarter
Period the Company or any Restricted Subsidiary shall have made any Asset
Sale, the Consolidated EBITDA for such Four Quarter Period shall be reduced by
an amount equal to the Consolidated EBITDA (if positive) directly attributable
to the assets that are the subject of such Asset Sale for such Four Quarter
Period or increased by an amount equal to the Consolidated EBITDA (if
negative) directly attributable thereto for such Four Quarter Period and
Consolidated Interest Expense for such Four Quarter Period shall be reduced by
an amount equal to the Consolidated Interest Expense directly attributable to
any Indebtedness of the Company or any Restricted Subsidiary repaid,
repurchased, defeased or otherwise discharged with respect to the Company and
its continuing Restricted Subsidiaries in connection with such Asset Sale for
such Four Quarter Period (or, if the Equity Interests of any Restricted
Subsidiary are sold, the Consolidated Interest Expense for such Four Quarter
Period directly attributable to the Indebtedness of such Restricted Subsidiary
to the extent the Company and its continuing Restricted Subsidiaries are no
longer liable for such Indebtedness after such sale), (3) if since the
beginning of such Four Quarter Period the Company or any Restricted Subsidiary
(by merger or otherwise) shall have made an Investment in any Restricted
Subsidiary (or any Person that becomes a Restricted Subsidiary) or an
acquisition of assets, including any acquisition of assets occurring in
connection with a transaction causing a calculation to be made hereunder,
which constitutes all or substantially all of an operating unit of a business,
Consolidated EBITDA and Consolidated Interest Expense for such Four Quarter
Period shall be calculated after giving pro forma effect thereto (including
the Incurrence of any Indebtedness) as if such Investment or acquisition
occurred on the first day of such Four Quarter Period and (4) if since the
beginning of such Four Quarter Period any Person (that subsequently
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became a Restricted Subsidiary or was merged with or into the Company or any
Restricted Subsidiary since the beginning of such Four Quarter Period) shall
have made any Asset Sale or any Investment or acquisition of assets that would
have required an adjustment pursuant to clause (2) or (3) above if made by the
Company or a Restricted Subsidiary during such Four Quarter Period,
Consolidated EBITDA and Consolidated Interest Expense for such Four Quarter
Period shall be calculated after giving pro forma effect thereto as if such
Asset Sale, Investment or acquisition of assets occurred on, with respect to
any Investment or acquisition, the first day of such Four Quarter Period and,
with respect to any Asset Sale, the day prior to the first day of such Four
Quarter Period. For purposes of this definition, whenever pro forma effect is
to be given to an Asset Sale or Investment or other acquisition of assets
(including pursuant to the Transactions), the amount of income or earnings and
any net cost savings relating thereto and the amount of Consolidated Interest
Expense associated with any Indebtedness Incurred in connection therewith, the
pro forma calculations shall be determined in accordance with Regulation S-X
under the Securities Act. If any Indebtedness bears a floating rate of
interest and is being given pro forma effect, the interest expense on such
Indebtedness shall be calculated as if the rate in effect on the date of
determination had been the applicable rate for the entire period (taking into
account any agreement under which Hedging Obligations relating to interest are
outstanding applicable to such Indebtedness if such agreement under which such
Hedging Obligations are outstanding has a remaining term as at the date of
determination in excess of 12 months).
"Consolidated EBITDA" means, for any period, the Consolidated Net Income for
such period, plus the following to the extent deducted in calculating such
Consolidated Net Income: (i) Consolidated Income Tax Expense for such period;
(ii) Consolidated Interest Expense for such period; (iii) depreciation expense
for such period; (iv) amortization expense for such period; (v) all costs and
expenses incurred by the Company on or prior to the Issue Date related to the
Transactions (to the extent such items were incurred during the relevant Four
Quarter Period); and (vi) all other non-cash items which are not expected by
the Company to result in any cash expenditures in future periods, minus all
non-cash items having the effect of increasing Consolidated Net Income during
the period and which were not deducted in calculating Consolidated Net Income
for any prior period.
"Consolidated Income Tax Expense" means, with respect to the Company for any
period, the provision for Federal, state, local and foreign income taxes
payable by the Company and the Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to the Company for any
period, without duplication, the sum of (i) the interest expense of the
Company and the Restricted Subsidiaries for such period as determined on a
consolidated basis in accordance with GAAP, including, without limitation, (a)
any amortization of debt discount, (b) the net cost under Hedging Obligations
relating to interest (including any amortization of discounts), (c) all
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing and (d) all capitalized interest
and all accrued interest, (ii) the interest component of Capital Lease
Obligations paid, accrued and/or scheduled to be paid or accrued by the
Company and the Restricted Subsidiaries during such period as determined on a
consolidated basis in accordance with GAAP and (iii) dividends and
distributions in respect of Disqualified Equity Interests of the Company
during such period as determined on a consolidated basis in accordance with
GAAP.
"Consolidated Net Income" means, for any period, the consolidated net income
(loss) of the Company and its Subsidiaries determined in accordance with GAAP;
provided, however, that there shall not be included in such Consolidated Net
Income: (i) any net income (loss) of any Person if such person is not a
Restricted Subsidiary, except that (A) subject to the limitations contained in
clause (iv) below, the Company's equity in the net income of any such Person
for such period shall be included
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in such Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Person during such period to the Company or a Restricted
Subsidiary as a dividend or other distribution (subject, in the case of a
dividend or other distribution to a Restricted Subsidiary, to the limitations
contained in clause (iii) below) and (B) the Company's equity in a net loss of
any such Person for such period shall be included in determining such
Consolidated Net Income to the extent of any Investment made by the Company or
any Restricted Subsidiary to such Person during such period; (ii) any net
income (loss) of any person acquired by the Company or a Restricted Subsidiary
in a pooling of interests transaction for any period prior to the date of such
acquisition; (iii) any net income (loss) of any Restricted Subsidiary if such
Restricted Subsidiary is subject to restrictions, directly or indirectly, on
the payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company except that (A) subject to
the exclusion contained in clause (iv) below, the Company's equity in the net
income of any such Restricted Subsidiary for such period shall be included in
such Consolidated Net Income up to the aggregate amount of cash that could
have been distributed by such Restricted Subsidiary during such period to the
Company or another Restricted Subsidiary as a dividend (subject, in the case
of a dividend that could have been made to another Restricted Subsidiary, to
the limitation contained in this clause) and (B) the Company's equity in a net
loss of any such Restricted Subsidiary for such period shall be included in
determining such Consolidated Net Income; (iv) any gain or loss realized upon
the sale or other disposition of any asset of the Company or the Restricted
Subsidiaries (including pursuant to any sale/leaseback transaction) that is
not sold or otherwise disposed of in the ordinary course of business and any
gain or loss realized upon the sale or other disposition of any Equity
Interests of any Person; (v) any extraordinary gain or loss; and (vi) the
cumulative effect of a change in accounting principles. Notwithstanding the
foregoing, for purposes of the covenant described under "--Certain Covenants--
Limitations on Restricted Payments" only, there shall be excluded from
Consolidated Net Income any dividends, repayments of loans or advances or
other transfers of assets from Unrestricted Subsidiaries to the Company or a
Restricted Subsidiary to the extent such dividends, repayments or transfers
increase the amount of Restricted Payments permitted under such covenant
pursuant to clause (c)(4) of the first paragraph thereof.
"Consolidated Net Worth" of the Company means the stockholders' equity of
the Company and the Restricted Subsidiaries determined on a consolidated basis
in accordance with GAAP, less amounts attributed to Disqualified Equity
Interests.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Senior Indebtedness" means (a) any Indebtedness outstanding
under the Bank Credit Agreement and (b) any other Senior Indebtedness which,
at the time of determination, has an aggregate principal amount outstanding,
together with any commitments to lend additional amounts, of at least $25.0
million, if the instrument governing such Senior Indebtedness expressly states
that such Indebtedness is "Designated Senior Indebtedness" for purposes of the
Indenture.
"Designation" has the meaning set forth under "Certain Covenants--
Designation of Unrestricted Subsidiaries" above.
"Designation Amount" has the meaning set forth under "Certain Covenants--
Designation of Unrestricted Subsidiaries" above.
"Disposition" means, with respect to any Person, any merger, consolidation
or other business combination involving such Person (whether or not such
Person is the Surviving Person) or the sale, assignment, transfer, lease,
conveyance or other disposition of all or substantially all of such Person's
assets.
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"Disqualified Equity Interest" means any Equity Interest which, by its terms
(or by the terms of any security into which it is convertible or for which it
is exchangeable at the option of the holder thereof), or upon the happening of
any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable, at the option of the holder thereof,
in whole or in part on or prior to the Maturity Date, or exchangeable into
Indebtedness on or prior to the Maturity Date; provided, however, that any
Equity Interest that would not constitute a Disqualified Equity Interest but
for provisions thereof giving holders thereof the right to require the issuing
Person to repurchase or redeem such Equity Interest upon the occurrence of an
"asset sale" or "change of control" occurring prior to the Maturity Date shall
not constitute a Disqualified Equity Interest if (i) the "asset sale" or
"change of control" provisions applicable to such Equity Interest are not more
favorable to the holders of such Equity Interest than the comparable
provisions described under "--Certain Covenants--Disposition of Proceeds of
Asset Sales" and "--Certain Covenants--Change of Control" and (ii) the Company
shall have complied in full with all of its obligations in respect of such
covenants prior to any payment in respect of the comparable provisions of such
Equity Interest.
"Equity Interest" in any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock or other equity
participations, including partnership interests, whether general or limited,
in such Person, including any Preferred Equity Interests.
"ESOP" means the employee stock ownership plan of the Company as in effect
on the Issue Date or any subsequent employee stock ownership plan, as defined
under ERISA, which is adopted by the Company or any Restricted Subsidiary.
"ESOP Loan" means any loan or advance by the Company or any Restricted
Subsidiary to the ESOP.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Indebtedness" means any Indebtedness (or agreements relating
thereto) of the Company and its Restricted Subsidiaries in existence on the
Issue Date.
"Expiration Date" has the meaning set forth in the definition of "Offer to
Purchase" below.
"Fair Market Value" means, with respect to any asset, the price (after
taking into account any liabilities relating to such assets) which could be
negotiated in an arm's-length free market transaction between a willing seller
and a willing buyer, neither of which is under any compulsion to complete the
transaction; provided, however, that the Fair Market Value of any such asset
or assets shall be determined conclusively by the Board of Directors of the
Company acting in good faith.
"Foreign Subsidiary" means a Restricted Subsidiary that is incorporated in a
jurisdiction other than the United States or a State thereof or the District
of Columbia.
"Four Quarter Period" has the meaning set forth in the definition of
"Consolidated Coverage Ratio" above.
"GAAP" means, at any date of determination, generally accepted accounting
principles in effect in the United States which are applicable at the date of
determination and which are consistently applied for all applicable periods.
"Guarantor" means (i) each of the Subsidiaries of the Company (excluding
Unrestricted Subsidiaries and Foreign Subsidiaries) as of the Issue Date and
their respective successors, and (ii) each other Restricted Subsidiary,
formed, created or acquired before or after the Issue Date, required to become
a Guarantor after the Issue Date pursuant to "Guarantees of the Notes" above.
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"Guarantor Senior Indebtedness" means, with respect to any Guarantor, at any
date, (a) all Obligations of such Guarantor under the Bank Credit Agreement;
(b) all Hedging Obligations of such Guarantor; (c) all Obligations of such
Guarantor under stand-by letters of credit; and (d) all other Indebtedness of
such Guarantor for borrowed money, including principal, premium, if any, and
interest (including Post-Petition Interest) on such Indebtedness unless the
instrument under which such Indebtedness of such Guarantor for money borrowed
is Incurred expressly provides that such
Indebtedness for money borrowed is not senior or superior in right of payment
to such Guarantor's Guarantee of the Notes, and all renewals, extensions,
substitutions, modifications, amendments or refinancings thereof.
Notwithstanding the foregoing, Guarantor Senior Indebtedness shall not include
(a) to the extent that it may constitute Indebtedness, any Obligation for
Federal, state, local or other taxes; (b) any Indebtedness among or between
such Guarantor and any Subsidiary of such Guarantor; (c) to the extent that it
may constitute Indebtedness, any Obligation in respect of any trade payable
Incurred for the purchase of goods or materials, or for services obtained, in
the ordinary course of business; (d) Indebtedness evidenced by such
Guarantor's Guarantee of the Notes; (e) Indebtedness of such Guarantor that is
expressly subordinate or junior in right of payment to any other Indebtedness
of such Guarantor; (f) to the extent that it may constitute Indebtedness, any
obligation owing under leases (other than Capitalized Lease Obligations) or
management agreements; and (g) any obligation that by operation of law is
subordinate to any general unsecured obligations of such Guarantor.
"guarantee" means, as applied to any obligation, (i) a guarantee (other than
by endorsement of negotiable instruments for collection in the ordinary course
of business), direct or indirect, in any manner, of any part or all of such
obligation and (ii) an agreement, direct or indirect, contingent or otherwise,
the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit. A guarantee shall include,
without limitation, any agreement to maintain or preserve any other Person's
financial condition or to cause any other Person to achieve certain levels of
operating results.
"Guarantee" means the guarantee of the Notes by each Guarantor under the
Indenture.
"Hedging Obligations" means, with respect to any Person, the Obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements, (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates and (iii) foreign currency or commodity hedges, exchange or similar
protection agreements (agreements referred to in this definition being
referred to herein as "Hedging Agreements").
"Holder" means the registered holder of any Note.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (including by conversion, exchange or
otherwise), assume, guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to
GAAP or otherwise, of any such Indebtedness or other obligation on the balance
sheet of such Person (and "Incurrence," "Incurred" and "Incurring" shall have
meanings correlative to the foregoing). Indebtedness of any Acquired Person or
any of its Subsidiaries existing at the time such Acquired Person becomes a
Restricted Subsidiary (or is merged into or consolidated with the Company or
any Restricted Subsidiary), whether or not such Indebtedness was Incurred in
connection with, as a result of, or in contemplation of, such Acquired Person
becoming a Restricted Subsidiary (or being merged into or consolidated with
the Company or any Restricted Subsidiary), shall be deemed Incurred at the
time any such Acquired Person becomes a Restricted Subsidiary or merges into
or consolidates with the Company or any Restricted Subsidiary.
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"Indebtedness" means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person and
whether or not contingent, (a) every obligation of such Person for the
principal amount of money borrowed; (b) every obligation of such Person
evidenced by the principal amount of bonds, debentures, notes or other similar
instruments, including obligations incurred in connection with the acquisition
of property, assets or businesses; (c) every reimbursement obligation of such
Person with respect to letters of credit, bankers' acceptances or similar
facilities issued for the account of such Person (except to the extent not
drawn on); (d) every obligation of such Person issued or assumed as the
deferred purchase price of property or services (but excluding (x) earnout or
other similar obligations until such time as the amount of such obligation is
capable of being determined, (y) trade accounts payable incurred in the
ordinary course of business, or (z) other accrued liabilities arising in the
ordinary course of business); (e) every Capital Lease Obligation of such
Person; (f) every net obligation under Hedging Agreements of such Person; (g)
every obligation of the type referred to in clauses (a) through (f) of another
Person and all dividends of another Person the payment of which, in either
case, such Person has guaranteed or is responsible or liable for, directly or
indirectly, as obligor, guarantor or otherwise; and (h) any and all deferrals,
renewals, extensions and refundings of, or amendments, modifications or
supplements to, any liability of the kind described in any of the preceding
clauses (a) through (g) above. Indebtedness (a) shall never be calculated
taking into account any cash and Cash Equivalents held by such Person; (b)
shall not include obligations of any Person (x) arising from the honoring by a
bank or other financial institution of a check, draft or similar instrument
inadvertently drawn against insufficient funds in the ordinary course of
business, provided that such obligations are extinguished within ten Business
Days of their incurrence, (y) resulting from the endorsement of negotiable
instruments for collection in the ordinary course of business and (z) under
stand-by letters of credit to the extent collateralized by cash or Cash
Equivalents; (c) which provides that an amount less than the principal amount
thereof shall be due upon any declaration of acceleration thereof shall be
deemed to be incurred or outstanding in an amount equal to the accreted value
thereof at the date of determination; (d) shall include the liquidation
preference and any mandatory redemption payment obligations in respect of any
Disqualified Equity Interests of the Company or any Restricted Subsidiary; and
(e) shall not include obligations under performance bonds, performance
guarantees, surety bonds and appeal bonds, letters of credit or similar
obligations, incurred in the ordinary course of business. For purposes of
determining compliance with any U.S. dollar- denominated restriction on the
Incurrence of Indebtedness denominated in a foreign currency, the U.S. dollar-
equivalent principal amount of such Indebtedness Incurred pursuant thereto
shall be calculated based on the relevant currency exchange rate in effect on
the date that such Indebtedness was Incurred. If such Indebtedness is Incurred
to refinance other Indebtedness denominated in a foreign currency, and such
refinancing would cause the applicable U.S. dollar-denominated restriction to
be exceeded if calculated at the relevant currency exchange rate in effect on
the date of such refinancing, such U.S. dollar-denominated restriction shall
be deemed not to have been exceeded so long as the principal amount of such
refinancing Indebtedness does not exceed the principal amount of such
Indebtedness being refinanced. The principal amount of any Indebtedness
Incurred to refinance other Indebtedness, if Incurred in a different currency
from the Indebtedness being refinanced, shall be calculated based on the
currency exchange rate applicable to the currencies in which such respective
Indebtedness is denominated that is in effect on the date of such refinancing.
"Independent Financial Advisor" means a nationally recognized accounting,
appraisal, investment banking firm or consultant that is, in the judgment of
the Company's Board of Directors, qualified to perform the task for which it
has been engaged (i) which does not, and whose directors, officers and
employees or Affiliates do not, have a direct or indirect financial interest
in the Company and (ii) which, in the judgment of the Board of Directors of
the Company, is otherwise independent and qualified to perform the task for
which it is to be engaged.
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"Insolvency or Liquidation Proceeding" means, with respect to any Person,
any liquidation, dissolution or winding up of such Person, or any bankruptcy,
reorganization, insolvency, receivership or similar proceeding with respect to
such Person, whether voluntary or involuntary.
"interest" means, with respect to the Notes, the sum of any cash interest
and any Additional Interest on the Notes.
"Investment" means, with respect to any Person, any direct or indirect loan,
advance, guarantee or other extension of credit or capital contribution to (by
means of transfers of cash or other property
or assets to others or payments for property or services for the account or
use of others, or otherwise, but other than advances to customers in the
ordinary course of business recorded as an account receivable on the books of
the Person making the advance), or purchase or acquisition of capital stock,
bonds, notes, debentures or other securities or evidences of Indebtedness
issued by, any other Person. The amount of any Investment shall be the
original cost of such Investment, plus the cost of all additions thereto, and
minus the amount of any portion of such Investment repaid to such Person in
cash as a repayment of principal or a return of capital, as the case may be,
but without any other adjustments for increases or decreases in value, or
write-ups, write-downs or write-offs with respect to such Investment. In
determining the amount of any Investment involving a transfer of any property
or asset other than cash, such property shall be valued at its fair market
value at the time of such transfer, as determined in good faith by the Board
of Directors (or comparable body) of the Person making such transfer.
"Issue Date" means the original issue date of the Notes.
"Lien" means any lien, mortgage, charge, security interest, hypothecation,
assignment for security or encumbrance of any kind (including any conditional
sale or capital lease or other title retention agreement, any lease in the
nature thereof).
"Management Agreement" means the management agreement dated June 23, 1998
between AXIA Group and Sterling.
"Maturity Date" means July 15, 2008.
"Net Cash Proceeds" means the aggregate proceeds in the form of cash or Cash
Equivalents received by the Company or any Restricted Subsidiary in respect of
any Asset Sale, including all cash or Cash Equivalents received upon any sale,
liquidation or other exchange of proceeds of Asset Sales received in a form
other than cash or Cash Equivalents, net of (a) the direct costs relating to
such Asset Sale (including, without limitation, legal, accounting and
investment banking fees and expenses, and sales commissions) and any
relocation or severance expenses incurred as a result thereof; (b) taxes paid
or payable as a result thereof (after taking into account any available tax
credits or deductions and any tax sharing arrangements); (c) amounts required
to be applied to the repayment of Indebtedness secured by a Lien on the asset
or assets that were the subject of such Asset Sale; (d) amounts deemed, in
good faith, appropriate by the Board of Directors of the Company to be
provided as a reserve, in accordance with GAAP, against any liabilities
associated with such assets which are the subject of such Asset Sale (provided
that the amount of any such reserves shall be deemed to constitute Net Cash
Proceeds at the time such reserves shall have been released or are not
otherwise required to be retained as a reserve); and (e) with respect to Asset
Sales by Restricted Subsidiaries, the portion of such cash payments
attributable to Persons holding a minority interest in such Restricted
Subsidiary.
"Obligations" means any principal, interest (including, without limitation,
Post-Petition Interest), penalties, fees, indemnifications, reimbursement
obligations, damages and other liabilities payable under the documentation
governing any Indebtedness.
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"Offer" has the meaning set forth in the definition of "Offer to Purchase"
below.
"Offer to Purchase" means a written offer (the "Offer") sent by or on behalf
of the Company by first-class mail, postage prepaid, to each holder at his
address appearing in the register for the Notes on the date of the Offer
offering to purchase up to the principal amount of Notes specified in such
Offer at the purchase price specified in such Offer (as determined pursuant to
the Indenture). Unless otherwise required by applicable law, the Offer shall
specify an expiration date (the "Expiration Date") of the Offer to Purchase,
which shall be not less than 20 Business Days nor more than 60 days after the
date of such Offer, and a settlement date (the "Purchase Date") for purchase
of Notes to occur no later than five Business Days after the Expiration Date.
The Company shall notify the Trustee at least 15 Business Days (or such
shorter period as is acceptable to the Trustee) prior to the mailing of the
Offer of the Company's obligation to make an Offer to Purchase, and the Offer
shall be mailed by the Company or, at the Company's request, by the Trustee in
the name and at the expense of the Company. The Offer shall contain all the
information required by applicable law to be included therein. The Offer shall
also contain information concerning the business of the Company and its
Subsidiaries which the Company in good faith believes will enable such Holders
to make an informed decision with respect to the Offer to Purchase (which at a
minimum will include (i) the most recent annual and quarterly financial
statements and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" contained in the documents required to be filed
with the Trustee pursuant to the Indenture (which requirements may be
satisfied by delivery of such documents together with the Offer), (ii) a
description of material developments in the Company's business subsequent to
the date of the latest of such financial statements referred to in clause (i)
(including a description of the events requiring the Company to make the Offer
to Purchase), (iii) if applicable, appropriate pro forma financial information
concerning the Offer to Purchase and the events requiring the Company to make
the Offer to Purchase and (iv) any other information required by applicable
law to be included therein). The Offer shall contain all instructions and
materials necessary to enable such Holders to tender Notes pursuant to the
Offer to Purchase. The Offer shall also state: (1) the Section of the
Indenture pursuant to which the Offer to Purchase is being made; (2) the
Expiration Date and the Purchase Date; (3) the aggregate principal amount of
the outstanding Notes offered to be purchased by the Company pursuant to the
Offer to Purchase (including, if less than 100%, the manner by which such
amount has been determined pursuant to the Section of the Indenture requiring
the Offer to Purchase) (the "Purchase Amount"); (4) the purchase price to be
paid by the Company for each $1,000 aggregate principal amount of Notes
accepted for payment (as specified pursuant to the Indenture) (the "Purchase
Price"); (5) that the Holder may tender all or any portion of the Notes
registered in the name of such Holder and that any portion of a Note tendered
must be tendered in an integral multiple of $1,000 principal amount; (6) the
place or places where Notes are to be surrendered for tender pursuant to the
Offer to Purchase; (7) that interest on any Note not tendered or tendered but
not purchased by the Company pursuant to the Offer to Purchase will continue
to accrue; (8) that on the Purchase Date the Purchase Price will become due
and payable upon each Note being accepted for payment pursuant to the Offer to
Purchase and that interest thereon shall cease to accrue on and after the
Purchase Date; (9) that each Holder electing to tender all or any portion of a
Note pursuant to the Offer to Purchase will be required to surrender such Note
at the place or places specified in the Offer prior to the close of business
on the Expiration Date (such Note being, if the Company or the Trustee so
requires, duly endorsed by, or accompanied by a written instrument of transfer
in form satisfactory to the Company and the Trustee duly executed by, the
Holder thereof or his attorney duly authorized in writing); (10) that Holders
will be entitled to withdraw all or any portion of Notes tendered if the
Company (or its Paying Agent) receives, not later than the close of business
on the fifth Business Day next preceding the Expiration Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the Holder,
the principal amount of the Note the Holder tendered, the certificate number
of the Note the Holder tendered and a statement that such Holder is
withdrawing all or a portion of his tender; (11) that (a) if Notes in an
aggregate principal amount less than or equal to the Purchase Amount are duly
tendered and not withdrawn pursuant to the Offer to Purchase, the
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Company shall purchase all such Notes and (b) if Notes in an aggregate
principal amount in excess of the Purchase Amount are tendered and not
withdrawn pursuant to the Offer to Purchase, the Company shall purchase Notes
having an aggregate principal amount equal to the Purchase Amount on a pro
rata basis (with such adjustments as may be deemed appropriate so that only
Notes in denominations of $1,000 principal amount or integral multiples
thereof shall be purchased); and (12) that in the case of any Holder whose
Note is purchased only in part, the Company shall execute and the Trustee
shall authenticate and deliver to the Holder of such Note without service
charge, a new Note or Notes, of any authorized denomination as requested by
such Holder, in an aggregate principal amount equal to and in exchange for the
unpurchased portion of the Note so tendered.
An Offer to Purchase shall be governed by and effected in accordance with
the provisions above pertaining to any Offer.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company or the Trustee.
"Pari Passu Debt" means Indebtedness of the Company or any Guarantor that
neither constitutes Senior Indebtedness or Guarantor Senior Indebtedness, as
applicable, or Subordinated Indebtedness.
"Pari Passu Debt Pro Rata Share" means the amount of the applicable Net Cash
Proceeds obtained by multiplying the amount of such Net Cash Proceeds by a
fraction, (i) the numerator of which is the aggregate accreted value and/or
principal amount, as the case may be, of all Pari Passu Debt outstanding at
the time of the applicable Asset Sale with respect to which the Company is
required to use Net Cash Proceeds to repay or make an offer to purchase or
repay and (ii) the denominator of which is the sum of (a) the aggregate
principal amount of all Notes outstanding at the time of the applicable Asset
Sale and (b) the aggregate principal amount or the aggregate accreted value,
as the case may be, of all Pari Passu Debt outstanding at the time of the
applicable Offer to Purchase with respect to which the Company is required to
use the applicable Net Cash Proceeds to offer to repay or make an offer to
purchase or repay.
"Permitted Holder" means (i) the purchasers in the Equity Investment, (ii)
any Person who on the date of issuance of the Notes is an officer, director,
stockholder, employee or consultant of the Company or Sterling, (iii) any
Permitted Transferee with respect to any Person covered by the preceding
clauses (i) and (ii); (iv) the ESOP; (v) any savings or investment plan
sponsored by the Company or AXIA Group; or (vi) any entity a majority of the
outstanding Voting Equity Interests of which are owned directly or indirectly
by Permitted Holders.
"Permitted Indebtedness" has the meaning set forth in the second paragraph
of "Certain Covenants--Limitation on Indebtedness" above.
"Permitted Investments" means (a) Cash Equivalents; (b) Investments in
prepaid expenses, negotiable instruments held for collection and lease,
utility and workers' compensation, performance and other similar deposits; (c)
Hedging Obligations; (d) bonds, notes, debentures or other securities received
as a result of Asset Sales permitted under "Certain Covenants--Disposition of
Proceeds of Asset Sales" above; (e) transactions with officers, directors and
employees of the Company or any Restricted Subsidiary entered into in the
ordinary course of business (including compensation or employee benefit
arrangements with any such director or employee); (f) Investments existing as
of the Issue Date and any amendment, extension, substitution, renewal or
modification thereof to the extent that any such amendment, extension,
substitution, renewal or modification does not require the Company or any
Restricted Subsidiary to make any additional cash or non-cash payments or
provide additional services in connection therewith; (g) any Investment to the
extent that the consideration therefor consists of Qualified Equity Interests
of the Company or AXIA Group; (h) any Investment consisting of a guarantee by
a Guarantor of Senior Indebtedness or any guarantee permitted under
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clause (e) of the second paragraph of "Limitation on Indebtedness" above; (i)
Investments in an aggregate amount not to exceed the greater of (x) $15.0
million or (y) 5% of the Company's consolidated tangible net assets at any one
time outstanding; provided that the Company and/or the Restricted Subsidiaries
own at least one-third of the outstanding Voting Equity Interests of each such
Person; (j) Investments in the form of the sale (on a "true sale" non-recourse
basis) or the servicing of receivables transferred from the Company or any
Restricted Subsidiary, or transfers of cash, to an Accounts Receivable
Subsidiary as a capital contribution or in exchange for Indebtedness of such
Accounts Receivable Subsidiary or cash, in each case in the ordinary course of
business; (k) loans and advances to employees made in the ordinary course of
business; (l) payments to AXIA Group or Acquisition Co. to pay the merger
consideration due, and out-of-pocket expenses related to, the Transactions;
and (m) the ESOP Loan not to exceed $2.5 million at any one time outstanding.
"Permitted Junior Securities" means any securities of the Company or any
other Person that are (i) equity securities without special covenants or (ii)
subordinated in right of payment to all Senior Indebtedness that may at the
time be outstanding, to substantially the same extent as, or to a greater
extent than, the Notes are subordinated as provided in the Indenture, in any
event pursuant to a court order so providing and as to which (a) the rate of
interest on such securities shall not exceed the effective rate of interest on
the Notes on the date of the Indenture, (b) such securities shall not be
entitled to the benefits of covenants or defaults materially more beneficial
to the holders of such securities than those in effect with respect to the
Notes on the date of the Indenture and (c) such securities shall not provide
for amortization (including sinking fund and mandatory prepayment provisions)
commencing prior to the date six months following the final scheduled maturity
date of the Senior Indebtedness (as modified by the plan of reorganization or
readjustment pursuant to which such securities are issued).
"Permitted Liens" means (a) Liens on property of a Person existing at the
time such Person is merged into or consolidated with the Company or any
Restricted Subsidiary; provided, however, that such Liens were in existence
prior to the contemplation of such merger or consolidation and do not secure
any property or assets of the Company or any Restricted Subsidiary other than
the property or assets subject to the Liens prior to such merger or
consolidation; (b) Liens imposed by law such as carriers', warehousemen's and
mechanics' Liens and other similar Liens arising in the ordinary course of
business which secure payment of obligations not more than 60 days past due or
which are being contested in good faith and by appropriate proceedings; (c)
Liens existing on the Issue Date; (d) Liens securing only the Notes; (e) Liens
in favor of the Company or any Restricted Subsidiary; (f) Liens for taxes,
assessments or governmental charges or claims that are not yet delinquent or
that are being contested in good faith by appropriate proceedings promptly
instituted and diligently concluded; provided, however, that any reserve or
other appropriate provision as shall be required in conformity with GAAP shall
have been made therefor; (g) easements, reservation of rights of way,
restrictions and other similar easements, licenses, restrictions on the use of
properties, or minor imperfections of title that in the aggregate are not
material in amount and do not in any case materially detract from the
properties subject thereto or interfere with the ordinary conduct of the
business of the Company and the Restricted Subsidiaries; (h) Liens resulting
from the deposit of cash or notes in connection with contracts, tenders or
expropriation proceedings, or to secure workers' compensation, surety or
appeal bonds, costs of litigation when required by law and public and
statutory obligations or obligations under franchise arrangements entered into
in the ordinary course of business; (i) Liens securing Indebtedness under the
Bank Credit Agreement; (j) Liens securing Indebtedness consisting of
Capitalized Lease Obligations, Purchase Money Indebtedness, mortgage
financings, industrial revenue bonds or other monetary obligations, in each
case incurred solely for the purpose of financing all or any part of the
purchase price or cost of construction or installation of assets used in the
business of the Company or the Restricted Subsidiaries, or repairs, additions
or improvements to such assets, provided, however, that (I) such Liens secure
Indebtedness in an amount not in excess of the original purchase price or the
original cost of any such assets or repair, addition or improvement thereto
(plus an amount equal to the reasonable fees and expenses in connection with
the incurrence of such Indebtedness), (II) such Liens do not extend to any
other
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assets of the Company or the Restricted Subsidiaries (and, in the case of
repair, addition or improvements to any such assets, such Lien extends only to
the assets (and improvements thereto or thereon) repaired, added to or
improved), (III) the Incurrence of such Indebtedness is permitted by "Certain
Covenants--Limitation on Indebtedness" above and (IV) such Liens attach within
90 days of such purchase, construction, installation, repair, addition or
improvement; (k) Liens to secure any refinancings, renewals, extensions,
modifications or replacements (collectively, "refinancing") (or successive
refinancings), in whole or in part, of any Indebtedness secured by Liens
referred to in the clauses above so long as such Lien does not extend to any
other property (other than improvements thereto); (l) Liens securing letters
of credit entered into in the ordinary course of business; and (m) Liens on
and pledges of the Equity Interests of any Unrestricted Subsidiary securing
any Indebtedness of such Unrestricted Subsidiary.
"Permitted Transferee" means with respect to any Person, (i) in the case of
an entity, any Affiliate of such Person, and (ii) in the case of any
individual, any person related by lineal or collateral consanguinity to such
individual or to the spouse of such individual (adopted persons shall be
considered the natural born child of their adoptive parents; lineal
consanguinity is that relationship that exists between persons of whom one is
descended (or ascended) in a direct line from the other, as between son,
father, grandfather, great-grandfather; and collateral consanguinity is that
relationship that exists between persons who have the same ancestors, but who
do not descend (or ascend) from the other, as between uncle and nephew, or
cousin and cousin), in each case to whom such Person has transferred Equity
Interests of the Company.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, limited liability
limited partnership, trust, unincorporated organization or government or any
agency or political subdivision thereof.
"Post-Petition Interest" means, with respect to any Indebtedness of any
Person, all interest accrued or accruing on such Indebtedness after the
commencement of any Insolvency or Liquidation Proceeding against such Person
in accordance with and at the contract rate (including, without limitation,
any rate applicable upon default) specified in the agreement or instrument
creating, evidencing or governing such Indebtedness, whether or not, pursuant
to applicable law or otherwise, the claim for such interest is allowed as a
claim in such Insolvency or Liquidation Proceeding.
"Preferred Equity Interest," in any Person, means an Equity Interest of any
class or classes (however designated) which is preferred as to the payment of
dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over
Equity Interests of any other class in such Person.
"Public Equity Offering" means a primary public offering of $20.0 million or
more of Qualified Equity Interests of the Company or AXIA Group pursuant to an
effective registration statement filed under the Securities Act of 1933, as
amended (excluding registration statements filed on Form S-8).
"Purchase Amount" has the meaning set forth in the definition of "Offer to
Purchase" above.
"Purchase Date" has the meaning set forth in the definition of "Offer to
Purchase" above.
"Purchase Money Indebtedness" means Indebtedness of the Company or any
Restricted Subsidiary Incurred for the purpose of financing all or any part of
the purchase price or the cost of construction or improvement of any property,
provided that the aggregate principal amount of such Indebtedness does not
exceed the lesser of the Fair Market Value of such property or such purchase
price or cost, including any refinancing of such Indebtedness that does not
increase the aggregate principal amount (or accreted amount, if less) thereof
as of the date of refinancing.
"Purchase Price" has the meaning set forth in the definition of "Offer to
Purchase" above.
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"Qualified Equity Interest" in any Person means any Equity Interest in such
Person other than any Disqualified Equity Interest.
"Redemption Date" has the meaning set forth in the third paragraph of
"Optional Redemption" above.
"Restricted Subsidiary" means any Subsidiary of the Company that has not
been designated by the Board of Directors of the Company, by a resolution of
the Board of Directors of the Company delivered to the Trustee, as an
Unrestricted Subsidiary pursuant to "Certain Covenants--Designation of
Unrestricted Subsidiaries" above. Any such designation may be revoked by a
resolution of the Board of Directors of the Company delivered to the Trustee,
subject to the provisions of such covenant.
"SEC" means the Securities and Exchange Commission.
"Senior Indebtedness" means, at any date, (a) all Obligations of the Company
under the Bank Credit Agreement; (b) all Hedging Obligations of the Company;
(c) all Obligations of the Company under stand-by letters of credit; and (d)
all other Indebtedness of the Company for borrowed money, including principal,
premium, if any, and interest (including Post-Petition Interest) on such
Indebtedness, unless the instrument under which such Indebtedness of the
Company for money borrowed is Incurred expressly provides that such
Indebtedness for money borrowed is not senior or superior in right of payment
to the Notes, and all renewals, extensions, modifications, amendments or
refinancings thereof. Notwithstanding the foregoing, Senior Indebtedness shall
not include (a) to the extent that it may constitute Indebtedness, any
Obligation for Federal, state, local or other taxes; (b) any Indebtedness
among or between the Company and any Subsidiary of the Company, unless and for
so long as such Indebtedness has been pledged to secure Obligations under the
Bank Credit Agreement; (c) to the extent that it may constitute Indebtedness,
any Obligation in respect of any trade payable Incurred for the purchase of
goods or materials, or for services obtained, in the ordinary course of
business; (d) Indebtedness evidenced by the Notes; (e) Indebtedness of the
Company that is expressly subordinate or junior in right of payment to any
other Indebtedness of the Company; (f) to the extent that it may constitute
Indebtedness, any obligation owing under leases (other than Capital Lease
Obligations) or management agreements; and (g) any obligation that by
operation of law is subordinate to any general unsecured obligations of the
Company.
"Significant Restricted Subsidiary" means, at any date of determination, (a)
any Restricted Subsidiary that, together with its Subsidiaries that constitute
Restricted Subsidiaries (i) for the most recent fiscal year of the Company
accounted for more than 10.0% of the consolidated revenues of the Company and
the Restricted Subsidiaries or (ii) as of the end of such fiscal year, owned
more than 10.0% of the consolidated assets of the Company and the Restricted
Subsidiaries, all as set forth on the consolidated financial statements of the
Company and the Restricted Subsidiaries for such year prepared in conformity
with GAAP, and (b) any Restricted Subsidiary which, when aggregated with all
other Restricted Subsidiaries that are not otherwise Significant Restricted
Subsidiaries and as to which any event described in clause (g), (h) or (i) of
"Events of Default" above has occurred, would constitute a Significant
Restricted Subsidiary under clause (a) of this definition.
"Stated Maturity," when used with respect to any Note or any installment of
interest thereon, means the date specified in such Note as the fixed date on
which the principal of such Note or such installment of interest is due and
payable.
"Subordinated Indebtedness" means, with respect to the Company or any
Guarantor, any Indebtedness of the Company or such Guarantor, as the case may
be, which is expressly subordinated in right of payment to the Notes or such
Guarantor's Guarantee, as the case may be.
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"Subsidiary" means, with respect to any Person, (a) any corporation of which
the outstanding Voting Equity Interests having at least a majority of the
votes entitled to be cast in the election of directors shall at the time be
owned, directly or indirectly, by such Person, or (b) any other Person of
which at least a majority of Voting Equity Interests are at the time, directly
or indirectly, owned by such first named Person.
"Surviving Person" means, with respect to any Person involved in or that
makes any Disposition, the Person formed by or surviving such Disposition or
the Person to which such Disposition is made.
"Tax Sharing Agreement" means the tax sharing agreement between the Company
and AXIA Group.
"Term Loan Facilities" means collectively the ESOP Term Loan, the
acquisition facility and the term loan facility of the Bank Credit Agreement.
"United States Government Obligations" means direct non-callable obligations
of the United States of America for the payment of which the full faith and
credit of the United States is pledged.
"Unrestricted Subsidiary" means any Subsidiary of the Company designated as
such pursuant to "Certain Covenants--Designation of Unrestricted Subsidiaries"
above. Any such designation may be revoked by a resolution of the Board of
Directors of the Company delivered to the Trustee, subject to the provisions
of such covenant.
"Unutilized Net Cash Proceeds" has the meaning set forth in the third
paragraph under "Certain Covenants--Disposition of Proceeds of Asset Sales"
above.
"Voting Equity Interests" means Equity Interests in a corporation or other
Person with voting power under ordinary circumstances entitling the holders
thereof to elect the Board of Directors or other governing body of such
corporation or Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the sum of the
products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required scheduled payment
of principal, including payment of final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (b) the then outstanding
aggregate principal amount of such Indebtedness.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Equity
Interests of which (other than directors' qualifying shares) is owned by the
Company or another Wholly Owned Subsidiary; provided, however, that a Foreign
Subsidiary shall be a Wholly Owned Subsidiary if more than 90% of the Equity
Interests and Voting Equity Interests thereof is owned by the Company or
another Wholly Owned Subsidiary.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes certain material United States federal
income tax consequences relevant to the purchase, ownership and disposition of
the Notes and reflects the opinion provided by Bracewell & Patterson, L.L.P.,
counsel to the Company, as to these matters. This discussion is for general
information only and does not address all aspects of federal income taxation
that may be relevant to particular investors in light of their personal
investment circumstances, nor does it address the federal income tax
consequences which may be relevant to certain types of investors subject to
special treatment under the federal income tax laws (for example, certain
financial institutions, insurance companies, tax-exempt entities, broker-
dealers, and taxpayers subject to the
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alternative minimum tax). In addition, this discussion does not discuss any
aspects of state, local, or foreign tax laws. This discussion assumes that
investors will hold their Notes as "capital assets" (generally, property held
for investment), within the meaning of Section 1221 of the Code, and not as
part of an integrated transaction (for example, a hedge, straddle or
conversion transaction).
No ruling from the Internal Revenue Service (the "IRS") will be requested
with respect to any of the matters discussed herein. There can be no assurance
that the IRS will not take a different position concerning the matters
discussed below and that such positions would not be sustained. BECAUSE
INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH HOLDER OF NOTES SHOULD CONSULT HIS
OR HER OWN TAX ADVISOR WITH RESPECT TO HIS OR HER PARTICULAR TAX SITUATION AND
AS TO ANY FEDERAL, FOREIGN, STATE, LOCAL OR OTHER TAX CONSIDERATIONS
(INCLUDING ANY POSSIBLE CHANGES IN TAX LAW) AFFECTING THE PURCHASE, OWNERSHIP
AND DISPOSITION OF THE NOTES.
This discussion is based on the provisions of the Code, existing and
proposed Treasury regulations promulgated thereunder (the "Regulations"),
judicial authority interpreting the Code, and current administrative rulings
and pronouncements of the IRS now in effect, all of which are subject to
change at any time by legislative, judicial or administrative action. Any such
changes may be retroactively applied in a manner that could result in federal
income tax consequences different from those discussed below and could
adversely affect a holder of Notes.
EXCHANGE OF ORIGINAL NOTES FOR EXCHANGE NOTES
The exchange of Original Notes for Exchange Notes should not constitute a
significant modification of the terms of the Original Notes, and, accordingly,
will not be treated as a taxable exchange for United States federal income tax
purposes. Consequently, no gain or loss will be recognized by holders of
Original Notes upon receipt of the Exchange Notes, and ownership of the
Exchange Notes will be considered a continuation of ownership of the Original
Notes. The Company will take this position and intends to report the
transaction in this manner for federal income tax purposes. For purposes of
determining gain or loss upon the subsequent sale or exchange of the Exchange
Notes, a holder will have the same adjusted basis in an Exchange Note as the
holder had in the Original Note exchanged therefor. In addition, a holder's
holding period for an Exchange Note will include the holding period for the
Original Note exchanged therefor.
The remaining summary of federal income considerations relates to owning and
disposing of Exchange Notes, and also applies to holders of Original Notes who
do not accept the Exchange Offer.
UNITED STATES FEDERAL INCOME TAXATION OF UNITED STATES HOLDERS
As used herein, the term "United States Holder" means a holder of a Note
that is for United States federal income tax purposes (i) an individual
citizen or resident of the United States, (ii) a corporation, partnership or
other entity created or organized in or under the laws of the United States or
any political subdivision thereof, (iii) an estate the income of which is
subject to United States federal income taxation regardless of source, (iv) a
trust whose administration is subject to the primary supervision of a United
States court and which has one or more United States persons who have the
authority to control all substantial decisions of the trust.
Stated Interest. Stated interest on the Notes will generally be taxable to a
United States Holder as ordinary income from domestic sources at the time it
is paid or accrued in accordance with the United States Holder's method of
accounting for tax purposes.
Amortizable Bond Premium. If a United States Holder purchases a Note for an
amount that is greater than the sum of all payments payable on the Note after
the purchase date, other than qualified stated interest, such United States
Holder will be considered to have purchased such Note with
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"amortizable bond premium" equal in amount to such excess. A United States
Holder may elect to amortize such bond premium over the remaining term of such
Note (or if it results in a smaller amount of amortizable bond premium, until
an earlier call date, and in such case by reference to the amount payable on
that date).
Under new Regulations issued December 30, 1997, if bond premium is
amortized, the amount of interest on the Note included in the United States
Holder's income for each accrual period ending on an interest payment date or
on the stated maturity of the Note, as the case may be, will be reduced by a
portion of the bond premium allocable to such accrual period based on the
Note's yield to maturity (or earlier call date, if reference to such call date
produces a smaller amount of amortizable bond premium). If the amortizable
bond premium allocable to such accrual period exceeds the amount of interest
allocable to such accrual period, such excess would be allowed as a deduction
for such accrual period, but only to the extent of the United States Holder's
prior inclusion in income of interest payments on the Note. Any excess above
such prior interest inclusions is generally carried forward to the next
accrual period. A United States Holder who elects to amortize bond premium
must reduce such United States Holder's tax basis in the Notes as described
under "--Disposition of Notes." If such an election to amortize bond premium
is not made, a United States Holder must include the full amount of each
interest payment on the Note in income in accordance with its regular method
of accounting and will receive a tax benefit from the bond premium only in
computing such United States Holder's gain or loss upon disposition of the
Note.
An election to amortize bond premium will apply to all taxable debt
obligations then held or subsequently acquired by the electing United States
Holder on or after the first day of the first taxable year to which the
election applies and may not be revoked without the consent of the IRS. A
United States Holder should consult with such United States Holder's tax
advisor with respect to the general applicability of the amortizable bond
premium rules of Section 171 of the Code to such United States Holder, and
whether such United States Holder should make an election under these rules.
Market Discount. If a United States Holder purchases a Note for an amount
that is less than its stated redemption price at maturity (i.e., the sum of
all payments on the Note other than stated interest payments), the amount of
the difference will be treated as "market discount" for federal income tax
purposes, unless such difference is less than a de minimis amount as specified
by the Code. Under the market discount rules, a United States Holder will be
required to treat any principal payment on, or any gain on the sale, exchange,
retirement or other disposition of a Note as ordinary income to the extent of
the market discount which has not previously been included in income and is
treated as having accrued on such Note at the time of such payment or
disposition. In addition, the United States Holder may be required to defer,
until maturity of the Note or its earlier disposition in a taxable
transaction, the deduction of all or a portion of the interest expense on any
indebtedness incurred or maintained to purchase or carry such Note.
The Notes provide for optional redemption and (in the case of a Change in
Control) mandatory offers to purchase, in whole or in part, prior to maturity.
If the Notes were redeemed, a United States Holder generally would be required
to include in gross income as ordinary income the portion of the gain
recognized on the redemption attributable to accrued market discount, if any.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the Notes, unless the
United States Holder elects to accrue market discount on a constant interest
method. A United States Holder of a Note may elect to include market discount
in income currently as it accrues (under either a ratable or constant interest
method). This election to include currently, once made, applies to all market
discount obligations acquired in or after the first taxable year to which the
election applies and may not be revoked without the consent of the IRS. If a
United States Holder of Notes makes such an election, the foregoing rules with
respect
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to the recognition of ordinary income on sales and other dispositions of
instruments, and with respect to the deferral of interest deductions incurred
or maintained to purchase or carry such Notes, would not apply.
Disposition of Notes. Upon the sale, exchange, retirement, redemption or
other disposition of a Note, a United States Holder will recognize taxable
gain or loss equal to the difference between (i) the amount of cash and the
fair market value of property received in exchange therefor (except to the
extent such amount is attributable to accrued but unpaid interest, which
amount will generally be taxable as ordinary income) and (ii) the United
States Holder's adjusted tax basis in the Note. A United States Holder's
adjusted tax basis in a Note will generally equal the United States Holder's
purchase price for such Note, increased by any market discount previously
included in income by the United States Holder and decreased by any principal
payments received by the United States Holder, and any amortizable bond
premium deducted over the term of the Note. Any gain or loss recognized on the
sale, exchange, retirement or other disposition of a Note will generally be
capital gain or loss (except to the extent of any accrued market discount).
Under recently enacted legislation, capital gains of individuals derived in
respect of capital assets held for more than one year are eligible for reduced
rates of taxation which may vary depending upon the holding period of such
capital assets. The deduction of capital losses is subject to certain
limitations. A United States Holder should consult such United States Holder's
tax advisor regarding the treatment of capital gains or losses.
Backup Withholding. Certain non-corporate United States Holders of Notes may
be subject to backup withholding at the rate of 31% with respect to interest
payments on the Notes and cash payments received in certain circumstances upon
the disposition of such Notes. Generally, backup withholding is applied only
when the taxpayer (i) fails to furnish or certify its correct taxpayer
identification number to the payor in the manner required, (ii) is notified by
the IRS that it has failed to report payments of interest and dividends
properly, or (iii) under certain circumstances, fails to certify that it has
not been notified by the IRS that it is subject to backup withholding for
failure to report interest and dividend payments. Any amounts withheld under
the backup withholding rules will be allowed as a refund or credit against a
United States Holder's United States federal income tax liability, provided
that such United States Holder furnished the required information to the IRS.
UNITED STATES FEDERAL INCOME TAXATION OF NON-UNITED STATES HOLDERS
This section discusses certain special rules applicable to a holder of Notes
that is a Non-United States Holder. For purposes of this discussion, a "Non-
United States Holder" means a holder of Notes that is not (i) an individual
citizen or resident of the United States, (ii) a corporation, partnership or
other entity created or organized in or under the laws of the United States or
any political subdivision thereof, (iii) an estate the income of which is
subject to United States federal income taxation regardless of source, or (iv)
a trust whose administration is subject to the primary supervision of a United
States court and which has one or more United States persons who have the
authority to control all substantial decisions of the trust.
Receipt of Stated Interest by Non-United States Holder. Subject to the
discussion of backup withholding set forth below, payments of interest
(including original issue discount) to a Non-United States Holder who is the
beneficial owner of a Note generally will not be subject to the 30% U.S.
withholding tax under the portfolio interest exemption of the Code; provided,
that (i) beneficial owner of the Note does not actually or constructively own
10% or more of the total combined voting power of all classes of stock of the
Company entitled to vote within the meaning of Section 871(h)(3) of the Code
and the Regulations thereunder; (ii) such beneficial owner is not a controlled
foreign corporation that is related to the Company through stock ownership;
(iii) such beneficial owner is not a bank whose receipt of interest on a Note
is described in Section 881(c)(3)(A) of the Code; and (iv) such beneficial
owner satisfies the certification requirement (described generally below) set
forth in Section
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871(h) (in the case of individuals) or Section 881(c) (in the case of foreign
corporations) of the Code and the Regulations thereunder.
To satisfy the certification requirement referred to in (iv) above, the
beneficial owner of a Note, or a financial institution holding the Note on
behalf of such owner, must provide, in accordance with specified procedures,
the Company or its paying agent, as the case may be, with a statement to the
effect that the beneficial owner is a Non-United States Holder. Such
requirement generally will be met if (1) the beneficial owner provides such
beneficial owner's name and address, signs under penalties of perjury, and
certifies that such beneficial owner is a Non-United States Holder (which
certification may be made on IRS Form W-8 (or substitute Form W-8)) or (2) a
securities clearing organization, a bank or other financial institution
holding the Note on behalf of the beneficial owner certifies, under penalties
of perjury, that such statement has been received by it and furnishes the
Company or its paying agent, as the case may be, with a copy thereof.
Recently issued Regulations that will be effective with respect to payments
made after December 31, 1999, will provide alternative methods for satisfying
the certification requirement described above. The Regulations also would
require, in the case of Notes held by a foreign partnership, that (i) the
certification be provided by the partners rather than by the foreign
partnership, and (ii) the partnership provide certain information, including a
United States taxpayer identification number. Non-United States Holders are
advised to consult their own tax advisors to discuss the effect of these
Regulations in light of such Non-United States Holders' situation.
If the Non-United States Holder cannot satisfy the requirements of the
"portfolio interest" exception described above, payments of premium, if any,
and interest made to Non-United States Holders with respect to the Notes will
be subject to a 30% United States withholding tax unless the beneficial owner
of a Note provides the Company or its paying agent, as the case may be, with,
and keeps current (i) a properly executed IRS Form 1001 (or successor form)
claiming an exemption from United States withholding tax under a United States
income tax treaty, or (ii) a properly executed IRS Form 4224 (or successor
form) claiming such premium and/or interest is exempt from United States
withholding tax because such premium and/or interest is effectively connected
with the conduct of a United States trade or business by the Non-United States
Holder, in which case the premium and/or interest will be subject to the
United States federal income tax on net income at the rates applicable to
United States persons generally (and with respect to corporate holders and
under certain circumstances, the 30% branch profits tax).
Gain on Disposition of Notes. A Non-United States Holder will generally not
be subject to United States federal income tax with respect to gain recognized
on disposition of the Notes unless (i) the gain is effectively connected with
a trade or business of the Non-United States Holder in the United States, (ii)
in the case of a Non-United States Holder that is an individual, such holder
is present in the United States for 183 or more days in the taxable year of
the disposition and certain other requirements are met, or (iii) the Non-
United States Holder is subject to tax pursuant to provisions of the United
States federal income tax law applicable to certain United States expatriates.
Information Reporting and Backup Withholding. In general, no United States
information reporting or backup withholding tax will be required with respect
to payments of principal or interest made by the Company to Non-United States
Holders if the certification described above in (iv) under "--Receipt of
Stated Interest by Non-United States Holder" has been received and the payor
does not have actual knowledge that the beneficial owner is a United States
person.
Payments of principal or interest to the beneficial owner of a Note by a
United States office of a custodian, nominee or agent, or the payment by a
United States office of a broker of the proceeds of a sale of the Note, is
subject to both backup withholding and information reporting unless the
beneficial owner certifies under penalties of perjury that such owner is a
Non-United States Holder or otherwise establishes an exemption.
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In general, backup withholding and information reporting will not apply if
payments on a Note are paid or collected by a foreign office of a custodian,
nominee, or other foreign agent on behalf of the beneficial owner of such
Note, or if a foreign office of a broker (as defined in applicable
Regulations) pays the proceeds of the sale of a Note to the owner thereof. If,
however, such nominee, custodian, agent or broker is, for United States
federal income tax purposes, a United States person, or a controlled foreign
corporation, or a foreign person 50% or more of whose gross income for certain
periods is derived from activities that are effectively connected with the
conduct of a trade or business in the United States, or, for taxable years
beginning after December 31, 1999, a foreign partnership, in which one or more
United States persons, in the aggregate, own more than 50% of the income or
capital interests in the partnership or which is engaged in a trade or
business in the United States, such payments will not be subject to backup
withholding, but will be subject to information reporting unless (i) such
nominee, custodian, agent or broker has documentary evidence in its records
that the beneficial owner is a Non-United States Holder and certain other
conditions are met, or (ii) the beneficial owner otherwise establishes an
exemption, provided such broker does not have actual knowledge that the payee
is a United States person. Non-United States Holders should consult their tax
advisors regarding the application of these rules to their particular
situations, the availability of an exemption therefrom and the procedure for
obtaining such an exemption, if available.
The Treasury Department has issued final Regulations regarding the backup
withholding and information reporting rules discussed above. In general, the
final Regulations, which are generally effective for payments made after
December 31, 1999, subject to certain transition rules, do not alter the
substantive withholding and information reporting requirements but instead
unify current forms and procedures.
Any amounts withheld under backup withholding will be allowed as a credit
against such Non-United States Holder's United States federal income tax
liability and may entitle such holder to a refund, provided the required
information is furnished to the IRS.
LEGAL MATTERS
Certain legal matters with respect to the issuance and sale of the Notes
offered hereby will be passed upon for the Company by Bracewell & Patterson,
L.L.P., Houston, Texas. Certain members of Bracewell & Patterson, L.L.P. own
less than 1.0% of the outstanding Common Stock of AXIA Group.
EXPERTS
The consolidated financial statements of the Company and Subsidiaries as of
December 31, 1997 and 1996, and for each of the three years in the period
ended December 31, 1997, included in this Registration Statement, have been
audited by Arthur Andersen LLP, independent public accountants, as stated in
their report appearing herein.
The balance sheet of Finance Co. as of June 19, 1998 included in this
Registration Statement has been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein.
118
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
AXIA Incorporated and Subsidiaries--Audited Consolidated Financial
Statements as of December 31, 1997 and 1996 and for each of the three
years in the period ended December 31, 1997
Report of Independent Public Accountants............................... F-2
Consolidated Balance Sheets............................................ F-3
Consolidated Statements of Stockholder's Equity........................ F-4
Consolidated Statements of Income...................................... F-5
Consolidated Statements of Cash Flows.................................. F-6
Notes to the Consolidated Financial Statements......................... F-7
AXIA Incorporated and Subsidiaries--Unaudited Interim Consolidated
Financial Statements as of June 30, 1998 and December 31, 1997 and for
the six months ended June 30, 1998 and 1997
Consolidated Balance Sheets............................................ F-32
Consolidated Statements of Income...................................... F-33
Consolidated Statements of Stockholder's Equity........................ F-34
Consolidated Statements of Cash Flows.................................. F-35
Notes to the Unaudited Interim Consolidated Financial Statements....... F-36
AXIA Finance Corp.
Independent Auditors' Report........................................... F-46
Balance Sheet as of June 19, 1998...................................... F-47
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of
Directors of AXIA Incorporated:
We have audited the accompanying consolidated balance sheets of AXIA
INCORPORATED (a Delaware corporation) AND SUBSIDIARIES as of December 31, 1997
and 1996, and the related consolidated statements of income, stockholder's
equity and cash flows for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of AXIA INCORPORATED AND
SUBSIDIARIES as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Chicago, Illinois
February 25, 1998
(except with respect to the matters discussed in
Note 18, as to which the date is July 22, 1998)
F-2
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS 1997 1996
------ ------- -------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................... $ 1,310 $ 1,716
Accounts receivable, net.................................... 12,759 10,687
Inventories................................................. 9,155 9,086
Prepaid income taxes and other current assets............... 436 1,695
Deferred income tax assets.................................. 2,593 3,027
------- -------
Total Current Assets...................................... $26,253 $26,211
------- -------
PLANT AND EQUIPMENT, AT COST:
Land........................................................ $ 508 $ 521
Buildings and improvements.................................. 6,620 6,509
Machinery and equipment..................................... 24,741 23,149
Equipment leased to others.................................. 7,139 6,040
------- -------
$39,008 $36,219
Less: Accumulated depreciation.............................. 14,938 11,346
------- -------
Net Plant and Equipment................................... $24,070 $24,873
------- -------
OTHER ASSETS:
Goodwill, net............................................... $33,505 $34,679
Intangible assets, net...................................... 703 377
Deferred charges, net....................................... 12,182 12,213
Investment in affiliate..................................... -- 900
Other assets................................................ 60 78
------- -------
Total Other Assets........................................ $46,450 $48,247
------- -------
TOTAL ASSETS.................................................. $96,773 $99,331
======= =======
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt........................ $10,925 $ 6,647
Accounts payable............................................ 4,021 3,655
Accrued liabilities......................................... 7,219 8,547
Accrued income taxes........................................ 264 --
------- -------
Total Current Liabilities................................. $22,429 $18,849
------- -------
NON-CURRENT LIABILITIES:
Long-term debt, less current maturities..................... $20,439 $34,548
Other non-current liabilities............................... 10,883 11,050
Deferred income taxes....................................... 2,955 2,766
------- -------
Total Non-Current Liabilities............................. $34,277 $48,364
------- -------
STOCKHOLDER'S EQUITY:
Common stock, $.01 par value 100 shares issued and
outstanding................................................ $ -- $ --
Additional paid-in capital.................................. 16,723 16,723
Retained earnings........................................... 23,818 15,395
Accumulated Other Comprehensive Income...................... (474) --
------- -------
Total Stockholder's Equity................................ $40,067 $32,118
------- -------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY.................... $96,773 $99,331
======= =======
</TABLE>
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these balance sheets.
F-3
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE PERIODS ENDED DEC. 31, 1997, DEC. 31, 1996, AND DEC. 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
OTHER COMPREHENSIVE INCOME
-----------------------------------
ACCUMULATED
ADDITIONAL MINIMUM CUMULATIVE OTHER
COMMON STOCK PAID-IN RETAINED PENSION TRANSLATION COMPREHENSIVE COMPREHENSIVE
PAR CAPITAL EARNINGS LIABILITY ADJUSTMENTS INCOME INCOME
------------ ---------- -------- --------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DEC. 31, 1994.. $ -- $16,848 $ 3,644 $ -- $ 304 $ 304
======= ======= ======= ===== ===== =====
Net income............. -- -- 4,889 -- -- -- $4,889
Cumulative translation
adjustment............ -- -- -- -- 322 322 322
Other.................. -- -- -- (54) -- (54) (54)
------
Comprehensive income... $5,157
======
Stock repurchase....... -- (125) -- -- -- --
------- ------- ------- ----- ----- -----
BALANCE, DEC. 31, 1995.. $ -- $16,723 $ 8,533 $ (54) $ 626 $ 572
======= ======= ======= ===== ===== =====
Net income............. -- -- 6,862 -- -- -- $6,862
Cumulative translation
adjustment............ -- -- -- -- (302) (302) (302)
Other.................. -- -- -- (270) (270) (270)
------
Comprehensive income... $6,290
------- ------- ------- ----- ----- ----- ======
BALANCE, DEC. 31, 1996.. $ -- $16,723 $15,395 $(324) $ 324 $ --
======= ======= ======= ===== ===== =====
Net income............. -- -- 8,423 -- -- -- $8,423
Cumulative translation
adjustment............ -- -- -- -- (616) (616) (616)
Other.................. -- -- -- 142 -- 142 142
------
Comprehensive income... 7,949
------- ------- ------- ----- ----- ----- ======
BALANCE, DEC. 31, 1997.. $ -- $16,723 $23,818 $(182) $(292) $(474)
======= ======= ======= ===== ===== =====
</TABLE>
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these statements.
F-4
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE PERIODS ENDED DEC. 31, 1997, DEC. 31, 1996, AND DEC. 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net sales............................. $ 77,418 $ 79,771 $ 81,914
Net rentals........................... 27,382 25,016 22,412
-------- -------- --------
NET REVENUES............................ $104,800 $104,787 $104,326
Cost of sales......................... 50,518 52,434 55,171
Cost of rentals....................... 9,626 8,860 9,658
Selling, general and administrative
expenses............................. 25,302 25,146 24,181
-------- -------- --------
INCOME FROM OPERATIONS.................. $ 19,354 $ 18,347 $ 15,316
Interest expense...................... 3,710 5,123 6,596
Interest income....................... (367) (39) (44)
Other expense (income), net........... 404 57 537
-------- -------- --------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM..................... $ 15,607 $ 13,206 $ 8,227
Provision for income taxes............ 6,412 5,730 3,338
-------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM........ $ 9,195 $ 7,476 $ 4,889
EXTRAORDINARY ITEM:
Loss on early extinguishment of debt,
net of income taxes of $479 and $410,
respectively (see Notes 5 and 7)..... 772 614 --
-------- -------- --------
NET INCOME.............................. $ 8,423 $ 6,862 $ 4,889
======== ======== ========
</TABLE>
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these statements.
F-5
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED DEC. 31, 1997, DEC. 31, 1996, AND DEC. 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JAN. 1, 1997 JAN. 1, 1996 JAN. 1, 1995
TO TO TO
DEC. 31, 1997 DEC. 31, 1996 DEC. 31, 1995
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................... $ 8,423 $ 6,862 $ 4,889
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization...... 5,099 6,716 6,380
Extraordinary item-write off of
deferred financing costs and
original issue discount........... 826 1,024 --
Deferred income tax provision
(benefit)......................... 623 398 753
Loss (gain) on disposal of fixed
assets............................ 159 14 184
Gain on sale of investment......... (559) -- --
Provision for losses on accounts
receivable........................ 2,169 1,499 1,049
Provision for obsolescence of
inventories....................... 79 592 (20)
Credit to pension expense.......... (231) (275) (166)
Changes in assets and liabilities:
Accounts receivable............... (4,557) (15) (1,291)
Inventories....................... (426) (501) (1,146)
Accounts payable.................. 442 (433) 651
Accrued liabilities............... (1,244) (437) (308)
Other current assets.............. (14) 270 (706)
Income taxes payable.............. 1,532 (151) 569
Other non-current assets.......... (642) (176) (408)
Other non-current liabilities..... 51 25 (479)
-------- ------- -------
Net Cash Provided by Operating
Activities..................... $ 11,730 $15,412 $ 9,951
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash used for capital expenditures. (3,475) (3,862) (3,853)
Proceeds from sale of fixed assets. 357 55 281
Proceeds from sale of investment... 1,459 -- --
-------- ------- -------
Net Cash (Used in) Investing
Activities..................... $ (1,659) $(3,807) $(3,572)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from other long-term debt. 944 25,411 296
Payments of other long-term debt... (15,931) (34,566) (7,374)
Net increase in Revolving Credit
Loan.............................. 4,500 -- --
Payments of deferred financing
costs............................. -- (426) --
Other equity transactions.......... 37 (301) (166)
-------- ------- -------
Net Cash (Used in) Financing
Activities..................... $(10,450) $(9,882) $(7,244)
EFFECT OF EXCHANGE RATE CHANGES ON
CASH................................ (27) (52) 38
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.................... $ (406) $ 1,671 $ (827)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD................. 1,716 45 872
-------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD.............................. $ 1,310 $ 1,716 $ 45
======== ======= =======
</TABLE>
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these statements.
F-6
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 1
Nature of Business
AXIA Incorporated, the "Company," is a diversified manufacturer and marketer
of (i) formed and coated wire products, material handling and storage
equipment, (ii) specialized packaging machinery, and (iii) tools and other
products for finishing drywall in new, manufactured, and renovated housing and
commercial construction.
On March 15, 1994, AXIA Incorporated (the "Predecessor Company") was
acquired as part of a merger with a newly-formed company, AXIA Acquisition
Corp. ("Acquisition"), a Delaware corporation, with the surviving corporation
continuing under the name AXIA Incorporated (the "Company", including
reference to the Predecessor Company where appropriate). The Company is 100%
owned by AXIA Holdings Corporation ("Holdings"). Due to the substantial change
in controlling interest in the Company, the Company reflected a complete
change in its accounting basis of its assets and liabilities from Predecessor
Company historical cost to estimated fair value as of March 15, 1994.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
Estimates and Assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Principles of Consolidation
The Consolidated Financial Statements include AXIA INCORPORATED AND
SUBSIDIARIES (the "Company"). All significant intercompany items are
eliminated in consolidation.
Foreign Currency Translation
Assets and liabilities of foreign subsidiaries are translated at the current
rate of exchange at the balance sheet date. Revenues and expenses are
translated at the average exchange rate for the period. Translation
adjustments have been excluded from the results of operations and are reported
as a separate component of Stockholder's Equity. Gains and losses resulting
from foreign currency transactions, which are not material, are included in
the Consolidated Statements of Income.
Cash and Cash Equivalents
Cash equivalents are carried at cost, which approximates market. The Company
considers all highly liquid investments with a maturity of three months or
less when purchased to be cash equivalents.
Inventories
Inventories are stated at the lower of first-in, first-out (FIFO) cost or
market.
F-7
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Plant and Equipment
Depreciation is provided over the following useful lives:
<TABLE>
<S> <C>
Buildings and improvements..................................... 2-30 years
Machinery and equipment........................................ 3-12 years
Equipment leased to others..................................... 5-7 years
</TABLE>
Depreciation on plant and equipment is provided on the straight-line method
over the estimated useful lives of the assets for financial reporting
purposes. Accelerated methods and lives are used for income tax purposes.
Expenditures for maintenance and repairs are charged to expense when incurred.
Expenditures for renewals and betterments are capitalized and depreciated over
the estimated remaining useful lives of the assets.
The original cost and related accumulated depreciation of assets sold or
retired are removed from the applicable accounts, with any gain or loss
resulting from the transaction included in income.
Income Taxes
Income tax provisions are made for the estimated amount of income taxes on
reported earnings which are payable currently and in the future.
As required by Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS No. 109"), the deferred tax provision is
determined using the liability method. Under this method, deferred tax assets
and liabilities are recognized based on differences between the financial
statements and the tax basis of assets and liabilities as determined using
presently enacted tax laws and the appropriate tax rates.
Deferred Charges, Intangible Assets and Goodwill
Amortizable loan costs, organization costs, patents, customer lists, and
other intangible assets and deferred charges are stated in the accompanying
Consolidated Balance Sheets net of amortization and are amortized over their
estimated useful lives, which range from 2 to 16 years.
Goodwill represents the excess purchase price paid over the estimated fair
value of the net assets acquired in the March 15, 1994 merger discussed Note
1. Goodwill is stated net of amortization and is being amortized on a
straight-line basis for a period of not more than 40 years (see Note 5).
Subsequent to its acquisition, the Company continually evaluates whether later
events and circumstances have occurred that indicate the remaining estimated
useful life of goodwill may warrant revision or that the remaining balance of
goodwill may not be recoverable. When factors indicate that goodwill should be
evaluated for possible impairment, the Company uses an estimate of the related
business segment's undiscounted operating income (before goodwill
amortization) over the remaining life of the goodwill in measuring whether the
goodwill is recoverable.
New Accounting Pronouncements
In 1996, the Company adopted Statement of Financial Accounting Standards No.
121 ("SFAS 121") "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." The adoption of SFAS 121 did not have a
material impact on the financial position or results of operations of the
Company.
F-8
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
In 1997, the Financial Accounting Standards Board issued two new disclosure
standards. Results of operations and financial position will be unaffected by
implementation of these new standards.
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," ("SFAS No. 130") establishes standards for reporting
and display of comprehensive income, its components, and accumulated balances.
Comprehensive income is defined to include all changes in equity except those
resulting from investments by owners and distributions to owners. Among other
disclosures, SFAS No. 130 requires that all items that are required to be
recognized under current accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements. See subsequent event discussion in
Note 18.
Statement of Financial Accounting Standards No. 131, "Disclosure about
Segments of an Enterprise and Related Information" ("SFAS No. 131"), which
supersedes SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise," establishes standards for the way that public enterprises report
information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in interim
financial statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas, and major
customers. SFAS No. 131 defines operating segments as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. Due to the recent issuance of
this standard, management has been unable to fully evaluate the impact, if
any, it may have on future financial statement disclosures.
Both of these new standards are effective for financial statements for
periods beginning after December 15, 1997, and require comparative information
for earlier years to be restated.
NOTE 3--ACCOUNTS RECEIVABLE
Trade accounts receivable are stated net of allowance for doubtful accounts.
Transactions affecting the allowance for doubtful accounts are shown in the
following table (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Balance, beginning of period...... $1,491 $1,140 $ 942
Additions, charged to income...... 2,169 1,499 1,049
Deductions, write-off of
uncollectible accounts, net of
recoveries....................... (1,814) (1,148) (851)
------ ------ ------
Balance, end of period............ $1,846 $1,491 $1,140
====== ====== ======
</TABLE>
The Company is a diversified distributor, marketer and manufacturer of a
wide range of high quality products used in the construction industry and
agricultural and durable goods businesses. As such, its customers range from
individual entrepreneurs to large corporations.
F-9
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
NOTE 4--INVENTORIES
Inventories are stated at the lower of first-in, first-out (FIFO) cost or
market. The cost elements included in inventories are material, labor and
factory overhead.
Inventories, net of reserves of $528,000 and $546,000 as of December 31,
1997 and 1996, respectively, consist of (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Raw materials................................... $4,146 $4,653
Work in process................................. 1,058 854
Finished goods.................................. 3,951 3,579
------ ------
Total inventories........................... $9,155 $9,086
====== ======
</TABLE>
NOTE 5--GOODWILL, INTANGIBLE ASSETS AND DEFERRED CHARGES
Goodwill, intangible assets and deferred charges consist of the following
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Goodwill........................................ $37,072 $37,380
Less amortization............................... 3,567 2,701
------- -------
Goodwill, net................................. $33,505 $34,679
======= =======
Patents......................................... $ 496 $ 529
Customer lists.................................. 223 223
Computer software............................... 711 310
Other intangibles............................... 340 301
------- -------
Subtotal...................................... $ 1,770 $ 1,363
Less amortization............................... 1,067 986
------- -------
Intangible assets, net........................ $ 703 $ 377
======= =======
Prepaid pension costs........................... $ 8,049 $ 7,690
Life insurance deposits......................... 3,467 3,297
Deferred financing costs........................ 1,040 1,632
Other deferred charges.......................... 161 147
------- -------
Subtotal...................................... $12,717 $12,766
Less amortization............................... 535 553
------- -------
Deferred charges, net......................... $12,182 $12,213
======= =======
</TABLE>
Total amortization expense related to the above assets was $1,236,000,
$1,842,000 and $2,113,000 for the periods ended December 31, 1997, 1996, and
1995, respectively. As a result of the early extinguishment of debt as
discussed in Note 7, the Company wrote off $314,000 and $1,024,000 of
unamortized deferred financing costs in 1997 and 1996, respectively.
F-10
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
NOTE 6--ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Salaries, wages, vacations and payroll taxes... $2,588 $2,445
Insurance...................................... 1,546 1,509
Other current liabilities...................... 3,085 4,593
------ ------
Total accrued liabilities.................. $7,219 $8,547
====== ======
</TABLE>
NOTE 7--LONG-TERM DEBT
Long-term debt, inclusive of capitalized lease obligations which are not
material, is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
11.00% Senior Subordinated Notes................ $ 9,749 $18,343
Term Loan....................................... 15,732 22,222
Revolving Credit Loan........................... 4,500 --
Other........................................... 1,383 630
------- -------
Total Debt.................................... 31,364 41,195
Less: Current maturities........................ 10,925 6,647
------- -------
Total Long-Term Debt........................ $20,439 $34,548
======= =======
</TABLE>
The Senior Subordinated Notes above are stated net of unamortized discounts
of $501,000 and $1,157,000 as of December 31, 1997 and 1996, respectively. The
carrying amount of the Term Loan approximates its fair value as the term notes
bear interest at floating rates. The fair value of the Senior Subordinated
Notes at December 31, 1997 was $10,701,000 as determined by market quotations.
Other debt consists of a revolving line of credit for the Company's European
operations and capitalized lease financing.
Bank Credit Agreement
On June 27, 1996, the Company and its domestic subsidiaries entered into a
credit agreement (the "Bank Credit Agreement") which included a term loan
("Term Loan") with an original principal amount of $25,000,000 and a non-
amortizing revolving credit loan ("Revolving Credit Loan") of up to
$15,000,000, including up to $1,000,000 of letters of credit. The Company
recorded a pre-tax charge of $1,024,000 representing the writeoff of
unamortized deferred loan costs from its previous bank financing agreement.
This charge, net of tax, is reflected as an extraordinary item in the
accompanying Consolidated Statements of Income for the period ended December
31, 1996. The Bank Credit Agreement was amended in March 1997 to increase the
Revolving Credit Loan availability to $20,000,000.
Under the Bank Credit Agreement, the loans may, at the option of the
Company, be either Base Rate borrowings, Eurodollar borrowings or a
combination thereof. Base Rate borrowings bear interest at the prime rate or
the Federal Funds rate plus 1.00%, whichever is higher, and Eurodollar
borrowings bear interest at a rate of LIBOR plus 1.50%. In certain events
defined in the agreement, the Eurodollar borrowing interest rate may be
increased to LIBOR plus 1.75%. The Company pays a
F-11
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
NOTE 7--LONG-TERM DEBT--(CONTINUED)
fee of .38% per annum on the unused balance of the line of credit. The Company
can repay any borrowings at any time without penalty. The weighted average
interest rates on all amounts outstanding under the Bank Credit Agreement as
of December 31, 1997 was 7.56%. Substantially all of the assets of the
Company, ATTS, and TapeTech act as collateral under the Bank Credit Agreement.
Subsequent to a scheduled mandatory Term Loan payment of $210,000 in
February 1998 due to an asset sale, the Term Loan will have scheduled
maturities of $1,294,000 quarterly, maturing with a final payment of
$1,288,000 on December 31, 2000. The Revolving Credit Loan also terminates on
December 31, 2000. Interest payments are generally due quarterly. The Company
is required to prepay portions of the Term Loan in the event of a major asset
sale, as defined in the Bank Credit Agreement.
11.00% Senior Subordinated Notes
The 11.00% Senior Subordinated Notes were issued pursuant to a trust
indenture (the "Indenture") between the Company, certain guarantors and a
trustee bank and were sold to a group of private investors. Interest on the
notes is payable semi-annually and the notes mature on March 15, 2001. The
notes may be redeemed, at the Company's option, in full or in part, at a
decreasing premium rate of 104.4% declining to 102.2% at March 15, 1998. A
change of control of the Company, as defined, would require the Company to
offer to redeem all notes at a 101% premium.
In July 1994, the Company filed a Registration Statement with the Securities
and Exchange Commission to register the Senior Subordinated Notes under the
Securities Act of 1933. The Notes are guaranteed by all of the Company's
domestic subsidiaries. See Note 17 for further information regarding these
guarantees.
In May 1997, the Company exercised its option to redeem and extinguish
$9,250,000 of its Senior Subordinated Notes. The Company recorded a pretax
charge of $1,251,000 representing the aforementioned redemption premium, the
writeoff of capitalized financing costs associated with the original issuance
of the notes, the applicable original issue discount, and legal expenses,
agent fees, and other costs of the transaction. The charge, net of tax, is
reflected as an extraordinary item in the accompanying Consolidated Statement
of Income for the period ended December 31, 1997.
Restrictive Loan Covenants
The Bank Credit Agreement and the Indenture contain certain covenants which,
among other things and all as defined in the applicable agreement, require the
Company to maintain a minimum net worth, current ratio, interest coverage
ratio, and fixed charge coverage ratio, and maximum leverage ratio of
indebtedness to net worth. In addition, the Company may not create or incur
certain types of additional debt or liens, declare dividends except as
defined, or make capital expenditures or other restricted payments, as
defined, during the term of the agreements in excess of varying amounts, as
defined. The Company was in compliance with its loan covenants as of December
31, 1997.
F-12
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
NOTE 7--LONG-TERM DEBT--(CONTINUED)
Scheduled Principal Payments
Scheduled payments of principal of long-term debt outstanding at December
31, 1997, including capitalized lease obligations, are (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------
REVOLVING SENIOR
TERM CREDIT SUBORDINATED
LOAN LOAN NOTES OTHER
------- --------- ------------ ------
<S> <C> <C> <C> <C>
1998................................ $ 5,386 $4,500 $ -- $1,039
1999................................ 5,176 -- -- 139
2000................................ 5,170 -- -- 135
2001................................ -- -- 9,749 70
------- ------ ------ ------
Total........................... $15,732 $4,500 $9,749 $1,383
======= ====== ====== ======
</TABLE>
The scheduled maturities above include a prepayment in 1998 of $210,000
related to the sale of assets as required in the Bank Credit Agreement. The
amounts outstanding under revolving credit agreements are recorded as current
maturities in the accompanying Consolidated Balance Sheets.
The Company made the following interest payments for the periods ended
December 31, 1997, December 31, 1996, and December 31, 1995 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Interest payments.................. $3,551 $4,399 $5,780
</TABLE>
NOTE 8--CAPITAL STOCK
Subsequent to the merger and acquisition on March 15, 1994, the Company has
100 shares of common stock, par value $.01 per share, authorized, issued and
outstanding, all of which are owned by Holdings.
F-13
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
NOTE 9--INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities presented in the
financial statements and the amounts used for income tax purposes. Deferred
tax assets and liabilities were composed of the following (in thousands):
<TABLE>
<CAPTION>
DEFERRED INCOME TAX ASSETS DECEMBER 31, DECEMBER 31,
CURRENT ASSETS 1997 1996
-------------------------- ------------ ------------
<S> <C> <C>
Inventory valuation................................ $ 601 $ 652
Bad debt reserves.................................. 706 570
Insurance accruals................................. 466 464
Rental tool repair................................. 203 168
Environmental accrual.............................. 6 209
Facility realignment............................... -- 239
Tax accruals....................................... 50 76
Other, net......................................... 561 649
------- -------
Total deferred tax asset........................... $ 2,593 $ 3,027
======= =======
<CAPTION>
DEFERRED INCOME TAX ASSETS (LIABILITIES) DECEMBER 31, DECEMBER 31,
NONCURRENT ASSETS (LIABILITIES) 1997 1996
---------------------------------------- ------------ ------------
<S> <C> <C>
Depreciation & amortization........................ $(3,890) $(3,666)
Pension plans...................................... (2,879) (2,661)
Insurance accruals................................. 382 420
Tax accruals....................................... 212 76
Post-retirement benefits (ex. pensions)............ 1,548 1,464
Environmental accrual.............................. 1,415 1,339
Other, net......................................... 257 262
------- -------
Total deferred tax (liability), net................ $(2,955) $(2,766)
======= =======
</TABLE>
The components of the income tax provision, excluding the amount
attributable to the extraordinary item, are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
U.S. and state taxes payable.......... $5,013 $4,700 $1,899
Foreign taxes payable................. 776 632 686
------ ------ ------
Taxes currently payable............. $5,789 $5,332 $2,585
Deferred taxes, net................... 623 398 753
------ ------ ------
Total provision................... $6,412 $5,730 $3,338
====== ====== ======
</TABLE>
F-14
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
NOTE 9--INCOME TAXES--(CONTINUED)
A reconciliation between the statutory and the effective income tax rates,
excluding the amount attributable to the extraordinary item, is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Statutory income tax rate............ 34.0% 34.0% 34.0%
Non-deductible amortization.......... 3.5 3.7 4.0
State income taxes, net of federal
income tax benefit.................. 2.5 3.1 2.2
Other, net........................... 1.1 2.6 .4
---- ---- ----
Effective income tax rate............ 41.1% 43.4% 40.6%
==== ==== ====
</TABLE>
The Company made the following income tax payments, net of refunds, during
the periods ended December 31, 1997, December 31, 1996, and December 31, 1995
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Income taxes paid (refunded).......... $3,795 $4,691 $2,561
</TABLE>
The Company does not record deferred income taxes applicable to
undistributed earnings of foreign subsidiaries. The Company considers these
earnings to be invested for an indefinite period. If such earnings were
distributed, the U.S. income taxes payable would not be material as the
resulting liability would be substantially offset by foreign tax credits.
NOTE 10--PENSION PLANS
The Company's pension plans provide benefits for substantially all
employees. A majority of plan assets are invested in cash, bonds, domestic and
international equities and real estate. Pension costs are funded by the
Company at a rate necessary to maintain the plans on an actuarially sound
basis.
The components of pension expense (credits) are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Normal cost.......................... $1,127 $ 983 $ 799
Interest on beginning of period
projected benefit obligation........ 1,726 1,679 1,680
Return on fund assets................ (3,095) (2,944) (2,581)
Net amortization and deferrals....... 11 7 (4)
Effect of curtailment................ -- -- (60)
------ ------ ------
Total credit to pension expense...... $ (231) $ (275) $ (166)
====== ====== ======
</TABLE>
In 1995, the Company recorded a gain of $60,000 on the curtailment of an
hourly pension plan as a result of the closure of a production facility.
F-15
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
NOTE 10--PENSION PLANS--(CONTINUED)
A summary of the benefit obligations and plan assets is shown in the table
below (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
--------------- ---------------
(A) (B) (A) (B)
------- ------ ------- ------
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefits........................... $23,071 $3,910 $19,380 $3,644
Nonvested benefits........................ 917 54 782 22
------- ------ ------- ------
Accumulated benefit obligation............ $23,988 $3,964 $20,162 $3,666
Effect of projected future compensation
levels................................... 1,227 -- 1,382 --
------- ------ ------- ------
Projected benefit obligation.............. $25,215 $3,964 $21,544 $3,666
Less: Plan assets at fair value........... (33,460) (3,536) (29,077) (3,067)
------- ------ ------- ------
Plan assets (in excess)/less than
projected benefit obligation............. $(8,245) 428 $(7,533) $ 599
Unrecognized prior service cost........... -- (32) -- (35)
Unrecognized net actuarial (loss) gain.... 288 (295) (47) (524)
Adjustment required to recognize minimum
liability................................ -- 327 -- 559
------- ------ ------- ------
Net (asset) liability..................... $(7,957) $ 428 $(7,580) $ 599
======= ====== ======= ======
</TABLE>
- --------
(A) Plans with Assets in excess of Accumulated Benefits
(B) Plans with Accumulated Benefits in excess of Assets
At December 31, 1997, the Company has recorded pension assets of $8,049,000
and liabilities of $520,000 in the Consolidated Balance Sheets. Calculations
of 1997, 1996 and 1995 pension expense under the provisions of SFAS No. 87
assumed a settlement rate of 7.00%, 7.25% and 7.25%, respectively, and a long-
term rate of return on plan assets of 10.0% for all years.
F-16
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
NOTE 11--POST-RETIREMENT BENEFITS OTHER THAN PENSIONS
The Company sponsors three defined benefit post-retirement plans. The
Company entered into employment agreements with executive employees which
provide for death benefits to the executive's estate upon the executive's
death. A second plan provides prescription drug benefits to nonsalaried
employees at one of its plants, and the other provides life insurance benefits
to selected salaried and nonsalaried employees. All plans are noncontributory
and unfunded. The following table sets forth the plans' combined status
reconciled with the amount shown in the Company's Consolidated Balance Sheets
as of December 31, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Accumulated post-retirement benefit obligation:
Retirees....................................... $(3,353) $(3,231)
Fully eligible active plan participants........ (488) (421)
Other active plan participants................. (262) (233)
------- -------
Total post-retirement benefit obligation......... $(4,103) $(3,885)
Plan assets at fair value........................ -- --
Accumulated post-retirement benefit obligation in
excess of plan assets........................... $(4,103) $(3,885)
------- -------
Accrued post-retirement benefit cost............. $(4,103) $(3,885)
======= =======
Net periodic post-retirement benefit cost
included the following components:
Service cost--benefits attributed to service
during the period............................... $ 85 $ (104)
Interest cost on accumulated post-retirement
benefit obligation.............................. 224 265
------- -------
Net periodic post-retirement benefit cost........ $ 309 $ 161
======= =======
</TABLE>
The Company entered into Salary Continuation Agreements with certain key
executive employees which provide a death benefit, contingent upon employment
or service as a consultant with the Company until retirement or death.
Pursuant to the agreement with each such executive, upon the executive's
death, the Company will pay to the respective designated beneficiary, annually
for a period of ten years, an amount equal to 40% of the executives current
salary or salary at the date of retirement. The total post-retirement benefit
obligation of this benefit program included in the table above is $3,544,000
and $3,398,000 at December 31, 1997 and 1996, respectively. The Company has
purchased life insurance policies on the lives of the executives, naming the
Company as the sole beneficiary. The amount of such coverage is designed to
provide to the Company a source of funds to satisfy its obligations under the
program.
The Company, in accordance with a union contract, provides prescription drug
benefits at one of its plants. For measurement purposes, a 7 percent annual
rate of increase in the per capita cost of covered prescription drug benefits
was assumed for 1997 and 1996 and for each year thereafter. The prescription
drug cost trend rate assumption has an effect on the amounts reported. To
illustrate, increasing the assumed health care cost trend rates by 1
percentage point in each year would increase the accumulated post-retirement
benefit obligation as of December 31, 1997 by approximately $78,000 and the
aggregate of the service and interest cost components of net periodic post-
retirement benefit cost for the year then ended by approximately $7,900. The
discount rate used in determining the accumulated post-retirement benefit
obligation was 8.5% in 1997 and 1996.
F-17
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
NOTE 12--LEASES
Minimum rental commitments of the Company under noncancellable operating
leases (primarily real estate) with initial terms of one year or more are as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
1998......................................................... $1,983
1999......................................................... 1,293
2000......................................................... 891
2001......................................................... 644
2002......................................................... 537
Subsequent years............................................. 1,185
------
Total.................................................... $6,533
======
</TABLE>
The Company incurred the following expense for operating leases for the
periods ended December 31, 1997, December 31, 1996, and December 31, 1995 (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Lease expense...................... $2,369 $2,339 $2,298
</TABLE>
NOTE 13--BUSINESS SEGMENTS
The Company is a designer, manufacturer, distributor and marketer of a
diverse range of products in several niche markets including productivity
enhancing construction tools, formed wire products and industrial bag closing
equipment and systems, and conveyor handling systems.
Ames ("Ames") is the designer, manufacturer, distributor and marketer of
automatic taping and finishing tools, which are rented or sold to interior
finishing contractors to finish drywall joints prior to painting, wallpapering
and other forms of final treatment. In addition, Ames sells a variety of other
drywall tools, finishing accessories, and supplies through its network of
Company-owned stores.
Nestaway ("Nestaway") is a manufacturer of formed wire products which are
used for a variety of commercial and consumer product applications. Nestaway
manufactures coated wire dishwasher racks and components which are sold to
dishwasher appliance manufacturers. Nestaway also manufactures, on a contract
basis, other close tolerance, formed, welded and coated formed wire products
such as dish drainers, sink protectors, shower caddies, dryer racks, golf cart
baskets, bucket bails, medical baskets and small gauge axles.
Fischbein ("Fischbein") is a worldwide manufacturer of industrial bag
closing equipment and systems, and a manufacturer of flexible conveyor
handling systems and stackable storage equipment. Bag closing equipment and
systems include: (i) portable and stationary industrial sewing heads and
sewing systems for paper, textile and woven polypropylene bags; (ii)
industrial heat sealing and bag handling systems for paper and plastic bags
and (iii) consumables, including thread, tape and service parts. Fischbein
manufacturers extendable, flexible, gravity and motorized conveyors and
portable, nestable and stackable warehouse storage racks.
One of Nestaway's dishrack customers accounted for 20%, 19% and 20% of the
Company's revenues for 1997, 1996 and 1995, respectively. Dishrack customers,
as a group, accounted for 23%, 27% and 32% of the Company's revenues for 1997,
1996 and 1995, respectively. Another customer of Nestaway who purchases
dishdrainers and other products accounted for 10%, 11% and 8% of the Company's
revenues for 1997, 1996 and 1995, respectively.
F-18
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
NOTE 13--BUSINESS SEGMENTS--(CONTINUED)
Nestaway competes directly with the dishwasher manufacturer's in-house
manufacturing capability. Frigidaire, General Electric and Whirlpool, major
dishwasher manufacturers, have dishrack manufacturing capability. Because
Nestaway is competing against the self-manufacture of its product by larger
companies with more extensive financial resources, Nestaway competes on
quality, flexibility and innovation. As a result of dishrack sourcing
decisions made by its customers, in 1996 Nestaway shut down a leased
production facility in Canal Winchester, Ohio, and temporarily idled a second
plant in Clinton, North Carolina. The Clinton facility resumed operations in
1997 when the Company was awarded a contract for dishracks by a new customer.
Nestaway's Beaver Dam, Kentucky plant, shut down in 1994 due to a customer's
decision to utilize an alternative source of supply, was reopened in 1996 to
produce dishrack components, lower volume dishracks, and other formed and
coated wire products. During 1997 and 1996, Nestaway charged $624,000 and
$980,000, respectively, of the costs incurred against a facility realignment
reserve established in prior periods. Nestaway has no further reserves for the
realignment of its production capacities as of December 31, 1997, and
management believes its current manufacturing operations are properly
positioned to service current and future customers.
A summary of segment data for the periods ended December 31, 1997, 1996, and
1995 is as follows (in thousands):
<TABLE>
<CAPTION>
CORPORATE
AND
NESTAWAY FISCHBEIN AMES ELIMINATIONS CONSOLIDATED
-------- --------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Period ended December 31,
1997:
Net revenues............ $35,268 $27,104 $42,428 $ -- $104,800
Income from operations.. 6,575 3,838 11,693 (2,752) 19,354
Identifiable assets..... 38,873 18,141 27,969 11,790 96,773
Depreciation and
amortization........... 2,077 746 1,860 416 5,099
Capital expenditures.... 1,340 319 1,813 3 3,475
======= ======= ======= ======= ========
Period ended December 31,
1996:
Net revenues............ $39,655 $27,117 $38,015 $ -- $104,787
Income from operations.. 8,069 3,263 10,157 (3,142) 18,347
Identifiable assets..... 38,986 18,282 26,476 15,587 99,331
Depreciation and
amortization........... 3,484 693 1,789 750 6,716
Capital expenditures.... 250 724 2,807 81 3,862
======= ======= ======= ======= ========
Period ended December 31,
1995:
Net revenues............ $42,649 $27,823 $33,854 $ -- $104,326
Income from operations.. 8,172 2,851 7,569 (3,276) 15,316
Identifiable assets..... 45,084 18,283 24,071 15,850 103,288
Depreciation and
amortization........... 3,306 542 1,484 1,048 6,380
Capital expenditures.... 2,042 513 1,297 1 3,853
======= ======= ======= ======= ========
</TABLE>
The Company has restated its segment data to reflect divisional organization
rather than similarity of product lines. As a result, the storage rack and
conveyor product lines, formerly included in the Metal Products Segment, are
now combined with the Fischbein business segment. These products represented
less than 20% of the total revenues of Fischbein in 1997 and less than 5% of
the Company's total revenues.
F-19
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
NOTE 14--GEOGRAPHICAL DATA
The Company conducts the majority of its business within the United States.
The Packaging Products Segment has operations in various other countries,
primarily in Europe and Singapore. The Construction Tool Segment also conducts
business in Canada. Activity in any single country or area outside of the
United States is not material. Export sales outside of the United States to
unaffiliated customers are less than 10% of sales.
A summary of geographical data for the periods ended December 31, 1997,
1996, and 1995 is as follows (in thousands):
<TABLE>
<CAPTION>
CORPORATE
AND
DOMESTIC FOREIGN ELIMINATIONS CONSOLIDATED
-------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Period ended December 31, 1997:
Net revenues.................... $92,265 $12,535 $ -- $104,800
Income from operations.......... 20,387 1,719 (2,752) 19,354
Identifiable assets............. 79,327 5,656 11,790 96,773
Depreciation and amortization... 4,610 73 416 5,099
Capital expenditures............ 3,323 149 $ 3 $ 3,475
======= ======= ======= ========
Period ended December 31, 1996:
Net revenues.................... $91,307 $13,480 $ -- $104,787
Income from operations.......... 19,877 1,612 (3,142) 18,347
Identifiable assets............. 77,775 5,969 15,587 99,331
Depreciation and amortization... 5,896 70 750 6,716
Capital expenditures............ 3,697 84 81 3,862
======= ======= ======= ========
Period ended December 31, 1995:
Net revenues.................... $89,613 $14,713 $ -- $104,326
Income from operations.......... 16,458 2,134 (3,276) 15,316
Identifiable assets............. 81,053 6,385 15,850 103,288
Depreciation and amortization... 5,258 74 1,048 6,380
Capital expenditures............ 3,790 62 1 3,853
======= ======= ======= ========
</TABLE>
NOTE 15--CONTINGENCY
The Company is subject to various federal, state and local laws and
regulations governing the use, discharge and disposal of hazardous materials.
Including the item discussed below, compliance with current laws and
regulations has not had, and is not expected to have, a material adverse
effect on the Company's financial condition or operating results.
In 1991, the New York State Department of Environmental Conservation (the
"NYSDEC") sent a notice letter to the Company alleging that it had documented
the release and/or threatened release of "hazardous substances" and/or the
presence of "hazardous wastes" at a property located in Buffalo, New York,
formerly owned by Bliss and Laughlin Steel Company, a predecessor of the
Company.
A feasibility study, prepared in 1994 by environmental consultants engaged
by the Company, established a range of estimated remediation costs of $.7
million to $2.9 million, plus or minus 30% of those costs, with the most
probable method of remediation being at the high end of the range. The Company
established an accrual of $3.9 million for the costs of remediation.
F-20
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
NOTE 15--CONTINGENCY--(CONTINUED)
In 1997, the Company entered into an agreement with the party responsible
for an adjoining site who also have been in the process of addressing concerns
raised by NYSDEC which will transfer responsibility to remediate the formerly-
owned property to the party remediating the adjoining site. The Company paid
the $520,000 payable under the agreement and has an exposure of up to an
additional $120,000 if pond sediment contamination is higher than estimated by
the Company's environmental consultants. In the event the party responsible
for the remediation of the adjoining site is unable to consummate an agreement
with NYSDEC within one year of its agreement with the Company, the Company has
the option of the return of its contribution to the remediation of the sites
and pursuing its own remediation plan. Should NYSDEC not approve the joint
remediation plan for both sites, the agreement can be nullified and funds
returned to the Company. The Company has maintained its accruals pending
finalization of the remediation plan of the adjoining site. The Company is
pursuing contributions from directors and officers of other users of the
previously owned property. No estimate can be given as to possible recovery.
NOTE 16--RELATED PARTY TRANSACTIONS
The Company is wholly-owned by Holdings. The Company has entered into an
agreement with beneficial owners of Holdings shares as described herein. The
Company believes that the services provided are on terms at least as favorable
to the Company as it could obtain from unaffiliated third parties.
The Company has entered into a Management Agreement (the "Management
Agreement") with Cortec Capital Corporation ("CCC"), a beneficial owner of
59.1% of Holdings, for certain management and financial services. Pursuant to
the Management Agreement, CCC will provide the Company with professional and
administrative advice in areas relating to the Company's business, including
finance, budgeting, risk management, business planning, manufacturing, sales,
marketing, staffing levels and acquisitions. CCC will receive a quarterly fee
of 1% of the Company's net sales, not to exceed $125,000. The Management
Agreement continues until March 31, 2001, and thereafter for successive one
year periods unless terminated by either party. Total fees and reimbursed
expenses for these services were $500,551, $504,959 and $458,662 in 1997, 1996
and 1995, respectively, and are included in selling, general and
administrative expenses in the Consolidated Statements of Income.
NOTE 17--SUBSIDIARY GUARANTEES
The Company's payment obligations under the Subordinated Notes are fully and
unconditionally guaranteed on a joint and several basis (collectively, the
"Subsidiary Guarantees") by Ames Taping Tool Systems, Inc., and TapeTech Tool
Co., Inc., each a wholly-owned subsidiary of the Company and each a
"Guarantor." These subsidiaries, together with the operating divisions of the
Company, represent all of the operations of the Company conducted in the
United States. The remaining subsidiaries of the Company are foreign
subsidiaries.
The Company's payment obligations under the Bank Credit Agreement are fully
and unconditionally guaranteed on a joint and several basis by the Company and
each Guarantor. The obligations of each Guarantor under its Subsidiary
Guarantee are subordinated to all senior indebtedness of such Guarantor,
including the guarantee by such Guarantor of the Company's borrowings under
the Bank Credit Agreement.
F-21
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
NOTE 17--SUBSIDIARY GUARANTEES--(CONTINUED)
With the intent that the Subsidiary Guarantees not constitute fraudulent
transfers or conveyances under applicable state or federal law, the obligation
of each Guarantor under its Subsidiary Guarantee is also limited to the
maximum amount as will, after giving effect to such maximum amount and all
other liabilities (contingent or otherwise) of such Guarantor that are
relevant under such laws, and after giving effect to any rights to
contribution of such Guarantor pursuant to any agreement providing for an
equitable contribution among such Guarantor and other affiliates of the
Company of payments made by guarantees by such parties, result in the
obligations of such Guarantor in respect of such maximum amount not
constituting a fraudulent conveyance.
The following consolidating condensed financial data illustrates the
composition of the combined Guarantors. Management believes separate complete
financial statements of the respective Guarantors would not provide additional
material information which would be useful in assessing the financial
composition of the Guarantors. No single Guarantor has any significant legal
restrictions on the ability of investors or creditors to obtain access to its
assets in event of default on the Subsidiary Guarantee other than its
subordination to senior indebtedness described above.
Investments in subsidiaries are accounted for by the parent on the equity
method for purposes of the supplemental consolidating presentation. Earnings
of subsidiaries are therefore reflected in the parent's investment accounts
and earnings. The principal elimination entries eliminate investments in
subsidiaries and intercompany balances and transactions.
F-22
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT NON-
AND ITS GUARANTOR GUARANTOR CONSOLIDATED
ASSETS DIVISIONS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTALS
------ --------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash
equivalents........... $ (88) $ 925 $ 420 $ 53 $ 1,310
Accounts receivable,
net................... 5,121 5,018 3,110 (490) 12,759
Inventories............ 6,175 1,641 1,789 (450) 9,155
Prepaid income taxes
and other current
assets................ 208 144 84 -- 436
Deferred income tax
assets................ 2,593 -- -- -- 2,593
------- ------- ------ -------- -------
Total Current Assets... $14,009 $ 7,728 $5,403 $ (887) $26,253
------- ------- ------ -------- -------
PLANT AND EQUIPMENT, AT
COST:
Land................... $ 508 $ -- $ -- $ -- $ 508
Buildings and
improvements.......... 6,293 18 309 -- 6,620
Machinery and
equipment............. 23,703 571 467 -- 24,741
Equipment leased to
others................ 7,128 -- 11 -- 7,139
------- ------- ------ -------- -------
$37,632 $ 589 $ 787 $ -- $39,008
Less: Accumulated
depreciation.......... 13,994 395 549 -- 14,938
------- ------- ------ -------- -------
Net Plant and
Equipment............. $23,638 $ 194 $ 238 $ -- $24,070
------- ------- ------ -------- -------
OTHER ASSETS:
Goodwill, net.......... $30,922 $ 2,571 $ 12 $ -- $33,505
Intangible assets, net. 678 25 -- -- 703
Deferred charges, net.. 11,187 992 3 -- 12,182
Investment in wholly-
owned subsidiaries.... 16,038 -- -- (16,038) --
Investment in
affiliates............ -- -- -- -- --
Other assets........... 60 -- -- -- 60
------- ------- ------ -------- -------
Total Other Assets..... $58,885 $ 3,588 $ 15 $(16,038) $46,450
------- ------- ------ -------- -------
TOTAL ASSETS............ $96,532 $11,510 $5,656 $(16,925) $96,773
======= ======= ====== ======== =======
<CAPTION>
LIABILITIES AND
STOCKHOLDER'S EQUITY
--------------------
<S> <C> <C> <C> <C> <C>
CURRENT LIABILITIES:
Current maturities of
long-term debt........ $10,565 $ 36 $ 324 $ -- $10,925
Accounts payable....... 3,124 410 924 (437) 4,021
Accrued liabilities.... 5,920 950 349 -- 7,219
Accrued income taxes... 138 -- 126 -- 264
Advance account........ 1,726 (937) (789) -- --
------- ------- ------ -------- -------
Total Current
Liabilities........... $21,473 $ 459 $ 934 $ (437) $22,429
------- ------- ------ -------- -------
NON-CURRENT LIABILITIES:
Long-term debt, less
current maturities.... $20,414 $ 25 $ -- $ -- $20,439
Other non-current
liabilities........... 10,883 -- -- -- 10,883
Deferred income taxes.. 2,955 -- -- -- 2,955
------- ------- ------ -------- -------
Total Non-Current
Liabilities........... $34,252 $ 25 $ -- $ -- $34,277
------- ------- ------ -------- -------
STOCKHOLDER'S EQUITY
(DEFICIT):
Common stock and
additional paid-in
capital............... $16,723 $ 5,098 $1,770 $ (6,868) $16,723
Retained earnings...... 24,266 5,928 3,244 (9,620) 23,818
Accumulated other
comprehensive income.. (182) -- (292) -- (474)
------- ------- ------ -------- -------
Total Stockholder's
Equity (Deficit)...... $40,807 $11,026 $4,722 $(16,488) $40,067
------- ------- ------ -------- -------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY
(DEFICIT)............. $96,532 $11,510 $5,656 $(16,925) $96,773
======= ======= ====== ======== =======
</TABLE>
F-23
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
CONSOLIDATING STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT NON-
AND ITS GUARANTOR GUARANTOR CONSOLIDATED
DIVISIONS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTALS
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............... $57,366 $14,837 $11,549 $ (6,334) $ 77,418
Net rentals............. 15,063 26,379 986 (15,046) 27,382
------- ------- ------- -------- --------
Net revenues............ $72,429 $41,216 $12,535 $(21,380) $104,800
Cost of sales......... $40,916 $ 8,683 $ 7,300 $ (6,381) $ 50,518
Cost of rentals....... 3,156 20,895 621 (15,046) 9,626
Selling, general and
administrative
expenses............. 14,344 8,063 2,895 -- 25,302
------- ------- ------- -------- --------
Income from operations.. $14,013 $ 3,575 $ 1,719 $ 47 $ 19,354
Interest expense...... 3,695 9 6 -- 3,710
Intercompany interest
expense (income)..... (7) 7 -- -- --
Other expense
(income), net........ (3,381) 205 391 2,822 37
------- ------- ------- -------- --------
Income before income
taxes.................. $13,706 $ 3,354 $ 1,322 $ (2,775) $ 15,607
Provision for income
taxes................ 4,558 1,295 559 -- 6,412
------- ------- ------- -------- --------
Income before
extraordinary item..... $ 9,148 $ 2,059 $ 763 $ (2,775) $ 9,195
======= ======= ======= ======== ========
</TABLE>
F-24
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT NON-
AND ITS GUARANTOR GUARANTOR CONSOLIDATED
DIVISIONS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTALS
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES.. $ 9,530 $ 1,899 $ 301 $-- $ 11,730
CASH FLOW FROM
INVESTING ACTIVITIES:
Cash used for capital
expenditures........ (3,255) (71) (149) -- (3,475)
Proceeds from sale of
investment.......... 1,459 -- -- -- 1,459
Proceeds from sale of
fixed assets........ 357 -- -- -- 357
------- ------- ----- --- --------
Net Cash Used In
Investing
Activities........ $(1,439) $ (71) $(149) $-- $ (1,659)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Net increase in
Revolving Credit
Loan................ 4,500 -- -- -- 4,500
Proceeds from other
long-term debt...... 620 -- 324 -- 944
Payments of other
long-term debt...... (15,907) (24) -- -- (15,931)
Dividends received
from (paid by)
subsidiaries........ 638 -- (638) -- --
Net increase
(decrease) in
advance account..... 1,471 (1,386) (85) -- --
Other equity
transactions........ 145 -- (108) -- 37
------- ------- ----- --- --------
Net Cash Used In
Financing
Activities........ $(8,533) $(1,410) $(507) $-- $(10,450)
EFFECT OF EXCHANGE RATE
CHANGES ON CASH....... -- -- (27) -- (27)
------- ------- ----- --- --------
NET (DECREASE) INCREASE
IN CASH AND CASH
EQUIVALENTS........... $ (442) $ 418 $(382) $-- $ (406)
CASH AND CASH
EQUIVALENTS AT
BEGINNING OF YEAR..... 407 507 802 -- 1,716
------- ------- ----- --- --------
CASH AND CASH
EQUIVALENTS AT END OF
YEAR.................. $ (35) $ 925 $ 420 $-- $ 1,310
======= ======= ===== === ========
</TABLE>
F-25
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT NON-
AND ITS GUARANTOR GUARANTOR CONSOLIDATED
ASSETS DIVISIONS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTALS
------ --------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash
equivalents........... $ 407 $ 507 $ 802 $ -- $ 1,716
Accounts receivable,
net................... 3,681 4,673 2,472 (139) 10,687
Inventories............ 5,892 1,422 2,268 (496) 9,086
Prepaid income taxes
and other current
assets................ 1,513 127 55 -- 1,695
Deferred income tax
assets................ 3,027 -- -- -- 3,027
------- ------- ------ -------- -------
Total Current Assets. $14,520 $ 6,729 $5,597 $ (635) $26,211
------- ------- ------ -------- -------
PLANT AND EQUIPMENT, AT
COST:
Land................... $ 521 $ -- $ -- $ -- $ 521
Buildings and
improvements.......... 6,200 18 291 -- 6,509
Machinery and
equipment............. 22,419 500 230 -- 23,149
Equipment leased to
others................ 6,026 -- 14 -- 6,040
------- ------- ------ -------- -------
$35,166 $ 518 $ 535 $ -- $36,219
Less: Accumulated
depreciation.......... 10,860 305 181 -- 11,346
------- ------- ------ -------- -------
Net Plant and
Equipment............. $24,306 $ 213 $ 354 $ -- $24,873
------- ------- ------ -------- -------
OTHER ASSETS:
Goodwill, net.......... $32,037 $ 2,642 $ -- $ -- $34,679
Intangible assets,
net................... 330 47 -- -- 377
Deferred charges, net.. 11,271 924 18 -- 12,213
Investment in wholly-
owned subsidiaries.... 13,829 -- -- (13,829) --
Investment in
affiliates............ 900 -- -- -- 900
Other assets........... 78 -- -- -- 78
------- ------- ------ -------- -------
Total Other Assets... $58,445 $ 3,613 $ 18 $(13,829) $48,247
------- ------- ------ -------- -------
TOTAL ASSETS............ $97,271 $10,555 $5,969 $(14,464) $99,331
======= ======= ====== ======== =======
<CAPTION>
LIABILITIES AND
STOCKHOLDER'S EQUITY
--------------------
<S> <C> <C> <C> <C> <C>
CURRENT LIABILITIES:
Current maturities of
long-term debt........ $ 6,606 $ 41 $ -- $ -- $ 6,647
Accounts payable....... 2,610 466 718 (139) 3,655
Accrued liabilities.... 7,250 588 709 -- 8,547
Accrued income taxes... (30) -- 30 -- --
Advance account........ 255 449 (704) -- --
------- ------- ------ -------- -------
Total Current
Liabilities......... $16,691 $ 1,544 $ 753 $ (139) $18,849
------- ------- ------ -------- -------
NON-CURRENT LIABILITIES:
Long-term debt, less
current maturities.... $34,504 $ 44 $ -- $ -- $34,548
Other non-current
liabilities........... 11,050 -- -- -- 11,050
Deferred income taxes.. 2,766 -- -- -- 2,766
------- ------- ------ -------- -------
Total Non-Current
Liabilities......... $48,320 $ 44 $ -- $ -- $48,364
------- ------- ------ -------- -------
STOCKHOLDER'S EQUITY
(DEFICIT):
Common stock and
additional paid-in
capital............... $16,723 $ 5,098 $2,000 $ (7,098) $16,723
Retained earnings...... 15,861 3,869 2,892 (7,227) 15,395
Accumulated other
comprehensive income.. (324) -- 324 -- --
------- ------- ------ -------- -------
Total Stockholder's
Equity (Deficit).... $32,260 $ 8,967 $5,216 $(14,325) $32,118
------- ------- ------ -------- -------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY
(DEFICIT).............. $97,271 $10,555 $5,969 $(14,464) $99,331
======= ======= ====== ======== =======
</TABLE>
F-26
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
CONSOLIDATING STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT NON-
AND ITS GUARANTOR GUARANTOR CONSOLIDATED
DIVISIONS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTALS
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............... $61,031 $12,995 $12,523 $ (6,778) $ 79,771
Net rentals............. 13,768 24,037 957 (13,746) 25,016
------- ------- ------- -------- --------
Net revenues............ $74,799 $37,032 $13,480 $(20,524) $104,787
Cost of sales......... $43,560 $ 7,860 $ 7,729 $ (6,715) $ 52,434
Cost of rentals....... 2,589 19,404 613 (13,746) 8,860
Selling, general and
administrative
expenses............. 14,602 7,018 3,526 -- 25,146
------- ------- ------- -------- --------
Income from operations.. $14,048 $ 2,750 $ 1,612 $ (63) $ 18,347
Interest expense...... 5,100 9 14 -- 5,123
Intercompany interest
expense (income)..... (80) 80 -- -- --
Other expense
(income), net........ (2,598) 41 224 2,351 18
------- ------- ------- -------- --------
Income before income
taxes.................. $11,626 $ 2,620 $ 1,374 $ (2,414) $ 13,206
Provision for income
taxes................ 3,955 1,210 565 -- 5,730
------- ------- ------- -------- --------
Income before
extraordinary item..... $ 7,671 $ 1,410 $ 809 $ (2,414) $ 7,476
======= ======= ======= ======== ========
</TABLE>
F-27
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT NON-
AND ITS GUARANTOR GUARANTOR CONSOLIDATED
DIVISIONS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTALS
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES.. $14,036 $1,034 $ 342 $-- $15,412
CASH FLOW FROM
INVESTING ACTIVITIES:
Cash used for capital
expenditures........ (3,675) (103) (84) -- (3,862)
Proceeds from sale of
fixed assets........ 55 -- -- -- 55
------- ------ ----- --- -------
Net Cash Used In
Investing
Activities........ $(3,620) $ (103) $ (84) $-- $(3,807)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Net decrease in
Revolving Credit
Loan................ -- -- -- -- --
Proceeds from other
long-term debt...... 25,375 36 -- -- 25,411
Payments of other
long-term debt...... (34,532) (34) -- -- (34,566)
Dividends received
from (paid by)
subsidiaries........ 191 -- (191) -- --
Payments of deferred
financing costs..... (426) -- -- -- (426)
Net increase
(decrease) in
advance account..... 673 (680) 7 -- --
Other equity
transactions........ (300) -- (1) -- (301)
------- ------ ----- --- -------
Net Cash Used In
Financing
Activities........ $(9,019) $ (678) $(185) $-- $(9,882)
EFFECT OF EXCHANGE RATE
CHANGES ON CASH....... -- -- (52) -- (52)
------- ------ ----- --- -------
NET (DECREASE) INCREASE
IN CASH AND CASH
EQUIVALENTS........... $ 1,397 $ 253 $ 21 $-- $ 1,671
CASH AND CASH
EQUIVALENTS AT
BEGINNING OF YEAR..... (990) 254 781 -- 45
------- ------ ----- --- -------
CASH AND CASH
EQUIVALENTS AT END OF
YEAR.................. $ 407 $ 507 $ 802 $-- $ 1,716
======= ====== ===== === =======
</TABLE>
F-28
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
CONSOLIDATING STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT NON-
AND ITS GUARANTOR GUARANTOR CONSOLIDATED
DIVISIONS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTALS
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............... $62,211 $11,840 $13,736 $ (5,873) $ 81,914
Net rentals............. 12,179 21,394 977 (12,138) 22,412
------- ------- ------- -------- --------
Net revenues............ $74,390 $33,234 $14,713 $(18,011) $104,326
Cost of sales......... $45,780 $ 6,985 $ 8,395 $ (5,989) $ 55,171
Cost of rentals....... 3,488 17,843 465 (12,138) 9,658
Selling, general and
administrative
expenses............. 14,410 6,052 3,719 -- 24,181
------- ------- ------- -------- --------
Income from operations.. $10,712 $ 2,354 $ 2,134 $ 116 $ 15,316
Interest expense...... 6,556 9 31 -- 6,596
Intercompany interest
expense (income)..... (145) 145 -- -- --
Other expense
(income), net........ (2,149) 182 394 2,066 493
------- ------- ------- -------- --------
Income before income
taxes.................. $ 6,450 $ 2,018 $ 1,709 $ (1,950) $ 8,227
Provision for income
taxes................ 1,677 975 686 -- 3,338
------- ------- ------- -------- --------
Net income.............. $ 4,773 $ 1,043 $ 1,023 $ (1,950) $ 4,889
======= ======= ======= ======== ========
</TABLE>
F-29
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT NON-
AND ITS GUARANTOR GUARANTOR CONSOLIDATED
DIVISIONS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTALS
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES... $ 7,741 $ 546 $ 1,664 $-- $ 9,951
CASH FLOW FROM INVESTING
ACTIVITIES:
Cash used for capital
expenditures......... (3,560) (234) (59) -- (3,853)
Proceeds from sale of
fixed assets......... 243 38 -- -- 281
------- ------ ------- --- -------
Net Cash Used In
Investing Activities. $(3,317) $ (196) $ (59) $-- $(3,572)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Net decrease in
Revolving Credit
Loan................. -- -- -- -- --
Proceeds from other
long-term debt....... 213 83 -- -- 296
Payments of other
long-term debt....... (7,374) -- -- -- (7,374)
Dividends received
from (paid by)
subsidiaries......... 4,195 (3,171) (1,024) -- --
Net increase
(decrease) in advance
account.............. (2,316) 2,488 (172) -- --
Other equity
transactions......... (201) 23 12 -- (166)
------- ------ ------- --- -------
Net Cash Used In
Financing Activities. $(5,483) $ (577) $(1,184) $-- $(7,244)
EFFECT OF EXCHANGE RATE
CHANGES ON CASH........ -- -- 38 -- 38
------- ------ ------- --- -------
NET (DECREASE) INCREASE
IN CASH AND CASH
EQUIVALENTS............ $(1,059) $ (227) $ 459 $-- $ (827)
CASH AND CASH
EQUIVALENTS AT
BEGINNING OF YEAR...... 69 481 322 -- 872
------- ------ ------- --- -------
CASH AND CASH
EQUIVALENTS AT END OF
YEAR................... $ (990) $ 254 $ 781 $-- $ 45
======= ====== ======= === =======
</TABLE>
F-30
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
NOTE 18--SUBSEQUENT EVENTS
On June 17, 1998, Holdings entered into an Agreement and Plan of Merger with
AXIA Acquisition Corp. ("Acquisition Co."), a newly formed company and a
wholly owned subsidiary of AXIA Group, Inc. ("AXIA Group"), to be acquired for
a purchase price of $155,250,000, plus adjustments, including the repayment of
indebtedness. Pursuant to the Merger Agreement, Holdings and the Company will
become direct and indirect subsidiaries of AXIA Group. These transactions were
consummated on July 22, 1998.
In 1998, the Company adopted Statement of Financial Accounting Standards No.
130 ("SFAS No. 130"), "Reporting Comprehensive Income," which requires
companies to report all changes in equity during a period, except those
resulting from investment by owners and distribution to owners, in a financial
statement for the period in which they are recognized. The Company has chosen
to disclose Comprehensive Income, which encompasses net income, minimum
pension liability and foreign currency translation adjustments, in the
Consolidated Statements of Stockholder's Equity. Prior periods have been
restated to conform with SFAS No. 130 requirements.
F-31
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1998 AND DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
---------- ------------
ASSETS (UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................... $ 490 $ 1,310
Accounts receivable, net............................ 14,643 12,759
Inventories, net.................................... 9,714 9,155
Prepaid income taxes and other current assets....... 503 436
Deferred income tax benefits........................ 2,847 2,593
------- -------
Total Current Assets............................... $28,197 $26,253
------- -------
PLANT AND EQUIPMENT, AT COST:
Land................................................ $ 508 $ 508
Buildings and improvements.......................... 6,674 6,620
Machinery and equipment............................. 26,316 24,741
Equipment leased to others.......................... 8,221 7,139
------- -------
$41,719 $39,008
Less: Accumulated depreciation...................... 16,554 14,938
------- -------
Net Plant and Equipment............................ $25,165 $24,070
------- -------
OTHER ASSETS:
Goodwill, net....................................... $33,055 $33,505
Intangible assets, net.............................. 841 703
Deferred charges, net............................... 12,348 12,182
Other assets........................................ 37 60
------- -------
Total Other Assets................................. $46,281 $46,450
------- -------
TOTAL ASSETS.......................................... $99,643 $96,773
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt................ $13,757 $10,925
Accounts payable.................................... 4,653 4,021
Accrued liabilities................................. 6,679 7,219
Accrued income taxes................................ 1,871 264
------- -------
Total Current Liabilities.......................... $26,960 $22,429
------- -------
NON-CURRENT LIABILITIES:
Long-term debt, less current maturities............. $12,867 $20,439
Other non-current liabilities....................... 11,006 10,883
Deferred income taxes............................... 3,104 2,955
------- -------
Total Non-Current Liabilities...................... $26,977 $34,277
------- -------
STOCKHOLDER'S EQUITY:
Common stock ($.01 par value; 100 shares authorized,
issued and outstanding)............................ $ -- $ --
Additional paid-in capital.......................... 16,723 16,723
Retained earnings................................... 29,508 23,818
Accumulated other comprehensive income.............. (525) (474)
------- -------
Total Stockholder's Equity......................... $45,706 $40,067
------- -------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY............ $99,643 $96,773
======= =======
</TABLE>
The accompanying Notes to the Unaudited Interim Consolidated Financial
Statements are an integral part of these balance sheets.
F-32
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 1, 1998 JANUARY 1, 1997
TO JUNE TO JUNE
30, 1998 30, 1997
--------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net sales...................................... $41,725 $38,476
Net rentals.................................... 14,475 13,232
------- -------
NET REVENUES................................... 56,200 $51,708
Cost of sales................................ 26,259 24,685
Cost of rentals.............................. 5,146 4,696
Selling, general and administrative expenses. 13,294 12,843
------- -------
INCOME FROM OPERATIONS......................... $11,501 $ 9,484
Interest expense............................. 1,393 2,029
Interest income.............................. (7) (14)
Other expense (income), net.................. 171 (395)
------- -------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY
ITEM.......................................... $ 9,944 $ 7,864
Provision for income taxes................... 3,954 3,375
------- -------
INCOME BEFORE EXTRAORDINARY ITEM............... $ 5,990 $ 4,489
======= =======
Extraordinary item............................. 300 772
------- -------
Net Income..................................... $ 5,690 $ 3,717
======= =======
</TABLE>
The accompanying Notes to the Unaudited Interim Consolidated Financial
Statements are an integral part of these statements.
F-33
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
OTHER COMPREHENSIVE INCOME
-----------------------------------
ACCUMULATED
COMMON ADDITIONAL MINIMUM CUMULATIVE OTHER
STOCK PAID-IN RETAINED PENSION TRANSLATION COMPREHENSIVE COMPREHENSIVE
PAR VALUE CAPITAL EARNINGS LIABILITY ADJUSTMENTS INCOME INCOME
--------- ---------- -------- --------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
DECEMBER 31, 1996...... $ -- $16,723 $15,395 $(324) $ 324 $ -- $ --
Net income............. -- -- 3,717 -- -- -- 3,717
Cumulative translation
adjustment............ -- -- -- -- (472) (472) (472)
----- ------- ------- ----- ----- ----- ------
BALANCE,
JUNE 30, 1997
(unaudited)............ $ -- $16,723 $19,112 $(324) $(148) $(472) $3,245
===== ======= ======= ===== ===== ===== ======
BALANCE,
DECEMBER 31, 1997...... $ -- $16,723 $23,818 $(182) $(292) $(474) $ --
Net income............. -- -- 5,690 -- -- -- 5,690
Cumulative translation
adjustment............ -- -- -- -- (51) (51) (51)
----- ------- ------- ----- ----- ----- ------
BALANCE,
JUNE 30, 1998
(unaudited)............ $ -- $16,723 $29,508 $(182) $(343) $(525) $5,639
===== ======= ======= ===== ===== ===== ======
</TABLE>
The accompanying Notes to the Unaudited Interim Consolidated Financial
Statements are an integral part of these statements.
F-34
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 1, 1998 JANUARY 1, 1997
TO TO
JUNE 30, 1998 JUNE 30, 1997
--------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................... $ 5,690 $ 3,717
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization................ 2,523 2,486
Extraordinary item--writeoff of capitalized
financing costs............................. 361 826
Deferred income tax provision (benefit)...... (105) 36
Loss (gain) on disposal of fixed assets...... 54 79
Gain on sale of investment................... -- (500)
Provision for losses on accounts receivable.. 898 1,187
Provision for obsolescence of inventories.... (176) (85)
Credit to pension expense.................... (169) 20
Changes in assets and liabilities:
Accounts receivable......................... (2,789) (2,499)
Inventories................................. (385) (128)
Accounts payable............................ 634 330
Accrued liabilities......................... (540) (1,789)
Other current assets........................ (67) (96)
Income taxes payable........................ 1,608 (690)
Other non-current assets.................... (353) (279)
Other non-current liabilities............... 86 423
------- --------
Net Cash Provided by Operating Activities. $ 7,270 $ 3,038
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash used for capital expenditures........... $(3,011) $ (1,699)
Proceeds from sale of fixed assets........... -- 8
Proceeds from sale of investment............. -- 1,400
------- --------
Net Cash Provided by (Used in) Investing
Activities............................... $(3,011) $ (291)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in Revolving Credit
Loan........................................ $ 3,200 $ 9,200
Payments of other long-term debt............. (8,232) (13,165)
Other equity transactions.................... (34) (16)
------- --------
Net Cash (Used in) Financing Activities... $(5,066) $ (3,981)
EFFECT OF EXCHANGE RATE CHANGES ON CASH........ $ (13) $ (56)
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................... $ (820) $ (1,290)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD........................................ 1,310 1,716
------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD..... $ 490 $ 426
======= ========
</TABLE>
The accompanying Notes to the Unaudited Interim Consolidated Financial
Statements are an integral part of these statements.
F-35
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 1--FINANCIAL STATEMENTS
The condensed financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not misleading.
These financial statements should be read in conjunction with the financial
statements and notes thereto included elsewhere herein for the year ended
December 31, 1997. In the opinion of management, these statements contain all
adjustments, consisting of only normal recurring adjustments, necessary to
present fairly the financial position as of June 30, 1998 and December 31,
1997, results of operations for the six month periods ended June 30, 1998 and
June 30, 1997, and cash flows for the six month periods ended June 30, 1998
and June 30, 1997. The 1998 interim results reported herein may not
necessarily be indicative of the results of operations for the full year 1998.
In 1998, the Company adopted Statement of Financial Accounting Standards No.
130 ("SFAS 130"), "Reporting Comprehensive Income," which requires companies
to report all changes in equity during a period, except those resulting from
investment by owners and distribution to owners, in a financial statement for
the period in which they are recognized. The Company has chosen to disclose
Comprehensive Income, which encompasses net income, minimum pension liability
and foreign currency translation adjustments, in the Consolidated Statements
of Stockholder's Equity. The prior period has been restated to conform with
SFAS 130 requirements.
NOTE 2--INVENTORIES
Inventories are stated at the lower of first-in, first-out (FIFO) cost or
market. The cost elements included in inventories are material, labor and
factory overhead.
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
-------- ------------
<S> <C> <C>
Raw materials....................................... $4,094 $4,146
Work in process..................................... 1,147 1,058
Finished goods...................................... 4,473 3,951
------ ------
Total inventories................................... $9,714 $9,155
====== ======
</TABLE>
F-36
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1998
NOTE 3--LONG-TERM DEBT
Long-term debt, inclusive of capital lease obligations which are not
material, consists of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
-------- ------------
<S> <C> <C>
11.00% Senior Subordinated Notes................... $ 4,791 $ 9,749
Term Loan.......................................... 12,934 15,732
Revolving Credit Loan.............................. 7,700 4,500
Other.............................................. 1,199 1,383
------- -------
Total Debt....................................... $26,624 $31,364
Less Current Maturities............................ (13,757) (10,925)
------- -------
Total Long-Term Debt........................... $12,867 $20,439
======= =======
</TABLE>
The Senior Subordinated Notes above are stated net of unamortized discounts
of $209,000 and $501,000 at June 30, 1998, and December 31, 1997,
respectively.
Current maturities of long-term debt as of June 30, 1998 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
SCHEDULED PAYMENT
DATE AMOUNT
------------------ -------
<S> <C> <C>
Term Loan..................................... June 30, 1998 $ 1,294
Term Loan..................................... September 30, 1998 1,294
Term Loan..................................... December 31, 1998 1,294
Term Loan..................................... March 31, 1999 1,294
Revolving Credit Loan......................... 7,700
Other......................................... Various 881
-------
Total Current Maturities.................. $13,757
=======
</TABLE>
Bank Credit Agreement
On June 27, 1996, the Company and its domestic subsidiaries entered into a
credit agreement (the "Bank Credit Agreement") which included a term loan
("Term Loan") with an original principal amount of $25,000,000 and a non-
amortizing revolving credit loan ("Revolving Credit Loan") of up to
$15,000,000, including up to $1,000,000 of letters of credit. The Bank Credit
Agreement was amended in March 1997 to increase the Revolving Credit Loan
availability to $20,000,000.
Under the Bank Credit Agreement, the loans may, at the option of the
Company, be either Base Rate borrowings, Eurodollar borrowings or a
combination thereof. Base Rate borrowings bear interest at the prime rate or
the Federal Funds rate plus 1.00%, whichever is higher, and Eurodollar
borrowings bear interest at a rate of LIBOR plus 1.50%. Upon certain events
defined in the agreement, the Eurodollar borrowing interest rate may be
increased to LIBOR plus 1.75%. The Company pays a fee of .38% per annum on the
unused balance of the line of credit. The Company can repay any borrowings at
any time without penalty. The weighted average interest rates on all amounts
outstanding under the Bank Credit Agreement as of June 30, 1998 was 7.27%.
Substantially all of the assets of the Company and its domestic subsidiaries,
Ames Taping Tool Systems, Inc. and TapeTech Tool Co., Inc., act as collateral
under the Bank Credit Agreement.
F-37
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1998
NOTE 3--LONG-TERM DEBT--(CONTINUED)
The Term Loan has scheduled maturities, subject to adjustment for any
prepayments, of $1,294,000 quarterly, maturing with a final payment of
$1,288,000 on December 31, 2000. The Revolving Credit Loan also terminates on
December 31, 2000. The amount outstanding on the Revolving Credit Loan is
classified within current maturities in the accompanying Consolidated Balance
Sheets. Interest payments are generally due quarterly. The Company is required
to prepay portions of the Term Loan in the event of a major asset sale as
defined in the Bank Credit Agreement.
11.00% Senior Subordinated Notes
The 11.00% Senior Subordinated Notes were issued pursuant to a trust
indenture (the "Indenture") between the Company, certain guarantors and a
trustee bank and were sold to a group of private investors. Interest on the
notes is payable semi-annually and the notes mature on March 15, 2001. The
notes may be redeemed, at the Company's option, in full or in part, at a
decreasing premium rate of 102.2% at March 15, 1998. A change of control of
the Company, as defined, would require the Company to offer to redeem all
notes at a 101% premium.
In July 1994, the Company filed a Registration Statement with the Securities
and Exchange Commission to register the Senior Subordinated Notes under the
Securities Act of 1933. The Notes are guaranteed by all of the Company's
domestic subsidiaries. See Note 5 for further information regarding these
guarantees.
In May 1998, the Company exercised its option to redeem and extinguish
$5,250,000 of its Senior Subordinated Notes. The Company recorded an
extraordinary charge for the early extinguishment of debt of $300,000, net of
income taxes, as shown on the accompanying Consolidated Statements of Income
for the six month period ended June 30, 1998. The charge included the
aforementioned redemption premium, the writeoff of capitalized financing costs
associated with the original issuance of the notes, the applicable original
issue discount, and legal expenses, agent fees, and other costs of the
transaction.
Restrictive Loan Covenants
The Bank Credit Agreement and the Indenture contain certain covenants which,
among other things and all as defined in the applicable agreement, require the
Company to maintain a minimum net worth, current ratio, interest coverage
ratio, and fixed charge coverage ratio, and maximum leverage ratio of
indebtedness to net worth. In addition, the Company may not create or incur
certain types of additional debt or liens, declare dividends except as
defined, or make capital expenditures or other restricted payments, as
defined, during the term of the agreements in excess of varying amounts, as
defined. The Company was in compliance with its loan covenants as of June 30,
1998.
NOTE 4--STOCKHOLDER'S EQUITY
The Company has 100 shares of common stock, par value $.01 per share,
authorized, issued and outstanding, all of which are owned by Holdings.
F-38
<PAGE>
AXIA INCORPORATED AND SUBSIDIARIES
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1998
NOTE 5--SUBSIDIARY GUARANTEES
The Company's payment obligations under the Subordinated Notes are fully and
unconditionally guaranteed on a joint and several basis (collectively, the
"Subsidiary Guarantees") by Ames Taping Tool Systems, Inc., and TapeTech Tool
Co., Inc., each a wholly-owned subsidiary of the Company and each a
"Guarantor." These subsidiaries, together with the operating divisions of the
Company, represent all of the operations of the Company conducted in the
United States. The remaining subsidiaries of the Company are foreign
subsidiaries.
The Company's payment obligations under the Bank Credit Agreement are fully
and unconditionally guaranteed on a joint and several basis by the Company and
each Guarantor. The obligations of each Guarantor under its Subsidiary
Guarantee are subordinated to all senior indebtedness of such Guarantor,
including the guarantee by such Guarantor of the Company's borrowings under
the Bank Credit Agreement.
With the intent that the Subsidiary Guarantees not constitute fraudulent
transfers or conveyances under applicable state or federal law, the obligation
of each Guarantor under its Subsidiary Guarantee is also limited to the
maximum amount as will, after giving effect to such maximum amount and all
other liabilities (contingent or otherwise) of such Guarantor that are
relevant under such laws, and after giving effect to any rights to
contribution of such Guarantor pursuant to any agreement providing for an
equitable contribution amount such Guarantor and other affiliates of the
Company of payments made by guarantees by such parties, result in the
obligations of such Guarantor in respect of such maximum amount not
constituting a fraudulent conveyance.
The following consolidating condensed financial data illustrates the
composition of the combined Guarantors. Management believes separate complete
financial statements of the respective Guarantors would not provide additional
material information which would be useful in assessing the financial
composition of the Guarantors. No single Guarantor has any significant legal
restrictions on the ability of investors or creditors to obtain access to its
assets in event of default on the Subsidiary Guarantee other than its
subordination to senior indebtedness described above.
Investments in subsidiaries are accounted for by the parent on the equity
method for purposes of the supplemental consolidating presentation. Earnings
of subsidiaries are therefore reflected in the parent's investment accounts
and earnings. The principal elimination entries eliminate investments in
subsidiaries and intercompany balances and transactions.
F-39
<PAGE>
CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 1998
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PARENT NON-
AND ITS GUARANTOR GUARANTOR CONSOLIDATED
ASSETS DIVISIONS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTALS
------ --------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash
equivalents.......... $ (619) $ 728 $ 381 $ -- $ 490
Accounts receivable,
net.................. 7,260 5,539 3,161 (1,317) 14,643
Inventories, net...... 6,173 1,943 2,057 (459) 9,714
Prepaid income taxes
and other current
assets............... 243 132 128 -- 503
Deferred income tax
benefits............. 2,847 -- -- -- 2,847
-------- ------- ------ -------- -------
Total Current Assets. $ 15,904 $ 8,342 $5,727 $ (1,776) $28,197
PLANT AND EQUIPMENT, AT
COST:
Land.................. $ 508 $ -- $ -- $ -- $ 508
Buildings and
improvements......... 6,342 20 312 -- 6,674
Machinery and
equipment............ 25,163 685 468 -- 26,316
Equipment leased to
others............... 8,210 -- 11 -- 8,221
-------- ------- ------ -------- -------
$ 40,223 $ 705 $ 791 $ -- $41,719
Less: Accumulated
depreciation......... 15,554 445 555 -- 16,554
-------- ------- ------ -------- -------
Net Plant and
Equipment........... $ 24,669 $ 260 $ 236 $ -- $25,165
-------- ------- ------ -------- -------
OTHER ASSETS:
Goodwill, net......... $ 30,508 $ 2,535 $ 12 $ -- $33,055
Intangible assets,
net.................. 827 14 -- -- 841
Deferred charges, net. 11,310 1,037 1 -- 12,348
Investment in wholly-
owned subsidiaries... 16,925 -- -- (16,925) --
Other assets.......... 37 -- -- -- 37
-------- ------- ------ -------- -------
Total Other Assets... $ 59,607 $ 3,586 $ 13 $(16,925) $46,281
-------- ------- ------ -------- -------
TOTAL ASSETS............ $100,180 $12,188 $5,976 $(18,701) $99,643
======== ======= ====== ======== =======
<CAPTION>
LIABILITIES AND
STOCKHOLDER'S EQUITY
--------------------
<S> <C> <C> <C> <C> <C>
CURRENT LIABILITIES:
Current maturities of
long-term debt....... $ 13,728 $ 29 $ -- $ -- $13,757
Accounts payable...... 3,362 768 1,840 (1,317) 4,653
Accrued liabilities... 5,414 766 667 (168) 6,679
Accrued income taxes.. 1,733 -- 138 -- 1,871
Advance account....... 2,487 (1,627) (860) -- --
-------- ------- ------ -------- -------
Total Current
Liabilities......... $ 26,724 $ (64) $1,785 $ (1,485) $26,960
-------- ------- ------ -------- -------
NON-CURRENT LIABILITIES:
Long-term debt, less
current maturities... $ 12,839 $ 28 $ -- $ -- $12,867
Other non-current
liabilities.......... 11,006 -- -- -- 11,006
Deferred income taxes. 3,104 -- -- -- 3,104
-------- ------- ------ -------- -------
Total Non-Current
Liabilities......... $ 26,949 $ 28 $ -- $ -- $26,977
-------- ------- ------ -------- -------
STOCKHOLDER'S EQUITY:
Common stock and
additional paid-in
capital.............. $ 16,723 $ 5,098 $1,770 $ (6,868) $16,723
Retained earnings..... 29,966 7,126 2,764 (10,348) 29,508
Accumulated other
comprehensive income. (182) -- (343) -- (525)
-------- ------- ------ -------- -------
Total Stockholder's
Equity.............. $ 46,507 $12,224 $4,191 $(17,216) $45,706
-------- ------- ------ -------- -------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY... $100,180 $12,188 $5,976 $(18,701) $99,643
======== ======= ====== ======== =======
</TABLE>
F-40
<PAGE>
CONSOLIDATING STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PARENT NON-
AND ITS GUARANTOR GUARANTOR CONSOLIDATED
DIVISIONS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTALS
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............... $ 31,576 $ 8,433 $5,561 $ (3,845) $41,725
Net rentals............. 7,963 14,013 458 (7,959) 14,475
-------- ------- ------ -------- -------
Net revenues............ $ 39,539 $22,446 $6,019 $(11,804) $56,200
Cost of sales......... $ 21,348 $ 4,999 $3,747 $ (3,835) $26,259
Cost of rentals....... 1,636 11,188 281 (7,959) 5,146
Selling, general and
administrative
expenses............. 7,503 4,327 1,464 -- $13,294
-------- ------- ------ -------- -------
Income from operations.. $ 9,052 $ 1,932 $ 527 $ (10) $11,501
Interest expense...... $ 1,386 $ 4 $ 3 $ -- $ 1,393
Intercompany interest
expense (income)..... 48 (48) -- -- --
Other expense
(income), net........ (1,421) 26 172 1,387 164
-------- ------- ------ -------- -------
Income before income
taxes and extraordinary
item................... $ 9,039 $ 1,950 $ 352 $ (1,397) $ 9,944
Provision for income
taxes................ 3,039 752 163 -- 3,954
-------- ------- ------ -------- -------
Income before
extraordinary item..... $ 6,000 $ 1,198 $ 189 $ (1,397) $ 5,990
======== ======= ====== ======== =======
</TABLE>
F-41
<PAGE>
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PARENT NON-
AND ITS GUARANTOR GUARANTOR CONSOLIDATED
DIVISIONS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTALS
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES... $ 5,622 $ 546 $ 1,102 $-- $ 7,270
CASH FLOW FROM INVESTING
ACTIVITIES:
Cash used for capital
expenditures......... (2,932) (49) (30) -- (3,011)
Proceeds from sale of
fixed assets......... -- -- -- -- --
------- ----- ------- --- -------
Net Cash Provided by
(Used In) Investing
Activities......... $(2,932) $ (49) $ (30) $-- $(3,011)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Net increase
(decrease) in
Revolving Credit
Loan................. $ 3,200 $ -- $ -- $-- $ 3,200
Payments of other
long-term debt....... (7,904) (4) (324) -- (8,232)
Net increase
(decrease) in advance
account.............. 761 (690) (71) -- --
Intercompany
dividends............ 669 -- (669) -- --
Other equity
transactions......... -- -- (34) -- (34)
------- ----- ------- --- -------
Net Cash Provided by
(Used In) Financing
Activities......... $(3,274) $(694) $(1,098) $-- $(5,066)
EFFECT OF EXCHANGE RATE
CHANGES ON CASH........ $ -- $ -- $ (13) $-- $ (13)
------- ----- ------- --- -------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS............ (584) (197) (39) -- (820)
CASH AND CASH
EQUIVALENTS AT
BEGINNING OF PERIOD.... (35) 925 420 -- 1,310
------- ----- ------- --- -------
CASH AND CASH
EQUIVALENTS AT END OF
PERIOD................. $ (619) $ 728 $ 381 $-- $ 490
======= ===== ======= === =======
</TABLE>
F-42
<PAGE>
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT NON-
AND ITS GUARANTOR GUARANTOR CONSOLIDATED
ASSETS DIVISIONS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTALS
------ --------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash
equivalents........... $ (88) $ 925 $ 420 $ 53 $ 1,310
Accounts receivable,
net................... 5,121 5,018 3,110 (490) 12,759
Inventories............ 6,175 1,641 1,789 (450) 9,155
Prepaid income taxes
and other current
assets................ 208 144 84 -- 436
Deferred income tax
assets................ 2,593 -- -- -- 2,593
------- ------- ------ -------- -------
Total Current Assets. $14,009 $ 7,728 $5,403 $ (887) $26,253
------- ------- ------ -------- -------
PLANT AND EQUIPMENT, AT
COST:
Land................... $ 508 $ -- $ -- $ -- $ 508
Buildings and
improvements.......... 6,293 18 309 -- 6,620
Machinery and
equipment............. 23,703 571 467 -- 24,741
Equipment leased to
others................ 7,128 -- 11 -- 7,139
------- ------- ------ -------- -------
$37,632 $ 589 $ 787 $ -- $39,008
Less: Accumulated
depreciation.......... 13,994 395 549 -- 14,938
------- ------- ------ -------- -------
Net Plant and
Equipment........... $23,638 $ 194 $ 238 $ -- $24,070
------- ------- ------ -------- -------
OTHER ASSETS:
Goodwill, net.......... $30,922 $ 2,571 $ 12 $ -- $33,505
Intangible assets,
net................... 678 25 -- -- 703
Deferred charges, net.. 11,187 992 3 -- 12,182
Investment in wholly-
owned subsidiaries.... 16,038 -- -- (16,038) --
Investment in
affiliates............ -- -- -- -- --
Other assets........... 60 -- -- -- 60
------- ------- ------ -------- -------
Total Other Assets... $58,885 $ 3,588 $ 15 $(16,038) $46,450
------- ------- ------ -------- -------
TOTAL ASSETS............ $96,532 $11,510 $5,656 $(16,925) $96,773
======= ======= ====== ======== =======
<CAPTION>
LIABILITIES AND
STOCKHOLDER'S EQUITY
--------------------
<S> <C> <C> <C> <C> <C>
CURRENT LIABILITIES:
Current maturities of
long-term debt........ $10,565 $ 36 $ 324 $ -- $10,925
Accounts payable....... 3,124 410 924 (437) 4,021
Accrued liabilities.... 5,920 950 349 -- 7,219
Accrued income taxes... 138 -- 126 -- 264
Advance account........ 1,726 (937) (789) -- --
------- ------- ------ -------- -------
Total Current
Liabilities......... $21,473 $ 459 $ 934 $ (437) $22,429
------- ------- ------ -------- -------
NON-CURRENT LIABILITIES:
Long-term debt, less
current maturities.... $20,414 $ 25 $ -- $ -- $20,439
Other non-current
liabilities........... 10,883 -- -- -- 10,883
Deferred income taxes.. 2,955 -- -- -- 2,955
------- ------- ------ -------- -------
Total Non-Current
Liabilities......... $34,252 $ 25 $ -- $ -- $34,277
------- ------- ------ -------- -------
STOCKHOLDER'S EQUITY
(DEFICIT):
Common stock and
additional paid-in
capital............... $16,723 $ 5,098 $1,770 $ (6,868) $16,723
Retained earnings...... 24,266 5,928 3,244 (9,620) 23,818
Accumulated other
comprehensive income.. (182) -- (292) -- (474)
------- ------- ------ -------- -------
Total Stockholder's
Equity (Deficit).... $40,807 $11,026 $4,722 $(16,488) $40,067
------- ------- ------ -------- -------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY
(DEFICIT).............. $96,532 $11,510 $5,656 $(16,925) $96,773
======= ======= ====== ======== =======
</TABLE>
F-43
<PAGE>
CONSOLIDATING STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PARENT NON-
AND ITS GUARANTOR GUARANTOR CONSOLIDATED
DIVISIONS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTALS
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............... $28,534 $ 7,453 $5,571 $ (3,082) $38,476
Net rentals............. 7,283 12,747 472 (7,270) 13,232
------- ------- ------ -------- -------
Net revenues............ $35,817 $20,200 $6,043 $(10,352) $51,708
Cost of sales......... $19,943 $ 4,475 $3,421 $ (3,154) $24,685
Cost of rentals....... 1,478 10,187 301 (7,270) 4,696
Selling, general and
administrative
expenses............. 7,373 4,021 1,449 -- 12,843
------- ------- ------ -------- -------
Income from operations.. $ 7,023 $ 1,517 $ 872 $ 72 $ 9,484
Interest expense...... $ 2,018 $ 5 $ 6 $ -- $ 2,029
Intercompany interest
expense (income)..... (26) 26 -- -- --
Other expense
(income), net........ (1,748) 24 102 1,213 (409)
------- ------- ------ -------- -------
Income before income
taxes and extraordinary
item................... $ 6,779 $ 1,462 $ 764 $ (1,141) $ 7,864
Provision for income
taxes................ 2,362 651 362 -- 3,375
------- ------- ------ -------- -------
Income before
extraordinary item..... $ 4,417 $ 811 $ 402 $ (1,141) $ 4,489
======= ======= ====== ======== =======
</TABLE>
F-44
<PAGE>
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PARENT NON-
AND ITS GUARANTOR GUARANTOR CONSOLIDATED
DIVISIONS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTALS
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES... $ 2,094 $ 791 $ 153 $-- $ 3,038
CASH FLOW FROM INVESTING
ACTIVITIES:
Cash used for capital
expenditures......... (1,640) (29) (30) -- (1,699)
Proceeds from sale of
fixed assets......... 8 -- -- -- 8
Proceeds from sale of
investment........... 1,400 -- -- -- 1,400
------- ----- ----- --- -------
Net Cash Provided by
(Used In) Investing
Activities......... $ (232) $ (29) $ (30) $-- $ (291)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Net increase
(decrease) in
Revolving Credit
Loan................. $ 9,200 $ -- $ -- $-- $ 9,200
Payments of other
long-term debt....... (13,162) (3) -- -- (13,165)
Net increase
(decrease) in advance
account.............. 700 (628) (72) -- --
Intercompany
dividends............ 477 -- (477) -- --
Other equity
transactions......... -- -- (16) -- (16)
------- ----- ----- --- -------
Net Cash Provided by
(Used In) Financing
Activities......... $(2,785) $(631) $(565) $-- $(3,981)
EFFECT OF EXCHANGE RATE
CHANGES ON CASH........ -- -- (56) -- (56)
------- ----- ----- --- -------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS............ $ (923) $ 131 $(498) $-- $(1,290)
CASH AND CASH
EQUIVALENTS AT
BEGINNING OF PERIOD.... 407 507 802 -- 1,716
------- ----- ----- --- -------
CASH AND CASH
EQUIVALENTS AT END OF
PERIOD................. $ (516) $ 638 $ 304 $-- $ 426
======= ===== ===== === =======
</TABLE>
NOTE 6--SUBSEQUENT EVENT
On June 17, 1998, Holdings entered into an Agreement and Plan of Merger with
AXIA Acquisition Corp. ("Acquisition Co."), a newly formed company and a
wholly owned subsidiary of AXIA Group, Inc. ("AXIA Group"), to be acquired for
a purchase price of $155,250,000, plus adjustments, including the repayment of
indebtedness. Pursuant to the Merger Agreement, Holdings and the Company will
become direct and indirect subsidiaries of AXIA Group. These transactions were
consummated on July 22, 1998.
F-45
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder
AXIA Finance Corp.
We have audited the accompanying balance sheet of AXIA Finance Corp. (a
wholly owned subsidiary of AXIA Acquisition Corp.) as of June 19, 1998. This
balance sheet is the responsibility of the company's management. Our
responsibility is to express an opinion on the balance sheet based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit of the balance sheet provides a
reasonable basis for our opinion.
In our opinion, such balance sheet presents fairly, in all material
respects, the financial position of AXIA Finance Corp. as of June 19, 1998 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Houston, Texas
June 23, 1998
F-46
<PAGE>
AXIA FINANCE CORP.
(A WHOLLY OWNED SUBSIDIARY OF AXIA ACQUISITION CORP.)
BALANCE SHEET
JUNE 19, 1998
<TABLE>
<S> <C>
Assets--Cash............................................................ $1,000
======
Stockholder's Equity
Common stock, $.01 par value; 1,000 shares authorized, issued and
outstanding.......................................................... $ 10
Additional paid-in capital............................................ 990
------
Total Stockholder's Equity.............................................. $1,000
======
</TABLE>
NOTE:
AXIA Finance Corp. ("Finance"), incorporated in Delaware in June 1998, is a
wholly owned subsidiary of AXIA Acquisition Corp. ("AXIA Acquisition"). AXIA
Acquisition was formed to effect the merger of AXIA Acquisition with and into
AXIA Holding Corp. (the "Company"). Concurrently with the merger, Finance will
become a wholly owned subsidiary of the Company and all operating assets and
related liabilities of the Company will be conveyed to and assumed by Finance.
F-47
<PAGE>
ANNEX A
AXIA INCORPORATED
LETTER OF TRANSMITTAL
<PAGE>
LETTER OF TRANSMITTAL
TO TENDER FOR EXCHANGE
10 3/4% SENIOR SUBORDINATED NOTES DUE 2008
OF
AXIA INCORPORATED
PURSUANT TO THE PROSPECTUS DATED OCTOBER 15, 1998
THIS OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON NOVEMBER 16,
1998, UNLESS EXTENDED BY THE COMPANY IN ITS SOLE DISCRETION (THE "EXPIRATION
DATE"). TENDERS OF NOTES MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE
EXPIRATION DATE.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
STATE STREET BANK & TRUST COMPANY
<TABLE>
<CAPTION>
By Mail: By Facsimile: By Hand:
<S> <C> <C>
State Street Bank & Trust Company (617) 664-5395 State Street Bank & Trust Company
Corporate Trust Department Corporate Trust Department
P.O. Box 778 Confirm by Telephone: Two International Place, 4th Floor
Boston, Massachusetts 02102-0078 Boston, Massachusetts 02110
Attention: Kellie Mullen (617) 664-5587 Attention: Kellie Mullen
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TO A NUMBER OTHER THAN AS
LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
HOLDERS WHO WISH TO BE ELIGIBLE TO RECEIVE EXCHANGE NOTES PURSUANT TO THE
EXCHANGE OFFER MUST VALIDLY TENDER (AND NOT WITHDRAW) THEIR ORIGINAL NOTES TO
THE EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE.
This Letter of Transmittal is to be used by holders ("Holders") of 10 3/4%
Senior Subordinated Notes due 2008 (the "Original Notes") of AXIA Incorporated
(the "Company") if: (i) certificates representing Original Notes are to be
physically delivered to the Exchange Agent herewith by such Holders; (ii)
tender of Original Notes is to be made by book-entry transfer to the Exchange
Agent's account at The Depository Trust Company ("DTC") pursuant to the
procedures set forth under the caption "The Exchange Offer--Procedures for
Tendering Original Notes--Book-Entry Delivery Procedures" in the Prospectus
dated October 15, 1998 (the "Prospectus"); or (iii) tender of Original Notes
is to be made according to the guaranteed delivery procedures set forth under
the caption "The Exchange Offer--Procedures for Tendering Original Notes--
Guaranteed Delivery" in the Prospectus, and, in each case, instructions are
not being transmitted through the DTC Automated Tender Offer Program ("ATOP").
The undersigned hereby acknowledges receipt of the Prospectus. All capitalized
terms used herein and not defined shall have the meanings ascribed to them in
the Prospectus.
Holders of Original Notes that are tendering by book-entry transfer to the
Exchange Agent's account at DTC can execute the tender through ATOP, for which
the transaction will be eligible. DTC participants that are accepting the
exchange offer as set forth in the Prospectus and this Letter of Transmittal
(together, the "Exchange Offer") must transmit their acceptance to DTC which
will edit and verify the acceptance and execute a book-entry delivery to the
Exchange Agent's account at DTC. DTC will then send an Agent's Message to the
Exchange Agent for its acceptance. Delivery of
A-1
<PAGE>
the Agent's Message by DTC will satisfy the terms of the Offer as to execution
and delivery of a Letter of Transmittal by the participant identified in the
Agent's Message. DTC participants may also accept the Exchange Offer by
submitting a notice of guaranteed delivery through ATOP.
DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.
If a Holder desires to tender Original Notes pursuant to the Exchange Offer
and time will not permit this Letter of Transmittal, certificates representing
such Original Notes and all other required documents to reach the Exchange
Agent, or the procedures for book-entry transfer cannot be completed, on or
prior to the Expiration Date, then such Holder must tender such Original Notes
according to the guaranteed delivery procedures set forth under the caption
"The Exchange Offer--Procedures for Tendering Original Notes--Guaranteed
Delivery" in the Prospectus. See Instruction 2.
The undersigned should complete, execute and deliver this Letter of
Transmittal to indicate the action the undersigned desires to take with
respect to the Exchange Offer.
TENDER OF ORIGINAL NOTES
- -------------------------------------------------------------------------------
[_] CHECK HERE IF TENDERED ORIGINAL NOTES ARE ENCLOSED HEREWITH.
[_] CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND
COMPLETE THE FOLLOWING:
Name of Tendering Institution:_______________________________________________
Account Number:______________________________________________________________
Transaction Code Number:_____________________________________________________
[_] CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s):_____________________________________________
Window Ticket Number (if any):_______________________________________________
Date of Execution of Notice of Guaranteed Delivery:__________________________
Name of Eligible Institution that Guaranteed Delivery:_______________________
A-2
<PAGE>
List below the Original Notes to which this Letter of Transmittal relates.
The name(s) and address(es) of the registered Holder(s) should be printed, if
not already printed below, exactly as they appear on the Original Notes
tendered hereby. The Original Notes and the principal amount of Original Notes
that the undersigned wishes to tender would be indicated in the appropriate
boxes. If the space provided is inadequate, list the certificate number(s) and
principal amount(s) on a separately executed schedule and affix the schedule
to this Letter of Transmittal.
DESCRIPTION OF ORIGINAL NOTES
<TABLE>
- ------------------------------------------------------
<CAPTION>
NAME(S) AND
ADDRESS(ES)
OF
REGISTERED
HOLDER(S)
(PLEASE
FILL IN IF AGGREGATE
BLANK) SEE PRINCIPAL PRINCIPAL
INSTRUCTION CERTIFICATE AMOUNT AMOUNT
3. NUMBER(S)* REPRESENTED** TENDERED**
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
<S> <C> <C> <C>
TOTAL
PRINCIPAL
AMOUNT OF
ORIGINAL
NOTES
- ------------------------------------------------------
</TABLE>
* Need not be completed by Holders tendering by book-entry transfer.
** Unless otherwise specified, the entire aggregate principal amount
represented by the Original Notes described above will be deemed to be
tendered. See Instruction 4.
A-3
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
Ladies and Gentlemen:
The undersigned hereby tenders to AXIA Incorporated (the "Company"), upon
the terms and subject to the conditions set forth in its Prospectus dated
October 15, 1998 (the "Prospectus"), receipt of which is hereby acknowledged,
and in accordance with this Letter of Transmittal (which together constitute
the "Exchange Offer"), the principal amount of Original Notes indicated in the
foregoing table entitled "Description of Original Notes" under the column
heading "Principal Amount Tendered." The undersigned represents that it is
duly authorized to tender all of the Original Notes tendered hereby which it
holds for the account of beneficial owners of such Original Notes ("Beneficial
Owner(s)") and to make the representations and statements set forth herein on
behalf of such Beneficial Owner(s).
Subject to, and effective upon, the acceptance for purchase of the principal
amount of Original Notes tendered herewith in accordance with the terms and
subject to the conditions of the Exchange Offer, the undersigned hereby sells,
assigns and transfers to, or upon the order of, the Company, all right, title
and interest in and to all of the Original Notes tendered hereby. The
undersigned hereby irrevocably constitutes and appoints the Exchange Agent the
true and lawful agent and attorney-in-fact of the undersigned (with full
knowledge that the Exchange Agent also acts as the agent of the Company) with
respect to such Original Notes, with full powers of substitution and
revocation (such power of attorney being deemed to be an irrevocable power
coupled with an interest) to (i) present such Original Notes and all evidences
of transfer and authenticity to, or transfer ownership of, such Original Notes
on the account books maintained by DTC to, or upon the order of, the Company,
(ii) present such Original Notes for transfer of ownership on the books of the
Company, and (iii) receive all benefits and otherwise exercise all rights of
beneficial ownership of such Original Notes, all in accordance with the terms
and conditions of the Exchange Offer as described in the Prospectus.
By accepting the Exchange Offer, the undersigned hereby represents and
warrants that (i) the Exchange Notes to be acquired by the undersigned and any
Beneficial Owner(s) in connection with the Exchange Offer are being acquired
by the undersigned and any Beneficial Owner(s) in the ordinary course of
business of the undersigned and any Beneficial Owner(s), (ii) the undersigned
and each Beneficial Owner are not participating, do not intend to participate,
and have no arrangement or understanding with any person to participate, in
the distribution of the Exchange Notes, (iii) except as indicated below,
neither the undersigned nor any Beneficial Owner is an "affiliate," as defined
in Rule 405 under the Securities Act of 1933, as amended (together with the
rules and regulations promulgated thereunder, the "Securities Act"), of the
Company and (iv) the undersigned and each Beneficial Owner acknowledge and
agree that (x) any person participating in the Exchange Offer with the
intention or for the purpose of distributing the Exchange Notes must comply
with the registration and prospectus delivery requirements of the Securities
Act in connection with a secondary resale of the Exchange Notes acquired by
such person with a registration statement containing the selling
securityholder information required by Item 507 of Regulation S-K of the
Securities and Exchange Commission (the "Commission") and cannot rely on the
interpretation of the Staff of the Commission set forth in the no-action
letters that are noted in the section of the Prospectus entitled "The Exchange
Offer--Registration Rights" and (y) any broker-dealer that pursuant to the
Exchange Offer receives Exchange Notes for its own account in exchange for
Original Notes which it acquired for its own account as a result of market-
making activities or other trading activities must deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale
of such Exchange Notes. If the undersigned is a broker-dealer that will
receive Exchange Notes for its own account in exchange for Original Notes that
were acquired as the result of market-making activities or other trading
activities, it acknowledges that it will deliver a prospectus in connection
with any
A-4
<PAGE>
resale of such Exchange Notes. By so acknowledging and by delivering a
prospectus, a broker-dealer shall not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
The undersigned understands that tenders of Original Notes may be withdrawn
by written notice of withdrawal received by the Exchange Agent at any time
prior to the Expiration Date in accordance with the Prospectus. In the event
of a termination of the Exchange Offer, the Original Notes tendered pursuant
to the Exchange Offer will be returned to the tendering Holders promptly (or,
in the case of Original Notes tendered by book-entry transfer, such Original
Notes will be credited to the account maintained at DTC from which such
Original Notes were delivered). If the Company makes a material change in the
terms of the Exchange Offer or the information concerning the Exchange Offer
or waives a material condition of such Exchange Offer, the Company will
disseminate additional Exchange Offer materials and extend such Exchange
Offer, if and to the extent required by law.
The undersigned understands that the tender of Original notes pursuant to
any of the procedures set forth in the Prospectus and in the instructions
hereto will constitute the undersigned's acceptance of the terms and
conditions of the Exchange Offer. The Company's acceptance for exchange of
Original Notes tendered pursuant to any of the procedures described in the
Prospectus will constitute a binding agreement between the undersigned and the
Company in accordance with the terms and subject to the conditions of the
Exchange Offer. For purposes of the Exchange Offer, the undersigned
understands that validly tendered Original Notes (or defectively tendered
Original Notes with respect to which the Company has, or has caused to be,
waived such defect) will be deemed to have been accepted by the Company if, as
and when the Company gives oral or written notice thereof to the Exchange
Agent.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Original Notes
tendered hereby, and that when such tendered Original Notes are accepted for
purchase by the Company, the Company will acquire good title thereto, free and
clear of all liens, restrictions, charges and encumbrances and not subject to
any adverse claim or right. The undersigned and each Beneficial Owner will,
upon request, execute and deliver any additional documents deemed by the
Exchange Agent or by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Original Notes tendered hereby.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall not be affected by, and shall survive the death or
incapacity of the undersigned and any Beneficial Owner(s), and any obligation
of the undersigned or any Beneficial Owner(s) hereunder shall be binding upon
the heirs, executors, administrators, trustees in bankruptcy, personal and
legal representatives, successors and assigns of the undersigned and such
Beneficial Owner(s).
The undersigned understands that the delivery and surrender of any Original
Notes is not effective, and the risk of loss of the Original Notes does not
pass to the Exchange Agent, until receipt by the Exchange Agent of this Letter
of Transmittal, or a manually signed facsimile hereof, properly completed and
duly executed, together with all accompanying evidences of authority and any
other required documents in form satisfactory to the Company. All questions as
to form of all documents and the validity (including time of receipt) and
acceptance of tenders and withdrawals of Original Notes will be determined by
the Company, in its sole discretion, which determination shall be full and
binding.
Unless otherwise indicated herein under "Special Issuance Instructions," the
undersigned hereby requests that any Original Notes representing principal
amounts not tendered or not accepted for exchange be issued in the name(s) of
the undersigned (and in the case of Original Notes tendered by book-entry
transfer, by credit to the account of DTC), and Exchange Notes issued in
exchange for Original Notes pursuant to the Exchange Offer be issued to the
undersigned. Similarly, unless
A-5
<PAGE>
otherwise indicated herein under "Special Delivery Instructions," the
undersigned hereby requests that any Original Notes representing principal
amounts not tendered or not accepted for exchange and Exchange Notes issued in
exchange for Original Notes pursuant to the Exchange Offer be delivered to the
undersigned at the address shown below the undersigned's signature(s). In the
event that the "Special Issuance Instructions" box or the "Special Delivery
Instructions" box is, or both are, completed, the undersigned hereby requests
that any Original Notes representing principal amounts not tendered or not
accepted for purchase be issued in the name(s) of, certificates for such
Original Notes be delivered to, and Exchange Notes issued in exchange for
Original Notes pursuant to the Exchange Offer be issued in the name(s) of, and
be delivered to, the person(s) at the address(es) so indicated, as applicable.
The undersigned recognizes that the Company has no obligation pursuant to the
"Special Issuance Instructions" box or "Special Delivery Instructions" box to
transfer any Original Notes from the name of the registered Holder(s) thereof
if the Company does not accept for exchange any of the principal amount of
such Original Notes so tendered.
[_] CHECK HERE IF YOU OR ANY BENEFICIAL OWNER FOR WHOM YOU HOLD ORIGINAL NOTES
IS AN AFFILIATE OF THE COMPANY.
[_] CHECK HERE IF YOU OR ANY BENEFICIAL OWNER FOR WHOM YOU HOLD ORIGINAL NOTES
TENDERED HEREBY IS A BROKER-DEALER WHO ACQUIRED SUCH NOTES DIRECTLY FROM THE
COMPANY OR AN AFFILIATE OF THE COMPANY.
[_] CHECK HERE AND COMPLETE THE LINES BELOW IF YOU OR ANY BENEFICIAL OWNER FOR
WHOM YOU HOLD ORIGINAL NOTES TENDERED HEREBY IS A BROKER-DEALER WHO ACQUIRED
SUCH NOTES IN MARKET-MAKING OR OTHER TRADING ACTIVITIES. IF THIS BOX IS
CHECKED, THE COMPANY WILL SEND 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10
COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO TO YOU OR SUCH BENEFICIAL
OWNER AT THE ADDRESS SPECIFIED IN THE FOLLOWING LINES.
Name: ______________________________________________________________________
Address: ______________________________________________________________________
______________________________________________________________________
A-6
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if Original
Notes in a principal amount not
tendered or not accepted for
exchange are to be issued in the
name of, or Exchange Notes are to
be issued in the name of, someone
other than the person(s) whose
signature(s) appear(s) within this
Letter of Transmittal or issued to
an address different from that
shown in the box entitled
"Description of Original Notes"
within this Letter of Transmittal.
Issue:[_] Original Notes
[_] Exchange Notes
(check as applicable)
Name_______________________________
(PLEASE PRINT)
Address____________________________
(PLEASE PRINT)
-----------------------------------
(ZIP CODE)
-----------------------------------
(TAX IDENTIFICATION OR SOCIAL
SECURITY NUMBER)
(SEE SUBSTITUTE FORM W-9 HEREIN)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if Original
Notes in a principal amount not
tendered or not accepted for
exchange or Exchange Notes are to
be sent to someone other than the
person(s) whose signature(s)
appear(s) within this Letter of
Transmittal or to an address
different from that shown in the
box entitled "Description of
Original Notes" within this Letter
of Transmittal.
Issue:[_] Original Notes
[_] Exchange Notes
(check as applicable)
Name_______________________________
(PLEASE PRINT)
Address____________________________
(PLEASE PRINT)
-----------------------------------
(ZIP CODE)
-----------------------------------
(TAX IDENTIFICATION OR SOCIAL
SECURITY NUMBER)
(SEE SUBSTITUTE FORM W-9 HEREIN)
A-7
<PAGE>
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS OF ORIGINAL NOTES
REGARDLESS OF WHETHER ORIGINAL NOTES ARE BEING PHYSICALLY DELIVERED HEREWITH)
This Letter of Transmittal must be signed by the registered Holder(s)
exactly as name(s) appear(s) on certificate(s) for Original Notes or, if
tendered by a participant in DTC exactly as such participant's name appears
on a security position listing as owner of Original Notes, or by the
person(s) authorized to become registered Holder(s) by endorsements and
documents transmitted herewith. If signature is by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or
others acting in a fiduciary or representative capacity, please set forth
full title and see Instruction 5.
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Signature(s) of Registered Holder(s) or Authorized Signatory
(See guarantee requirement below)
Dated: ________________________________________________________________, 1998
Name(s):_____________________________________________________________________
-----------------------------------------------------------------------------
(Please Print)
Capacity (Full Title)________________________________________________________
Address:_____________________________________________________________________
-----------------------------------------------------------------------------
(Including Zip Code)
Area Code and Telephone Number:______________________________________________
Tax Identification or Social Security Number:________________________________
(Complete Accompanying Substitute Form W-9)
SIGNATURE GUARANTEE
(IF REQUIRED--SEE INSTRUCTIONS 1 AND 5)
Authorized Signature_________________________________________________________
Name of Firm_________________________________________________________________
[PLACE SEAL HERE]
A-8
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. Signature Guarantees. Signatures of this Letter of Transmittal must be
guaranteed by a recognized member of the Medallion Signature Guarantee Program
or by any other "eligible guarantor institution," as such term is defined in
Rule 17Ad-15 promulgated under the Exchange Act (each of the foregoing, an
"Eligible Institution"), unless the Original Notes tendered hereby are
tendered (i) by a registered Holder of Original Notes (or by a participant in
DTC whose name appears on a security position listing as the owner of such
Original Notes) that has not completed either the box entitled "Special
Issuance Instructions" or the box entitled "Special Delivery Instructions" on
this Letter of Transmittal, or (ii) for the account of an Eligible
Institution. If the Original Notes are registered in the name of a person
other than the signer of this Letter of Transmittal, if Original Notes not
accepted for exchange or not tendered are to be returned to a person other
than the registered Holder or if Exchange Notes are to be issued in the name
of or sent to a person other than the registered Holder, then the signatures
on this Letter of Transmittal accompanying the tendered Original Notes must be
guaranteed by an Eligible Institution as described above. See Instruction 5.
2. Delivery of Letter of Transmittal and Original Notes. This Letter of
Transmittal is to be completed by Holders if (i) certificates representing
Original Notes are to be physically delivered to the Exchange Agent herewith
by such Holders; (ii) tender of Original Notes is to be made by book-entry
transfer to the Exchange Agent's account at DTC pursuant to the procedures set
forth under the caption "The Exchange Offer--Procedures for Tendering Original
Notes--Book-Entry Delivery Procedures" in the Prospectus; or (iii) tender of
Original Notes is to be made according to the guaranteed delivery procedures
set forth under the caption "The Exchange Offer--Procedures for Tendering
Original Notes--Guaranteed Delivery" in the Prospectus. All physically
delivered Original Notes, or a confirmation of a book-entry transfer into the
Exchange Agent's account at DTC of all Original Notes delivered
electronically, as well as a properly completed and duly executed Letter of
Transmittal (or manually signed facsimile thereof), any required signature
guarantees and any other documents required by this Letter of Transmittal,
must be received by the Exchange Agent at one of its addresses set forth on
the cover page hereto on or prior to the Expiration Date, or the tendering
Holder must comply with the guaranteed delivery procedures set forth below.
DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.
If a Holder desires to tender Original Notes pursuant to the Exchange Offer
and time will not permit this Letter of Transmittal, certificates representing
such Original Notes and all other required documents to reach the Exchange
Agent, or the procedures for book-entry transfer cannot be completed, on or
prior to the Expiration Date, such Holder must tender such Original Notes
pursuant to the guaranteed delivery procedures set forth under the caption
"The Exchange Offer--Procedures for Tendering Original Notes--Guaranteed
Delivery" in the Prospectus. Pursuant to such procedures, (i) such tender must
be made by or through an Eligible Institution; (ii) a properly completed and
duly executed Notice of Guaranteed Delivery, substantially in the form
provided by the Company, or an Agent's Message with respect to guaranteed
delivery that is accepted by the Company, must be received by the Exchange
Agent, either by hand delivery, mail, telegram, or facsimile transmission, on
or prior to the Expiration Date; and (iii) the certificates for all tendered
Original Notes, in proper form for transfer (or confirmation of a book-entry
transfer or all Original Notes delivered electronically into the Exchange
Agent's account at DTC pursuant to the procedures for such transfer set forth
in the Prospectus), together with a properly completed and duly executed
Letter of Transmittal (or manually signed facsimile thereof) and any other
documents required by this Letter of Transmittal, or in the case of a book-
entry transfer, a properly transmitted Agent's Message, must be received by
the Exchange Agent within two business days after the date of the execution of
the Notice of Guaranteed Delivery.
A-9
<PAGE>
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE ORIGINAL NOTES AND
ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH DTC AND ANY
ACCEPTANCE OR AGENT'S MESSAGE DELIVERED THROUGH ATOP, IS AT THE ELECTION AND
RISK OF THE TENDERING HOLDER AND, EXCEPT AS OTHERWISE PROVIDED IN THIS
INSTRUCTION 2, DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE
EXCHANGE AGENT. IF DELIVERY IS BY MAIL, IT IS SUGGESTED THAT THE HOLDER USE
PROPERLY INSURED, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, AND THAT THE
MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO PERMIT
DELIVERY TO THE EXCHANGE AGENT PRIOR TO SUCH DATE.
No alternative, conditional or contingent tenders will be accepted. All
tendering Holders, by execution of this Letter of Transmittal (or a facsimile
thereof), waive any right to receive any notice of the acceptance of their
Original Notes for exchange.
3. Inadequate Space. If the spare provided herein is inadequate, the
certificate numbers and/or the principal amount represented by Original Notes
should be listed on a separate signed schedule attached hereto.
4. Partial Tenders. (Not applicable to Holders who tender by book-entry
transfer). If Holders wish to tender less than the entire principal amount
evidenced by any Original Note submitted, such Holders must fill in the
principal amount that is to be tendered in the column entitled "Principal
Amount Tendered." The minimum permitted tender is $1,000 in principal amount
of Original Notes. All other tenders must be in integral multiples of $1,000
in principal amount. In the case of a partial tender of Original Notes, as
soon as practicable after the Expiration Date, new certificates for the
remainder of the Original Notes that were evidenced by such Holder's old
certificates will be sent to such Holder, unless otherwise provided in the
appropriate box on this Letter of Transmittal. The entire principal amount
that is represented by Original Notes delivered to the Exchange Agent will be
deemed to have been tendered, unless otherwise indicated.
5. Signatures on Letter of Transmittal, Instruments of Transfer and
Endorsements. If this Letter of Transmittal is signed by the registered
Holder(s) of the Original Notes tendered hereby, the signatures must
correspond with the name(s) as written on the face of the certificate(s)
without alteration, enlargement or any change whatsoever. If this Letter of
Transmittal is signed by a participant in DTC whose name is shown as the owner
of the Original Notes tendered hereby, the signature must correspond with the
name shown on the security position listing as the owner of the Original
Notes.
If any of the Original Notes tendered hereby are registered in the name of
two or more Holders, all such Holders must sign this Letter of Transmittal. If
any of the Original Notes tendered hereby are registered in different names on
several certificates, it will be necessary to complete, sign and submit as
many separate Letters of Transmittal as there are different registrations of
certificates.
If this Letter of Transmittal or any Original Note or instrument of transfer
is signed by a trustee, executor, administrator, guardian, attorney-in-fact,
agent, officer of a corporation or other person acting in a fiduciary or
representative capacity, such person should so indicate when signing, and
proper evidence satisfactory to the Company of such person's authority to so
act must be submitted.
When this Letter of Transmittal is signed by the registered Holder(s) of the
Original Notes listed herein and transmitted hereby, no endorsements of
Original Notes or separate instruments of transfer are required unless
Exchange Notes are to be issued, or Original Notes not tendered or exchanged
are to be issued, to a person other than the registered Holder(s), in which
case signatures on such Original Notes or instruments of transfer must be
guaranteed by an Eligible Institution.
IF THIS LETTER OF TRANSMITTAL IS SIGNED OTHER THAN BY THE REGISTERED
HOLDER(S) OF THE ORIGINAL NOTES LISTED HEREIN, THE ORIGINAL NOTES MUST BE
ENDORSED OR ACCOMPANIED BY APPROPRIATE INSTRUMENTS OF TRANSFER, IN EITHER CASE
SIGNED EXACTLY AS THE NAME(S) OF THE REGISTERED HOLDER(S)
A-10
<PAGE>
APPEAR ON THE ORIGINAL NOTES AND SIGNATURES ON SUCH ORIGINAL NOTES OR
INSTRUMENTS OF TRANSFER ARE REQUIRED AND MUST BE GUARANTEED BY AN ELIGIBLE
INSTITUTION, UNLESS THE SIGNATURE IS THAT OF AN ELIGIBLE INSTITUTION.
6. Special Issuance and Delivery Instructions. If certificates for Exchange
Notes or unexchanged or untendered Original Notes are to be issued in the name
of a person other than the signer of this Letter of Transmittal, or if
Exchange Notes or such Original Notes are to be sent to someone other than the
signer of this Letter of Transmittal or to an address other than that shown
herein, the appropriate boxes on this Letter of Transmittal should be
completed. All Original Notes tendered by book-entry transfer and not accepted
for payment will be returned by crediting the account at DTC designated herein
as the account for which such Original Notes were delivered.
7. Transfer Taxes. Except as set forth in this Instruction 7, the Company
will pay or cause to be paid any transfer taxes with respect to the transfer
and sale of Original Notes to it, or to its order, pursuant to the Exchange
Offer. If Exchange Notes, or Original Notes not tendered or exchanged are to
be registered in the name of any persons other than the registered owners, of
if tendered Original Notes are registered in the name of any persons other
than the persons signing this Letter of Transmittal, the amount of any
transfer taxes (whether imposed on the registered Holder or such other person)
payable on account of the transfer to such other person must be paid to the
Company or the Exchange Agent (unless satisfactory evidence of the payment of
such taxes or exemption therefrom is submitted) before the Exchange Notes will
be issued.
8. Waiver of Conditions. The conditions of the Exchange Offer may be amended
or waived by the Company, in whole or in part, at any time and from time to
time in the Company's sole discretion, in the case of any Original Notes
tendered.
9. Substitute Form W-9. Each tendering owner of a Note (or other payee) is
required to provide the Exchange Agent with a correct taxpayer identification
number ("TIN"), generally the owner's social security or federal employer
identification number, and with certain other information, on Substitute Form
W-9, which is provided hereafter under "Important Tax Information," and to
certify that the owner (or other payee) is not subject to backup withholding.
Failure to provide the information on the Substitute Form W-9 may subject the
tendering owner (or other payee) to a $50 penalty imposed by the Internal
Revenue Service and 31% federal income tax withholding on the payment of the
Purchase Price. The box in Part 3 of the Substitute Form W-9 may be checked if
the tendering owner (or other payee) has not been issued a TIN and has applied
for a TIN or intends to apply for a TIN in the near future. If the box in Part
3 is checked and the Exchange Agent is not provided with a TIN by the time of
payment, the Exchange Agent will withhold 31% on all such payments of the
Purchase Price until a TIN is provided to the Exchange Agent.
10. Broker-dealers Participating in the Exchange Offer. If no broker-dealer
checks the last box on page 7 of this Letter of Transmittal, the Company has
no obligation under the Registration Rights Agreement to allow the use of the
Prospectus for resales of the Exchange Notes by broker-dealers or to maintain
the effectiveness of the Registration Statement of which the Prospectus is a
part after the consummation of the Exchange Offer.
11. Requests for Assistance or Additional Copies. Any questions or requests
for assistance or additional copies of the Prospectus, this Letter of
Transmittal or the Notice of Guaranteed Delivery may be directed to the
Exchange Agent at the telephone numbers and location listed above. A Holder or
owner may also contact such Holder's or owner's broker, dealer, commercial
bank or trust company or nominee for assistance concerning the Exchange Offer.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE HEREOF), TOGETHER WITH
CERTIFICATES REPRESENTING THE ORIGINAL NOTES AND ALL OTHER REQUIRED DOCUMENTS
OR THE NOTICE OF GUARANTEED DELIVERY, MUST BE RECEIVED BY THE EXCHANGE AGENT
ON OR PRIOR TO THE EXPIRATION DATE.
A-11
<PAGE>
IMPORTANT TAX INFORMATION
Under federal income tax law, an owner of Original Notes whose tendered
Original Notes are accepted for exchange is required to provide the Exchange
Agent with such owner's current TIN on Substitute Form W-9 below. If such
owner is an individual, the TIN is his or her social security number. If the
Exchange Agent is not provided with the correct TIN, the owner or other
recipient of Exchange Notes may be subject to a $50 penalty imposed by the
Internal Revenue Service. In addition, any interest on Exchange Notes paid to
such owner or other recipient may be subject to 31% backup withholding tax.
Certain owners of Notes (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. In order for a foreign individual to qualify as an
exempt recipient, that owner must submit to the Exchange Agent a properly
completed Internal Revenue Service Form W-8 (a "Form W-8"), signed under
penalties of perjury, attesting to that individual's exempt status. A Form W-8
can be obtained from the Exchange Agent. See the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional instructions.
Backup withholding is not an additional tax. Rather, the federal income tax
liability of persons subject to backup withholding will be reduced by the
amount of tax withheld. If withholding results in an overpayment of taxes, a
refund may be obtained from the Internal Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding, the owner is required to notify the Exchange
Agent of the owner's current TIN (or the TIN of any other payee) by completing
the following form, certifying that the TIN provided on Substitute Form W-9 is
correct (or that such owner is awaiting a TIN), and that (i) the owner has not
been notified by the Internal Revenue Service that the owner is subject to
backup withholding as a result of failure to report all interest or dividends
or (ii) the Internal Revenue Service has notified the owner that the owner is
no longer subject to backup withholding.
WHAT NUMBER TO GIVE THE EXCHANGE AGENT
The Holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the owner of the
Original Notes. If the Original Notes are registered in more than one name or
are not registered in the name of the actual owner, consult the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9," for additional guidance on which number to report.
A-12
<PAGE>
PAYER'S NAME:
- --------------------------------------------------------------------------------
PART 1--PLEASE PROVIDE YOUR Social security number(s)
TIN IN THE BOX AT RIGHT AND or Employer
CERTIFY BY SIGNING AND Identification Number(s)
DATING BELOW.
SUBSTITUTE ----------------------
--------------------------------------------------------
FORM W-9 PART 2--Certifications--Under penalties of perjury, I
certify that:
DEPARTMENT OF THE
TREASURY (1) The number shown on this form is my correct
INTERNAL REVENUE taxpayer identification number (or I am waiting
SERVICE for a number to be issued to me), and
PAYOR'S REQUEST FOR (2) I am not subject to backup withholding because:
TAXPAYER (a) I am exempt from backup withholding, or (b)
IDENTIFICATION I have not been notified by the Internal Revenue
NUMBER ("TIN") Service (IRS) that I am subject to backup
withholding as a result of a failure to report
all interest or dividends, or (c) the IRS has
notified me that I am no longer subject to
backup withholding.
CERTIFICATION INSTRUCTIONS--You must cross out
item (2) above if you have been notified by the
IRS that you are currently subject to backup
withholding because of under reporting interest
or dividends on your tax return.
--------------------------------------------------------
PART 3--
SIGNATURE
-------------------------
DATE Awaiting TIN [_]
------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN A $50 PENALTY
IMPOSED BY THE INTERNAL REVENUE SERVICE AND BACKUP WITHHOLDING OF 31%.
PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN
PART 3 OF SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(2) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number by the
time of payment, 31% of all reportable cash payments made to me will be
withheld until I provide a taxpayer identification number.
Signature Date
---------------------------------------------- -----------------
A-13
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR AXIA GROUP. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UN-
LAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AF-
FAIRS OF THE COMPANY OR AXIA GROUP SINCE SUCH DATE.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 3
Prospectus Summary........................................................ 4
Risk Factors.............................................................. 16
The Transactions.......................................................... 24
The Exchange Offer........................................................ 26
Use of Proceeds........................................................... 36
Capitalization............................................................ 37
Unaudited Pro Forma Financial Information................................. 38
Selected Historical Financial Data........................................ 45
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 47
Industry.................................................................. 54
Business.................................................................. 56
Management................................................................ 67
Related Transactions...................................................... 75
Beneficial Ownership...................................................... 76
Description of the Bank Credit Agreement.................................. 77
Description of the Notes.................................................. 80
Certain Federal Income Tax Considerations................................. 113
Legal Matters............................................................. 118
Experts................................................................... 118
Index to Combined Financial Statements.................................... F-1
Annex A--AXIA Incorporated Letter of Transmittal.......................... A-1
</TABLE>
Until January 16, 1999 (90 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This requirement is in addition to the obligation of dealers to deliver a Pro-
spectus when acting as underwriters and with respect to their unsold allot-
ments or subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
AXIA INCORPORATED
PROSPECTUS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
The Company's Certificate of Incorporation, as amended, provides that the
directors and officers of the Company shall be indemnified to the full extent
permitted by the provisions of the Delaware General Corporation Law ("DGCL").
The DGCL provides for indemnification of directors and officers of a
corporation against expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding arising by
reason of the fact that such person is or was an officer or director of the
corporation or is or was serving at the request of the corporation as a
director, officer or employee of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise.
Section 145 of the DGCL provides generally that a person sued as a director,
officer, employee or agent of a corporation may be indemnified by the
corporation for reasonable expenses, including attorneys' fees, if in the case
of other than derivative suits such person has acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation (and, in the case of a criminal proceeding, had
no reasonable cause to believe that such person's conduct was unlawful). In
the case of a derivative suit, an officer, employee or agent of the
corporation which is not protected by the Certificate of Incorporation may be
indemnified by the corporation for reasonable expenses, including attorneys'
fees, if such person has acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made in the case of a
derivative suit in respect of any claim as to which an officer, employee or
agent has been adjudged to be liable to the corporation unless that person is
fairly and reasonable entitled to indemnity for proper expenses.
Indemnification is mandatory in the case of a director, officer, employee, or
agent who is successful on the merits in defense of a suit against such
person.
The Company has entered into Indemnity Agreements with its directors and
certain key officers pursuant to which the Company generally is obligated to
indemnify its directors and such officers to the full extent permitted by the
DGCL as described above.
The Company has purchased liability insurance policies covering directors
and officers in certain circumstances.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<C> <C> <S>
3.1 -- Certificate of Incorporation of the Company, as amended
3.2 -- Bylaws of the Company
4.1 -- Indenture, as supplemented, dated as of July 22, 1998 by and
between the Company and State Street Bank & Trust Company
National Bank, as Trustee, with respect to the 10 3/4% Senior
Subordinated Notes due 2008, including the form of the Note
4.2 -- Registration Rights Agreement by and between the Company,
Chase Securities Inc. and NationsBanc Montgomery Securities
LLC, effective as of July 22, 1998
5* -- Opinion of Bracewell & Patterson, L.L.P. as to the validity
of the Exchange Notes being offered
8* -- Opinion of Bracewell & Patterson, L.L.P. as to certain
federal income tax matters
10.1 -- Axia Group, Inc. 1998 Stock Awards Plan
10.2 -- Axia Finance Corp. Employee Stock Ownership Plan and 401(k)
Plan to be renamed Axia Incorporated Employee Stock Ownership
and 401(k) Plan
10.3 -- Axia Finance Corp. Employee Stock Ownership and 401(k) Plan
Trust Agreement to be renamed Axia Incorporated Employee
Stock Ownership and 401(k) Plan Trust Agreement
10.8 -- Credit Agreement dated as of July 22, 1998 among Axia Finance
Corp., Axia Incorporated, Ames Taping Tool Systems, Inc.,
Tape Tech Tool Co., Inc. and Paribas
10.9 -- Security Agreement dated as of July 22, 1998 by and between
Axia Finance Corp., Axia Incorporated, Paribas and the
Lenders named therein
10.10 -- Pledge Agreement dated as of July 22, 1998 by and between
Axia Incorporated, Paribas and the Lenders named therein
10.11 -- Letter Agreement dated June 23, 1998, by and among The
Sterling Group, Inc., Axia Group, Inc., Axia Acquisition
Corp. and each of their subsidiaries
10.12 -- Form of Indemnity Agreement between Axia Incorporated and
each of its officers and directors
10.13 -- Form of Tax Sharing Agreement among Axia Group Inc., Axia
Holdings Corp., Axia Incorporated, Ames Taping Tool Systems,
Inc. and Tape Tech Tool Co., Inc.
12 -- Statement re Computation of Ratio of Earnings to Fixed
Charges
21 -- Subsidiaries of the Registrant
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Deloitte & Touche LLP
23.3* -- Consents of Bracewell & Patterson, L.L.P. (included in their
opinions filed as Exhibits 5 and 8 hereto)
24 -- Powers of Attorney
25 -- Statement of Eligibility and Qualification on Form T-1 of
State Street Bank & Trust Company as Trustee under the
Indenture
</TABLE>
- --------
* Filed herewith.
(b) Financial Statement Schedules
None.
II-2
<PAGE>
ITEM 22. UNDERTAKINGS.
(a) The undersigned Company hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than payment by the registrant
of expenses incurred or paid by a director, officer or controlling person of
the registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer of controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AXIA
INCORPORATED HAS DULY CAUSED THIS REGISTRATION STATEMENT OR AMENDMENT THERETO
TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN
THE CITY OF HOUSTON, STATE OF TEXAS, ON OCTOBER 13, 1998.
AXIA INCORPORATED
/s/ GARY L. ROSENTHAL
By:__________________________________
Gary L. Rosenthal
Chairman of the Board
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT OR AMENDMENT THERETO HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSONS IN THE INDICATED CAPACITIES ON OCTOBER 13, 1998.
<TABLE>
<S> <C>
</TABLE>
SIGNATURE TITLE
/s/ GARY L. ROSENTHAL Chairman of the Board
- ----------------------------------- (principal executive officer)
Gary L. Rosenthal
/s/ LYLE J. FEYE Chief Financial Officer
- ----------------------------------- (principal financial and
Lyle J. Feye accounting officer)
/s/ SUSAN O. RHENEY* Director
- -----------------------------------
Susan O. Rheney
/s/ DENNIS W. SHEEHAN* Director
- -----------------------------------
Dennis W. Sheehan
*By: /s/ GARY L. ROSENTHAL
--------------------------------
Gary L. Rosenthal
(Attorney-in-fact for persons
indicated)
II-4
<PAGE>
EXHIBIT 5
[BRACEWELL & PATTERSON LETTERHEAD]
October 13, 1998
AXIA Incorporated
100 West 22nd Street
Suite 134
Lombard, Illinois 60148
Ladies and Gentlemen:
We have acted as counsel to AXIA Incorporated (the "Company"), a Delaware
corporation, in connection with the offer by the Company to exchange $1,000
principal amount at final maturity of its 10 3/4% Exchange Senior Subordinated
Notes due 2008 (the "Exchange Notes") for each $1,000 principal amount at final
maturity of its 10 3/4% Senior Subordinated Notes due 2008 (the "Original
Notes"), of which an aggregate of $100,000,000 principal amount is outstanding
(the "Exchange Offer"). The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-4 (Registration
No. 333-64555) with respect to the Exchange Offer (the "Registration
Statement"), under the Securities Act of 1933, as amended (the "Securities
Act").
We have examined originals or copies certified by officers of the Company of (a)
the Indenture, as supplemented and amended, dated as of July 22, 1998 (the
"Indenture"), by and between the Company and State Street Bank and Trust, as
Trustee (the "Trustee"), pursuant to which the Original Notes were issued and
the Exchange Notes will be issued, (b) the Articles of Incorporation, as
amended, of the Company, (c) the Bylaws of the Company, (d) certified copies of
certain resolutions adopted by the Board of Directors of the Company, and (e)
such other documents and records as we have deemed necessary and relevant for
the purposes hereof. In addition, we have relied on certificates of officers of
the Company and of public officials and others as to certain matters of fact
relating to this opinion and have made such investigations of law as we have
deemed necessary and relevant as a basis hereof. We have assumed the
genuineness of all signatures, the authenticity of all documents and records
submitted to us as copies, the conformity to authentic original documents and
records of all documents and records submitted to us as copies, and the
truthfulness of all statements of fact contained therein. We have also assumed
the due execution and delivery of the Indenture by a duly authorized officer of
the Trustee.
<PAGE>
AXIA Incorporated
October 13, 1998
Page 2
Based on the foregoing, subject to the limitations, assumptions and
qualifications set forth herein, and having due regard for such legal
considerations as we deem relevant, we are of the opinion that:
1. the Company is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Delaware; and
2. the Original Notes and the Exchange Notes have been validly authorized
and issued, and (subject to the Registration Statement becoming
effective, the Indenture being qualified under the Trust Indenture Act
of 1939 and any state securities or Blue Sky laws being complied with)
when (i) the Exchange Notes have been duly executed by duly authorized
officers of the Company, (ii) the Exchange Notes have been duly
authenticated by the Trustee under the Indenture, and (iii) the
Original Notes have been validly tendered and not withdrawn and have
been received and accepted by the Company, all in accordance with the
terms of the Exchange Offer as set forth in the Registration
Statement, the Exchange Notes issued in exchange for the Original
Notes in accordance with the terms of the Exchange Offer will be
validly issued and legally binding obligations of the Company entitled
to the benefits of the Indenture.
We advise you that members of this firm own less than 1.0% of the outstanding
common stock of AXIA Group, Inc., the parent corporation of the Company.
We hereby consent to the filing of this opinion with the Commission as Exhibit 5
to the Registration Statement and to the references to our firm under the
heading "Legal Matters" in the Prospectus included in the Registration
Statement. By giving such consent, we do not admit that we are experts with
respect to any part of the Registration Statement, including this Exhibit,
within the meaning of the term "expert" as used in the Securities Act or the
rules and regulations thereunder.
Very truly yours,
Bracewell & Patterson, L.L.P.
<PAGE>
[BRACEWELL & PATTERSON LETTERHEAD]
EXHIBIT 8
October 13, 1998
Axia Incorporated
100 West 22nd Street, Suite 134
Lombard, Illinois 60148
Ladies and Gentlemen:
We have acted as counsel to Axia Incorporated, a Delaware corporation (the
"Company"), in connection with the registration by the Company of its 10 3/4%
Exchange Senior Subordinated Notes due 2008 (the "Exchange Notes"). The Company
has filed with the Securities and Exchange Commission (the "Commission") a
registration statement on Form S-4 (the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act").
We have examined originals or copies of the Registration Statement and such
other documents and records as we have deemed necessary and relevant for the
purposes hereof. In addition, we have relied on certificates of officers of the
Company and of public officials and others as to certain matters of fact
relating to this opinion and have made such investigations of law as we have
deemed necessary and relevant as a basis hereof. In such examination and
investigation, we have assumed the genuineness of all signatures, the
authenticity of all documents and records submitted to us as originals, the
conformity to authentic original documents and records of all documents and
records submitted to us as copies and the truthfulness of all statements of fact
contained therein. We have also assumed the due authorization, execution and
delivery of the Indenture by a duly authorized officer of the Trustee.
Based upon and subject to the foregoing, and having regard for legal
considerations which we deem relevant, we hereby confirm, and adopt as our
opinion, the statements of legal matters contained in the Prospectus included in
the Registration Statement under the caption "Certain Federal Income Tax
Considerations."
<PAGE>
BRACEWELL & PATTERSON, L.L.P.
Attorneys at Law
Axia Incorporated, Inc.
October 13, 1998
Page 2
We hereby consent to the filing of this opinion with the Commission as Exhibit 8
to the Registration Statement and to the references to our firm under the
caption "Certain Federal Income Tax Considerations" in the Prospectus included
in the Registration Statement. By giving such consent, we do not admit that we
are experts with respect to any part of the Registration Statement, including
this Exhibit, within the meaning of the term "expert" as used in the Securities
Act or the rules and regulations issued thereunder.
Very truly yours,
/s/ Bracewell & Patterson, L.L.P.
Bracewell & Patterson, L.L.P.
