<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 17, 1997
REGISTRATION NO. 333-25355
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
DYNCORP
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 4581 36-2408747
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
2000 EDMUND HALLEY DRIVE
RESTON, VIRGINIA 20191-3436
(703) 264-0330
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT's PRINCIPAL EXECUTIVE OFFICES)
------------------------
DAVID L. REICHARDT
SENIOR VICE PRESIDENT AND
GENERAL COUNSEL
DYNCORP
2000 EDMUND HALLEY DRIVE
RESTON, VIRGINIA 20191-3436
(703) 264-9106
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
Copies to:
ROBERT B. OTT, ESQ.
ARNOLD & PORTER
555 TWELFTH STREET, N.W.
WASHINGTON, D.C. 20004
(202) 942-5008
------------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE 17, 1997
PROSPECTUS
OFFER TO EXCHANGE 9 1/2% SENIOR SUBORDINATED NOTES DUE 2007
FOR ALL OUTSTANDING 9 1/2% SENIOR SUBORDINATED NOTES DUE 2007 OF
[DYNCORP LOGO]
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME ON , 1997 UNLESS EXTENDED.
DynCorp, a Delaware corporation (the "Company" or "DynCorp"), hereby offers
(the "Exchange Offer"), upon the terms and subject to the conditions set forth
in this Prospectus and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), to exchange $1,000 principal amount of its 9 1/2% Senior
Subordinated Notes due 2007 (the "Exchange Notes"), which exchange has 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 (the
"Registration Statement"), for each $1,000 principal amount of its outstanding 9
1/2% Senior Subordinated Notes due 2007 (the "Original Notes"), of which $100.0
million in aggregate principal amount are outstanding as of the date hereof. 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 will have been registered under the
Securities Act, and hence the Exchange Notes will not bear legends restricting
the transfer thereof, and (ii) holders of the Exchange Notes will not be
entitled to certain rights of holders of the Original Notes under the
Registration Rights Agreement (as defined herein), which rights will terminate
upon the consummation of the Exchange Offer. The Exchange Notes will evidence
the same debt as the Original Notes (which they replace) and will be entitled to
the benefits of an indenture dated as of March 17, 1997 by and between the
Company and United States Trust Company of New York, as Trustee (the "Trustee"),
governing the Original Notes and the Exchange Notes (the "Indenture"). The
Original Notes and the Exchange Notes are sometimes referred to herein
collectively as the "Senior Subordinated Notes" or the "Notes." See "The
Exchange Offer" and "Description of Notes."
The Exchange Notes will bear interest at the same rate and on the same terms
as the Original Notes. Consequently, the Exchange Notes will bear interest at
the rate of 9 1/2% per annum and the interest will be payable semi-annually on
March 1 and September 1 of each year commencing on September 1, 1997. The
Exchange Notes will bear interest from and including the date of issuance of the
Original Notes (March 17, 1997) (the "Issue Date"). Holders whose Original Notes
are accepted for exchange will be deemed to have waived the right to receive any
interest accrued on the Original Notes.
The Notes are redeemable, in whole or in part, at the option of the Company,
on or after March 1, 2002 at the redemption prices set forth herein, plus
accrued interest to the date of redemption. In addition, on or prior to March 1,
2000 the Company, at its option, may redeem up to 35% of the aggregate principal
amount of the Notes originally issued with the net cash proceeds of one or more
Public Equity Offerings (as defined) at the redemption price set forth herein,
plus accrued interest to the date of redemption; provided that at least 65% of
the original aggregate principal amount of the Notes remains outstanding after
any such redemption.
The Notes will be general unsecured obligations of the Company and will be
subordinated in right of payment to all existing and future Senior Debt (as
defined) of the Company. At May 1, 1997, the aggregate outstanding amount of
Senior Debt of the Company was $59.2 million (including issued but undrawn
letters of credit of $5.4 million and excluding unused commitments expected to
be available for borrowing of $69.6 million). The Notes will be effectively
subordinated to all secured indebtedness of the Company as well as existing and
future obligations of the Company's subsidiaries.
Upon a Change of Control (as defined), each holder of the Notes will have
the right to require the Company to repurchase such holder's Notes at a price
equal to 101% of their principal amount, plus accrued interest to the date of
repurchase. In addition, the Company will be obligated to offer to repurchase
the Notes at 100% of their principal amount, plus accrued interest to the date
of repurchase in the event of certain asset sales. See "Description of Notes."
------------------------------
SEE "RISK FACTORS" COMMENCING ON PAGE 13 OF THIS PROSPECTUS FOR A
DISCUSSION OF CERTAIN FACTORS WHICH HOLDERS OF ORIGINAL NOTES SHOULD CONSIDER IN
CONNECTION WITH THIS EXCHANGE OFFER.
The Company will accept for exchange any and all validly tendered Original
Notes not withdrawn prior to 5:00 p.m., New York City time, on 1997 unless
extended by the Company, in its sole discretion (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--Certain Conditions to the Exchange Offer." Original Notes may be tendered
only in integral multiples of $1,000.
------------------------------
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 , 1997
<PAGE>
Based on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties, the Company believes that the Exchange Notes issued pursuant to this
Exchange Offer in exchange for Original Notes may be offered for resale, resold
and otherwise transferred by a holder thereof (other than (i) a broker-dealer
who purchases such Exchange Notes directly from the Company to resell pursuant
to Rule 144A or any other available exemption under the Securities Act or (ii) a
person 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 the holder is acquiring
the Exchange Notes in the ordinary course of its business and is not
participating, and had no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes. Holders of Original
Notes wishing to accept the Exchange Offer must represent to the Company, as
required by the Registration Rights Agreement, that such conditions have been
met.
Each broker-dealer that receives the Exchange Notes for its own account in
exchange for the 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. 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 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
by such broker-dealer as a result of market-making activities or other trading
activities. The Company has indicated its intention to make this Prospectus (as
it may be amended or supplemented) available to any broker-dealer for use in
connection with any such resale for a period of 90 days after the Expiration
Date. See "Plan of Distribution." The Company believes that none of the
registered holders of the Original Notes is an affiliate (as such term is
defined in Rule 405 under the Securities Act) of the Company.
Although the Original Notes are eligible for trading in the Private
Offerings, Resales and Trading through Automated Linkages ("PORTAL") Market,
prior to this Exchange Offer, there has been no public market for the Original
Notes. The Company does not intend to list the Notes on any securities exchange
or to seek approval for quotations through any automated quotation system. There
can be no assurance that an active market for the Notes will develop. To the
extent that a market for the Notes does develop, the market value of the Notes
will depend on market conditions (such as yields on alternative investments),
general economic conditions, the Company's financial condition and other
conditions. Such conditions might cause the Senior Subordinated Notes, to the
extent that they are actively traded, to trade at a significant discount from
face value. See "Risk Factors-- Absence of Public Market."
The Company will not receive any proceeds from this Exchange Offer. The
Company has agreed to bear the expenses of this Exchange Offer. No underwriter
is being used in connection with this Exchange Offer.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF ORIGINAL NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
No person is authorized in connection with any offering made hereby to give
any information or to make any representation not contained in this Prospectus
or the accompanying Letter of Transmittal, and, if given or made, such
information or representation must not be relied upon as having been authorized
by the Company. Neither the delivery of this Prospectus or the accompanying
Letter of Transmittal, nor any exchange made hereunder shall under any
circumstances create any implication that the information contained herein is
correct as of any date subsequent to the date hereof.
ii
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 under the Securities Act with respect to the Exchange Notes offered hereby.
As permitted by the rules and regulations of the Commission, this Prospectus
omits certain information, exhibits and undertakings contained in the
Registration Statement. For further information with respect to the Company and
the Exchange Notes offered hereby, reference is made to the Registration
Statement, including the exhibits thereto and the financial statements, notes
and schedules filed as a part thereof.
The Company is subject to the information reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the Commission.
Such reports and other information filed by the Company may be examined without
charge at, or copies obtained upon payment of prescribed fees from, the Public
Reference Section of the Commission at Judiciary Plaza, Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 and are also available for inspection and
copying at the regional offices of the Commission located at Seven World Trade
Center, Suite 1300, New York, New York 10048 and at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Electronic filings filed
through the Commission's Electronic Data Gathering, Analysis and Retrieval
system (EDGAR) are publicly available through the Commission's home page on the
Internet at http://www.sec.gov.
In addition, the Company has agreed that, whether or not it is required to
do so by the rules and regulations of the Commission, for so long as any Notes
remain outstanding, it will file with the Commission and furnish to the holders
of the Notes (i) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and 10-K,
including for each, a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, with respect to the annual information
only, a report thereof by the Company's independent public accountants and (ii)
all reports filed on Form 8-K. In addition, for so long as any of the Notes
remain outstanding, the Company has agreed to make available to any prospective
purchaser of the Notes or beneficial owner of the Notes in connection with any
sale thereof, the information required by Rule 144A(d)(4) under the Securities
Act.
CERTAIN INFORMATION INCORPORATED BY REFERENCE
The following documents filed with the Commission by the Company pursuant
to the Exchange Act are incorporated by reference into this Prospectus:
1. Annual Report of the Company on Form 10-K for the year ended
December 31, 1996 and Amendment No. 1 to Annual Report of the Company on
Form 10-K/A filed June 10, 1997.
2. Quarterly Report of the Company on Form 10-Q for the quarter ended
March 27, 1997 and Amendment No. 1 to Quarterly Report of the Company on
Form 10-Q/A filed June 13, 1997.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THE COMPANY UNDERTAKES TO PROVIDE A COPY OF EACH
SUCH DOCUMENT, WITHOUT CHARGE, TO EACH PERSON, INCLUDING ANY BENEFICIAL OWNER,
TO WHOM A PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST TO H. MONTGOMERY
HOUGEN, VICE PRESIDENT AND SECRETARY, DYNCORP, 2000 EDMUND HALLEY DRIVE, RESTON,
VIRGINIA 20191-3436, (703) 264-9108. IN ORDER TO ENSURE EARLY DELIVERY OF THE
DOCUMENTS, ANY REQUEST SHOULD BE MADE BY [INSERT DATE].
This Prospectus includes or incorporates by reference "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. Such statements are identified by the use of
forward-looking words or phrases including, but not limited to, "intended,"
"will be positioned," "expects," "expected," "anticipates," and "anticipated."
These forward-looking statements are based on the Company's current
expectations. All statements other than statements of historical facts included
in this Prospectus or incorporated by reference therein, including those
regarding the Company's financial position, business strategy, projected costs,
and plans and objectives of management for future operations, are
forward-looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, there can be no
assurance that such expectations will prove to have been correct. Because
forward-
iii
<PAGE>
looking statements involve risks and uncertainties, the Company's actual results
could differ materially. Important factors that could cause actual results to
differ materially from the Company's expectations ("Cautionary Statements") are
disclosed under "Risk Factors," and elsewhere in this Prospectus or incorporated
by reference therein including, without limitation, in conjunction with the
forward-looking statements included in this Prospectus. These forward-looking
statements represent the Company's judgment as of the date of this Prospectus.
All subsequent written and oral forward-looking statements attributable to the
Company or persons acting on behalf of the Company are expressly qualified in
their entirety by the Cautionary Statements. The Company disclaims, however, any
intent or obligation to update its forward-looking statements.
This Prospectus is accompanied by a copy of the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996, as amended by an
amendment filed on Form 10-K/A on June 10, 1997, without exhibits ("Annual
Report"), and the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 27, 1997, as amended by an amendment filed on Form 10-Q/A on June
13, 1997, without exhibits ("Quarterly Report").
The Company was incorporated in Delaware in 1946. The address of the
Company's principal executive offices is 2000 Edmund Halley Drive, Reston,
Virginia 20191-3436, telephone (703) 264-0330.
iv
<PAGE>
TABLE OF CONTENTS
PAGE
----
Available Information................................. iii
Certain Information Incorporated by Reference......... iii
Summary............................................... 1
Risk Factors.......................................... 13
The Transactions...................................... 18
Use of Proceeds....................................... 20
Capitalization........................................ 20
Unaudited Pro Forma Financial Data.................... 21
Selected Historical Financial Data.................... 25
Employee Stock Ownership Plan......................... 27
Description of Certain Financing Arrangements......... 28
Legal Proceedings..................................... 28
The Exchange Offer.................................... 33
Description of Notes.................................. 42
Book-Entry; Delivery and Form......................... 65
Certain Federal Income Tax Considerations............. 67
Plan of Distribution.................................. 69
Independent Public Accountants........................ 70
Legal Matters......................................... 70
v
<PAGE>
SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial data, including
the financial statements and notes thereto, appearing elsewhere or incorporated
by reference in this Prospectus. As used in this Prospectus, all references to
the Company include, unless the context indicates otherwise, DynCorp and its
subsidiaries.
THE COMPANY
DynCorp is a leading provider of diversified management, technical, and
professional services to a wide range of government customers. The Company's
principal markets are information management services, software development, and
system integration and analysis; facilities management; and aviation maintenance
and specialized support services. With current customers including the
Department of Defense ("DoD"), the Department of Energy ("DoE"), the National
Aeronautics and Space Administration ("NASA"), the Department of State, the
Department of Justice ("DoJ"), and various other U.S. Government agencies, the
Company is one of the foremost providers of services to the U.S. Government. The
Company has over 250 contracts that employ approximately 14,250 employees
throughout the United States and in numerous other countries. The Company is
strategically positioned to benefit from the growth trends in government and
commercial markets for information technology and outsourcing of technical,
professional and support services. For the year ended December 31, 1996, the
Company's total revenues and adjusted EBITDA (as defined) were $1,021.5 million
and $39.0 million, respectively.
The Company has a substantial base of long-term contracts with U.S.
Government customers that has provided a stable, recurring stream of revenues.
DynCorp's strong reputation and historical relationship with these customers is
a result of a high level of customer satisfaction and strong performance on
existing contracts. For the year ended December 31, 1996, approximately
one-third of DynCorp's revenues were generated from contracts where the Company
has served for eight years or more. These established customer relationships not
only improve the Company's knowledge of customer requirements, but also enhance
its position to bid on and win new business opportunities with these customers.
The Company's base of existing business resulted in total backlog of $3.0
billion at December 31, 1996 (including the estimated value of option years),
which represents a 4.0% increase from the December 31, 1995 level. The Company
anticipates that approximately $987.0 million of this backlog will be recognized
as revenues during fiscal year 1997.
The Company has achieved 56.0% revenue growth from December 31, 1991
through the year ended December 31, 1996 by winning business with new customers,
expanding business with existing customers, and through strategic acquisitions.
The Company has a strong track record of winning business with new customers,
where no previous relationship existed, particularly in the rapidly growing
information technology sector. Business with information technology customers
has grown substantially and, for the year ended December 31, 1996, accounted for
26.6% of total revenues. Because much of the Company's growth has come from new
non-DoD customers, DoD customer prime contracts accounted for 50.0% of revenues
for the year ended December 31, 1996 compared to 79.8% of revenues for the year
ended December 31, 1991.
A key component of the Company's business strategy has been the use of
strategic acquisitions and a focused marketing and business development effort
to exploit new business opportunities. DynCorp is organized into three principal
businesses: Information and Engineering Technology ("I&ET"), Enterprise
Management ("EM"), and Aerospace Technology ("AT").
The following table shows revenues for the twelve months ended December 31,
1996 for, and describes services provided by, the three principal business
divisions of the Company:
1
<PAGE>
[A chart showing total revenues of 1,021.5 million for DynCorp. The
chart also also shows (a) revenues of 271.5 million for I&ET (with
services provided of Systems Services, Consulting Services, Engineering
Solutions, Network Management, and National Security Programs); (b)
revenues of $366.7 million for EM (with services provided of Facilities
Management, Administrative and Security Support Services, and Marine
Services); and (c) revenues for AT of $383.3 million (with services
provided of Field Service Operations, Test and Evaluation, Engineering
Technology, and Aviation Services.)]
Information and Engineering Technology. The Company designs, develops,
supports and integrates software and systems to provide customers with
comprehensive solutions for information management and engineering needs. The
specific operations of this division include software development and
maintenance, computer center operations, data processing and analysis, database
administration, telecommunications support and operations, maintenance and
operation of integrated electronic systems, and integration of electronic
systems in local and wide area networks. This division's contracts include the
design and development of a personnel records management system, including
imaging, database and client server technology, for the entire U.S. Navy, and
the provision of basic computer, software, and networking support to all of the
DoE's operations. One of the Company's key business strategies is to continue to
expand this division's presence in the rapidly growing information technology
market. This division also provides services in support of nuclear safeguards
and security research and development. As a result of internal growth and
numerous strategic acquisitions, this division has experienced a 262% growth in
revenues from December 31, 1991 through the year ended December 31, 1996. For
the year ended December 31, 1996, this division accounted for 26.6% of total
revenues.
Enterprise Management. The Company provides full service, "turn-key"
solutions for the management, operation and maintenance of federal and
commercial facilities. The Company manages large-scale facilities, using
sophisticated computerized work management and scheduled maintenance systems to
perform roads and grounds maintenance, civil engineering and custodial services,
landfill recycling, disposal operations, and vehicle and heavy equipment
maintenance. Other activities of this division include testing and evaluation of
military hardware systems at government test ranges, collection and processing
of data, maintenance of targets, ranges and laboratory facilities, health
services, developmental testing of complex weapons systems, security systems
work, and technology transfer into commercial applications. Services under this
division's contracts include facilities and equipment maintenance and management
provided to the DoE complexes at Rocky Flats, Colorado, and Hanford, Washington
and the Strategic Petroleum Reserve. In addition, this division's contracts
include the support of the DoJ's and the Drug Enforcement Agency's ("DEA")
drug-related asset seizure program. The division expects to benefit from
continued government outsourcing for both maintenance of government facilities
and performance of various activities. This division's operations typically
require minimal investments in working capital and fixed assets on the part of
the Company. For the year ended December 31, 1996, this division accounted for
35.9% of total revenues.
2
<PAGE>
Aerospace Technology. The Company has been a leading provider of global
aerospace and engineering services. This division has the unique capability to
mobilize a work force quickly anywhere in the world to provide technology based
solutions to its customers. The Company is the largest DoD maintenance
contractor supporting multi-mission and training programs for weapon systems.
Specific activities of this division include technical and evaluation services
at test and training ranges; engineering, manufacturing and installation of
aircraft system upgrades; corrosive repairs and structural modifications that
extend airframe life for the aging fleet of military aircraft; ground based
logistics support and staff augmentation; and engineering and technical services
for high-technology space and missile systems programs. In addition, under a
five-year contract awarded in January 1997, the Company will provide contingency
planning, operations, logistical and other services for the Army Materiel
Command in support of U.S. Army contingency operations worldwide. This division
is expected to benefit from strong demand in several markets, including support
of aging aircraft, contractor logistics support, and global peacekeeping. Like
Enterprise Management, this division's operations typically require minimal
investments in working capital and fixed assets. For the year ended December 31,
1996, this division accounted for 37.5% of total revenues.
3
<PAGE>
BUSINESS STRENGTHS
DynCorp's revenues have increased 56.0%, from $654.7 million in 1991 to
$1,021.5 million for the year ended December 31, 1996. The Company's revenue
growth and market leadership are attributable to a number of factors, including
the following:
o Substantial Contracts and Backlog. The Company's services are generally
performed through large, long-term contracts with the U.S. Government.
Under most of these contracts, the Company is entitled to reimbursement
for all allowable costs incurred in providing its services, as well as a
fee. The Company's services also typically require minimal investments in
working capital, fixed assets, and other fixed costs. The Company's
substantial backlog of such contracts can be counted on to generate
strong and dependable cash flows with relatively low levels of operating
and credit risk.
o Proven Track Record and Established Reputation. The Company believes it
has achieved its position as a leading provider of diversified
management, technical and professional services to the U.S. Government by
developing the ability to integrate services and Company-wide
technologies to deliver total system solutions for clients. In addition,
DynCorp has well established relationships with its customers in both
civilian and military agencies. The Company has been supporting military
aviation programs worldwide since 1951. In addition, the Company has
performed services at the White Sands Missile Range since 1949 and at the
U.S. Navy Warfare Assessment Division in Norco, California since 1964.
o Technological Expertise. The Company's technological expertise provides
it with a competitive advantage in its primary markets. An example of
this expertise is DynCorp's development of an emerging technology
solution using its Enterprize(Registered) product, which is a key imaging
technology-based component of document handling and database management
systems. Other core information technology competencies include network
engineering, technology outsourcing, and database management.
o Unique Network of Highly Skilled Personnel Worldwide. DynCorp has the
ability to respond to clients' needs quickly. Over the years, DynCorp has
developed methods to plan, recruit, staff, and then efficiently manage
projects from central locations, allowing the Company to meet unique
client requests and to manage a large number of contracts at multiple
sites around the world. The Company currently manages over 250 contracts
with approximately 14,250 employees throughout the United States and in
numerous other countries.
o Successful Acquisition Record. Acquisitions have been an integral part of
the Company's strategic growth plans. Since 1990, the Company has
acquired 13 businesses, the majority of which have been primarily engaged
in the delivery of information technology services and solutions. These
businesses were acquired either to expand existing business into new
markets or to take newly acquired technologies into existing markets. The
Company has a proven capability to integrate acquired companies quickly
and to realize marketing and operating efficiencies.
o Strong Management Team. The Company has a highly experienced management
team that has successfully grown the Company's businesses. The Company's
operations are decentralized, with the senior business unit managers
responsible for strategic operating decisions, excluding financing and
top level corporate strategy. The senior managers have substantial
breadth of experience in the industry and have been responsible for the
expansion and diversification of the Company into new markets.
o Employee Ownership. The Employee Stock Ownership Plan ("ESOP") and
management employees own approximately 85% of the Company's capital stock
on a fully diluted basis, following the Company's and the ESOP's recent
purchases of securities formerly owned by Capricorn Investors L.P.
("Capricorn"). The Company believes its substantial employee ownership
encourages both managers and other employees to act as stakeholders, and
has been a significant factor in providing an incentive for its
employees.
4
<PAGE>
BUSINESS STRATEGY
The Company's business strategy consists of the following five key
elements:
o Maintain and Augment Core Businesses. The Company's core businesses in
enterprise management and aerospace technology have large, stable and
long-term contracts with the U.S. Government. These contracts typically
require minimal investment by the Company and represent a strong and
reliable source of revenues. The Company intends to retain and enhance
these valuable businesses by its intensive focus on customer satisfaction
and cost competitiveness.
o Leverage Customer Relationships. The Company works closely with its
customers to develop and design new services jointly and to improve the
performance and lower the cost of existing services. Management believes
this strategy, together with solid performance under existing contracts,
has led to additional long-term business from key customers as well as
with new customers.
o Expand Presence in Growing Information Technology Market. The Company has
developed core information technology competencies, including network
imaging and engineering, software development, and database management.
The Company believes demand for information technology services is
growing rapidly in both government and commercial markets. DynCorp
intends to leverage its existing information technology expertise to
expand business opportunities in this growing market.
o Continue to Pursue Strategic Acquisitions. The Company intends to
continue to acquire complementary businesses that provide opportunities
to enhance the Company's core services, diversify into new markets, and
create operating efficiencies. In implementing this strategy, management
intends to build upon its successful experience in integrating nine
acquired companies from 1990 to 1996 into the Company's Information and
Engineering Technology division.
o Expand and Diversify into New Markets. The Company continually seeks new
business opportunities that are complementary to its current operations.
For example, the Company intends to expand into the growing state and
local government outsourcing market, as the federal government moves
block grants down to the state level. The Company has also increased its
marketing to commercial customers and believes its proven track record
and technological expertise make it well positioned to increase
penetration in this market.
5
<PAGE>
THE TRANSACTIONS
In addition to the proceeds provided by the sale of the Original Notes (the
"Offering"), the Company replaced its former $100.0 million accounts receivable
securitization facility ("Former Securitization Facility") with a new $140.0
million securitization facility ("New Securitization Facility") on April 18,
1997. The Former Securitization Facility was, and the New Securitization
Facility is, non-recourse to the Company. The Company and its ESOP have recently
purchased a substantial portion of the Company's equity securities formerly held
by Capricorn in exchange for cash and notes ("Capricorn Transaction").
Capricorn, an investment fund, provided substantial capital in connection with
the Company's leveraged buyout in 1988. See "The Transactions" and "Description
of Certain Financing Arrangements."
The sources and uses of funds to replace the Former Securitization Facility
and to pay the notes issued in connection with the Capricorn Transaction are set
forth in the following table (dollars in millions):
<TABLE>
<CAPTION>
SOURCES OF FUNDS USES OF FUNDS
- ------------------------------------------ ------------------------------------------
<S> <C> <C> <C>
Issuance of Notes......................... $ 99.5 Replace Existing Securitization
Facility................................ $100.0
New Securitization Facility............... 50.0(1) Repay notes issued in connection with the
Capricorn Transaction................... 28.2
General Corporate Purposes................ 16.3
Estimated Fees and Expenses............... 5.0
------ ------
Total Sources................... $149.5 Total Uses................................ $149.5
====== ======
</TABLE>
- ------------------
(1) At the closing of the New Securitization Facility, the Company borrowed
$50.0 million of $110.0 million available for borrowing based upon current
levels of eligible collateral.
Upon the closing of the New Securitization Facility, the line of credit
with Citicorp North America, Inc. (the "Revolving Credit Facility") was
voluntarily reduced to $15.0 million. See "Description of Certain Financing
Arrangements."
6
<PAGE>
THE EXCHANGE OFFER
<TABLE>
<S> <C>
The Exchange Offer........................ The Company is offering to exchange $1,000 principal amount of
Exchange Notes for each $1,000 principal amount of Original Notes
that are properly tendered and accepted. The Company will issue
Exchange Notes on or promptly after the Expiration Date. There is
$100.0 million aggregate principal amount of Original Notes
outstanding. See "The Exchange Offer."
Based on an interpretation by the staff of the Commission set forth
in no-action letters issued to third parties, the Company believes
that the Exchange Notes issued pursuant to this Exchange Offer in
exchange for Original Notes may be offered for resale, resold and
otherwise transferred by a holder thereof (other than (i) a broker-
dealer who purchases such Exchange Notes directly from the Company to
resell pursuant to Rule 144A or any other available exemptions under
the Securities Act or (ii) a person 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 the holder is
acquiring the Exchange Notes in the ordinary course of its business
and is not participating, and had no arrangement or understanding
with any person to participate, in the distribution of the Exchange
Notes. Each broker-dealer that receives the Exchange Notes for its
own account in exchange for the Original Notes, where such 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.
Registration Rights Agreement............. The Original Notes were sold by the Company on March 17, 1997 to BT
Securities Corporation and Citicorp Securities, Inc. (the "Initial
Purchasers") pursuant to a Purchase Agreement dated as of March 11,
1997 by and among the Company and the Initial Purchasers (the
"Purchase Agreement"). Pursuant to the Purchase Agreement, the
Company and the Initial Purchasers entered into a Registration Rights
Agreement dated as of March 17, 1997 (the "Registration Rights
Agreement") which grants the holders of the Original Notes certain
exchange and registration rights. See "The Exchange
Offer--Termination of Certain Rights." This Exchange Offer is
intended to satisfy such rights, which terminate upon the
consummation of the Exchange Offer. The holders of the Exchange Notes
are not entitled to any exchange or registration rights with respect
to the Exchange Notes.
Expiration Date........................... The Exchange Offer will expire at 5:00 p.m., New York City time, on
, 1997, unless the Exchange Offer is extended by the Company
in its sole discretion, in which
case the term "Expiration Date"
shall mean the latest date and time
to which the Exchange Offer is
extended.
Accrued Interest on the Exchange Notes and
Original Notes.......................... The Exchange Notes will bear interest from and including the Issue
Date. Holders whose Original Notes are accepted for exchange will be
deemed to have waived the right to receive any interest accrued on
the Original Notes.
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
Conditions to the Exchange Offer.......... The Exchange Offer is subject to certain customary conditions, which
may be waived by the Company. See "The Exchange Offer--Certain
Conditions to the Exchange Offer." The Exchange Offer is not
conditioned upon any minimum aggregate principal amount of Original
Notes being tendered for exchange.
Procedures for Tendering Notes............ Each holder of Original Notes wishing to accept the Exchange Offer
must complete, sign and date the Letter of Transmittal, or a
facsimile thereof, in accordance with the instructions contained
herein and therein, and mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with such Original Notes and
any other required documentation to United States Trust Company of
New York, as Exchange Agent, at the address set forth herein. By
executing the Letter of Transmittal, each holder will represent to
the Company that, among other things, (i) the Exchange Notes to be
acquired by the holder of the Original Note in connection with the
Exchange Offer are being acquired by the holder in the ordinary
course of business of the holder, (ii) the holder has no arrangement
or understanding with any person to participate in the distribution
of Exchange Notes, (iii) the holder acknowledges and agrees that any
person who is a broker-dealer registered under the Exchange Act or is
participating in the Exchange Offer for the purposes of distributing
the Exchange Notes must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a
secondary resale transaction of 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 (see "The Exchange Offer--Resale of
the Exchange Notes"), (iv) the holder understands that a secondary
resale transaction described in clause (iii) above and any resales of
Exchange Notes obtained by such holder in exchange for Original Notes
acquired by such holder directly from the Company should be covered
by an effective registration statement containing the selling
security holder information required by Item 507 or Item 508, as
applicable, of Regulation S-K of the Commission, and (v) the holder
is not an "affiliate," as defined in Rule 405 under the Securities
Act, of the Company. If the holder is a broker-dealer that will
receive Exchange Notes for its own account in exchange for Original
Notes that were acquired as a result of market-making activities or
other trading activities, the holder is required to acknowledge in
the Letter of Transmittal that it will deliver a prospectus in
connection with any resale of such Exchange Notes; however, by so
acknowledging and by delivering a prospectus, the holder will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. See "The Exchange Offer--Procedures for Tendering."
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
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 such Original Notes in the Exchange Offer
should 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." If such beneficial
owner wishes to tender on such owner's own behalf, such owner must,
prior to completing and executing the Letter of Transmittal and
delivering such owner's Original Notes, either make appropriate
arrangements to register ownership of the Original Notes in such
owner's name or obtain a properly completed bond power from the
registered holder. The transfer of registered ownership may take
considerable time and may not be able to be completed prior to the
Expiration Date.
Guaranteed Delivery Procedures............ Holders of Original Notes who wish to tender their Original Notes and
whose Original Notes are not immediately available or who cannot
deliver their Original Notes, the Letter of Transmittal or any other
documents required by the Letter of Transmittal to United States
Trust Company of New York, as Exchange Agent, prior to the Expiration
Date, must tender their Original Notes according to the guaranteed
delivery procedures set forth in "The Exchange Offer-- Guaranteed
Delivery Procedures."
Acceptance of the Original Notes and
Delivery of the Exchange Notes.......... Subject to the satisfaction or waiver of the conditions to the
Exchange Offer, the Company will accept for exchange any and all
Original Notes that are properly tendered in the Exchange Offer prior
to the Expiration Date. The Exchange Notes issued pursuant to the
Exchange Offer will be delivered on the earliest practicable date
following the Expiration Date. See "The Exchange Offer--Terms of the
Exchange Offer."
Withdrawal Rights......................... Tenders of Original Notes may be withdrawn at any time prior to the
Expiration Date. See "The Exchange Offer--Withdrawal of Tenders."
Certain Federal Income Tax
Considerations.......................... For a discussion of certain federal income tax considerations
relating to the exchange of the Original Notes for the Exchange
Notes, see "Certain Federal Income Tax Considerations."
Exchange Agent............................ United States Trust Company of New York is serving as the exchange
agent (the "Exchange Agent") in connection with the Exchange Offer.
United States Trust Company of New York also serves as Trustee under
the Indenture.
Consequences of Failure to Exchange....... The Original Notes that are not exchanged pursuant to the Exchange
Offer will remain restricted securities. Accordingly, such Notes may
be resold only (i) to the Company, (ii) pursuant to Rule 144A or Rule
144 under the Securities Act or pursuant to some other exemption
under the Securities Act, (iii) outside the United States to a
foreign person pursuant to the requirements of Rule 904 under the
Securities Act, or (iv) pursuant to an effective registration
statement under the Securities Act. See "The Exchange
Offer--Consequences of Failure to Exchange."
</TABLE>
9
<PAGE>
THE NOTES
<TABLE>
<S> <C>
The Exchange Notes........................ The Exchange Offer applies to $100.0 million aggregate principal
amount of the Original Notes. 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 will have been registered under the Securities
Act and, therefore, the Exchange Notes will not bear legends
restricting their transfer pursuant to the Securities Act, and (ii)
holders of the Exchange Notes will not be entitled to certain rights
of holders of the Original Notes under the Registration Rights
Agreement, which rights will terminate upon consummation of the
Exchange Offer. 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. See "Description of
Notes" for further information and for definitions of certain
capitalized terms used below.
Maturity Date............................. March 1, 2007.
Interest Rate and Payment Dates........... The Exchange Notes will bear interest at a rate of 9 1/2% per annum.
Interest on the Exchange Notes will accrue from the Issue Date and
will be payable semi-annually on March 1 and September 1 of each
year, commencing on September 1, 1997.
Subordination............................. The Exchange Notes will be general unsecured obligations of the
Company and will be subordinated in right of payment to all existing
and future Senior Debt (as defined) of the Company. The Exchange
Notes will rank pari passu with the Original Notes. At May 1, 1997,
the aggregate outstanding amount of Senior Debt of the Company was
$59.2 million (including issued but undrawn letters of credit of
$5.4 million and excluding unused commitments expected to be
available for borrowing of $69.6 million). The Notes will be
effectively subordinated to all secured indebtedness of the Company
as well as existing and future obligations of the Company's
subsidiaries. See "Description of Notes--Subordination."
Optional Redemption....................... Except as described below, the Company may not redeem the Exchange
Notes prior to March 1, 2002. On or after such date, the Company may
redeem the Notes, in whole or in part, at the redemption prices set
forth herein, plus accrued interest to the date of redemption. In
addition, at any time on or prior to March 1, 2000, the Company may
redeem up to 35% of the aggregate principal amount of the Notes
originally issued in the Offering with the net cash proceeds of one
or more Public Equity Offerings (as defined) at a redemption price
equal to 109.50% of the principal amount to be redeemed, plus accrued
interest to the date of redemption; provided that at least 65% of the
original aggregate principal amount of the Notes remains outstanding
after any such redemption. See "Description of Notes--Optional
Redemption."
Change of Control......................... Upon a Change of Control (as defined), each holder of the Notes will
have the right to require the Company to repurchase such holder's
Notes at a price equal to 101% of their principal amount, plus
accrued interest to the date of repurchase. See "Description of
Notes--Change of Control."
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
Certain Covenants......................... The Indenture governing the Notes (the "Indenture") contains certain
covenants that limit the ability of the Company and certain of its
subsidiaries to, among other things, incur additional indebtedness,
pay dividends or make certain other restricted payments, consummate
certain asset sales, enter into certain transactions with affiliates,
incur indebtedness that is subordinate in right of payment to any
Senior Debt and senior in right of payment to the Notes, incur liens,
impose restrictions on the ability of a subsidiary to pay dividends
or make certain payments to the Company and certain of its
subsidiaries, merge or consolidate with any other person or sell,
assign, transfer, lease, convey or otherwise dispose of all or
substantially all of the assets of the Company. See "Description of
Notes--Certain Covenants."
</TABLE>
For additional information regarding the Notes, see "Description of Notes."
RISK FACTORS
See "Risk Factors," which begins on page 13, for a discussion of certain
factors that should be considered in evaluating an investment in the Exchange
Notes.
11
<PAGE>
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following table sets forth summary historical and unaudited pro forma
consolidated financial information of the Company. The summary historical
consolidated financial information of the Company for the three years ended
December 31, 1996 has been derived from the Company's audited financial
statements. The pro forma and other data for the year ended December 31, 1996
and the three months ended March 27, 1997 and March 28, 1996, give effect to the
Offering, the New Securitization Facility, and the Capricorn Transaction
(collectively, the "Transactions"), as if such Transactions had occurred on
January 1, 1996, and the pro forma balance sheet data gives effect to the
Transactions as if the Transactions had occurred on March 27, 1997. The
following information should be read in conjunction with the "Unaudited Pro
Forma Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements of the Company
and the notes thereto included elsewhere or incorporated by reference in this
Prospectus.
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA
---------------------------------------------------
THREE MONTHS ENDED
------------------------ YEAR ENDED DECEMBER 31, YEARS ENDED DECEMBER 31,
MARCH 27, MARCH 28, ----------------------- ----------------------------------
1997 1996 1996 1996 1995 1994
---------- ---------- ----------------------- ---------- -------- --------
(IN THOUSANDS, EXCEPT RATIO DATA)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues......................... $ 271,137 $ 241,726 $ 1,021,453 $1,021,453 $908,725 $818,683
Cost of services................. 259,794 230,997 970,163 970,163 871,317 783,121
---------- ---------- ----------- ---------- -------- --------
Gross profit..................... 11,343 10,729 51,290 51,290 37,408 35,562
Corporate selling and
administrative expense......... 4,439 4,460 18,241 18,241 18,705 16,887
---------- ---------- ----------- ---------- -------- --------
Operating income................. 6,904 6,269 33,049 33,049 18,703 18,675
Interest expense................. 3,828 3,636 14,609 10,220 14,856 14,903
Interest income.................. (361) (614) (1,752) (1,752) (3,804) (2,398)
Other expenses................... 277 566 5,474 5,474 10,212 7,628
Income tax provision (benefit)... 948 778 4,137 5,893 (9,090) (2,236)
Minority interest................ 408 296 1,265 1,265 1,255 1,130
---------- ---------- ----------- ---------- -------- --------
Earnings (loss) from continuing
operations before extraordinary
item........................... $ 1,804 $ 1,607 $ 9,316 $ 11,949 $ 5,274 $ (352)
---------- ---------- ----------- ---------- -------- --------
---------- ---------- ----------- ---------- -------- --------
OTHER DATA:
Adjusted EBITDA(1)............... $ 8,682 $ 7,295 $ 38,997 $ 38,997 $ 29,722 $ 29,177
Total debt to Adjusted EBITDA.... 3.9x
Adjusted EBITDA to interest
expense........................ 2.7x
Ratio of earnings to fixed
charges........................ 1.6x
Depreciation and
amortization(2)................ $ 2,463 $ 1,888 $ 8,638 $ 8,638 $ 10,424 $ 15,669
Capital expenditures............. $ 1,360 $ 1,502 $ 5,310 $ 5,310 $ 4,789 $ 3,742
<CAPTION>
UNAUDITED
PRO FORMA
AT
MARCH 27,
BALANCE SHEET DATA: 1997
----------
<S> <C> <C> <C> <C> <C> <C>
Total assets..................... $ 364,412
Total debt....................... $ 153,074(3)
</TABLE>
- ------------------
(1) EBITDA represents the sum of earnings (loss) from continuing operations
before extraordinary items, income taxes, interest expense, interest income,
depreciation and amortization. EBITDA data is presented because such data is
used by certain investors to determine the Company's ability to meet debt
service requirements. The Company considers EBITDA to be an indicative
measure of the Company's operating performance. However, such information
should not be considered as an alternative to net income, operating profit,
cash flows from operations or any other operating or liquidity performance
measure prescribed by generally accepted accounting principles (GAAP).
Adjusted EBITDA is defined as EBITDA adjusted to eliminate (w) $3,299
accrual for supplemental pension and other fees payable to retiring officers
and a member of the Board of Directors in the year ended December 31, 1996
and pro forma year ended December 31, 1996; (x) loss related to the
Company's Mexican operations of $4,362 in the year ended December 31, 1995,
$926 in the year ended December 31, 1994 and $11 in the year ended December
31, 1993; (y) legal fees related to the defense of a lawsuit by a
subcontractor of a former electrical contracting subsidiary of $750 in the
year ended December 31, 1996, pro forma year ended December 31, 1996, $2,400
in the year ended December 31, 1995, and $2,665 in the year ended December
31, 1994, and (z) accruals for uninsured costs related to an inactive
subsidiary's alleged use of asbestos products of $5,300 in the year ended
December 31, 1995. The determination of the amounts referred to in clauses
(y) and (z) above are subject to numerous uncertainties and judgments which
are described in Note 21(a) and (b) to the Consolidated Financial Statements
dated December 31, 1996 included in the Annual Report and it is possible
that additional amounts will be required to be recorded in the future. See
"Risk Factors--Potential for Adverse Judgments in Legal Proceedings" and
Note 21 to the Consolidated Financial Statements dated December 31, 1996
included in the Annual Report.
(2) Excludes amortizaton of deferred debt expense and discount on the Notes that
are included in interest expense.
(3) Shown net of discount of $516.
12
<PAGE>
RISK FACTORS
Investors should carefully consider the following factors in addition to
the other information set forth or incorporated by reference in this Prospectus
before making an investment in the Exchange Notes offered hereby.
SUBSTANTIAL LEVERAGE AND ABILITY TO SERVICE AND REFINANCE DEBT
The Company is highly leveraged. As of May 1, 1997, the Company's
indebtedness was $158.7 million, net of discount of $0.5 million, (including
issued but undrawn letters of credit of $5.4 million and excluding unused
commitments available for borrowing of $69.6 million) and its Stockholders"
Equity was negative $7.7 million. For the Company's deficiency of earnings to
fixed charges for the five years ended December 31, 1996, see 'selected
Historical Financial Data." Subject to the restrictions in the New
Securitization Facility and the Indenture which require a Consolidated Debt
Coverage Ratio, as hereafter defined, of at least 2.0:1.0, the Company may incur
additional indebtedness from time to time to finance acquisitions, working
capital, or capital expenditures or for other purposes. See "Description of
Certain Financing Arrangements" and "Description of Notes--Certain Covenants
and--Certain Definitions."
The level of the Company's indebtedness could have important consequences
to holders of the Notes, including: (i) a substantial portion of the Company's
cash flow from operations must be dedicated to debt service and will not be
available for other purposes; (ii) the Company's ability to obtain additional
debt financing in the future for working capital, capital expenditures or
acquisitions may be limited and, if additional borrowings can be made, they may
not be on terms favorable to the Company; and (iii) the Company's level of
indebtedness could limit its flexibility in reacting to changes in the industry
and economic conditions generally.
The Company's ability to pay interest on the Notes and to satisfy its other
debt obligations will depend upon its future operating performance, which will
be affected by prevailing economic conditions and financial, business and other
factors, certain of which are beyond its control. The Company anticipates that
its operating cash flow together with the proceeds from the Offering and
borrowings under the New Securitization Facility and Revolving Credit Facility
will be sufficient to meet its operating expenses and to service its debt
obligations as they become due. If the Company is unable to service its
indebtedness, it will be forced to adopt an alternative strategy that may
include actions such as reducing or delaying capital expenditures, selling
assets, restructuring or refinancing its indebtedness, or seeking additional
equity capital. There can be no assurance that any of these strategies could be
effected on satisfactory terms, if at all. If the Company is unable to repay its
debt as it becomes due, the purchasers of the Notes could lose some or all of
their investment.
SUBORDINATION 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 to the prior payment
in full of all existing and future Senior Debt. At May 1, 1997, the aggregate
outstanding amount of Senior Debt of the Company was $59.2 million (including
issued but undrawn letters of credit of $5.4 million and excluding unused
commitments available for borrowing of $69.6 million). In the event of the
bankruptcy, liquidation, dissolution, reorganization or other winding up of the
Company, the assets of the Company will be available to pay obligations on the
Notes only after all Senior Debt has been paid in full, and there may not be
sufficient assets remaining to pay amounts due on any or all of the Notes. See
"Description of Notes--Subordination."
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY's INDEBTEDNESS
The Indenture restricts, among other things, the Company's ability to incur
additional indebtedness, incur liens, pay dividends or make certain other
restricted payments, consummate certain asset sales, enter into certain
transactions with affiliates, impose restrictions on the ability of a subsidiary
to pay dividends or make certain payments to the Company, merge or consolidate
with any other person or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of the assets of the Company. Unless the
Consolidated Debt Coverage Ratio, after giving effect to newly incurred
indebtedness, remains at least 2.0:1.0, the Company cannot make additional
investments or incur additional indebtedness outside the ordinary course of
business. As of March 27, 1997, the Consolidated Debt Coverage Ratio, pro formed
to reflect the Transactions, was approximately 2.5:1.0. See "Description of
Notes." In addition, the Revolving Credit Facility contains substantially
similar restrictive covenants. See
13
<PAGE>
"Description of Certain Financing Arrangements." A breach of any of these
covenants could result in a default under the Revolving Credit Facility and the
New Securitization Facility. Upon the occurrence of an event of default under
the New Securitization Facility or the Revolving Credit Facility, the lenders
could elect to declare all amounts outstanding, together with accrued interest,
to be immediately due and payable. If the Company were unable to repay those
amounts, such lenders could proceed against the collateral granted to them to
secure that indebtedness, which indebtedness currently is secured by
substantially all of the assets of the Company. If the lenders under the New
Securitization Facility or the Revolving Credit Facility accelerate the payment
of such indebtedness, there can be no assurance that the assets of the Company
would be sufficient to repay in full such indebtedness and the other
indebtedness of the Company, including the Notes.
Under the terms of the New Securitization Facility, if the interest
coverage ratio (as defined) falls below 1.1:1.0 or if scheduled principal
payments on the Company's other indebtedness exceed $40.0 million during the
24-month period, or $20.0 million during the 12-month period, preceding the
scheduled maturity of the Facility, the Company's ability to obtain funding
through the Facility will be suspended, and the Company's wholly owned,
bankruptcy-remote, financing subsidiary, Dyn Funding Corporation ("DFC") would
be unable to convert the Company's accounts receivable into cash prior to actual
collection thereof. As of March 27, 1997, the interest coverage ratio, pro
formed to reflect the Transactions, was approximately 3.25:1.0. Further, if the
collateral value of the receivables and cash held by DFC falls below the amount
of outstanding borrowings under the Facility, and the Company fails to provide
sufficient receivables or cash to increase the collateral value to such amount,
the Company's ability to obtain funding through the Facility will be suspended
or terminated and collections on receivables will be used to repay all or part
of amounts outstanding under the Facility. The suspension or termination of the
Company's ability to obtain funding through the Facility and the use of
collections to repay borrowings under the Facility would result in additional
demands on the Company's cash resources. See "The Transactions" and "Description
of Certain Financing Arrangements."
PAST NET LOSSES
The Company reported net earnings of $2.3 million for the three months
ending March 27, 1997 and $14.6 million and $2.4 million for the years ended
December 31, 1996 and 1995, respectively, and net losses for the years ended
December 31, 1994, 1993, and 1992, of $12.8 million, $13.4 million, and $23.3
million, respectively. In the future, there can be no assurance that profitable
operations will be sustained.
The Company had federal and state deferred tax assets of $8.0 million at
December 31, 1996 that have not been recognized because of the uncertainty of
achieving the future earnings in either the time frame or in the particular
state jurisdictions needed to realize the tax benefit.
DEPENDENCE ON AND RISKS INHERENT IN U.S. GOVERNMENT CONTRACTS
The Company derived 97.1% and 94.6% of its revenues for the years ended
December 31, 1996 and 1995, respectively, from contracts and sub-contracts with
the U.S. Government ("Government Contracts"). Contracts with the DoD represented
52.0% and 53.3% of the Company's revenues for the years ended December 31, 1996
and 1995, respectively. Continuation and renewal of the Company's existing
Government Contracts and the acquisition by the Company of additional Government
Contracts is contingent upon, among other things, the availability of adequate
funding for various U.S. Government agencies. A further significant decline in
U.S. military expenditures, particularly in the operations and maintenance
portion of the defense budget, or a reapportioning of such expenditures reducing
the operations and maintenance segment, might materially and adversely affect
the Company's revenues and earnings. The loss or significant curtailment of the
Company's material U.S. military contracts would materially and adversely affect
the Company's future revenues and earnings.
Typically, a Government Contract has an initial term of one year combined
with two, three, or four one-year renewal periods, exercisable at the discretion
of the Government. The Government is not obligated to exercise its option to
renew a Government Contract. At the time of completion of a Government Contract,
the contract in its entirety is "recompeted" against all eligible third-party
providers. Contracts between the U.S. Government and its prime contractors
usually contain standard provisions for termination at the convenience of the
Government or such prime contractors. There can be no assurance that
terminations will not occur, and such terminations could adversely affect the
Company's business and prospects.
The Company's Government Contract services are provided through three types
of contracts--fixed-price, time-and-materials, and cost-reimbursement. The
Company assumes financial risk on fixed-price contracts and
14
<PAGE>
time-and-materials contracts, because the Company assumes the risk of performing
those contracts at the stipulated prices or negotiated hourly rates. The failure
to accurately estimate ultimate costs or to control costs during performance of
the work could result in losses or smaller than anticipated profits. With regard
to cost-reimbursement contracts, to the extent that the actual costs incurred
are within the contract ceiling and allowable under the terms of the contract
and applicable regulations, the Company is entitled to reimbursement of its
costs plus a stipulated profit.
Government Contract payments received by the Company for allowable direct
and indirect costs are subject to adjustment and repayment after audit by
Government auditors if the payments exceed allowable costs as defined in such
Government Contracts. Audits have been completed on the Company's incurred
contract costs through 1986 and are continuing for subsequent periods. The
Company has included an allowance for excess billings and contract losses in its
financial statements that it believes is adequate based on its interpretation of
contracting regulations and past experience. There can be no assurance, however,
that this allowance will be adequate.
The Company is aware of various costs questioned by the government,
including issues related to the recoverability of certain of its ESOP
contributions, but cannot determine the outcome of the audit findings at this
time. In addition, the Company is occasionally the subject of investigations by
the Department of Justice and other investigative organizations, resulting from
employee and other allegations regarding business practices. In management's
opinion, there are no outstanding issues of this nature at March 27, 1997 that
will have a material adverse effect on the Company's consolidated financial
position, results of operations or liquidity.
As a U.S. Government contractor, the Company is subject to federal
regulations under which its right to receive future awards of new Government
Contracts, or extensions of existing Government Contracts, may be unilaterally
suspended or barred should the Company be convicted of a crime or be indicted
based on allegations of a violation of certain specific federal statutes or
other activities. The initiation of suspension or debarment hearings against the
Company or any of its affiliated entities could have a material adverse impact
upon the Company's business and prospects.
POTENTIAL FOR ADVERSE JUDGMENTS IN LEGAL PROCEEDINGS
The Company and its subsidiaries are involved in various claims and
lawsuits, including contract disputes and claims based on allegations of
negligence and other tortious conduct. The Company and its subsidiaries are also
potentially liable for certain environmental, personal injury, tax and other
issues related to prior operations of divested businesses. In addition, an
inactive subsidiary of the Company has been named as one of many defendants in
many civil lawsuits in certain state courts (primarily Texas); the alleged
claims arise out of the subsidiary's installation and distribution of industrial
insulation products that allegedly contained asbestos. Management has estimated
the Company's exposure to these lawsuits on a consolidated basis, including
estimated future filings, in view of possible recoveries and contributions from
insurance, and has established reserves therefore. It is possible that the level
of filings will increase more than management has anticipated, thereby
increasing such exposure, and no upper limit of exposure can be reasonably
estimated. See "Legal Proceedings."
COMPETITION
The markets which the Company services are highly competitive. In each of
its businesses, the Company's competition is quite fragmented, with no single
competitor holding a significant market position. The Company experiences
vigorous competition from industrial firms, university laboratories, nonprofit
institutions and U.S. Government agencies. Some of the Company's competitors are
large, diversified firms with substantially greater financial resources and
larger technical staffs than the Company has available to it. Government
agencies also compete with and are potential competitors of the Company because
they can utilize their internal resources to perform certain types of services
that might otherwise be performed by the Company. A majority of the Company's
revenues are derived from contracts with the U.S. Government and its prime
contractors, and such contracts are awarded on the basis of negotiations or
competitive bids where price is a significant factor.
15
<PAGE>
COMPANY MAY BE OBLIGATED TO REPURCHASE SHARES OF CERTAIN ESOP PARTICIPANTS
In the event that an employee participating in the ESOP is terminated,
retires, dies or becomes disabled while employed by the Company, the ESOP, or
the Company under certain circumstances, is obligated to repurchase shares of
common stock distributed to such former employee under the ESOP, until such time
as the common stock becomes readily tradable stock. In addition, after ten years
of participation in the ESOP, a participant who is 55 years of age may receive a
distribution of up to 25% of shares from his or her account, increasing to 50%
after age 60, for diversification purposes. These shares are also subject to the
repurchase obligation. To the extent that the Company repurchases shares as
described above, its availability of cash will be adversely affected. DynCorp
has the right under both the ESOP and applicable law to defer indefinitely the
repurchase of any shares if payment to the shareholders would impair the capital
of the Company. See "Employee Stock Ownership Plan." The Company's future
obligations with respect to the ESOP are not restricted under the Indenture. See
"Description of Notes--Certain Covenants."
ABSENCE OF PUBLIC MARKET
The Exchange Notes are being offered to Holders of the Original Notes. The
Original Notes were sold by the Company to a limited number of institutional
investors and are eligible for trading in the PORTAL Market. To the extent that
Original Notes are tendered and accepted in the Exchange Offer, the trading
market for the remaining untendered Original Notes could be adversely affected.
The Original Notes have not been registered under the Securities Act and will be
subject to restrictions on transferability to the extent that they are not
exchanged for Exchange Notes by holders who are entitled to participate in the
Exchange Offer.
The Exchange Notes will constitute a new issue of securities with no
established trading market. The Company does not intend to list the Exchange
Notes on any national securities exchange or to seek approval for quotation
through any automated quotation system. Accordingly, no assurance can be given
that an active public or other market will develop for the Exchange Notes or as
to the liquidity of the trading market for the Exchange Notes. If a trading
market does not develop or is not maintained, holders of the Exchange Notes may
experience difficulty in reselling the Exchange Notes or may be unable to sell
them at all. If a market for the Exchange Notes develops, any such market may be
discontinued at any time.
If a public trading market develops for the Exchange Notes, future trading
prices of such securities will depend on many factors, including, among other
things, prevailing interest rates, the Company's results of operations and the
market for similar securities. Depending on prevailing interest rates, the
market for similar securities and other factors, including the financial
condition of the Company, the Exchange Notes may trade at a discount from their
principal amount.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Original Notes who do not exchange their Notes for Exchange
Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Notes as set forth in the legend thereon and in
the Offering Memorandum, dated March 11, 1997, because the Notes were issued
pursuant to exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Original Notes may not be offered or sold unless registered under
the Securities Act and applicable state securities laws, or pursuant to an
exemption therefrom, or in a transaction not subject to the Securities Act and
applicable state securities laws. The Company does not intend to register the
Original Notes under the Securities Act and, after consummation of the Exchange
Offer, will not be obligated to do so except under limited circumstances. See
"The Exchange Offer--Purpose of the Exchange Offer." Based on an interpretation
by the staff of the Commission set forth in no-action letters issued to third
parties, the Company believes that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Original Notes may be offered for resale, resold
or otherwise transferred by holders thereof (other than any such holder which 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, such holders have no
arrangement with any person to participate in the distribution of such Exchange
Notes and neither such holders nor any such other person is engaging in or
intends to engage in a distribution of such Exchange Notes. Any holder of
Original Notes who
16
<PAGE>
tenders in the Exchange Offer for the purpose of participating in a distribution
of the Exchange Notes may be deemed to have received restricted securities and,
if so, will be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that received 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 "Plan of Distribution." To the
extent the Original Notes are tendered and accepted in the Exchange Offer, the
trading market for untendered and tendered but unaccepted Original Notes could
be adversely affected. See "The Exchange Offer."
EXCHANGE OFFER PROCEDURES
The Exchange Notes will be issued in exchange for Original Notes 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. Neither the Exchange Agent nor the Company is under any duty to
give notification of defects or irregularities with respect to tenders of
Original Notes for exchange. Original Notes that are not tendered or are
tendered but not accepted will, following consummation of the Exchange Offer,
continue to be subject to the existing restrictions upon transfer thereof. In
addition, any holder of Original Notes who tenders in the Exchange Offer for the
purpose of participating in a distribution of the Exchange Notes will be
required to comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. 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 any other trading activities, must acknowledge that
it will deliver a prospectus in connection with any resale of such Exchange
Notes. See "Plan of Distribution." To the extent that Original Notes are
tendered and accepted in the Exchange Offer, the trading market for untendered
and tendered but unaccepted Original Notes could be adversely affected. See "The
Exchange Offer."
PURCHASE OF NOTES UPON CHANGE OF CONTROL
Upon a Change of Control (as defined in the Indenture), each holder of the
Notes will have the right to require the Company to repurchase such holder's
Notes at a price equal to 101% of the principal amount thereof, plus accrued
interest to the date of repurchase. The source of funds for any such purchase
would be the Company's available cash or cash generated from other sources.
However, there can be no assurance that sufficient funds would be available at
the time of any Change of Control to make any required repurchases of Notes
tendered.
The Company could, in the future, enter into certain transactions,
including acquisitions, refinancing or other recapitalizations or highly
leveraged transactions, which would not constitute a Change of Control under the
Indenture but could increase the amount of indebtedness outstanding at such time
or otherwise affect the Company's capital structure or credit ratings or
otherwise adversely affect holders of the Exchange Notes.
17
<PAGE>
THE TRANSACTIONS
The Company has retired the funding provided by the Former Securitization
Facility and replaced it with the New Securitization Facility. Additionally, the
Company and its ESOP have recently purchased equity securities in the Capricorn
Transaction.
THE NEW SECURITIZATION FACILITY
The Company primarily funds its working capital requirements through an
accounts receivable securitization program that is managed by DFC. In 1992, DFC
issued $100.0 million aggregate principal amount of notes under the Former
Securitization Facility to fund the accounts receivable securitization program.
See "Description of Certain Financing Arrangements." The Company entered into
agreements with certain investors to fund the New Securitization Facility with a
borrowing capacity of up to $140.0 million on April 18, 1997. At the time of the
closing $110.0 million of the Facility was available for borrowing, based on
current levels of eligible collateral, and the Company borrowed $50.0 million.
The Former Securitization Facility was, and the New Securitization Facility is,
non-recourse to the Company.
THE CAPRICORN TRANSACTION
The Company and its ESOP recently entered into agreements with certain of
the investors in Capricorn, a limited partnership in which a company controlled
by H.S. Winokur, Jr., the Company's former Chairman and current director, serves
as general partner. Under the terms of the agreements, the ESOP purchased all of
the Company's Class C Preferred Stock, and the Company purchased a substantial
portion of Common Stock and certain Common Stock Warrants that were previously
held by Capricorn. The total purchase price for all of these securities was
$56.4 million. The price per share of equivalent Common Stock was based upon the
most recent price paid by the ESOP for shares of Common Stock, adjusted for a
liquidity discount and the warrant exercise price, and was conditioned upon
fairness opinions by the ESOP's and the Board of Directors' financial advisors.
The ESOP paid $18.6 million for its securities, of which approximately $9.3
million was paid in cash and $9.3 million was paid in notes ("ESOP Capricorn
Notes"). The Company paid $37.8 million for its securities, of which
approximately $18.9 million was paid in cash and $18.9 million was paid in notes
(the "Company Capricorn Notes"). The Company used a portion of the proceeds from
the Offering and borrowings under the New Securitization Facility to repay the
Company Capricorn Notes and to make a loan to the ESOP for the purpose of
permitting it to repay the ESOP Capricorn Notes. Concurrently with the Capricorn
Transaction, the ESOP converted the Class C Preferred Stock and exercised the
Common Stock Warrants issuable upon such conversion, and the Company issued
949,692 shares of Common Stock to the ESOP. Following the Company's and the
ESOP's recent purchases of securities from Capricorn, the ESOP and management
own approximately 85% of the Company's capital stock on a fully diluted basis.
The Company engaged in the Capricorn Transaction in order to: eliminate the
potential effect of certain preferential voting rights given the Class C
Preferred Stock in the Company's certificate of incorporation; reduce the equity
holdings and voting capacity, and related potential for control of the Company,
of a large outside stockholder; reduce the outstanding and fully diluted equity
of the Company; provide treasury shares for future issuance to employees under
the Company's various compensation and benefit plans without the need for
issuance of new shares; and provide additional shares for the ESOP, which can
only acquire shares by purchase from the Company or other stockholders. The
ESOP's purpose for engaging therein was to acquire shares for allocation to
participants' accounts in 1997 and 1998. In addition to converting a portion of
the Company's total capitalization from equity capitalization to debt
capitalization, the Capricorn Transaction reduced the Company's fully diluted
equity, will increase the Company's debt expense and will have an impact on the
Company's earnings per share.
18
<PAGE>
The following table sets forth the sources and uses of funds to consummate
the Transactions (dollars in millions). The actual amounts of sources and uses
of funds on the date the Transactions are consummated may vary.
<TABLE>
<CAPTION>
SOURCES OF FUNDS USES OF FUNDS
- -------------------------------------------- --------------------------------------------
<S> <C> <C> <C>
Issuance of Notes........................... $ 99.5 Replace Existing Securitization $100.0
Facility..................................
New Securitization Facility................. 50.0(1) Repay notes issued in connection with the 28.2
Capricorn Transaction.....................
General Corporate Purposes.................. 16.3
Estimated Fees and Expenses................. 5.0
------ ------
Total Sources...................... $149.5 Total Uses.................................. $149.5
====== ======
</TABLE>
- ------------------
(1) At the closing of the New Securitization Facility, the Company borrowed
$50.0 million of $110.0 million available for borrowing based upon current
levels of eligible collateral.
Upon the closing of the New Securitization Facility, the Revolving Credit
Facility was voluntarily reduced to $15.0 million. See "Description of Certain
Financing Arrangements."
19
<PAGE>
USE OF PROCEEDS
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 terms of which are identical to the
Exchange Notes. The Original Notes surrendered in exchange for Exchange Notes
will be retired and cancelled and cannot be reissued. Accordingly, issuance of
the Exchange Notes will not result in any increase in the indebtedness of the
Company.
CAPITALIZATION
The following table sets forth the capitalization of the Company on a pro
forma basis giving effect to the Transactions as if they had occurred on March
27, 1997. This table should be read in conjunction with the 'selected Historical
Financial Data" and "Unaudited Pro Forma Financial Data" included elsewhere in
this Offering Memorandum.
<TABLE>
<CAPTION>
MARCH 27, 1997
ACTUAL AS ADJUSTED
------ -----------
(UNAUDITED)
(DOLLARS IN MILLIONS)
<S> <C> <C>
Revolving Credit Facility.............................................. $ -- $ --(1)
Existing Securitization Facility....................................... 100.0 --
New Securitization Facility............................................ -- 50.0(2)
Notes(4)............................................................... 99.5 99.5
Other Debt............................................................. 3.6 3.6
------ ---------
Total Debt........................................................ $203.1 $ 153.1
Stockholders' Deficit(3)............................................... (8.3) (8.3)
------ ---------
Total Capitalization................................................... $194.8 $ 144.8
====== =========
</TABLE>
- ------------------
(1) Upon consummation of the Offering and the New Securitization Facility, $15.0
million was committed under the Revolving Credit Facility, of which $5.4
million was utilized to support stand-by letters of credit as of May 1,
1997.
(2) At the closing of the New Securitization Facility, the Company borrowed
$50.0 million of approximately $110.0 million available for borrowing based
upon current levels of eligible collateral.
(3) Includes temporary and permanent stockholders' equity of $149.4 million and
negative $157.7 million, respectively.
(4) Shown net of discount of $0.5 million.
20
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma consolidated financial information of the
Company is based on the historical consolidated financial statements of the
Company and have been prepared to illustrate the effects of the Transactions.
See "The Transactions."
The unaudited pro forma consolidated condensed statements of operations for
the year ended December 31, 1996 and the three months ended March 27, 1997 and
March 28, 1996 have been prepared as if the Transactions had occurred on January
1, 1996, and the unaudited consolidated condensed balance sheet as of March 27,
1997 has been prepared to give effect to the Transactions as if the Transactions
had occurred on March 27, 1997.
The unaudited pro forma consolidated condensed financial data is not
necessarily indicative of how the Company's balance sheet and results of
operations would have been presented had the Transactions actually been
consummated on March 27, 1997 and January 1, 1996, respectively. Moreover, the
pro forma financial data is not intended to be indicative of future results of
operations or presentation of the balance sheet. The unaudited pro forma
financial data should be read in conjunction with the historical consolidated
financial statements and related notes thereto included in the Annual Report
that accompanies this Prospectus.
21
<PAGE>
DYNCORP AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 27, 1997 AND MARCH 28, 1996
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 27, 1997 THREE MONTHS ENDED MARCH 28, 1996
-------------------------------------- --------------------------------------
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 271,137 $ $271,137 $ 241,726 $ $241,726
Cost of services..................... 259,794 259,794 230,997 230,997
---------- --------- ---------- ---------
Gross profit......................... 11,343 11,343 10,729 10,729
Corporate selling and administrative
expense............................ 4,439 4,439 4,460 4,460
---------- --------- ---------- ---------
Operating income..................... 6,904 6,904 6,269 6,269
Interest expense..................... 2,983 845(1) 3,828 2,580 1,056(1) 3,636
Interest income...................... (361) (361) (614) (614 )
Other expenses....................... 277 277 566 566
Income tax provision (benefit)....... 1,286 (338)(2) 948 1,200 (422)(2) 778
Minority interest.................... 408 408 296 296
---------- ----------- --------- ---------- ----------- ---------
Earnings from continuing operations
before extraordinary item.......... 2,311 (507) 1,804 2,241 (634) 1,607
Preferred Class C dividends not
declared or recorded............... -- -- -- (534) 534 --
---------- ----------- --------- ---------- ----------- ---------
Common stockholders' share of
earnings from continuing operations
before extraordinary item.......... $ 2,311 $ (507) $ 1,804 $ 1,707 $ (100) $ 1,607
========== ========== ========= ========== =========== ========
</TABLE>
- ------------------
Notes to Unaudited Pro Forma Consolidated Condensed Statements of Operations.
<TABLE>
<CAPTION>
(1)
<S> <C> <C> <C>
THREE MONTHS ENDED
----------------------
MARCH 27, MARCH 28,
1997 1996
--------- ---------
3,450 3,450 Interest expense and amortization of
deferred debt expense related to the assumed
interest rates for the Notes (9 1/2%) and New
Securitization Facility (7 1/3%).
(2,605) (2,394) Eliminate interest expense and amortization of deferred debt expense related to the
retirement of the Existing Securitization Facility and Revolving Credit Facility and
the interest and deferred debt amortization on
the Notes for the period March 17, 1997 to March
27, 1997.
--------- ---------
$ 845 $ 1,056
========= =========
</TABLE>
(2) Estimated effective income tax of pro forma adjustments.
(3) Elimination of Class C Preferred Stock dividends since the ESOP purchased
the Class C Preferred Stock and converted it to Common Stock.
22
<PAGE>
DYNCORP AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
---------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
<S> <C> <C> <C>
Revenues................................................................ $1,021,453 $ $1,021,453
Cost of services........................................................ 970,163 970,163
---------- ----------
Gross profit............................................................ 51,290 51,290
Corporate selling and administrative expense............................ 18,241 18,241
---------- ----------
Operating income........................................................ 33,049 33,049
Interest expense........................................................ 10,220 4,389(1) 14,609
Interest income......................................................... (1,752) (1,752)
Other expenses.......................................................... 5,474 5,474
Income tax provision (benefit).......................................... 5,893 (1,756)(2) 4,137
Minority interest....................................................... 1,265 1,265
---------- ----------- ----------
Earnings from continuing operations..................................... 11,949 (2,633) 9,316
Preferred Class C dividends not declared or recorded.................... (2,284) 2,284 --
---------- ----------- ----------
Common stockholders' share of earnings from continuing operations....... $ 9,665 $ (349) $ 9,316
========== =========== ==========
Earnings per share from continuing operations........................... $ 0.82 $ 0.91
========== ==========
</TABLE>
- ------------------
Notes to Unaudited Pro Forma Consolidated Condensed Statements of Operations.
<TABLE>
<CAPTION>
(1)
<S> <C> <C>
YEAR ENDED
DECEMBER 31,
1996
------------
$ 13,758 Interest expense and amortization of deferred debt
expense related to the assumed interest rates for the
Notes (9 1/2%) and New Securitization Facility (7 1/3%).
$ (9,369) Eliminate interest expense and amortization of deferred debt expense related to the retirement
of the Existing Securitization Facility and Revolving Credit Facility.
------------
$ 4,389
============
</TABLE>
(2) Estimated effective income tax of pro forma adjustments.
(3) Elimination of Class C Preferred Stock dividends since the ESOP purchased
the Class C Preferred Stock and converted it to Common Stock.
23
<PAGE>
DYNCORP AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
MARCH 27, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS(1) PRO FORMA
---------- -------------- ---------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............................................. $ 64,138 $ (50,000) $ 14,138
Accounts receivable and contracts in process.......................... 186,893 186,893
Inventories and other current assets.................................. 16,506 16,506
---------- -------------- ---------
Total current assets............................................... 267,537 (50,000) 217,537
Property and equipment, at cost less accumulated depreciation........... 19,294 19,294
Intangible assets....................................................... 48,379 48,379
Other assets............................................................ 79,202 79,202
---------- -------------- ---------
Total assets....................................................... $ 414,412 $ (50,000)
========== ============== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable and current position of long-term debt.................. $ 523 $ $ 523
Accounts payable and other current liabilities........................ 140,003 140,003
---------- -------------- ---------
Total current liabilities........................................ 140,526 140,526
Long-term debt
Notes payable......................................................... 103,067 (100,000) 3,067
New securitization notes payable due 2002............................. -- 50,000 50,000
Senior subordinated notes payable due 2007, net of discount........... 99,484 99,484
Other liabilities and deferred credits.................................. 79,621 79,621
Temporary equity, redeemable common stock............................... 149,412 149,412
Permanent stockholders' equity
Preferred stock, Class C.............................................. --
Common stock.......................................................... 386 386
Paid-in surplus....................................................... 122,766 122,766
Deficit............................................................... (98,948) (98,948)
Common stock warrants................................................. 3,925 3,925
Other common stock equity accounts.................................... (185,827) (185,827)
---------- -------------- ---------
Total liabilities and stockholders' equity......................... $ 414,412 $ (50,000) $364,412
========== ============== =========
</TABLE>
(1) Reflects the use of the proceeds from the issuance of the Notes and
borrowings under the New Securitization Facility to retire the Existing
Securitization Facility.
24
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following table presents summary selected historical financial data for
the Company. The selected historical financial data for the five years ended
December 31, 1996 were derived from the Consolidated Financial Statements of the
Company, which have been audited by Arthur Andersen LLP. The selected financial
data for the three months ended March 27, 1997 and March 28, 1996 were derived
from the unaudited Consolidated Financial Statements of the Company which, in
the opinion of management, reflect all adjustments necessary for a fair
presentation. During the periods presented, the Company paid no cash dividends
on its Common Stock. The following information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and related notes thereto,
included in the Company's Annual Report that accompanies this Prospectus and is
incorporated by reference herein.
<TABLE>
<CAPTION>
UNAUDITED
THREE MONTHS ENDED YEARS ENDED DECEMBER 31,
------------------- ---------------------------------------------------------------
March March
27, 28,
1997 1996 1996(2) 1995(3) 1994(1)(5) 1993(1)(6) 1992(1)(7)
-------- -------- ---------- -------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues............................... $271,137 $241,726 $1,021,453 $908,725 $ 818,683 $ 777,216 $ 728,244
Cost of services....................... 259,794 230,997 970,163 871,317 783,121 742,460 707,803
-------- -------- ---------- -------- ----------- ----------- -----------
Gross profit........................... 11,343 10,729 51,290 37,408 35,562 34,756 20,441
Corporate selling and administrative
expense.............................. 4,439 4,460 18,241 18,705 16,887 17,547 18,503
-------- -------- ---------- -------- ----------- ----------- -----------
Operating income....................... 6,904 6,269 33,049 18,703 18,675 17,209 1,938
Interest expense....................... 2,983 2,580 10,220 14,856 14,903 14,777 14,629
Other expenses and income.............. (84) (48) 3,722 6,408 5,230 4,676 (1,059)
Income tax provision (benefit)......... 1,286 1,200 5,893 (9,090) (2,236) 1,289 2,480
Minority interest...................... 408 296 1,265 1,255 1,130 952 --
-------- -------- ---------- -------- ----------- ----------- -----------
Earnings (loss) from continuing
operations before extraordinary
item(4).............................. $ 2,311 $ 2,241 $ 11,949 $ 5,274 $ (352) $ (4,485) $ (14,112)
== ======== ======== ========== ======== ========= ========= =========
Net earnings (loss).................... $ 2,311 $ 2,241 $ 14,629 $ 2,368 $ (12,831) $ (13,414) $ (23,342)
======== ======== ========== ======== ========= ========= =========
BALANCE SHEET DATA AT PERIOD END:
Total assets........................... $414,412 $348,881 $ 368,752 $375,490 $ 396,000 $ 360,103 $ 338,135
Long-term debt excluding current
maturities........................... $202,551 $149,412 $ 103,555 $104,112 $ 230,444 $ 215,939 $ 198,770
Redeemable common stock................ $149,412 $138,083 $ 139,322 $135,894 $ 130,828 $ 100,630 $ 95,391
Earnings (loss) per share from continuing
operations before extraordinary item for
common stockholders...................... $ 0.21 $ 0.14 $ 0.82 $ 0.29 $ (0.29) $ (1.13) $ (3.18)
Ratio of earnings to fixed charges(8)...... 1.7x 1.7x 2.0x -- -- -- --
</TABLE>
- ------------------
(1) Restated for the discontinuance of the Commercial Aviation Business.
(2) 1996 includes $3,299 accrual for supplemental pension and other fees payable
to retiring officers and a member of the Board of Directors (See Note 13 to
the Consolidated Financial Statements dated December 31, 1996), $1,286
write-off of cost in excess of net assets acquired of an unconsolidated
subsidiary (See Note 13 to the Consolidated Financial Statements dated
December 31, 1996), $1,250 credit for a revised estimate of the ESOP Put
Premium (See Notes 7 and 13 to the Consolidated Financial Statements dated
December 31, 1996), and $4,067 reversal of income tax valuation allowance
(See Note 14 to the Consolidated Financial Statements dated December 31,
1996).
(3) 1995 includes $7,707 reversal of income tax valuation allowance (see Note 14
to the Consolidated Financial Statements dated December 31, 1996), $4,362
accrued for losses and reserves related to the Company's Mexican operation,
$2,400 accrual of legal fees related to the defense of a lawsuit filed by a
subcontractor of a former electrical contracting subsidiary (see Notes 13
and 21 to the Consolidated Financial Statements dated December 31, 1996) and
$5,300 accrued for uninsured costs related to claims against a former
subsidiary for alleged use of asbestos products (see Notes 13 and 21 to the
Consolidated Financial Statements dated December 31, 1996).
(4) The extraordinary loss in 1995 of $2,886 and in 1992 of $2,526 result from
the early extinguishment of debt.
(5) 1994 includes $3,250 write-off of investment in unconsolidated subsidiary
(see Note 13 to the Consolidated Financial Statements dated December 31,
1996), $2,665 accrual of legal fees related to the defense of a lawsuit
filed by a subcontractor of a former electrical contracting subsidiary (see
Notes 13 and 21 to the Consolidated Financial Statements dated December 31,
1996), $1,830 credit for
(Footnotes continued on next page)
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(Footnotes continued from previous page)
reversal of legal costs associated with an acquired business (see Note 13 to
the Consolidated Financial Statements dated December 31, 1996) and $4,069
reversal of income tax reserves (see Note 14 to the Consolidated Financial
Statements dated December 31, 1996).
(6) 1993 includes $2,000 of legal and other expenses associated with an acquired
business and $988 accelerated amortization of costs in excess of net assets
of an acquired business, for assets that were subsequently determined to
have been overvalued at the time of acquisition).
(7) 1992 Cost of Services includes approximately $6,000 for settlement of claims
against the Company related to prior years.
(8) For purposes of calculating the ratio of earnings to fixed charges, earnings
represent income (loss) from continuing operations before income taxes,
extraordinary item and fixed charges. Fixed charges consist of the total (i)
interest expense; (ii) amortization of debt expense and discount relating to
any indebtedness; and (iii) that portion of rental expense considered to
represent interest cost (assumed to be one-third). Earnings for years ended
December 31, 1995, 1994, 1993 and 1992 were insufficient to cover fixed
charges by $4,462, $3,118, $3,662 and $13,944, respectively.
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<PAGE>
EMPLOYEE STOCK OWNERSHIP PLAN
Since 1988, the Company has sponsored the ESOP as the Company's principal
retirement plan. The ESOP is a defined contribution employee stock ownership
plan, designed to be invested in the Company's common stock and intended to be
qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended
("Code"), in which a majority of the Company's employees, other than those
covered exclusively by collective bargaining agreements, participate.
The Company makes quarterly cash contributions to the ESOP as a percentage
of total compensation (as defined in applicable ERISA and Code provisions).
These contributions are included in Cost of Services in the Company's financial
statements. The ESOP then purchases shares of the Company's common stock either
from former participants, investors, the Company or on the Company's Internal
Stock Market. At March 27, 1997, the ESOP Trust held approximately 7,159,290
shares, representing approximately 62% of the Company's fully diluted equity, on
behalf of approximately 30,000 participants.
Upon retirement, disability, death or termination, participants receive
their vested shares over a period of from one to ten years. In accordance with
the plan documents and ERISA regulations, the ESOP Trust or the Company is
obligated to repurchase shares from those inactive participants at the share
value price determined by the ESOP's trustees, based upon the advice of their
independent financial advisor, following its appraisal of the Company's shares,
until such time as the shares are "readily tradable" on an established
securities market. The plan documents require that those shares that were
initially purchased by the ESOP in 1988 be valued at a control-share premium
while they continue to be owned by the ESOP, while later-purchased shares are
valued at a market, or minority-share, value. In addition, after ten years of
participation in the plan, a participant who is 55 years of age may receive a
distribution of up to 25% of shares from his account, increasing to 50% after
age 60, for diversification purposes. These shares are also subject to the
repurchase obligation. Historically, the amount of contributions has exceeded
the repurchase obligation.
DynCorp's conditional obligation to honor the puts is subject to several
significant limitations. First, DynCorp has the right under both the ESOP Plan
and applicable law to defer indefinitely the repurchase of any shares if payment
to the shareholder would impair the capital of the Company. Second, DynCorp may
elect to list its shares for sale publicly on a national exchange at any time,
which would make them readily tradable on an established market. Under ERISA,
this would extinguish the put option as to ESOP shares which have not been
distributed by the Trust.
27
<PAGE>
DESCRIPTION OF CERTAIN FINANCING ARRANGEMENTS
THE NEW SECURITIZATION FACILITY
Under the New Securitization Facility DFC issued, under a Master Indenture,
four contract accounts receivable collateralized notes: two term notes for an
aggregate amount of $50.0 million ("Term Notes") and two grid notes for an
aggregate amount of $90.0 million ("Grid Notes"). The Company did not borrow any
amounts against the Grid Note at the closing of the New Securitization Facility.
The Term Notes, which will mature on October 31, 2002 and bear interest at
7.486%, are collateralized by the right to receive proceeds from certain U.S.
Government contracts and certain eligible accounts receivable of commercial
customers ("Receivables") of the Company and its subsidiaries, which are
purchased by DFC from time to time from the Company and its subsidiaries, at a
slight discount. The Grid Notes, which will also mature on October 31, 2002 but
bear interest at a floating rate, are collateralized by the same pool of
Receivables; however, the Grid Notes would only be drawn upon to the extent that
DFC requires cash to purchase new Receivables and increases the collateral
thereby and must be reduced when DFC has more cash available than it needs for
purchase of new Receivables. As DFC receives payments on the Receivables it has
acquired, such funds are used to make required payments on the Notes, to pay its
expenses of operation, and to purchase new Receivables. If the Receivables
available for collateral were to decrease below the amount of the Term Note, DFC
would be required to maintain excess cash in collateral account as security for
the holders of the Term Notes. The Company retains an interest in the excess
balance of Receivables over amounts due on the Notes through its ownership of
the common stock of DFC. DFC declares dividends to the Company from time to
time, from its retained earnings and surplus. Additional credit and liquidity
support is provided through a reserve fund. The Notes will begin to amortize on
April 30, 2002, when DFC's available cash must be used for payment of principal
rather than the purchase of new Receivables.
THE REVOLVING CREDIT FACILITY
The Company has available up to $15.0 million in financing under the
Revolving Credit Facility to provide funds for working capital and letters of
credit. The Company currently has approximately $5.4 million utilized at May 1,
1997, to support stand-by letters of credit under the Revolving Credit Facility.
LEGAL PROCEEDINGS
GENERAL
The Company and its subsidiaries and affiliates are involved in various
claims and lawsuits, including contract disputes and claims based on allegations
of negligence and other tortious conduct. The Company is also potentially liable
for certain personal injury, tax, environmental and contract dispute issues
related to the prior operations of divested businesses. In addition, certain
subsidiary companies are potentially liable for environmental, personal injury
and contract and dispute claims. In most cases, the Company and its subsidiaries
have denied, or believe they have a basis to deny, liability, and in some cases
have offsetting claims against the plaintiffs, third parties or insurance
carriers. As of March 27, 1997, the total amount of damages currently claimed by
the plaintiffs in these cases is estimated to be approximately $127.0 million
(including compensatory punitive damages and penalties). This amount includes
estimates for claims that have been filed without specified dollar amounts or
for amounts that are in excess of recoveries customarily associated with the
stated causes of action; such amount does not include estimates for claims that
may have been incurred but have not yet been asserted. The Company believes that
the amount that will actually be recovered in these cases will be substantially
less than the amount claimed. After taking into account available insurance, the
Company believes it is adequately reserved with respect to the potential
liability for such claims. The Company has recorded such damages and penalties
that are considered to be probable recoveries against the Company or its
subsidiaries. The Company's accounting policy is to accrue an estimate of the
future legal costs that will be incurred to complete litigation of claims and
disputed issues. This policy has been applied consistently for all significant
legal issues for each period presented. See "Risk Factors--Potential for Adverse
Judgments in Legal Proceedings."
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<PAGE>
The Company estimates that the aggregate potential liability for claims
asserted as of March 27, 1997 ranges from $8.5 million to $127.0 million,
excluding amounts for claims that may have been incurred but have not yet been
asserted, and has accrued aggregate reserves of $29.3 million for such claims,
excluding approximately $2.0 million in additional reserves. Such estimates
reflect management's best estimate of the aggregate liability that will result
from these matters. While it is not possible to predict with certainty the
outcome of litigation and other matters discussed herein, Company's management
believes, based in part upon opinions of counsel, insurance in force and the
facts currently known, that liabilities in excess of those recorded, if any,
arising from such matters would not have a material adverse effect on the
results of operations, consolidated financial position or liquidity of the
Company over the long-term. As of March 27, 1997, the Company estimates that it
had primary and excess insurance coverage, excluding approximately $92.0 million
in excess coverage underwritten by insolvent carriers, of more than $507
million. It is possible, however, that the timing of the resolution of
individual issues could result in a significant impact on the operating results
and/or liquidity for one or more future reporting periods.
FULLER-AUSTIN ASBESTOS CLAIMS
An acquired and now inactive subsidiary, Fuller-Austin Insulation Company
("Fuller-Austin"), which discontinued its business activities in 1986, has been
named as one of many defendants in civil lawsuits which have been filed in
certain state courts beginning in 1986 (principally Texas) against
manufacturers, distributors and installers of products allegedly containing
asbestos. Fuller-Austin was a non-manufacturer that installed and occasionally
distributed industrial insulation products. Fuller-Austin had discontinued the
use of asbestos-containing products prior to being acquired by the Company in
1974. These claims are not part of a class action.
The claimants generally allege injuries to their health caused by
inhalation of asbestos fibers. Many of the claimants seek punitive damages as
well as compensatory damages. The amount of damages sought is impacted by a
multitude of factors. These include the type and severity of the disease
sustained by the claimant (i.e., mesothelioma, lung cancer, other types of
cancer, asbestosis or pleural changes); the occupation of the claimant; the
duration of the claimant's exposure to asbestos-containing products; the number
and financial resources of the defendants; the jurisdiction in which the claim
is filed; the presence or absence of other possible causes of the claimant's
illness; the availability of legal defenses, such as the statute of limitations;
and whether the claim was made on an individual basis or as part of a group
claim.
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<PAGE>
CLAIMS EXPOSURE
As of May 2, 1997, 14,111 plaintiffs have filed claims against
Fuller-Austin and various other defendants. Of these claims, 3,203 have been
dismissed, 3,690 have been resolved without an admission of liability at an
average cost of $3,590 per claim (excluding legal defense costs) and an
additional 618 claims have been settled in principle (subject to future
processing and funding) at a average cost of $2,019 per claim.
The following is a summary of claims filed against Fuller-Austin:
<TABLE>
<CAPTION>
YEARS
------------------------------------------------------
1993 AND PRIOR 1994 1995 1996 1997(1) TOTAL
-------------- ----- ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Claims Filed........................................ 2,921 1,136 4,522 4,122 1,410 14,111
Claims Dismissed.................................... (79) (21) (1,035) (1,459) (609) (3,203)
Claims Resolved..................................... (1,224) (394) (182) (1,828) (62) (3,690)
Settlements in process.............................. (618)
Claims Outstanding at May 2, 1997................... 6,600
======
- -------
(1) As of May 2, 1997
</TABLE>
In connection with these claims, Fuller-Austin's primary insurance carriers
have incurred approximately $21.4 million (including $9.4 million of legal
defense costs, but excluding $1.3 million for settlements in process) to defend
and settle the claims and, in addition, judgments have been entered against
Fuller-Austin for jury verdicts of $6.5 million which have not been paid and
which are under appeal by Fuller-Austin. Through March 27,1997, the Company and
Fuller-Austin have charged to expense approximately $12.5 million consisting of
$6.2 million of charges under retrospectively rated insurance policies and $6.3
million of reserves for potential uninsured legal and settlement costs related
to these claims. These charges substantially eliminate any further exposure for
retrospectively determined premium payments under the retrospectively rated
insurance policies.
Fuller-Austin has continued its strategy to require direct proof that
claimants had exposure to asbestos-containing products as the result of
Fuller-Austin's operations. This has resulted in an increase in claim
settlements and a decrease in litigation defense activities. However, perceived
changes in the nature of new claims filed have caused Fuller-Austin and its
insurers to reevaluate Fuller-Austin's approach to claims settlement.
Consequently, there is a potential for an increased level of trial activity
which Fuller-Austin believes will reduce the overall cost of asbestos personal
injury claims in the long run by requiring claimants to present and prove clear
evidence of substantial asbestos-related impairment and exposure to Fuller-
Austin's operations, and by denying recovery to claimants who are unimpaired or
who did not have significant exposure to Fuller-Austin's operations.
Further, the level of filed claims has become significant only since 1992,
and therefore, Fuller-Austin has a relatively brief history (compared to
manufacturers and suppliers) of claims volume and a limited data file upon which
to estimate the number or costs of claims that may be received in the future.
Also, effective September 1, 1995, the State of Texas (where most of these
claims have been filed) enacted tort reform legislation which Fuller-Austin
believes will ultimately curtail the number of unsubstantiated asbestos claims
filed against the subsidiary in Texas.
The Company and its defense counsel have analyzed the 14,111 claim filings
incurred through May 2, 1997. With respect to the 6,600 claims outstanding as of
March 27, 1997, the Company estimates that the amount of such claims is
approximately $18.6 million and believes that potential liability ranges from
$8.5 million to $18.6 million. As of March 27, 1997, based on analysis and
consultation with its professional advisors, Fuller-Austin has estimated its
cost, including legal defense costs, to be approximately $16.0 million for
claims filed and unresolved, and the Company has established reserves equal to
such amount. With respect to possible future claims, Fuller-Austin has estimated
its minimum future exposure to be approximately $38.5 million. No upper limit of
exposure can be reasonably estimated at present with respect to such incurred,
but unasserted claims. The Company cautions that these estimates are subject to
significant uncertainties, including the future effect of tort reform
legislation enacted in Texas and other states, the success of Fuller-Austin's
litigation strategy, the size of jury verdicts, success of appeals in process,
the number and financial resources of future plaintiffs, and the actions of
other defendants. During 1996, approximately 40 claims, with approximately 700
more being prepared for filing, were filed in another state where Fuller-Austin
had performed a significant amount of its business. Although the claims filed
against Fuller-Austin in states other than Texas have been included in the
claims summary table set forth above, exposure for these claims has not been
included in the Company's estimates and neither the Company nor its defense
counsel are able to reasonably predict the outcome of these cases or the
incidence of the 700 or other future claims that may be filed. Therefore, actual
claim experience may vary significantly from such estimates, especially if
certain Texas appeals
30
<PAGE>
are decided unfavorably to Fuller-Austin and/or the level of claims filed in
other states increases. At March 27, 1997 and December 31, 1996, Fuller-Austin
recorded an estimated liability for future indemnity payments and defense costs
related to currently unsettled claims and minimum estimated future claims of
$55.0 million (recorded as long-term liability). The reduction in total
liability compared to prior periods resulted from settlements and expenses
incurred in the reporting period which were charged against the accrued
liability.
INSURANCE COVERAGE
Defense has been tendered to and accepted by Fuller-Austin's primary
insurance carriers, and by certain of the Company's primary insurance carriers
that issued policies under which Fuller-Austin is named as an additional
insured; however, only one such primary carrier has partially accepted defense
without a reservation of rights. The Company believes that Fuller-Austin has at
least $7.7 million in unexhausted primary coverage (net of deductibles and
self-insured retentions, but including disputed coverage) under its liability
insurance policies to cover the unsettled claims, verdicts and future unasserted
claims and defense costs. The primary carriers also have unlimited liability for
defense costs (presently running at the annual rate of approximately $1.5
million) until such time as the primary limits under these policies are
exhausted. When the primary limits are exhausted, liability for both indemnity
and legal defense will be tendered to the excess coverage carriers, all of which
have been notified of the pendency of the asbestos claims. The Company and
Fuller-Austin have approximately $490.0 million of additional excess and
umbrella insurance that is generally responsive to asbestos claims. This amount
excludes approximately $92.0 million of coverage issued by insolvent carriers.
After the $7.7 million of unexhausted primary coverage, the Company has $35.7
million of excess coverage in place before entering a $35.0 million layer of
insolvent coverage for policy years 1979 through 1984 (the "Insolvent Layer").
All of the Company's and Fuller-Austin's liability insurance policies cover
indemnity payments and defense fees and expenses subject to applicable policy
terms and conditions.
The Company and Fuller-Austin have instituted litigation in Los Angeles
Superior Court, California, against their primary and excess insurance carriers,
to obtain declaratory judgments from the court regarding the obligations of the
various carriers to defend and pay asbestos claims. The issues in this
litigation include the aggregate liability of the carriers, the triggering and
drop-down of excess coverage to cover the Insolvent Layer and allocation of
losses among multiple carriers including insolvent carriers and various other
issues related to the interpretation of the policy contracts. All of the carrier
defendants have filed general denial answers.
Although there can be no assurances as to the outcome of this litigation,
management believes that it is probable that the Company and Fuller-Austin will
prevail in obtaining judicial rulings confirming the availability of a
substantial portion of the coverage. Based on a review of the independent
ratings of these carriers and opinions of legal counsel, the Company believes
that a substantial portion of this coverage will continue to be available to
meet the claims. Fuller-Austin recorded in Other Assets $55.0 million (not
including reserves of $6.2 million and $6.4 million, respectively) at March 27,
1997 and December 31, 1996, representing the amount that it expects to recover
from its insurance carriers for the payment of currently unsettled and estimated
future claims.
The Company cautions, however, that even though the existence and aggregate
dollar amounts of insurance are not generally being disputed, such insurance
coverage is subject to interpretation by the court and the timing of the
availability of insurance payments could, depending upon the outcome of the
litigation and/or negotiation, delay the receipt of insurance company payments
and require Fuller-Austin to assume responsibility for making interim payment of
asbestos defense and indemnity costs.
While the Company and Fuller-Austin believe that they have recorded
sufficient liability to satisfy Fuller-Austin's reasonably anticipated costs of
present and future plaintiffs' suits, it is not possible to predict the amount
or timing of future suits or the future solvency of its insurers. In the event
that currently unsettled and future claims exceed the recorded liability of
$55.0 million, the Company believes that the judicially determined and/or
negotiated amounts of excess and umbrella insurance coverage that will be
available to cover additional claims
31
<PAGE>
will be significant; however, it is unable to predict whether or not such
amounts will be adequate to cover all additional claims without further
contribution by Fuller-Austin.
GENERAL LITIGATION
DYNALECTRIC SUBCONTRACT DISPUTE
The Company has retained certain liability in connection with its 1989
divestiture of its major electrical contracting business, Dynalectric Company
("Dynalectric"). The Company and Dynalectric were sued in 1988 in Bergen County
Superior Court, New Jersey, by a former Dynalectric joint venture
partner/subcontractor ("subcontractor"). The subcontractor has alleged that its
subcontract to furnish certain software and services in connection with a major
municipal traffic signalization project was improperly terminated by Dynalectric
and that Dynalectric fraudulently diverted funds due, misappropriated its trade
secrets and proprietary information, fraudulently induced it to enter the joint
venture, and conspired with other defendants to commit acts in violation of the
New Jersey Racketeering Influenced and Corrupt Organization Act. Although the
aggregate dollar amount of these claims has not been formally recited in the
subcontractor's complaint, the Company estimates such claims to be approximately
$7.5 million. Dynalectric has also filed certain counterclaims against the
former subcontractor. The Company and Dynalectric believe that they have valid
defenses, and/or that any liability would be offset by recoveries under the
counterclaims. The Company and Dynalectric have filed motions with the Court to
enforce the arbitration provisions included in the subcontract. Discovery is
ongoing. The Company believes that it has established adequate reserves ($2.2
million at March 27, 1997) for the contemplated defense costs and for the cost
of obtaining enforcement of arbitration provisions contained in the contract.
CONTRACT INDEMNIFICATION
In November, 1994, the Company acquired an information technology business
which was involved in various disputes with federal and state agencies,
including two contract default actions. The Company has contractual rights to
indemnification from the former owner of the acquired subsidiary with respect to
the defense of all such claims and litigation, as well as all liability for
damages when and if proven. In October, 1995, one of the federal agencies
asserted a claim against the subsidiary and gave the Company notice that it
intended to withhold payments against the contract under which the claim arose.
To date, the agency has withheld approximately $3.3 million allegedly due the
agency under one of the aforementioned disputes. This subsidiary has submitted a
demand for indemnification to the former owner of the subsidiary which has been
denied. The subsidiary recently received an arbitration award confirming that it
is entitled to indemnification.
ENVIRONMENTAL ISSUES
Neither the Company nor any of its subsidiaries is named a Potentially
Responsible Party (as defined in the Comprehensive Environmental Response,
Compensation and Liability Act at any site). The Company, however, did
undertake, as part of the 1988 divestiture of a petrochemical engineering
subsidiary, an obligation to install and operate a soil and water remediation
system at a subsidiary research facility site in New Jersey. The Company is
required to pay the costs of continued operation of the remediation system which
are estimated to be $0.1 million. In addition, the Company, pursuant to the sale
of the Commercial Aviation Business, is responsible for the costs of clean-up of
environmental conditions at certain designated sites. Potential costs may
include the removal and subsequent replacement of contaminated soil, concrete,
tanks, etc., that existed prior to the sale of the Commercial Aviation Business.
The Company has established a reserve of approximately $1.0 million with respect
to such potential costs.
<PAGE>
OTHER LITIGATION
The Company is a party to other civil and contractual lawsuits which have
arisen in the normal course of business for which potential liability, including
costs of defense, which constitute the remainder of the $127.0 million discussed
above. The estimated probable liability for these issues is approximately $10.0
million and is substantially covered by insurance. All of the insured claims are
within policy limits and have been tendered to and accepted by the applicable
carriers.
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<PAGE>
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Original Notes were sold by the Company on the Issue Date to the
Initial Purchasers pursuant to the Purchase Agreement. As a condition to the
sale of the Original Notes, the Company and the Initial Purchasers entered into
the Registration Rights Agreement on the Issue Date. Pursuant to the
Registration Rights Agreement, the Company agreed that, unless the Exchange
Offer is not permitted by applicable law or Commission policy, it would (i) file
with the Commission a Registration Statement under the Securities Act with
respect to the Exchange Notes within 60 days after the Issue Date, (ii) use its
best efforts to cause such Registration Statement to become effective under the
Securities Act within 150 days after the Issue Date and (iii) upon effectiveness
of the Registration Statement, commence the Exchange Offer, use its best efforts
to maintain the effectiveness of the Registration Statement for at least 30 days
(or a longer period if required by law) and deliver to the Exchange Agent
Exchange Notes in the same aggregate principal amount at maturity as the
Original Notes that were rendered by holders thereof pursuant to the Exchange
Offer. Under existing Commission interpretations, the Exchange Notes would in
general be freely transferable after the Exchange Offer without further
registration under the Securities Act; provided, that in the case of
broker-dealers, a prospectus meeting the requirements of the Securities Act must
be delivered as required. The Company has agreed to make available a prospectus
meeting the requirements of the Securities Act to any broker-dealer for use in
connection with any resale of any such Exchange Notes acquired as described
below for such period as such broker-dealers must comply with such requirements.
A broker-dealer that delivers such a prospectus to purchasers in connection with
such resales will be subject to certain of the civil liability provisions under
the Securities Act, and will be bound by the Registration Rights Agreement
(including certain indemnification rights and obligations). A copy of the
Registration Rights Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. The Registration Statement of
which this Prospectus is a part is intended to satisfy certain of the Company's
obligations under the Registration Rights Agreement and the Purchase Agreement.
RESALE OF THE EXCHANGE NOTES
With respect to the Exchange Notes, based upon an interpretation by the
staff of the Commission set forth in certain no-action letters issued to third
parties, the Company believes that a holder (other than (i) a broker-dealer who
purchases such Exchange Notes directly from the Company to resell pursuant to
Rule 144A or any other available exemption under the Securities Act or (ii) any
such holder which is an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act) who exchanges the Original Notes for the Exchange
Notes in the ordinary course of business and who is not participating, does not
intend to participate, and has no arrangement with any person to participate, in
the distribution of the Exchange Notes, will be allowed to resell the Exchange
Notes to the public without further registration under the Securities Act and
without delivering to the purchasers of the Exchange Notes a prospectus that
satisfies the requirements of Section 10 of the Securities Act. However, if any
holder acquires the Exchange Notes in the Exchange Offer for the purposes of
distributing or participating in the distribution of the Exchange Notes or is a
broker-dealer, such holder cannot rely on the position of the staff of the
Commission enumerated in certain no-action letters issued to third parties and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction, unless an exemption
from registration is otherwise available. 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. 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 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 by such broker-dealer as a result of
market-making or other trading activities. Pursuant to the Registration Rights
Agreement, the Company has agreed to make this Prospectus, as it may be amended
or supplemented from time to time, available to all persons subject to the
prospectus delivery requirements of the Securities Act for use in connection
with any resale for a period of 90 days after the Expiration Date. See "Plan of
Distribution."
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<PAGE>
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, 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 outstanding Original Notes surrendered pursuant
to the Exchange Offer. Notes may be tendered only in integral multiples of
$1,000.
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 will be registered under the
Securities Act and hence the Exchange Notes will not bear legends restricting
their transfer and (ii) holders of the Exchange Notes will not be entitled to
the certain rights of holders of Original Notes under the Registration Rights
Agreement, which rights will terminate upon the consummation of the Exchange
Offer. 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 also authorized the issuance of the Original Notes,
such that all outstanding Notes will be treated as a single class of debt
securities under the Indenture.
As of the date of this Prospectus, $100.0 million aggregate principal
amount of the Original Notes are outstanding and registered in the name of Cede
& Co., as nominee for the Depository Trust Company ("DTC"). Only a registered
holder of the 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 dissenter's
rights under the Indenture in connection with the Exchange Offer. The Company
intends to conduct the Exchange Offer in accordance with the provisions of the
Registration Rights Agreement and the applicable requirements of the Securities
Act, 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 the Company has given oral or written notice thereof to
the Exchange Agent. The Exchange Agent will act as agent for the tendering
holders of Original Notes for the purposes of receiving the Exchange Notes from
the Company.
Holders who tender Original Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to the exchange of Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes described below, 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 ,
1997 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 (i) notify the
Exchange Agent of any extension by oral or written notice, (ii) will mail to the
registered holders of Original Notes an announcement thereof, (iii) will issue a
press release or other public announcement which shall include disclosure of the
approximate number of Original Notes deposited to date, each prior to 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date. Without limiting the manner in which the Company may choose to
make a public announcement of any delay, extension, amendment or termination of
the Exchange Offer, the Company shall have no obligation to publish, advertise
or otherwise communicate any such public announcement, other than by making a
timely release to an appropriate news agency.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Original Notes, (ii) to extend the Exchange Offer, or (iii) if any
conditions set forth below under "--Certain 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.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof to the
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<PAGE>
registered holders. If the Exchange Offer is amended in a manner determined by
the Company 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 Original Notes, and the Company will extend the
Exchange Offer for a period of five to 10 business days, depending upon the
significance of the amendment and the manner of disclosure to such registered
holders, if the Exchange Offer would otherwise expire during such five to 10
business day period.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes bear interest at a rate equal to 9 1/2% per annum.
Interest on the Exchange Notes is payable semiannually on each March 1 and
September 1, commencing on the first such date following their date of issuance.
Holders of Exchange Notes will receive interest on September 1, 1997 from the
date of initial issuance of the Original Notes. Holders of Original Notes that
are accepted for exchange will be deemed to have waived the right to receive any
interest accrued on the Original Notes.
PROCEDURES FOR TENDERING
Only a registered holder of Original Notes may tender such Original Notes
in the Exchange Offer. To tender in the Exchange Offer, a holder must complete,
sign and date the Letter of Transmittal or facsimile thereof, have the
signatures thereon guaranteed if required by the Letter of Transmittal, and mail
or otherwise deliver such Letter of Transmittal or such facsimile to the
Exchange Agent at the address set forth below under "--Exchange Agent" for
receipt prior to the Expiration Date. In addition, either (i) certificates for
such Notes must be received by the Exchange Agent along with the Letter of
Transmittal, or (ii) a timely confirmation of a book-entry transfer (a
"Book-Entry Confirmation") of such Notes, if such procedure is available, into
the Exchange Agent's account at DTC pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date, or (iii) the holder must comply with the guaranteed delivery
procedures described below.
The tender by a holder which is not withdrawn prior to the Expiration Date
will constitute an agreement between such holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal.
THE METHOD OF DELIVERY OF NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE
HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES, SUFFICIENT
TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE
EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR NOTES SHOULD BE SENT TO THE
COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL
BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH
HOLDERS.
Any beneficial owner(s) of the Original Notes 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 contact the registered holder
promptly and instruct such registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes to tender on such owner's own
behalf, such owner must, prior to completing and executing the Letter of
Transmittal and delivering such owner's Original Notes, either make appropriate
arrangements to register ownership of the Notes in such owner's name (to the
extent permitted by the Indenture) or obtain a properly completed bond power
from the registered holder. The transfer of registered ownership may take
considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below (see "--Withdrawal of Tenders"), as the case may be, must be guaranteed by
an Eligible Institution (as defined below) unless the Original Notes tendered
pursuant thereto are tendered (i) by a registered holder who has not completed
the box entitled "Special Delivery Instructions" or the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be made by a member firm of a
registered national securities
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<PAGE>
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States, or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act which is a member of one of the recognized
signature guarantee programs identified in the Letter of Transmittal (an
"Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Original Notes listed therein, such Original Notes must
be endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Original
Notes.
If the Letter of Transmittal or any Original Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority to so act must
be submitted with the Letter of Transmittal.
The Exchange Agent and DTC have confirmed that any financial institution
that is a participant in the Depositary's system may utilize the Depositary's
Automated Tender Offer Program to tender Original Notes.
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 Notes. The Company's
interpretation of the terms and conditions of the Exchange Offer (including the
instructions in the Letter of Transmittal) will be final and binding on all
parties. 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 shall 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.
While the Company has no present plan to acquire any Original Notes which
are not tendered in the Exchange Offer or to file a registration statement to
permit resales of any Original Notes which are not tendered pursuant to the
Exchange Offer, the Company reserves the right in its sole discretion to
purchase or make offers for any Original Notes that remain outstanding
subsequent to the Expiration Date or, as set forth below under "--Certain
Conditions to the Exchange Offer," to terminate the Exchange Offer and, to the
extent permitted by applicable law, purchase Original Notes in the open market,
in privately negotiated transactions or otherwise. The terms of any such
purchases or offers could differ from the terms of the Exchange Offer.
By tendering, each holder will represent to the Company that, among other
things, (i) the Exchange Notes to be acquired by the holder of the Original
Notes in connection with the Exchange Offer are being acquired by the holder in
the ordinary course of business of the holder, (ii) the holder has no
arrangement or understanding with any person to participate in the distribution
of Exchange Notes, (iii) the holder acknowledges and agrees that any person who
is a broker-dealer registered under the Exchange Act or is participating in the
Exchange Offer for the purposes of distributing the Exchange Notes must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with a secondary resale transaction of the Exchange Notes acquired
by such person and cannot rely on the position of the staff of the Commission
set forth in certain no-action letters, (iv) the holder understands that a
secondary resale transaction described in clause (iii) above and any resales of
Exchange Notes obtained by such holder in exchange for Original Notes acquired
by such holder directly from the Company should be covered by an effective
registration statement containing the selling securityholder information
required by Item 507 or Item 508, as applicable, of Regulation S-K of the
Commission, and (v) the holder is not an "affiliate," as defined in Rule 405 of
the Securities Act, of the Company. If the holder is a broker-dealer that will
receive Exchange Notes for its own account in exchange for Original Notes that
were acquired as a result of market-making activities or other trading
activities, the holder is required to acknowledge in the Letter of Transmittal
that it will deliver a prospectus in connection with any resale of such Exchange
Notes; however, by so acknowledging and by delivering a prospectus, the holder
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
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<PAGE>
RETURN OF NOTES
If any tendered Original Notes are not accepted for any reason set forth in
the terms and conditions of the Exchange Offer or if Original Notes are
withdrawn or are submitted for a greater principal amount than the holders
desire to exchange, such unaccepted, withdrawn or non-exchanged Original Notes
will be returned without expense to the tendering holder thereof (or, in the
case of Original Notes tendered by book-entry transfer into the Exchange Agent's
account at DTC pursuant to the book-entry transfer procedures described below,
such Original Notes will be credited to an account maintained with the
Depositary) as promptly as practicable.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account 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 the Depositary's systems may make book-entry delivery
of Original Notes by causing the Depositary to transfer such Original Notes into
the Exchange Agent's account at the Depositary in accordance with the
Depositary's procedures for transfer. However, although delivery of Original
Notes may be effected through book-entry transfer at DTC, the Letter of
Transmittal or facsimile thereof, with any required signature guarantees and any
other required documents, must, in any case, be transmitted to and received by
the Exchange Agent at the address set forth below under "--Exchange Agent" on or
prior to the Expiration Date or pursuant to the guaranteed delivery procedures
described below.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Original Notes and (i) whose Original
Notes are not immediately available or (ii) who cannot deliver their Original
Notes, the Letter of Transmittal or any other required documents to the Exchange
Agent prior to the Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery substantially in the form provided by the Company (by
facsimile transmission, mail or hand delivery) setting forth the name and
address of the holder, the certificate number(s) of such Original Notes and
the principal amount of Original Notes tendered, stating that the tender is
being made thereby and guaranteeing that, within five New York Stock
Exchange trading days after the Expiration Date, the Letter of Transmittal
(or a facsimile thereof) together with the certificate(s) representing the
Original Notes in proper form for transfer or a Book-Entry Confirmation, as
the case may be, and any other documents required by the Letter of
Transmittal will be deposited by the Eligible Institution with the Exchange
Agent; and
(c) Such properly executed Letter of Transmittal (or facsimile
thereof), as well as the certificate(s) representing all tendered Original
Notes in proper form for transfer and all other documents required by the
Letter of Transmittal are received by the Exchange Agent within five New
York Stock Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Original Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Original Notes may be
withdrawn at any time prior to the Expiration Date.
To withdraw a tender of Original Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior 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 and 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 by which such
Original Notes were tendered (including any
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<PAGE>
required signature guarantees). 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, whose determination shall be final and
binding on all parties. Any Original Notes so withdrawn will be deemed not to
have been validly tendered for purposes of the Exchange Offer and no Exchange
Notes will be issued with respect thereto unless the Original Notes so withdrawn
are validly retendered. Properly withdrawn Notes may be retendered by following
one of the procedures described above under "--Procedures for Tendering" at any
time prior to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange the Exchange Notes for, any
Original Notes not theretofore accepted for exchange, and may terminate or amend
the Exchange Offer as provided herein before the acceptance of such Original
Notes, if any of the following conditions exist:
(a) the Exchange Offer violates applicable law or any applicable
interpretation of the staff of the SEC, (b) an action or proceeding shall
have been instituted or threatened in any court or by any governmental
agency which might materially impair the ability of the Company to proceed
with the Exchange Offer and any material adverse development shall have
occurred in any existing action or proceeding with respect to the Company
and (c) all governmental approvals have not been obtained, which approvals
the Company deems necessary for the consummation of the Exchange Offer.
If the Company determines in its sole discretion that any of these
conditions are not satisfied, the Company may (i) refuse to accept any Original
Notes and return all tendered Original Notes to the tendering holders, (ii)
extend the Exchange Offer and retain all Original Notes tendered prior to the
expiration of the Exchange Offer, subject, however, to the rights of holders to
withdraw such Original Notes (see "--Withdrawal of Tenders"), or (iii) waive
such unsatisfied conditions with respect to the Exchange Offer and accept all
properly 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 of the Original Notes, and the Company
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.
Holders may have certain rights and remedies against the Company under the
Registration Rights Agreement should the Company fail to consummate the Exchange
Offer, notwithstanding a failure of the conditions stated above. Such conditions
are not intended to modify those rights or remedies in any respect.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to such
condition or may be waived by the Company in whole or in part at any time and
from time to time in the Company's sole discretion. The failure by the Company
at any time to exercise the foregoing rights shall not be deemed a waiver of any
such right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
TERMINATION OF CERTAIN RIGHTS
All rights under the Registration Rights Agreement (including registration
rights) of holders of the Original Notes eligible to participate in this
Exchange Offer will terminate upon consummation of the Exchange Offer except
with respect to the Company's continuing obligations (i) to indemnify the
holders (including any broker-dealers) and certain parties related to the
holders against certain liabilities (including liabilities under the Securities
Act), (ii) to provide, upon the request of any holder of a transfer-restricted
Original Note, the information required by Rule 144A(d)(4) under the Securities
Act in order to permit resales of such Original Notes pursuant to Rule 144A,
(iii) to use its best efforts to keep the Registration Statement effective to
the extent necessary to ensure that it is available for resales of
transfer-restricted Notes by broker-dealers for a period of 90 days from the
date on which the Registration Statement is declared effective, and (iv) to
provide copies of the latest version of the Prospectus to all persons subject to
the prospectus delivery requirements of the Securities Act upon their request
for a period of 90 days from the date on which the Registration Statement is
declared effective.
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<PAGE>
LIQUIDATED DAMAGES
The following description of Section 4 of the Registration Rights Agreement
is qualified in its entirety by the provisions of the Registration Rights
Agreement, which has been filed as an exhibit to the Registration Statement of
which the Prospectus is a part. In the event of a failure to file, or to become
effective, one or more registration statements as provided by the Registration
Rights Agreement, the Company has agreed to pay, as liquidated damages,
additional interest on Original Notes ("Additional Interest") under the
circumstances and to the extent set forth below (each of which is given
independent effect):
(i) if (A) neither the Registration Statement of which this Prospectus
is a part (the "Exchange Offer Registration Statement") nor Shelf
Registration Statement, as defined in the Registration Rights Agreement, is
filed with the Commission on or prior to the Filing Date or (B)
notwithstanding that the Company has consummated or will consummate an
Exchange Offer, the Company is required to file a Shelf Registration
Statement and such Shelf Registration Statement is not filed on or prior to
the date required by the Registration Rights Agreement, then commencing on
the day after either such required filing date, Additional Interest shall
accrue on the principal amount of the Notes at a rate of 0.50% per annum
for the first 90 days immediately following each such filing date, such
Additional Interest rate increasing by an additional 0.50% per annum at the
beginning of each subsequent 90-day period; or
(ii) if (A) neither the Exchange Offer Registration Statement nor a
Shelf Registration Statement is declared effective by the Commission on or
prior to 150 days after the applicable filing date or (B) notwithstanding
that the Company has consummated or will consummate an Exchange Offer, the
Company is required to file a Shelf Registration Statement and such Shelf
Registration Statement is not declared effective by the Commission on or
prior to the 60th day following the date such Shelf Registration Statement
was filed, then, commencing on the day after the 60th day following the
applicable filing date, Additional Interest shall accrue on the principal
amount of the Notes at a rate of 0.50% per annum for the first 90 days
immediately following such date, such Additional Interest rate increasing
by an additional 0.50% per annum at the beginning of each subsequent 90-day
period; or
(iii) if (A) the Company has not exchanged Exchange Notes for all
Original Notes validly tendered in accordance with the terms of the
Exchange Offer on or prior to the 45th day after the date on which the
Exchange Offer Registration Statement was declared effective or (B) if
applicable, the Shelf Registration Statement has been declared effective
and such Shelf Registration Statement ceases to be effective at any time
prior to the second anniversary of its effective date (other than after
such time as all Original Notes have been disposed of thereunder), then
Additional Interest shall accrue on the principal amount of the Notes at a
rate of 0.50% per annum for the first 90 days commencing on (x) the 46th
day after such effective date, in the case of (A) above, or (y) the day
such Shelf Registration Statement ceases to be effective in the case of (B)
above, such Additional Interest rate increasing by an additional 0.50% per
annum at the beginning of each subsequent 90-day period; provided, however,
that the Additional Interest rate on the Notes may not exceed in the
aggregate 1.0% per annum; provided, further, however, that (1) upon the
filing of the Exchange Offer Registration Statement or a Shelf Registration
Statement (in the case of clause (i) above), (2) upon the effectiveness of
the Exchange Offer Registration Statement or a Shelf Registration Statement
(in the case of clause (ii) above), or (3) upon the exchange of Exchange
Notes for all Notes tendered (in the case of clause (iii) (A) above), or
upon the effectiveness of the Shelf Registration Statement which had ceased
to remain effective (in the case of clause (iii)(B) above), Additional
Interest on the Notes as a result of such clause (or the relevant subclause
thereof), as the case may be, shall cease to accrue.
Any amounts of Additional Interest due pursuant to clause (i), (ii) or
(iii) above will be payable in accordance with the terms of the Registration
Rights Agreement.
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<PAGE>
EXCHANGE AGENT
United States Trust Company of New York has been appointed as Exchange
Agent of the Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
BY REGISTERED OR CERTIFIED MAIL: BY HAND DELIVERY UP TO 4:30P.M.:
United States Trust Company United States Trust Company
of New York of New York
Box 843 111 Broadway
Peter Cooper Station Lower Level
New York, NY 10276 New York, NY 10005
Attn: Corporate Trust Attn: Corporate Trust
BY OVERNIGHT COURIER OR BY FACSIMILE TRANSMISSION
BY HAND DELIVERY AFTER 4:30P.M.: (FOR ELIGIBLE INSTITUTIONS ONLY):
United States Trust Company United States Trust Company of New York
of New York (212) 420-6152
770 Broadway Confirm: (800) 548-6565
13th Floor For Information:
New York, NY 10003 (800) 548-6565
Attn: Corporate Trust
Service Window
FEES AND EXPENSES
All fees and expenses incident to compliance with the Registration Rights
Agreement regarding this Exchange Offer shall be borne by the Company whether or
not the Exchange Offer or a Shelf Registration becomes effective.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it 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
$77,000. Such expenses include registration fees, fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees and printing costs, among
others.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Notes pursuant to the Exchange Offer. If, however, a transfer tax is imposed
for any reason other than the exchange of the 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.
CONSEQUENCES OF FAILURE TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Original
Notes are urged to consult their financial and tax advisors in making their own
decisions on what action to take.
The Original Notes which are not exchanged for the Exchange Notes pursuant
to the Exchange Offer will remain restricted securities. Accordingly, such Notes
may be resold only (i) to a person whom the seller reasonably believes is a
qualified institutional buyer (as defined in Rule 144A under the Securities Act)
in a transaction meeting the requirements of Rule 144A, (ii) in a transaction
meeting the requirements of Rule 144 under the Securities Act, (iii) outside the
United States to a foreign person in a transaction meeting the requirements of
Rule 904 under the Securities Act, (iv) in accordance with another exemption
from the registration requirements of the Securities Act (and based upon an
opinion of counsel if the Company so requests), (v) to the Company, or (vi)
pursuant to an effective registration statement and, in each case, in accordance
with any applicable securities laws of any state of the United States or any
other applicable jurisdiction.
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<PAGE>
ACCOUNTING TREATMENT
For accounting purposes, the Company will recognize no gain or loss as a
result of the Exchange Offer. The expenses of the Exchange Offer will be
amortized over the term of the Exchange Notes.
The Original Notes were issued, and the Exchange Notes are issuable, under
the Indenture, a copy of the form of which has been filed as an exhibit to the
Registration Statement. The form and terms of the Exchange Notes will be
identical in all material respects to the form and terms of the Original Notes,
except that the Exchange Notes will have been registered under the Securities
Act and, therefore, will not bear legends restricting transfer thereof. The
Exchange Notes and the Original Notes are deemed the same class of notes under
the Indenture and are both entitled to the benefits thereof. The following
summary of certain provisions of the Indenture is subject to, and is qualified
in its entirety by reference to, all the provisions of the Indenture, including
the definitions of certain terms therein and those terms made a part thereof by
the Trust Indenture Act of 1939, as amended. Whenever particular Sections or
defined terms of the Indenture not otherwise defined herein are referred to,
such Sections or defined terms are incorporated herein by reference.
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<PAGE>
DESCRIPTION OF NOTES
The Original Notes have been, and the Exchange Notes will be, issued under
the Indenture. The following summary of the material provisions of the Indenture
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
"TIA"), and to all of the provisions of the Indenture, including the definitions
of certain terms therein and those terms made a part of the Indenture by
reference to the TIA as in effect on the date of the Indenture. A copy of the
Indenture may be obtained from the Company or the Initial Purchasers. The
definitions of certain capitalized terms used in the following summary are set
forth below under "-- Certain Definitions." For purposes of this section,
references to the "Company" include only the Company and not its Subsidiaries.
The Original Notes are, and the Exchange Notes will be, unsecured
obligations of the Company, ranking subordinate in right of payment to all
Senior Debt of the Company. The Notes will rank pari pasu with any future senior
subordinated indebtedness of the Company and will rank senior to all other
indebtedness of the Company.
The Notes will be issued in fully registered form only, without coupons, in
denominations of $1,000 and integral multiples thereof. Initially, the Trustee
will act as Paying Agent and Registrar for the Notes. The Notes may be presented
for registration or transfer and exchange at the offices of the Registrar, which
initially will be the Trustee's corporate trust office. The Company may change
any Paying Agent and Registrar without notice to holders of the Notes (the
"Holders"). The Company will pay principal (and premium, if any) on the Notes at
the Trustee's corporate office in New York, New York. At the Company's option,
interest may be paid at the Trustee's corporate trust office or by check mailed
to the registered address of Holders. Any Notes that remain outstanding after
the completion of the Exchange Offer, together with the Exchange Notes issued in
connection with the Exchange Offer, will be treated as a single class of
securities under the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $150.0 million, of
which $100.0 million is outstanding and will mature on March 1, 2007. Additional
amounts may be issued in one or more series from time to time, subject to the
limitations set forth under "--Certain Covenants--Limitation on Incurrence of
Additional Indebtedness." Interest on the Notes will accrue at the rate of 9
1/2% per annum and will be payable semiannually in cash on each March 1 and
September 1 commencing on September 1, 1997, to the persons who are registered
Holders at the close of business on the February 15 and August 15 immediately
preceding the applicable interest payment date. Interest on the Notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from and including the date of issuance.
The Notes will not be entitled to the benefit of any mandatory sinking
fund.
OPTIONAL REDEMPTION
The Notes will be redeemable, at the Company's option, in whole at any time
or in part from time to time, on and after March 1, 2002, upon not less than 30
nor more than 60 days' notice, at the following redemption prices (expressed as
percentages of the principal amount thereof) if redeemed during the twelve-month
period commencing on March 1 of the year set forth below, plus, in each case,
accrued interest to the date of redemption:
<TABLE>
<CAPTION>
REDEMPTION PRICE
-----------------
<S> <C>
2002.................................................... 104.750%
2003.................................................... 103.167%
2004.................................................... 101.583%
2005 and thereafter..................................... 100.0%
</TABLE>
At any time, or from time to time, on or prior to March 1, 2000, the
Company may, at its option, use the net cash proceeds of one or more Public
Equity Offerings (as defined below) to redeem up to 35% of the aggregate
principal amount of Notes originally issued at a redemption price equal to
109.50% of the principal amount thereof, plus accrued interest to the date of
redemption; provided that at least 65% of the principal amount of Notes
originally issued remains outstanding immediately after any such redemption. In
order to effect the
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<PAGE>
foregoing redemption with the proceeds of any Public Equity Offering, the
Company shall make such redemption not more than 120 days after the consummation
of any such Public Equity Offering.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Notes are to be redeemed at any
time, 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 such Notes are listed or, if such Notes are not then listed on
a national securities exchange, on a pro rata basis, by lot or by 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, that if a partial redemption is made with the proceeds of a Public
Equity Offering, 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 DTC) 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. 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
funds in satisfaction of the applicable redemption price pursuant to the
Indenture.
SUBORDINATION
The payment of all Obligations on the Notes is subordinated in right of
payment to the prior payment in full in cash or Cash Equivalents of all
Obligations on Senior Debt. Upon any payment or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
creditors upon any liquidation, dissolution, winding up, reorganization,
assignment for the benefit of creditors or marshaling of assets of the Company
or in a bankruptcy, reorganization, insolvency, receivership or other similar
proceeding relating to the Company or its property, whether voluntary or
involuntary, all Obligations due or to become due upon all Senior Debt shall
first be paid in full in cash or Cash Equivalents, or such payment duly provided
for to the satisfaction of the holders of Senior Debt, before any payment or
distribution of any kind or character is made on account of any Obligations on
the Notes, or for the acquisition of any of the Notes for cash or property or
otherwise. If any default occurs and is continuing in the payment when due,
whether at maturity, upon any redemption, by declaration or otherwise, of any
principal of, interest on, unpaid drawings for letters of credit issued in
respect of, or regularly accruing fees with respect to, any Senior Debt, no
payment of any kind or character shall be made by or on behalf of the Company or
any other Person on its or their behalf with respect to any Obligations on the
Notes or to acquire any of the Notes for cash or property or otherwise.
In addition, if any other event of default occurs and is continuing with
respect to any Designated Senior Debt, as such event of default is defined in
the instrument creating or evidencing such Designated Senior Debt, permitting
the holders of such Designated Senior Debt then outstanding to accelerate the
maturity thereof and if the Representative for the respective issue of
Designated Senior Debt gives written notice of the event of default to the
Trustee (a "Default Notice"), then, unless and until all events of default have
been cured or waived or have ceased to exist or the Trustee receives notice from
the Representative for the respective issue of Designated Senior Debt
terminating the Blockage Period (as defined below), during the 180 days after
the delivery of such Default Notice (the "Blockage Period"), neither the Company
nor any other Person on its behalf shall (x) make any payment of any kind or
character with respect to any Obligations on the Notes or (y) acquire any of the
Notes for cash or property or otherwise. Notwithstanding anything herein to the
contrary, in no event will a Blockage Period extend beyond 180 days from the
date the payment on the Notes was due and only one such Blockage Period may be
commenced within any 360 consecutive days. No event of default which existed or
was continuing on the date of the commencement of any Blockage Period with
respect to the Designated Senior Debt shall be, or be made, the basis for
commencement of a second Blockage Period by the Representative of such
Designated Senior Debt whether or not within a period of 360 consecutive days,
unless such event of default shall have been cured or waived for a period of not
less than 90 consecutive days (it being acknowledged that any subsequent action,
or any breach of any financial covenants for a period commencing after the date
of
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commencement of such Blockage Period that, in either case, would give rise to an
event of default pursuant to any provisions under which an event of default
previously existed or was continuing shall constitute a new event of default for
this purpose).
By reason of such subordination, in the event of the insolvency of the
Company, creditors of the Company who are not holders of Senior Debt, including
the Holders of the Notes, may recover less, ratably, than holders of Senior
Debt.
At May 1, 1997, the aggregate outstanding amount of Senior Debt of the
Company was $59.2 million (including issued but undrawn letters of credit of
$5.4 million and excluding unused commitments available for borrowing of $69.6
million).
CHANGE OF CONTROL
The Indenture provides that upon the occurrence of a Change of Control,
each Holder will have the right to require that the Company purchase all or a
portion of such Holder's Notes pursuant to the offer described below (the
"Change of Control Offer"), at a purchase price equal to 101% of the principal
amount thereof, plus accrued interest to the date of purchase.
The Indenture provides that, prior to the mailing of the notice referred to
below, but in any event within 30 days following any Change of Control, the
Company covenants to (i) repay in full all Indebtedness and terminate all
commitments under the Revolving Credit Facility and all other Senior Debt the
terms of which require repayment upon a Change of Control or offer to repay in
full and terminate all commitments under all Indebtedness under the Revolving
Credit Facility and all other such Senior Debt and to repay the Indebtedness
owed to each lender which has accepted such offer or (ii) obtain the requisite
consents under the Revolving Credit Facility and all other Senior Debt to permit
the repurchase of the Notes as provided below. The Company shall first comply
with the covenant in the immediately preceding sentence before it shall be
required to repurchase Notes pursuant to the provisions described below. The
Company's failure to comply with the immediately preceding sentence shall
constitute an Event of Default described in clause (iii) and not in clause (ii)
under "Events of Default" below.
Within 30 days following the date upon which the Change of Control
occurred, the Company must send, by first class mail, a notice to each Holder,
with a copy to the Trustee, which notice shall govern the terms of the Change of
Control Offer. Such notice shall state, among other things, the purchase date,
which must be no earlier than 30 days nor later than 45 days from the date such
notice is mailed, other than as may be required by law (the "Change of Control
Payment Date"). Holders electing to have a Note purchased pursuant to a Change
of Control Offer will be required to surrender the Note, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Note completed, to
the Paying Agent at the address specified in the notice prior to the close of
business on the third business day prior to the Change of Control Payment Date.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
purchase price for all the Notes that might be delivered by Holders seeking to
accept the Change of Control Offer. In the event the Company is required to
purchase outstanding Notes pursuant to a Change of Control Offer, the Company
expects that it would seek third party financing to the extent it does not have
available funds to meet its purchase obligations. However, there can be no
assurance that the Company would be able to obtain such financing.
Neither the Board of Directors of the Company nor the Trustee may waive the
covenant relating to a Holder's right to redemption upon a Change of Control.
Restrictions in the Indenture described herein on the ability of the Company and
its Restricted Subsidiaries to incur additional Indebtedness, to grant liens on
its property, to make Restricted Payments and to make Asset Sales may also make
more difficult or discourage a takeover of the Company, whether favored or
opposed by the management of the Company. Consummation of any such transaction
in certain circumstances may require redemption or repurchase of the Notes, and
there can be no assurance that the Company or the acquiring party will have
sufficient financial resources to effect such redemption or repurchase. Such
restrictions and the restrictions on transactions with Affiliates may, in
certain circumstances, make more difficult or discourage any leveraged buyout of
the Company or any of its Subsidiaries
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by the management of the Company. While such restrictions cover a wide variety
of arrangements which have traditionally been used to effect highly leveraged
transactions, the Indenture may not afford the Holders of Notes protection in
all circumstances from the adverse aspects of a highly leveraged transaction,
reorganization, restructuring, merger or similar transaction.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the "Change
of Control" provisions of the Indenture, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Incurrence of Additional Indebtedness. The Company will not,
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume, guarantee, acquire, become liable,
contingently or otherwise, with respect to, or otherwise become responsible for
payment of (collectively, "incur") any Indebtedness (other than Permitted
Indebtedness); provided, however, that if no Default or Event of Default shall
have occurred and be continuing at the time of or as a consequence of the
incurrence of any such Indebtedness, the Company or any of its Restricted
Subsidiaries may incur Indebtedness (including, without limitation, Acquired
Indebtedness) if on the date of the incurrence of such Indebtedness, after
giving effect to the incurrence thereof, the Consolidated Fixed Charge Coverage
Ratio of the Company is greater than 2.0 to 1.0.
Limitation on Restricted Payments. The Company will not, and will not cause
or permit any of its Restricted Subsidiaries to, directly or indirectly, (a)
declare or pay any dividend or make any distribution (other than dividends or
distributions payable in Qualified Capital Stock of the Company) on or in
respect of shares of the Company's Capital Stock to holders of such Capital
Stock, (b) purchase, redeem or otherwise acquire or retire for value any Capital
Stock of the Company or any warrants, rights or options to purchase or acquire
shares of any class of such Capital Stock, (c) make any principal payment on,
purchase, defease, redeem, prepay, decrease or otherwise acquire or retire for
value, prior to any scheduled final maturity, scheduled repayment or scheduled
sinking fund payment, any Indebtedness of the Company that is subordinate or
junior in right of payment to the Notes or (d) make any Investment (other than
Permitted Investments) (each of the foregoing actions set forth in clauses (a),
(b), (c) and (d) being referred to as a "Restricted Payment"), if at the time of
such Restricted Payment or immediately after giving effect thereto, (i) a
Default or an Event of Default shall have occurred and be continuing or (ii) the
Company is not able to incur at least $1.00 of additional Indebtedness (other
than Permitted Indebtedness) in compliance with the "Limitation on Incurrence of
Additional Indebtedness" covenant or (iii) the aggregate amount of Restricted
Payments (including such proposed Restricted Payment) made subsequent to the
Issue Date (the amount expended for such purposes, if other than in cash, being
the fair market value of such property as determined reasonably and in good
faith by the Board of Directors of the Company) shall exceed the sum of: (x) 50%
of the cumulative Consolidated Net Income (or if cumulative Consolidated Net
Income shall be a loss, minus 100% of such loss) of the Company earned
subsequent to the Issue Date and on or prior to the date the Restricted Payment
occurs (the "Reference Date") (treating such period as a single accounting
period); plus (y) 100% of the aggregate net cash proceeds received by the
Company from any Person (other than a Subsidiary of the Company) from the
issuance and sale subsequent to the Issue Date and on or prior to the Reference
Date of Qualified Capital Stock of the Company; plus (z) without duplication of
any amounts included in clause (iii)(y) above, 100% of the aggregate net cash
proceeds of any equity contribution received by the Company from a holder of the
Company's Capital Stock (excluding, in the case of clauses (iii)(y) and (z), (i)
any net cash proceeds from a Public Equity Offering to the extent used to redeem
the Notes and (ii) cash proceeds from the issuance of Qualified Capital Stock
by, or any equity contribution from any Person, financed directly or indirectly
using funds borrowed from the Company or any Subsidiary of the Company until and
to the extent such borrowing is repaid).
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit: (1) the payment of any dividend within 60
days after the date of declaration of such dividend if the
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dividend would have been permitted on the date of declaration; (2) if no Default
or Event of Default shall have occurred and be continuing, the acquisition of
any shares of Capital Stock of the Company, either (i) solely in exchange for
shares of Qualified Capital Stock of the Company or (ii) through the application
of net proceeds of a substantially concurrent sale for cash (other than to a
Subsidiary of the Company) of shares of Qualified Capital Stock of the Company;
(3) if no Default or Event of Default shall have occurred and be continuing, the
acquisition of any Indebtedness of the Company that is subordinate or junior in
right of payment to the Notes either (i) solely in exchange for shares of
Qualified Capital Stock of the Company, or (ii) through the application of net
proceeds of a substantially concurrent sale for cash (other than to a Subsidiary
of the Company) of (A) shares of Qualified Capital Stock of the Company or (B)
Refinancing Indebtedness; (4) the repurchase by the Company of shares of its
Common Stock in connection with the repurchase provisions of the ESOP as in
effect on the Issue Date (subject to changes in the ESOP to reflect requirements
of ERISA or other applicable laws); and (5) payments by the Company in respect
of (A) the repurchase by the Company of Common Stock from former employees,
officers and directors of the Company, (B) the payment by the Company of up to
$2.5 million in withholding and or payroll taxes upon the lapse of deferrals of
deferred stock and stock equivalent accounts and (C) the Company's obligation to
repurchase 125,714 shares of Common Stock issued in connection with the
Company's acquisition of Technology Applications, Inc., in an aggregate amount
not to exceed $3.0 million in any calendar year (provided that if less than $3.0
million is used for payments pursuant to (A), (B) and (C) in any calendar year,
the difference may be carried forward and used in subsequent calendar years) and
(6) the repurchase by the Company within 30 days of the Issue Date of up to
389,724 shares of Common Stock and Common Stock Warrants which are beneficially
owned by Guaranty National Insurance Company and Security Insurance Company in
an aggregate amount not to exceed $7.9 million. In determining the aggregate
amount of Restricted Payments made subsequent to the Issue Date in accordance
with clause (iii) of the immediately preceding paragraph, amounts expended
pursuant to clauses (1), (2), (4), and (5) shall be included in such
calculation; provided that amounts received by the Company from the sale by the
Company of Common Stock to the ESOP that constitute Disqualified Capital Stock
shall be credited against the amounts calculated pursuant to clause (4) above
for the purpose of such calculation.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an officers' certificate stating that such Restricted
Payment complies with the Indenture and setting forth in reasonable detail the
basis upon which the required calculations were computed, which calculations may
be based upon the Company's latest available internal quarterly financial
statements.
Limitation on Asset Sales. The Company will not, and will not permit any of
its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company
or the applicable 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 (as determined in good faith
by the Company's Board of Directors), (ii) at least 80% of the consideration
received by the Company or the Restricted Subsidiary, as the case may be, from
such Asset Sale shall be in the form of cash or Cash Equivalents and is received
at the time of such disposition; and (iii) upon the consummation of an Asset
Sale, the Company shall apply, or cause such Restricted Subsidiary to apply, the
Net Cash Proceeds relating to such Asset Sale within 365 days of receipt thereof
either (A) to prepay any Senior Debt and, in the case of any Senior Debt under
any revolving credit facility, effect a permanent reduction in the availability
under such revolving credit facility, (B) to make an investment in properties
and assets that replace the properties and assets that were the subject of such
Asset Sale or in properties and assets that will be used in the business of the
Company and its Subsidiaries as existing on the Issue Date or in businesses
reasonably related thereto ("Replacement Assets"), or (C) a combination of
prepayment and investment permitted by the foregoing clauses (iii)(A) and
(iii)(B). On the 366th day after an Asset Sale or such earlier date, if any, as
the Board of Directors of the Company or of such Restricted Subsidiary
determines not to apply the Net Cash Proceeds relating to such Asset Sale as set
forth in clauses (iii)(A), (iii)(B) and (iii)(C) of the next preceding sentence
(each, a "Net Proceeds Offer Trigger Date"), such aggregate amount of Net Cash
Proceeds which have not been applied on or before such Net Proceeds Offer
Trigger Date as permitted in clauses (iii)(A), (iii)(B) and (iii)(C) of the next
preceding sentence (each a "Net Proceeds Offer Amount") shall be applied by the
Company or such Restricted Subsidiary to make an offer to purchase (the "Net
Proceeds Offer") on a date (the "Net Proceeds Offer Payment Date") not less than
30 nor more than 45 days following the applicable Net Proceeds Offer Trigger
Date, from all Holders on a pro rata basis, that amount of Notes equal to the
Net Proceeds Offer Amount at a price equal to 100% of the principal amount of
the Notes to be purchased, plus accrued interest thereon to the
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date of purchase; provided, however, that if at any time any non-cash
consideration received by the Company or any Restricted Subsidiary of the
Company, as the case may be, in connection with any Asset Sale is converted into
or sold or otherwise disposed of for cash (other than interest received with
respect to any such non-cash consideration), then such conversion or disposition
shall be deemed to constitute an Asset Sale hereunder and the Net Cash Proceeds
thereof shall be applied in accordance with this covenant. The Company may defer
the Net Proceeds Offer until there is an aggregate unutilized Net Proceeds Offer
Amount equal to or in excess of $5.0 million resulting from one or more Asset
Sales (at which time, the entire unutilized Net Proceeds Offer Amount, and not
just the amount in excess of $5.0 million, shall be applied as required pursuant
to this paragraph).
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and its Restricted Subsidiaries as an
entirety to a Person in a transaction permitted under "-- Merger, Consolidation
and Sale of Assets," the successor corporation shall be deemed to have sold the
properties and assets of the Company and its Restricted Subsidiaries not so
transferred for purposes of this covenant, and shall comply with the provisions
of this covenant with respect to such deemed sale as if it were an Asset Sale.
In addition, the fair market value of such properties and assets of the Company
or its Restricted Subsidiaries deemed to be sold shall be deemed to be Net Cash
Proceeds for purposes of this covenant.
Notwithstanding the two immediately preceding paragraphs, the Company and
its Restricted Subsidiaries will be permitted to consummate an Asset Sale
without complying with such paragraphs to the extent (i) at least 80% of the
consideration for such Asset Sale constitutes Replacement Assets and (ii) such
Asset Sale is for fair market value; provided that any consideration not
constituting Replacement Assets received by the Company or any of its Restricted
Subsidiaries in connection with any Asset Sale permitted to be consummated under
this paragraph shall constitute Net Cash Proceeds subject to the provisions of
the two preceding paragraphs.
Each Net Proceeds Offer will be mailed to the record Holders as shown on
the register of Holders within 25 days following the Net Proceeds Offer Trigger
Date, with a copy to the Trustee, and shall comply with the procedures set forth
in the Indenture. Upon receiving notice of the Net Proceeds Offer, Holders may
elect to tender their Notes in whole or in part in integral multiples of $1,000
in exchange for cash. To the extent Holders properly tender Notes in an amount
exceeding the Net Proceeds Offer Amount, Notes of tendering Holders will be
purchased on a pro rata basis (based on amounts tendered). A Net Proceeds Offer
shall remain open for a period of 20 business days or such longer period as may
be required by law.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the
provisions of any securities laws or regulations conflict with the "Asset Sale"
provisions of the Indenture, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the "Asset Sale" provisions of the Indenture by virtue
thereof.
Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
permit to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary of the Company to (a) pay dividends or make
any other distributions on or in respect of its Capital Stock; (b) make loans or
advances or to pay any Indebtedness or other obligation owed to the Company or
any other Restricted Subsidiary of the Company; or (c) transfer any of its
property or assets to the Company or any other Restricted Subsidiary of the
Company, except (i) with respect to Restricted Subsidiaries which are Permitted
Joint Ventures for such restrictions described in clause (b) or (c) above which
require such Restricted Subsidiary to effect such payment, loan, advance or
transfer on terms that are no less favorable than those that might reasonably
have been obtained in a comparable transaction at such time on an arm's length
basis from a Person that is not an Affiliate of such Restricted Subsidiary and
(ii) except for such encumbrances or restrictions existing under or by reason
of: (1) applicable law; (2) the Indenture; (3) the New Securitization Facility
and the Revolving Credit Facility; (4) customary nonassignment provisions of any
contract or any lease governing a leasehold interest of any Restricted
Subsidiary of the Company; (5) any instrument governing Acquired Indebtedness,
which encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person or the properties or
assets of the Person so acquired; (6) agreements existing on the Issue Date to
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the extent and in the manner such agreements are in effect on the Issue Date;
(7) any instrument governing Indebtedness incurred by a Permitted Joint Venture
or any instrument or agreement governing a Permitted Joint Venture (but only to
the extent such instrument or agreement does not restrict payments of dividends
or other distributions made pursuant to clause (b) above out of earnings and
profits of such Permitted Joint Venture); or (8) an agreement governing
Indebtedness incurred to Refinance the Indebtedness issued, assumed or incurred
pursuant to an agreement referred to in clause (2), (3), (5) or (6) above;
provided, however, that the provisions relating to such encumbrance or
restriction contained in any such Indebtedness are no less favorable to the
Company in any material respect as determined by the Board of Directors of the
Company in their reasonable and good faith judgment than the provisions relating
to such encumbrance or restriction contained in agreements referred to in such
clause (2), (3), (5) or (6).
Limitation on Preferred Stock of Restricted Subsidiaries. The Company will
not permit any of its Restricted Subsidiaries to issue any Preferred Stock
(other than to the Company or to a Wholly Owned Restricted Subsidiary of the
Company) or permit any Person (other than the Company or a Wholly Owned
Restricted Subsidiary of the Company) to own any Preferred Stock of any
Restricted Subsidiary of the Company.
Limitation on Liens. The Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
suffer to exist any Liens of any kind against or upon any property or assets of
the Company or any of its Restricted Subsidiaries whether owned on the Issue
Date or acquired after the Issue Date, or any proceeds therefrom, or assign or
otherwise convey any right to receive income or profits therefrom unless (i) in
the case of Liens securing Indebtedness that is expressly subordinate or junior
in right of payment to the Notes, the Notes are secured by a Lien on such
property, assets or proceeds that is senior in priority to such Liens and (ii)
in all other cases, the Notes are equally and ratably secured, except for (A)
Liens existing as of the Issue Date to the extent and in the manner such Liens
are in effect on the Issue Date; (B) Liens securing Senior Debt; (C) Liens
securing the Notes; (D) Liens of the Company or a Wholly Owned Restricted
Subsidiary of the Company on assets of any Subsidiary of the Company; (E) Liens
securing Refinancing Indebtedness which is incurred to Refinance Indebtedness
which has been secured by a Lien permitted under the Indenture and which has
been incurred in accordance with the provisions of the Indenture; provided,
however, that such Liens (A) are no less favorable to the Holders and are not
more favorable to the lienholders with respect to such Liens than the Liens in
respect of the Indebtedness being Refinanced and (B) do not extend to or cover
any property or assets of the Company or any of its Restricted Subsidiaries not
securing the Indebtedness so Refinanced; and (F) Permitted Liens.
Prohibition on Incurrence of Senior Subordinated Debt. The Company will not
incur or suffer to exist Indebtedness that is senior in right of payment to the
Notes and subordinate in right of payment to any other Indebtedness of the
Company.
Merger, Consolidation and Sale of Assets. The Company will not, in a single
transaction or series of related transactions, consolidate or merge with or into
any Person, or sell, assign, transfer, lease, convey or otherwise dispose of (or
cause or permit any Restricted Subsidiary of the Company to sell, assign,
transfer, lease, convey or otherwise dispose of) all or substantially all of the
Company's assets (determined on a consolidated basis for the Company and the
Company's Restricted Subsidiaries) whether as an entirety or substantially as an
entirety to any Person unless: (i) either (1) the Company shall be the surviving
or continuing corporation or (2) the Person (if other than the Company) formed
by such consolidation or into which the Company is merged or the Person which
acquires by sale, assignment, transfer, lease, conveyance or other disposition
the properties and assets of the Company and of the Company's Restricted
Subsidiaries substantially as an entirety (the 'surviving Entity") (x) shall be
a corporation organized and validly existing under the laws of the United States
or any State thereof or the District of Columbia and (y) shall expressly assume,
by supplemental indenture (in form and substance satisfactory to the Trustee),
executed and delivered to the Trustee, the due and punctual payment of the
principal of, and premium, if any, and interest on all of the Notes and the
performance of every covenant of the Notes, the Indenture and the Registration
Rights Agreement on the part of the Company to be performed or observed; (ii)
immediately after giving effect to such transaction and the assumption
contemplated by clause (i)(2)(y) above (including giving effect to any
Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in
connection with or in respect of such transaction), the Company or such
Surviving Entity, as the case may be, (1) shall have a Consolidated Net Worth
equal to or greater than the Consolidated Net Worth of the Company immediately
prior to such transaction and (2) shall be able to incur at least $1.00 of
additional
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Indebtedness (other than Permitted Indebtedness) pursuant to the "-- Limitation
on Incurrence of Additional Indebtedness" covenant; (iii) immediately before and
immediately after giving effect to such transaction and the assumption
contemplated by clause (i)(2)(y) above (including, without limitation, giving
effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to
be incurred and any Lien granted in connection with or in respect of the
transaction), no Default or Event of Default shall have occurred or be
continuing; and (iv) the Company or the Surviving Entity, as the case may be,
shall have delivered to the Trustee an officers' certificate and an opinion of
counsel, each stating that such consolidation, merger, sale, assignment,
transfer, lease, conveyance or other disposition and, if a supplemental
indenture is required in connection with such transaction, such supplemental
indenture comply with the applicable provisions of the Indenture and that all
conditions precedent in the Indenture relating to such transaction have been
satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties and assets of one or more Restricted
Subsidiaries of the Company the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
The Indenture provides that upon any consolidation, combination or merger
or any transfer of all or substantially all of the assets of the Company in
accordance with the foregoing, in which the Company is not the continuing
corporation, the successor Person formed by such consolidation or into which the
Company is merged or to which such conveyance, lease or transfer is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture and the Notes with the same effect as if such
surviving entity had been named as such.
Limitations on Transactions with Affiliates.
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into or permit to exist any
transaction or series of related transactions (including, without
limitation, the purchase, sale, lease or exchange of any property or the
rendering of any service) with, or for the benefit of, any of its
Affiliates (each an "Affiliate Transaction"), other than (x) Affiliate
Transactions permitted under paragraph (b) below and (y) Affiliate
Transactions on terms that are no less favorable than those that might
reasonably have been obtained in a comparable transaction at such time on
an arm's-length basis from a Person that is not an Affiliate of the Company
or such Restricted Subsidiary. All Affiliate Transactions (and each series
of related Affiliate Transactions which are similar or part of a common
plan) involving aggregate payments or other property with a fair market
value in excess of $250,000 shall be approved by the Board of Directors of
the Company or such Restricted Subsidiary, as the case may be, such
approval to be evidenced by a Board Resolution stating that such Board of
Directors has determined that such transaction complies with the foregoing
provisions. If the Company or any Restricted Subsidiary of the Company
enters into an Affiliate Transaction (or a series of related Affiliate
Transactions related to a common plan) that involves an aggregate fair
market value or payments to an Affiliate, as the case may be, of more than
$2.5 million, the Company or such Restricted Subsidiary, as the case may
be, shall, prior to the consummation thereof, obtain a favorable opinion as
to the fairness of such transaction or series of related transactions to
the Company or the relevant Restricted Subsidiary, as the case may be, from
a financial point of view, from an Independent Financial Advisor and file
the same with the Trustee.
(b) The restrictions set forth in clause (a) shall not apply to (i)
reasonable fees and compensation paid to and indemnity provided on behalf
of, officers, directors, employees or consultants of the Company or any
Restricted Subsidiary of the Company as determined in good faith by the
Company's Board of Directors or senior management; (ii) transactions
exclusively between or among the Company and any of its Restricted
Subsidiaries or exclusively between or among such Restricted Subsidiaries,
provided such transactions are not otherwise prohibited by the Indenture;
(iii) transactions exclusively between or among the Company and any of its
Restricted Subsidiaries on the one hand and any Permitted Joint Venture on
the other hand, so long as no portion of the remaining interest in the
Permitted Joint Venture is owned by a Person who is an Affiliate of the
Company (other than another Restricted Subsidiary of the Company); (iv) any
agreement as in effect as of the Issue Date or any amendment thereto or any
transaction contemplated thereby (including pursuant to any amendment
thereto) in any replacement agreement thereto so long as any such amendment
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or replacement agreement is not more disadvantageous to the Holders in any
material respect than the original agreement as in effect on the Issue
Date; (v) Restricted Payments permitted by the Indenture; and (vi)
transactions pursuant to the New Securitization Facility. In addition,
transactions between the Company and the ESOP or any other of the Company's
benefit plans shall not be considered Affiliate Transactions for purposes
of the Indenture.
Limitation of Guarantees by Restricted Subsidiaries. The Company will not
permit any of its Restricted Subsidiaries, directly or indirectly, by way of the
pledge of any intercompany note or otherwise, to assume, guarantee or in any
other manner become liable with respect to any Indebtedness of the Company or
any other Restricted Subsidiary (other than (A) Indebtedness and other
obligations under the Revolving Credit Facility, (B) Permitted Indebtedness of a
Restricted Subsidiary, (C) Indebtedness under Currency Agreements in reliance on
clause (vi) of the definition of Permitted Indebtedness, or (D) Interest Swap
Obligations incurred in reliance on clause (v) of the definition of Permitted
Indebtedness), unless, in any such case (a) such Restricted Subsidiary executes
and delivers a supplemental indenture to the Indenture, providing a guarantee of
payment of the Notes by such Restricted Subsidiary (the "Guarantee") and (b) (x)
if any such assumption, guarantee or other liability of such Restricted
Subsidiary is provided in respect of Senior Debt, the guarantee or other
instrument provided by such Restricted Subsidiary in respect of such Senior Debt
may be superior to the Guarantee pursuant to subordination provisions no less
favorable to the Holders of the Notes than those contained in the Indenture and
(y) if such assumption, guarantee or other liability of such Restricted
Subsidiary is provided in respect of Indebtedness that is expressly subordinated
to the Notes, the guarantee or other instrument provided by such Restricted
Subsidiary in respect of such subordinated Indebtedness shall be subordinated to
the Guarantee pursuant to subordination provisions no less favorable to the
Holders of the Notes than those contained in the Indenture. Further, the Company
will cause any Restricted Subsidiary that incurs in excess of $1.0 million of
Restricted Subsidiary Indebtedness (a "Borrowing Restricted Subsidiary") to
become a Subsidiary Guarantor, unless at the time such Restricted Subsidiary
becomes a Borrowing Restricted Subsidiary the total investment of the Company
and the Restricted Subsidiaries in such Borrowing Restricted Subsidiary and in
all other Borrowing Restricted Subsidiaries that are not Subsidiary Guarantors,
computed in accordance with GAAP, is less than 10% of the Total Tangible Assets
of the Company. A Borrowing Restricted Subsidiary shall be released as a
Subsidiary Guarantor (i) at such time as it ceases to be a Borrowing Restricted
Subsidiary or (ii) upon the election of the Company, if after giving effect to
such election, the total investment of the Company and the Restricted
Subsidiaries in all Borrowing Restricted Subsidiaries that are not Subsidiary
Guarantors, computed in accordance with GAAP, is less than 10% of the Total
Tangible Assets of the Company.
Notwithstanding the foregoing, any such Guarantee by a Restricted
Subsidiary of the Notes shall provide by its terms that it shall be
automatically and unconditionally released and discharged, without any further
action required on the part of the Trustee or any Holder, upon: (i) the
unconditional release of such Restricted Subsidiary from its liability in
respect of the Indebtedness in connection with which such Guarantee was executed
and delivered pursuant to the preceding paragraph; or (ii) any sale or other
disposition (by merger or otherwise) to any Person which is not a Restricted
Subsidiary of the Company of all of the Company's Capital Stock in, or all or
substantially all of the assets of, such Restricted Subsidiary; provided that
(a) such sale or disposition of such Capital Stock or assets is otherwise in
compliance with the terms of the Indenture and (b) such assumption, guarantee or
other liability of such Restricted Subsidiary has been released by the holders
of the other Indebtedness so guaranteed.
Reports to Holders. The Indenture provides that the Company will deliver to
the Trustee within 15 days after the filing of the same with the Commission,
copies of the quarterly and annual reports and of the information, documents and
other reports, if any, which the Company is required to file with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act. The Indenture further
provides that, notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
will file with the Commission, to the extent permitted, and provide the Trustee
and Holders with such annual reports and such information, documents and other
reports specified in Sections 13 and 15(d) of the Exchange Act. The Company will
also comply with the other provisions of TIA Section 314(a).
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EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) the failure to pay interest on any Notes when the same becomes due
and payable and the Default continues for a period of 30 days (whether or
not such payment shall be prohibited by the subordination provisions of the
Indenture);
(ii) the failure to pay the principal on any Notes, when such
principal becomes due and payable, at maturity, upon redemption or
otherwise (including the failure to make a payment to purchase Notes
tendered pursuant to a Change of Control Offer or a Net Proceeds Offer)
(whether or not such payment shall be prohibited by the subordination
provisions of the Indenture);
(iii) a default in the observance or performance of any other covenant
or agreement contained in the Indenture which default continues for a
period of 30 days after the Company receives written notice specifying the
default (and demanding that such default be remedied) from the Trustee or
the Holders of at least 25% of the outstanding principal amount of the
Notes (except in the case of a default with respect to the "Merger,
Consolidation and Sale of Assets" covenant, which will constitute an Event
of Default with such notice requirement but without such passage of time
requirement);
(iv) the failure to pay at final stated maturity (giving effect to any
applicable grace periods and any extensions thereof) the principal amount
of any Indebtedness of the Company or any Restricted Subsidiary of the
Company, or the acceleration of the final stated maturity of any such
Indebtedness if the aggregate principal amount of such Indebtedness,
together with the principal amount of any other such Indebtedness in
default for failure to pay principal at final stated maturity or which has
been accelerated, aggregates $2.5 million or more at any time;
(v) one or more judgments in an aggregate amount in excess of $2.5
million shall have been rendered against the Company or any of its
Restricted Subsidiaries and such judgments remain undischarged, unpaid or
unstayed for a period of 60 days after such judgment or judgments become
final and non-appealable; or
(vi) certain events of bankruptcy affecting the Company or any of its
Significant Subsidiaries.
If an Event of Default (other than an Event of Default specified in clause (vi)
above with respect to the Company) shall occur and be continuing, the Trustee or
the Holders of at least 25% in principal amount of outstanding Notes may declare
the principal of and accrued interest on all the Notes to be due and payable by
notice in writing to the Company and the Trustee specifying the respective Event
of Default and that it is a "notice of acceleration" (the "Acceleration
Notice"), and the same (i) shall become immediately due and payable or (ii) if
there are any amounts outstanding under the Revolving Credit Facility, shall
become immediately due and payable upon the first to occur of an acceleration
under the Revolving Credit Facility or 5 business days after receipt by the
Company and the Representative under the Revolving Credit Facility of such
Acceleration Notice. If an Event of Default specified in clause (vi) above
occurs and is continuing with respect to the Company, then all unpaid principal
of, and premium, if any, and accrued and unpaid interest on all of the
outstanding Notes shall ipso facto become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any Holder.
The Indenture provides that, at any time after a declaration of
acceleration with respect to the Notes as described in the preceding paragraph,
the Holders of a majority in principal amount of the Notes may rescind and
cancel such declaration and its consequences (i) if the rescission would not
conflict with any judgment or decree, (ii) if all existing Events of Default
have been cured or waived except nonpayment of principal or interest that has
become due solely because of the acceleration, (iii) to the extent the payment
of such interest is lawful, interest on overdue installments of interest and
overdue principal, which has become due otherwise than by such declaration of
acceleration, has been paid, (iv) if the Company has paid the Trustee its
reasonable compensation and reimbursed the Trustee for its expenses,
disbursements and advances and (v) in the event of the cure or waiver of an
Event of Default of the type described in clause (vi) of the description above
of Events of Default, the Trustee shall have received an officers' certificate
and an opinion of counsel that such Event of Default has been cured or waived.
No such rescission shall affect any subsequent Default or impair any right
consequent thereto.
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The Holders of a majority in principal amount of the Notes may waive any
existing Default or Event of Default under the Indenture, and its consequences,
except a default in the payment of the principal of or interest on any Notes.
Under the terms of the Indenture, a holder of the Notes may not pursue any
remedy with respect to the Indenture or Notes unless (i) the holder gives to the
Trustee written notice of a continuing Event of Default (as defined); (ii) the
holders of at least 25% in principal amount of the outstanding Notes make a
written request to the Trustee to pursue the remedy; (iii) such holders offer to
the Trustee indemnity; (iv) the Trustee does not comply with the request within
45 days of receipt of the request and offer of indemnity; and (v) during the
45-day period the holders of a majority in principal amount of the outstanding
Notes do not give the Trustee a direction which, in the opinion of the Trustee,
is inconsistent with the request. Such limitations do not apply, however, to a
suit instituted by a holder of a Note for the enforcement of the payment of the
principal of, premium, if any, or accrued interest on, such Note on or after the
respective due dates expressed in such Note.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture and under the TIA. Subject to the provisions of the
Indenture relating to the duties of the Trustee, the Trustee is under no
obligation to exercise any of its rights or powers under the Indenture at the
request, order or direction of any of the Holders, unless such Holders have
offered to the Trustee reasonable indemnity. Subject to all provisions of the
Indenture and applicable law, the Holders of a majority in aggregate principal
amount of the then outstanding Notes have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on the Trustee.
Under the Indenture, the Company is required to provide an officers'
certificate to the Trustee promptly upon any such officer obtaining knowledge of
any Default or Event of Default (provided that such officers shall provide such
certification at least annually whether or not they know of any Default or Event
of Default) that has occurred and, if applicable, describe such Default or Event
of Default and the status thereof.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance"). Such Legal Defeasance means that the Company shall be deemed to
have paid and discharged the entire Indebtedness represented by the outstanding
Notes, except for (i) the rights of Holders to receive payments in respect of
the principal of and interest on the Notes when such payments are due, (ii) the
Company's obligations with respect to the Notes concerning issuing temporary
Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the
maintenance of an office or agency for payments, (iii) the rights, powers,
trust, duties and immunities of the Trustee and the Company's obligations in
connection therewith and (iv) the Legal Defeasance and Covenant Defeasance (as
defined below) provisions of the Indenture. In addition, the Company may, at its
option and at any time, elect to have the obligations of the Company released
with respect to certain covenants that are described in the Indenture ("Covenant
Defeasance") and thereafter any omission to comply with such obligations shall
not constitute a Default or Event of Default with respect to the Notes. In the
event Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, reorganization and insolvency events) described under
"Events of Default" will no longer constitute an Event of Default with respect
to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders cash in U.S. dollars, U.S. government obligations, or a
combination thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on the Notes on the stated date for
payment thereof or on the applicable redemption date, as the case may be; (ii)
in the case of Legal Defeasance, the Company shall have delivered to the Trustee
an opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that (A) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling or (B) since the date of the
Indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such Legal Defeasance had not occurred; (iii) in
the
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case of Covenant Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be subject
to federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and be continuing on the
date of such deposit or insofar as Events of Default from bankruptcy or
insolvency events are concerned, at any time in the period ending on the 91st
day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance
shall not result in a breach or violation of, or constitute a default under the
Indenture or any other material agreement or instrument to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound; (vi) the Company shall have delivered to the Trustee an
officers' certificate stating that the deposit was not made by the Company with
the intent of preferring the Holders over any other creditors of the Company or
with the intent of defeating, hindering, delaying or defrauding any other
creditors of the Company or others; (vii) the Company shall have delivered to
the Trustee an officers' certificate and an opinion of counsel, each stating
that all conditions precedent provided for or relating to the Legal Defeasance
or the Covenant Defeasance have been complied with; (viii) the Company shall
have delivered to the Trustee an opinion of counsel to the effect that (A) the
trust funds will not be subject to any rights of holders of Senior Debt,
including, without limitation, those arising under the Indenture and (B) after
the 91st day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally; and (ix) certain other customary
conditions precedent are satisfied.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the Company
or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company has irrevocably
deposited or caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire Indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for principal of,
premium, if any, and interest on the Notes to the date of deposit together with
irrevocable instructions from the Company directing the Trustee to apply such
funds to the payment thereof at maturity or redemption, as the case may be; (ii)
the Company has paid all other sums payable under the Indenture by the Company;
and (iii) the Company has delivered to the Trustee an officers' certificate and
an opinion of counsel stating that all conditions precedent under the Indenture
relating to the satisfaction and discharge of the Indenture have been complied
with.
MODIFICATION OF THE INDENTURE
From time to time, the Company and the Trustee, without the consent of the
Holders, may amend the Indenture for certain specified purposes, including
curing ambiguities, defects or inconsistencies, so long as such change does not,
in the opinion of the Trustee, adversely affect the rights of any of the Holders
in any material respect. In formulating its opinion on such matters, the Trustee
will be entitled to rely on such evidence as it deems appropriate, including,
without limitation, solely on an opinion of counsel. Other modifications and
amendments of the Indenture may be made with the consent of the Holders of a
majority in principal amount of the then outstanding Notes issued under the
Indenture, except that, without the consent of each Holder affected thereby, no
amendment may: (i) reduce the amount of Notes whose Holders must consent to an
amendment; (ii) reduce the rate of or change or have the effect of changing the
time for payment of interest, including defaulted interest, on any Notes; (iii)
reduce the principal of or change or have the effect of changing the fixed
maturity of any Notes, or change the date on which any Notes may be subject to
redemption or repurchase, or reduce the redemption or repurchase price therefor;
(iv) make any Notes payable in money other than that stated in the Notes; (v)
make any change in provisions of the Indenture protecting the right of each
Holder to receive payment of principal of and interest on such Note on or after
the due date thereof or to bring suit to enforce such payment, or permitting
Holders of a majority in principal amount of Notes to waive Defaults or Events
of
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Default; (vi) amend, change or modify in any material respect the obligation of
the Company to make and consummate a Change of Control Offer in the event of a
Change of Control or make and consummate a Net Proceeds Offer with respect to
any Asset Sale that has been consummated or modify any of the provisions or
definitions with respect thereto; (vii) modify or change any provision of the
Indenture or the related definitions affecting the subordination or ranking of
the Notes in a manner which adversely affects the Holders; or (viii) amend,
modify, change or waive any of the above provisions.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York but without
giving effect to applicable principles of conflicts of law to the extent that
the application of the law of another jurisdiction would be required thereby.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. During the existence of an Event of Default, the Trustee will
exercise such rights and powers vested in it by the Indenture, and use the same
degree of care and skill in its exercise as a prudent man would exercise or use
under the circumstances in the conduct of his own affairs.
The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of the Company, to obtain
payments of claims in certain cases or to realize on certain property received
in respect of any such claim as security or otherwise. Subject to the TIA, the
Trustee will be permitted to engage in other transactions; provided that if the
Trustee acquires any conflicting interest as described in the TIA, it must
eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of
the Company or at the time it merges or consolidates with the Company or any of
its Subsidiaries or assumed in connection with the acquisition of assets from
such Person and in each case not incurred by such Person in connection with, or
in anticipation or contemplation of, such Person becoming a Restricted
Subsidiary of the Company or such acquisition, merger or consolidation.
"Affiliate" means, with respect to any specified Person, any other Person
who directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative of the foregoing.
"Asset Acquisition" means (a) an Investment by the Company or any
Restricted Subsidiary of the Company in any other Person pursuant to which such
Person shall become a Restricted Subsidiary of the Company or any Restricted
Subsidiary of the Company, or shall be merged with or into the Company or any
Restricted Subsidiary of the Company, or (b) the acquisition by the Company or
any Restricted Subsidiary of the Company of the assets of any Person (other than
a Restricted Subsidiary of the Company) which constitute all or substantially
all of the assets of such Person or comprises any division or line of business
of such Person or any other properties or assets of such Person other than in
the ordinary course of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other transfer for value by the Company or any of
its Restricted Subsidiaries (including any Sale and Leaseback Transaction,
excluding any such transaction consummated within 180 days after the purchase of
assets sold if the proceeds of the transaction are used to pay
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all or a portion of such transaction) to any Person other than the Company, a
Wholly Owned Restricted Subsidiary of the Company or any Permitted Joint Venture
of (a) any Capital Stock of any Restricted Subsidiary of the Company; or (b) any
other property or assets of the Company or any Restricted Subsidiary of the
Company other than in the ordinary course of business; provided, however, that
Asset Sales shall not include (i) a transaction or series of related
transactions for which the Company or its Restricted Subsidiaries receive
aggregate consideration of less than $250,000, (ii) the sale, lease, conveyance,
disposition or other transfer of all or substantially all of the assets of the
Company as permitted under the "Merger, Consolidation and Sale of Assets"
covenant, or (iii) the sale, conveyance or other transfer of accounts receivable
in connection with the New Securitization Facility.
"Board of Directors" means, as to any Person, the board of directors of
such Person or any duly authorized committee thereof.
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Capitalized Lease Obligation" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"Capital Stock" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated and whether or not voting) of corporate stock, including each class
of Common Stock and Preferred Stock of such Person and (ii) with respect to any
Person that is not a corporation, any and all partnership or other equity
interests of such Person.
"Cash Equivalents" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more
than one year from the date of creation thereof and, at the time of acquisition,
having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv)
domestic and Eurodollar certificates of deposit and time deposits, bankers'
acceptances and floating rate certificates of deposit maturing within one year
from the date of acquisition thereof issued by any bank organized under the laws
of the United States of America or any state thereof, the District of Columbia,
any foreign bank or their branches and agencies (fully protected against
currency fluctuations), having at the date of acquisition thereof combined
capital and surplus of not less than $250,000,000; (v) repurchase obligations
with a term of not more than 180 days for underlying securities of the types
described in clause (i) above entered into with any bank meeting the
qualifications specified in clause (iv) above; and (vi) investments in money
market funds which invest substantially all their assets in securities of the
types described in clauses (i) through (v) above.
"Change of Control" means the occurrence of one or more of the following
events: (i) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets of the
Company to any Person or group of related Persons for purposes of Section 13(d)
of the Exchange Act (a "Group"), together with any Affiliates thereof (whether
or not otherwise in compliance with the provisions of the Indenture); (ii) the
approval by the holders of Capital Stock of the Company of any plan or proposal
for the liquidation or dissolution of the Company (whether or not otherwise in
compliance with the provisions of the Indenture); (iii) any Person or Group
(other than the Permitted Holder) shall become the owner, directly or
indirectly, beneficially or of record, of shares representing more than 40% of
the aggregate ordinary voting power represented by the issued and outstanding
Capital Stock of the Company; or (iv) the replacement of a majority of the Board
of Directors of the Company over a two-year period from the directors who
constituted the Board of Directors of the Company at the beginning of such
period, and such replacement shall not have been approved by a vote of at least
a majority of the Board of Directors of the Company then still in office who
either
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were members of such Board of Directors at the beginning of such period or whose
election as a member of such Board of Directors was previously so approved.
"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of such Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"Consolidated EBITDA" means, with respect to any Person, for any period,
the sum (without duplication) of (i) Consolidated Net Income and (ii) to the
extent Consolidated Net Income has been reduced thereby, (A) all income taxes of
such Person and its Restricted Subsidiaries paid or accrued in accordance with
GAAP for such period (other than income taxes attributable to extraordinary,
unusual or nonrecurring gains or losses or taxes attributable to sales or
dispositions outside the ordinary course of business), (B) Consolidated Interest
Expense and (C) Consolidated Non-cash Charges less Consolidated Non-cash Income
for such period, all as determined on a consolidated basis for such Person and
its Restricted Subsidiaries in accordance with GAAP. When calculating
"Consolidated EBITDA" with respect to the Company, for purposes of this
definition only, the Securitization Entity shall be treated as a Restricted
Subsidiary.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters (the "Four Quarter Period") ending on or prior to the date of
the transaction giving rise to the need to calculate the Consolidated Fixed
Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of
such Person for the Four Quarter Period. In addition to and without limitation
of the foregoing, for purposes of this definition, "Consolidated EBITDA" and
"Consolidated Fixed Charges" shall be calculated after giving effect on a pro
forma basis for the period of such calculation to (i) the incurrence or
repayment of any Indebtedness of such Person or any of its Restricted
Subsidiaries (and the application of the proceeds thereof) giving rise to the
need to make such calculation and any incurrence or repayment of other
Indebtedness (and the application of the proceeds thereof), other than the
incurrence or repayment of Indebtedness in the ordinary course of business for
working capital purposes pursuant to working capital facilities, occurring
during the Four Quarter Period or at any time subsequent to the last day of the
Four Quarter Period and on or prior to the Transaction Date, as if such
incurrence or repayment, as the case may be (and the application of the proceeds
thereof), occurred on the first day of the Four Quarter Period and (ii) any
Asset Sales or Asset Acquisitions (including, without limitation, any Asset
Acquisition giving rise to the need to make such calculation as a result of such
Person or one of its Restricted Subsidiaries (including any Person who becomes a
Restricted Subsidiary as a result of the Asset Acquisition) incurring, assuming
or otherwise being liable for Acquired Indebtedness and also including any
Consolidated EBITDA (provided that such Consolidated EBITDA shall be included
only to the extent includable pursuant to the definition of "Consolidated Net
Income") attributable to the assets which are the subject of the Asset
Acquisition or Asset Sale during the Four Quarter Period) occurring during the
Four Quarter Period or at any time subsequent to the last day of the Four
Quarter Period and on or prior to the Transaction Date, as if such Asset Sale or
Asset Acquisition (including the incurrence, assumption or liability for any
such Acquired Indebtedness) occurred on the first day of the Four Quarter
Period. If such Person or any of its Restricted Subsidiaries directly or
indirectly guarantees Indebtedness of a third Person, the preceding sentence
shall give effect to the incurrence of such guaranteed Indebtedness as if such
Person or any Restricted Subsidiary of such Person had directly incurred or
otherwise assumed such guaranteed Indebtedness. Furthermore, in calculating
"Consolidated Fixed Charges" for purposes of determining the denominator (but
not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1)
interest on outstanding Indebtedness determined on a fluctuating basis as of the
Transaction Date and which will continue to be so determined thereafter shall be
deemed to have accrued at a fixed rate per annum equal to the rate of interest
on such Indebtedness in effect on the Transaction Date; (2) if interest on any
Indebtedness actually incurred on the Transaction Date may optionally be
determined at an interest rate based upon a factor of a prime or similar rate, a
eurocurrency interbank offered rate, or other rates, then the interest rate in
effect on the Transaction Date will be deemed to have been in effect during the
Four Quarter Period; and (3) notwithstanding clause (1) above, interest on
Indebtedness determined on a fluctuating basis, to the extent such interest is
covered by agreements relating to Interest Swap Obligations, shall be deemed to
accrue at the rate per annum resulting after giving effect to the operation of
such agreements.
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"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (i) Consolidated Interest Expense, plus
(ii) the product of (x) the amount of all dividend payments on any series of
Preferred Stock of such Person (other than dividends paid in Qualified Capital
Stock) paid, accrued or scheduled to be paid or accrued during such period times
(y) a fraction, the numerator of which is one and the denominator of which is
one minus the then current effective consolidated federal, state and local tax
rate of such Person, expressed as a decimal.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum of, without duplication: (i) the aggregate of the interest
expense of such Person and its Restricted Subsidiaries and Permitted Joint
Ventures for such period determined on a consolidated basis in accordance with
GAAP, including without limitation, (a) any amortization of debt discount and
amortization or write-off of deferred financing costs, (b) the net costs under
Interest Swap Obligations, (c) all capitalized interest and (d) the interest
portion of any deferred payment obligation; and (ii) the interest component of
Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or
accrued by such Person and its Restricted Subsidiaries and Permitted Joint
Ventures during such period as determined on a consolidated basis in accordance
with GAAP; provided that amounts to be included in clauses (i) and (ii) above
with respect to Permitted Joint Ventures not constituting Restricted
Subsidiaries shall be the product of the amounts computed in accordance with
GAAP and the percentage of the total outstanding shares of Capital Stock of such
Permitted Joint Venture held by the Company or any Restricted Subsidiary of the
Company. When calculating "Consolidated Interest Expense" with respect to the
Company, for purposes of this definition only the Securitization Entity shall be
treated as a Restricted Subsidiary.
"Consolidated Net Income" means, with respect to any Person, for any
period, the aggregate net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided that there shall be excluded therefrom (a) after-tax gains
from Asset Sales or abandonments or reserves relating thereto, (b) after-tax
items classified as extraordinary or nonrecurring gains, (c) the net income of
any Person acquired in a "pooling of interests" transaction accrued prior to the
date it becomes a Restricted Subsidiary of the referent Person or is merged or
consolidated with the referent Person or any Restricted Subsidiary of the
referent Person, (d) the net income (but not loss) of any Restricted Subsidiary
of the referent Person to the extent that the declaration of dividends or
similar distributions by that Restricted Subsidiary of that income is restricted
by a contract, operation of law or otherwise, (e) the net income of any other
Person, other than a Restricted Subsidiary of the referent Person, (except in
the case of (d) and (e) to the extent of cash dividends or distributions paid to
the referent Person or to a Wholly Owned Restricted Subsidiary of the referent
Person by such Person), (f) any restoration to income of any contingency
reserve, except to the extent that provision for such reserve was made out of
Consolidated Net Income accrued at any time following the Issue Date, (g) income
or loss attributable to discontinued operations (including, without limitation,
operations disposed of during such period whether or not such operations were
classified as discontinued), and (h) in the case of a successor to the referent
Person by consolidation or merger or as a transferee of the referent Person's
assets, any earnings of the successor corporation prior to such consolidation,
merger or transfer of assets. When calculating "Consolidated Net Income" with
respect to the Company, for purposes of this definition only the Securitization
Entity shall be treated as a Restricted Subsidiary.
"Consolidated Net Worth" of any Person means the consolidated stockholders'
equity of such Person, determined on a consolidated basis in accordance with
GAAP, less (without duplication) amounts attributable to Disqualified Capital
Stock of such Person.
"Consolidated Non-cash Charges" means, with respect to any Person, for any
period, the aggregate depreciation, amortization and other non-cash expenses of
such Person and its Restricted Subsidiaries reducing Consolidated Net Income of
such Person and its Restricted Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP (excluding any such charge
constituting an extraordinary item or loss or any such charge which requires an
accrual of or a reserve for cash charges for any future period). When
calculating "Consolidated Non-cash Charges" with respect to the Company, for
purposes of this definition only, the Securitization Entity shall be treated as
a Restricted Subsidiary.
"Consolidated Non-cash Income" means, with respect to any Person, for any
Period, the aggregate amount of revenue of such Person and its Restricted
Subsidiaries increasing the Consolidated Net Income of such Person and its
Restricted Subsidiaries that will not result in the future receipt of cash by
such Person and its Restricted
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Subsidiaries, determined on a consolidated basis in accordance with GAAP
(excluding any such revenue constituting an extraordinary item). When
calculating "Consolidated Non-cash Income" with respect to the Company, for
purposes of this definition only, the Securitization Entity shall be treated as
a Restricted Subsidiary.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary of the Company against fluctuations in
currency values.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.
"Designated Senior Debt" means (i) Indebtedness under or in respect of the
Revolving Credit Facility and (ii) any other Indebtedness constituting Senior
Debt which, at the time of determination, has an aggregate principal amount of
at least $25.0 million and is specifically designated in the instrument
evidencing such Senior Debt as "Designated Senior Debt" by the Company.
"Disqualified Capital Stock" means that portion of any Capital Stock which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the sole option of the holder thereof on or prior to the final
maturity date of the Notes. So long as the Company's obligation to repurchase
common stock pursuant to the ESOP exists, common stock issued to the ESOP shall
be Disqualified Capital Stock.
"ESOP" means the Company's Employee Stock Ownership Plan effective as of
January 1, 1988, as amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any successor statute or statutes thereto.
"fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Fair market value
shall be determined by the Board of Directors of the Company acting reasonably
and in good faith and shall be evidenced by a Board Resolution of the Board of
Directors of the Company delivered to the Trustee.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
"Indebtedness" means with respect to any Person, without duplication, (i)
all Obligations of such Person for borrowed money, (ii) all Obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all Capitalized Lease Obligations of such Person, (iv) all Obligations of such
Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations and all Obligations under any title retention
agreement (but excluding trade accounts payable and other accrued liabilities
arising in the ordinary course of business that are not overdue by 90 days or
more or are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted), (v) all Obligations for the reimbursement
of any obligor on any letter of credit, banker's acceptance or similar credit
transaction, (vi) guarantees and other contingent obligations in respect of
Indebtedness referred to in clauses (i) through (v) above and clause (viii)
below, (vii) all Obligations of any other Person of the type referred to in
clauses (i) through (vi) which are secured by any lien on any property or asset
of such Person, the amount of such Obligation being deemed to be the lesser of
the fair market value of such property or asset or the amount of the Obligation
so secured, (viii) all Obligations under Currency Agreements and Interest Swap
Agreements of such Person and (ix) all Disqualified Capital Stock issued by such
Person (other than Disqualified Capital Stock owned by the ESOP or any other
benefit plan) with the amount of Indebtedness represented by such Disqualified
Capital Stock being equal to the greater of its voluntary or involuntary
liquidation preference and its maximum fixed repurchase price, but
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excluding accrued dividends, if any. For purposes hereof, the "maximum fixed
repurchase price" of any Disqualified Capital Stock which does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Disqualified Capital Stock as if such Disqualified Capital Stock were purchased
on any date on which Indebtedness shall be required to be determined pursuant to
the Indenture, and if such price is based upon, or measured by, the fair market
value of such Disqualified Capital Stock, such fair market value shall be
determined reasonably and in good faith by the Board of Directors of the issuer
of such Disqualified Capital Stock.
"Independent Financial Advisor" means a firm (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.
"Interest Swap Obligations" means the obligations of any Person pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated by
applying a fixed or a floating rate of interest on the same notional amount and
shall include, without limitation, interest rate swaps, caps, floors, collars
and similar agreements.
"Investment" means, with respect to any Person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness issued
by, any Person. "Investment" shall exclude extensions of trade credit by the
Company and its Restricted Subsidiaries on commercially reasonable terms in
accordance with normal trade practices of the Company or such Restricted
Subsidiary, as the case may be. For the purposes of the "Limitation on
Restricted Payments" covenant, (i) "Investment" shall include and be valued at
the fair market value of the net assets of any Restricted Subsidiary at the time
that such Restricted Subsidiary is designated an Unrestricted Subsidiary and
shall exclude the fair market value of the net assets of any Unrestricted
Subsidiary at the time that such Unrestricted Subsidiary is designated a
Restricted Subsidiary and (ii) the amount of any Investment shall be the
original cost of such Investment plus the cost of all additional Investments by
the Company or any of its Restricted Subsidiaries, without any adjustments for
increases or decreases in value, or write-ups, write-downs or write-offs with
respect to such Investment, reduced by the payment of dividends or distributions
in connection with such Investment or any other amounts received in respect of
such Investment; provided that no such payment of dividends or distributions or
receipt of any such other amounts shall reduce the amount of any Investment if
such payment of dividends or distributions or receipt of any such amounts would
be included in Consolidated Net Income. If the Company or any Restricted
Subsidiary of the Company sells or otherwise disposes of any Common Stock of any
direct or indirect Restricted Subsidiary of the Company such that, after giving
effect to any such sale or disposition, the Company no longer owns, directly or
indirectly, greater than 50% of the outstanding Common Stock of such Restricted
Subsidiary, the Company shall be deemed to have made an Investment on the date
of any such sale or disposition equal to the fair market value of the Common
Stock of such Restricted Subsidiary not sold or disposed of. Investments shall
not include travel advances in the ordinary course of business.
"Issue Date" means the date of original issuance of the Notes.
"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof and any agreement to give
any security interest).
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents (other
than the portion of any such deferred payment constituting interest) received by
the Company or any of its Restricted Subsidiaries from such Asset Sale net of
(a) reasonable out-of-pocket expenses and fees relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking fees
and sales commissions), (b) taxes paid or payable after taking into account any
reduction in consolidated tax
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liability due to available tax credits or deductions and any tax sharing
arrangements, (c) repayment of Indebtedness that is required to be repaid in
connection with such Asset Sale and (d) appropriate amounts to be provided by
the Company or any Restricted Subsidiary, as the case may be, as a reserve, in
accordance with GAAP, against any liabilities associated with such Asset Sale
and retained by the Company or any Restricted Subsidiary, as the case may be,
after such Asset Sale, including, without limitation, pension and other post-
employment benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such Asset
Sale.
"New Securitization Facility" means the securitization facility which the
Company and the Securitization Entity intend to enter into and anticipates will
be in place by April 30, 1997, as described in this Offering Memorandum, and any
replacement thereof.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Permitted Holder" means (i) the ESOP and other benefit plans of the
Company, including, without limitation, the Company's 401(k) Plan and (ii) the
group composed of the parties to the New Stockholders Agreement dated as of
March 11, 1994.
"Permitted Indebtedness" means, without duplication, each of the following:
(i) Indebtedness under the Notes and the Indenture in an aggregate
principal amount of $100 million;
(ii) Indebtedness incurred pursuant to the Revolving Credit Facility
in an aggregate principal amount at any time outstanding not to exceed $50
million until the closing of the New Securitization Facility, and
thereafter $15 million, in each case, reduced by any permanent repayments
(which are accompanied by a corresponding permanent commitment reduction)
thereunder;
(iii) Indebtedness to be incurred pursuant to the New Securitization
Facility in an aggregate principal amount at any time outstanding not to
exceed 85% of the total accounts receivable of the Company and its
Subsidiaries on a consolidated basis plus, without duplication, accounts
receivable transferred in connection with the New Securitization Facility;
(iv) other Indebtedness of the Company and its Restricted Subsidiaries
outstanding on the Issue Date reduced by the amount of any scheduled
amortization payments or mandatory prepayments when actually paid or
permanent reductions thereon;
(v) Interest Swap Obligations of the Company covering Indebtedness of
the Company or any of its Restricted Subsidiaries and Interest Swap
Obligations of any Restricted Subsidiary of the Company covering
Indebtedness of such Restricted Subsidiary; provided, however, that the
extent the notional principal amount of such Interest Swap Obligation does
not exceed the principal amount of the Indebtedness to which such Interest
Swap Obligation relates;
(vi) Indebtedness under Currency Agreements; provided that in the case
of Currency Agreements which relate to Indebtedness, such Currency
Agreements do not increase the Indebtedness of the Company and its
Restricted Subsidiaries outstanding other than as a result of fluctuations
in foreign currency exchange rates or by reason of fees, indemnities and
compensation payable thereunder;
(vii) Indebtedness of a Wholly Owned Restricted Subsidiary of the
Company to the Company or to a Wholly Owned Restricted Subsidiary of the
Company for so long as such Indebtedness is held by the Company or a Wholly
Owned Restricted Subsidiary of the Company, in each case subject to no Lien
held by a Person other than the Company or a Wholly Owned Restricted
Subsidiary of the Company; provided that if as of any date any Person other
than the Company or a Wholly Owned Restricted Subsidiary of the Company
owns or holds any such Indebtedness or holds a Lien in respect of such
Indebtedness, such date shall be deemed the incurrence of Indebtedness not
constituting Permitted Indebtedness by the issuer of such Indebtedness;
(viii) Indebtedness of the Company to a Wholly Owned Restricted
Subsidiary of the Company for so long as such Indebtedness is held by a
Wholly Owned Restricted Subsidiary of the Company, in each case subject to
no Lien; provided that (a) any Indebtedness of the Company to any Wholly
Owned Restricted
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Subsidiary of the Company is unsecured and subordinated, pursuant to a
written agreement, to the Company's obligations under the Indenture and the
Notes and (b) if as of any date any Person other than a Wholly Owned
Restricted Subsidiary of the Company owns or holds any such Indebtedness or
any Person holds a Lien in respect of such Indebtedness, such date shall be
deemed the incurrence of Indebtedness not constituting Permitted
Indebtedness by the Company;
(ix) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument that
constitutes a daylight overdraft or is inadvertently drawn against
insufficient funds in the ordinary course of business; provided, however,
that such Indebtedness is extinguished within two business days of
incurrence;
(x) Indebtedness of the Company or any of its Restricted Subsidiaries
represented by letters of credit for the account of the Company or such
Restricted Subsidiary, as the case may be, in order to provide security for
workers' compensation claims, payment obligations in connection with
self-insurance or similar requirements in the ordinary course of business,
and payment bonds, performance bonds or bid bonds obtained in the ordinary
course of business, or letters of credit obtained in order to provide
security therefor;
(xi) Refinancing Indebtedness; and
(xii) additional Indebtedness of the Company and its Restricted
Subsidiaries in an aggregate principal amount not to exceed $10 million at
any one time outstanding.
"Permitted Investments" means (i) Investments by the Company or any
Restricted Subsidiary of the Company in any Person that is or will become
immediately after such Investment a Wholly Owned Restricted Subsidiary of the
Company or that will merge or consolidate into the Company or a Wholly Owned
Restricted Subsidiary of the Company; (ii) Investments in the Company by any
Restricted Subsidiary of the Company; provided that any Indebtedness evidencing
such Investment is unsecured and subordinated, pursuant to a written agreement,
to the Company's obligations under the Notes and the Indenture; (iii)
Investments in Permitted Joint Ventures; (iv) Investments in cash and Cash
Equivalents; (v) loans and advances to employees and officers of the Company and
its Restricted Subsidiaries in the ordinary course of business for bona fide
business purposes not in excess of $1.5 million at any one time outstanding;
(vi) Currency Agreements and Interest Swap Obligations entered into in the
ordinary course of the Company's or its Restricted Subsidiaries' businesses and
otherwise in compliance with the Indenture; (vii) Investments in securities of
trade creditors or customers received pursuant to any plan of reorganization or
similar arrangement upon the bankruptcy or insolvency of such trade creditors or
customers; (viii) Investments made by the Company or its Restricted Subsidiaries
as a result of consideration received in connection with an Asset Sale made in
compliance with the "Limitation on Asset Sales" covenant; (ix) Investments in
the Securitization Entity; and (x) additional Investments not to exceed $15.0
million at any one time outstanding.
"Permitted Joint Venture" means any joint venture arrangement (which may be
structured as a corporation, partnership, trust, limited liability company or
any other Person) if (a) no Affiliate of the Company or a Restricted Subsidiary
(other than another Restricted Subsidiary of the Company) has an investment in
such Person, (b) such Person is engaged in the same or a similar line of
business as the Company and its Subsidiaries were engaged in on the date of the
Indenture (or any reasonable extensions or expansions thereof or any business
ancillary thereto or supportive thereof), (c) the Company and/or any of its
Restricted Subsidiaries at all times owns at least 25% of the total outstanding
shares of Capital Stock of such Person entitled to participate in distributions
in respect of the earnings, sale or liquidation of such Person, (d) immediately
after giving effect to such Investment on a pro forma basis (to give effect to
the contribution of any property or assets to such Person or Indebtedness
incurred to fund such Investment or otherwise), the Company could incur at least
$1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to
the "Limitation on Incurrence of Additional Indebtedness" covenant, and (e) no
default with respect to any Indebtedness of such Person or any Subsidiary of
such Person (including any right which the holders thereof may have to take
enforcement action against such Person) would permit (upon notice, lapse of time
or both) any holder of any Indebtedness of the Company or its Restricted
Subsidiaries to declare a default on such Indebtedness or cause the payment
thereof to be accelerated or payable prior to its final scheduled maturity. If,
at any time, a Permitted Joint Venture fails to comply with clauses (a) through
(e) above, such Permitted Joint Venture shall constitute an Investment and must
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comply with the "Limitation on Restricted Payments" covenants (but only with
respect to the Company's percentage ownership in such Permitted Joint Venture).
"Permitted Liens" means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or claims
either (a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or its Restricted Subsidiaries
shall have set aside on its books such reserves as may be required pursuant
to GAAP;
(ii) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(iii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security, and Liens securing letters of credit
issued in the ordinary course of business consistent with past practice in
connection therewith, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money);
(iv) judgment Liens not giving rise to an Event of Default so long as
such Lien is adequately bonded and any appropriate legal proceedings which
may have been duly initiated for the review of such judgment shall not have
been finally terminated or the period within which such proceedings may be
initiated shall not have expired;
(v) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company
or any of its Restricted Subsidiaries;
(vi) any interest or title of a lessor under any Capitalized Lease
Obligation; provided that such Liens do not extend to any property or
assets which is not leased property subject to such Capitalized Lease
Obligation;
(vii) purchase money Liens to finance property or assets of the
Company or any Restricted Subsidiary of the Company acquired in the
ordinary course of business; provided, however, that (A) the related
purchase money Indebtedness shall not exceed the cost of such property or
assets and shall not be secured by any property or assets of the Company or
any Restricted Subsidiary of the Company other than the property and assets
so acquired and (B) the Lien securing such Indebtedness shall be created
within 90 days of such acquisition;
(viii) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of
bankers' acceptances issued or created for the account of such Person to
facilitate the purchase, shipment or storage of such inventory or other
goods;
(ix) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof;
(x) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the Company
or any of its Restricted Subsidiaries, including rights of offset and
set-off;
(xi) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
Indenture;
(xii) Liens securing Indebtedness under Currency Agreements;
(xiii) Liens securing Acquired Indebtedness incurred in accordance
with the "Limitation on Incurrence of Additional Indebtedness" covenant;
provided that (A) such Liens secured such Acquired Indebtedness at the time
of and prior to the incurrence of such Acquired Indebtedness by the Company
or a Restricted Subsidiary of the Company and were not granted in
connection with, or in anticipation of, the incurrence of
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such Acquired Indebtedness by the Company or a Restricted Subsidiary of the
Company and (B) such Liens do not extend to or cover any property or assets
of the Company or of any of its Restricted Subsidiaries other than the
property or assets that secured the Acquired Indebtedness prior to the time
such Indebtedness became Acquired Indebtedness of the Company or a
Restricted Subsidiary of the Company and are no more favorable to the
lienholders than those securing the Acquired Indebtedness prior to the
incurrence of such Acquired Indebtedness by the Company or a Restricted
Subsidiary of the Company;
(xiv) Liens pursuant to the New Securitization Facility; and
(xv) Liens to secure Indebtedness incurred by Restricted Subsidiaries
of the Company and Permitted Joint Ventures (in each case, to the extent
such Indebtedness is permitted to be incurred by the Indenture).
"Person" means an individual, partnership, corporation, unincorporated
organization, trust or joint venture, or a governmental agency or political
subdivision thereof.
"Preferred Stock" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"Public Equity Offering" means an underwritten public offering of Qualified
Capital Stock of the Company pursuant to a registration statement filed with the
Commission in accordance with the Securities Act.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Refinance" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part. "Refinanced" and "Refinancing"
shall have correlative meanings.
"Refinancing Indebtedness" means any Refinancing by the Company or any
Restricted Subsidiary of the Company of Indebtedness incurred in accordance with
the "Limitation on Incurrence of Additional Indebtedness" covenant (other than
pursuant to clause (ii), (iii), (v), (vi), (vii), (viii), (ix) or (xi) of the
definition of Permitted Indebtedness), in each case that does not (1) result in
an increase in the aggregate principal amount of Indebtedness of such Person as
of the date of such proposed Refinancing (plus the amount of any premium
required to be paid under the terms of the instrument governing such
Indebtedness and plus the amount of reasonable expenses incurred by the Company
in connection with such Refinancing) or (2) create Indebtedness with (A) a
Weighted Average Life to Maturity that is less than the Weighted Average Life to
Maturity of the Indebtedness being Refinanced or (B) a final maturity earlier
than the final maturity of the Indebtedness being Refinanced; provided that (x)
if such Indebtedness being Refinanced is Indebtedness of the Company, then such
Refinancing Indebtedness shall be Indebtedness solely of the Company and (y) if
such Indebtedness being Refinanced is subordinate or junior to the Notes, then
such Refinancing Indebtedness shall be subordinate to the Notes at least to the
same extent and in the same manner as the Indebtedness being Refinanced.
"Representative" means the indenture trustee or other trustee, agent or
representative in respect of any Designated Senior Debt; provided that if, and
for so long as, any Designated Senior Debt lacks such a representative, then the
Representative for such Designated Senior Debt shall at all times constitute the
holders of a majority in outstanding principal amount of such Designated Senior
Debt in respect of any Designated Senior Debt.
"Restricted Subsidiary" of any Person means any Subsidiary of such Person
which at the time of determination is not an Unrestricted Subsidiary.
"Restricted Subsidiary Indebtedness" means Indebtedness incurred by a
Restricted Subsidiary (other than a Subsidiary Guarantor) that is neither (a)
Acquired Indebtedness nor (b) Permitted Indebtedness as defined in clauses (i)
through (xi) of such defined term.
"Revolving Credit Facility" means the revolving credit facility dated as of
March 14, 1996, between the Company, the lenders party thereto in their
capacities as lenders thereunder and Citicorp North America, Inc., as agent,
together with the related documents thereto (including, without limitation, any
guarantee agreements and security documents), in each case as such agreements
may be amended (including any amendment and restatement thereof), supplemented
or otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including
increasing the amount of available
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borrowings thereunder (provided that such increase in borrowings is permitted by
the "Limitation on Incurrence of Additional Indebtedness" covenant) or adding
Restricted Subsidiaries of the Company as additional borrowers or guarantors
thereunder) all or any portion of the Indebtedness under such agreement or any
successor or replacement agreement and whether by the same or any other agent,
lender or group of lenders.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to the Company or a Restricted Subsidiary of any property, whether owned
by the Company or any Restricted Subsidiary at the Issue Date or later acquired,
which has been or is to be sold or transferred by the Company or such Restricted
Subsidiary to such Person or to any other Person from whom funds have been or
are to be advanced by such Person on the security of such property, excluding
any such transaction consummated within 180 days after the purchase of assets
sold if the proceeds of the transaction are used to pay all or a portion of such
transaction.
"Securitization Entity" means Dyn Funding Corporation, or any successor or
replacement entity which is the borrower under the New Securitization Facility
or any replacement thereof.
"Senior Debt" means the principal of, premium, if any, and interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on any
Indebtedness of the Company, whether outstanding on the Issue Date or thereafter
created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Notes. Without limiting the generality
of the foregoing, "Senior Debt" shall also include the principal of, premium, if
any, interest (including any interest accruing subsequent to the filing of a
petition of bankruptcy at the rate provided for in the documentation with
respect thereto, whether or not such interest is an allowed claim under
applicable law) on, and all other amounts owing in respect of, (x) all monetary
obligations (including guarantees thereof) of every nature of the Company under
the Revolving Credit Facility, including, without limitation, obligations to pay
principal and interest, reimbursement obligations under letters of credit, fees,
expenses and indemnities, (y) all Interest Swap Obligations and (z) all
obligations under Currency Agreements, in each case whether outstanding on the
Issue Date or thereafter incurred. Notwithstanding the foregoing, "Senior Debt"
shall not include (i) any Indebtedness of the Company to a Subsidiary of the
Company, (ii) Indebtedness to, or guaranteed on behalf of, any shareholder,
director, officer or employee of the Company or any Subsidiary of the Company
(including, without limitation, amounts owed for compensation), (iii)
Indebtedness to trade creditors and other amounts incurred in connection with
obtaining goods, materials or services, (iv) Indebtedness represented by
Disqualified Capital Stock, (v) any liability for federal, state, local or other
taxes owed or owing by the Company, (vi) Indebtedness incurred in violation of
the Indenture provisions set forth under "Limitation on Incurrence of Additional
Indebtedness," (vii) Indebtedness which, when incurred and without respect to
any election under Section 1111(b) of Title 11, United States Code, is without
recourse to the Company and (viii) any Indebtedness which is, by its express
terms, subordinated in right of payment to any other Indebtedness of the
Company.
"Significant Subsidiary" has the meaning set forth in Rule 1.02 (w) of
Regulation S-X under the Securities Act but excluding in any case Fuller-Austin
Insulation Company.
"Subsidiary", with respect to any Person, means (i) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (ii) any
other Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"Subsidiary Guarantor" means each of the Company's Subsidiaries that
becomes a guarantor of the Notes by executing a supplemental indenture in which
such Subsidiary agrees to be bound by the terms of the Indenture; provided that
any person constituting a Subsidiary Guarantor as described above shall cease to
constitute a Subsidiary Guarantor when its respective Subsidiary Guaranty is
released in accordance with the terms thereof.
"Total Tangible Assets" means the Company's total consolidated assets minus
(i) all intangible assets and (ii) all accruals relating to amounts expected to
be recovered from insurance carriers for the payment of currently
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unsettled and estimated future claims relating to the use of asbestos products
by Fuller-Austin Insulation Company.
"Unrestricted Subsidiary" of any Person means (i) the Securitization
Entity, (ii) any Subsidiary of such Person that at the time of determination
shall be or continue to be designated an Unrestricted Subsidiary by the Board of
Directors of such Person in the manner provided below and (iii) any Subsidiary
of an Unrestricted Subsidiary. The Board of Directors may designate any
Subsidiary (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or
owns or holds any Lien on any property of, the Company or any other Subsidiary
of the Company that is not a Subsidiary of the Subsidiary to be so designated;
provided that (x) the Company certifies to the Trustee that such designation
complies with the "Limitation on Restricted Payments" covenant and (y) each
Subsidiary to be so designated and each of its Subsidiaries has not at the time
of designation, and does not thereafter, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable with respect to any
Indebtedness pursuant to which the lender has recourse to any of the assets of
the Company or any of its Restricted Subsidiaries (provided that this clause (y)
shall not prevent the Company from guaranteeing Indebtedness of any Unrestricted
Subsidiary, to the extent the Company is permitted to undertake such guarantee
by the terms of the Indenture). The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary only if (x) immediately
after giving effect to such designation, the Company is able to incur at least
$1.00 of additional Indebtedness (other than Permitted Indebtedness) in
compliance with the "Limitation on Incurrence of Additional Indebtedness"
covenant and (y) immediately before and immediately after giving effect to such
designation, no Default or Event of Default shall have occurred and be
continuing. Any such designation by the Board of Directors shall be evidenced to
the Trustee by promptly filing with the Trustee a copy of the Board Resolution
giving effect to such designation and an officers' certificate certifying that
such designation complied with the foregoing provisions.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the sum of the total of
the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" of any Person means any Restricted
Subsidiary of such Person of which all the outstanding voting securities (other
than in the case of a foreign Restricted Subsidiary, directors' qualifying
shares or an immaterial amount of shares required to be owned by other Persons
pursuant to applicable law) are owned by such Person or any Wholly Owned
Restricted Subsidiary of such Person.
BOOK-ENTRY; DELIVERY AND FORM
Except as described in the next paragraph, the ExchangeNotes initially will
be represented by a single permanent global certificate in definitive, fully
registered form (the "Global Note"). The Global Note will be deposited promptly
after the Expiration Date with, or on behalf of, DTC, New York, New York and
registered in the name of a nominee of DTC.
Notes (i) originally purchased by or transferred to "foreign purchasers" or
accredited investors (as defined in Rule 501(a)(1), (2), (3), or (7) under the
Securities Act ("Accredited Investors")) who are not qualified institutional
investors (as defined in Rule 144A under the Securities Act ("QIBs")) or (ii)
held by QIBs who elect to take physical delivery of their certificates instead
of holding their interests through the Global Note (and which are thus
ineligible to trade through DTC) (collectively referred to herein as the
"Non-Global Purchasers") will be issued in registered form (the "Certificated
Security"). Upon the transfer to a QIB of any Certificated Security initially
issued to a Non-Global Purchaser, such Certificated Security will, unless the
transferee requests otherwise or the Global Note has previously been exchanged
in whole for Certificated Securities, be exchanged for an interest in the Global
Note.
The Global Note. The Company expects that pursuant to procedures
established by DTC (i) upon the issuance of the Global Note, DTC or its
custodian will credit, on its internal system, the principal amount of Notes of
the individual beneficial interests represented by such Global Note to the
respective accounts of persons
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who have accounts with such depository and (ii) ownership of beneficial
interests in the Global Note will be shown on, and the transfer of such
ownership will be effected only through, records maintained by DTC or its
nominee (with respect to interests of Participants (as defined herein)) and the
records of Participants (with respect to interests of persons other than
Participants). Such accounts initially will be designated by or on behalf of the
Initial Purchasers and ownership of beneficial interests in the Global Notes
will be limited to persons who have accounts with DTC ("Participants") or
persons who hold interests through Participants. QIBs may hold their interests
in the Global Note directly through DTC, if they are participants in such
system, or indirectly through organizations which are Participants in such
system.
So long as DTC, or its nominee, is the registered owner or holder of the
Notes, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Notes represented by such Global Note for all purposes
under the Indenture. No beneficial owner of an interest in the Global Note will
be able to transfer that interest except in accordance with DTC's procedures, in
addition to those provided for under the Indenture with respect to the Notes.
Payments of the principal of, premium (if any), and interest (including
Additional Interest) on, the Global Note will be made to DTC or its nominee, as
the case may be, as the registered owner thereof. None of the Company, the
Trustee or any Paying Agent will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the Global Note or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, interest (including Additional Interest) on the
Global Note, will credit Participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of the Global Note as shown on the records of DTC or its nominee. The Company
also expects that payments by Participants to owners of beneficial interests in
the Global Note held through such Participants will be governed by standing
instructions and customary practice, as is now the case with securities held for
the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such Participants.
Transfers between Participants in DTC will be effected in the ordinary way
through DTC's same-day funds system in accordance with DTC rules and will be
settled in same-day funds. If a holder requires physical delivery of a
Certificated Security for any reason, including to sell Notes to persons in
states which require physical delivery of the Notes, or to pledge such
securities, such holder must transfer its interest in the Global Note, in
accordance with the normal procedures of DTC and with the procedures set forth
in the Indenture.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Notes (including the presentation of Notes for exchange as
described below) only at the direction of one or more Participants to whose
account the DTC interests in the Global Note are credited and only in respect of
such portion of the aggregate principal amount of Notes as to which such
Participant or Participants has or have given such direction. However, if there
is an Event of Default under the Indenture, DTC will exchange the Global Note
for Certificated Securities, which it will distribute to its Participants and
which will be legended as set forth under the heading "Transfer Restrictions."
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its Participants and facilitate the clearance and settlement of
securities transactions between Participants through electronic book-entry
changes in accounts of its Participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly
("Indirect Participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Note among Participants of DTC, it is under
no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility
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for the performance by DTC or its Participants or Indirect Participants of their
respective obligations under the rules and procedures governing their
operations.
Certificated Securities. If DTC is at any time unwilling or unable to
continue as a depositary for the Global Note and a successor depositary is not
appointed by the Company within 90 days, Certificated Securities will be issued
in exchange for the Global Note.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary of the principal material United States federal
income tax consequences of the Exchange Offer and of the ownership and
disposition of Exchange Notes is based on the advice of Arnold & Porter, special
tax counsel to the Company. Except as specifically noted otherwise, this summary
only addresses the tax consequences to a person that acquired Original Notes on
their original issue at their original offering price and that is, except as
noted below, (i) an individual citizen or resident of the United States, (ii) a
corporation, partnership, or other entity organized under the laws of the United
States or any state thereof or the District of Columbia, (iii) an estate the
income of which is subject to United States federal income tax regardless of
source, or (iv) a trust if (a) a United States court of law is able to exercise
primary supervision over the trust's administration and (b) one or more United
States fiduciaries have the authority to control all of the trust's substantial
decisions (a "United States Holder"). This summary does not address all tax
consequences that may be applicable to a United States Holder that is a
beneficial owner of Notes, nor does it address, except as noted below, the tax
consequences to (i) persons that are not United States Holders, (ii) persons
that may be subject to special treatment under United States federal income tax
law, such as banks, insurance companies, thrift institutions, regulated
investment companies, real estate investment trusts, tax-exempt investors and
dealers in securities or currencies, (iii) persons that will hold Notes as part
of a position in a "straddle" or as part of a "hedging," "conversion" or other
integrated transaction for United States federal income tax purposes, (iv)
persons whose functional currency is not the United States dollar, or (v)
persons that do not hold the Notes as capital assets. In addition, this summary
does not include any description of alternative minimum tax consequences or the
tax laws of any state, local or foreign government that may be applicable to a
holder of the Notes.
This summary is based upon the Internal Revenue Code of 1986, as amended
(the "Code"), Treasury regulations, Internal Revenue Service ("IRS") rulings and
pronouncements and judicial decisions now in effect, all of which are subject to
change at any time. Such changes may be applied retroactively in a manner that
could cause the tax consequences to vary substantially from the consequences
described below, possibly adversely affecting a beneficial owner of the Notes.
The authorities on which this summary is based are subject to various
interpretations, and it is therefore possible that the United States federal
income tax treatment of the Exchange Offer or of the ownership and disposition
of Notes may differ from the treatment described below.
HOLDERS AND PURCHASERS OF THE NOTES ARE URGED TO CONSULT THEIR TAX ADVISORS
CONCERNING THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO THEM OF THE
EXCHANGE OFFER AND OF ACQUIRING, OWNING AND DISPOSING OF THE NOTES AS WELL AS
THE APPLICATION OF STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.
THE EXCHANGE
The exchange of the Original Notes for the Exchange Notes pursuant to the
Exchange Offer should not be a taxable event to the holder and thus the holder
should not recognize any taxable gain or loss as a result of the exchange. A
holder's adjusted tax basis in the Exchange Notes will be the same as his
adjusted tax basis in the Original Notes exchanged therefor, and his holding
period for the Original Notes will be included in his holding period for the
Exchange Notes.
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UNITED STATES HOLDERS
Generally, interest paid on an Exchange Note will be taxable to a United
States Holder as ordinary interest income in accordance with such holder's
method of accounting for United States federal income tax purposes. Upon the
sale, exchange, redemption, retirement or other disposition of an Exchange Note,
a holder generally will recognize gain or loss equal to the difference between
the amount realized on the disposition and the holder's adjusted tax basis in
the Exchange Note. Subject to the market discount rules discussed below, gain or
loss recognized by a holder on the disposition of an Exchange Note will be
long-term capital gain or loss provided that the Exchange Note was a capital
asset in the hands of the holder and had been held for more than one year.
ORIGINAL ISSUE DISCOUNT
The Company has determined that the Original Notes were issued with an
amount of "original issue discount" and that such amount is less than a de
minimis amount as determined under the Code. Accordingly, for federal income tax
purposes, such original issue discount amount is treated as being equal to zero.
Consequently, United States Holders will not be required to include any original
issue discount as taxable income while holding the Exchange Notes.
BOND PREMIUM
If a holder purchases an Exchange Note at a cost that results in
amortizable bond premium (as determined under the Code and applicable Treasury
Regulations), the holder may elect to deduct such amortizable bond premium (with
a corresponding reduction in the holder's tax basis) over the remaining term of
the Exchange Note or a shorter period to the first call date, if a smaller
deduction would result. The election would apply to all taxable debt instruments
held by the holder at any time during the first taxable year to which the
election applies and to any such debt instruments which are later acquired by
the holder. The election may not be revoked without the consent of the IRS.
MARKET DISCOUNT
If a holder purchases an Exchange Note for an amount that is less than the
principal amount of such Exchange Note, the amount of the difference will be
treated as market discount for U.S. federal income tax purposes, unless such
difference is less than a specified de minimis amount. Under the market discount
rules, a holder will be required to treat any principal payment on, or any
amount received on the sale, exchange, retirement or other disposition of, an
Exchange Note as ordinary income to the extent of any market discount which has
not previously been included in income and is treated as having accrued on such
Exchange Note by the time of such payment or disposition. If a holder makes a
gift of an Exchange Note, accrued market discount, if any, will be recognized as
if such holder had sold such Exchange Note for a price equal to its fair market
value. In addition, the holder may be required to defer, until the maturity of
the Exchange Note or its earlier disposition in a taxable transaction, the
deduction of a portion of the interest expense on any indebtedness incurred or
continued to purchase or carry such Exchange Note.
A holder of an Exchange Note acquired at a market discount may elect to
include market discount in income as interest as it accrues, in which case the
foregoing rules would not apply. This election would apply to all bonds with
market discount acquired by the electing holder on or after the first day of the
first taxable year to which the election applies. The election may be revoked
only with the consent of the IRS.
FOREIGN HOLDERS
The following discussion applies to a holder who is not a United States
Holder (a "Foreign Holder").
Interest payments to a Foreign Holder of Exchange Notes will generally not
be subject to withholding of income tax, provided that (a) the beneficial owner
of the Exchange Notes does not (directly or indirectly, actually or
constructively) own 10% or more of the total combined voting power of all
classes of stock of the Company entitled to vote, (b) the beneficial owner of
the Exchange Notes is not a controlled foreign corporation that is related to
the Company through stock ownership, and (c) either (i) the beneficial owner of
the Exchange Notes certifies to the Company or its paying agent, under penalties
of perjury, that it is a Foreign Holder and provides
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its name and address, or (ii) a securities clearing organization, bank or other
financial institution that holds customers' securities in the ordinary course of
its trade or business (a "Financial Institution"), and holds the Exchange Notes
in such capacity, certifies to the Company or its paying agent, under penalties
of perjury, that such a statement has been received from the beneficial owner by
it or by another Financial Institution between it and the beneficial owner in
the chain of ownership, and furnishes the Company or its paying agent with a
copy thereof.
A Foreign Holder of Exchange Notes will generally not be subject to
withholding of income tax on any gain realized upon the sale or other
disposition of Exchange Notes.
A Foreign Holder that holds Exchange Notes in connection with the active
conduct of a United States trade or business generally will be subject to income
tax on all income and gains recognized with respect to the Exchange Notes.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to payments made
on, and proceeds from the sale of, the Notes held by a noncorporate United
States Holder within the United States. In addition, payments made on, and
payments of the proceeds from the sale of, the Notes to or through the United
States office of a broker are subject to information reporting unless the holder
thereof certifies as to its non-United States status or otherwise establishes an
exemption from information reporting and backup withholding. Taxable income on
the Notes for a calendar year should be reported to United States Holders on
Forms 1099 by the following January 31st.
Payments made on, and proceeds from the sale of, the Notes may be subject
to a "backup" withholding tax of 31% unless the holder complies with certain
identification or exemption requirements. Any amounts so withheld will be
allowed as a credit against the holder's income tax liability, or refunded,
provided certain required information is provided to the IRS.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it acquired the Original
Notes for its own account as a result of market-making activities or other
trading activities and 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 90 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.
The Company will not receive any proceeds from any sales of the 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 the purchaser or to or through brokers or dealers who
may receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Exchange Notes. Any
broker-dealer that resells the 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 Exchange Notes 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 commissions or 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 90 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 person subject to the prospectus delivery
requirements of the Securities Act that requests such documents in the Letter of
Transmittal. The Company has
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agreed to pay all expenses incident to the Exchange Offer, other than
commissions and concessions of any brokers or dealers, and will indemnify the
holders of the Original Notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act.
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated financial statements and schedules of the Company, as of
and for the year ended December 31, 1996, incorporated by reference in this
Prospectus and elsewhere in this registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are incorporated by reference herein in
reliance upon the authority of said firm as experts in giving said reports.
LEGAL MATTERS
The validity of the issuance of securities offered hereby will be passed
upon for the Company by Arnold & Porter, Washington, D.C.
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NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE NOTES
TO ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information............................. iii
Certain Information Incorporated by Reference..... iii
Summary........................................... 1
Risk Factors...................................... 13
The Transactions.................................. 18
Use of Proceeds................................... 20
Capitalization.................................... 20
Unaudited Pro Forma Financial Data................ 21
Selected Historical Financial Data................ 25
Employee Stock Ownership Plan..................... 27
Description of Certain Financing
Arrangements.................................... 28
Legal Proceedings................................. 28
The Exchange Offer................................ 33
Description of Notes.............................. 42
Book-Entry; Delivery and Form..................... 65
Certain Federal Income Tax Considerations......... 67
Plan of Distribution.............................. 69
Independent Public Accountants.................... 70
Legal Matters..................................... 70
</TABLE>
$100,000,000
-------------------
PROSPECTUS
-------------------
OFFER TO EXCHANGE ITS
9 1/2% SENIOR SUBORDINATED NOTES
DUE 2007
FOR ANY AND ALL OF ITS 9 1/2%
SENIOR SUBORDINATED NOTES
DUE 2007
JUNE , 1997
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 102 of the General Corporation Law of the State of Delaware ("GCL")
allows a corporation to eliminate the personal liability of a director to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except in cases where the director breached his duty of
loyalty, failed to act in good faith, engaged in intentional misconduct or a
knowing violation of law, authorized the unlawful payment of a dividend or
approved an unlawful stock redemption or repurchase or obtained an improper
personal benefit. The Registrant's Amended and Restated Certificate of
Incorporation, a copy of which is filed as an exhibit to this Registration
Statement, contains a provision which eliminates directors' personal liability
as set forth above.
The Amended and Restated Certificate of Incorporation of the Registrant and
the Bylaws of the Registrant provide in effect that the Registrant shall
indemnify its directors, officers and employees to the extent permitted by
Section 145 of the GCL. Section 145 of the GCL provides that a Delaware
corporation has the power to indemnify its officers and directors in certain
circumstances.
Subsection (a) of Section 145 of the GCL empowers a corporation to
indemnify any director or officer, or former director or officer, who was or is
a party or its threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal administrative or
investigative (other than an action by or in the right of the corporation),
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred in connection with such action,
suit or proceeding provided that such director or officer acted in good faith in
a manner reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding,
provided that such director or officer had no cause to believe his or her
conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any
director or officer, or former director or officer, who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that such person acted in any of the capacities set forth
above, against expenses actually and reasonably incurred in connection with the
defense or settlement of such action or suit provided that such director or
officer acted in good faith and in a manner reasonably believed to be in or not
opposed to the best interests of the corporation, except that no indemnification
may be made in respect of any claim, issue or matter as to which such director
or officer shall have been adjudged to be liable for negligence or misconduct in
the performance of his or her duty to the corporation unless and only to the
extent that the Court of Chancery or the court in which such action was brought
shall determine that despite the adjudication of liability such director or
officer is fairly and reasonably entitled to indemnify for such expenses which
the court shall deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful in the defense of any action, suit or proceeding
referred to in subsections (a) and (b) or in the defense of any claim, issue or
matter therein, he or she shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him or her in connection
therewith; that indemnification provided for by Section 145 shall not be deemed
exclusive of any other rights to which the indemnified party may be entitled;
and empowers the corporation to purchase and maintain insurance on behalf of a
director or officer of the corporation against any liability asserted against
him or her or incurred by him or her in any such capacity or arising out of his
or her status as such whether or not the corporation would have the power to
indemnify him or her against such liabilities under Section 145.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
An index of exhibits appears at pages II-5 through II-6, which is
incorporated herein by reference.
II-1
<PAGE>
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to the Registration Statement:
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(b) 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 the 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 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement; and
(c) 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;
Provided, however, that paragraphs 1(a) and 1(b) do not apply if the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the Registrant pursuant to section 13 or
section 15(d) of the Exchange Act that are incorporated by reference in the
Registration Statement.
2. That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at 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.
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.
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.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
informed that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE COUNTY OF FAIRFAX,
COMMONWEALTH OF VIRGINIA, ON JUNE 17, 1997.
DYNCORP
By: /s/ P.V. LOMBARDI
--------------------------------
P.V. Lombardi
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
*
- ------------------------------------------
P.V. Lombardi President and Director (Principal Executive June 17, 1997
Officer)
*
- ------------------------------------------
P.C. FitzPatrick Senior Vice President--Chief Financial June 17, 1997
Officer (Principal Financial Officer)
*
- ------------------------------------------
D.L. Reichardt Senior Vice President--General Counsel and June 17, 1997
Director
*
- ------------------------------------------
J.J. Fitzgerald Vice President and Controller (Principal June 17, 1997
Accounting Officer)
*
- ------------------------------------------
D.R. Bannister Director June 17, 1997
*
- ------------------------------------------
T.E. Blanchard Director June 17, 1997
*
- ------------------------------------------
H.S. Winokur, Jr. Director June 17, 1997
*
- ------------------------------------------
D.C Mecum II Director June 17, 1997
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S> <C>
*
- ------------------------------------------
R.E. Dougherty Director June 17, 1997
*By: /s/ H. MONTGOMERY HOUGEN
-----------------------------------
H. Montgomery Hougen
Attorney-in-Fact
</TABLE>
II-4
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE NO.
- ------- ----------- --------
<S> <C> <C> <C>
3.1 -- Certificate of Incorporation, as currently in effect, consisting of Restated Certification
of Incorporation (incorporated by reference to Registrant's Form 10-K/A for 1995, File No.
1-3879)
3.2 -- Registrant's By-laws as amended to date (incorporated by reference to Registrant's Form
10-K/A for 1995, File No. 1-3879)
4.1 -- Indenture and supplement, dated April 18, 1997 between Dyn Funding Corporation (a wholly
owned subsidiary of the Registrant) and Bankers Trust Company relating to Contract
Receivable Collateralized Notes (incorporated by reference to Registrant's Form S-2, File
No. 33-59279).
4.2 -- Specimen Common Stock Certificate (incorporated by reference to Registrant's Form 10-K for
1988, File No. 1-3879)
4.3 -- Statement Respecting Warrants and Lapse of Certain Restrictions (incorporated by reference
to Registrant's Form 10-K for 1988, File No. 1-3879)
4.4 -- Amendment (effective March 26, 1991) to Statement Respecting
Warrants and Lapse of Certain Restrictions (incorporated by
reference to Registrant's Form 10-K for 1990, File No.
1-3879)
4.5 -- Article Fourth of the Amended and Restated Certificate of Incorporation (incorporated by
reference to Registrant's Form 10-K/A for 1995, File No. 1-3879)
4.6 -- Stockholders Agreement (incorporated by reference to Registrant's Form S-1 for 1995, File
No. 33-59279)
4.7 -- Second Amended and Restated Credit Agreement by and among Citicorp North America, Inc. and
DynCorp dated May 15, 1997*
4.8 -- Registration Rights Agreement, dated as of March 17, 1997, among the Company, and BT
Securities Corporation and Citicorp Securities, Inc.*
4.9 -- Indenture, dated March 17, 1997, among the Company and United States Trust Company of New
York relating to the 9 1/2% Senior Subordinated Notes due 2007*
4.10 -- Form of Exchange Notes (included in Exhibit 4.9)
5.1 -- Opinion of Arnold & Porter as to the legality of the Exchange Notes*
8.1 -- Opinion of Arnold & Porter as to certain federal income tax matters*
10.1 -- Deferred Compensation Plan (incorporated by reference to Registrant's Form 10-K for 1987,
File No. 1-3879)
10.2 -- Management Incentive Plan (MIP) (incorporated by reference to Registrant's Form 10-K for
1996, File No. 1-3879)
10.3 -- DynCorp Executive Incentive Plan (EIP) (incorporated by reference to Registrant's Form 10-K
for 1996, File No. 1-3879)
10.4 -- Management Severance Agreements (incorporated by reference to Exhibits (c)(4) through
(c)(12) to Schedule 14D-9 filed by Registrant January 25, 1988)
10.5 -- Employment Agreement of Paul V. Lombardi, Vice President, Government Services Group
(incorporated by reference to Registrant's Form 10-K for 1993, File No. 1-3879)
10.6 -- Restricted Stock Plan (incorporated by reference to Registrant's Form 10-K/A for 1995, File
No. 1-3879)
10.7 -- 1995 Stock Option Plan (incorporated by reference to Registrant's Form 10-K/A for 1995,
File No. 1-3879)
10.8 -- Employment Agreement of Patrick C. FitzPatrick, Senior Vice President and Chief Financial
Officer (incorporated by reference to Registrant's Form 10-K for 1996, File No. 1-3879)
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE NO.
- ------- ----------- --------
<S> <C> <C> <C>
11.1 -- Computations of Earnings Per Common Share for the Years Ended December 31, 1996,
1995 and 1994 (incorporated by reference to Registrant's Form 10-K for 1996,
File No. 1-3879) and for the three months ended March 27, 1997 and March 28, 1996
(incorporated by reference to Registrant's Form 10-Q for the period ended March 27, 1997)*
12.1 -- Ratio of Earnings to Fixed Charges*
21.1 -- Subsidiaries of the Registrant (incorporated by reference to Registrant's Form 10-K for
1996, File No. 1-3879)
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Arnold & Porter (included as part of Exhibit 5.1 and Exhibit 8.1)
24.1 -- Powers of Attorney (included as part of the signature page)*
25.1 -- Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939
of United States Trust Company of New York (revised cover page only)*
99.1 -- Form of Letter of Transmittal*
99.2 -- Form of Notice of Guaranteed Delivery*
</TABLE>
- ------------------
* Previously filed.
II-6
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in this registration statement of our report dated
March 21, 1997 included in DynCorp's Form 10-K for the year ended December
31, 1996 and to all references to our Firm included in this registration
statement.
ARTHUR ANDERSEN LLP
Washington, D.C.
June 17, 1997
