<PAGE> 1
PROSPECTUS
GENERAL BINDING CORPORATION
OFFER TO EXCHANGE
[GENERAL BINDING CORPORATION LOGO]
9 3/8% SENIOR SUBORDINATED NOTES DUE 2008
FOR ANY AND ALL OUTSTANDING
9 3/8% SENIOR SUBORDINATED NOTES DUE 2008
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON SEPTEMBER 3, 1998, UNLESS EXTENDED.
General Binding Corporation, a Delaware corporation (the "Issuer") hereby
offers (the "Exchange Offer"), upon the terms and conditions set forth in this
Prospectus (the "Prospectus") and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), to exchange $1,000 principal amount of its 9 3/8%
Senior Subordinated Notes due 2008 (the "Exchange Notes"), registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to the
Registration Statement of which this Prospectus is a part, for each $1,000
principal amount of its outstanding 9 3/8% Senior Subordinated Notes due 2008
(the "Old Notes"), of which $150,000,000 aggregate principal amount is
outstanding. The form and terms of the Exchange Notes are the same as the form
and terms of the Old Notes except that (i) the Exchange Notes will bear a
different CUSIP Number from the Old Notes, (ii) the Exchange Notes have been
registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof and (iii) the holders of the Exchange Notes
will not be entitled to certain rights under the Registration Rights Agreement
(as defined), including the provisions providing for an increase in the interest
rate on the Old Notes in certain circumstances relating to the timing of the
exchange offer, which rights will terminate when the Exchange Offer is
consummated. The Old Notes and the Exchange Notes are sometimes referred to
herein collectively as the "Notes." The Exchange Notes will evidence the same
debt as the Old Notes and will be issued under and be entitled to the benefits
of the Indenture dated as of May 27, 1998 (the "Indenture") by and among the
Issuer, the Subsidiary Guarantors (as defined) and First Union National Bank, as
trustee, governing the Notes. See "Exchange Offer" and "Description of the
Notes."
The Issuer will accept for exchange any and all Notes validly tendered and
not withdrawn prior to 5:00 p.m., New York City time on September 3, 1998,
unless extended by the Issuer in its sole discretion (the "Expiration Date").
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m. on the
Expiration Date. The Exchange Offer is subject to certain customary conditions.
See "Exchange Offer."
The Old Notes were issued by the Issuer on May 27, 1998 to BT Alex. Brown
Incorporated, CIBC Oppenheimer Corp., ABN AMRO Incorporated, First Chicago
Capital Markets, Inc. and Nesbitt Burns Securities Inc. (the "Initial
Purchasers") in a transaction not registered under the Securities Act in
reliance upon an exemption under the Securities Act (the "Initial Offering").
The Initial Purchasers subsequently resold the Old Notes to (i) qualified
institutional buyers in reliance upon Rule 144A under the Securities Act and
(ii) qualified buyers outside the United States in reliance upon Regulation S
under the Securities Act. Accordingly, the Old Notes may not be reoffered,
resold or otherwise transferred in the United States or to U.S. Persons (as
defined in Regulation S under the Securities Act) unless registered under the
Securities Act or unless an applicable exemption from the registration
requirements of the Securities Act is available. The Exchange Notes are being
offered hereunder in order to satisfy the obligations of the Issuer and the
Subsidiary Guarantors under the Registration Rights Agreement entered into by
the Issuer, the Subsidiary Guarantors and the Initial Purchasers in connection
with the Initial Offering. See "Exchange Offer."
Interest on the Notes will accrue from the date of original issuance and
will be payable semi-annually in arrears on June 1 and December 1 of each year,
commencing on December 1, 1998, at the rate of 9 3/8% per annum. The Notes will
be redeemable, in whole or in part, at the option of the Issuer on or after June
1, 2003, at redemption prices set forth herein plus accrued and unpaid interest
to the date of redemption. In addition, at any time and from time to time prior
to June 1, 2001, the Issuer may, at its option, 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 109.375% of the amount thereof plus accrued and unpaid
interest to the date of redemption; provided, however, that after giving effect
to any such redemption, at least 65% of the aggregate principal amount of the
Notes originally issued remains outstanding. Upon a Change in Control (as
defined), the Issuer will be required to make an offer to repurchase the Notes
at a price equal to 101% of the principal amount thereof plus accrued and unpaid
interest to the date of repurchase. In addition, the Issuer will be obligated to
offer to repurchase the Notes at 100% of the principal amount thereof plus
accrued and unpaid interest to the date of repurchase in the event of certain
Asset Sales (as defined). See "Description of the Notes."
The Notes will be general unsecured senior subordinated obligations of the
Issuer and will be subordinated in right of payment to all existing and future
Senior Indebtedness (as defined) of the Issuer. The Notes will rank pari passu
in right of payment with all senior subordinated indebtedness of the Issuer and
will be senior in right of payment to all other subordinated indebtedness of the
Issuer. The Notes will be unconditionally guaranteed (the "Guarantees") on a
senior subordinated basis by the Issuer's material direct and indirect domestic
Restricted Subsidiaries (as defined) (the "Subsidiary Guarantors"). The
Guarantees will be general unsecured obligations of the Subsidiary Guarantors
and will be subordinated in right of payment to all existing and future
Guarantor Senior Indebtedness (as defined). The Notes will be effectively
subordinated to all obligations of any subsidiary that is not a Subsidiary
Guarantor. As of December 31, 1997, on a pro forma basis after giving effect to
the Transactions (as defined), the Issuer and the Subsidiary Guarantors would
have had an aggregate principal amount of approximately $439 million of total
indebtedness, of which approximately $289 million would have constituted Senior
Indebtedness or Guarantor Senior Indebtedness (in each case, excluding unused
commitments under the Credit Facility and outstanding letters of credit totaling
approximately $224 million). In addition, as of such date, on a pro forma basis
after giving effect to the Transactions, subsidiaries of the Issuer that will
not be Subsidiary Guarantors would have had approximately $63 million of
indebtedness outstanding (excluding intercompany loans). See "Risk Factors --
Significant Leverage and Debt Service; Restrictive Covenants" and "Description
of the Notes -- Ranking."
(Cover continued on next page)
------------------------
The date of this Prospectus is August 6, 1998.
<PAGE> 2
(Continued from cover page)
Under existing interpretations of the Securities and Exchange Commission
(the "Commission") contained in several no-action letters to third parties, the
Exchange Notes (and the related Guarantees) will be freely transferable by
holders thereof (other than affiliates of the Issuer) after the Exchange Offer
without further registration under the Securities Act; provided, however, that
each holder that wishes to exchange its Old Notes for Exchange Notes will be
required to represent (i) that any Exchange Notes to be received by it will be
acquired in the ordinary course of its business, (ii) that at the time of the
commencement of the Exchange Offer it has no arrangement or understanding with
any person to participate in the distribution (within the meaning of the
Securities Act) of the Exchange Notes in violation of the Securities Act, (iii)
that it is not an "affiliate" (as defined in Rule 405 promulgated under the
Securities Act) of the Issuer, (iv) if such holder is not a broker-dealer, that
it is not engaged in, and does not intend to engage in, the distribution of
Exchange Notes and (v) if such holder is a broker-dealer (a "Participating
Broker-Dealer") that will receive Exchange Notes for its own account in exchange
for the Notes that were acquired as a result of market-making or other trading
activities, that it will deliver a prospectus in connection with any resale of
such Exchange Notes. The Commission has taken the position that Participating
Broker-Dealers may fulfill their prospectus delivery requirements with respect
to the Exchange Notes (other than a resale of an unsold allotment from the
original sale of the Notes) with the prospectus contained in the Exchange Offer
Registration Statement (as defined). The Issuer and the Subsidiary Guarantors
have agreed to make available, during the period required by the Securities Act,
a prospectus meeting the requirements of the Securities Act for use by
Participating Broker-Dealers and other persons, if any, with similar prospectus
delivery requirements for use in connection with any resale of Exchange Notes.
The Issuer will not receive any proceeds from the Exchange Offer. The
Issuer has agreed to bear the expenses of the Exchange Offer. No underwriter is
being used in connection with the Exchange Offer.
Holders of Old Notes not tendered and accepted in the Exchange Offer will
continue to hold such Old Notes and will be entitled to all the rights and
benefits and will be subject to the limitations applicable thereto under the
Indenture and with respect to transfer under the Securities Act. See "Exchange
Offer."
There has not previously been any public market for the Old Notes or the
Exchange Notes. The Issuer does not intend to list the Exchange Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance that an active market for the
Exchange Notes will develop. See "Risk Factors -- Absence of a Public Market
Could Adversely Affect the Value of Exchange Notes." Moreover, to the extent
that Old Notes are tendered and accepted in the Exchange Offer, the trading
market for untendered and tendered but unaccepted Old Notes could be adversely
affected.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE ISSUER ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD 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 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
ISSUER OR THE SUBSIDIARY GUARANTORS. 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.
THE EXCHANGE NOTES WILL BE AVAILABLE INITIALLY ONLY IN BOOK-ENTRY FORM.
EXCEPT AS DESCRIBED UNDER "BOOK-ENTRY; DELIVERY AND FORM," THE ISSUER EXPECTS
THAT THE EXCHANGE NOTES ISSUED PURSUANT TO THE EXCHANGE OFFER WILL BE
REPRESENTED BY A GLOBAL NOTE (AS DEFINED), WHICH WILL BE
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DEPOSITED WITH, OR ON BEHALF OF, THE DEPOSITORY TRUST COMPANY ("DTC") AND
REGISTERED IN ITS NAME OR IN THE NAME OF CEDE & CO., ITS NOMINEE. BENEFICIAL
INTERESTS IN THE GLOBAL NOTE REPRESENTING THE EXCHANGE NOTES WILL BE SHOWN ON,
AND TRANSFERS THEREOF WILL BE EFFECTED THROUGH, RECORDS MAINTAINED BY DTC AND
ITS PARTICIPANTS. AFTER THE INITIAL ISSUANCE OF THE GLOBAL NOTE, NOTES IN
CERTIFICATED FORM WILL BE ISSUED IN EXCHANGE FOR THE GLOBAL NOTE ONLY UNDER
LIMITED CIRCUMSTANCES AS SET FORTH IN THE INDENTURE. SEE "BOOK-ENTRY; DELIVERY
AND FORM."
PROSPECTIVE INVESTORS IN THE EXCHANGE NOTES ARE NOT TO CONSTRUE THE
CONTENTS OF THIS PROSPECTUS AS INVESTMENT, LEGAL OR TAX ADVICE. EACH INVESTOR
SHOULD CONSULT ITS OWN COUNSEL, ACCOUNTANT AND OTHER ADVISORS AS TO LEGAL, TAX,
BUSINESS, FINANCIAL AND RELATED ASPECTS OF THE EXCHANGE NOTES. NEITHER THE
ISSUER NOR ANY OF THE SUBSIDIARY GUARANTORS IS MAKING ANY REPRESENTATION TO ANY
PROSPECTIVE INVESTOR IN THE EXCHANGE NOTES REGARDING THE LEGALITY OF AN
INVESTMENT THEREIN BY SUCH PERSON UNDER APPROPRIATE LEGAL INVESTMENT OR SIMILAR
LAWS.
------------------------
SEE "RISK FACTORS" COMMENCING ON PAGE 14 FOR CERTAIN INFORMATION THAT
SHOULD BE CONSIDERED BY HOLDERS WHO TENDER OLD NOTES IN THE EXCHANGE OFFER.
------------------------
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.
<PAGE> 4
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED UNDER THIS CHAPTER WITH THE STATE OF NEW HAMPSHIRE NOR
THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN
THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT
ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER
ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A
SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY
WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO,
ANY PERSON, SECURITY, OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE
MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER, OR CLIENT ANY REPRESENTATION
INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
-------------------------
CAUTIONARY STATEMENTS FOR PURPOSES OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
Certain statements in this Prospectus under the captions "Prospectus
Summary," "Risk Factors," "Unaudited Combined Pro Forma Condensed Financial
Data," "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and "Business" and elsewhere constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. When used in this Prospectus, the words "anticipate," "believe,"
"estimate," "expect" and similar expressions are generally intended to identify
forward-looking statements. Such forward-looking statements involve known and
unknown risks, uncertainties and other important factors that could cause the
actual results, performance or achievements of the Company, or industry results,
to differ materially from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such risks,
uncertainties and other important factors include, among others, competition
within the office products and lamination film products markets, the effects of
economic conditions, the issues associated with the acquisition and integration
of recently acquired operations, including Ibico GmbH, operating risks, the
ability of the Company's distributors to successfully market and sell the
Company's products, the ability of the Company to obtain capital to finance
planned growth, the availability and price of raw materials, dependence on
certain suppliers of manufactured products, the effect of consolidation in the
office products industry, and other factors disclosed under "Risk Factors" and
elsewhere in this Prospectus. These forward-looking statements speak only as of
the date of this Prospectus. The Company expressly disclaims any obligation or
undertaking to disseminate any updates or revisions to any forward-looking
statement contained herein to reflect any change in the Company's expectations
with regard thereto or any change in events, conditions or circumstances on
which any such statement is based.
AVAILABLE INFORMATION
The Issuer has filed with the Commission a Registration Statement on Form
S-4 (the "Exchange Offer Registration Statement," which term shall encompass all
amendments, exhibits, annexes and schedules thereto) pursuant to the Securities
Act, and the rules and regulations promulgated thereunder, covering the Exchange
Notes being offered hereby. This Prospectus does not contain all the information
set forth in the Exchange Offer Registration Statement. For further information
with respect to the Company and the Exchange Offer, reference is made to the
Exchange Offer Registration Statement. Statements made in this Prospectus as to
the contents of any contract, agreement or other document referred to herein are
not necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Exchange Offer Registration Statement,
reference is made to the exhibit for a more complete description of the document
or matter involved, and each statement shall be deemed qualified in its entirety
by such reference.
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The Issuer is subject to the informational requirements of the Securities
Act and the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and, in accordance therewith, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the office of the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, as well
as the regional offices of the Commission at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade Center, 13th
Floor, New York, New York 10048. Copies of such information can be obtained by
mail from the Public Reference Section of the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Additionally,
the Commission maintains a Web site that contains reports, proxy statements and
other information regarding registrants that file electronically with the
Commission. The address of the Commission's Web site is http://www.sec.gov. The
Issuer's Common Stock is listed on The NASDAQ Stock Market and copies of
reports, proxy statements and other information concerning the Issuer also can
be inspected at the National Association of Securities Dealers, Inc. 1735 K
Street, N.W., Washington, D.C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed with the Commission pursuant to
the Exchange Act are incorporated herein by reference:
(a) The Issuer's Annual Report on Form 10-K for the year ended
December 31, 1997;
(b) The Issuer's Quarterly Report on Form 10-Q for the three months
ended March 31, 1998; and
(c) The Issuer's Current Reports on Form 8-K dated June 3, 1998, June
24, 1998 and July 10, 1998.
All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus
and prior to the termination of the Exchange Offer shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of the filing of such documents. Any statement contained in this Prospectus
or in a document incorporated or deemed to be incorporated by reference in this
Prospectus shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained in this Prospectus or in any
other subsequently filed document that also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
PAUL J. BORS, TREASURER, GENERAL BINDING CORPORATION, ONE GBC PLAZA, NORTHBROOK,
ILLINOIS 60062, (TELEPHONE NUMBER (847) 272-3700). IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY AUGUST 27, 1998.
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PROSPECTUS 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 Consolidated Financial Statements and Notes thereto, included elsewhere in
this Prospectus. Prospective purchasers should carefully consider the
information set forth or referred to under the caption "Risk Factors." Unless
otherwise stated in this Prospectus or unless the context indicates or otherwise
requires, the "Issuer" shall mean General Binding Corporation; the "Company" and
"GBC" shall mean General Binding Corporation and its subsidiaries; "Quartet"
shall mean Quartet Manufacturing Company, a division of GBC; "Ibico" shall mean
Ibico GmbH, a wholly owned subsidiary of GBC and the successor to Ibico AG;
"Ibico Acquisition" shall mean the acquisition of Ibico by GBC; "Management"
shall mean the management of the Company; "EBITDA" shall have the meaning set
forth in Note 2 to the "Summary Consolidated Historical and Combined (Unaudited)
Pro Forma Financial Data" included in this Prospectus; "CAGR" shall mean
compound annual growth rate; and the "Transactions" shall mean the Initial
Offering and the application of the net proceeds therefrom and the Ibico
Acquisition, which was consummated on February 27, 1998. The pro forma
information in this Prospectus, unless otherwise indicated, gives effect to the
Transactions as if they had occurred as of January 1, 1997.
THE COMPANY
GBC is a worldwide leader in the design, manufacture and marketing of
branded office products, office equipment and related supplies, and thermal
laminating film. GBC's major products include (i) binding equipment and
supplies, (ii) laminating equipment and supplies, (iii) visual communication
products (such as marker boards, bulletin/planning boards and easels), (iv)
paper shredders and (v) thermal laminating film (used primarily to encapsulate
or protect documents, book covers and school-related materials). GBC also
provides maintenance services for its binding and lamination equipment
customers. Revenues derived from sales of consumable supplies and maintenance
services together accounted for approximately 55% of GBC's 1997 pro forma
revenues of $883 million.
GBC sells its products both to resellers and directly to end-users with an
emphasis on providing customers with a broad range of high-quality products
supported by high levels of customer and value-added services. GBC is one of the
largest suppliers of office products, equipment and supplies to resellers with
1997 pro forma revenues of $429 million in the Company's Office Products Group.
GBC's customers include most of the major U.S. office products resellers, such
as office products superstores, wholesalers, contract/ commercial stationers,
mail order companies and other retail dealers, as well as office products
resellers in Europe, the Asia/Pacific region and Latin America. In addition, GBC
sells its binding equipment and related supplies, lamination equipment and
thermal laminating film, and related services, through the Company's Document
Finishing Group and Films Group directly to approximately 100,000 active
customers in the United States and abroad. These customers include general
office customers (e.g., consulting, financial services, legal and accounting
firms), commercial customers (e.g., reprographic centers and copy shops),
education/training customers (e.g., schools and training centers), commercial
printers and government agencies.
The Company increased its revenue base from $458 million in 1995 to $883
million, on a pro forma basis, in 1997, representing a CAGR of 39%. During this
same period, the Company's EBITDA more than doubled from $53 million to $109
million on a pro forma basis, representing a CAGR of 43%, while its EBITDA
margin increased from 11.6% to 12.3% on a pro forma basis. The majority of the
Company's revenue growth occurred in the Office Products Group, where revenues
grew from $97 million in 1995 to $429 million on a pro forma basis in 1997,
through acquisitions, principally Quartet and Ibico, and internal revenue
growth. Effective January 1, 1997, the Company acquired Quartet, a leading
manufacturer and marketer of visual communication products, for approximately
$216 million, including the assumption of debt. On February 27, 1998, the
Company acquired Ibico, a leading manufacturer and marketer of binding and
laminating equipment and supplies, for cash consideration and assumption of debt
of approximately $130 million. These and other recent acquisitions have provided
the Company with further penetration into the U.S. and international markets,
new key customer relationships and additional complementary product lines.
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INDUSTRY FUNDAMENTALS
From 1995 to 1997, GBC's revenues from existing operations, excluding the
impact of acquisitions, increased by 18%, primarily due to strong industry
fundamentals. Management believes that the primary driving factors resulting in
the Company's strong intrinsic growth in its Business Groups include:
(i) the increasing number of office workers as the U.S. economy
continues to shift from a manufacturing base to a service base;
(ii) the increasing number of document finishing sites as the number
of home offices and small- and medium-sized businesses continues to grow in
the U.S. and printing capabilities migrate toward individual end-users and
away from traditional commercial printers and publishing houses;
(iii) a growing interest in creating finished and distinctive
documents, partly as a method of differentiation, caused by a general
increase in the number of documents being produced;
(iv) an increased worldwide focus on education and training
activities, particularly in the United States, and the preparation and
display of related materials;
(v) an increasing demand for lamination products to preserve, protect
and enhance the output of a rapidly-growing base of color copiers and
digital printers, particularly desktop and large-format digital color
printers; and
(vi) increasing environmental concerns and regulations in international
markets which Management believes will cause commercial printers and other
users to favor the thermal films marketed by the Company over solvent-based
films.
GBC's Office Products Group has experienced particularly strong sales
growth due to, in addition to the above-mentioned factors, the rapid growth and
consolidation of office products superstores, contract/ commercial stationers
and wholesalers with which GBC enjoys strong customer relationships. The major
superstores, contract/commercial stationers and wholesalers on average have
experienced an approximate 38% CAGR in their sales over the past five years.
Sales to these customers accounted for $251 million of GBC's 1997 pro forma
revenues.
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<PAGE> 8
The following table describes the Company's three primary global Business
Groups:
<TABLE>
<CAPTION>
OFFICE DOCUMENT
PRODUCTS FINISHING FILMS
GROUP GROUP GROUP
<S> <C> <C> <C>
- Binding equipment - Binding equipment - Thermal films
- Laminating equipment - Binding supplies - Mid-range laminators
- Binding and laminating - Punching equipment - Commercial high-speed
supplies laminators
KEY PRODUCTS _______ - Custom binders/folders/
AND SERVICES - Document shredders covers/index tabs - Large-format digital
print laminators
- Visual communication - Maintenance and repair
products (e.g., marker - L.D. laminators (e.g., licenses
boards, bulletin/planning and security and
boards, and easels) membership cards)
- Desktop accessories - Maintenance and repair
PRIMARY
DISTRIBUTION - Indirect - Direct - Direct
CHANNEL
- Office products - General office markets - General office markets
superstores (e.g., consulting, (e.g., consulting,
financial services, financial services,
- Contract/commercial legal and accounting legal and accounting
stationers firms) firms)
- Wholesalers - Commercial (e.g., - Commercial (e.g.,
reprographic centers reprographic centers
CUSTOMER BASE _______ - Mail order companies and copy shops) and copy shops)
- Retail dealers - Education/training (e.g., - Education/training (e.g.,
schools and training schools and training
centers) centers)
- Government - Commercial printers
- Government
1997 PRO FORMA REVENUES(1) $429 million $249 million $185 million
(% OF COMPANY TOTAL) 48.6% 28.2% 20.9%
</TABLE>
- -------------------------
(1) Other products and services consisting primarily of binding and laminating
equipment and supplies sold in certain emerging markets contributed an
additional $20 million, or 2.3%, to 1997 pro forma revenues.
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<PAGE> 9
COMPETITIVE STRENGTHS
Management believes that the following competitive strengths have been the
principal factors in the Company's success in establishing itself as a worldwide
leader in the design, manufacture and marketing of branded office products,
office equipment and related supplies, and thermal laminating film:
LEADING MARKET POSITIONS IN MAJOR PRODUCT CATEGORIES WITH STRONG BRAND
NAMES. The Company maintains leading market positions worldwide in binding and
laminating equipment and supplies, certain visual communication products,
including marker boards, bulletin/planning boards and easels, thermal laminating
film products and paper shredders. GBC attributes its leading market positions
primarily to its reputation for high-quality and reliable products, high levels
of customer and value-added services, broad product offerings, technological
innovation and state-of-the-art manufacturing facilities. Well-known brand
names, including GBC(R), VeloBind(R), Shredmaster(R), Quartet(R), Pro-Tech(TM),
Bates(R) and newly-acquired Ibico(R), have enhanced the Company's ability to
successfully differentiate its product lines from those of its competitors.
STRONG CUSTOMER RELATIONSHIPS. The Company enjoys long-standing
relationships with many of its significant customers, averaging over 15 years
with its top 10 customers, which collectively generated approximately 30% of the
Company's pro forma revenues in 1997. The Company sells products both to
resellers ("indirect channel") and directly to end users ("direct channel"). The
Company sells to virtually all of the major U.S. indirect channel resellers in
its markets and currently has approximately 100,000 active direct channel
customers. GBC's indirect channel customers include the major U.S. office
products superstores (e.g., Staples, Office Depot and OfficeMax), wholesalers
(e.g., United Stationers and S.P. Richards), contract/commercial stationers
(e.g., Boise Cascade Office Products Corporation, Corporate Express Inc., BT
Office Products International, Inc., U.S. Office Products Company and the
contract stationer divisions of Staples, Inc. and Office Depot, Inc.), mail
order companies (e.g., Quill, Reliable Corporation, Viking Office Products,
Inc., Global DirectMail Corp. and Staples Direct) and other retail dealers, as
well as office products resellers in Europe, the Asia/Pacific region and Latin
America. The Company's direct channel customers include general office customers
(e.g., consulting, financial services, legal and accounting firms), commercial
customers (e.g., reprographic centers and copy shops), education/training
customers (e.g., schools and training centers), commercial printers and
government agencies. Management believes that the Company's strong customer
relationships will enable it to capitalize on the increasing demand for office
products, office equipment and related supplies and film as well as facilitate
its introduction of new products and services.
SIGNIFICANT REVENUE FROM CONSUMABLE SUPPLIES AND SERVICES. GBC has
approximately 100,000 direct channel customers with installed binding and
laminating equipment. These customers provide the Company with the opportunity
to generate significant recurring and higher-margin revenues from the sale of
consumable supplies and services, such as binding materials, thermal film
products, presentation covers, index tabs and maintenance contracts. Revenue
generated from sales of consumable supplies and maintenance services to these
direct channel customers and to indirect channel customers accounted for
approximately 55% of GBC's 1997 pro forma revenues.
SUPERIOR LEVELS OF CUSTOMER AND VALUE-ADDED SERVICES. The Company provides
its customers in both the indirect and direct channels with high levels of
customer and value-added services. Value-added services include providing
marketing consultation to indirect channel customers (e.g., designing appealing
product displays) and assisting customers with enhancing their inventory
management systems (e.g., delivering bar-coded shipments to customers to
facilitate the customers' inventories and distribution processes). In addition,
the Company has developed efficient distribution systems for its office and film
products which enhance its ability to fill customer orders quickly, ship
complete multiple-product orders in a single shipment, ensure prompt deliveries
and achieve high customer order fill rates. Management believes that the
Company's high levels of customer and value-added services have enabled it to
build strong relationships with customers and successfully differentiate itself
from many of its competitors.
EXPERIENCED MANAGEMENT TEAM. The Company has a highly-experienced
management team with a record of achieving strong internal growth and
successfully integrating strategic acquisitions. The Chief Executive Officer and
the heads of the Company's Office Products Group, Document Finishing Group and
Films Group have, on average, 22 years of experience in their respective
sectors. The Company's current management team has completed the acquisition of
10 businesses or product lines since 1995, with aggregate
4
<PAGE> 10
annualized revenues at the time of such acquisitions of approximately $324
million. From 1995 to 1997, this management team also has overseen revenue
growth, excluding the impact of acquisitions, of 18%.
MANUFACTURING EFFICIENCY. Management believes that the Company's
manufacturing operations are among the most efficient in its major product
lines, allowing the Company to maintain a highly competitive cost structure.
High-volume production at the Company's major facilities provides significant
economies of scale, enables the Company to invest in selective vertical
integration, and allows the Company to achieve meaningful purchasing power for
raw materials and outsourced manufacturing services. In addition, the Company
has made significant investments in state-of-the-art manufacturing equipment to
ensure efficient production and minimize waste.
LANE INDUSTRIES OWNERSHIP AND SPONSORSHIP. Approximately 62% of the
Issuer's outstanding Common Stock (after giving effect to the possible
conversion of Class B Common Stock) is owned by Lane Industries, a diversified
holding company located in Northbrook, Illinois. Lane Industries was recently
ranked among the largest privately-held companies in the United States and has
provided important financial support and management and professional services to
GBC (e.g., Lane Industries provided a $100 million subordinated bridge facility
to the Company in connection with the Ibico Acquisition).
BUSINESS STRATEGY
The Company's objective is to strengthen its position as a worldwide leader
in the design, manufacture and marketing of branded office products, office
equipment and related supplies, and thermal laminating film by pursuing the
following strategies:
MAINTAIN AND EXPAND RELATIONSHIPS WITH KEY CUSTOMERS. The Company enjoys
long-standing relationships with many of its significant customers, averaging
over 15 years with its top 10 customers in 1997, and seeks to expand its market
positions and customer base by offering a broad range of high-quality products
supported by high levels of customer and value-added services. In particular,
the Company believes that it has the opportunity to achieve greater market
penetration in both its direct and indirect channels by introducing new and
technologically enhanced products at competitive prices.
PURSUE GLOBAL GROWTH OPPORTUNITIES. Management believes that certain of the
international markets for its products are expanding at growth rates
significantly higher than those in the United States. The Company has marketed
its products outside of North America for over 40 years and currently operates
in over 115 countries. The Company believes that it has built an infrastructure,
in part through the Ibico Acquisition, capable of accommodating significant
global expansion. Many of the Company's major Office Products Group customers
are expanding into international markets and are demanding the same levels of
quality and service as they require in North America. Management believes that
GBC is well-positioned to service these customers due to its broad product
offerings and extensive distribution capabilities. The Company also expects its
Films Group to experience strong growth as thermal lamination films marketed by
the Company continue to displace solvent lamination films as a result of
increased environmental concerns and regulations in international markets. The
Company has expanded its international sales from $165 million in 1995 (or 36%
of the Company's total revenues) to $291 million, on a pro forma basis in 1997
(or 33% of the Company's total pro forma revenues).
SELECTIVELY PURSUE ACQUISITIONS AND JOINT VENTURES. The Company believes
that opportunities exist to expand the market positions of each of its global
Business Groups through strategic acquisitions and joint ventures. The Company
intends to target companies and product lines that (i) maintain and strengthen
its competitive leadership positions, (ii) complement its existing businesses
through expanded product lines, (iii) enhance its relationships with existing
customers and establish relationships with new customers, or (iv) facilitate
penetration into new and developing business areas and geographic territories.
The Company believes that it can realize significant sales growth and improved
profitability through acquisitions as a result of economies of scale, operating
synergies resulting from the integration of manufacturing and distribution
operations, and expansion of the Company's presence in the United States and in
growing international markets.
-------------------------
GBC is a Delaware corporation which was incorporated in 1947. Its executive
offices are located at One GBC Plaza, Northbrook, Illinois 60062, and its
telephone number is (847) 272-3700.
5
<PAGE> 11
THE INITIAL OFFERING
Offering of Old Notes......... The Old Notes were issued by the Issuer on May
27, 1998 to BT Alex. Brown Incorporated, CIBC
Oppenheimer Corp., ABN AMRO Incorporated, First
Chicago Capital Markets, Inc. and Nesbitt Burns
Securities Inc. (the "Initial Purchasers")
pursuant to a Purchase Agreement dated as of
May 21, 1998 (the "Purchase Agreement"). The
Initial Purchasers subsequently resold the Old
Notes to (i) qualified institutional buyers
pursuant to Rule 144A under the Securities Act
and (ii) qualified buyers outside the United
States in reliance upon Regulation S under the
Securities Act.
Registration Rights
Agreement................... Pursuant to the Purchase Agreement, the Issuer,
the Subsidiary Guarantors and the Initial
Purchasers entered into a Registration Rights
Agreement dated as of May 27, 1998 (the
"Registration Rights Agreement"), which grants
the holders of the Old Notes certain exchange
and registration rights. The Exchange Offer is
intended to satisfy such exchange rights, which
rights shall terminate upon consummation of the
Exchange Offer.
THE EXCHANGE OFFER
Securities Offered............ $150,000,000 aggregate principal amount of
9 3/8% Senior Subordinated Notes due 2008 of
the Issuer.
The Exchange Offer............ $1,000 principal amount of Exchange Notes in
exchange for each $1,000 principal amount of
Old Notes. As of the date hereof, $150,000,000
aggregate principal amount of Old Notes are
outstanding. The Issuer will issue the Exchange
Notes to holders on or promptly after the
Expiration Date. Based on interpretations by
the staff of the Commission set forth in
no-action letters issued to third parties, the
Issuer believes that Exchange Notes issued
pursuant to the Exchange Offer in exchange for
Old Notes may be offered for resale, resold and
otherwise transferred by any holder thereof
(other than any such holder which is an
"affiliate" of the Issuer within the meaning of
Rule 405 under the Securities Act) without
compliance with the registration and prospectus
delivery provisions of the Securities Act,
provided that such Exchange Notes are acquired
in the ordinary course of such holder's
business and that such holder does not intend
to participate and has no arrangement or
understanding with any person to participate in
the distribution of such Exchange Notes. Any
Participating Broker-Dealer that acquired Old
Notes for its own account as a result of
market-making activities or other trading
activities may be a statutory underwriter. Each
Participating Broker-Dealer that receives
Exchange Notes for its own account pursuant to
the Exchange Offer must acknowledge that it
will deliver a prospectus in connection with
any resale of such Exchange Notes. The Letter
of Transmittal states that by so acknowledging
and by delivering a prospectus, a Participating
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
6
<PAGE> 12
time, may be used by a Participating
Broker-Dealer in connection with resales of
Exchange Notes received in exchange for Old
Notes where such Old Notes were acquired by
such Participating Broker-Dealer as a result of
market-making activities or other trading
activities. The Issuer and the Subsidiary
Guarantors have agreed that, for a period of
180 days after the Expiration Date, they will
make this Prospectus available to any
Participating Broker-Dealer for use in
connection with any such resale. See "Plan of
Distribution." Any holder who tenders in the
Exchange Offer with the intention to
participate, or for the purpose of
participating, in a distribution of the
Exchange Notes cannot rely on the position of
the staff of the Commission enunciated in
no-action letters and, in the absence of an
exemption therefrom, must comply with the
registration and prospectus delivery
requirements of the Securities Act in
connection with any resale transaction. Failure
to comply with such requirements in such
instance may result in such holder incurring
liability under the Securities Act for which
such holder is not indemnified by the Issuer.
Expiration Date............... 5:00 p.m., New York City time, on September 3,
1998 unless the Exchange Offer is extended, in
which case the term "Expiration Date" means the
latest date and time to which the Exchange
Offer is extended.
Accrued Interest on the
Exchange Notes and the
Old Notes................... Each Exchange Note will bear interest from its
issuance date. Holders of Old Notes that are
accepted for exchange will receive, in cash,
accrued interest thereon to, but not including,
the issuance date of the Exchange Notes. Such
interest will be paid with the first interest
payment on the Exchange Notes. Interest on the
Old Notes accepted for exchange will cease to
accrue upon issuance of the Exchange Notes.
Conditions to the Exchange
Offer....................... The Exchange Offer is subject to certain
customary conditions, which may be waived by
the Issuer. See "Exchange Offer -- Conditions."
Procedures for Tendering
Old Notes................... Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
accompanying 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
the Old Notes and any other required
documentation to the Exchange Agent (as
defined) at the address set forth herein. By
executing the Letter of Transmittal, each
holder will represent to the Issuer that, among
other things, the Exchange Notes acquired
pursuant to the Exchange Offer are being
obtained in the ordinary course of business of
the person receiving such Exchange Notes,
whether or not such person is the holder, that
neither the holder nor any such other person
has any arrangement or understanding with any
person to participate in the distribution of
such Exchange Notes and that neither the holder
nor any such other person is an
7
<PAGE> 13
"affiliate," as defined under Rule 405 of the
Securities Act, of the Issuer. See "Exchange
Offer -- Purpose and Effect of the Exchange
Offer" and "Exchange Offer -- Procedures for
Tendering."
Untendered Old Notes.......... Following the consummation of the Exchange
Offer, holders of Old Notes eligible to
participate in the Exchange Offer but who do
not tender their Old Notes will not have any
further exchange rights and such Old Notes will
continue to be subject to certain restrictions
on transfer. Accordingly, the liquidity of the
market for such Old Notes could be adversely
affected.
Consequences of Failure to
Exchange.................. The Old Notes that are not exchanged pursuant
to the Exchange Offer will remain restricted
securities. Accordingly, such Old Notes may be
resold only (i) to the Issuer, (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 "Exchange Offer -- Consequences of
Failure to Exchange."
Special Procedures for
Beneficial Owners........... Any beneficial owner whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender should contact such
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 its
Old Notes, either make appropriate arrangements
to register ownership of the Old 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. See "Exchange
Offer -- Procedures For Tendering."
Guaranteed Delivery
Procedures.................. Holders of Old Notes who wish to tender their
Old Notes and whose Old Notes are not
immediately available or who cannot deliver
their Old Notes, the Letter of Transmittal or
any other documents required by the Letter of
Transmittal to the Exchange Agent (or comply
with the procedures for book-entry transfer)
prior to the Expiration Date must tender their
Old Notes according to the guaranteed delivery
procedures set forth in "Exchange
Offer -- Guaranteed Delivery Procedures."
Withdrawal Rights............. Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the
Expiration Date.
Acceptance of Old Notes
and Delivery of Exchange
Notes....................... The Issuer will accept for exchange any and all
Old Notes which are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York
City time, on the Expiration Date. The Exchange
Notes issued pursuant to the Exchange Offer
will be delivered promptly
8
<PAGE> 14
following the Expiration Date. See "Exchange
Offer -- Terms of the Exchange Offer."
Exchange Agent................ First Union National Bank (the "Exchange
Agent").
Certain United States Federal
Tax Considerations............ Holders of Old Notes should review the
information set forth under "Certain United
States Federal Tax Consequences" prior to
tendering Old Notes in the Exchange Offer.
EXCHANGE NOTES
General....................... The form and terms of the Exchange Notes are
the same as the form and terms of the Old Notes
except that (i) the Exchange Notes will bear a
different CUSIP Number from the Old Notes, (ii)
the Exchange Notes have been registered under
the Securities Act and, therefore, will not
bear legends restricting the transfer thereof
and (iii) the holders of Exchange Notes will
not be entitled to certain rights under the
Registration Rights Agreement, including the
provisions providing for an increase in the
interest rate on the Old Notes in certain
circumstances relating to the timing of the
exchange offer, which rights will terminate
when the Exchange Offer is consummated. See
"Exchange Offer -- Purpose and Effect of the
Exchange Offer." The Exchange Notes will
evidence the same debt as the Old Notes and
will be entitled to the benefits of the
Indenture. See "Description of the Notes." The
Old Notes and the Exchange Notes are referred
to herein collectively as the "Notes."
Securities Offered............ $150,000,000 aggregate principal amount of
9 3/8% Senior Subordinated Notes due 2008.
Issuer........................ General Binding Corporation, a Delaware
corporation.
Maturity Date................. June 1, 2008.
Interest Payment Dates........ Interest on the Exchange Notes will accrue from
the Issue Date and will be payable
semi-annually in arrears on each June 1 and
December 1 of each year, commencing December 1,
1998.
Ranking....................... The Exchange Notes will be general unsecured
obligations of the Issuer and will be
subordinated in right of payment to all
existing and future Senior Indebtedness of the
Issuer and will be effectively subordinated to
all obligations of any subsidiary of the Issuer
that is not a Subsidiary Guarantor. The
Exchange Notes will also be effectively
subordinated to all secured Indebtedness of the
Issuer and the Subsidiary Guarantors to the
extent of the value of the assets securing such
Indebtedness. The Exchange Notes will rank pari
passu in right of payment with all senior
subordinated indebtedness of the Issuer and
will be senior in right of payment to all other
existing and future subordinated indebtedness
of the Issuer. As of December 31, 1997, on a
pro forma basis, the Issuer and the Subsidiary
Guarantors would have had an aggregate
principal amount of approximately $439 million
of total indebtedness, of which $289 million
would have constituted Senior Indebtedness or
Guarantor Senior Indebtedness (in each case,
excluding unused
9
<PAGE> 15
commitments under the Credit Facility and
outstanding letters of credit totaling
approximately $224 million). Under the
Indenture, the Issuer and the Subsidiary
Guarantors have the ability to incur additional
indebtedness in the future, including
indebtedness which constitutes Senior
Indebtedness or Guarantor Senior Indebtedness.
See "Use of Proceeds," "Unaudited Combined Pro
Forma Condensed Financial Data" and
"Description of Credit Facility."
Guarantees.................... The Exchange Notes will be unconditionally
guaranteed on a senior subordinated basis by
the Subsidiary Guarantors. The Guarantees will
be general unsecured obligations of the
Subsidiary Guarantors and will be subordinated
in right of payment to all existing and future
Guarantor Senior Indebtedness. The Guarantees
will rank pari passu with any senior
subordinated indebtedness of the Subsidiary
Guarantors and will rank senior in right of
payment to any other subordinated obligations
of the Subsidiary Guarantors.
Optional Redemption........... The Exchange Notes will be redeemable at the
Issuer's option, in whole or in part, on and
after June 1, 2003 at the redemption prices set
forth herein, plus accrued and unpaid interest
to the date of redemption. In addition, at any
time on or prior to June 1, 2001, the Issuer,
at its option, may redeem up to 35% of the
aggregate principal amount of the Exchange
Notes originally issued with the net cash
proceeds of one or more Public Equity
Offerings, at a redemption price equal to
109.375% of the principal amount thereof, plus
accrued and unpaid interest to the date of
redemption, provided that at least 65% of the
aggregate principal amount of the Exchange
Notes originally issued remains outstanding
immediately following any such redemption. See
"Description of the Notes -- Redemption."
Change of Control............. Upon a Change of Control, each Holder will have
the right to require the Issuer to repurchase
such Holder's Exchange Notes at a price equal
to 101% of the principal amount thereof plus
accrued and unpaid interest to the date of
repurchase.
Certain Covenants............. The Indenture contains certain covenants that
limit the ability of the Issuer and its
Restricted Subsidiaries (as defined) 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 Indebtedness or
Guarantor Senior Indebtedness and senior in
right of payment to the Exchange Notes or the
Guarantees, as the case may be; incur liens;
impose restrictions on the ability of a
Restricted Subsidiary to pay dividends or make
certain payments to the Issuer and its
Restricted 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
Issuer. In addition, under certain
circumstances, the Issuer is required to offer
to purchase the Exchange Notes at a purchase
price equal to 100% of the principal amount
thereof plus accrued and unpaid interest to the
date of repurchase with the Net Cash Proceeds
(as defined herein) of certain Asset Sales. As
of the date of this Prospectus, each
10
<PAGE> 16
subsidiary of the Issuer is a Restricted
Subsidiary. See "Description of the Notes --
Certain Covenants."
Use of Proceeds............... There will be no cash proceeds to the Issuer or
the Subsidiary Guarantors from the exchange
pursuant to the Exchange Offer. The
approximately $145 million of net proceeds from
the Initial Offering were used to repay
approximately $60 million of indebtedness owed
by the Issuer to Lane Industries that was
incurred to partially finance the Ibico
Acquisition and to repay borrowings under the
Credit Facility. See "Use of Proceeds."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered in evaluating an investment in the Exchange Notes.
11
<PAGE> 17
SUMMARY CONSOLIDATED HISTORICAL AND COMBINED (UNAUDITED) PRO FORMA FINANCIAL
DATA
The following selected historical consolidated financial data as of and for
the years ended December 31, 1993, 1994, 1995, 1996 and 1997 have been derived
from the Consolidated Financial Statements of the Company audited by Arthur
Andersen LLP. The following selected historical consolidated data as of and for
the three month periods ended March 31, 1997 and 1998 have been derived from the
Consolidated Financial Statements of the Company and are unaudited. The interim
results, in the opinion of Management, include all adjustments (consisting
solely of normal recurring adjustments) necessary to present fairly the
financial information for such periods; however, such results are not
necessarily indicative of the results that may be expected for any other interim
period or for a full year. The results of operations include the results of
acquisitions described under "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Acquisitions" and have been included in
the Company's Consolidated Financial Statements from the date of the respective
acquisitions. The summary unaudited combined pro forma financial data of the
Company set forth below give effect to (i) the Offering and the application of
the net proceeds therefrom as described herein and (ii) the Ibico Acquisition.
The unaudited combined pro forma statement of operations and other financial
data give effect to the Transactions as if they had occurred on January 1, 1997,
while the unaudited combined pro forma balance sheet data give effect to the
Transactions as if they had occurred on December 31, 1997. The summary unaudited
combined pro forma financial data do not purport to be indicative of the
financial position or results of operations of future periods or indicative of
results that would have occurred had the Transactions been consummated on the
dates indicated. The summary unaudited combined pro forma financial data should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Unaudited Combined Pro Forma Condensed
Financial Data," the Consolidated Financial Statements and the Notes thereto and
Ibico's consolidated financial statements and notes thereto included elsewhere
in this Offering Memorandum.
<TABLE>
<CAPTION>
AS OF OR FOR THE
THREE MONTHS ENDED
AS OF OR FOR THE YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------------------- -------------------
PRO FORMA
1993 1994 1995 1996 1997 1997 1997 1998
---- ---- ---- ---- ---- --------- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total sales.................. $376,138 $420,449 $458,391 $536,836 $770,001 $883,499 $180,505 $213,944
Costs and expenses:
Cost of sales.............. 209,340 237,492 263,706 315,949 440,625 516,487 104,569 122,004
Selling, service and
administrative........... 137,674 147,639 153,690 171,473 247,185 277,494 57,333 69,664
Goodwill and related
intangibles.............. 754 784 901 1,699 7,859 9,964 1,629 2,470
Provision for restructuring
expense(1)............... -- 4,000 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Operating income............. 28,370 30,534 40,094 47,715 74,332 79,554 16,974 19,806
Interest expense............. 3,609 3,776 4,259 6,172 24,577 39,848 5,228 7,472
Other (income) expense,
net........................ 456 1,058 2 (1,011) 1,575 1,211 460 509
-------- -------- -------- -------- -------- -------- -------- --------
Income before taxes.......... 24,305 25,700 35,833 42,554 48,180 38,495 11,286 11,825
Income taxes................. 9,311 9,997 14,333 17,341 19,513 15,590 4,514 4,730
-------- -------- -------- -------- -------- -------- -------- --------
Net income................... $ 14,994 $ 15,703 $ 21,500 $ 25,529 $ 28,667 $ 22,905 $ 6,772 $ 7,095
======== ======== ======== ======== ======== ======== ======== ========
OTHER FINANCIAL DATA:
EBITDA(2).................... $ 38,661 $ 41,557 $ 52,906 $ 63,744 $ 99,965 $109,466 $ 23,530 $ 27,318
Adjusted EBITDA(3)........... 38,661 41,557 52,906 63,744 99,965 116,466(4) 23,530 27,318
Capital expenditures......... 10,595 12,788 15,046 27,778 29,619 33,753 6,219 6,385
Depreciation and
amortization............... 10,747 12,081 12,814 15,018 27,208 31,123 7,016 8,021
Ratio of earnings to fixed
charges(5)................. 5.0x 5.0x 6.1x 5.8x 2.8x 1.9x 2.9x 2.4x
Ratio of EBITDA to interest
expense(2)................. 10.7x 11.0x 12.4x 10.3x 4.1x 2.7x 4.5x 3.7x
Ratio of Adjusted EBITDA to
interest expense(3)........ 10.7x 11.0x 12.4x 10.3x 4.1x 2.9x 4.5x 3.7x
Ratio of total debt to
EBITDA(2).................. 1.3x 1.6x 1.2x 1.9x 3.7x 4.6x
Ratio of total debt to
Adjusted EBITDA(3)......... 1.3x 1.6x 1.2x 1.9x 3.7x 4.3x
BALANCE SHEET DATA:
Cash and cash equivalents.... $ 4,462 $ 5,569 $ 6,864 $ 6,721 $ 3,753 $ 3,753 $ 7,444 $ 13,347
Working capital.............. 80,591 86,550 96,820 125,085 175,643 190,626 154,707 192,803
Net property, plant and
equipment.................. 62,095 65,530 61,461 69,011 113,421 125,712 108,411 126,119
Total assets................. 251,109 284,278 298,872 393,706 692,914 848,038 639,446 869,389
Total debt................... 48,408 66,508 61,823 119,212 365,039 501,312 349,534 520,985
Stockholders' equity......... 133,531 141,089 154,141 172,132 191,043 191,043 175,081 193,371
</TABLE>
12
<PAGE> 18
- -------------------------
(1) The 1994 provision for restructuring expense reflects costs associated with
discontinuing manufacturing in certain locations along with an overall
downsizing of the Company's infrastructure.
(2) EBITDA represents net income before income taxes, interest expense and
depreciation and amortization. EBITDA is not a measure of financial
performance under generally accepted accounting principles and does not
necessarily indicate that cash flow will be sufficient to fund cash
requirements. The Company understands that certain investors believe EBITDA
measures a company's ability to service debt and to utilize cash for other
purposes. EBITDA should not be considered in isolation or as a substitute
for net income, cash flows from operations, or other income or cash flow
data prepared in accordance with generally accepted accounting principles or
as a measure of a company's profitability or liquidity.
(3) Adjusted EBITDA is EBITDA as modified to reflect certain adjustments which
Management believes are relevant in evaluating the future operating
performance of the Company. These adjustments, which eliminate the impact of
certain nonrecurring charges and reflect the estimated impact of
Management's business and operating strategy, are based on estimates and
assumptions made and believed to be reasonable by the Company, but are
inherently uncertain and are subject to change. Adjusted EBITDA should not
be viewed as indicative of actual or future results and is not computed in
accordance with GAAP or with regulations of the Commission.
(4) Pro forma Adjusted EBITDA for the fiscal year ended December 31, 1997
includes the supplemental cost savings relating to the Ibico Acquisition
described in Note 9 on Page 22.
(5) For purposes of determining the ratio of earnings to fixed charges,
"earnings" consist of net income before provision for income taxes,
undistributed earnings (loss) of equity investments and fixed charges. Fixed
charges consist of interest expense and the interest portion of the
Company's rent expense (deemed to be one-third of operating lease rental
expense).
RECENT DEVELOPMENTS
On June 22, 1998, the Company issued a press release announcing that it
expects its net income for the second quarter ended June 30, 1998 to be
approximately $0.35-$0.37 per share, approximately $0.08-$0.10 per share below
second quarter 1997 earnings of $0.45 per share diluted. The factors cited by
the Company as contributing to the expected reduction in earnings include a
temporary decline in sales in the Company's Document Finishing Group as a result
of the specialization of its U.S. sales force completed at year-end 1997 and the
negative effect on the Company's European operations of investments made by the
Company to expand its global business with major retailers. In the press
release, the Company stated that it expects net income for 1998 to be
approximately equal to or slightly better than 1997 on a year-to-year, diluted
basis. In the press release, the Company also stated that it expects cash flow
for the second quarter of 1998, as measured by EBITDA, to increase by
approximately 12% over the second quarter of 1997.
On July 6, 1998, the Company issued a press release announcing the
consummation of the sale of its U.S. RingBinder business. The Company said that
it expects to use the proceeds of the sale to reduce its outstanding debt. The
Company also announced that it would record a one-time pre-tax charge of $2.9-
$3.5 million, or $0.11-$0.13 net per diluted share, in the Company's second
quarter earnings relating to the sale.
13
<PAGE> 19
RISK FACTORS
In addition to the other information contained in this Prospectus,
including "Selected Historical Consolidated Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
the Company's Consolidated Financial Statements and Notes thereto included
elsewhere herein, the following risk factors should be considered carefully by
prospective investors prior to tendering Old Notes in exchange for Exchange
Notes. The risk factors set forth below are generally applicable to the Old
Notes as well as the Exchange Notes.
SIGNIFICANT LEVERAGE AND DEBT SERVICE; RESTRICTIVE COVENANTS
The Company has indebtedness that is substantial in relation to its
stockholders' equity, as well as interest and other debt service requirements
which will be significant compared to its cash flow from operations. As of
December 31, 1997, on a pro forma basis, the Company would have had
approximately $501.3 million of indebtedness outstanding, which would have
represented 72.4% of the Company's total capitalization. In addition, the
Indenture permits the Company and its subsidiaries to incur substantial
additional indebtedness, including Senior Indebtedness and Guarantor Senior
Indebtedness, subject to certain limitations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Description of
Credit Facility" and "Description of the Notes -- Certain Covenants."
The Company's high degree of leverage could have important consequences to
holders of the Exchange Notes, including, but not limited to the following: (i)
a substantial portion of the Company's cash flow from operations must be
dedicated to debt service and will not be available for operations and other
purposes; (ii) the Company's ability to obtain additional financing in the
future for working capital, capital expenditures, acquisitions or general
corporate purposes may be limited; (iii) certain of the Company's borrowings are
and will continue to be at variable rates of interest, which exposes the Company
to the risk of increased interest rates; (iv) the Company may be substantially
more leveraged than certain of its competitors, which may place the Company at a
competitive disadvantage; and (v) the Company's level of indebtedness could make
it more vulnerable to economic downturns and limit its ability to withstand
competitive pressures. See "Description of Credit Facility" and "Description of
the Notes."
The Company's ability to make scheduled payments or to refinance its
obligations with respect to its indebtedness (including the Exchange Notes) will
depend upon the Company's future financial and operating performance, which will
be affected by prevailing economic conditions and financial, business and other
factors, many of which are beyond the Company's control. There can be no
assurance that the Company's operating results will be sufficient for the
Company to meet its obligations. If the Company is unable to generate sufficient
cash flow from operations in the future to service its debt, it may be required
to refinance all or a portion of its existing debt, including the Exchange
Notes, or to obtain additional financing. No assurance can be given that any
such refinancing would be possible on terms acceptable to the Company or that
additional financing could be obtained. If the Company is unable to service its
indebtedness or obtain refinancing of its indebtedness, it will be forced to
adopt an alternative strategy that may include actions such as reducing or
delaying capital expenditures or the expansion of the Company, selling assets or
seeking additional equity capital. There can be no assurance that any of these
strategies could be effected on terms acceptable to the Company, or at all. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
The Credit Facility and the Indenture contain certain restrictive covenants
which will affect, and in many respects significantly limit or prohibit, among
other things, the ability of the Issuer and its Restricted Subsidiaries to incur
indebtedness, make prepayments of certain indebtedness, make investments, pay
dividends or make certain other restricted payments, engage in transactions with
affiliates, create liens, sell assets and engage in mergers and consolidations.
The Credit Facility also requires the Company to maintain specified financial
ratios and to satisfy certain financial tests on a consolidated basis. The
Company's failure to comply with its obligations under the Credit Facility or
the Indenture, or in agreements relating to indebtedness incurred in the future,
could result in an event of default under such agreements, which could permit
acceleration of the related debt and acceleration of debt under other financing
arrangements that may
14
<PAGE> 20
contain cross-acceleration or cross-default provisions. If any such indebtedness
were to be accelerated, 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 Exchange Notes. See "Description of
Credit Facility" and "Description of the Notes -- Subordination" and
"Description of the Notes -- Certain Covenants."
SUBORDINATION OF THE EXCHANGE NOTES AND GUARANTEES
The Exchange Notes will be subordinated in right of payment to all existing
and future Senior Indebtedness of the Issuer, including indebtedness under the
Credit Facility, and the Guarantees will be subordinated to all existing and
future Guarantor Senior Indebtedness of the Subsidiary Guarantors. In addition,
the Exchange Notes and the Guarantees will be effectively subordinated to all
existing and future secured indebtedness of the Issuer and the Subsidiary
Guarantors, respectively, and all obligations of any subsidiary of the Issuer
that is not a Subsidiary Guarantor. Under the terms of the Indenture, the Issuer
and its Restricted Subsidiaries are restricted, but not prohibited, from
incurring additional indebtedness, including Senior Indebtedness, Guarantor
Senior Indebtedness and additional secured indebtedness. See "Description of
Credit Facility," and "Description of the Notes -- Subordination" and "--
Certain Covenants." As of December 31, 1997, on a pro forma basis, the Issuer
and the Subsidiary Guarantors would have had an aggregate principal amount of
approximately $289 million of indebtedness that would have constituted Senior
Indebtedness or Guarantor Senior Indebtedness (excluding unused commitments
under the Credit Facility and outstanding letters of credit totaling
approximately $224 million). In addition, as of such date, on a pro forma basis,
subsidiaries of the Issuer that will not be Subsidiary Guarantors would have had
approximately $63 million of indebtedness outstanding (excluding intercompany
loans). Management expects that, subject to the restrictions contained in the
Company's debt agreements, the Issuer and the Subsidiary Guarantors will incur
additional Senior Indebtedness and Guarantor Senior Indebtedness, respectively,
including indebtedness under the Credit Facility, in connection with the
implementation of the Company's business strategy.
By reason of the subordination described in the preceding paragraph, in the
event of the insolvency, liquidation, reorganization, dissolution or other
winding up of the Issuer, creditors of the Issuer who are not holders of Senior
Indebtedness, including holders of the Exchange Notes, may recover less,
ratably, than holders of Senior Indebtedness. Similarly, the creditors of a
Subsidiary Guarantor who are not holders of Guarantor Senior Indebtedness,
including holders of the Exchange Notes, may also recover less, ratably, than
holders of Guarantor Senior Indebtedness. In addition, the holders of any
secured indebtedness of the Issuer or the Subsidiary Guarantors will be entitled
to a claim on the assets securing such indebtedness which is prior to any claim
of the holders of the Exchange Notes or the Guarantees, as the case may be. If
the Issuer or a Subsidiary Guarantor incurs additional pari passu unsecured
indebtedness, the holders of such debt would be entitled to share ratably with
the holders of the Exchange Notes in any proceeds distributed in connection with
any insolvency, liquidation, reorganization, dissolution or other winding up of
the Issuer. This may have the effect of reducing the amount of proceeds paid to
holders of the Exchange Notes. In addition, no payments may be made with respect
to the principal of or interest on the Exchange Notes if a payment default
exists with respect to Designated Senior Indebtedness (as defined herein) and,
under certain circumstances, no payments may be made with respect to the
principal of or interest on the Exchange Notes for certain periods of time if a
non-payment default exists with respect to Designated Senior Indebtedness. See
"Description of the Notes -- Subordination."
COMPETITION
The Company's products and services are sold in highly competitive markets.
Management believes that the principal points of competition in the Company's
markets are product and service quality, price, design and engineering
capabilities, product development, conformity to customer specifications,
timeliness and completeness of delivery, and quality of post-sale support.
Certain of the Company's current competitors have, and potential competitors may
have, greater financial, marketing, and research and development resources than
the Company. Competitive conditions often require the Company to match or better
competitors' prices to retain business or market share. Maintaining and
improving the Company's competitive position will require continued investment
by the Company in manufacturing, quality standards, marketing and customer
service
15
<PAGE> 21
and support. There can be no assurance that the Company will have sufficient
resources to continue to make such investment or that it will be successful in
maintaining its competitive position. There are no significant barriers to entry
in the markets for many of the Company's products and services. See "Business --
Competition."
DEPENDENCE ON MAJOR CUSTOMERS
In 1997, on a pro forma basis, approximately 30% of the Company's net sales
were to the Company's 10 largest customers, although no single customer
accounted for more than 10% of sales. The loss of, or major reduction in
business from, one or more of the Company's major customers could have a
material adverse effect on the Company's financial position or results of
operations. See "Business -- Customers."
EXPOSURE TO COST AND SUPPLY FLUCTUATIONS IN CERTAIN RAW MATERIALS
The primary materials used in the manufacture of many of the Company's
products are polyester and polypropylene substrates, PVC, wood and aluminum.
These materials are available from a number of suppliers and the Company is not
dependent upon any single supplier for any of these materials. Based on its
experience, Management believes that adequate quantities of these materials will
be available in the foreseeable future, but there can be no assurance that such
materials will continue to be available in adequate supply in the future or that
shortages in supply will not result in price increases that could have a
material adverse effect on the Company's financial position or results of
operations. In general, the Company's gross profit is affected from time to time
by fluctuations in the prices of these materials because competitive markets for
its products may make it difficult to pass through price increases to customers.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the continued services of certain members of
its senior management team. Although the Company believes it could replace key
personnel in an orderly fashion should the need arise, the loss of, and
inability to attract replacements for, any of such key personnel could have a
material adverse effect on the Company's financial position or results of
operations. See "Management."
CONTROLLING STOCKHOLDER
By virtue of its direct ownership of 7,383,059 shares of the Issuer's
Common Stock and 100% of the 2,398,275 shares of the Issuer's Class B Common
Stock outstanding (on a combined basis, representing 62% of all outstanding
capital stock), Lane Industries controlled 88% of the aggregate voting power of
the Issuer's outstanding voting securities as of March 1, 1998. As a result,
Lane Industries has the ability to control the affairs and policies of the
Company. There can be no assurance that the interests of Lane Industries with
respect to the Company will not conflict with the interests of holders of the
Exchange Notes. See "Certain Relationships and Related Transactions."
ACQUISITION AND JOINT VENTURE STRATEGY
The Company intends to consider future acquisitions and joint ventures to
strengthen its market positions for each of its global business units. Such
acquisitions and joint ventures entail risks inherent in assessing the value,
strengths and weaknesses of acquisition candidates or ventures. The success of
such acquisitions and joint ventures will depend on, and may be limited by, the
availability of suitable acquisition candidates or venture partners, the
Company's ability to obtain financing therefor and by restrictions contained in
the Indenture, the Credit Facility and the Company's other existing and future
financing arrangements. The Ibico Acquisition as well as any future
acquisitions, if made, could divert resources and management time and will
require integration with the Company's existing products and services. There can
be no assurance that any acquisitions will occur in the future or that the Ibico
Acquisition or any other acquisitions, if made, would be made on favorable terms
or would be successfully integrated into the Company's operations. See "Business
- --Business Strategy."
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<PAGE> 22
DEPENDENCE ON CERTAIN SUPPLIERS OF MANUFACTURED PRODUCTS
The Company relies on GMP Co. Ltd. ("GMP"), in which it holds a 33% equity
interest, as its sole supplier of many of the laminating machines it
distributes. It is estimated that laminating machines sourced from GMP accounted
for approximately $28 million of the Company's 1997 pro forma net sales. The
Company has a long-term supply contract with GMP; however, there can be no
assurance that GMP will be able to perform any or all of its contractual
obligations. GMP's equipment manufacturing facility is located in the Republic
of Korea and, therefore, GMP's ability to fulfill the Company's requirements for
laminating machines could be significantly affected by economic and political
conditions in Korea and in other parts of Asia. Although the Company believes
that it could find alternative suppliers if GMP is not able to fulfill the
Company's requirements, there can be no assurance that the Company would be able
to find such alternative suppliers on a timely basis so as to avoid a disruption
of supply or on favorable terms. Any material disruption in the Company's
ability to deliver orders for laminating machines on a timely basis could have a
material adverse effect on the Company's reputation with customers and its
financial position or results of operations. See "Business -- Manufacturing and
Strategic Supply Relationships."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
The Company has significant operations outside the United States.
Approximately 33% of the Company's 1997 pro forma revenues were from
international sales. The Company's international operations may be significantly
affected by economic, political and governmental conditions in the countries
where the Company has manufacturing facilities or where its products are sold.
In addition, changes in economic or political conditions in any of the countries
in which the Company operates could result in unfavorable exchange rates, new or
additional currency or exchange controls, other restrictions being imposed on
the operations of the Company or expropriation. The Company's results of
operations and financial position also may be adversely affected by significant
fluctuations in the value of the United States dollar relative to international
currencies. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business."
ENVIRONMENTAL MATTERS
The Company and its operations, both in the U.S. and abroad, are subject to
national, state, provincial and/or local laws and regulations that impose
limitations and prohibitions on the discharge and emission of, and establish
standards for the use, disposal, and management of, certain materials and waste,
and impose liability for the costs of investigating and cleaning up, and certain
damages resulting from, present and past spills, disposals, or other releases of
hazardous substances or materials (collectively, "Environmental Laws").
Environmental Laws can be complex and may change often, capital and operating
expenses to comply can be significant, and violations may result in substantial
fines and penalties. In addition, Environmental Laws such as the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA," or
"Superfund"), in the United States, impose liability on several grounds for the
investigation and cleanup of contaminated soil, groundwater, and buildings, and
for damages to natural resources, at a wide range of properties. For example,
contamination at properties formerly owned or operated by the Company as well as
properties the Company currently owns or operates, and properties to which
hazardous substances were sent by the Company, may result in liability for the
Company under Environmental Laws. As a manufacturer, the Company has an inherent
risk of liability under Environmental Laws both with respect to ongoing
operations and with respect to contamination that may have occurred in the past
on its properties or as a result of its operations. There can be no assurance
that the costs of complying with Environmental Laws, any claims concerning
noncompliance, or liability with respect to contamination will not in the future
have a material adverse effect on the Company's financial position or results of
operations.
FRAUDULENT TRANSFER CONSIDERATIONS
If, under relevant federal and state fraudulent transfer and conveyance
statutes, in a bankruptcy, reorganization or liquidation case or similar
proceeding or a lawsuit by or on behalf of unpaid creditors of the Issuer, a
court were to find that, at the time the Exchange Notes were issued by the
Issuer, (a) the Issuer
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<PAGE> 23
issued the Exchange Notes with the intent of hindering, delaying or defrauding
current or future creditors or (b)(i) the Issuer received less than reasonably
equivalent value or fair consideration for issuing the Exchange Notes, and (ii)
after applying the proceeds, the Issuer (A) was insolvent or was rendered
insolvent by reason of such transactions, (B) was engaged, or about to engage,
in a business or transaction for which its assets constituted unreasonably small
capital to carry on its business, or (C) intended to incur, or believed or
reasonably should have believed that it would incur, debts beyond its ability to
pay as such debts matured or became due (as all of the foregoing terms are
defined in or interpreted under the relevant fraudulent transfer or conveyance
statutes), such court could avoid the obligations under the Exchange Notes or
further subordinate the Exchange Notes to presently existing and future
indebtedness of the Issuer or take other action detrimental to the holders of
the Exchange Notes, including, under certain circumstances, invalidating the
Exchange Notes. In that event, there can be no assurance that any repayment on
the Exchange Notes would ever be received by holders of the Exchange Notes. The
avoidance of such Exchange Notes could result in an event of default with
respect to other debt of the Issuer and its subsidiaries, which could result in
acceleration of such debt.
In the event that under relevant state or federal law a Subsidiary
Guarantor is determined, at the time it executed its Guarantee, to have come
within clauses (a) and (b) of the first paragraph of this subsection, the
Guarantee by such Subsidiary Guarantor may be voidable (in whole or in part) or
the claim of the holders of the Exchange Notes in respect of such Guarantee may
be subordinated (in whole or in part) to other obligations and liabilities of
such Subsidiary Guarantor, in each case based on the theory that such Guarantee
constituted a fraudulent conveyance under applicable federal or state fraudulent
transfer or conveyance statutes. In the event that such claims are asserted
after any payments are made by a Subsidiary Guarantor under its Guarantee, there
is a risk that persons who received such payments will be ordered by a court to
return to such Subsidiary Guarantor's creditors or its trustee in bankruptcy all
or a portion of such payments.
The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the law of the jurisdiction that is to be applied.
Generally, however, a company would be considered insolvent if, at the time it
incurred indebtedness, either (i) it is unable to pay its debts as they become
due in the usual course of its business, (ii) the sum of its debts, including
contingent liabilities, is greater than its assets at a fair valuation or (iii)
the present fair saleable value of its assets is less than the amount required
to pay the probable liability on its total existing debts and liabilities
(including contingent liabilities), as they become absolute and matured. There
can be no assurance as to what standards a court would use to determine whether
the Issuer was solvent at the relevant time, or whether, whatever standard was
used, the Exchange Notes or the Guarantees would be avoided on another of the
grounds set forth above.
Each of the Issuer and the Subsidiary Guarantors believes that it will
receive equivalent value at the time the indebtedness under the Exchange Notes
and the Guarantees is incurred. Pursuant to the terms of the Guarantees, the
liability of each Subsidiary Guarantor is limited to the maximum amount of
indebtedness permitted, at the time of the grant of such Guarantee, to be
incurred in compliance with fraudulent conveyance or similar laws. In addition,
neither the Issuer nor any Subsidiary Guarantor believes that it, after giving
effect to the Transactions, (i) was or will be insolvent or rendered insolvent,
(ii) was or will be engaged in a business or transaction for which its remaining
assets constituted unreasonably small capital or (iii) intends or intended to
incur, or believes or believed that it will or would incur, debts beyond its
ability to pay such debts as they mature. These beliefs are based on the
Company's operating history and analysis of internal cash flow projections and
estimated values of assets and liabilities of the Issuer and the Subsidiary
Guarantors at the time of the Exchange Offer. There can be no assurance,
however, that a court passing on these issues would make the same determination.
ABSENCE OF A PUBLIC MARKET COULD ADVERSELY AFFECT THE VALUE OF EXCHANGE NOTES
The Old Notes were issued to, and the Issuer believes are currently owned
by, a relatively small number of beneficial owners. Prior to the Exchange Offer,
there has not been any public market for the Old Notes. The Old 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 this Exchange Offer. The holders of
Old Notes (other than any such holder that is an "affiliate"
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<PAGE> 24
of the Issuer within the meaning of Rule 405 under the Securities Act) who are
not eligible to participate in the Exchange Offer are entitled to certain
registration rights, and the Issuer is required to file a shelf registration
statement (a "Shelf Registration Statement") with respect to such Old Notes. The
Exchange Notes will constitute a new issue of securities with no established
trading market. The Issuer does not intend to list the Exchange Notes on any
national securities exchange or seek the admission thereof to trading in the
National Association of Securities Dealers Automated Quotation System. The
Initial Purchasers have advised the Issuer that they currently intend to make a
market in the Exchange Notes, but they are not obligated to do so and may
discontinue such market making at any time. In addition, such market making
activity will be subject to the limits imposed by the Securities Act and the
Exchange Act and may be limited during the Exchange Offer and the pendency of a
Shelf Registration Statement. 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.
FAILURE TO FOLLOW EXCHANGE OFFER PROCEDURES COULD ADVERSELY AFFECT HOLDERS
Issuance of the Exchange Notes in exchange for the Old Notes pursuant to
the Exchange Offer will be made only after a timely receipt by the Issuer of
such Old Notes, a properly completed and duly executed Letter of Transmittal and
all other required documents. Therefore, holders of the Old Notes desiring to
tender such Old Notes in exchange for Exchange Notes should allow sufficient
time to ensure timely delivery. The Issuer is under no duty to give notification
of defects or irregularities with respect to the tenders of Old Notes for
exchange. Old Notes that are not tendered or are tendered but not accepted will,
following the consummation of the Exchange Offer, continue to be subject to the
existing restrictions upon transfer thereof, and, upon consummation of the
Exchange Offer certain registration rights under the Registration Rights
Agreement will terminate. In addition, any holder of Old Notes who 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 receives Exchange Notes for its own account in exchange
for Old Notes, where such Old 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 that Old Notes are tendered and
accepted in the Exchange Offer, the trading market for untendered and tendered
but unaccepted Old Notes could be adversely affected. See "Exchange Offer."
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of the Exchange
Notes will have the right to require the Issuer to repurchase such holder's
Exchange Notes at a price equal to 101% of the principal amount thereof, plus
accrued and unpaid interest to the date of repurchase. See "Description of the
Notes -- Change of Control." If a Change of Control were to occur and any
holders were to exercise their right to require the Issuer to repurchase such
holders' Exchange Notes, there can be no assurance that the Issuer would have
sufficient financial resources, or would be able to arrange financing, to pay
the repurchase price for all Exchange Notes tendered by the holders thereof.
Further, the provisions of the Indenture may not afford holders of Exchange
Notes protection in the event of a highly leveraged transaction, reorganization,
restructuring, merger or similar transaction involving the Issuer that may
adversely affect holders of Exchange Notes, if such transaction does not result
in a Change of Control. In addition, the terms of the Credit Facility limit the
Issuer's ability to purchase any Exchange Notes and also identify certain events
that would constitute
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<PAGE> 25
a change of control, as well as certain other events with respect to the Issuer
or its subsidiaries, that would constitute an event of default under the Credit
Facility. See "Description of Credit Facility." Any future credit agreements or
other agreements relating to other indebtedness to which the Issuer becomes a
party may contain similar restrictions and provisions. In the event a Change of
Control occurs at a time when the Issuer is prohibited from purchasing Exchange
Notes, the Company could seek the consent of its lenders to the purchase of
Exchange Notes or could attempt to refinance the borrowings that contain such
prohibition. If the Company not obtain such consent or repay such borrowing, the
Issuer would remain prohibited from purchasing Exchange Notes. In such case, the
Issuer's failure to purchase validly tendered Exchange Notes would constitute an
Event of Default under the Indenture, which would, in turn, constitute a further
default under certain of the Company's other agreements and may constitute a
default under the terms of other debt agreements that the Company may enter into
from time to time. See "Description of the Notes -- Change of Control."
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain of the Issuer's
obligations under the Purchase Agreement and the Registration Rights Agreement.
The Issuer 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 Old Notes in like
principal amount, the form and terms of which are the same as the form and terms
of the Exchange Notes, except as otherwise described herein. The Old Notes
surrendered in exchange for Exchange Notes will be retired and canceled and
cannot be reissued. Accordingly, issuance of the Exchange Notes will not result
in any increase or decrease in the indebtedness of the Company. As a result, no
effect has been given to the Exchange Offer in the pro forma financial
statements or capitalization table included herein.
The approximately $145 million of net proceeds to the Issuer from the
Initial Offering were used to repay in full the $60 million aggregate principal
amount of outstanding indebtedness and accrued interest thereon owed by the
Issuer to Lane Industries under the Note Purchase Agreement dated as of February
25, 1998 (the "Bridge Loan") between the Issuer and Lane Industries, which
indebtedness was incurred to partially finance the Ibico Acquisition and to
repay approximately $85 million of indebtedness under the Credit Facility.
Affiliates of the Initial Purchasers are lenders under the Credit Facility. The
indebtedness repaid under the Bridge Loan accrued interest at a variable rate of
interest, which was equal to 7.7% on the date of consummation of the Initial
Offering, and was payable on demand. See "Certain Relationships and Related
Transactions." Indebtedness under the Credit Facility bears interest at a
variable rate, which was equal to 6.5% on the date of consummation of the
Initial Offering. See "Description of Credit Facility" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
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<PAGE> 26
CAPITALIZATION
The following table sets forth the consolidated cash position and
capitalization of the Company as of December 31, 1997 and on a pro forma basis
after giving effect to the Transactions. The information set forth below should
be read in conjunction with the "Selected Historical Consolidated Financial
Data," the "Unaudited Combined Pro Forma Condensed Financial Data" and the
Consolidated Financial Statements and the Notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents................. $ 3,753 -- $ 3,753
======== ======== ========
Total debt:
Credit Facility(1)...................... $307,128 $(49,615)(2) $257,513
9 3/8% Senior Subordinated Notes due
2008................................. -- 150,000(3) 150,000
Other................................... 57,911 35,888(4) 93,799
-------- -------- --------
Total debt........................... 365,039 136,273 501,312
Stockholders' equity:
Common stock, $.125 par value;
40,000,000 shares authorized;
15,693,747 shares issued and
outstanding.......................... 1,962 -- 1,962
Class B common stock, $.125 par value;
4,796,550 shares authorized;
2,398,275 shares issued and
outstanding.......................... 300 -- 300
Additional paid-in capital.............. 9,708 -- 9,708
Cumulative translation adjustments...... (6,108) -- (6,108)
Retained earnings....................... 208,394 -- 208,394
Treasury stock.......................... (23,213) -- (23,213)
-------- -------- --------
Total stockholders' equity........... 191,043 -- 191,043
-------- -------- --------
Total capitalization................. $556,082 $136,273 $692,355
======== ======== ========
</TABLE>
- -------------------------
(1) The Credit Facility provides total borrowing availability of up to $475
million, subject to increase to $550 million under certain circumstances.
Subject to certain conditions, extensions of credit under the Credit
Facility may be borrowed, repaid and reborrowed at any time prior to the
maturity of the Credit Facility. See "Description of Credit Facility."
(2) Represents borrowings of $35.4 million under the Credit Facility to finance
the portion of the purchase price for the Ibico Acquisition not financed by
the Bridge Loan, net of repayment of $85 million of the indebtedness
outstanding under the Credit Facility with a portion of the proceeds of the
Initial Offering.
(3) Represents gross proceeds to the Company from the Initial Offering, of which
approximately $85 million was used to repay borrowings under the Credit
Facility, $60 million was used to repay borrowings under the Bridge Loan and
approximately $5 million was or is expected to be used to pay fees and
expenses relating to the Initial Offering. See "Use of Proceeds."
(4) Represents indebtedness assumed by the Company in connection with the Ibico
Acquisition, consisting primarily of working capital facilities and
long-term notes, net of cash and cash equivalents acquired in connection
with the Ibico Acquisition.
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<PAGE> 27
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following selected historical consolidated financial data have been
derived from the consolidated financial statements of the Company. The data as
of and for the years ended December 31, 1993, 1994, 1995, 1996 and 1997 are
derived from the consolidated financial statements of the Company audited by
Arthur Andersen LLP. The following selected historical consolidated data as of
and for the three month periods ended March 31, 1997 and 1998 have been derived
from the Consolidated Financial Statements of the Company and are unaudited. The
interim results, in the opinion of Management, include all adjustments
(consisting solely of normal recurring adjustments) necessary to present fairly
the financial information for such periods; however, such results are not
necessarily indicative of the results that may be expected for any other interim
period or for a full year. The results of operations include the results of
acquisitions described under "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Acquisitions" and have been included in
the Company's consolidated financial statements from the date of the related
acquisitions. The information contained in this table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and
accompanying Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF OR FOR THE
THREE MONTHS ENDED
AS OF OR FOR THE YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total sales.................... $376,138 $420,449 $458,391 $536,836 $770,001 $180,505 $213,944
Costs and expenses:
Cost of sales................ 209,340 237,492 263,706 315,949 440,625 104,569 122,004
Selling, service and
administrative............. 137,674 147,639 153,690 171,473 247,185 57,333 69,664
Goodwill and related
intangibles................ 754 784 901 1,699 7,859 1,629 2,470
Provision for restructuring
expense(1)................. -- 4,000 -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Operating income............... 28,370 30,534 40,094 47,715 74,332 16,974 19,806
Interest expense............... 3,609 3,776 4,259 6,172 24,577 5,228 7,472
Other (income) expense, net.... 456 1,058 2 (1,011) 1,575 460 509
-------- -------- -------- -------- -------- -------- --------
Income before taxes............ 24,305 25,700 35,833 42,554 48,180 11,286 11,825
Income taxes................... 9,311 9,997 14,333 17,341 19,513 4,514 4,730
-------- -------- -------- -------- -------- -------- --------
Net income..................... $ 14,994 $ 15,703 $ 21,500 $ 25,213 $ 28,667 $ 6,772 $ 7,095
======== ======== ======== ======== ======== ======== ========
OTHER FINANCIAL DATA:
EBITDA(2)...................... $ 38,661 $ 41,557 $ 52,906 $ 63,744 $ 99,965 $ 23,530 $ 27,318
Capital expenditures........... 10,595 12,788 15,046 27,778 29,619 6,219 6,385
Depreciation and
amortization................. 10,747 12,081 12,814 15,018 27,208 7,016 8,021
Ratio of earnings to fixed
charges(3)................... 5.0x 5.0x 6.1x 5.8x 2.8x 2.9x 2.4x
Ratio of EBITDA to interest
expense(2)................... 10.7x 11.0x 12.4x 10.3x 4.1x 4.5x 3.7x
Ratio of total debt to
EBITDA(2).................... 1.3x 1.6x 1.2x 1.9x 3.7x
BALANCE SHEET DATA:
Cash and cash equivalents...... $ 4,462 $ 5,569 $ 6,864 $ 6,721 $ 3,753 $ 7,444 $ 13,347
Working capital................ 80,591 86,550 96,820 125,085 175,643 154,707 192,803
Net property, plant and
equipment.................... 62,095 65,530 61,461 69,011 113,421 108,411 126,119
Total assets................... 251,109 284,278 298,872 393,706 692,914 639,446 869,389
Total debt..................... 48,408 66,508 61,823 119,212 365,039 349,534 520,985
Stockholders' equity........... 133,531 141,089 154,141 172,132 191,043 175,081 193,371
</TABLE>
- -------------------------
(1) The 1994 provision for restructuring expense reflects costs associated with
discontinuing manufacturing in certain locations along with an overall
downsizing of the Company's infrastructure.
(2) EBITDA represents net income before income taxes, interest expense and
depreciation and amortization. EBITDA is not a measure of financial
performance under generally accepted accounting principles and does not
necessarily indicate that cash flow will be sufficient to fund cash
requirements. The Company understands that certain investors believe EBITDA
measures a company's ability to service debt and to utilize cash for other
purposes. EBITDA should not be considered in isolation or as a substitute
for net income, cash flows from operations, or other income or cash flow
data prepared in accordance with generally accepted accounting principles or
as a measure of a company's profitability or liquidity.
(3) For purposes of determining the ratio of earnings to fixed charges,
"earnings" consist of net income before provision for income taxes,
undistributed earnings (loss) of equity investments and fixed charges. Fixed
charges consist of interest expense and the interest portion of the
Company's rent expense (deemed to be one-third of operating lease rental
expense).
22
<PAGE> 28
UNAUDITED COMBINED PRO FORMA CONDENSED FINANCIAL DATA
The following unaudited combined pro forma condensed statement of
operations and other financial data includes the historical results of the
Company and gives effect to the Initial Offering, the application of proceeds
therefrom and the Ibico Acquisition as if such transactions had occurred as of
January 1, 1997. The unaudited combined pro forma condensed balance sheet
includes the historical results of the Company and gives effect to the Initial
Offering, the application of proceeds therefrom and the Ibico Acquisition as if
such transactions had occurred as of December 31, 1997. For information
regarding the Ibico Acquisition and the Initial Offering, see "Business -- Ibico
Acquisition" and "Use of Proceeds." The pro forma adjustments made are based
upon currently available information as well as upon certain assumptions that
Management believes are reasonable. The Ibico Acquisition was accounted for as a
purchase with the acquired assets and assumed liabilities recorded at their
estimated fair market values. Management believes that actual fair market value
adjustments will not differ materially from the preliminary allocation of the
purchase price contained in the pro forma adjustments reflected in the pro forma
financial information.
The unaudited combined pro forma condensed financial statements are not
necessarily indicative of either future results of operations or results that
might have been achieved had the foregoing transactions been consummated as of
the indicated dates. The unaudited combined pro forma condensed financial
statements should be read in conjunction with the notes thereto, the
Consolidated Financial Statements and the Notes thereto, Ibico's consolidated
financial statements and notes thereto, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," all of which are
presented elsewhere in this Prospectus.
23
<PAGE> 29
UNAUDITED COMBINED PRO FORMA CONDENSED STATEMENT OF
OPERATIONS AND OTHER FINANCIAL DATA
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------------
GBC IBICO PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total sales...................................... $770,001 $113,498 -- $883,499
Costs and expenses:
Cost of sales.................................. 440,625 76,257 $ (395)(1) 516,487
Selling, service and administrative............ 247,185 33,856 (3,547)(2) 277,494
Goodwill and related intangibles............... 7,859 -- 2,105(3) 9,964
Provision for restructuring expense............ -- 1,181 (1,181)(4) --
-------- -------- ------- --------
Operating income................................. 74,332 2,204 3,018 79,554
Interest expense............................... 24,577 3,561 11,710(5) 39,848
Other (income) expense, net.................... 1,575 (364) -- 1,211
-------- -------- ------- --------
Income (loss) before taxes....................... 48,180 (993) (8,692) 38,495
Income taxes................................... 19,513 295 (4,218)(6) 15,590
-------- -------- ------- --------
Net income (loss)................................ $ 28,667 $ (1,288) $(4,474) $ 22,905
======== ======== ======= ========
Net income per common share
Basic.......................................... 1.82 1.45
Diluted........................................ 1.80 1.44
Weighted average number of common shares
outstanding
Basic.......................................... 15,760 15,760
Diluted........................................ 15,890 15,890
OTHER FINANCIAL DATA:
EBITDA(7)........................................ $ 99,965 $ 4,773 $ 4,728 $109,466
Adjusted EBITDA(8)............................... 99,965 4,773 11,728(9) 116,466
Capital expenditures............................. 29,619 4,134 -- 33,753
Depreciation and amortization.................... 27,208 2,205 1,710(10) 31,123
Total debt....................................... 365,039 43,057 93,216 501,312
Ratio of earnings to fixed charges(11)........... 2.8x 1.9x
Ratio of EBITDA to interest expense(7)........... 4.1x 2.7x
Ratio of Adjusted EBITDA to interest
expense(8)..................................... 4.1x 2.9x
Ratio of total debt to EBITDA(7)................. 3.7x 4.6x
Ratio of total debt to Adjusted EBITDA (8)....... 3.7x 4.3x
</TABLE>
- -------------------------
(1) Reflects an adjustment to conform Ibico's fixed asset depreciation
methodology to the Company's methodology.
(2) Reflects cost savings in the aggregate amount of $3,200, as a result of the
Ibico Acquisition, that were fully implemented prior to the date of this
Prospectus and are expected to have a continuing impact on the Company
relating to (i) the rationalization of U.S. sales forces, (ii) the
reduction in sales commission costs, (iii) the elimination of duplicate
advertising and tradeshow expenses, (iv) the elimination of salaries and
expenses paid to members of the family of the sole shareholder of Ibico and
(v) the elimination of certain consulting, audit, legal, tax and insurance
expenses. Also reflects the elimination of $347 of fees paid by Ibico to
certain advisors in connection with the Ibico Acquisition.
(3) Represents the amortization over 40 years on a straight-line basis of
estimated goodwill related to the Ibico Acquisition as a result of the
application of purchase accounting. Actual goodwill may change pending
studies and valuations currently in process.
(4) Represents expenditures associated with the transfer of certain Ibico
administrative and support functions from Ibico's facility in Elk Grove
Village, Illinois to facilities in Del Rio, Texas and Acuna, Mexico. These
costs were incurred and the functions were transferred to the new locations
prior to the acquisition of Ibico. The adjustment eliminates these costs as
they are non-recurring and will not be required for future operations.
24
<PAGE> 30
(5) Interest expense is adjusted for:
<TABLE>
<S> <C>
(a) Interest on the Notes at the coupon rate of 9.375%...... $14,063
(b) Amortization of financing and hedging costs related to
the Initial Offering.................................... 862
(c) Reduction of interest expense related to repayment of
indebtedness under the Credit Facility.................. (3,215)
-------
$11,710
=======
</TABLE>
(6) Represents the income tax effects of the pro forma adjustments based upon
GBC's effective income tax rate during 1997, which is not materially
different than the statutory rate.
(7) EBITDA represents net income before income taxes, interest expense and
depreciation and amortization. EBITDA is not a measure of financial
performance under generally accepted accounting principles and does not
necessarily indicate that cash flow will be sufficient to fund cash
requirements. The Company understands that certain investors believe EBITDA
measures a company's ability to service debt and to utilize cash for other
purposes. EBITDA should not be considered in isolation or as a substitute
for net income, cash flows from operations, or other income or cash flow
data prepared in accordance with generally accepted accounting principles
or as a measure of a company's profitability or liquidity.
(8) Adjusted EBITDA is EBITDA as modified to reflect certain adjustments which
Management believes are relevant in evaluating the future operating
performance of the Company. These adjustments, which eliminate the impact
of certain nonrecurring charges and reflect the estimated impact of
Management's business and operating strategy, are based on estimates and
assumptions made and believed to be reasonable by the Company, but are
inherently uncertain and are subject to change. Adjusted EBITDA should not
be viewed as indicative of actual or future results and is not computed in
accordance with GAAP or with regulations of the Commission.
(9) Adjusted for Management's estimated recurring net cost savings due to the
synergies to be achieved as a result of the Ibico Acquisition. Net savings
in the aggregate amount of $7,000 are expected to result from (i) the
elimination and consolidation of certain distribution facilities, (ii)
lower freight costs resulting from larger order sizes, (iii) the
elimination and combination of sales/administrative, corporate, warehousing
and manufacturing facilities and (iv) the redirection of sourcing of raw
material and equipment to leverage purchasing efficiencies. The adjustment
excludes approximately $4,700 of expenditures that Management expects to be
incurred in 1998 to achieve these cost savings.
(10) Represents adjustment to amortize goodwill related to the Ibico Acquisition
over 40 years on a straight-line basis, as well as the adjustment to
conform Ibico's fixed asset depreciation methodology to the Company's
methodology.
(11) For purposes of determining the ratio of earnings to fixed charges,
"earnings" consist of net income before provision for income taxes,
undistributed earnings (loss) of equity investments and fixed charges.
Fixed charges consist of interest expense and the interest portion of the
Company's rent expense (deemed to be one-third of operating lease rental
expense).
25
<PAGE> 31
UNAUDITED COMBINED PRO FORMA CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-----------------------------------------------------
GBC IBICO PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 3,753 $ 7,169 $ (7,169)(1) $ 3,753
Receivables, net............................... 160,787 20,198 -- 180,985
Inventories.................................... 143,569 27,040 1,000(2) 171,609
Deferred tax assets............................ 9,323 1,713 -- 11,036
Other.......................................... 10,313 2,058 -- 12,371
-------- ------- -------- --------
Total current assets........................ 327,745 58,178 (6,169) 379,754
Net property, plant and equipment................ 113,421 12,291 -- 125,712
Other............................................ 251,748 3,287 87,537(3) 342,572
-------- ------- -------- --------
Total assets..................................... $692,914 $73,756 $ 81,368 $848,038
======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable.................................. $ 40,247 $26,307 $ (7,169)(1) $ 59,385
Current maturities of long-term debt........... 722 479 -- 1,201
Accounts payable............................... 42,979 8,520 -- 51,499
Accrued liabilities............................ 68,154 8,889 -- 77,043
-------- ------- -------- --------
Total current liabilities................... 152,102 44,195 (7,169) 189,128
Long-term debt................................... 324,070 16,271 100,385(4) 440,726
Other liabilities................................ 11,368 851 -- 12,219
Deferred tax liability........................... 14,331 591 -- 14,922
Stockholders' equity............................. 191,043 11,848 (11,848) 191,043
-------- ------- -------- --------
Total liabilities and stockholders' equity....... $692,914 $73,756 $ 81,368 $848,038
======== ======= ======== ========
</TABLE>
- -------------------------
(1) Represents the application of Ibico's cash to repay short-term debt.
(2) Represents the adjustment to reflect the estimated increase in book value of
inventory as a result of the application of purchase accounting.
(3) Reflects the increase in other assets resulting from the Ibico Acquisition
and the Initial Offering. The total consideration and direct transaction
costs are as follows:
<TABLE>
<S> <C>
Cash purchase price for Ibico Acquisition(a)........... $129,273
Estimated costs related to the Ibico Acquisition....... 2,000
Estimated costs related to the Initial Offering........ 5,000
--------
Total consideration and costs..................... 136,273
Ibico's estimated tangible net assets
acquired(b)...................................... (46,079)
Estimated increase in book value of inventory (see
Note (2) above).................................. (1,000)
--------
89,194
Writeoff of Ibico's intangible asset............ (1,657)
--------
Net pro forma adjustment........................ $ 87,537
========
</TABLE>
(a) the purchase price was 188,400,000 Swiss francs (CHF); for purposes
of the unaudited pro forma condensed financial statements, the
unhedged portion of the purchase price was translated using the
December 31, 1997 translation rate, which differs from the
translation rate on the date of the closing.
(b) excludes cash, debt and intangible assets.
26
<PAGE> 32
The actual allocation of the purchase price will be based upon the fair
market value of Ibico's assets and liabilities. Valuations and studies to
determine the fair market value of assets are currently in process. For
purposes of the unaudited combined pro forma condensed balance sheet, the
preliminary purchase price allocation has been estimated as follows:
<TABLE>
<CAPTION>
AMORTIZABLE
AMOUNT LIFE
------- -----------
<S> <C> <C>
Excess cost over the estimated fair value of net assets
acquired.................................................. $84,194 40 years
Estimated costs related to the Initial Offering............. 5,000 10 years
-------
$89,194
=======
</TABLE>
(4) Represents the increase in long-term debt incurred in connection with the
Ibico Acquisition, consisting of $150,000 of the Notes, less $49,615 of the
proceeds thereof used to repay borrowings under the Credit Facility.
27
<PAGE> 33
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's results of
operations, financial condition and liquidity should be read in conjunction with
"Unaudited Combined Pro Forma Condensed Financial Data," "Selected Historical
Consolidated Financial Data," and the Company's Consolidated Financial
Statements and Notes thereto contained elsewhere in this Prospectus.
ACQUISITIONS
One of the Company's principal business strategies is to selectively pursue
acquisitions and joint ventures that (i) maintain and strengthen its competitive
leadership positions, (ii) complement its existing businesses through expanded
product lines, (iii) enhance its relationships with existing customers and
establish relationships with new customers, or (iv) facilitate penetration into
new and developing business areas and geographic territories. Acquisitions and
joint ventures also provide the Company opportunities to realize sales growth
and improved profitability as a result of economies of scale and operating
synergies resulting from the integration of manufacturing and distribution
operations.
The Company has completed several acquisitions and entered into a joint
venture during the past three years. The following is a summary of these
recently completed acquisitions and the joint venture:
<TABLE>
<CAPTION>
APPROXIMATE
ANNUAL
COMPANY OR REVENUES
BUSINESS ACQUIRED OF ACQUIRED
DATE (PRINCIPAL LOCATION) COMPANY(1) BUSINESS LINES
---- -------------------- ----------- --------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
February 27,
1998............. Ibico AG (Switzerland) $113 Manufacturer and distributor of
binding and lamination
equipment and supplies
January 22, 1998... Allfax group of $6 Manufacturer and distributor of
companies (U.K.) visual communication products
August 27, 1997.... Danka Datakey <$1 Distributor and servicer of
(Australia) mailroom equipment
July 25, 1997...... Printing Wire Supplies $2 Manufacturer of wire binding
Ltd. (Ireland) supplies
July 23, 1997...... Jenrite (New Zealand) $2 Distributor of laminating
equipment and supplies
June 13, 1997...... Visucom (Australia) $2 Manufacturer and distributor of
presentation boards
April 23, 1997..... Baker School Specialty $17 Manufacturer and distributor of
Company (USA) presentation boards
("Baker")
January 1, 1997.... Quartet Manufacturing $149 Manufacturer and distributor of
Company (USA) visual communication products
October 10, 1996... GMP Co. Ltd. (Republic Joint Developer and manufacturer of
of Korea) Venture lamination equipment and
supplies
January 22, 1996... Fordigraph Pty. Ltd. $21 Distributor of office and
(Australia) mailroom products
December 21,
1995............. Pro-Tech Engineering $11 Manufacturer and distributor of
Co., Inc. (USA) lamination equipment and
supplies for the digital
printing market
</TABLE>
- -------------------------
(1) Approximate annual revenues at time of acquisition.
See Note 13 to the Consolidated Financial Statements for additional
information on the Company's recent acquisitions.
28
<PAGE> 34
RESULTS OF OPERATIONS
FIRST QUARTER 1998 COMPARED TO FIRST QUARTER 1997
Sales
Net sales for the first quarter of 1998 totaled $213.9 million, an increase
of 18.5% over the first quarter of 1997. The Company's first quarter results
include the results of Ibico from the date of acquisition, February 27, 1998.
Excluding the acquisition of Ibico, GBC's sales were $202.7 million, an increase
of 12.3% over the first quarter of 1997. The first quarter 1998 sales increase
was primarily due to increased sales of personal shredders and writing boards
through the Company's Office Products Group. Sales of writing boards in the
first quarter of 1998 benefited from the Company's acquisitions of Baker,
Visucom and Allfax.
Gross Margin, Costs and Expenses
Gross profit margin improved in the first quarter of 1998 to 43.0%,
compared to 42.1% in the first quarter of 1997. The improvement in gross margin
was due principally to higher margins achieved in the Company's commercial
laminating business and the Office Products Group.
Selling, service, and administrative expenses increased 21.5% in the first
quarter of 1998, compared to the first quarter of 1997, primarily due to
increased sales resulting in higher related selling expenses. As a percentage of
sales, selling, service and administrative expenses increased to 32.6% in 1998
from 31.8% in the first quarter of 1997, principally due to higher rebate
programs for certain customers. Amortization of goodwill and intangibles
increased to $2.5 million in the first quarter of 1998, compared to $1.6 million
in the first quarter of 1997, due to acquisitions.
Interest expense for the first quarter of 1998 increased to $7.5 million,
compared to $5.2 million in the first quarter of 1997. The primary reason for
the increase was higher average debt levels as a result of indebtedness incurred
to finance the Ibico, Baker and Allfax acquisitions.
Net Income
As a result of the factors described above, net income for the first
quarter of 1998 was $7.1 million, or $0.45 per share, versus $6.8 million, or
$0.43 per share, in the first quarter of 1997. The inclusion of Ibico's first
quarter results had a dilutive effect on earnings of approximately $0.02 per
share.
1997 COMPARED TO 1996
Sales
The Company reported sales of $770.0 million in 1997, a 43.4% increase over
1996 sales of $536.8 million. The acquisitions of Quartet and Baker, as
discussed in Note 13 to the Consolidated Financial Statements, accounted for
approximately $183.0 million of the increase. Excluding the effect of
acquisitions, 1997 sales increased by 9.4% primarily due to increased sales of
the Company's laminators and related supplies, paper shredders and binding
equipment.
Gross Margin, Costs and Expenses
Gross profit margin improved in 1997 to 42.8% compared to 41.1% in 1996, as
a result of a more favorable sales mix of higher-margin office products. The
improvement in gross margin was achieved despite lower gross margins from
certain film products due to competitive market pricing. Further, in 1997 the
Company's business in Europe experienced lower gross margins due to increased
costs on imported products as a result of the strength of the U.S. dollar.
Selling, service and administrative expenses increased 44.2% in 1997,
primarily as a result of the acquisition of Quartet. Selling, service and
administrative expenses as a percentage of sales increased to 32.1% in 1997,
compared to 31.9% in 1996, due primarily to higher rebate programs for certain
customers.
29
<PAGE> 35
Interest expense increased to $24.6 million in 1997 from $6.2 million in
1996 primarily as a result of increased outstanding indebtedness under the
Company's Credit Facility incurred primarily to finance acquisitions.
Amortization of goodwill and related intangibles increased by $6.2 million
in 1997 as a result of increased amortization related to acquisitions. The
shut-down of a manufacturing plant in Costa Rica related to the Company's
non-core ring metals business and unfavorable currency transactions accounted
for the majority of the $2.6 million increase in other expenses from 1996 to
1997.
Income Taxes
The Company's worldwide effective income tax rate decreased to 40.5% in
1997 from 40.8% in 1996. Numerous items impacted the effective tax rate as
discussed in Note 10 to the Consolidated Financial Statements.
Net Income
Net income increased by 13.9% (or $3.4 million) in 1997 to $28.7 million
(or $1.82 per share basic) from $25.2 million (or $1.60 per share basic). The
increase resulted primarily from the acquisitions of Quartet and Baker, improved
margins due to synergies achieved as a result of the acquisitions and increased
sales in the Company's core businesses.
1996 COMPARED TO 1995
Sales
The Company reported sales of $536.8 million in 1996, a 17.1% increase over
1995 sales of $458.4 million. The increase resulted primarily from sales volume
increases of film, office products and binding and laminating products, as well
as the acquisitions of Fordigraph and Pro-Tech.
Gross Margin, Costs and Expenses
Gross profit margin decreased to 41.1% in 1996 from 42.5% in 1995. The
reduction in gross margin was primarily due to worldwide competitive pricing
pressures and a continuing product mix shift resulting in growth in lower-margin
office products, film, and graphics products. Gross profit margins in 1996 were
also negatively impacted by margin erosion in the Company's non-core ringmetals
business, along with higher outlays for research and development spending.
Selling, service and administrative expenses increased by 11.6% in 1996
compared to 1995 primarily as a result of increased sales. As a percentage of
sales, selling, service and administrative expenses declined to 31.9% in 1996
from 33.5% in 1995. The decrease as a percentage of sales resulted primarily
from improved efficiency due to the increased scale of the Company's operations.
Interest expense increased by 44.9% in 1996 primarily as a result of higher
average debt levels caused by increased working capital investments, the
acquisitions of Fordigraph and Pro-Tech and the Company's investment in GMP.
Other income and expenses decreased slightly in 1996. The most significant
factors affecting the favorable change in 1996 were a gain on the sale of the
Company's manufacturing facility in Australia and foreign currency gains
compared to currency losses in 1995.
Income Taxes
The Company's effective tax rate increased to 40.8% from 40.0% in 1995. The
1996 rate increased primarily as a result of an increase in nondeductible
goodwill and a tax charge incurred pursuant to its tax allocation agreement with
Lane Industries, its majority shareholder.
30
<PAGE> 36
Net Income
Net income for 1996 was $25.2 million (or $1.60 per share basic), a 17.3%
increase over 1995 net income of $21.5 million (or $1.37 per share basic). The
increase in net income was primarily due to higher sales.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity and capital resources include
cash provided by operations and borrowings under the Company's revolving credit
facilities, and short-term borrowings from banks.
Cash provided by operating activities was $20.7 million in 1997, compared
to $2.3 million in 1996 and $27.0 million in 1995. The increase in operating
cash flow in 1997 was primarily due to significantly higher earnings before
depreciation and amortization ($55.9 million in 1997 compared to $40.2 million
in 1996). Further, while inventories and receivables increased in 1997, the
growth in those working capital items supported the Company's higher sales
volumes. The decrease in operating cash flow in 1996 compared to 1995 was
primarily due to increased investment in working capital. Net cash generated
from operating activities was $4.6 million for the first quarter of 1998,
compared to cash used of $7.3 million for the first quarter of 1997. The
favorable swing in 1998 was due primarily to a reduction in inventory and slower
growth in receivables. The unfavorable cash flow during the first quarter of
1997 resulted from higher levels of receivables, inventories and advances on
product purchased from overseas vendors.
Capital expenditures were $29.6 million in 1997 compared to $27.8 million
in 1996 and $15.0 million in 1995. Major projects in 1997 and 1996 included the
implementation of new business information systems in Europe and the U.S. ($6.8
million in 1997 and $9.4 million in 1996), the equipping and fitting three
manufacturing facilities in the U.S. ($7.3 million in 1997), the completion of
additional films manufacturing capacity in Europe and the U.S. ($5.8 million in
1996), facilities to support the integration of the Company's Office Products
Group business with Quartet, and the acquisition of certain tooling for new
products. Capital expenditures during the first quarter of 1998 were $6.4
million, compared to $6.2 million in the first quarter of 1997. Major
expenditures in 1998 include the investments associated with the Company's new
custom supplies facility in Wisconsin and new document finishing facility in
Illinois.
The Company invested $241.2 million, $28.9 million and $1.5 million in
acquisitions in 1997, 1996 and 1995, respectively. Acquisitions in 1997 and 1996
were primarily financed by borrowings under the Company's Credit Facility.
Cash dividends paid in 1997 increased to $6.9 million (or $.44 per share)
from $6.8 million (or $.43 per share). Cash dividends paid during the first
quarter of both 1998 and 1997 were $0.11 per share, respectively.
The Company had access to $67.0 million in uncommitted short-term credit
lines as of December 31, 1997 and, as of such date, had $40.2 million in
borrowings outstanding under these lines. The Company also had access to various
U.S. and international credit facilities, including the Credit Facility
providing for up to $475 million of unsecured revolving credit borrowings
through January 2002. The Credit Facility, established on January 13, 1997,
contains, among other things, certain restrictive covenants which require the
Company to maintain certain ratios regarding current assets and liabilities,
leverage and interest coverage. As of May 31, 1998, the Company had $298.0
million in borrowings outstanding under the Credit Facility. See Note 6 to the
Consolidated Financial Statements and "Description of Credit Facility" for
additional information.
The Company believes that cash flow from operations, together with
available credit facilities, will be sufficient to fund the Company's ongoing
operating and capital requirements.
RISK MANAGEMENT
The Company is exposed to market risk from changes in interest rates and
foreign exchange rates. To manage the risk from interest rate and foreign
currency fluctuations, the Company enters into various hedging transactions that
have been authorized pursuant to the Company's policies and procedures. The
Company does not use financial instruments for trading purposes and is not a
party to any leveraged derivatives.
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A discussion of the Company's accounting policies for financial instruments
is included in Note 1 to the Consolidated Financial Statements, and further
disclosure related to financial instruments is included in Note 7 to the
Consolidated Financial Statements.
Interest Rates
The Company uses interest rate swaps, treasury rate-lock agreements, and
interest rate cap agreements to manage exposure to interest rate movements. The
Company's exposure to interest rate risk consists primarily of floating rate
credit facilities that are benchmarked to U.S. and European short-term interest
rates.
Foreign Exchange
The Company uses foreign currency forward exchange contracts to hedge
exposure to changes in foreign exchange rates primarily associated with
inventory purchases. The foreign currency forward exchange contracts purchased
generally have durations of 12 months or less. The Company's exposure to foreign
exchange risk primarily exists with the Dutch guilder, British pound, Italian
lira, Japanese yen and Mexican peso against the U.S. dollar.
NEW ACCOUNTING STANDARDS
The Company will adopt Statement of Financial Accounting Standards ("SFAS")
No. 130, "Reporting Comprehensive Income" effective with first quarter 1998
reporting. This statement requires that certain items recorded directly in
stockholders' equity be classified as comprehensive income. Comprehensive income
and its components may be presented in a separate statement, or may be included
in the statement of stockholders' equity or the statement of income. The
currency translation adjustment is the Company's only item which will be
classified as comprehensive income. The Company is in the process of evaluating
the method of presentation that will be used upon adoption of the statement.
The Company will adopt SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information" effective with year-end 1998 reporting. This
statement will require the Company to present information in the notes to the
financial statements regarding reportable operating segments using the same
basis as is used for internally evaluating segment performance and deciding how
to allocate resources to segments. The Company is currently evaluating the
requirements of this standard and upon adoption, may disclose more than one
reportable segment.
YEAR 2000 COMPLIANCE
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed without considering the impact of
the upcoming change in the century. If not corrected, many computer applications
and systems could fail or create erroneous results by or at the year 2000. The
Company has established a Year 2000 task force and developed an extensive plan
to ensure that its systems have the ability to process transactions in the next
century. The Company believes that it has identified the applications which will
need to be modified and both internal and external resources will be utilized to
reprogram and test software for year 2000 compliance. It is anticipated that the
Company's Year 2000 modification project will be completed on time at an
estimated total cost of approximately $2.0 million. This cost will be expensed
as incurred except for the installation of new applications which are already
Year 2000 compliant, the cost of which will be capitalized.
Although the Company believes that it will be able to achieve Year 2000
compliance through these efforts, no assurance can be given that these efforts
will be successful. The Company believes that the expenses and capital
expenditures associated with achieving Year 2000 compliance will not have a
material effect on future financial results. The Company is also in the process
of responding to customer surveys and evaluating whether key suppliers and
customers are Year 2000 compliant. In the event that any of the Company's key
suppliers do not successfully and timely achieve Year 2000 compliance, the
Company's business or operations could be adversely affected.
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BUSINESS
GENERAL
GBC is a worldwide leader in the design, manufacture and marketing of
branded office products, office equipment and related supplies, and thermal
laminating film. GBC's major products include (i) binding equipment and
supplies, (ii) laminating equipment and supplies, (iii) visual communication
products (such as marker boards, bulletin/planning boards and easels), (iv)
paper shredders and (v) thermal laminating film (used primarily to encapsulate
or protect documents, book covers and school-related materials). GBC also
provides maintenance services for its binding and lamination equipment
customers. Revenues derived from sales of consumable supplies and maintenance
services together accounted for approximately 55% of GBC's 1997 pro forma
revenues of $883 million.
GBC sells its products both to resellers and directly to end-users with an
emphasis on providing customers with a broad range of high-quality products
supported by high levels of customer and value-added services. GBC is one of the
largest suppliers of office products, equipment and supplies to resellers with
1997 pro forma revenues of $429 million in the Company's Office Products Group.
GBC's customers include most of the major U.S. office products resellers, such
as office products superstores, wholesalers, contract/commercial stationers,
mail order companies and other retail dealers, as well as office products
resellers in Europe, the Asia/Pacific region and Latin America. In addition, GBC
sells its binding equipment and related supplies, lamination equipment and
thermal laminating film, and related services, through the Company's Document
Finishing Group and Films Group directly to approximately 100,000 active
customers in the United States and abroad. These customers include general
office customers (e.g., consulting, financial services, legal and accounting
firms), commercial customers (e.g., reprographic centers and copy shops),
education/training customers (e.g., schools and training centers), commercial
printers and government agencies.
The Company increased its revenue base from $458 million in 1995 to $883
million, on a pro forma basis, in 1997, representing a CAGR of 39%. During this
same period, the Company's EBITDA more than doubled from $53 million to $109
million on a pro forma basis, representing a CAGR of 43%, while its EBITDA
margin increased from 11.6% to 12.3% on a pro forma basis. The majority of the
Company's revenue growth occurred in the Office Products Group, where revenues
grew from $97 million in 1995 to $429 million on a pro forma basis in 1997,
through acquisitions, principally Quartet and Ibico, and internal revenue
growth. Effective January 1, 1997, the Company acquired Quartet, a leading
manufacturer and marketer of visual communication products, for approximately
$216 million, including the assumption of debt. On February 27, 1998, the
Company acquired Ibico, a leading manufacturer and marketer of binding and
laminating equipment and supplies, for cash consideration and assumption of debt
of approximately $130 million. These and other recent acquisitions have provided
the Company with further penetration into the U.S. and international markets,
new key customer relationships and additional complementary product lines.
INDUSTRY FUNDAMENTALS
From 1995 to 1997, GBC's revenues from existing operations, excluding the
impact of acquisitions, increased by 18% primarily due to strong industry
fundamentals. Management believes that the primary factors resulting in the
Company's strong intrinsic growth in its Business Groups include:
(i) the increasing number of office workers as the U.S. economy
continues to shift from a manufacturing base to a service base;
(ii) the increasing number of document finishing sites as the number
of home offices and small- and medium-sized businesses continues to grow in
the U.S. and printing capabilities migrate toward individual end-users and
away from traditional commercial printers and publishing houses;
(iii) a growing interest in creating finished and distinctive
documents, partly as a method of differentiation, caused by a general
increase in the number of documents being produced;
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(iv) an increased worldwide focus on education and training
activities, particularly in the United States, and the preparation and
display of related materials;
(v) an increasing demand for lamination products to preserve, protect
and enhance the output of a rapidly-growing base of color copiers and
digital printers, particularly desktop and large-format digital color
printers; and
(vi) increasing environmental concerns and regulations in
international markets which Management believes will cause commercial
printers and other users to favor the thermal films marketed by the Company
over solvent-based films.
GBC's Office Products Group has experienced particularly strong sales
growth due to, in addition to the above-mentioned factors, the rapid growth and
consolidation of office products superstores, contract/ commercial stationers
and wholesalers with which GBC enjoys strong customer relationships. The major
superstores, contract/commercial stationers and wholesalers on average have
experienced an approximate 38% CAGR in their sales over the past five years.
Sales to these customers accounted for $251 million of GBC's 1997 pro forma
revenues.
COMPETITIVE STRENGTHS
Management believes that the following competitive strengths have been the
principal factors in the Company's success in establishing itself as a worldwide
leader in the design, manufacture and marketing of branded office products,
office equipment and related supplies, and thermal laminating film:
LEADING MARKET POSITIONS IN MAJOR PRODUCT CATEGORIES WITH STRONG BRAND
NAMES. The Company maintains leading market positions worldwide in binding and
laminating equipment and supplies, certain visual communication products,
including marker boards, bulletin/planning boards and easels, thermal laminating
film products and paper shredders. GBC attributes its leading market positions
primarily to its reputation for high-quality and reliable products, high levels
of customer and value-added services, broad product offerings, technological
innovation and state-of-the-art manufacturing facilities. Well-known brand
names, including GBC(R), VeloBind(R), Shredmaster(R), Quartet(R), Pro-Tech(TM),
Bates(R) and newly-acquired Ibico(R), have enhanced the Company's ability to
successfully differentiate its product lines from those of its competitors.
STRONG CUSTOMER RELATIONSHIPS. The Company enjoys long-standing
relationships with many of its significant customers, averaging over 15 years
with its top 10 customers, which collectively generated approximately 30% of the
Company's pro forma revenues in 1997. The Company sells products both to
resellers ("indirect channel") and directly to end users ("direct channel"). The
Company sells to virtually all of the major U.S. indirect channel resellers in
its markets and currently has approximately 100,000 active direct channel
customers. GBC's indirect channel customers include the major U.S. office
products superstores (e.g., Staples, Inc., Office Depot, Inc. and OfficeMax,
Inc.), wholesalers (e.g., United Stationers and S.P. Richards),
contract/commercial stationers (e.g., Boise Cascade Office Products Corporation,
Corporate Express Inc., BT Office Products International, Inc., U.S. Office
Products Company and the contract stationer divisions of Staples, Inc. and
Office Depot, Inc.), mail order companies (e.g., Quill, Reliable Corporation,
Viking Office Products, Inc., Global DirectMail Corp. and Staples Direct) and
other retail dealers, as well as office products resellers in Europe, the
Asia/Pacific region and Latin America. The Company's direct channel customers
include general office customers (e.g., consulting, financial services, legal
and accounting firms), commercial customers (e.g., reprographic centers and copy
shops), education/training customers (e.g., schools and training centers),
commercial printers and government agencies. Management believes that the
Company's strong customer relationships will enable it to capitalize on the
increasing demand for office products, office equipment and related supplies and
film as well as facilitate its introduction of new products and services.
SIGNIFICANT REVENUE FROM CONSUMABLE SUPPLIES AND SERVICES. GBC has
approximately 100,000 direct channel customers with installed binding and
laminating equipment. These customers provide the Company the opportunity to
generate significant recurring and higher-margin revenues from the sale of
consumable
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supplies and services, such as binding materials, thermal film products,
presentation covers, index tabs and maintenance contracts. Revenue generated
from sales of consumable supplies and maintenance services to these direct
channel customers and to indirect channel customers accounted for approximately
55% of GBC's 1997 pro forma revenues.
SUPERIOR LEVELS OF CUSTOMER AND VALUE-ADDED SERVICES. The Company provides
its customers in both the indirect and direct channels with high levels of
customer and value-added services. Value-added services include providing
marketing consultation to indirect channel customers (e.g., designing appealing
product displays) and assisting customers with enhancing their inventory
management systems (e.g., delivering bar-coded shipments to customers to
facilitate the customers' inventories and distribution processes). In addition,
the Company has developed efficient distribution systems for its office and film
products which enhance its ability to fill customer orders quickly, ship
complete multiple-product orders in a single shipment, ensure prompt deliveries
and achieve high customer order fill rates. Management believes that the
Company's high levels of customer and value-added services have enabled it to
build strong relationships with customers and successfully differentiate itself
from many of its competitors.
EXPERIENCED MANAGEMENT TEAM. The Company has a highly-experienced
management team with a record of achieving strong internal growth and
successfully integrating strategic acquisitions. The Chief Executive Officer and
the heads of the Company's Office Products Group, Document Finishing Group and
Films Group have, on average, 22 years of experience in their respective
sectors. The Company's current management team has completed the acquisition of
10 businesses or product lines since 1995, with aggregate annualized revenues at
the time of such acquisitions of approximately $324 million. From 1995 to 1997,
this management team also has overseen revenue growth, excluding the impact of
acquisitions, of 18%.
MANUFACTURING EFFICIENCY. Management believes that the Company's
manufacturing operations are among the most efficient in its major product
lines, allowing the Company to maintain a highly competitive cost structure.
High-volume production at the Company's major facilities provides significant
economies of scale, enables the Company to invest in selective vertical
integration, and allows the Company to achieve meaningful purchasing power for
raw materials and outsourced manufacturing services. In addition, the Company
has made significant investments in state-of-the-art manufacturing equipment to
ensure efficient production and minimize waste.
LANE INDUSTRIES OWNERSHIP AND SPONSORSHIP. Approximately 62% of the
Issuer's outstanding Common Stock (after giving effect to the possible
conversion of Class B Common Stock) is owned by Lane Industries, a diversified
holding company located in Northbrook, Illinois. Lane Industries was recently
ranked among the largest privately-held companies in the United States and has
provided important financial support and management and professional services to
GBC (e.g., Lane Industries provided a $100 million subordinated bridge facility
to the Company in connection with the Ibico Acquisition).
BUSINESS STRATEGY
The Company's objective is to strengthen its position as a worldwide leader
in the design, manufacture and marketing of branded office products, office
equipment and related supplies, and thermal laminating film by pursuing the
following strategies:
MAINTAIN AND EXPAND RELATIONSHIPS WITH KEY CUSTOMERS. The Company enjoys
long-standing relationships with many of its significant customers, averaging
over 15 years with its top 10 customers in 1997, and seeks to expand its market
positions and customer base by offering a broad range of high-quality products
supported by high levels of customer and value-added services. In particular,
the Company believes that it has the opportunity to achieve greater market
penetration in both its direct and indirect channels by introducing new and
technologically enhanced products at competitive prices.
PURSUE GLOBAL GROWTH OPPORTUNITIES. Management believes that certain of the
international markets for its products are expanding at growth rates
significantly higher than those in the United States. The Company has marketed
its products outside of North America for over 40 years and currently operates
in over 115 countries. The Company believes that it has built an infrastructure,
in part through the Ibico Acquisition,
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capable of accommodating significant global expansion. Many of the Company's
major Office Products Group customers are expanding into international markets
and are demanding the same levels of quality and service as they require in
North America. Management believes that GBC is well-positioned to service these
customers due to its broad product offerings and extensive distribution
capabilities. The Company also expects its Films Group to experience strong
growth as thermal lamination films marketed by the Company continue to displace
solvent lamination films as a result of increased environmental concerns and
regulations in international markets. The Company has expanded its international
revenue from $165 million in 1995 (or 36% of the Company's total revenues) to
$291 million, on a pro forma basis in 1997 (or 33% of the Company's total pro
forma revenues).
SELECTIVELY PURSUE ACQUISITIONS AND JOINT VENTURES. The Company believes
that opportunities exist to expand the market positions of each of its global
Business Groups through strategic acquisitions and joint ventures. The Company
intends to target companies and product lines that (i) maintain and strengthen
its competitive leadership positions, (ii) complement its existing businesses
through expanded product lines, (iii) enhance its relationships with existing
customers and establish relationships with new customers, or (iv) facilitate
penetration into new and developing business areas and geographic territories.
The Company believes that it can realize significant sales growth and improved
profitability through acquisitions as a result of economies of scale, operating
synergies resulting from the integration of manufacturing and distribution
operations, and expansion of the Company's presence in the United States and in
growing international markets.
INDUSTRY OVERVIEW
The Company operates primarily in two markets, the office products market
and the lamination film products market.
THE OFFICE PRODUCTS MARKET. Manufacturers and distributors in the office
products market supply office products to end-users through the direct and
indirect channels. Sales are generated through the direct channel by sales
forces, dealers and telemarketers and through the indirect channel by office
products superstores, contract/commercial stationers, wholesalers, mail order
companies, retail dealers and mass merchandisers.
End-users in the market primarily consist of (i) general office markets
(e.g., large corporations and professional organizations or firms, primarily
service-related companies, with in-house users and/or reprographics departments,
including manufacturing, consulting, financial service, accounting, legal,
architectural, engineering and advertising firms), (ii) small businesses and
individual consumers with home offices, (iii) commercial markets (e.g.,
reprographic centers and quick printers/copy shops), (iv) education markets
(e.g., schools and training centers), and (v) government markets (e.g., federal,
state, and local governments and government agencies).
In the United States, consolidation has occurred at all levels of the
indirect channel of the office products market, with superstores gaining
significant market share over the past several years. In 1997, the three major
superstores had revenues of $15.7 billion (a portion of which were derived from
other office product reseller channels), the four major independent
contract/commercial stationers had revenues of $10.9 billion, the two major
wholesalers had revenues of $3.6 billion and the three major independent mail
order firms had estimated revenues of $3.2 billion. The following table of
information from industry sources illustrates the trend toward consolidation in
the indirect channel over the past several years as shown by changes in
shipments of office supplies, a subset of the overall office products market.
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MANUFACTURERS' SHIPMENTS OF OFFICE SUPPLIES BY SEGMENT
<TABLE>
<CAPTION>
1990 1997
---- ----
<S> <C> <C>
Superstores................................................. 7.3% 24.3%
Contract/commercial stationers.............................. 23.7 28.4
Wholesalers................................................. 22.4 16.5
Mail order companies........................................ 4.6 3.6
Small and medium size dealers............................... 12.5 2.5
Mass merchandisers.......................................... 14.2 15.3
Government and direct....................................... 6.6 1.1
Other....................................................... 8.7 8.3
----- -----
100.0% 100.0%
</TABLE>
International office product markets are, by comparison, relatively undeveloped
and fragmented, with little cross-border distribution. U.S.-based superstores
are beginning to penetrate international markets, and the Company believes that
a consolidation trend similar to the trend experienced in the U.S. will occur in
international markets, particularly in the European market.
THE LAMINATION FILM PRODUCTS MARKET. Lamination significantly enhances a
product's real and perceived value by adding durability (e.g., making paper
stock more tear resistant and stronger), increasing attractiveness (e.g., making
materials look and feel more substantial, as well as protecting inks and images
against fading, scratching and smudging), and adding security (e.g., making
security products, such as identification badges, drivers' licenses and
passports more difficult to alter). The lamination film products market includes
three primary types of laminating films and related equipment: (i) solvent-based
films (which are believed to adversely affect the environment) and aqueous-based
films (which are believed to be more environmentally-neutral), both of which are
considered "wet" films; (ii) thermal films; and (iii) "cold" or
pressure-sensitive films.
End-users primarily consist of (i) general office markets (e.g., primarily
service-related corporations and professional organizations or firms with
in-house users and/or reprographics departments, including manufacturing,
consulting, financial service, accounting, legal, architectural, engineering,
graphic design/advertising firms, as well as small businesses and individual
consumers with home offices), (ii) commercial markets (e.g., reprographic
centers, quick printers/copy shops, screen printers, photo labs), (iii)
education/training markets (e.g., schools and training centers), (iv) the
commercial printing market, and (v) government markets (e.g., federal, state,
and local governments and government agencies).
PRINCIPAL BUSINESS GROUPS
OFFICE PRODUCTS GROUP. GBC's Office Products Group is one of the world's
leading suppliers of office products in its major product categories. Its
products include binding and lamination equipment and supplies, visual
communication products (such as marker boards, bulletin/planning boards and
easels, as well as related accessories) and paper shredders. The Office Products
Group distributes its products principally to the indirect office products
channel, consisting of office products superstores, contract/commercial
stationers, wholesalers, mail order companies and other smaller resellers. The
Office Products Group seeks to leverage its strong brand names (e.g., GBC,
VeloBind, Shredmaster, Quartet, Ibico, Bates and Baker), logistics, service and
distribution capabilities, breadth of product lines and experienced management
team to capitalize on growth opportunities resulting from the consolidation
trend in the office products industry. Such consolidation has resulted in
greater demands being placed on suppliers, such as GBC, for broader product
lines, competitively-priced products, consistent quality, short delivery times,
high fill rates and enhanced customer service. GBC believes it is
well-positioned to maintain its leadership positions across its product lines in
the United States and to advance its international presence as its customers
expand into international markets and demand similar levels of quality and
service as they require in North America. GBC markets its office products
through the Company's own sales organization, consisting of 15 sales persons,
and a network of approximately 85 independent sales representatives and groups.
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DOCUMENT FINISHING GROUP. The Document Finishing Group markets GBC's most
comprehensive range of binding equipment and supplies. The Group supplies
plastic comb, ring, strip, thermal, and plastic coil and wire binding products,
and provides maintenance services directly to general office, commercial,
education/ training and governmental users. The Document Finishing Group
manufactures and markets both manual and electric punching and binding systems
ranging from small desktop machines for the occasional user to high-capacity
products to serve the commercial printing and fast-growing on-demand publishing
markets. It recently introduced in-line punching and binding systems which
attach directly to high-volume electrostatic printers to automate the process of
high-speed printing, punching and binding finished documents. The Document
Finishing Group also offers professionally designed loose-leaf binders,
customized covers, index tabs and other image-enhancing binding and presentation
products, primarily to commercial and corporate customers, utilizing
high-technology graphics and printing capabilities. In addition, the Company
believes that it is the only industry participant offering extensive nationwide,
on-site maintenance services to customers which use its mid-to high-end punching
and binding equipment. The Group sells it products and services through a direct
sales organization of approximately 275 field and management staff, an inbound
and outbound telemarketing operation of approximately 100 employees and a
technical service and repair organization of approximately 105 employees.
Augmenting the direct sales organization, the Document Finishing Group also
markets its products through a full-line dealer organization consisting of
approximately 160 independent dealers who sell a wide range of GBC products.
FILMS GROUP. The Films Group is one of the world's largest manufacturers
and marketers of thermal laminating film products, which are used to preserve,
protect and enhance the appearance of documents. The Films Group sells its
products primarily to the general office, commercial, education/training,
commercial printing (primarily to support the book publishing industry) and
government markets. Management attributes its leadership position primarily to
its state-of-the-art film manufacturing technology, broad-based and innovative
product lines, well-established customer relationships and low-cost production
capabilities. The Films Group offers customers a wide variety of lamination
equipment ranging from desktop equipment, commonly used in schools, to
high-speed lamination systems, commonly used by large commercial printers, and
films ranging from standard film products to customized film solutions to meet
specific customer needs. The Films Group also offers extensive nationwide,
on-site maintenance service to users of its laminating equipment. Lamination
product applications include book covers, annual reports, menus, magazine
covers, packaging, posters, drivers' licenses and passports. The Films Group
also provides a wide range of lamination products under its Pro-Tech brand
product line to the rapidly expanding large-format, short-run, digital color
printing market. Management believes that the demand for lamination products to
enhance the color of images and provide protection against fading and wrinkling
will increase significantly as color copiers and digital printing technology,
especially for color printers, continues to decline in cost and be used to
create more finished and distinctive documents. In addition, Management believes
that large-format digital color printers will continue to displace traditional
methods of reproducing large images for display advertising, point-of-purchase
setups, posters, billboards and other materials. These products and services are
marketed by the Group's direct sales organization of approximately 80 field and
management staff, an inbound and outbound telemarketing operation of
approximately 20 personnel and a technical service and repair organization of
approximately 45 employees.
IBICO ACQUISITION
On February 27, 1998, the Company acquired all of the outstanding stock of
Ibico, headquartered in Zurich, Switzerland, for cash consideration and the
assumption of debt aggregating approximately $130 million. The Company financed
the acquisition of Ibico with borrowings under its Credit Facility and $60
million of proceeds under the Bridge Loan. See "Certain Relationships and
Related Transactions." The amount of the purchase price paid by the Company for
Ibico is subject to a post-closing adjustment based on Ibico's audited EBITDA
for the year ended December 31, 1997 and audited net working capital as of
February 27, 1998. Based upon Ibico's audited financial statements, the Company
believes that it is entitled to a reimbursement of a portion of the purchase
price and is currently engaged in discussions with the former shareholder of
Ibico to determine the amount of such adjustment.
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Ibico is principally a manufacturer and marketer of branded binding and
laminating equipment and related supplies, which it sells through the indirect
channel in the United States, Europe, Asia and South America. Ibico's major
indirect channel customers include Office Depot, Inc., OfficeMax, Inc. and
Viking Office Products, Inc. Ibico generated revenues and EBITDA of $113.5
million and $4.8 million, respectively, for the year ended December 31, 1997,
with over $60 million of revenues generated outside of the United States. Ibico
manufactures its products at three manufacturing facilities located in Germany,
Portugal and Mexico, which are supported by sales and marketing subsidiaries in
the U.S., Canada, Chile, Singapore, Germany, Italy, England, The Netherlands,
France, Taiwan, Spain and Sweden.
The acquisition of Ibico represents a continuation of the Company's
strategy to expand and strengthen relationships with existing and new customers
and pursue global expansion, all of which Management believes will result in
increased sales growth and improved profitability. In particular, the Ibico
Acquisition (i) significantly expands the Company's global manufacturing and
distribution base in Europe, South America and Asia, (ii) provides key new or
expanded customer relationships with Office Depot, OfficeMax and Viking Office
Products, and (iii) broadens the Company's product offerings with branded
complementary products supported by strong research and development
capabilities. Management also believes it has the potential to realize
substantial cost savings through the integration of Ibico with the Company's
existing businesses, which should result in greater purchasing power for raw
materials and outsourced manufacturing services, more efficient plant
utilization and the leveraging of the Company's distribution and fixed-cost
structure.
SALES, MARKETING AND DISTRIBUTION
The Company markets its products to end-users through two primary channels
of distribution: (i) directly through its own sales force, telemarketers and
independent dealers; and (ii) indirectly through resellers purchasing from
wholesalers and directly from the manufacturers. See "Industry Overview." The
Company's Office Product Group markets a variety of office products to the
indirect channel through its own sales force of 15 persons and a network of
approximately 85 independent sales representative groups and organizations. The
Company's Document Finishing Group markets its products and maintenance services
to the direct channel through a direct sales organization consisting of
approximately 275 field and management staff, an inbound and outbound
telemarketing operation of approximately 100 employees and a network of
approximately 160 independent dealers. The Company's Films Group markets its
lamination products and services through its own direct sales network,
consisting of 75 Company sales representatives in the United States, Europe and
the Asia/Pacific region, and its inbound and outbound telemarketing operation of
approximately 20 employees.
CUSTOMERS
As a result of the consolidation of indirect channel resellers of office
products, equipment and supplies, the Company's largest customers tend to be
customers of the Office Products Group, which primarily serves the indirect
channel. The Document Finishing Group and the Films Group sell their products to
a broad base of smaller customers through the direct channel. For the year ended
December 31, 1997, on a pro forma basis, no single customer of the Company
accounted for more than 10% of sales, and the top 10 customers of the Company
accounted for approximately 30% of its sales.
The Company's 10 largest customers based on pro forma sales for the year
ended December 31, 1997 (in alphabetical order) are Boise Cascade Office
Products Corporation, BT Office Products International, Inc., Corporate Express
Inc., Office Depot, Inc., OfficeMax, Inc., Phoenix Color Corp., Quill, S.P.
Richards, Staples, Inc. and United Stationers. Other major customers of the
Company include Coral Graphics, Kinkos, Merrill Lynch, RR Donnelley & Sons and
Salomon Smith Barney.
COMPETITION
The Company faces substantial competition in all of its product lines,
although it knows of no other company with which it competes across the entire
spectrum of its product offerings. In the desktop binding
39
<PAGE> 45
product category, among its many worldwide competitors are Acco-Rexel, Ltd.,
Attalus S.A., Bind-It Corporation, Bohm & Co. GmbH, Channel Bind, Coverbind
Corporation, Esselte AB, Krause Ind., Lamirel, Lassanne Plasticos Ltd., M.S.
Yosan, S.A., NSC International, Performance Design, Inc., Plastikoil, Powis-
Parker Company, Formatic, Renz GmbH, Southwest Plastic Binding Company, Spiral
Binding Co., Tahsin, Unicoil and Ta-Ta Office Products. The Company not only
competes with the foregoing manufacturers and distributors of equipment and
supplies that are similar to the Company's desktop binding products, but it also
competes with many other manufacturers and sellers of less expensive methods of
binding or finishing documents.
In the visual communication products category, the Company competes not
only with other companies that have national and/or international distribution
capabilities, but also with numerous companies that have more limited regional
or local distribution. Among the larger competitors in this product category are
Boone International, Inc., Ghent Manufacturing Inc., Stempel Manufacturing Co.,
Inc., Day Runner, Inc., Apollo Manufacturing, Testrite and Bretford. Among the
larger competitors in the paper shredder product category are Fellowes
Manufacturing Co., Acco-Rexel, Ideal Krug GmbH, Michael Business Machines, Dahle
& Co., Schleicher & Co. AG and Meiko Shokai Co., Ltd. In all of the foregoing
product categories, the Company also faces the threat of potential competition
from new entrants as all of these categories can be easily entered without
investing significantly in plant and equipment by parties with access to
distribution in the office products channel.
In the film lamination products category, the Company also competes in a
worldwide market with many other manufacturers and distributors. Among the many
competitors in this category are Banner American, Bryce Mfg., D&K Group, Inc.,
Glenroy, Inc., Seal Products Inc., Graphic Laminating, Inc., Morane and
Transilwrap Company, Inc. With respect to all of the Company's product
offerings, the Company believes that its long-term success is largely dependent
on its ability to manufacture price-competitive products, provide superior
levels of product quality, provide outstanding customer service, develop
innovative products and market its products effectively.
RAW MATERIALS
The primary materials used to manufacture many of the Company's products
are polyester and polypropylene substrates, PVC, aluminum and wood. These
materials are available from a number of suppliers and the Company is not
dependent upon any single supplier for any of these materials. The Company has
certain economies of scale provided by its high-volume production allowing it to
generally secure favorable raw material costs because of its significant
purchasing requirements and long-term relationships with key suppliers. Based on
its experience, the Company believes that these materials will be readily
available for the foreseeable future. See "Risk Factors -- Exposure to Cost and
Supply Fluctuations in Certain Raw Materials." In general, the Company's gross
profit is affected from time to time by fluctuations in the prices of these
materials because the highly competitive markets for its products may make it
difficult to pass through price increases to customers. However, the Company
believes that its competitors are affected in a similar way, and that
differences in inventory levels among the Company and its competitors do not
provide any company in the industry with a long-term competitive advantage.
MANUFACTURING AND STRATEGIC SUPPLY RELATIONSHIPS
Management believes that a key competitive manufacturing advantage of the
Company is its strategically-located, state-of-the-art, high-volume
manufacturing and assembly plants. Each global Business Group has dedicated
manufacturing plants producing a distinct product line (e.g., binding supplies,
punch and bind equipment, pouch and film products, visual communications
products and customized supplies).
The Company maintains highly-modernized equipment in its plants. The
Company's film and plastic plants currently operate 24 hours a day, seven days a
week, whereas the Company's other plants generally operate one or two shifts a
day as needed to meet customer demand. The plants have the flexibility to meet
fluctuations in demand and have the capacity to expand to accommodate growth.
All plants have ongoing
40
<PAGE> 46
programs to reduce costs and to improve quality and service. Quality control
programs are maintained with respect to suppliers, line performance and product
integrity.
For certain products, such as laminating machines and supplies and paper
shredder systems, the Company operates with partners through global
manufacturing and marketing alliances to share research and development
opportunities, lower product costs and minimize capital expenditures. In 1996,
the Company invested approximately $10 million to acquire a 33% equity interest
in GMP Co., a leading worldwide supplier of laminating systems and supplies,
primarily for retail markets, located in the Republic of Korea. The Company also
has a strategic alliance with Primax Ltd. of Taipei, Taiwan, a leading worldwide
supplier of paper shredders. In 1997, on a pro forma basis, it is estimated that
laminating machines manufactured by GMP represented approximately 3.2% of pro
forma 1997 revenues and that paper shredders manufactured by Primax represented
approximately 4.5% of pro forma 1997 revenues. See "Risk Factors -- Dependence
on Certain Suppliers of Manufactured Products."
EMPLOYEES
At March 1, 1998, the Company had approximately 5,865 employees,
approximately 60% of which were located in the United States. Of the Company's
U.S. employees, approximately 75% are hourly wage employees, approximately 2% of
which are members of various U.S. labor unions and are covered by collective
bargaining agreements which expire prior to January 1, 1999. The Company has not
experienced a work stoppage in its recent history. Management believes that the
Company has excellent relations with its employees.
ENVIRONMENTAL MATTERS
The Company and its operations, both in the United States and abroad, are
subject to Environmental Laws that impose limitations and prohibitions on the
discharge and emission of, and establish standards for the use, disposal and
management of certain materials and waste, and impose liability for the costs of
investigating and cleaning up, and certain damages resulting from, present and
past spills, disposals, or other releases of hazardous substances or materials.
In addition, Environmental Laws such as CERCLA, in the United States, impose
liability on several grounds for the investigation and cleanup of contaminated
soil, groundwater, and buildings, and for damages to natural resources, at a
wide range of properties. The Company is not aware of any material noncompliance
with the Environmental Laws currently applicable to it and is not the subject of
any material claim for liability with respect to contamination at any location.
For its operations to comply with Environmental Laws, the Company has incurred,
and will continue to incur, costs which were not material in fiscal 1997 and are
not expected to be material in the foreseeable future. See "Risk Factors --
Environmental Matters."
41
<PAGE> 47
FACILITIES
In addition to the manufacturing locations listed below, the Company
operates sales and service offices throughout the world, six regional
distribution warehouses in the United States, a 60,000 square foot world
headquarters building in Northbrook, Illinois and a 30,000 square foot
headquarters for its Office Products Group in Skokie, Illinois. The Company
believes that the Company's manufacturing, warehouse and administrative
facilities are in good condition, are suitable and adequate for its operations
and generally provide sufficient capacity to meet its needs for the foreseeable
future.
Major manufacturing is conducted at the following plant locations:
<TABLE>
<CAPTION>
LOCATION SQ. FOOTAGE OWNED/LEASED
- -------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C>
Booneville, Mississippi............................. 420 Owned
Ashland, Mississippi................................ 180 Owned
Addison, Illinois................................... 91 Owned
Basingstoke, England................................ 81 Leased
Buffalo Grove, Illinois............................. 80 Leased
St. Louis, Missouri................................. 73 Owned
Arcos de Valdevez, Portugal*........................ 68 Owned
Pleasant Prairie, Wisconsin......................... 64 Leased
Lincolnshire, Illinois.............................. 64 Leased
Pleasant Prairie, Wisconsin......................... 56 Leased
Acuna, Mexico*...................................... 53 Owned
Nuevo Laredo, Mexico................................ 49 Leased
Phoenix, Arizona.................................... 40 Owned
Lottstetten, Germany*............................... 40 Owned
Kerkrade, Holland................................... 37 Owned
Hagerstown, Maryland................................ 33 Owned
Perth, Australia.................................... 30 Owned
Amelia, Virginia.................................... 26 Owned
Auburn Hills, Michigan.............................. 26 Leased
Madison, Wisconsin.................................. 25 Leased
Tornaco, Italy...................................... 22 Owned
Don Mills, Ontario, Canada.......................... 17 Leased
</TABLE>
- -------------------------
* These facilities were acquired as part of the Ibico Acquisition on February
27, 1998. See "Business -- Ibico Acquisition" and Note 14 to the Consolidated
Financial Statements for additional discussion of the Ibico Acquisition.
INTELLECTUAL PROPERTY
Many of the equipment and supply products manufactured and/or sold by the
Company and certain application methods related to such products are covered by
United States and foreign patents. Although the patents owned by the Company are
highly important to its business, the Company does not consider its business
materially dependent on any of those patents.
The Company owns the GBC, VeloBind, Quartet, Ibico, Pro-Tech, Baker and
Bates trademarks and considers those trademarks material to its business. The
Company also owns numerous other important trademarks related to specific
products; however, the Company does not consider its business materially
dependent on any of those trademarks.
LEGAL PROCEEDINGS
The Company is party to various litigation matters arising in the ordinary
course of business. The ultimate legal and financial liability of the Company
with respect to currently pending litigation cannot be estimated with certainty,
but the Company believes, based on its examination of such matters, experience
to date and discussions with counsel, that such ultimate liability will not be
material to the business, financial condition or results of operations of the
Company.
42
<PAGE> 48
MANAGEMENT
The following table sets forth certain information concerning each of the
Company's executive officers, key employees and directors.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH THE COMPANY
- ---- --- ----------------------------
<S> <C> <C>
William N. Lane III.................. 54 Chairman and Director
Govi C. Reddy........................ 53 President, Chief Executive Officer and Director
Howard B. Green...................... 42 Group President, Office Products
Elliott L. Smith..................... 64 Group President, Document Finishing
Walter M. Hebb....................... 58 Senior Vice President, Strategic Planning/Business
Development
William R. Chambers, Jr. ............ 43 Vice President and Chief Financial Officer
Steven Rubin......................... 51 Vice President, Secretary and General Counsel
Wally G. Schnell, Jr. ............... 52 Vice President, Business Technology
Perry S. Zukowski.................... 40 Vice President, Human Resources
Richard R. Gilbert................... 44 President, Quartet Manufacturing Division
Robert O'Connor...................... 59 Vice President, Films Group -- Commercial Lamination
John E. Turner....................... 49 Vice President, Films Group -- Large-Format Lamination
Richard U. De Schutter............... 58 Director
Theodore Dimitriou................... 71 Director
Rudolph Grua......................... 69 Director
Thomas V. Kalebic.................... 55 Director
James A. Miller...................... 56 Director
Arthur C. Nielsen, Jr. .............. 79 Director
Warren R. Rothwell................... 81 Director
Robert J. Stucker.................... 53 Director
</TABLE>
William N. Lane III is the Chairman, President and a Director of Lane
Industries, a diversified holding company which, in addition to its holdings in
GBC, has interests in hotel, home security, farming and ranching operations and
other investments, and has served in such capacity since September 1978. He was
elected Chairman of the Company in May 1983. He also currently serves as a
director of Wallace Computer Services, Inc., a business forms and computer
service and supply company.
Govi C. Reddy has been President and Chief Executive Officer and a Director
of the Company since January 1995. Mr. Reddy has held progressively more
responsible management positions since joining the Company in July 1978, the
most recent of which was Senior Vice President, Subsidiary Operations and
President of the Company's Film Products division.
Howard B. Green has been Group President, Office Products since joining the
Company in January 1997 as a result of the acquisition of the assets and
business of Quartet Manufacturing Company by the Company where he served as
Chief Executive Officer since 1995 and President from 1990 to 1995. Prior to
that time, he was a corporate/tax attorney with Fried, Frank, Harris Shriver and
Jacobson, a New York-based law firm.
Elliott L. Smith was named Group President, Document Finishing in April
1998. Prior to that time he was Executive Vice President for more than five
years. Before joining the Company in 1986, he held various executive positions
at Dictaphone Corporation in sales and marketing.
Walter M. Hebb has been Senior Vice President, Strategic Planning/Business
Development of the Company since January 1998 after serving as Senior Vice
President, Asia/Pacific since July 1995. Prior to July 1995, Mr. Hebb held
various business development and marketing management positions with the
Company. Prior to joining the Company in 1985, Mr. Hebb held various executive
positions at Dictaphone Corporation and Automatic Data Processing in strategic
planning, marketing and product development.
William R. Chambers, Jr. has been Vice President and Chief Financial
Officer of the Company since August 1997. Mr. Chambers joined the Company in
November 1995 and served as Director of Manufacturing Development until 1997.
Before joining the Company, he was an owner and chief executive officer of a
custom
43
<PAGE> 49
exhibit manufacturing and service company from 1988 to 1995. Prior to that time,
Mr. Chambers held various positions at Lane Industries, including Vice President
and Controller from 1983 to 1988, after holding various positions with Arthur
Young & Co.
Steven Rubin has been Vice President, Secretary and General Counsel since
1985 and has held various management and legal positions since joining the
Company in 1972.
Wally G. Schnell, Jr. has been Vice President, Business Technology since
joining the Company in February 1997. Before joining the Company, he had been
Managing Director of SHL Systemhouse since April 1995. Prior to that time he had
been the Director of Information Services for Wallace Computer Services, Inc.
Perry S. Zukowski has been Vice President, Human Resources of the Company
since March 1998 and Assistant Vice President, Human Resources since March 1997.
Prior to that time, Mr. Zukowski held various positions at Lane Industries since
1986, most recently holding the position of Assistant Treasurer and Risk
Management Director. Prior to joining Lane Industries, his experience included
various management positions at Walgreen Company.
Richard R. Gilbert has been President, Quartet Manufacturing Division since
joining the Company in January 1997 as a result of the Company's acquisition of
the assets and business of Quartet Manufacturing Company where he served as
President and Chief Operating Officer since 1995 and Executive Vice President
since 1990. Mr. Gilbert joined Quartet Manufacturing Company in 1984 as Director
of Sales and Marketing, and prior to that time, he held various sales and
marketing positions with Abex Corporation, a subsidiary of IC Industries.
Robert O'Connor has served as Vice President, Films Group -- Commercial
Lamination of the Company since 1995. Prior to that time, Mr. O'Connor held
various sales management positions since joining the Company in 1971.
John E. Turner was named to the position of Vice President, Films Group --
Large-Format Lamination in October 1997 after serving as Vice President,
European Film Products from December 1991 to October 1997. Prior to that time,
Mr. Turner held various management positions in manufacturing and marketing in
the Company's international operations since joining the Company in 1977.
Richard U. De Schutter is currently the Chairman of the Board and Chief
Executive Officer of G.D. Searle & Co., a specialty pharmaceutical and foods
company, and has been in that position since April, 1995. Prior to assuming
those responsibilities he served as President of Searle since December 1991.
Theodore Dimitriou is currently the Chairman, and has been for more than
the past five years, the Chairman and a director of Wallace Computer Services,
Inc., a business forms and computer service and supply company.
Rudolph Grua is a private investor. Prior to his retirement at the end of
1995, he had been the Company's Vice Chairman since January 1995. Before that
time, he had been the Company's President and Chief Executive Officer since May
1984. He is also a director of the Varlen Corporation.
Thomas V. Kalebic is currently Executive Vice President, Chief Operating
Officer and a Director of Lane Industries. He has been an officer of Lane
Industries since 1975.
James A. Miller is currently President, Chief Executive Officer and
Director of Alliant Food Service, Inc., a broadline foodservice distributor, and
has been in that position since 1995. Prior to that time, Mr. Miller was
affiliated with Kraft Foods since 1965, including serving as President of Kraft
Foodservice unit since 1991, the predecessor to Alliant Food Service Inc.
Arthur C. Nielsen, Jr. is Chairman Emeritus of the A.C. Nielsen Co., a
market research firm, and now acts as a consultant to that company.
Warren R. Rothwell is a private investor. He served as the Company's
interim President from November 1983 to May 1984. He had previously been the
Company's Chairman from November 1978 until his retirement in May 1983.
Robert J. Stucker is a partner with the law firm of Vedder, Price, Kaufman
& Kammholz. He is also a director of Lane Industries.
44
<PAGE> 50
DIRECTOR'S COMPENSATION
Directors who are not employees of the Company receive an annual director's
fee of $20,000 and are paid $1,000 for each board meeting attended and $500 for
each Audit Committee meeting attended. Employee directors receive $1,000 per
meeting for attending regularly scheduled board meetings. In addition, Thomas V.
Kalebic receives an annual fee of $5,000 to compensate him for board committee
participation and for the additional service he provides the Issuer as a member
of its Executive Committee. In addition to board fees, Rudolph Grua, in 1997,
was paid a consulting fee of $50,000 and was paid $23,000 pursuant to a deferred
compensation agreement he entered into with the Company when he was its
President and Chief Executive Officer.
Directors may elect to defer their annual and/or board meetings fees
pursuant to a Phantom Stock Plan which was established by the Company in 1995.
This Plan gives the Directors the ability to receive incentive compensation
based on any appreciation of the Common Stock of the Company and on the
dividends declared on such stock while the Directors remain in office.
Management believes this Plan promotes a closer identity of interests between
the Directors and the Company's shareholders.
Any Director who elects to participate in the Plan receives Phantom Stock
Units ("PSUS") in lieu of cash compensation for either or both of his annual
director's or board meeting fees as he so chooses. PSUS received in lieu of the
annual fee are credited as of the date of the Company's annual meeting of
stockholders during the fiscal year in question. The number of PSUS credited is
determined by dividing the amount of the annual fee by the average of the high
and low prices at which the Company's Common Stock trades on The NASDAQ Stock
Market on that date ("Value"). PSUS received in lieu of board meeting fees are
credited to a Director's account at the Value on the day of the board meeting
attended by the Director.
Directors who maintain a PSUS account also receive dividend equivalents in
a dollar amount equal to the cash dividend which the Director would have been
entitled to receive if he had been the owner, on the record date for a dividend
paid on the Company's Common Stock, of a number of shares of Common Stock equal
to the total PSUS then credited to the Director's account. Dividend equivalents
are converted into PSUS and credited to the Director's PSUS account at the Value
existing on the last day of each fiscal year.
A participating Director may only redeem his PSUS account through a lump
sum cash payment within 30 days after he ceases to be a member of the board, and
his rights under the Plan may not be assigned, encumbered or otherwise
transferred except to a designated beneficiary in the event of the death of a
participant. PSUS have no voting or other shareholder rights attached to them
and the Company's obligation to redeem any PSUS is unsecured.
At December 31, 1997, the PSUS account balances for the following named
Directors were:
<TABLE>
<CAPTION>
PHANTOM STOCK UNIT
ACCOUNT BALANCE
DECEMBER 31, 1997
PHANTOM STOCK UNITS -------------------------------
DIRECTOR EARNED IN 1997 (IN TOTAL UNITS) $ VALUE (1)
-------- ------------------- ---------------- -----------
<S> <C> <C> <C>
William N. Lane III............................... 244.936 646,481 19,516
Richard U. DeSchutter............................. 877.906 877.906 26,502
Theodore Dimitriou................................ 848.101 2,236.130 67,503
Thomas V. Kalebic................................. 780.855 2,303.209 69,528
James A. Miller................................... 353.345 353.345 10,667
Arthur C. Nielsen, Jr............................. 841.101 1,664.185 50,238
Govi C. Reddy..................................... 245.936 736.984 22,248
Robert J. Stucker................................. 748.359 2,211.773 66,768
</TABLE>
- -------------------------
(1) Based on $30.1875 Value.
45
<PAGE> 51
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
During 1997 and currently, Mr. Kalebic, a member of the Issuer's Executive
Committee, served as an officer and director of Lane Industries of which William
N. Lane III, the Company's Chairman is also the Chairman and Chief Executive
Officer. See "Certain Relationships and Related Transactions."
During 1997 and currently, Mr. Lane III has acted as Chairman of the
Compensation Committee of the Board of Directors of Wallace Computer Services,
Inc. of which Theodore Dimitriou, a Director of the Issuer, is Chairman of the
Board.
During 1997, executive officer compensation matters were principally
decided by the Issuer's Executive Committee of the Board of Directors with the
board in whole having oversight authority. The Executive Committee and the board
also considered recommendations made by the Stock Option Plan Administrative
Committee, whose members are currently Mr. Dimitriou, Mr. Rothwell and Mr.
Miller, with respect to stock option matters. As members of the Issuer's board
and its Executive Committee, Messrs. Lane III and Reddy participated in
deliberations concerning their own compensation and the compensation of the
other executive officers of the Company.
46
<PAGE> 52
SENIOR EXECUTIVE COMPENSATION
The compensation paid to executive officers of the Company is determined by
the Executive Committee of the Board of Directors of the Company. The following
table sets forth information regarding the compensation paid or accrued by the
Company during its last three fiscal years to each of its five highest paid
senior executive officers, including its Chief Executive Officer and one
additional key employee (the "Named Executive Officers"), for services rendered
to the Company in all capacities.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
---------------------------------------- SECURITIES TOTAL
OTHER ANNUAL UNDERLYING ALL OTHER COMPENSATION
NAME AND SALARY BONUS(1) COMPENSATION OPTIONS/SARS COMPENSATION (TOTAL OF
PRINCIPAL POSITION YEAR ($)(A) ($)(B) (2)($)(C) (#) (3)($)(D) COLUMNS A-D)($)
------------------ ---- ------ -------- ------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
William N. Lane
III................ 1997 230,000 115,000 -- 15,000 11,700(4) 356,700
Chairman of the 1996 229,991 161,000 -- 60,000 11,250 402,241
Board 1995 210,865 150,500 45 10,000 11,535 372,945
Govi C. Reddy........ 1997 450,609 225,004 14,264 12,000 11,700(4) 701,577
President and Chief 1996 350,012 262,500 13,060 48,000 11,250 636,822
Executive Officer 1995 294,234 225,000 9,327 25,000 11,535 540,096
Howard B. Green...... 1997 300,000 302,400 -- -- 32,750(6) 635,150
Group President,
Office Products(5)
Elliott L. Smith..... 1997 245,342 124,204 9,638 5,000 11,700 390,884
Group President, 1996 228,385 119,902 9,371 17,000 11,250 368,908
Document Finishing 1995 217,795 108,265 6,513 2,500 11,941 344,514
Walter M. Hebb....... 1997 183,846 -- 5,873 3,500 11,700 201,419
Senior Vice 1996 173,731 84,693 6,643 13,000 11,250 276,317
President, 1995 160,180 85,750 5,434 3,000 8,389 259,753
Strategic
Planning/Business
Development
Richard R. Gilbert... 1997 240,000 180,000 -- -- 14,400(7) 434,400
President, Quartet
Manufacturing Co.
Division(5)
</TABLE>
- -------------------------
(1) Annual bonus amounts are earned and accrued during the fiscal years
indicated, and paid subsequent to the end of such year.
(2) The above named individuals receive certain non-cash personal benefits, the
aggregate cost of which to the Company are below applicable reporting
thresholds. The amounts included in this column represent the amounts
reimbursed to the named individuals for income taxes attributable to such
personal benefits.
(3) Unless otherwise noted below, these amounts for the year 1995 represent
contributions by the Company to the Company's tax qualified Profit Sharing,
Savings and Retirement Plan Trust and for the years 1996 and 1997 to the
Company's 401(k) Savings and Retirement Plan on behalf of the named
individuals and to their respective accounts established pursuant to the
Company's non-tax qualified Supplemental Deferred Compensation Plan.
(4) This amount also includes Board of Director's fees paid in 1995 to the
following named individuals in amounts as follows -- Mr. Lane III $1,000 and
Mr. Reddy $1,000.
47
<PAGE> 53
(5) Mr. Green and Mr. Gilbert were hired by the Company in January, 1997 in
connection with the Company's acquisition of the business and assets of The
Quartet Manufacturing Company. As part of the transaction, Messrs. Green and
Gilbert entered into non-competition agreements with the Company for which
the Company is paying Mr. Green $17,000 per month and Mr. Gilbert $10,000
per month. The Company's obligation under these non-competition agreements
ceases on either January 15, 2000 or the date upon which the employment by
the Company of the respective individuals terminates, whichever first
occurs. The non-competition obligations of Messrs. Green and Gilbert
continue for a period of three years following any termination of their
employment with the Company. The non-competition consideration paid to
Messrs. Green and Gilbert is treated as base compensation in addition to
their salaries for purposes of any award they earn pursuant to the Company's
Management Incentive Compensation Plan.
(6) Represents a $26,000 bonus paid to Mr. Green in lieu of retirement plan
payments and a $6,750 Company contribution to his 401(k) Savings and
Retirement Plan account.
(7) Represents a $9,000 bonus paid to Mr. Gilbert in lieu of retirement plan
payments and a $5,400 Company contribution to his 401(k) Savings and
Retirement Plan account.
RETIREMENT PLAN
The Company maintains a Guaranteed Retirement Income Plan ("GRIP") covering
all employees who participated in the Company's Profit Sharing Plan through
December 31, 1995. GRIP provides in pertinent part for annual retirement
benefits at age 65 and 30 years of benefit service equal to 50% of the average
of the five highest consecutive years of compensation out of the last ten years
worked. The retirement benefit is reduced by the annual income which would be
provided by the purchase or funding of an annuity with the balance in the
employee's retirement account under the Profit Sharing Plan and by 50% of the
primary social security benefit payable at age 65. The amount of the retirement
benefit and the social security offset are proportionately reduced for benefit
service of less than 30 years. No benefit is payable, except in certain
circumstances, to anyone with less than seven years participation in the Profit
Sharing Plan. All benefits accruing and earned under GRIP for plan participants
were frozen at the end of 1995 in connection with the Company's conversion of
its Profit Sharing Plan to a 401(k) Savings Plan. As a result, no GRIP
participant can accrue any additional plan benefits while GRIP remains frozen.
No contribution was made by the Company in 1997 for GRIP because the Plan
has been actuarially determined to be currently overfunded with respect to any
Plan liability to participants.
All of the Named Executive Officers presently participate in GRIP other
than Mr. Green and Mr. Gilbert. For Named Executive Officers, their respective
years of benefit service as of December 31, 1997 were as follows:
<TABLE>
<CAPTION>
YEARS OF
INDIVIDUAL BENEFIT SERVICE
---------- ---------------
<S> <C>
William N. Lane III......................................... 29
Govi C. Reddy............................................... 17
Elliott L. Smith............................................ 9
Walter M. Hebb.............................................. 9
</TABLE>
Upon reaching age 65 the only Named Executive Officer entitled to receive a
GRIP benefit would be Mr. Smith, and that benefit would be $556 per month.
STOCK OPTION INFORMATION
The following table sets forth the details of options to purchase Common
Stock granted to the Named Executive Officers during 1997. The second table in
this section sets forth certain information with respect to options exercised by
those individuals in 1997 as well as the value of their unexercised options at
the end of the year.
48
<PAGE> 54
OPTION/SAR GRANTS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS/SAR'S GRANT DATE
OPTION/SAR'S GRANTED TO EMPLOYEES EXERCISE OR BASE EXPIRATION PRESENT VALUE(2)
NAME GRANTED(#) IN FISCAL YEAR PRICE($/SHARE) DATE ($)
---- ------------ -------------------- ---------------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
William N. Lane III..... 15,000 17.6 29.75 1/28/05 207,600
Govi C. Reddy........... 12,000 14.1 29.75 1/28/05 166,080
Elliott L. Smith........ 5,000 5.8 29.75 1/28/05 69,200
Walter M. Hebb.......... 3,500 4.1 29.75 1/28/05 48,400
</TABLE>
- -------------------------
(1) All options granted to the named individuals were granted under the
Company's 1989 Stock Option Plan on January 29, 1997. Twenty-five percent
(25%) of each option first became exercisable one (1) year after the
respective grant date. Only twenty-five percent (25%) of an initial option
grant may be exercised during any one (1) year period commencing with the
anniversary date of an option grant. All of these options were granted with
an exercise price equal to the closing price of the Company's Common Stock
after trading on the grant date in The NASDAQ Stock Market. No stock
appreciation rights were granted in connection with these option grants.
(2) Based on the Black-Scholes stock option pricing model. The following
assumptions were made for purposes of calculating the Grant Date Present
Value: the option term is assumed to be eight years; volatility at 37.15; a
dividend yield of 1.5%; and, a risk-free interest rate of 6.65%. The actual
value, if any, a named individual may realize will depend on the market
value of the underlying shares at the time the option is exercised, so there
is no assurance the value realized will be at or near the value estimated by
the Black-Scholes model. The Company's use of this model should not be
construed as an endorsement of its accuracy at valuing stock options.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR, AND FISCAL YEAR-END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
OPTIONS/SAR'S AT FISCAL OPTIONS/SARS AT FISCAL
SHARES ACQUIRED ON VALUE REALIZED(1) YEAR-END EXERCISABLE/ YEAR-END(2) EXERCISABLE/
NAME EXERCISE(#) ($) UNEXERCISABLE UNEXERCISABLE ($)
---- ------------------ ----------------- ----------------------- ------------------------
<S> <C> <C> <C> <C>
William N. Lane
III................ 16,188 179,287 8,750/97,750 103,906/750,219
Govi C. Reddy........ 4,300 55,669 10,500/79,050 132,125/720,450
Elliott L. Smith..... -- -- 4,250/26,750 48,750/191,969
Walter M. Hebb....... 2,025 23,750 3,900/22,800 45,475/183,200
</TABLE>
- -------------------------
(1) Value realized represents the difference between the option exercise price
and the fair market value of the Company's Common Stock on the date the
option was exercised.
(2) Based on fair market value of $30.00 per share of Common Stock, the closing
price on The NASDAQ Stock Market on December 31, 1997.
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<PAGE> 55
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Issuer's Common Stock (including Common Stock and
Class B Common Stock) as of March 1, 1998 by (i) each stockholder known by the
Issuer to own beneficially 5% or more of the outstanding shares of Common Stock,
(ii) each director and Named Executive Officer of the Issuer and (iii) all
directors and executive officers of the Issuer as a group. To the knowledge of
the Issuer, each stockholder has sole voting and investment power with respect
to the shares indicated as beneficially owned, unless otherwise indicated in a
footnote.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT
OF BENEFICIAL BENEFICIALLY
NAME CLASS OF STOCK OWNERSHIP OWNED(4)
- ---- -------------- ----------------- ------------
<S> <C> <C> <C>
Lane Industries, Inc.................... Class B Common Stock 2,398,275(1)(3) 100%
One Lane Center Common Stock 9,781,334(2)(3) 62.2(4)
Northbrook, IL 60062
Ariel Capital........................... Common Stock 1,471,891(5) 9.4(4)
Management, Inc
307 N. Michigan Ave.
Chicago, IL 60601
Richard U. De Schutter.................. Common Stock 1,000 *
Theodore Dimitriou...................... Common Stock 2,000 *
Rudolph Grua............................ Common Stock 48,964(6) *
Thomas V. Kalebic....................... Common Stock 77,505(7) *
William N. Lane III..................... Common Stock 261,602(8) 1.6
Arthur C. Nielsen, Jr................... Common Stock 25,500 *
Govi C. Reddy........................... Common Stock 39,855(9) *
Warren R. Rothwell...................... Common Stock 22,213(10) *
Robert J. Stucker....................... Common Stock 4,500 *
Howard B. Green......................... Common Stock 26,000 *
Elliott L. Smith........................ Common Stock 21,234(11) *
Walter M. Hebb.......................... Common Stock 13,826(12) *
Richard R. Gilbert...................... Common Stock 1,300 *
All Officers and Directors as a group... Common Stock 878,728(13) 5.6
</TABLE>
- -------------------------
* Less than 1%
(1) Class B Common Stock is convertible into Common Stock at the rate of one
share of Common Stock for each Class B share upon presentation of a Class B
share to the transfer agent and entitles the holder thereof to fifteen
votes when voting together with the Common Stock.
(2) Includes the 2,398,275 Class B shares described in note (1).
(3) Lane Industries has the sole power to vote and to dispose of these shares.
The voting stock of Lane Industries is owned by various trusts under which
certain members of the family of William N. Lane, deceased, are
beneficiaries. William N. Lane III, Chairman and a Director of the Issuer,
and other members of the Lane family are considered to have control of Lane
Industries by virtue of their control of the voting stock of Lane
Industries through a Voting Trust Agreement under which they act as Voting
Trustees.
(4) As a percent of the outstanding shares after giving effect to the possible
conversion of Class B Common Stock described in Note (1).
(5) As of December 31, 1997, based upon information provided in a Schedule 13-G
filed with the Securities and Exchange Commission and dated February 10,
1998. Ariel Capital has sole dispositive power over
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<PAGE> 56
all of these shares, has sole voting power over 1,365,316 of these shares,
and shared voting power over 23,775 of these shares.
(6) Includes 11,143 shares owned by Mr. Grua's wife, with respect to which Mr.
Grua disclaims beneficial ownership.
(7) At March 1, 1998 Mr. Kalebic had outstanding options to acquire from Lane
Industries up to 180,000 shares of the Company's Common Stock at prices
ranging from $14.50 to $30.00 each. Of those outstanding options, 20,250
were exercisable on March 1, 1998 but are not included in the figure
incurred in the table.
(8) Does not include 9,781,334 shares owned by Lane Industries, an affiliate of
Mr. Lane III (see Notes (2) and (3)). Also includes 20,000 shares
exercisable under stock options by May 1, 1998.
(9) Includes 13,500 shares exercisable under stock options by May 1, 1998.
(10) 1,213 of these shares are owned by Mr. Rothwell's wife. Mr. Rothwell
disclaims beneficial ownership over these shares.
(11) Includes 5,875 shares which could be obtained by exercising options under
the Company's stock option plans by May 1, 1998.
(12) Includes 4,775 shares which could be obtained by exercising options under
the Company's stock option plans by May 1, 1998.
(13) Includes 352,983 shares owned by the Company's Employee's 401(k) Savings
and Retirement Plan. Messrs. Kalebic, Lane III and Reddy share the power to
direct the disposition of these shares as members of the Company's
Executive Committee of the Board. The members of the Executive Committee
disclaim beneficial ownership of these shares. Also includes 49,238 shares
exercisable under stock options or exercisable by May 1, 1998 under the
Company's stock option plans.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Lane Industries is a diversified holding company which, in addition to its
holdings in GBC, has interests in hotel, electronic security, farming and
ranching operations and other investments. By virtue of its direct ownership of
7,383,059 shares of the Company's Common Stock and 100% of the 2,398,275 shares
of the Issuer's Class B Common Stock outstanding (on a combined basis
representing 62% of all outstanding capital stock) Lane Industries controlled
88% of the eligible votes of the Issuer's voting securities as of March 1, 1998.
In 1978, the Company implemented a recapitalization plan (the "Plan") which
had been previously approved by the stockholders. As part of the Plan, the
Company entered into an agreement with Lane Industries under which the Company
would receive 20% of Federal income tax savings realized from the filing by Lane
Industries of consolidated Federal income tax returns. In 1997, the Company made
$6.2 million in payments pursuant to this agreement which represented the
Company's portion of its tax liability under this agreement.
In 1985, the Company entered into an agreement with Lane Industries under
which the Company would receive 20% of tax savings, if any, realized by filing
unitary state tax returns on a combined basis with Lane Industries. In 1997, the
Company made $41,000 in payments pursuant to such agreement which represented
the Company's portion of its state tax liabilities under this agreement.
Certain Lane Industries personnel perform federal and state income tax
planning, legal, risk management, acquisition due diligence and finance services
for the Company. The Company paid $2,257,769, $1,425,545 and $889,063 to Lane
Industries for these and related support services and facilities costs in 1997
and the first two months of 1998, 1996 and the first two months of 1997 and 1995
and the first two months of 1996, respectively. The Company will pay amounts to
Lane Industries for acquisition due diligence and advisory services in
connection with the Ibico Acquisition and the Initial Offering. Management
believes that the services provided by Lane Industries have been on fair and
reasonable terms, and that the expense
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<PAGE> 57
incurred is less than the expense the Company would incur for employing its own
personnel with comparable levels of skill and experience to perform these
services.
The Company makes reservations for business travel and accommodations
through a travel agency which is controlled by Lane Industries. The Company pays
the rates charged by the various carriers, hotels and car rental companies which
in turn pay commissions to this travel agency. The Company booked approximately
$1,105,600, $1,032,000 and $987,900 of business travel and accommodations
through such travel agency in 1997 and the first two months of 1998, 1996 and
the first two months of 1997 and 1995 and the first two months of 1996,
respectively.
On October 20, 1997, in anticipation of needing Swiss francs to complete
the Ibico Acquisition, the Company agreed to purchase 20 million Swiss francs
from Lane Investment Limited Partnership ("LILP"), of which Lane Industries is
the general partner, at a cost of approximately $13,829,000. The price paid for
the Swiss francs was based on the mid-point between the bid and ask forward
exchange rates for April 30, 1998, the date the francs were to be delivered to
the Company, as established on the contract date by The Bank of New York. The
delivery date of the purchase was subsequently changed to February 27, 1998 to
coincide with the scheduled closing date of the Ibico Acquisition. On the
delivery date, the Company paid LILP approximately $13,831,200 to acquire the
Swiss francs, reflecting the average foreign currency exchange rates on that
date. Management believes that the Company paid a lesser amount to Lane
Industries for the delivery of the foreign currency than it would have paid in a
comparable arms-length open market transaction.
On February 26 and 27, 1998, the Company borrowed a total of $60 million
from Lane Industries pursuant to the Bridge Loan. The proceeds of these
borrowings were used to partially finance the Ibico Acquisition. The Bridge Loan
provided, in pertinent part, that (i) the Company could borrow up to $100
million from Lane Industries at any time prior to April 30, 1998, (ii) that all
borrowings were subordinated to any other indebtedness of the Company, (iii)
that all borrowings accrued interest at a rate per annum that floated with the
London Interbank Offered Rate for three month loans as published by The Wall
Street Journal plus a 2% margin through May 26, 1998 and margins ranging from 4%
to 8% thereafter, and (iv) that all borrowings, unless prepaid, would be due on
April 14, 2002. The Company used $60 million of the net proceeds from the
Initial Offering to repay all borrowings outstanding under the Bridge Loan. The
Company believes that the costs to the Company in connection with the Bridge
Loan were lower than those that would have been incurred in a comparable
arms-length open market transaction.
In June 1998, the Company purchased 5,062 shares of its Common Stock from
Rudolph Grua, one of the Company's Directors, at a price of $33.625 per share.
In January 1998, the Company purchased 4,500 shares of its Common Stock from Mr.
Grua at a price of $30.5625 per share. In March 1997, the Company purchased
3,000 shares of its Common Stock from Mr. Grua's wife at a price of $32.875 per
share. The price paid for all of these transactions was equal to the average
price of the Company's Common Stock for trades reported on The NASDAQ Stock
Market on the date the transaction took place. The shares of Common Stock
purchased from Mr. and Mrs. Grua are held in treasury.
DESCRIPTION OF CREDIT FACILITY
The Issuer is a party to a credit agreement dated as of January 13, 1997,
as amended (the "Credit Facility"), with Harris Trust and Savings Bank, as
administrative agent, and certain other financial institutions (the "Banks").
The Credit Facility permits the Issuer and, with the Banks' consent, certain of
its wholly-owned subsidiaries ("Borrowing Subsidiaries") to borrow under the
Credit Facility. GBC Nederland B.V. became a Borrowing Subsidiary as of March
31, 1997.
The Credit Facility provides the Issuer and the Borrowing Subsidiaries
(collectively, the "Borrowers") with up to $475 million, subject to increase to
$550 million under certain circumstances, of revolving loans and letters of
credit, available in United States dollars or certain readily-available foreign
currencies. The Credit Facility also includes swingline subfacilities
denominated in United States dollars and certain foreign currencies. Loans under
the Credit Facility are available, under certain conditions, on a competitive
bid basis as well as a committed basis. Subject to certain restrictions, the
Credit Facility may be used to finance
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<PAGE> 58
acquisitions, investments and capital expenditures and for ongoing working
capital and general corporate purposes of the Company.
Repayment. Extensions of credit pursuant to the Credit Facility may be
borrowed, repaid and reborrowed, without premium or penalty, from time to time
until January 13, 2002, subject to the satisfaction of certain conditions on the
date of any such borrowing. Outstanding loans under the Credit Facility must be
repaid, and all letters of credit issued thereunder ("Letters of Credit")
retired or replaced, on January 13, 2002. In addition, the Credit Facility
provides for mandatory repayments from time to time to the extent the United
States dollar value of all loans and Letters of Credit outstanding under the
Credit Facility exceeds the maximum amount permitted to be outstanding
thereunder.
Security. The Borrower's obligations under the Credit Facility are
unsecured, but are guaranteed by the Issuer and each of the Issuer's
now-existing and future material domestic subsidiaries.
Interest. The interest rates per annum applicable to the committed loans
under the Credit Facility are fluctuating rates of interest measured by
reference to one or a combination (at the Issuer's election) of the following:
(i) the Domestic Rate (as defined in the Credit Facility), plus the applicable
borrowing margin; or (ii) the relevant LIBOR (as defined in the Credit
Facility), plus the applicable borrowing margin. The applicable borrowing
margins under the Credit Facility range from 0.00% to 0.50% for Domestic
Rate-based borrowings and 0.375% to 1.375% for LIBOR-based borrowings, in each
case based on the Issuer's Leverage Ratio (defined in the Credit Facility as the
ratio of Consolidated Debt (as defined in the Credit Facility) to Consolidated
EBITDA (as defined in the Credit Facility) for the most-recently-ended period of
four fiscal quarters). At the Issuer's election, each competitive bid loan bears
interest either at a fixed rate or at a margin over LIBOR, in each case as
agreed (through the bid process) between the Issuer and the Bank making the
applicable competitive bid loan.
Fees. The Issuer has agreed to pay certain fees in connection with the
Credit Facility, including (i) Letter of Credit fees, (ii) agency fees and (iii)
facility fees. Facility fees are payable at a rate per annum ranging from 0.10%
to 0.375% of the maximum amount of the Credit Facility based on the Issuer's
Leverage Ratio (as defined in the Credit Facility).
Covenants. The Credit Facility requires the Issuer to meet certain
financial tests, including maximum senior and total leverage ratios, a minimum
interest coverage ratio, a minimum current ratio and a minimum consolidated net
worth. The Credit Facility also contains covenants which, among other things,
restrict the ability of the Issuer and its Subsidiaries (subject to certain
exceptions) to incur liens, enter into sale-leaseback transactions, transact
business with affiliates, declare dividends or redeem or repurchase capital
stock, make loans and investments, and engage in mergers, acquisitions or asset
sales. The Credit Facility also requires the Issuer to satisfy certain customary
affirmative covenants and to make certain customary indemnifications to the
Banks and the agents under the Credit Facility.
Events of Default. The Credit Facility contains customary events of
default, including payment defaults, breach of representations or warranties,
covenant defaults, certain events of bankruptcy and insolvency, ERISA
violations, judgment defaults, cross-default to certain other indebtedness and a
change in control of the Issuer.
DESCRIPTION OF THE NOTES
The Old Notes were and the Exchange Notes will be issued under an indenture
(the "Indenture"), dated as of May 27, 1998 among the Company, the Subsidiary
Guarantors and First Union National Bank, as Trustee (the "Trustee"). The form
and terms of the Exchange Notes are the same as the form and terms of the Old
Notes except that (i) the Exchange Notes will bear a different CUSIP Number from
the Old Notes, (ii) the Exchange Notes have been registered under the Securities
Act and, therefore, will not bear legends restricting the transfer thereof, and
(iii) the holders of the Exchange Notes will not be entitled to certain rights
under the Registration Rights Agreement, including the provisions providing for
an increase in the interest rate on the Old Notes in certain circumstances
relating to timing of the Exchange Offer, which rights will terminate when the
Exchange Offer is consummated. The following summary of certain provisions of
the
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<PAGE> 59
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. 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 General Binding Corporation and not its Subsidiaries.
The Notes will be unsecured obligations of the Company, ranking subordinate
in right of payment to all Senior 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 each Holder. Any Old Notes that remain outstanding
after the completion of the Exchange Offer, together with the Exchange Notes
issued in connection with the Exchange Offer, shall constitute a single class of
securities under the Indenture.
The Notes will not be entitled to the benefit of any mandatory sinking fund
redemption prior to maturity.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $225,000,000, of
which $150,000,000 will be issued in the Offering, and will mature on June 1,
2008. 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 3/8% per annum and will be payable semiannually in cash on each June 1
and December 1, commencing on December 1, 1998, to the persons who are
registered Holders at the close of business on the May 15 and November 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.
REDEMPTION
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 June 1, 2003,
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 June 1 of the year set forth below,
plus, in each case, accrued interest thereon, if any, to the date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003........................................................ 104.688%
2004........................................................ 103.125%
2005........................................................ 101.563%
2006 and thereafter......................................... 100.00%
</TABLE>
Optional Redemption upon Public Equity Offerings. At any time, or from time
to time, on or prior to June 1, 2001, the Company may, at its option, 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 at a redemption price
equal to 109.375% of the principal amount thereof plus accrued and unpaid
interest to the date of redemption; provided, however, that at least 65% of the
aggregate principal amount of the Notes originally issued remain outstanding
immediately following such redemption. In order to effect the foregoing
redemption
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<PAGE> 60
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
If less than all of the Notes are to be redeemed at any time, the Trustee
shall select such Notes for redemption 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 DTC
procedures), unless such method is otherwise prohibited. Notices 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 and satisfaction in full in cash or Cash
Instruments of all Obligations on Senior Indebtedness whether outstanding on the
Issue Date or thereafter incurred, including, without limitation, the Company's
obligations under the Credit Agreement. 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
Indebtedness shall first be paid and satisfied in full in cash or Cash
Instruments, or such payment duly provided for to the satisfaction of the
holders of Senior Indebtedness, 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.
No direct or indirect payment by or on behalf of the Company of Obligations
on the Notes whether pursuant to the terms of the Notes or upon acceleration or
otherwise shall be made if, at the time of such payment, there exists a default
in the payment of all or any portion of principal of, premium, if any, or
interest on, any Designated Senior Indebtedness (and the Trustee has received
written notice thereof), and such default shall not have been cured or waived in
writing or the benefits of this sentence waived in writing by or on behalf of
the holders of such Designated Senior Indebtedness. In addition, if any other
event of default occurs and is continuing with respect to any Designated Senior
Indebtedness, as such event of default is defined in the instrument creating or
evidencing such Designated Senior Indebtedness, permitting the holders of such
Designated Senior Indebtedness then outstanding to accelerate the maturity
thereof and if the Representative for the respective issue of Designated Senior
Indebtedness 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 in writing or the Trustee receives notice from the Representative for
the respective issue of Designated Senior Indebtedness 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
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<PAGE> 61
default which existed or was continuing on the date of the commencement of any
Blockage Period with respect to any Designated Senior Indebtedness shall be, or
be made, the basis for commencement of a second Blockage Period by the
Representative of such Designated Senior Indebtedness whether or not within a
period of 360 consecutive days, unless such event of default shall have been
cured or waived in writing for a period of not less than 90 consecutive days (it
being acknowledged that any subsequent action, or any breach of any of the
financial covenants for a new accounting period commencing after the date 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 Indebtedness,
including the Holders, may recover less, ratably, than holders of Senior
Indebtedness.
As of December 31, 1997, on a pro forma basis after giving effect to the
Transactions, the aggregate amount of Senior Indebtedness and Guarantor Senior
Indebtedness outstanding would have been approximately $289 million.
GUARANTEES
Each Subsidiary Guarantor will unconditionally guarantee, on a senior
subordinated basis, jointly and severally, to each Holder and the Trustee, the
full and prompt performance of the Company's obligations under the Indenture and
the Notes, including the payment of principal of and interest on the Notes. The
Guarantees will be subordinated to Guarantor Senior Indebtedness on the same
basis as the Notes are subordinated to Senior Indebtedness.
The obligations of each Subsidiary Guarantor will be limited to the maximum
amount which, after giving effect to all other contingent and fixed liabilities
of such Subsidiary Guarantor and after giving effect to any collections from or
payments made by or on behalf of any other Subsidiary Guarantor in respect of
the obligations of such other Subsidiary Guarantor under its Guarantee or
pursuant to its contribution obligations under the Indenture, will result in the
obligations of such Subsidiary Guarantor under its Guarantee not constituting a
fraudulent conveyance or fraudulent transfer under federal, state or other
applicable law. Each Subsidiary Guarantor that makes a payment or distribution
under its Guarantee shall be entitled to a contribution from each other
Subsidiary Guarantor in an amount pro rata, based on the net assets of each
Subsidiary Guarantor, determined in accordance with GAAP.
Each Subsidiary Guarantor may consolidate with or merge into or sell its
assets to the Company or another Subsidiary Guarantor that is a Wholly-Owned
Subsidiary without limitation, or with or to other Persons upon the terms and
conditions set forth in the Indenture. See "-- Certain Covenants -- Merger,
Consolidation and Sale of Assets." If all of the Capital Stock of a Subsidiary
Guarantor is sold by the Company and/or one or more of its Subsidiaries and the
sale complies with the provisions set forth in "-- Certain
Covenants -- Limitation on Asset Sales," such Subsidiary Guarantor will be
released from all of its obligations under its Guarantee.
CHANGE OF CONTROL
The Indenture will provide 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 and unpaid interest to the date of purchase.
The Indenture will provide 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 Credit Agreement and all other Senior
Indebtedness the terms of which require repayment upon a Change of Control or
(ii) obtain the requisite consents under the Credit Agreement and all other
Senior Indebtedness 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
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<PAGE> 62
required to repurchase Notes pursuant to the provisions described below. The
Company's failure to comply with the immediately preceding sentence shall be
governed by clause (iii), and not clause (iv), of "Events of Default" below.
Within 30 days following the date upon which a Change of Control occurs,
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. If the Company is required to purchase
outstanding Notes pursuant to a Change of Control Offer, the Company expects
that it would need to 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 any such financing.
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, to enter into
Affiliate transactions and to make Asset Sales may make more difficult or
discourage a takeover of the Company, whether favored or opposed 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 protection in all
circumstances from the adverse aspects of a highly leveraged transaction,
reorganization, restructuring, merger or similar transaction. Additionally, in
those circumstances where a transaction would require a repurchase of the Notes,
there can be no assurance that the Company will have sufficient financial
resources to effect the repurchase.
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.
The definition of the term "Change of Control" includes a phrase relating
to the sale, lease, exchange, transfer or other disposition of "all or
substantially all" of the assets of the Company and its Restricted Subsidiaries
taken as a whole. Although there is a developing body of case law interpreting
the phrase "substantially all," there is no precise established definition of
the phrase under applicable law. Accordingly, the ability of a Holder to require
the Company to repurchase its Notes as a result of a sale, lease, exchange,
transfer or other disposition of less than all of the assets of the Company and
its Restricted Subsidiaries to another Person or Group may be uncertain.
CERTAIN COVENANTS
The Indenture will contain, among others, the following covenants:
Limitation on Incurrence of Additional Indebtedness. The Company will not,
and will not cause or 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 (including, without
limitation, Acquired Indebtedness) other than Permitted Indebtedness.
Notwithstanding the foregoing, 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 and its Restricted Subsidiaries which are
Subsidiary Guarantors may incur Indebtedness (including, without
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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 2.25 to 1.0. No
Indebtedness incurred in compliance with the preceding sentence shall thereafter
be included in calculating any limitation set forth in the definition of
Permitted Indebtedness even if such Indebtedness is of a type which constitutes,
or may constitute, Permitted Indebtedness.
Within 30 days after any incurrence of Indebtedness pursuant to the second
sentence of the preceding paragraph (other than Permitted Indebtedness), the
Company shall deliver to the Trustee an Officers' Certificate setting forth the
calculations by which such incurrence was determined to be permitted.
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 made to the Company or any Wholly-Owned Restricted Subsidiary of
the Company and other than any dividend or distribution payable solely in
Qualified Capital Stock of the Company) on or in respect of its 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 such Capital Stock (other than the exchange of
such Capital Stock or any warrants, rights or options to acquire Capital Stock
of the Company for Qualified Capital Stock of the Company), (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 or
a Subsidiary Guarantor that is subordinate or junior in right of payment to the
Notes or such Subsidiary Guarantor's Guarantee 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 above, or (iii) the aggregate
amount of all 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) shall exceed
the sum of: (v) 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 during the period beginning on the first day of the fiscal quarter
including the Issue Date and ending on the last day of the fiscal quarter ending
at least 30 days prior to the date the Restricted Payment occurs (the "Reference
Date") (treating such period as a single accounting period) plus (w) 100% of the
aggregate net proceeds (including the Fair Market Value of any business or
property other than cash) received by the Company from any Person (other than a
Subsidiary of the Company) from the issuance and sale subsequent to the Issue
Date of Qualified Capital Stock of the Company, including treasury stock; plus
(x) without duplication of any amounts included in clause (iii)(w) 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) (w) and (x), any net cash proceeds from a Public Equity Offering
to the extent used to redeem the Notes and any net cash proceeds received by the
Company from the sale of Qualified Capital Stock of the Company or equity
contribution which has been financed, directly or indirectly, using funds (1)
borrowed from the Company or any of its Subsidiaries, unless and until and to
the extent such borrowing is repaid or (2) contributed, extended, guaranteed or
advanced by the Company or by any of its Subsidiaries); plus (y) an amount equal
to the net reduction in Investments in Unrestricted Subsidiaries resulting from
dividends, interest payments, repayments of loans or advances, or other
transfers of cash, in each case, to the Company or to any Restricted Subsidiary
of the Company from Unrestricted Subsidiaries (but without duplication of any
such amount included in cumulative Consolidated Net Income of the Company), or
from redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries (in
each case valued as provided in "-- Limitation of Restricted and Unrestricted
Subsidiaries" below), not to exceed, in the case of an Unrestricted Subsidiary,
the amount of Investments previously made by the Company or any Restricted
Subsidiary of the Company in such Unrestricted Subsidiary and which were treated
as a Restricted Payment under the Indenture; plus (z) $40.0 million.
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Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph shall not prohibit: (1) the payment of any dividend or
consummation of irrevocable redemption within 60 days after the date of
declaration of such dividend or giving of irrevocable redemption notice if the
dividend or redemption would have been permitted on the date of declaration or
giving of irrevocable redemption notice; (2) if no Default or Event of Default
shall have occurred and be continuing, the acquisition of any 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 or
repayment 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) if no Default or Event of Default shall have
occurred and be continuing, payments by the Company to repurchase Capital Stock
or other securities of the Company from current or former directors, officers
and other employees of the Company or any of its Subsidiaries; and (5) if no
Default or Event of Default shall have occurred and be continuing, purchases of
capital stock for use in connection with compensation arrangements for
directors, officers and other employees of the Company and its Subsidiaries,
provided that the aggregate amount of payments pursuant to clauses (4) and (5)
shall not together exceed $5.0 million in any calendar year (net of the net cash
proceeds received by the Company from the purchase by directors, officers and
other employees of capital stock in connection with such compensation
arrangements) plus any amount unused for the prior calendar year. 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)(ii), and (3)(ii)(A) shall be included in
such calculation.
Within 30 days after 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 Restricted and Unrestricted Subsidiaries. The Board of
Directors of the Company may, if no Default or Event of Default shall have
occurred and be continuing or would arise therefrom, designate an Unrestricted
Subsidiary to be a Restricted Subsidiary; provided, however, that (i) any such
redesignation shall be deemed to be an incurrence as of the date of such
redesignation by the Company and its Restricted Subsidiaries of the Indebtedness
(if any) of such redesignated Subsidiary for purposes of "-- Limitation on
Incurrence of Additional Indebtedness" above, (ii) unless such redesignated
Subsidiary shall not have any Indebtedness outstanding (other than Permitted
Indebtedness), no such designation shall be permitted if immediately after
giving effect to such redesignation and the incurrence of any such additional
Indebtedness, the Company could not incur $1.00 of additional Indebtedness
(other than Permitted Indebtedness) pursuant to "-- Limitation on Incurrence of
Additional Indebtedness" above and (iii) such Subsidiary, if a Domestic
Subsidiary, assumes by execution of a supplemental indenture all of the
obligations of a Subsidiary Guarantor under a Guarantee.
The Board of Directors of the Company also may, if no Default or Event of
Default shall have occurred and be continuing or would arise therefrom,
designate any Restricted Subsidiary (including any newly formed or acquired
Subsidiary) to be an Unrestricted Subsidiary if (i) such designation is at that
time permitted under "-- Limitation on Restricted Payments" above and (ii)
immediately after giving effect to such designation, the Company could incur
$1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to
"-- Limitation on Incurrence of Additional Indebtedness" above. Any such
designation by the Board of Directors of the Company shall be evidenced to the
Trustee by the filing with the Trustee of a Board Resolution of the Company
giving effect to such designation or redesignation and an Officers' Certificate
certifying that such designation or redesignation complied with the foregoing
conditions and setting forth in reasonable detail the underlying calculations.
If any Restricted Subsidiary is designated an Unrestricted
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Subsidiary in accordance with this covenant, such Restricted Subsidiary's
Guarantee will be automatically discharged and released.
The Indenture will provide that for purposes of the covenant described
under "-- Limitation on Restricted Payments" above, (i) an "Investment" shall be
deemed to have been made at the time any Restricted Subsidiary of the Company is
designated as an Unrestricted Subsidiary in an amount (proportionate to the
Company's equity interest in such Subsidiary) equal to the net worth of such
Restricted Subsidiary at the time that such Restricted Subsidiary is designated
as an Unrestricted Subsidiary; (ii) at any date, the aggregate amount of all
Restricted Payments made as Investments since the Issue Date shall exclude and
be reduced by an amount (proportionate to the Company's equity interest in such
Subsidiary) equal to the net worth of any Unrestricted Subsidiary at the time
that such Unrestricted Subsidiary is designated as a Restricted Subsidiary, not
to exceed, in the case of any such redesignation of an Unrestricted Subsidiary
as a Restricted Subsidiary, the amount of Investments previously made by the
Company and its Restricted Subsidiaries in such Unrestricted Subsidiary (in each
case (i) and (ii), "net worth" to be calculated based upon the Fair Market Value
of such Subsidiary as of any such date of designation); and (iii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its Fair
Market Value at the time of such transfer.
The Indenture will provide that notwithstanding the foregoing, the Board of
Directors of the Company may not designate any Restricted Subsidiary of the
Company to be an Unrestricted Subsidiary if, after any such designation, such
Subsidiary owns any Capital Stock of, or holds any Lien on any property of, the
Company or any Restricted Subsidiary of the Company which is not a Subsidiary of
the Subsidiary to be so designated.
The Indenture will provide that Subsidiaries of the Company that are not
designated by the Board of Directors of the Company as Restricted or
Unrestricted Subsidiaries will be deemed to be Restricted Subsidiaries of the
Company. Notwithstanding the foregoing, all Subsidiaries of an Unrestricted
Subsidiary will be Unrestricted Subsidiaries.
Limitation on Asset Sales. The Company will not, and will not cause or
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; (ii) at least 75% 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
360 days of receipt thereof either (A) to prepay any Senior Indebtedness or
Guarantor Senior Indebtedness and, in the case of any Senior Indebtedness or
Guarantor Senior Indebtedness under any revolving credit facility, effect a
permanent reduction in the commitment available 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 (including Capital Stock or other equity interests that satisfy the
requirements of a Permitted Joint Venture or result in the Person becoming a
Restricted Subsidiary) that will be used in the business of the Company and its
Restricted Subsidiaries as existing on the Issue Date or in businesses
reasonably related or complementary thereto (as determined in good faith by the
Company's Board of Directors) ("Replacement Assets"), or (C) a combination of
prepayment and investment permitted by the foregoing clauses (iii)(A) and
(iii)(B). Pending final application, the Company or the applicable Restricted
Subsidiary may temporarily reduce Indebtedness under any revolving credit
facility or invest in cash or Cash Equivalents. On the 361st 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
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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 and unpaid interest thereon, if any, to the 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 or Cash Equivalents (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 or any
such Restricted Subsidiary of the Company, as the case may be, may defer the Net
Proceeds Offer until there is an aggregate unutilized Net Proceeds Offer Amount
equal to or in excess of $15.0 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 $15 million, shall be applied as required pursuant to
this paragraph).
Notwithstanding the immediately preceding paragraph, (1) the Company and
its Restricted Subsidiaries will be permitted to consummate an Asset Sale
without complying with such paragraph to the extent (i) at least 75% of the
consideration for such Asset Sale constitutes Replacement Assets and/or Cash
Equivalents and (ii) such Asset Sale is for Fair Market Value; provided,
however, 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 preceding paragraph, and (2) the
Company and its Restricted Subsidiaries will be permitted to consummate an Asset
Sale without complying with the requirement that at least 75% of the
consideration received by the Company or its Restricted Subsidiaries be in the
form of cash or Cash Equivalents if any shortfall from such 75% requirement is
deemed an Investment under clause (d) of the first paragraph under "--
Limitation on Restricted Payments." For the purposes of clause (1)(ii) above, in
connection with any Asset Sale (or series of related Asset Sales) involving
aggregate payments or other property with a Fair Market Value in excess of $15.0
million, the Company shall obtain a favorable opinion as to the fairness of such
Asset Sale or series of related Asset Sales to the Company or the relevant
Restricted Subsidiary, as the case may be, from a financial point of view, from
an Independent Financial Advisor.
Notice of 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. To the extent the amount of Notes tendered is
less than the offer amount, the Company may use the remaining Net Proceeds Offer
Amount for general corporate purposes and such Net Proceeds Offer Amount shall
be reset to zero.
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 Restricted
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 for such encumbrances or restrictions existing under or by
reason of: (1) applicable law; (2) the Indenture; (3) the Credit Agreement;
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(4) non-assignment 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 the extent and in the manner such agreements are
in effect on the Issue Date; (7) Indebtedness or other contractual requirements
of a Securitization Entity in connection with a Qualified Securitization
Transaction; provided that such restrictions apply only to such Securitization
Entity; 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 or to the Holders in any material respect
as determined by the Board of Directors of the Company in its 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), respectively.
Limitation on Preferred Stock of Restricted Subsidiaries. The Company will
not permit any of its Restricted Subsidiaries which are not Subsidiary
Guarantors 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 which is not a
Subsidiary Guarantor.
Limitation on Liens. The Company will not, and will not cause or permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or permit or suffer to exist any Liens 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 or any Guarantee, the
Notes and such Guarantee, as the case may be, 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 and the Guarantees are equally and ratably secured
for so long as such Lien exists, 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 Indebtedness or Guarantor Senior Indebtedness; (C)
Liens securing the Notes and the Guarantees; (D) Liens of the Company or a
Wholly-Owned Restricted Subsidiary of the Company on assets of any Restricted
Subsidiary of the Company; (E) Liens securing Refinancing Indebtedness which is
incurred to Refinance any Indebtedness which has been secured by a Lien
permitted under the Indenture and which has been incurred in accordance with the
provisions of the Indenture; provided, however, that such Liens (1) 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 (2) do not extend to or cover any property or assets of the
Company or any of its Subsidiaries not securing the Indebtedness so Refinanced
(other than property or assets subject to Liens under clause (B) above); and (F)
Permitted Liens.
Prohibition on Incurrence of Senior Subordinated Debt. The Company will not
incur or suffer to exist Indebtedness that by its terms is senior in right of
payment to the Notes and subordinate in right of payment to any other
Indebtedness of the Company. No Subsidiary Guarantor shall incur or suffer to
exist Indebtedness that by its terms is senior in right of payment to the
Guarantees and subordinate in right of payment to any other Indebtedness of such
Subsidiary Guarantor.
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 its
Restricted Subsidiaries) 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
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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 as primary
obligor, 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, as the
case may be; (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 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 or assets of one or more Restricted
Subsidiaries of the Company the Capital Stock of which constitute 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 will provide 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.
Each Subsidiary Guarantor (other than any Subsidiary Guarantor whose
Guarantee is to be released in accordance with the terms of the Guarantee and
the Indenture in connection with any transaction complying with the provisions
of the Indenture described under "-- Limitation on Asset Sales") will not, and
the Company will not cause or permit any Subsidiary Guarantor to, consolidate
with or merge with or into any Person other than the Company or another
Subsidiary Guarantor that is a Wholly-Owned Restricted Subsidiary unless: (a)
the entity formed by or surviving any such consolidation or merger (if other
than the Subsidiary Guarantor) or to which such sale, lease, conveyance or other
disposition shall have been made is a corporation organized and existing under
the laws of the United States or any State thereof or the District of Columbia;
(b) such entity assumes by execution of a supplemental indenture all of the
obligations of the Subsidiary Guarantor under its Guarantee; (c) immediately
after giving effect to such transaction, no Default or Event of Default shall
have occurred and be continuing; and (d) immediately after giving effect to such
transaction and the use of any net proceeds therefrom on a pro forma basis, the
Company could satisfy the provisions of clause (ii) of the first paragraph of
this covenant. Any merger or consolidation of a Subsidiary Guarantor with and
into the Company (with the Company being the surviving entity) or another
Subsidiary Guarantor that is a Wholly-Owned Restricted Subsidiary need only
comply with clause (iv) of the first paragraph of this covenant.
Limitations on Transactions with Affiliates. (a) The Company will not, and
will not cause or 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
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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 or are
obtainable 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. In connection with 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 $10.0 million, the Company shall either (i) obtain the approval of 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 or (ii) 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. If the
Company or any Restricted Subsidiary of the Company enters into an Affiliate
Transaction (or a 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 $25.0 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, consultants or agents 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
with distributors, suppliers or other purchasers of sales of goods or services,
in each case in the ordinary course of business consistent with the Company's
customary practices and otherwise in compliance with the terms of the Indenture,
and which are fair to the Company or the Restricted Subsidiaries as applicable,
in the reasonable determination of the Board of Directors of the Company or the
senior management thereof, or are on terms at least as favorable as might
reasonably have been obtained at such time from an unaffiliated party; (iv) any
agreement as in effect as of the Issue Date, including the Tax Sharing
Agreement, or any amendment thereto or any transaction contemplated thereby
(including pursuant to any amendment thereto) or in any replacement agreement
thereto so long as any such amendment or replacement agreement is not more
disadvantageous to the Holders than the original agreement as in effect on the
Issue Date; (v) loans to the Company provided that the terms thereof which, when
taken as a whole, are no less favorable to the Company than those available from
a financing source that is not an Affiliate of the Company; and (vi) Restricted
Payments permitted by the Indenture.
Additional Subsidiary Guarantees. If the Company or any of its Restricted
Subsidiaries transfers or causes to be transferred, in one transaction or a
series of related transactions, any property having a Fair Market Value in
excess of $2.5 million to any Restricted Subsidiary that is not a Subsidiary
Guarantor, or if the Company or any of its Restricted Subsidiaries shall
organize, acquire or otherwise invest in another Restricted Subsidiary that is
not a Subsidiary Guarantor which has property with a Fair Market Value in excess
of $2.5 million, then such transferee or acquired or other Subsidiary (other
than, in any such case, a Foreign Subsidiary) shall (a) execute and deliver to
the Trustee a supplemental indenture in form reasonably satisfactory to the
Trustee pursuant to which such Subsidiary shall unconditionally guarantee all of
the Company's obligations under the Notes and the Indenture on the terms set
forth in the Indenture and (b) deliver to the Trustee an opinion of counsel that
such supplemental indenture has been duly authorized, executed and delivered by
such Subsidiary and constitutes a legal, valid, binding and enforceable
obligation of such Subsidiary, subject to customary exceptions. After the
execution and delivery of such supplemental indenture, such Subsidiary shall be
a Subsidiary Guarantor for all purposes of the Indenture.
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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 any guarantee by a Foreign
Restricted Subsidiary of Indebtedness of another Foreign Restricted Subsidiary
permitted under "-- Limitation on Incurrence of Additional Indebtedness"),
unless, in any such case (a) such Restricted Subsidiary, if it is not a
Subsidiary Guarantor, executes and delivers a supplemental indenture to the
Indenture, providing a Guarantee and (b) (x) if any such assumption, guarantee
or other liability of such Restricted Subsidiary is provided in respect of
Senior Indebtedness, the guarantee or other instrument provided by such
Restricted Subsidiary in respect of such Senior Indebtedness may be superior to
the Guarantee pursuant to subordination provisions which, taken as a whole, are
no less favorable in any material respect to the Holders 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 which, taken
as a whole, are no less favorable in any material respect to the Holders than
those contained in the Indenture.
Notwithstanding the foregoing, any such Guarantee by a Restricted
Subsidiary of the Notes pursuant to the foregoing paragraph 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 (or a
Restricted Subsidiary of the Company's) Capital Stock in, or all or
substantially all of the assets of, such Restricted Subsidiary or the parent 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 or (iii) such Subsidiary Guarantor becoming an Unrestricted
Subsidiary in accordance with the Indenture.
Conduct of Business. The Company will not and will not cause or permit any
of its Restricted Subsidiaries (other than a Securitization Entity) to engage in
any businesses other than the businesses in which the Company is engaged on the
Issue Date, and any businesses reasonably related or complementary thereto (as
determined in good faith by the Company's Board of Directors).
Reports to Holders. 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. 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 the 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
Section 314(a) of the TIA.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) the failure to pay interest (including Additional Interest, if
any) 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 acceleration, 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);
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(iii) failure to perform or comply with the restrictive covenants in
the Indenture described herein under "-- Certain Covenants -- Merger,
Consolidation and Sale of Assets;"
(iv) a default in the observance or performance of any other covenant
or agreement contained in the Indenture which default continues for a
period of 45 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;
(v) the failure to pay at final 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 maturity or which has been
accelerated, aggregates $15.0 million or more at any time;
(vi) one or more judgments in an aggregate amount in excess of $15.0
million shall have been rendered against the Company or any of its
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;
(vii) certain events of bankruptcy of the Company or any of its
Significant Subsidiaries;
(viii) any of the Guarantees ceases to be in full force and effect or
any of the Guarantees is declared to be null and void or any of the
Guarantees is found to be invalid or unenforceable or any of the Subsidiary
Guarantors denies or disaffirms its liability under its Guarantee (other
than by reason of the release of a Subsidiary Guarantor in accordance with
the terms of the Indenture).
If an Event of Default (other than an Event of Default specified in clause
(vii) above) 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 such notice is a "notice of acceleration" (the "Acceleration Notice"), and
the same shall become immediately due and payable, provided that if there are
any amounts outstanding under the Credit Agreement, such principal of and
interest on the Notes shall become due and payable upon the first to occur of an
acceleration under the Credit Agreement or five business days after receipt by
the Company and the Representative under the Credit Agreement of such
Acceleration Notice, unless the Event or Events of Default specified in such
Acceleration Notice (other than any Event of Default in respect of non-payment
of principal) shall have been cured or waived in writing. If an Event of Default
specified in clause (vii) above occurs and is continuing, then all unpaid
principal of, and premium, if any, and accrued and unpaid interest on all of the
outstanding Notes shall ipso facto become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any Holder.
The Indenture will provide 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 (vii) 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.
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 officer obtaining knowledge of any
Default or Event of Default (provided that officers of the Company 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 and the corresponding obligations of the Subsidiary Guarantors
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, solely from the trust fund
described below, in respect of the principal of, premium, if any, 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 provisions of the Indenture. In addition, the Company may, at
its option and at any time, elect to have the obligations of the Company and its
Restricted Subsidiaries 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. If 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 United States dollars, non-callable United States
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 (w) the Company has received from, or
there has been published by, the Internal Revenue Service a ruling or (x) 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 subjected to U.S. 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 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 U.S. federal income tax purposes as a result
of such Covenant Defeasance and will be subject to U.S. 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
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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 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
Indebtedness of the Company other than the Notes 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, the Subsidiary Guarantors 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, waivers 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 or waiver 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 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 or any Guarantee in a manner which adversely affects the Holders; or
(viii) release any
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Subsidiary Guarantor from any of its obligations under its Guarantee or the
Indenture other than in accordance with the terms of the Indenture.
GOVERNING LAW
The Indenture will provide that it, the Notes and the Guarantees 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 will provide 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, however,
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" of a Person means Indebtedness of another Person or
any of its Subsidiaries existing at the time such other Person becomes a
Restricted Subsidiary of the referent Person or at the time it merges or
consolidates with the referent Person or any of the referent Person's Restricted
Subsidiaries or is assumed by the referent Person or any Restricted Subsidiary
of the referent Person in connection with the acquisition of assets from such
other Person and in each case not incurred by such other Person in connection
with, or in anticipation or contemplation of, such Person becoming a Restricted
Subsidiary of the referent Person or such acquisition, merger or consolidation.
"Additional Interest" shall have the meaning set forth under "Exchange
Offer -- Purpose and Effect of the Exchange Offer."
"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 Persons 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
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or any of its Restricted Subsidiaries (including any Sale and Leaseback
Transaction) to any Person other than the Company or a Wholly-Owned Restricted
Subsidiary of the Company 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, notwithstanding the foregoing, the term
"Asset Sale" shall not include (i) transactions (taken collectively) for which
the Company or its Restricted Subsidiaries receive aggregate consideration of
less than $15.0 million in any consecutive 12-month period, (ii) the sale,
lease, conveyance, disposition or other transfer of all or substantially all of
the assets of the Company as permitted under "-- Certain Covenants -- Merger,
Consolidation and Sale of Assets," (iii) the sale, lease, conveyance,
disposition or other transfer by the Company or any Restricted Subsidiary of
assets or property to one or more Restricted Subsidiaries or Permitted Joint
Ventures in connection with Investments permitted under the "Limitations on
Restricted Payments" covenant, (iv) sales of Receivables of the type specified
in the definition of "Qualified Securitization Transaction" to a Securitization
Entity for the Fair Market Value thereof, and (v) the sale of the Company's
ringbinder manufacturing business, including the assets of U.S. Ring Binder
Corp., the interests in the Champion Stationery Manufacturing Company Limited
and the Sun Kwong Metal Manufacturer Company Limited joint ventures, and the
stock of GBC Metals Corp.
"Board of Directors" means the board of directors, advisory committee,
management committee or similar governing body or any authorized committee
thereof responsible for the management of the business and affairs of any
Person.
"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.
"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.
"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.
"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 (x) 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 the Standard & Poor's Rating Group Division of McGraw
Hill Incorporated ("S&P") or Moody's Investors Service, Inc. ("Moody's") or (y)
the sovereign debt of any foreign government maturing within six months from the
date of acquisition 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 (or equivalent long-term
ratings) (provided that the aggregate face amount of all Investments pursuant to
this clause (y) shall not at the time of each such new Investment exceed the
greater of $3,000,000 (or the local currency equivalent thereof) or 10% of all
Investments described in this definition); (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 or the equivalent long-term rating by any other nationally recognized
rating agency; (iv) certificates of deposit, time deposits or bankers'
acceptances maturing within one year from the date of acquisition thereof issued
by any bank organized under the laws of the United States of America, any State
thereof or the District of Columbia, any foreign branch of such a bank, any
foreign bank, or any U.S. or foreign branch of such a bank, in each case having
at the date of acquisition thereof combined capital and surplus of not less than
$250,000,000 (or the local currency equivalent thereof) and whose long-term
unsecured debt has a rating of A or better or A2 or better from S&P
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or Moody's, respectively, or the equivalent rating by any other nationally
recognized rating agency; (v) repurchase obligations with a term of not more
than one month for underlying securities of the types described in clause (i)
above entered into with any bank meeting the qualifications specified in clause
(iv) above; (vi) "Money Market" preferred stock maturing within six months after
issuance thereof; (vii) bonds or notes maturing within six months from the date
of acquisition thereof and at the time of acquisition having a rating of AA or
better or Aa or better from either S&P or Moody's, respectively, or the
equivalent rating by any other nationally recognized rating agency (provided
that the principal amount of bonds or notes issued by any one issuer shall not
at the time of each such new Investment exceed the greater of $3,000,000 or 10%
of all Investments described in this definition); and (viii) investments in
money market funds which invest substantially all their assets in securities of
the types described in clauses (i) through (vii) above.
"Cash Instruments" 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 S&P or 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; and (iv)
certificates of deposit, time deposits or bankers' acceptances maturing within
one year from the date of acquisition thereof issued by any bank organized under
the laws of the United States of America, any State thereof or the District of
Columbia, in each case having at the date of acquisition thereof combined
capital and surplus of not less than $250,000,000.
"Change of Control" means the occurrence of one or more of the following
events: (i) any sale, lease, exchange, transfer or other disposition (in one
transaction or a series of related transactions) of all or substantially all of
the assets of the Company and its Restricted Subsidiaries taken as a whole 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 Holders or a Group controlled by the Permitted Holders
shall become the owner, directly or indirectly, beneficially or of record, of
shares representing more than the aggregate ordinary voting power represented by
the Capital Stock of the Company owned, directly or indirectly, by the Permitted
Holders; (iv) the Permitted Holders shall own, directly or indirectly, less than
30.0% of the aggregate ordinary voting power of the Capital Stock of the Company
or the Permitted Holders shall cease to be able to elect a majority of the
members of the Board of Directors of the Company; or (v) the replacement of a
majority of the Board of Directors of the Company from the directors who
constituted the Board of Directors of the Company on the Issue Date, 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 were members
of such Board of Directors on the Issue Date or whose election as a member of
such Board of Directors was previously so approved.
"Commodity Agreements" means any commodity futures contracts, commodity
options or other similar agreements or arrangements designed to protect the
Company or any Restricted Subsidiary of the Company against fluctuations in the
prices of commodities actually at that time used in the ordinary course of
business of the Company or any Restricted Subsidiary of the Company.
"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 Cash Flow" 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
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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 any non-cash items increasing Consolidated Net Income for
such period, all as determined on a consolidated basis for such Person and its
Restricted Subsidiaries in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person, the ratio of Consolidated Cash Flow 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 such Four Quarter Period. In addition to and without limitation
of the foregoing, for purposes of this definition, "Consolidated Cash Flow" 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 Cash Flow (including any pro forma expense and cost reductions
calculated on a basis consistent with Regulation S-X under the Securities Act as
in effect on the Issue Date) (provided that such Consolidated Cash Flow 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 Person other than the Company or a
Restricted Subsidiary of the Company, 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 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.
"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 and its Restricted Subsidiaries (other than
dividends paid in Qualified Capital Stock and other than dividends paid to such
Person or a Restricted Subsidiary of such Person) 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.
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"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum, without duplication of: (i) the aggregate of the interest
expense of such Person and its Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP, including without
limitation, (a) any amortization of debt discount, (b) the net cost (which may
be positive or negative) 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 during such period as determined on a consolidated basis in
accordance with GAAP; provided, that Consolidated Interest Expense with respect
to any Person for any period shall not include any amortization or write off of
deferred financing costs.
"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, however, that there shall be excluded therefrom (a) gains
(and losses) on an after-tax basis from asset sales or abandonments or reserves
relating thereto, (b) items classified as extraordinary or nonrecurring gains or
losses on an after-tax basis, (c) the net income or loss 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 the loss for such period) of any Restricted Subsidiary of
the referent Person which is not a Subsidiary Guarantor to the extent that the
declaration of dividends or similar distributions by that Restricted Subsidiary
to the referent Person or any Subsidiary thereof of that income is restricted,
directly or indirectly, by operation of the terms of its charter or constituent
documents or any agreement, instrument, judgment or decree, (e) the net income
(but not the loss for such period) of any Restricted Subsidiary of the referent
Person which is a Subsidiary Guarantor to the extent that the payment of amounts
under the Guarantee by that Restricted Subsidiary is restricted, directly or
indirectly, by operation of the terms of its charter or constituent documents or
any agreement, instrument, judgment, decree, law, order, statute, rule,
governmental regulation or for any other reason whatsoever, (f) the net income
or loss of any other Person, other than a Restricted Subsidiary of the referent
Person, except to the extent (in the case of net income) of cash dividends or
distributions paid to the referent Person, or to a Wholly-Owned Restricted
Subsidiary of the referent Person, by such other Person, (g) any restoration to
income of any contingency reserve of an extraordinary, nonrecurring or unusual
nature, except to the extent that provision for such reserve was made out of
Consolidated Net Income accrued at any time following the Issue Date, (h) 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 (i) 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.
"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 which
requires an accrual of or a reserve for cash charges for any future period).
"Credit Agreement" means the Multicurrency Credit Agreement dated as of
January 13, 1997, as amended, among the Company, each of the guarantors party
thereto, the lenders party thereto in their capacities as lenders thereunder and
Harris Trust & Savings Bank, as administrative agent, together with the related
documents thereto (including, without limitation, any guarantee agreements), in
each case as such agreements may be further amended (including any amendment and
restatement thereof), supplemented or otherwise modified or replaced from time
to time, including any agreement extending the maturity of, refinancing,
replacing or otherwise restructuring (including increasing the amount of
available borrowings thereunder (provided, however, that such increase in
borrowings is permitted by the "Limitation on Incurrence of Additional
Indebtedness" covenant above) or adding Subsidiaries of the Company as
additional
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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.
"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 Indebtedness" means (i) Indebtedness under or in respect
of the Credit Agreement and (ii) any other Indebtedness constituting Senior
Indebtedness or Guarantor Senior Indebtedness which, at the time of
determination, has an aggregate principal amount of at least $10.0 million and
is specifically designated in the instrument evidencing such Senior Indebtedness
or Guarantor Senior Indebtedness as "Designated Senior Indebtedness" by the
Company or the applicable Subsidiary Guarantor, as the case may be.
"Disqualified Capital Stock" means that portion of any Capital Stock that,
by its term (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 option of the holder thereof, in whole or in part, on or
prior to the stated maturity of the Notes.
"Domestic Restricted Subsidiary" of any Person means any Domestic
Subsidiary that is also a Restricted Subsidiary of such Person.
"Domestic Subsidiary" means any Subsidiary of the Company that is organized
under the laws of any State of the United States, the District of Columbia or
any territory or possession of the United States.
"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 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 in good faith and
shall be evidenced by a Board Resolution of the Board of Directors of the
Company.
"Foreign Restricted Subsidiary" of any Person means any Foreign Subsidiary
that is also a Restricted Subsidiary of such Person.
"Foreign Subsidiary" means any Subsidiary of the Company other than a
Domestic Subsidiary.
"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 on the Issue Date.
"Guarantees" means the guarantees of the Notes by the Subsidiary
Guarantors.
"Guarantor Senior Indebtedness" means, with respect to any Subsidiary
Guarantor, 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 such
Subsidiary Guarantor, whether outstanding on the Issue Date or thereafter
created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument or agreement 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 Guarantee of such
Subsidiary Guarantor. Without limiting the generality of the foregoing,
"Guarantor Senior Indebtedness" shall also include the principal of, premium, if
any, interest (including any interest accruing subsequent
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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 of every nature of a Subsidiary Guarantor under the
Credit Agreement, 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 and Commodity Agreements, in each case whether outstanding
on the Issue Date or thereafter incurred. Notwithstanding the foregoing,
"Guarantor Senior Indebtedness" shall not include (i) any Indebtedness of such
Subsidiary Guarantor to a Subsidiary of such Subsidiary Guarantor or any
Affiliate of such Subsidiary Guarantor or any of such Affiliate's Subsidiaries,
(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 a Subsidiary Guarantor, (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 such Subsidiary Guarantor and (viii) any Indebtedness which is, by
its express terms, subordinated in right of payment to any other Indebtedness of
a Subsidiary Guarantor.
"Holder" means any holder of Notes.
"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, except to the extent secured by Cash and Cash Equivalents, (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) above 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, Commodity Agreements
and Interest Swap Agreements of such Person (whether or not entered into for the
purpose of protecting the Company or any Restricted Subsidiary of the Company
from fluctuations in currency or commodity values or interest rates) and (ix)
all Disqualified Capital Stock issued by such Person 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 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 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 Agreements" means any interest rate swap agreement, interest
rate cap agreement, interest rate floor agreement, interest rate collar
agreement, treasury rate-lock agreement or other similar
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agreement or arrangement designed to protect the Company or any Restricted
Subsidiary of the Company from fluctuations in interest rates.
"Interest Swap Obligations" means the obligations of any Person pursuant to
any Interest Swap Agreement with any other Person.
"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, 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 writeoffs 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, however, 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 former Restricted Subsidiary not sold or disposed of.
"Issue Date" means May 27, 1998.
"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 reasonably estimated to be paid or payable
after taking into account any reduction in consolidated tax liability due to
available tax credits or deductions and any tax sharing arrangements, to the
extent the Company elects to apply such credits or deductions thereto, (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.
"Obligations" means, when used with reference to any Indebtedness, all
obligations for principal, premium, interest, penalties, fees, indemnifications,
reimbursements, damages and other liabilities payable under the documentation
evidencing or governing any such Indebtedness.
"Officers' Certificate" means, with respect to any Person, a certificate
signed by the Chairman, Chief Executive Officer, the President or any Vice
President and the Chief Financial Officer, Controller or the Treasurer of such
Person that shall comply with applicable provisions of the Indenture.
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"Permitted Holders" means William N. Lane II, his children or other lineal
descendants (whether adoptive or biological), the probate estate of any such
individual, and any trust, so long as one or more of the foregoing individuals
is, directly or indirectly, the beneficiary thereunder, and any other
corporation, partnership or other entity, all of the shareholders, partners,
members or owners of which are, directly or indirectly, any of the foregoing.
"Permitted Indebtedness" means, without duplication, each of the following:
(i) Indebtedness under the Notes issued on the Issue Date and the
Guarantees outstanding on the Issue Date or entered into thereafter in
accordance with the Indenture;
(ii) Indebtedness of the Company or any of its Restricted Subsidiaries
which are Subsidiary Guarantors incurred pursuant to the Credit Agreement
in an aggregate principal amount at any time outstanding not to exceed
$550.0 million in the aggregate reduced by any required permanent
repayments pursuant to the provisions set forth under "Certain Covenants --
Limitation on Asset Sales" (which are accompanied by a corresponding
permanent commitment reduction) thereunder (it being recognized that a
reduction in any borrowing base in and of itself shall not be deemed a
required permanent repayment);
(iii) Interest Swap Obligations of the Company or any of its
Restricted Subsidiaries which are Subsidiary Guarantors covering
Indebtedness of the Company or any of its Restricted Subsidiaries;
provided, however, that such Interest Swap Obligations are entered into to
protect the Company and its Restricted Subsidiaries from fluctuations in
interest rates on Indebtedness incurred in accordance with the Indenture
and the notional principal amount of any such Interest Swap Obligation does
not exceed the principal amount of the Indebtedness to which such Interest
Swap Obligation relates;
(iv) Indebtedness of the Company or any of its Restricted Subsidiaries
which are Subsidiary Guarantors under Currency Agreements and Commodity
Agreements; provided, however, that such Currency Agreements and Commodity
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 commodity prices, as the case may be,
or by reason of fees, indemnities and compensation payable thereunder;
(v) Indebtedness of a Restricted Subsidiary 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 Liens held by any Person other
than the Company or a Wholly-Owned Restricted Subsidiary of the Company;
provided, however, 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;
(vi) Indebtedness of the Company to a Restricted Subsidiary of the
Company which is a Subsidiary Guarantor for so long as such Indebtedness is
held by a Restricted Subsidiary of the Company which is a Subsidiary
Guarantor, provided, however, that (a) any Indebtedness of the Company to
any Restricted Subsidiary of the Company which is a Subsidiary Guarantor 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 Restricted Subsidiary which is a
Subsidiary Guarantor of the Company owns or holds any such Indebtedness or
a Lien in respect of such Indebtedness, such date shall be deemed the
incurrence of Indebtedness not constituting Permitted Indebtedness by the
Company;
(vii) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
drawn against insufficient funds in the ordinary course of business;
provided, however, that such Indebtedness is extinguished within three
business days of incurrence;
(viii) Indebtedness of the Company or any of its Restricted
Subsidiaries which are Subsidiary Guarantors represented by letters of
credit for the account of the Company or such Restricted Subsidiary,
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as the case may be, in order to provide security for workers' compensation
claims, payment obligations in connection with self-insurance or other
requirements in the ordinary course of business;
(ix) Indebtedness represented by Capitalized Lease Obligations and
Purchase Money Indebtedness of the Company or any of its Restricted
Subsidiaries which are Subsidiary Guarantors or otherwise incurred to
finance the lease or improvement of real or personal property or equipment
in an aggregate principal amount not to exceed $10.0 million at any one
time outstanding;
(x) Indebtedness permitted by clause (x) of the definition of
"Permitted Investments";
(xi) Indebtedness of Foreign Restricted Subsidiaries to the extent
that the aggregate outstanding amount of Indebtedness incurred by all
Foreign Restricted Subsidiaries to Persons other than Foreign Restricted
Subsidiaries under this clause (xi) does not exceed at any one time the
greater of (I) an amount equal to the sum of (A) 80% of the consolidated
book value of the accounts receivable of all Foreign Restricted
Subsidiaries and (B) 60% of the consolidated book value of the inventory of
all Foreign Restricted Subsidiaries and (II) 2.25 multiplied by the
Consolidated Net Worth of all Foreign Restricted Subsidiaries; provided,
however, that for purposes of calculating Consolidated Net Worth for this
clause (xi), Indebtedness owing to the Company or any of its Restricted
Subsidiaries which are Subsidiary Guarantors shall be deemed a component of
consolidated stockholders' equity; and, provided, further, that at the date
of the incurrence of any such Indebtedness under this clause (xi), the
Company is able to incur at least $1.0 of additional Indebtedness (other
than Permitted Indebtedness) in compliance with the covenant entitled
"Limitation on Incurrence of Additional Indebtedness;"
(xii) additional Indebtedness of the Company or any of its Restricted
Subsidiaries in an aggregate principal amount not to exceed $25.0 million
at any one time outstanding;
(xiii) Indebtedness of the Company or any of its Restricted
Subsidiaries which are Subsidiary Guarantors constituting commercial paper
programs, money-market facilities, medium-term note programs or comparable
Indebtedness; provided, that the aggregate principal amount of Indebtedness
permitted to be outstanding under this clause (xiii) at any time should
not, when added to the principal amount of Indebtedness then outstanding
under clause (ii) hereof, exceed the aggregate amount of Indebtedness then
permitted under clause (ii) hereof;
(xiv) the incurrence by a Securitization Entity of Indebtedness of a
Qualified Securitization Transaction that is not recourse to the Company or
any Restricted Subsidiary of the Company (except for Standard
Securitization Undertakings); and
(xv) Refinancing Indebtedness.
"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 Restricted Subsidiary of the Company, or
that will merge or consolidate into the Company or a Restricted Subsidiary of
the Company; (ii) Investments in the Company by any Restricted Subsidiary of the
Company; provided, however, that any Indebtedness evidencing such Investment by
a Restricted Subsidiary is unsecured and subordinated, pursuant to a written
agreement, to the Company's obligations under the Notes and the Indenture; (iii)
Investments in cash and Cash Equivalents; (iv) loans to employees and officers
of the Company and its Subsidiaries made in connection with such employees' and
officers' participation in stock purchase plans or similar arrangements of the
Company, and other loans and advances to employees and officers of the Company
and its Subsidiaries in the ordinary course of business for bona fide business
purposes, not to exceed $3.0 million in the aggregate at any one time
outstanding; (v) Currency Agreements, Commodity 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; (vi) 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; (vii) Investments
made by the Company or its Restricted Subsidiaries as a result of non-cash
consideration received in connection with an Asset Sale made in compliance with
the "Limitation on Asset Sales" covenant; (viii) Investments in Permitted Joint
Ventures; (ix) any Investment by the Company or a Restricted Subsidiary of the
Company in a Securitization Entity or any Investment by a Securitization
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Entity in any other Person in connection with a Qualified Securitization
Transaction; and (x) additional Investments in an amount outstanding at any one
time not to exceed $20.0 million.
"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) such Person is engaged in the same or a similar line of
business as the Company and its Restricted Subsidiaries were engaged in on the
Issue Date or any business ancillary or related or complementary thereto or
supportive thereof (as determined in good faith by the Company's Board of
Directors), (b) 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 but such Person does not constitute a Subsidiary
of the Company, (c) 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 (d) no default with respect to any Indebtedness of
such Person or any Subsidiary of such Person having a principal amount in excess
of $1.0 million (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.
"Permitted Liens" means the following types of Liens:
(i) Liens in favor of the Trustee in its capacity as trustee for the
Holders;
(ii) Liens securing Senior Indebtedness, including Senior Indebtedness
outstanding under the Credit Agreement;
(iii) 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;
(iv) 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;
(v) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, including any Lien 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);
(vi) 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;
(vii) survey exceptions or encumbrances, easements, rights-of-way,
reservations, 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
Subsidiaries;
(viii) any interest or title of a lessor under any Capitalized Lease
Obligation; provided, however, that such Liens do not extend to any
property or assets which is not leased property subject to such Capitalized
Lease Obligation;
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(ix) Liens to secure Purchase Money Indebtedness of the Company or any
Restricted Subsidiary; provided, however, that (A) the related Purchase
Money Indebtedness is permitted to be incurred in accordance with the
"Limitation on Incurrence of Additional Indebtedness" covenant, (B) 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 (C) the Lien securing such Indebtedness
shall be created within 120 days of such acquisition;
(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 and
Commodity Agreements;
(xiii) Liens securing Acquired Indebtedness incurred in accordance
with the "Limitation on Incurrence of Additional Indebtedness" covenant;
provided, however, 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 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 securing Refinancing Indebtedness; provided that any such
Lien does not extend to or cover any property or assets other than the
property or assets securing the Indebtedness so refunded, refinanced or
extended;
(xv) 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 in the ordinary course of business;
(xvi) 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;
(xvii) Liens granted in connection with any Qualified Securitization
Transaction; and
(xviii) Other Liens securing Obligations which do not exceed $10
million in the aggregate at any one time outstanding.
"Person" means an individual, partnership, corporation, limited liability
company, unincorporated organization, trust or joint venture, or a governmental
agency or political subdivision thereof.
"Preferred Stock" of any Person means any Capital Stock of 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 offering of Qualified
Capital Stock of the Company pursuant to an effective registration statement
filed under the Securities Act.
"Purchase Money Indebtedness" means Indebtedness the net proceeds of which
are used to finance the cost (including the cost of construction) of property or
assets acquired in the normal course of business by the Person incurring such
Indebtedness.
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"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Qualified Securitization Transaction" means any transaction or series of
transactions that may be entered into by the Company or any of its Restricted
Subsidiaries pursuant to which the Company or any of its Restricted Subsidiaries
may sell, convey or otherwise transfer pursuant to customary terms to (a) a
Securitization Entity (in the case of a transfer by the Company or any of its
Restricted Subsidiaries) and (b) any other Person (in the case of transfer by a
Securitization Entity), or may grant a security interest in any Receivables
(whether now existing or arising or acquired in the future) of the Company or
any of its Restricted Subsidiaries.
"Receivables" means any right to payment from or on behalf of any obligor,
whether constituting an account, chattel paper, instrument, general intangible
or otherwise, arising from the provision by the Company or any Restricted
Subsidiary of the Company of merchandise, goods or services or otherwise
evidencing the payment of a sum certain arising in the ordinary course of
business, and monies due thereunder, all security therefor, whether in such
merchandise, goods and services or otherwise, all guarantees, indemnities,
warranties, insurance policies and financing statements and other agreements
relating thereto, records related thereto, and the right to payment of any
interest or finance charges and other obligations with respect thereto, proceeds
from claims on insurance policies related thereto, any other proceeds related
thereto, and any other related rights.
"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 (provided
that Refinancing Indebtedness shall not include Indebtedness described in
clauses (ii) through (xiii) 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 or such Restricted Subsidiary, as the case may
be, in connection with such Refinancing), except to the extent that any such
increase in Indebtedness is otherwise permitted by the Indenture 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, however, that (y) if such Indebtedness being Refinanced is
solely Indebtedness of the Company, then such Refinancing Indebtedness shall be
Indebtedness solely of the Company and (z) if such Indebtedness being Refinanced
is subordinate or junior to the Notes or the Guarantees, then such Refinancing
Indebtedness shall be subordinate to the Notes or the Guarantees, as the case
may be, at least to the same extent and in the same manner as the Indebtedness
being Refinanced.
"Registration Rights Agreement" means the Registration Rights Agreement
dated the Issue Date among the Company, the Subsidiary Guarantors and the
Initial Purchasers.
"Representative" means the indenture trustee or other trustee, agent or
representative in respect of any Designated Senior Indebtedness; provided,
however, that if, and for so long as, any Designated Senior Indebtedness lacks
such a representative, then the Representative for such Designated Senior
Indebtedness shall at all times constitute the holders of the greater of a
majority in outstanding principal amount of such Designated Senior Indebtedness
or the holders thereof generally necessary to take action or approve amendments
under the agreement governing such Designated Senior Indebtedness.
"Restricted Subsidiary" of any Person means any Subsidiary of such Person
which at the time of determination is not an Unrestricted Subsidiary.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to the Company or a Restricted Subsidiary of the Company of any
property, whether owned by the Company or any Restricted Subsidiary of the
Company at the Issue Date or later acquired, which has been or is to be sold or
transferred by the Company or such
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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.
"Securitization Entity" means a Restricted Subsidiary of the Company (or
another Person in which the Company or any Subsidiary of the Company makes an
Investment and to which the Company or any Subsidiary of the Company transfers
Receivables) which engages in no activities other than in connection with the
financing of Receivables and which is designated by the Board of Directors of
the Company (as provided below) as a Securitization Entity (a) no portion of the
Indebtedness or any other Obligations (contingent or otherwise) of which (i) is
guaranteed by the Company or any other Restricted Subsidiary of the Company
(excluding guarantees of Obligations (other than the principal of, and interest
on, Indebtedness) pursuant to Standard Securitization Undertakings), (ii) is
recourse to or obligates the Company or any Restricted Subsidiary of the Company
(other than the Securitization Entity) in any way other than pursuant to
Standard Securitization Undertakings or (iii) subjects any property or asset of
the Company or any Restricted Subsidiary of the Company (other than the
Securitization Entity), directly or indirectly, contingently or otherwise, to
the satisfaction thereof, other than pursuant to Standard Securitization
Undertakings, (b) with which neither the Company nor any Restricted Subsidiary
of the Company has any material contract, agreement, arrangement or
understanding other than on terms no less favorable to the Company or such
Subsidiary than those that might be obtained at the time from Persons that are
not Affiliates of the Company, other than fees payable in the ordinary course of
business in connection with servicing Receivables of such entity and Standard
Securitization Undertakings and (c) to which neither the Company nor any
Restricted Subsidiary of the Company has any obligation to maintain or preserve
such entity's financial condition or cause such entity to achieve certain levels
of operating results. Any such designation by the Board of Directors of the
Company shall be evidenced to the Trustee by filing with the Trustee a Board
Resolution of the Company giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
conditions.
"Senior Indebtedness" 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, and all fees, indemnities, reimbursement obligations with respect to letters
of credit and all other monetary obligations with respect to, 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 Indebtedness" 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 of
every nature of the Company under the Credit Agreement, 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 and Commodity
Agreements, in each case whether outstanding on the Issue Date or thereafter
incurred. Notwithstanding the foregoing, "Senior Indebtedness" shall not include
(i) any Indebtedness of the Company to a Subsidiary of the Company or any
Affiliate of the Company or any of such Affiliate's Subsidiaries, (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.
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"Significant Subsidiary" shall have the meaning set forth in Rule 1.02(w)
of Regulation S-X under the Securities Act.
"Standard Securitization Undertakings" means representations, warranties,
covenants and indemnities entered into by the Company or any Restricted
Subsidiary of the Company which are reasonably customary in a Receivables
securitization transaction.
"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 outstanding voting interests
under ordinary circumstances is at the time, directly or indirectly, owned by
such Person.
"Subsidiary Guarantor" means (a) each of the Company's Domestic Restricted
Subsidiaries as of the Issue Date and (b) each of the Company's Restricted
Subsidiaries that in the future executes a supplemental indenture in which such
Subsidiary agrees to be bound by the terms of the Indenture as a Subsidiary
Guarantor; provided, however, that any Person constituting a Subsidiary
Guarantor as described above shall cease to constitute a Subsidiary Guarantor
when its Guarantee is released in accordance with the terms of the Indenture.
"Tax Sharing Agreement" means the Tax Allocation Agreement dated as of June
1, 1978 by and between Lane Industries and its subsidiaries and the Company and
its United States subsidiaries, as amended as of January 1, 1991, and the State
Tax Allocation Agreement dated as of May 31, 1985 by and between Lane Industries
and its subsidiaries and the Company and its United States subsidiaries.
"Unrestricted Subsidiary" of any Person means (i) any Subsidiary of such
Person that at the time of determination shall be or continue to be designated
as an Unrestricted Subsidiary by the Board of Directors of such Person in the
manner provided for in "Certain Covenants -- Limitations on Restricted and
Unrestricted Subsidiaries" and (ii) any Subsidiary of an Unrestricted
Subsidiary.
"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 Subsidiary" of any Person means any Subsidiary of such Person
of which all the outstanding voting securities (other than director qualifying
shares or other de minimis third-party ownership interests required by law)
normally entitled to vote in the election of the Board of Directors are owned by
such Person or any Wholly-Owned Subsidiary of such Person.
"Wholly-Owned Restricted Subsidiary" of any Person means any Wholly-Owned
Subsidiary which is also a Restricted Subsidiary of such Person.
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EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were originally sold by the Issuer on May 27, 1998 to the
Initial Purchasers pursuant to the terms of the Purchase Agreement. The Initial
Purchasers subsequently resold the Old Notes to (i) qualified institutional
buyers in reliance on Rule 144A under the Securities Act and (ii) qualified
buyers outside of the United States in reliance on Regulation S under the
Securities Act. As a condition to purchase of the Old Notes by the Initial
Purchasers, the Issuer, the Subsidiary Guarantors and the Initial Purchasers
entered into the Registration Rights Agreement as of the date of the Initial
Offering (the "Issue Date"), pursuant to which each of the Issuer and the
Subsidiary Guarantors agreed, for the benefit of holders of the Old Notes, that
they would, at their expense (i) within 60 days after the Issue Date, file the
Exchange Offer Registration Statement with the Commission with respect to a
registered offer to exchange the Old Notes for notes of the Issuer, guaranteed
by the Subsidiary Guarantors, which Exchange Notes would have terms identical to
the Old Notes (except that the Exchange Notes would not contain terms with
respect to the transfer restrictions) and (ii) cause the Exchange Offer
Registration Statement to be declared effective under the Securities Act within
140 days after the Issue Date. Upon the Exchange Offer Registration Statement
being declared effective, the Issuer and the Subsidiary Guarantors agreed to
offer to all holders of the Old Notes an opportunity to exchange their
securities for a like principal amount of the Exchange Notes (and the related
Guarantees). The Issuer and the Subsidiary Guarantors will keep the Exchange
Offer open for acceptance for not less than 20 business days (or longer if
required by applicable law) after the date notice of the Exchange Offer is
mailed to the Holders. For each Old Note surrendered to the Issuer for exchange
pursuant to the Exchange Offer, the Holder of such Old Note will receive an
Exchange Note having a principal amount at maturity equal to that of the
surrendered Old Note. Interest on each Exchange Note will accrue (A) from the
later of (i) last interest payment date on which interest was paid on the Old
Note surrendered in exchange therefor or (ii) if the Old Note is surrendered for
exchange on a date in a period which includes the record date for an interest
payment date to occur on or after the date of such exchange and as to which
interest will be paid, the date of such interest payment date or (B) if no
interest has been paid on such Old Note, from the Issue Date.
Under existing interpretations of the Commission contained in several
no-action letters to third parties, the Exchange Notes (and the related
Guarantees) will be freely transferable by holders thereof (other than
affiliates of the Issuer) after the Exchange Offer without further registration
under the Securities Act; provided, however, that each Holder that wishes to
exchange its Old Notes for Exchange Notes will be required to represent (i) that
any Exchange Notes to be received by it will be acquired in the ordinary course
of its business, (ii) that at the time of the commencement of the Exchange Offer
it has no arrangement or understanding with any person to participate in the
distribution (within the meaning of Securities Act) of the Exchange Notes in
violation of the Securities Act, (iii) that it is not an "affiliate" (as defined
in Rule 405 promulgated under the Securities Act) of the Issuer, (iv) if such
Holder is not a broker-dealer, that it is not engaged in, and does not intend to
engage in, the distribution of Exchange Notes and (v) if such Holder is a
Participating Broker-Dealer that will receive Exchange Notes for its own account
in exchange for Old Notes that were acquired as a result of market-making or
other trading activities, that it will deliver a prospectus in connection with
any resale of such Exchange Notes. The Commission has taken the position that
Participating Broker-Dealers may fulfill their prospectus delivery requirements
with respect to the Exchange Notes (other than a resale of an unsold allotment
from the original sale of the Old Notes) with the prospectus contained in the
Exchange Offer Registration Statement. The Issuer and the Subsidiary Guarantors
will agree to make available, during the period required by the Securities Act,
a prospectus meeting the requirements of the Securities Act for use by
Participating Broker-Dealers and other persons, if any, with similar prospectus
delivery requirements for use in connection with any resale of Exchange Notes.
If, (i) because of any change in law or in currently prevailing
interpretations of the staff of the Commission, the Issuer and the Subsidiary
Guarantors are not permitted to effect an Exchange Offer, (ii) the Exchange
Offer is not consummated within 185 days of the Issue Date, (iii) in certain
circumstances, certain holders of unregistered Exchange Notes so request, or
(iv) in the case of any Holder that participates in the
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Exchange Offer, such Holder does not receive Exchange Notes on the date of the
exchange that may be sold without restriction under state and federal securities
laws (other than due solely to the status of such Holder as an affiliate of the
Issuer or any Subsidiary Guarantor within the meaning of the Securities Act),
then in each case, the Issuer and the Subsidiary Guarantors will (x) promptly
deliver to the Holders and the Trustee written notice thereof and (y) at their
sole expense, (a) as promptly as practicable, file a Shelf Registration
Statement covering resales of the Old Notes and the Guarantees, (b) use their
best efforts to cause the Shelf Registration Statement to be declared effective
under the Securities Act and (c) use their best efforts to keep effective the
Shelf Registration Statement until the earlier of two years after the Issue Date
or such time as all of the applicable Old Notes have been sold thereunder. The
Company will, in the event that a Shelf Registration Statement is filed, provide
to each Holder copies of the prospectus that is a part of the Shelf Registration
Statement, notify each such Holder when the Shelf Registration Statement for the
Old Notes has become effective and take certain other actions as are required to
permit unrestricted resales of the Old Notes. A Holder that sells Old Notes
pursuant to the Shelf Registration Statement will be required to be named as a
selling security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement that are applicable to such
Holder (including certain indemnification rights and obligations).
If the Issuer or any Subsidiary Guarantor fails to comply with the above
provision or if the Exchange Offer Registration Statement or the Shelf
Registration Statement fails to become effective, then, as liquidated damages,
additional interest (the "Additional Interest") shall become payable in respect
of the Old Notes as follows:
(i) if the Exchange Offer Registration Statement or any Shelf
Registration Statement is not filed with the Commission on or prior to the
Filing Date applicable thereto, Additional Interest shall accrue on the
principal amount of the Old Notes at a rate of .50% per annum for the first
90 days immediately following such Filing Date, such Additional Interest
rate increasing by an additional .50% per annum at the beginning of each
subsequent 90-day period;
(ii) if the Exchange Offer Registration Statement is not declared
effective by the Commission within 140 days following the Issue Date or,
whether or not the Issuer and the Subsidiary Guarantors have consummated or
will consummate an Exchange Offer, the Issuer and the Subsidiary Guarantors
are required to file a Shelf Registration Statement and such Shelf
Registration Statement is not declared effective by the Commission on or
prior to the 75th day following the applicable Filing Date with respect to
such Shelf Registration Statement, then, commencing on the day after either
such required effective date, Additional Interest shall accrue on the
principal amount of the Old Notes at a rate of .50% per annum for the first
90 days immediately following such date, such Additional Interest rate
increasing by an additional .50% per annum at the beginning of each
subsequent 90-day period; or
(iii) if (A) the Issuer and the Subsidiary Guarantors have not
exchanged Exchange Notes for all Old 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 the Issue Date
(other than after such time as all Old Notes have been disposed of
thereunder), then Additional Interest shall accrue on the principal amount
of the Old Notes at a rate of .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 .50% per annum at the beginning of each
subsequent 90-day period;
provided, however, that the Additional Interest rate on the Old Notes as a
result of the provisions of clauses (i), (ii) and (iii) above may not exceed in
the aggregate 1.5% 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 or a Shelf Registration Statement (in the case of
clause (ii) above), or (3) upon the exchange of Exchange Notes for all
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Old 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 Old
Notes as a result of such clause (or the relevant subclause thereof), as the
case may be, shall cease to accrue.
As used herein, "Filing Date" means (A) in the case of an Exchange Offer
Registration Statement, the 60th day after the Issue Date; or (B) in the case of
a Shelf Registration Statement (which may be applicable notwithstanding the
consummation of the Exchange Offer), the 45th day after a notice regarding the
obligation to file a Shelf Registration Statement is required to be delivered.
Any amounts of Additional Interest due pursuant to clause (i), (ii) or
(iii) above will be payable in cash on the same original interest payment dates
as the Old Notes.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which is available upon request to the Company.
Following the consummation of the Exchange Offer, holders of the Old Notes
who were eligible to participate in the Exchange Offer but who did not tender
their Old Notes will not have any further registration rights and such Old Notes
will continue to be subject to certain restrictions on transfer. Accordingly,
the liquidity of the market for such Old Notes could be adversely affected.
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 Issuer will accept any and all Old Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. The Issuer will issue $1,000 principal amount of Exchange
Notes in exchange for each $1,000 principal amount of outstanding Old Notes
accepted in the Exchange Offer. Holders may tender some or all of their Old
Notes pursuant to the Exchange Offer. However, Old 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 Old Notes except that (i) the Exchange Notes bear a different CUSIP
Number from the Old Notes, (ii) the Exchange Notes have been registered under
the Securities Act and hence will not bear legends restricting the transfer
thereof and (iii) the holders of the Exchange Notes will not be entitled to
certain rights under the Registration Rights Agreement, including the provisions
providing for an increase in the interest rate on the Old Notes in certain
circumstances relating to the timing of the exchange offer, all of which rights
will terminate when the Exchange Offer is consummated. The Exchange Notes will
evidence the same debt as the Old Notes and will be entitled to the benefits of
the Indenture.
As of the date of this Prospectus, $150,000,000 aggregate principal amount
of Old Notes were outstanding. This Prospectus and the Letter of Transmittal are
being mailed to persons who were holders of Old Notes on the close of business
on the date of this Prospectus.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the General Corporation Law of Delaware or the Indenture in connection with the
Exchange Offer. The Issuer intends to conduct the Exchange Offer in accordance
with the applicable requirements of the Exchange Act and the rules and
regulations of the Commission thereunder.
The Issuer shall be deemed to have accepted validly tendered Old Notes
when, as and if the Issuer has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the Exchange Notes from the Issuer.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
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Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Issuer will pay all charges and expenses,
other than transfer taxes in certain circumstances, 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
September 3, 1998, unless the Issuer, 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 Issuer will notify the Exchange
Agent of any extension by oral or written notice followed by a public
announcement thereof, each prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled expiration date.
The Issuer reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "-- Conditions"
shall not have been satisfied, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent or (ii) to amend the terms of the
Exchange Offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by oral or
written notice thereof to the Exchange Agent and by making a public announcement
thereof.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest from their date of issuance. Holders
of Old Notes that are accepted for exchange will receive, in cash, accrued
interest thereon to, but not including, the date of issuance of the Exchange
Notes. Such interest will be paid with the first interest payment on the
Exchange Notes on December 1, 1998. Interest on the Old Notes accepted for
exchange will cease to accrue upon issuance of the Exchange Notes.
Interest on the Exchange Notes is payable semi-annually on each June 1 and
December 1, commencing on December 1, 1998.
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a 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, together with the Old
Notes and any other required documents, to the Exchange Agent prior to 5:00
p.m., New York City time, on the Expiration Date. To be tendered effectively,
the Old Notes, Letter of Transmittal and other required documents must be
completed and received by the Exchange Agent at the address set forth below
under "-- Exchange Agent" prior to 5:00 p.m., New York City time, on the
Expiration Date. Delivery of the Old Notes may be made by book-entry transfer in
accordance with the procedures described below. Confirmation of such book-entry
transfer must be received by the Exchange Agent prior to the Expiration Date.
By executing the Letter of Transmittal, each holder will make to the Issuer
the representations set forth above in the second paragraph under the heading
"-- Purpose and Effect of the Exchange Offer."
The tender by a holder and the acceptance thereof by the Issuer will
constitute agreement between such holder and the Issuer in accordance with the
terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE RISK
OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO
CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE.
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IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE
EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES
SHOULD BE SENT TO THE ISSUER. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS,
DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE
TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Old 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.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Old Notes tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on 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 by a firm or other entity
identified in Rule 17Ad-15 under the Exchange Act as an "eligible guarantor
institution" (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, such Old 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 Old Notes
with the signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Old 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 evidence satisfactory to the Issuer
of their authority to so act must be submitted with the Letter of Transmittal.
The Issuer understands that the Exchange Agent will make a request promptly
after the date of this Prospectus to establish accounts with respect to the Old
Notes at the book-entry transfer facility, The Depository Trust Company ("DTC"),
for the purpose of facilitating the Exchange Offer, and subject to the
establishment thereof, any financial institution that is a participant in DTC's
system may make book-entry delivery of Old Notes by causing DTC to transfer such
Old Notes into the Exchange Agent's account with respect to the Old Notes in
accordance with DTC's procedures for such transfer. Although delivery of the Old
Notes may be effected through book-entry transfer into the Exchange Agent's
account at DTC, an appropriate Letter of Transmittal properly completed and duly
executed with any required signature guarantee and all other required documents
must in each case be transmitted to and received or confirmed by the Exchange
Agent at its address set forth below on or prior to the Expiration Date, or, if
the guaranteed delivery procedures described below are complied with, within the
time period provided under such procedures. Delivery of documents to DTC does
not constitute delivery to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old Notes
will be determined by the Issuer in its sole discretion, which determination
will be final and binding. The Issuer reserves the absolute right to reject any
and all Old Notes not properly tendered or any Old Notes the Issuer's acceptance
of which would, in the opinion of counsel for the Issuer, be unlawful. The
Issuer also reserves the right in its sole discretion to waive all defects,
irregularities or conditions of tender as to particular Old Notes. The Issuer'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 Old Notes must be cured within such time as the Issuer shall determine.
Although the Issuer intends to notify holders of defects or irregularities with
respect to tenders of Old Notes, neither the Issuer, the Exchange Agent nor any
other person shall incur any liability for failure to give such notification.
Tenders of Old Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Old Notes received by the Exchange
Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holders, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
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GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures for book-entry transfer, 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 (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate number(s)
of such Old Notes and the principal amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within three
New York Stock Exchange trading days after the Expiration Date, the Letter
of Transmittal (or facsimile thereof) together with the certificate(s)
representing the Old Notes (or a confirmation of book-entry transfer of
such Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility), 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 completed and executed Letter of Transmittal (of
facsimile thereof), as well as the certificate(s) representing all tendered
Old Notes in proper form for transfer (or a confirmation of book-entry
transfer of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility), and all other documents required by the
Letter of Transmittal are received by the Exchange Agent within three New
York Stock Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
provided to holders who wish to tender their Old Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a telegram, telex,
letter or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City
time, on the Expiration Date. Any such notice of withdrawal must (i) specify the
name of the person having deposited the Old Notes to be withdrawn (the
"Depositor"), (ii) identify the Old Notes to be withdrawn (including the
certificate number(s) and principal amount of such Old Notes, or, in the case of
Old Notes transferred by book-entry transfer, the name and number of the account
at DTC to be credited), (iii) be signed by the holder in the same manner as the
original signature on the Letter of Transmittal by which such Old Notes were
tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee with respect to the Old
Notes register the transfer of such Old Notes into the name of the person
withdrawing the tender and (iv) specify the name in which any such Old Notes are
to be registered, if different from that of the Depositor. All questions as to
the validity, form and eligibility (including time of receipt) of such notices
will be determined by the Issuer, whose determination shall be final and binding
on all parties. Any Old 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 Old Notes so withdrawn are validly
retendered. Any Old Notes which have been tendered but which are not accepted
for exchange will be returned to the holder thereof without cost to such holder
as soon as practicable after withdrawal, rejection of tender or termination of
the Exchange Offer. Properly withdrawn Old Notes may be retendered by following
one of the procedures described above under "-- Procedures for Tendering" at any
time prior to the Expiration Date.
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CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Issuer shall not
be required to accept for exchange, or exchange Exchange Notes for, any Old
Notes, and may terminate or amend the Exchange Offer as provided herein before
the acceptance of such Old Notes, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
which, in the sole judgment of the Issuer, might materially impair the
ability of the Issuer or the Subsidiary Guarantors to proceed with the
Exchange Offer or any material adverse development has occurred in any
existing action or proceeding with respect to the Issuer or the Subsidiary
Guarantors;
(b) any law, statute, rule, regulation or interpretation by the staff
of the Commission, is adopted or enacted, which, in the sole judgment of
the Issuer, would be violated if the Issuer and the Subsidiary Guarantors
were to proceed with the Exchange Offer; or
(c) any governmental approval has not been obtained, which approval
the Issuer shall, in its sole discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Issuer determines in its sole discretion that any of the conditions
are not satisfied, the Issuer may (i) refuse to accept any Old Notes and return
all tendered Old Notes to the tendering holders, (ii) extend the Exchange Offer
and retain all Old Notes tendered prior to the expiration of the Exchange Offer,
subject, however, to the rights of holders to withdraw such Old Notes (see
"-- Withdrawal of Tenders") or (iii) waive such unsatisfied conditions with
respect to the Exchange Offer and accept all properly tendered Old Notes which
have not been withdrawn.
EXCHANGE AGENT
First Union National Bank has been appointed as Exchange Agent for the
Exchange Offer. Questions and requests for assistance, requests for additional
copies of this Prospectus or of the Letter of Transmittal and requests for a
Notice of Guaranteed Delivery should be directed to the Exchange Agent addressed
as follows:
FIRST UNION NATIONAL BANK
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
First Union National Bank First Union National Bank First Union National Bank
Corporate Trust Corporate Trust 40 Broad Street
Reorganization Dept. Reorganization Dept. 5th Floor, Suite 550
1525 West W.T. Harris Blvd., 1525 West W.T. Harris Blvd., New York, New York 10004
3C3 3C3
Charlotte, North Carolina 28262 Charlotte, North Carolina 28288
Attn: Mike Klotz Attn: Mike Klotz
By Facsimile Transmission
(for Eligible Institutions
only):
(704) 590-7628
Confirm by Telephone
(704) 590-7408
</TABLE>
DELIVERY TO AN ADDRESS OTHER THAN SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Issuer. The
principal solicitation is being made by mail; however; additional solicitations
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Issuer and its affiliates.
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The Issuer has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others to
solicit acceptances of the Exchange Offer. The Issuer, 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 Issuer. Such expenses will include, among others, fees and
expenses of the Exchange Agent and Trustee, accounting and legal fees and
printing costs.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Old
Notes, which is face value, as reflected in the Company's accounting records on
the date of exchange. Accordingly, no gain or loss for accounting purposes will
be recognized by the Company. The expenses of the Exchange Offer will be
amortized over the term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Old Notes
may be resold only (i) to the Issuer (upon redemption thereof or otherwise),
(ii) so long as the Old Notes are eligible for resale pursuant to Rule 144A, to
a person inside the United States whom the seller reasonably believes is a
"qualified institutional buyer" within the meaning of Rule 144A under the
Securities Act in a transaction meeting the requirements of Rule 144A, in
accordance with Rule 144 under the Securities Act, or pursuant to another
exemption from the registration requirements of the Securities Act (and based
upon an opinion of counsel reasonably acceptable to the Issuer), (iii) outside
the United States to a foreign person in a transaction meeting the requirements
of Rule 904 under the Securities Act, or (iv) pursuant to an effective
registration statement under the Securities Act, in each case in accordance with
any applicable securities laws of any state of the United States.
RESALE OF THE EXCHANGE NOTES
With respect to resales of Exchange Notes, based on interpretations by the
staff of the Commission set forth in no-action letters issued to third parties,
the Issuer believes that a holder or other person who receives Exchange Notes,
whether or not such person is the holder who receives Exchange Notes in exchange
for Old Notes, in the ordinary course of business, who is not participating,
does not intend to participate, and has no arrangement or understanding with any
person to participate, in the distribution of the Exchange Notes and who is not
an "affiliate" of the Issuer within the meaning of Rule 405 under the Securities
Act, 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 Exchange Notes in the
Exchange Offer for the purpose of distributing or participating in a
distribution of the Exchange Notes, such holder cannot rely on the position of
the staff of the Commission enunciated in such no-action letters or any similar
interpretive letters, 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.
Further, each Participating Broker-Dealer that receives Exchange Notes for its
own account in exchange for Old Notes, where such Old Notes were acquired by
such Participating 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.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent to
the Issuer in the Letter of Transmittal that (i) the Exchange Notes are to be
acquired by the holder or the person receiving such Exchange Notes, whether or
not such person is the holder, in the ordinary course of business, (ii) the
holder or any such other person (other than a broker-dealer referred to in the
next sentence) is not engaging and does not intend to engage, in the
distribution of the Exchange Notes, (iii) the holder or any such other person
has no arrangement or
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understanding with any person to participate in the distribution of the Exchange
Notes, (iv) neither the holder nor any such other person is an "affiliate" of
the Issuer within the meaning of Rule 405 under the Securities Act, and (v) the
holder or any such other person acknowledges that if such holder or other person
participates in the Exchange Offer for the purpose of distributing the Exchange
Notes it must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any resale of the Exchange Notes and
cannot rely on those no-action letters. As indicated above, each Participating
Broker-Dealer that receives Notes for its own account in exchange for Old Notes
must acknowledge that it will deliver a prospectus in connection with any resale
of such Exchange Notes. For a description of the procedures for such resales by
Participating Broker-Dealers, see "Plan of Distribution."
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
The following discussion is a summary of certain United States federal tax
consequences of the Exchange Offer and of the acquisition, ownership and
disposition of the Exchange Notes by the beneficial owners thereof ("Holders").
The discussion is limited to initial Holders of Exchange Notes and does not
address the tax consequences to subsequent purchasers of Exchange Notes. This
summary does not purport to be a complete analysis of all the potential United
States federal tax effects relating to the acquisition, ownership and
disposition of the Exchange Notes. There can be no assurance that the Internal
Revenue Service (the "IRS") will take a similar view of such consequences.
Further, the discussion does not address all aspects of taxation that might be
relevant to particular Holders in light of their individual circumstances
(including the effect of any state, local, non-United States or other tax laws)
or to certain types of Holders (including dealers in securities, insurance
companies, financial institutions and tax-exempt entities) subject to special
treatment under United States federal tax law.
The discussion below is based on the Internal Revenue Code of 1986, as
amended (the "Code"), administrative pronouncements, judicial decisions,
existing, proposed and temporary United States Treasury Regulations, all in
effect as of the date hereof, all of which are subject to change at anytime, and
any such change may be applied retroactively. Because individual circumstances
may differ, each Holder is strongly urged to consult its own tax advisor with
respect to its particular tax situation and the particular tax effects of any
state, local, non-United States or other tax laws and possible changes in the
tax laws. The discussion below assumes that the Old Notes and the Exchange Notes
are held as capital assets within the meaning of Section 1221 of the Code.
HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH REGARD TO THE APPLICATION OF
THE UNITED STATES FEDERAL TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY
TAX CONSEQUENCES TO THEM ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR
NON-UNITED STATES TAXING JURISDICTION.
TAX CONSEQUENCES OF THE EXCHANGE OFFER TO EXCHANGING AND NONEXCHANGING HOLDERS
An exchange of Old Notes for Exchange Notes will not be treated as a sale,
exchange or other taxable event for federal income tax purposes because the
Exchange Notes will not be considered to differ materially in kind or extent
from the Old Notes. As a result, no material federal income tax consequences
will result from an exchange of Old Notes for Exchange Notes.
For United States income tax purposes, (i) an Exchange Note received by a
beneficial owner of an Old Note will be treated as a continuation of the Old
Note in the hands of such owner, (ii) the holding period for an Exchange Note
will include the holding period for the Old Note exchanged therefor, and (iii)
the tax basis of such Exchange Note will be the same as the tax basis for such
Old Note.
The Exchange Offer will not result in any United States federal income tax
consequences to a nonexchanging Holder.
TAX CONSEQUENCES TO UNITED STATES HOLDERS OF HOLDING EXCHANGE NOTES
As used herein, the term "United States Holder" means a Holder of an
Exchange Note who or which is, for United States federal income tax purposes,
(i) a citizen or resident of the United States, (ii) a corporation,
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partnership or other entity created or organized in or under the laws of the
United States or of any State thereof (including the District of Columbia) or
(iii) an estate or trust described in Section 7701(a)(30) of the Code. The term
also includes certain Holders who are former citizens or residents of the United
States whose income and gain from the Exchange Notes will be subject to United
States taxation.
Payments of Interest. Interest paid on an Exchange Note will generally be
taxable to a United States Holder as ordinary interest income at the time it
accrues or is received in accordance with the United States Holder's method of
accounting for United States federal income tax purposes.
Sale, Exchange, Redemption or Retirement of the Exchange Notes. Upon the
sale, exchange, redemption or retirement of an Exchange Note, a United States
Holder will recognize taxable gain or loss equal to the difference between the
amount realized on such sale, exchange, redemption or retirement (not including
any amount attributable to accrued but unpaid interest) and such Holder's
adjusted tax basis in the Exchange Note. To the extent attributable to accrued
but unpaid interest, the amount recognized by the United States Holder will be
treated as a payment of interest. See "-- Payments of Interest" above. A United
States Holder's adjusted tax basis in an Exchange Note will equal such Holder's
basis in the Old Note exchanged therefore, reduced by any principal payments
received by such Holder. See "-- Tax Consequences of the Exchange Offer to
Exchanging and Nonexchanging Holders," above.
Gain or loss recognized on the sale, exchange, redemption or retirement of
an Exchange Note will be capital gain or loss. For non-corporate taxpayers,
capital gain recognized on the disposition of an asset (including an Exchange
Note) held for more than one year is subject to United States federal income tax
at a maximum rate of 20% and capital gain on the disposition of an asset
(including an Exchange Note) held for not more than one year is taxed at the
rates applicable to ordinary income (i.e., up to 39.6%). The holding period for
an Exchange Note will include the holding period for the Old Note exchanged
therefor. See "-- Tax Consequences of the Exchange Offer to Exchanging and
Nonexchanging Holders," above. Regardless of the holding period, capital loss on
the disposition of an asset is deductible by non-corporate taxpayers only to the
extent of capital gains for the taxable year plus $3,000. Capital gains are
subject to tax at the same rates as ordinary income for corporate taxpayers.
Capital losses of corporate taxpayers are deductible only against capital gains.
A Holder attempting to sell an Exchange Note in the secondary market should
be aware that a subsequent Holder who purchases an Exchange Note at a discount
might be subject to the "market discount" rules of the Code. A subsequent Holder
who purchases an Exchange Note at a premium may elect to amortize and deduct the
premium over the remaining term of the Exchange Note in accordance with rules
set forth in Section 171 of the Code.
TAX CONSEQUENCES TO UNITED STATES ALIEN HOLDERS OF HOLDING EXCHANGE NOTES
Under present United States federal income and estate tax law, and subject
to the discussion below concerning backup withholding:
(a) payments of principal and interest on an Exchange Note by the
Issuer or any paying agent to a beneficial owner of the Exchange Note that
is not a United States Holder, as defined above (hereinafter, a "United
States Alien Holder"), will not be subject to withholding of United States
federal income tax, provided that, in the case of interest, (i) such Holder
does not own, actually or constructively, 10 percent or more of the total
combined voting power of all classes of stock of the Issuer entitled to
vote, (ii) such Holder is not, for United States federal income tax
purposes, a controlled foreign corporation related, directly or indirectly,
to the Issuer through stock ownership, (iii) such Holder is not a bank
receiving interest described in Section 881(c)(3)(A) of the Code, and (iv)
the certification requirements under Section 871(h) or Section 881(c) of
the Code and Treasury Regulations thereunder (summarized below) are met;
(b) a United States Alien Holder of an Exchange Note will not be
subject to United States federal income tax on gain recognized on the sale,
exchange, redemption, retirement or other disposition of such Exchange
Note, unless (i) such Holder is a non-resident alien individual who is
present in the United
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States for 183 days or more in the taxable year of disposition, and certain
conditions are met or (ii) such gain is effectively connected with the
conduct by such Holder of a trade or business in the United States; and
(c) an Exchange Note held by an individual who is not a citizen or
resident (as defined for United States federal estate tax purposes) of the
United States at the time of his death will not be subject to United States
federal estate tax as a result of such individual's death, provided that,
at the time of such individual's death, (i) the individual does not own,
actually or constructively, 10 percent or more of the total combined voting
power of all classes of stock of the Issuer entitled to vote and (ii)
payments with respect to such Exchange Note, if received at the time of the
individual's death, would not have been effectively connected with the
conduct by such individual of a trade or business in the United States.
Sections 871(h) and 881(c) of the Code and United States Treasury
Regulations thereunder require that, in order to obtain the exemption from
withholding tax described in paragraph (a) above, either (A) the beneficial
owner of an Exchange Note must certify, under penalties of perjury, to the
Issuer or paying agent, as the case may be, that such owner is a United States
Alien Holder and must provide such owner's name and address, or (B) 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 Note on behalf of the beneficial owner
thereof must certify, under penalties of perjury, to the Issuer or paying agent,
as the case may be, that such certificate has been received from the beneficial
owner by it or by a Financial Institution between it and the beneficial owner
and must furnish the payor with a copy thereof. A certificate described in this
paragraph is effective only with respect to payments of interest made to the
certifying United States Alien Holder after issuance of the certificate in the
calendar year of its issuance and the two immediately succeeding calendar years.
Under temporary United States Treasury Regulations, the foregoing certification
may be provided by the beneficial owner of a Note on IRS Form W-8.
On October 14, 1997, the IRS published in the Federal Register final
regulations (the "1997 Final Regulations") which affect the United States
taxation of United States Alien Holders. As promulgated, the 1997 Final
Regulations are effective for payments after December 31, 1998, regardless of
the issue date of the instrument with respect to which such payments are made,
subject to certain transition rules. The IRS subsequently announced its
intention to amend the 1997 Final Regulations to extend this date to December
31, 1999, subject to certain transition rules. The discussion under this heading
and under "Backup Withholding and Information Reporting," below, is not intended
to be a complete discussion of the provisions of the 1997 Final Regulations or
the recent IRS announcement, and Holders are urged to consult their tax advisors
concerning the tax consequences of their acquiring, holding and disposing of the
Exchange Notes in light of the 1997 Final Regulations.
The 1997 Final Regulations provide documentation procedures designed to
simplify compliance by withholding agents. The 1997 Final Regulations generally
do not affect the documentation rules described above, but add other
certification options. Under one such option, a withholding agent will be
allowed to rely on an intermediary withholding certificate furnished by a
"qualified intermediary" (as defined below) on behalf of one or more beneficial
owners (or other intermediaries) without having to obtain the beneficial owner
certificate described above. "Qualified intermediaries" include: (i) foreign
financial institutions or foreign clearing organizations (other than a United
States branch or United States office of such institution or organization) or
(ii) foreign branches or offices of United States financial institutions or
foreign branches or offices of United States clearing organizations, which, as
to both (i) and (ii), have entered into withholding agreements with the IRS. In
addition to certain other requirements, qualified intermediaries must obtain
withholding certificates, such as revised IRS Form W-8 (see below), from each
beneficial owner. Under another option, an authorized foreign agent of a United
States withholding agent will be permitted to act on behalf of the United States
withholding agent, provided certain conditions are met.
For purposes of the certification requirements, the 1997 Final Regulations
generally treat, as the beneficial owners of payments on a debt instrument,
those persons that, under United States tax principles, are the taxpayers with
respect to such payments, rather than persons such as nominees or agents legally
entitled to such payments. In the case of payments to an entity classified as a
foreign partnership under United States tax
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principles, the partners, rather than the partnership, generally will be
required to provide the required certifications to qualify for the withholding
exemption described above. A payment to a United States partnership, however, is
treated for these purposes as payment to a United States payee, even if the
partnership has one or more foreign partners. The 1997 Final Regulations provide
certain presumptions with respect to withholding for holders of debt instruments
not furnishing the required certifications to qualify for the withholding
exemption described above. In addition, the 1997 Final Regulations will replace
a number of current tax certification forms (including IRS Form W-8 and IRS Form
4224, discussed below) with a single, revised IRS Form W-8 (which, in certain
circumstances, requires information in addition to that previously required).
Under the 1997 Final Regulations, this Form W-8 will remain valid until the last
day of the third calendar year following the year in which the certificate is
signed. The 1997 Final Regulations contained detailed rules, which might be
changed in light of the IRS announcement that the effective date will be
postponed, governing tax certifications during the transition period prior to
and immediately following the effectiveness of the 1997 Final Regulations.
If a United States Alien Holder of an Exchange Note is engaged in a trade
or business in the United States, and if interest on the Exchange Note, or gain
recognized on the sale, exchange, redemption, retirement or other disposition of
the Exchange Note, is effectively connected with the conduct of such trade or
business, the United States Alien Holder, although exempt from withholding of
United States income tax, will generally be subject to regular United States
income tax on such interest or gain in the same manner as if it were a United
States Holder. See "Tax Consequences to United States Holders of Holding
Exchange Notes," above. In lieu of the certificate described above, such a
Holder must provide to the withholding agent a properly executed IRS Form 4224
(or successor form) in order to claim an exemption from withholding. In
addition, if such United States Alien Holder is a foreign corporation, it may be
subject to a branch profits tax equal to 30% (or such lower rate provided by an
applicable treaty) of its effectively connected earnings and profits for the
taxable year, subject to certain adjustments. For purposes of the branch profits
tax, interest on, and any gain recognized on the sale, exchange, redemption,
retirement or other disposition of, an Exchange Note will be included in the
effectively connected earnings and profits of such United States Alien Holder if
such interest or gain is effectively connected with the conduct by the United
States Alien Holder of a trade or business in the United States.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Under current United States federal income tax law, a 31% backup
withholding tax and information reporting requirements apply to certain payments
of principal and interest made to, and to the proceeds of sale before maturity
by, certain Holders of Exchange Notes.
In the case of a non-corporate United States Holder, backup withholding
will apply only if (i) such Holder fails to furnish its Taxpayer Identification
Number ("TIN") (which, for an individual, is his Social Security number) to the
payor in the manner required, (ii) such Holder furnishes an incorrect TIN and
the payor is so notified by the IRS, (iii) the payor is notified by the IRS that
such Holder has failed properly to report payments of interest or dividends or
(iv) under certain circumstances, such Holder fails to certify, under penalties
of perjury, that it has furnished a correct TIN and has not been notified by the
IRS that it is subject to backup withholding for failure to report interest or
dividend payments. Backup withholding does not apply with respect to payments
made to certain exempt recipients, such as a corporation (within the meaning of
Section 7701(a) of the Code) and tax-exempt organizations. United States Holders
should consult their tax advisors regarding their qualification for exemption
from backup withholding and the procedure for obtaining such an exemption if
applicable.
The amount of any backup withholding from a payment to a United States
Holder will be allowed as a credit against such Holder's United States federal
income tax liability and may entitle such Holder to a refund, provided that the
required information is furnished to the IRS.
In the case of a United States Alien Holder, under currently applicable
United States Treasury Regulations, backup withholding and information reporting
will not apply to payments of principal or interest made by the Issuer or any
paying agent thereof on an Exchange Note (absent actual knowledge that the
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<PAGE> 101
Holder is a United States Holder) if such Holder has provided the required
certification under penalties of perjury that it is not a United States Holder
(as defined above) or has otherwise established an exemption. If such Holder
does not provide the required certification, such Holder may nevertheless avoid
backup withholding or information reporting in the circumstances described
below, but might be subject to withholding of United States federal income tax
as described above under "Tax Consequences to United States Alien Holders."
Under currently applicable United States Treasury Regulations, if payments
of principal or interest are collected outside the United States by a foreign
office of a custodian, nominee or other agent acting on behalf of a beneficial
owner of an Exchange Note, such custodian, nominee or other agent will not be
required to apply backup withholding to such payments made to such beneficial
owner, and generally will not be subject to information reporting requirements.
However, if such custodian, nominee or other agent is a United States person, a
controlled foreign corporation for United States tax purposes or a foreign
person 50% or more of whose gross income is effectively connected with a United
States trade or business for a specified three-year period, information
reporting (but not backup withholding) will be required unless such custodian,
nominee or other agent has in its records documentary evidence that the
beneficial owner is not a United States Holder and certain other conditions are
met or the beneficial owner otherwise establishes an exemption.
Under currently applicable United States Treasury Regulations, payments on
the sale, exchange, redemption, retirement or other disposition of an Exchange
Note made to or through a foreign office of a broker generally will not be
subject to backup withholding, and generally will not be subject to information
reporting requirements. Such payments, however, will be subject to information
reporting (but not backup withholding) if the broker is, for United States
federal income tax purposes, a United States person, a controlled foreign
corporation or a foreign person 50% or more of whose gross income is effectively
connected with a United States trade or business for a specified three-year
period, unless the broker has in its records documentary evidence that the
beneficial owner is not a United States Holder and certain other conditions are
met or the beneficial owner otherwise establishes an exemption. Payments made to
or through the United States office of a broker will be subject to backup
withholding and information reporting unless the United States Alien Holder
certifies, under penalties of perjury, that it is not a United States person or
otherwise establishes an exemption.
In general, the 1997 Final Regulations do not significantly alter the
substantive backup withholding and information reporting requirements described
above. As under current law, backup withholding and information reporting will
not apply to (i) payments to a United States Alien Holder of principal and
interest and (ii) payments to a United States Alien Holder on the sale,
exchange, redemption, retirement or other disposition of an Exchange Note, in
each case if such United States Alien Holder provides the required certification
to establish an exemption from the withholding of United States federal income
tax or otherwise establishes an exemption. Similarly, even if a United States
Alien Holder does not provide such certification or otherwise establish an
exemption, unless the payor has actual knowledge that the payee is a United
States Holder, backup withholding will not apply to (i) payments of interest
made outside the United States to certain offshore accounts and (ii) payments on
the sale, exchange, redemption, retirement or other disposition of an Exchange
Note effected outside the United States. However, information reporting (but not
backup withholding) will apply to (i) payments of interest made by a payor
outside the United States and (ii) payments on the sale, exchange, redemption,
retirement or other disposition of an Exchange Note effected outside the United
States if payment is made by a broker that is, for United States federal income
tax purposes, (a) a United States person, (b) a controlled foreign corporation,
(c) a United States branch of a foreign bank or foreign insurance company, (d) a
foreign partnership controlled by United States persons or engaged in a United
States trade or business or (e) a foreign person 50% or more of whose gross
income is effectively connected with the conduct of a United States trade or
business for a specified three-year period, in each case unless such payor or
broker has in its records documentary evidence that the beneficial owner is not
a United States Holder and certain other conditions are met or the beneficial
owner otherwise establishes an exemption (in which case neither information
reporting nor backup withholding will apply). As noted above, the IRS has
announced that the 1997 Final Regulations will be amended to be effective
generally for payments after December 31, 1999, subject to certain transition
rules.
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United States Alien Holders of Exchange Notes should consult their tax
advisors regarding the application of information reporting and backup
withholding in their particular situations, the availability of an exemption
therefrom, and the procedure for obtaining such an exemption, if available. Any
amounts withheld from a payment to a United States Alien Holder under the backup
withholding rules will be allowed as a credit against such Holder's United
States federal income tax liability and may entitle such Holder to a refund,
provided that the required information is furnished to the IRS.
THE FOREGOING DISCUSSION IS FOR GENERAL INFORMATION ONLY AND MAY NOT BE
APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR SITUATION. PROSPECTIVE HOLDERS
OF THE EXCHANGE NOTES ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT
TO THE TAX CONSEQUENCES TO THEM OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF
THE EXCHANGE NOTES, INCLUDING THE TAX CONSEQUENCES UNDER FEDERAL, STATE, LOCAL,
NONUNITED STATES AND OTHER TAX LAWS AND THE EFFECTS OF CHANGES IN SUCH LAWS.
BOOK-ENTRY; DELIVERY AND FORM
Except as described in the next paragraph, the Exchange Notes issued in
exchange for Old Notes currently represented by one or more fully registered
global notes will be represented by one or more permanent global certificates in
definitive, fully registered form (the "Global Notes"). The Global Notes will be
deposited upon issuance thereof with, or on behalf of, DTC and registered in the
name of a nominee of DTC.
Exchange Notes issued in exchange for Old Notes (i) originally purchased by
or transferred to "foreign purchasers" (as defined in "Transfer Restrictions")
or (ii) held by QIBs or Accredited Investors who are not QIBs, in each case who
elect to take physical delivery of their certificates instead of holding their
interests through global notes (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 Certified Security will, unless the transferee requests otherwise or the
Global Note has previously been exchanged in whole for Certified Securities, be
exchanged for an interest in the Global Notes.
The Global Notes. The Issuer expects that pursuant to procedures
established by DTC (i) upon the issuance of the Global Notes, DTC or its
custodian will credit, on its internal system, the principal amount of Notes of
the individual beneficial interests represented by such Global Notes to the
respective accounts of persons who have accounts with such depositary and (ii)
ownership of beneficial interests in the Global Notes 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) 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
Notes 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 Notes for all purposes
under the Indenture. No beneficial owner of an interest in the Global Notes 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 on, the Global
Notes will be made to DTC or its nominee, as the case may be, as the registered
owner thereof. None of the Issuer, 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 Notes
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interest.
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The Issuer expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, and interest on the Global Notes, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Notes as
shown on the records of DTC or its nominee. The Issuer also expects that
payments by participants to owners of beneficial interests in the Global Notes
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 a Global Note, in
accordance with the normal procedures of DTC and with the procedures set forth
in the Indenture.
DTC has advised the Issuer 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 Notes 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 Notes
for Certificated Securities, which it will distribute to its participants.
DTC has advised the Issuer 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 Notes among participants of DTC, it is
under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Issuer nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
Certificated Securities. If DTC is at any time unwilling or unable to
continue as a depositary for the Global Notes and a successor depositary is not
appointed by the Issuer within 90 days, Certificated Securities will be issued
in exchange for the Global Notes.
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with resales of Exchange Notes
received in exchange for Old Notes where such Old Notes were acquired as a
result of market-making activities or other trading activities. The Issuer and
the Subsidiary Guarantors have agreed that for a period of 180 days after the
Expiration Date, they will make this Prospectus, as amended or supplemented,
available to any Participating Broker-Dealer for use in connection with any such
resale.
The Issuer will not receive any proceeds from any sales of the Exchange
Notes by Participating Broker-Dealers. Exchange Notes received by Participating
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
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negotiated transactions, through the writing of options on the Exchange Notes or
a combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such Participating Broker-Dealer and/or the purchasers of
any such Exchange Notes. Any Participating 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 Participating Broker-Dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
The Issuer has agreed to pay all expenses incident to the performance by it
and the Subsidiary Guarantors of, or compliance with, the Registration Rights
Agreement and will indemnify the holders of Old Notes (including any
broker-dealers), and certain parties related to such holders, against certain
liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters as to the validity of the Exchange Notes offered
hereby will be passed upon for the Company by Steven Rubin, Vice President,
Secretary and General Counsel of the Company.
EXPERTS
The financial statements of GBC and Subsidiaries as of December 31, 1997
and 1996 and for each of the three years in the period ended December 31, 1997
included in this Prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports. The financial statements of Ibico AG and its
subsidiaries as of and for the year ended December 31, 1997 included in this
Prospectus have been audited by KPMG Fides Peat, independent auditors, as stated
in their report appearing herein.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GBC and Subsidiaries -- Audited Consolidated Financial
Statements
Report of Independent Public Accountants.................... F-2
Consolidated Statements of Income for the years ended
December 31, 1997, 1996 and 1995.......................... F-3
Consolidated Balance Sheets as of December 31, 1997 and
1996...................................................... F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995.......................... F-5
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1997, 1996 and 1995.............. F-6
Notes to Consolidated Financial Statements.................. F-7
GBC and Subsidiaries -- Unaudited Condensed Consolidated
Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 1998
and December 31, 1997..................................... F-33
Condensed Consolidated Statements of Income for the Three
Months ended March 31, 1998 and 1997...................... F-34
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1998 and 1997................ F-35
Notes to Condensed Consolidated Financial Statements........ F-36
Ibico AG and Subsidiaries
Independent Auditors' Report................................ F-42
Consolidated Balance Sheet as of December 31, 1997.......... F-43
Consolidated Statement of Income for the year ended December
31, 1997.................................................. F-45
Consolidated Statement of Cash Flows for the year ended
December 31, 1997......................................... F-46
Notes to the Consolidated Financial Statements.............. F-47
</TABLE>
F-1
<PAGE> 106
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of General Binding Corporation:
We have audited the accompanying consolidated balance sheets of General
Binding Corporation (a Delaware corporation) and Subsidiaries as of December 31,
1997 and 1996, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of General
Binding Corporation and Subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Chicago, Illinois
January 30, 1998
(except with respect to the Ibico
acquisition as discussed in Note 14, as
to which the date is February 27, 1998,
and except with respect to the sale of
the U.S. RingBinder business, the
issuance of Senior Subordinated Notes
and the condensed consolidating
financial information as discussed in
Notes 14 and 15, as to which the date is
July 21, 1998)
F-2
<PAGE> 107
GBC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------
1997 1996 1995
---- ---- ----
(000 OMITTED EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Domestic sales.............................................. $543,361 $349,809 $293,188
International sales......................................... 226,640 187,027 165,203
-------- -------- --------
Total sales............................................ 770,001 536,836 458,391
Cost of sales, including development and engineering........ 440,625 315,949 263,706
Selling, service and administrative......................... 247,185 171,473 153,690
Amortization of goodwill and related intangibles............ 7,859 1,699 901
-------- -------- --------
Operating income....................................... 74,332 47,715 40,094
Interest.................................................... 24,577 6,172 4,259
Other (income) expense, net................................. 1,575 (1,011) 2
-------- -------- --------
Income before taxes.................................... 48,180 42,554 35,833
Income taxes................................................ 19,513 17,341 14,333
-------- -------- --------
Net income............................................. $ 28,667 $ 25,213 $ 21,500
======== ======== ========
Net income per common share:
Basic..................................................... $ 1.82 $ 1.60 $ 1.37
Diluted................................................... $ 1.80 $ 1.59 $ 1.36
Dividends per common share.................................. $ .440 $ .430 $ .420
Weighted average number of common shares outstanding........ 15,760 15,743 15,740
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-3
<PAGE> 108
GBC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
---- ----
(000 OMITTED
EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 3,753 $ 6,721
Receivables, less allowances for doubtful accounts and
sales returns: 1997 -- $8,821, 1996 -- $6,424.......... 160,787 115,865
Inventories, at lower of cost or market................... 143,569 96,734
Deferred tax assets....................................... 9,323 11,453
Other..................................................... 10,313 6,441
-------- --------
Total current assets................................... 327,745 237,214
-------- --------
Property, plant and equipment, at cost:
Land and land improvements................................ 6,744 4,837
Buildings and leasehold improvements...................... 49,798 28,806
Machinery and equipment................................... 133,899 107,308
-------- --------
Total property, plant and equipment, at cost........... 190,441 140,951
Less -- accumulated depreciation............................ (77,020) (71,940)
-------- --------
Net property, plant and equipment........................... 113,421 69,011
-------- --------
Cost in excess of fair value of assets of acquired
companies, net of amortization............................ 204,543 43,510
Other....................................................... 47,205 43,971
-------- --------
Total assets........................................... $692,914 $393,706
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable............................................. $ 40,247 $ 31,700
Current maturities of long-term debt...................... 722 483
Accounts payable.......................................... 42,979 28,506
Accrued liabilities:
Salaries, wages and profit sharing contributions.......... 14,213 14,425
Taxes, other than income taxes............................ 3,761 3,036
Deferred income on maintenance agreements................. 9,810 9,620
Other..................................................... 40,370 24,359
-------- --------
Total current liabilities.............................. 152,102 112,129
-------- --------
Long-term debt, less current maturities..................... 324,070 87,029
Other long-term liabilities................................. 11,368 10,229
Deferred tax liabilities.................................... 14,331 12,187
-------- --------
Stockholders' equity:
Common stock, $.125 par value, shares authorized
40,000,000; shares issued 15,693,747 in 1997 and
1996................................................... 1,962 1,962
Class B common stock, $.125 par value; shares authorized
4,796,550; shares issued 2,398,275 in 1997 and 1996.... 300 300
Additional paid-in-capital................................ 9,708 8,564
Cumulative translation adjustments........................ (6,108) (3,035)
Retained earnings......................................... 208,394 186,663
Treasury stock -- 2,325,266 shares in 1997 and 2,342,143
shares in 1996......................................... (23,213) (22,322)
-------- --------
Total stockholders' equity............................. 191,043 172,132
-------- --------
Total liabilities and stockholders' equity........... $692,914 $393,706
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-4
<PAGE> 109
GBC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
---- ---- ----
(000 OMITTED)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income................................................. $ 28,667 $ 25,213 $ 21,500
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................ 27,208 15,018 12,814
Increase in non-current deferred taxes................... 2,285 5,029 240
Provision for doubtful accounts.......................... 2,248 2,334 1,584
(Increase) in other long-term assets..................... (5,336) (3,890) (4,209)
Other.................................................... 316 (2,379) 878
Changes in current assets and liabilities:
(Increase) in receivables................................ (27,746) (36,500) (8,074)
(Increase) in inventories................................ (23,615) (10,536) (4,154)
(Increase) decrease in other current assets.............. (3,256) (2,314) 2,501
(Increase) decrease in deferred tax assets............... 2,381 (1,052) (1,681)
Increase in accounts payable and accrued liabilities..... 16,807 9,982 5,585
Increase in taxes on income.............................. 758 1,375 --
--------- --------- ---------
Net cash provided by operating activities.................. 20,717 2,280 26,984
--------- --------- ---------
INVESTING ACTIVITIES:
Capital expenditures....................................... (29,619) (27,778) (15,046)
Payments for acquisitions and investments (net of cash
acquired)................................................ (241,230) (28,881) (1,458)
Proceeds from sale of plant and equipment.................. 4,702 3,676 2,380
Government training subsidy from new plant investment...... -- -- 746
--------- --------- ---------
Net cash (used in) investing activities.................... (266,147) (52,983) (13,378)
--------- --------- ---------
FINANCING ACTIVITIES:
Increase (reduction) in notes payable...................... 4,341 14,192 (6,429)
Increase in long-term debt................................. 246,528 43,733 2,147
(Repayment) of long-term debt.............................. (502) (150) (535)
(Reduction) increase in current portion of long-term
debt..................................................... 80 (358) (196)
Dividends paid............................................. (6,935) (6,769) (6,611)
Purchases of treasury stock................................ (1,011) (1,645) (1,141)
Proceeds from the exercise of stock options................ 942 1,463 624
--------- --------- ---------
Net cash provided by (used in) financing activities........ 243,443 50,466 (12,141)
--------- --------- ---------
Effect of exchange rates on cash........................... (981) 94 (170)
NET (DECREASE) INCREASE IN CASH & CASH EQUIVALENTS......... (2,968) (143) 1,295
Cash and cash equivalents at beginning of the year......... 6,721 6,864 5,569
--------- --------- ---------
Cash and cash equivalents at end of the year............... $ 3,753 $ 6,721 $ 6,864
========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-5
<PAGE> 110
GBC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK ADDITIONAL CUMULATIVE
------------------- --------------------- PAID-IN TRANSLATION RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL ADJUSTMENTS EARNINGS TOTAL
------ ------ ------ ------ ---------- ----------- -------- -----
(000 OMITTED EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1994...................... 18,092,022 $2,262 (2,344,235) $(19,861) $6,562 $(1,204) $153,330 $141,089
1995 translation
adjustment................ -- -- -- -- -- (1,519) -- (1,519)
Exercise of stock options... -- -- 49,722 118 705 -- -- 823
Purchase of treasury
stock..................... -- -- (63,397) (1,141) -- -- -- (1,141)
Net income in 1995.......... -- -- -- -- -- -- 21,500 21,500
Dividends paid
($.42 per share).......... -- -- -- -- -- -- (6,611) (6,611)
---------- ------ ---------- -------- ------ ------- -------- --------
Balance at December 31,
1995...................... 18,092,022 $2,262 (2,357,910) $(20,884) $7,267 $(2,723) $168,219 $154,141
1996 translation
adjustment................ -- -- -- -- -- (312) -- (312)
Exercise of stock options... -- -- 87,644 207 1,297 -- -- 1,504
Purchase of treasury
stock..................... -- -- (71,877) (1,645) -- -- -- (1,645)
Net income in 1996.......... -- -- -- -- -- -- 25,213 25,213
Dividends paid
($.43 per share).......... -- -- -- -- -- -- (6,769) (6,769)
---------- ------ ---------- -------- ------ ------- -------- --------
Balance at December 31,
1996...................... 18,092,022 $2,262 (2,342,143) $(22,322) $8,564 $(3,035) $186,663 $172,132
1997 translation
adjustment................ -- -- -- -- -- (3,073) -- (3,073)
Exercise of stock options... -- -- 50,581 120 1,144 -- -- 1,264
Purchase of treasury
stock..................... -- -- (33,704) (1,011) -- -- -- (1,011)
Net income in 1997.......... -- -- -- -- -- -- 28,667 28,667
Dividends paid
($.44 per share).......... -- -- -- -- -- -- (6,936) (6,936)
---------- ------ ---------- -------- ------ ------- -------- --------
Balance at December 31,
1997...................... 18,092,022 $2,262 (2,325,266) $(23,213) $9,708 $(6,108) $208,394 $191,043
========== ====== ========== ======== ====== ======= ======== ========
</TABLE>
* Includes Class B Common Stock -- Shares 2,398,275, Amount $300,000.
F-6
<PAGE> 111
GBC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of the Company
and its domestic and international subsidiaries. All international subsidiaries
have November 30 fiscal year ends, with the exception of Canada and Mexico which
have December 31 fiscal year ends. Intercompany accounts and transactions have
been eliminated in consolidation. Investments in significant companies which are
20% to 50% owned are treated as equity investments and the Company's share of
earnings is included in income.
Cash and Cash Equivalents
Temporary cash investments with original maturities of three months or less
are classified as cash equivalents.
Inventory Valuation
Inventories are valued at the lower of cost or market on a first-in,
first-out basis. Inventory costs include labor, material and overhead.
Depreciation of Plant and Equipment
Depreciation of plant and equipment for financial reporting is computed
principally using the straight-line method over the following estimated lives:
<TABLE>
<S> <C>
Buildings................................................... 30-35 years
Machinery and equipment..................................... 3-20 years
Leasehold improvements...................................... Term of lease
</TABLE>
Goodwill and Other Intangible Assets
For financial reporting purposes, goodwill and other intangibles are
generally amortized using the straight-line method over their estimated useful
lives, not exceeding 40 years. Accumulated amortization of goodwill amounted to
$13,936,000 in 1997 and $6,693,000 in 1996.
Income Taxes
Since 1986, the Company's policy has been to provide appropriate income
taxes on the earnings of its international subsidiaries that are expected to be
distributed to the Company. Current earnings of all international subsidiaries
other than Canada and Mexico are considered remitted to the United States for
the purpose of determining income tax expense for the year. In addition, in
1988, the Company implemented a balance sheet hedging strategy for its
international operations and, as a result, provided income taxes on
approximately $4,449,000 of pre-1996 earnings of its international subsidiaries.
Approximately $1,835,000 of these earnings were remitted in the years 1988
through 1997, and the balance is expected to be remitted in future years.
As of December 31, 1997, the cumulative amount of undistributed earnings of
international subsidiaries upon which income taxes have not been provided was
approximately $15.6 million. In the opinion of management, this amount remains
indefinitely reinvested by the international subsidiaries.
Stock Option Compensation
Stock option compensation cost applicable to the non-qualified restricted
plans is valued at the date of the grant and recorded as compensation expense as
the options become exercisable.
Deferred Service Income
Income from service maintenance agreements is deferred and recognized over
the term (generally 1 to 3 years) of the agreements primarily on a straight-line
basis.
F-7
<PAGE> 112
GBC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of certain estimates by
management in determining the entity's assets, liabilities, revenues and
expenses. Actual results could differ from those estimates.
Financial Instruments
Many of the Company's financial instruments (including cash and cash
equivalents, accounts and notes receivable, notes payable, and other accrued
liabilities) carry short-term maturities. As such instruments have short-term
maturities, their fair values approximate the carrying values. Substantially all
of the Company's long-term obligations, including current maturities of
long-term obligations, have floating interest rates. The fair value of these
instruments approximates the carrying value.
Amounts currently due to or due from interest rate swap counterparties are
recorded in interest expense in the period in which they accrue. Premiums paid
to purchase interest rate caps are capitalized and amortized over the life of
the agreements. Gains and losses on hedging firm foreign currency commitments
are deferred and included as a component of the related transaction.
2. FOREIGN CURRENCY EXCHANGE AND TRANSLATION
Foreign currency translation adjustments have been excluded from the
Consolidated Statements of Income and are recorded in a cumulative translation
adjustment account as a separate component of stockholders' equity.
The accompanying Consolidated Statements of Income include net gains and
losses on foreign currency transactions. Such amounts are reported as other
expense and are summarized as follows (000 omitted):
<TABLE>
<CAPTION>
FOREIGN CURRENCY
YEAR ENDED TRANSACTION
DECEMBER 31 GAIN/(LOSS)(a)
- ----------- ----------------
<C> <S> <C>
1997 ....................................................... $(425)
1996 ....................................................... 668
1995 ....................................................... (612)
</TABLE>
- -------------------------
(a) Foreign currency transaction gains/losses are subject to
income taxes at the respective country's effective tax
rate.
3. INVENTORIES
Inventories are summarized as follows (000 omitted):
<TABLE>
<CAPTION>
FINISHED WORK IN RAW
DECEMBER 31 TOTAL GOODS PROCESS MATERIALS
- ----------- ----- -------- ------- ---------
<C> <S> <C> <C> <C> <C>
1997 ................................. $143,569 $53,082 $12,693 $77,794
1996 ................................. 96,734 68,126 7,410 21,198
</TABLE>
4. RETIREMENT PLANS
As of January 1, 1996, the Company converted its defined contribution
profit-sharing plan to a 401(k) plan. The participants of the 401(k) plan may
contribute from 1% to 15% of their eligible compensation on a pretax basis. The
Company makes annual contributions that match 100% of pre-tax contributions up
to 4.5% of eligible compensation. Substantially all eligible full-time domestic
employees can participate in the 401(k) plan. The Company's contribution to the
plan was $2,276,000 in 1997 and $2,057,000 in 1996.
F-8
<PAGE> 113
GBC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Prior to January 1, 1996, all eligible full-time domestic employees could
participate in a defined contribution profit-sharing plan. The Company was
required to make annual contributions, as defined, to a trust fund for employees
participating in the plan. Contributions charged to expense were $2,147,000 in
1995.
The Company has one active domestic defined benefit pension plan which
covers employees that are not eligible to participate in the 401(k) plan. The
plan provides benefits based upon the participants' years of credited service.
Further, the Company has one frozen defined benefit pension plan that provides
benefits to certain participants of the former defined contribution profit
sharing plan and certain other employees.
The Company's international subsidiaries have adopted a variety of defined
benefit and defined contribution plans. These plans provide benefits that are
based upon the employee's years of credited service. The benefits payable under
these plans, for the most part, are provided by the establishment of trust funds
or the purchase of insurance annuity contracts.
Net periodic pension expense for the Company's defined benefit pension
plans for the years 1997, 1996, and 1995 was as follows (000 omitted):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Domestic pension plans.................................. $119 $(584) $ 117
International subsidiary pension plans.................. 590 887 1,194
---- ----- ------
Total expense...................................... $709 $ 303 $1,311
==== ===== ======
</TABLE>
The following rates were used in determining the actuarial present value of
accumulated plan benefits for the Company's defined benefit pension plans:
<TABLE>
<CAPTION>
1997 1996
------------------------- -------------------------
DOMESTIC INTERNATIONAL DOMESTIC INTERNATIONAL
-------- ------------- -------- -------------
<S> <C> <C> <C> <C>
Discount rate........................ 8.0% 2.5%-7.5% 8.0% 3.0%-8.0%
Weighted-average investment return
rate............................... 9.5% 4.5%-9.0% 9.5% 4.5%-9.0%
Salary increase rate................. 5.0% 3.5%-5.0% 5.0% 4.0%-6.0%
</TABLE>
Net periodic pension expense/(income) for 1997, 1996, and 1995 includes the
following components (000 omitted):
<TABLE>
<CAPTION>
1997 1996 1995
------------------------- ------------------------- -------------------------
DOMESTIC INTERNATIONAL DOMESTIC INTERNATIONAL DOMESTIC INTERNATIONAL
-------- ------------- -------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Service cost-benefits earned
during the period............ $ 7 $ 857 $ 56 $ 969 $ 237 $ 1,102
Interest cost on projected
benefit obligations.......... 245 871 263 866 281 940
Actual return on assets........ (372) (2,376) (182) (1,417) (288) (1,173)
Net amortization and
deferral..................... 239 1,238 (77) 469 (113) 325
Curtailment gain(a)............ -- -- (644) -- -- --
----- ------- ----- ------- ----- -------
Net periodic pension expense... $ 119 $ 590 $(584) $ 887 $ 117 $ 1,194
===== ======= ===== ======= ===== =======
</TABLE>
- -------------------------
(a) Included in the net periodic pension expense in 1996 is a gain resulting
from the curtailment of the Guaranteed Retirement Income Plan.
F-9
<PAGE> 114
GBC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the plans' funded status at December 31,
1997 and 1996 respectively (000 omitted):
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
---------------------------------------- ----------------------------------------
PROJECTED PROJECTED
BENEFIT BENEFIT
ASSETS EXCEED OBLIGATIONS ASSETS EXCEED OBLIGATIONS
PROJECTED BENEFIT EXCEED PROJECTED BENEFIT EXCEED
OBLIGATIONS ASSETS OBLIGATIONS ASSETS
------------------------ ------------- ------------------------ -------------
DOMESTIC INTERNATIONAL INTERNATIONAL DOMESTIC INTERNATIONAL INTERNATIONAL
-------- ------------- ------------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefits............ $3,228 $ 8,378 $ 2,920 $3,023 $ 7,663 $ 2,815
Non-vested benefits........ 34 386 163 35 348 146
Accumulated benefit
obligations................ 3,262 8,764 3,083 3,058 8,011 2,961
Effect of projected future
compensation levels........ -- 3,328 1,132 -- 3,214 905
------ ------- ------- ------ ------- -------
Projected benefit
obligations................ 3,262 12,092 4,215 3,058 11,225 3,866
Plan assets at fair value.... 3,602 16,523 1,240 3,360 13,883 1,187
------ ------- ------- ------ ------- -------
Plan assets in excess of
(less than) projected
benefit obligations........ 340 4,431 (2,975) 302 2,658 (2,679)
Unrecognized net (gain) loss
due to past experience
different from
assumptions................ 636 (1,839) 1,174 702 (506) 776
Unrecognized prior service
cost....................... 88 397 -- 99 429 --
Adjustment to recognize
minimum liability.......... (428) -- (343) (764) -- (236)
Unrecognized net (asset)
obligation at October 1,
1986 to be amortized over
average remaining service
of participants............ -- (768) 1 -- (873) 2
------ ------- ------- ------ ------- -------
(Accrued) prepaid pension
cost....................... $ 636 $ 2,221 $(2,143) $ 339 $ 1,708 $(2,137)
====== ======= ======= ====== ======= =======
</TABLE>
5. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company currently provides certain health care benefits for eligible
domestic retired employees. Employees may become eligible for those benefits if
they have fulfilled specific age and service requirements.
Net periodic postretirement benefit expense consisted of the following
components (000 omitted):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost.............................................. $170 $141 $123
Interest cost............................................. 239 219 $158
Net amortization of initial transition obligation......... 95 95 95
Amortization of unrecognized net loss..................... 19 13 --
Net periodic postretirement benefit costs................. $523 $468 $376
</TABLE>
F-10
<PAGE> 115
GBC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The projected liabilities which are not funded are as follows (000
omitted):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Accumulated postretirement benefit obligations:
Retired participants and beneficiaries..................... $ 2,210 $ 1,868
Active participants eligible for retirement................ 293 346
Other active participants.................................. 1,552 923
------- -------
Total benefit obligation................................. $ 4,055 $ 3,137
Experience (loss).......................................... (1,687) (843)
Unrecognized transition obligation......................... (1,429) (1,524)
------- -------
Accrued postretirement benefit cost...................... $ 939 $ 770
</TABLE>
The following assumptions used in determining the expense and obligation
are listed below:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Discount rate............................................... 8% 8%
Health care cost increase................................... 9% 9%
</TABLE>
The rate of increase in the per capita cost of covered health benefits was
assumed to be 9% in 1997, decreasing gradually to 6% by the year 2000, and
remaining at that level thereafter.
The effect of a 1% increase in the medical trend assumption would increase
the accumulated postretirement benefit obligation as of December 31, 1997 by
approximately $222,000 and increase the net periodic cost by approximately
$52,000.
The Company monitors the cost of the plan, and has, from time to time,
changed the benefits provided under this plan. The Company reserves the right to
make additional changes or terminate these benefits in the future. Any changes
in the plan or revisions of the assumptions affecting expected future benefits
may have a significant effect on the amount of the obligation and annual
expense.
6. DEBT AND CREDIT ARRANGEMENTS
Currently, the Company has various short-term, variable-rate credit
arrangements totaling $67.0 million. Outstanding borrowings under these
arrangements totaled $40.2 million at December 31, 1997. Interest rates on these
arrangements are primarily based on the lenders' costs of funds plus applicable
margins. None of the banks under these credit arrangements are committed to
continue to extend credit after the maturities of outstanding borrowings or to
extend the maturities of any borrowings.
F-11
<PAGE> 116
GBC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information regarding short-term debt for the three years ended December
31, 1997, 1996 and 1995 is as follows (000 omitted):
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AMOUNT
BALANCE AT WEIGHTED AVERAGE MONTH-END BALANCE OUTSTANDING WEIGHTED AVERAGE
END OF INTEREST RATE AT OUTSTANDING DURING THE INTEREST RATE
YEAR END OF YEAR DURING THE YEAR YEAR DURING THE YEAR
(A) (B) (C) (D) (E)
---------- ---------------- ----------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
1997
Notes payable to banks... $40,247 6.0% $63,161 $42,893 7.2%
1996
Notes payable to banks... 31,700 8.3% 41,757 31,272 7.1%
1995
Notes payable to banks... 17,428 7.8% 19,012 17,045 8.5%
</TABLE>
- -------------------------
(A) Notes payable by the Company's foreign subsidiaries were $24,566,000 in
1997, $13,160,000 in 1996 and $9,588,000 in 1995.
(B) The weighted average interest rate is computed by dividing the annualized
interest expense for the short-term debt outstanding by the short-term debt
outstanding at December 31.
(C) The composition of the Company's short-term debt will vary by category at
any point in time during the year.
(D) Average amount outstanding during the year is computed by dividing the total
daily outstanding principal balances by 365 days in 1997 and 1995 and by 366
days in 1996.
(E) The weighted average interest rate during the year is computed by dividing
the actual short-term interest expense by the average short-term debt
outstanding.
The Company's current multicurrency revolving credit facility (the
"Revolving Credit Facility") with a group of international banks provides for up
to $475 million of unsecured revolving credit borrowings through January 2002.
The Company has the option, subject to the extension of additional credit by new
or existing banks, of increasing the size of the facility by an additional $75
million. Outstanding borrowings under the Revolving Credit Facility totaled
$307.1 million at December 31, 1997. Interest and facility fees are payable at
varying rates as specified in the loan agreement, and as of December 31, 1997,
the applicable facility fee was 0.30% per annum. Amounts outstanding under the
Revolving Credit Facility are classified as long-term debt on the Company's
balance sheet.
The Revolving Credit Facility contains, among other things, certain
restrictive covenants which change from time to time as specified in the loan
agreement. Under the most restrictive of the covenants applicable as of December
31, 1997, the Company must maintain a consolidated current ratio of not less
than 1.25 to 1.00, an interest coverage ratio of not less than 2.5 to 1.0, a
leverage ratio for senior debt to earnings before income taxes, depreciation and
amortization of not more than 4.25 to 1.00, and a leverage ratio for total debt
of not more than 5.25 to 1.00. The Company was in compliance with these
covenants as of December 31, 1997.
F-12
<PAGE> 117
GBC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Long-term debt consists of the following at December 31, 1997 and 1996 --
outstanding borrowings denominated in foreign currencies have been converted to
U.S. dollars (000 omitted):
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1997 1996
---- ----
<S> <C> <C>
REVOLVING CREDIT FACILITY
U.S. Dollar Borrowings
(floating interest rate -- 6.61% at December 31, 1997 and
6.08% at December 31, 1996)............................ $302,400 $70,700
Dutch Guilder Borrowings
(floating interest rate -- 4.22% at December 31, 1997).... 4,728 --
INTERNATIONAL CREDIT AGREEMENT
Australian Dollar Borrowings
(floating interest rate -- 6.68% at December 31, 1997 and
7.85% at December 31, 1996)............................ 2,722 3,468
INDUSTRIAL REVENUE/DEVELOPMENT BONDS ("IRB" OR "IDB")
IDB, due March 2026
(floating interest rate -- 3.95% at December 31, 1997 and
4.30% at December 31, 1996)............................ 7,511 5,724
IRB, due annually from July 1994 to July 2008
(floating interest rate -- 4.60% at December 31, 1997 and
4.0% at December 31, 1996)............................. 1,900 2,050
IRB, due annually from June 2002 to June 2006
(floating interest rate -- 4.20% at December 31, 1997 and
4.35% at December 31, 1996)............................ 1,050 1,050
IRB, due semi-annually from October 1997 to October 1999
(floating interest rate -- 6.88% at December 31, 1997).... 400 --
IRB, Irish Punt Borrowing, due monthly from September 1997
to September 2000
(interest rate -- 6.75% at December 31, 1997)............. 233 --
NOTES PAYABLE
Note payable, Dutch Guilder Borrowing, due monthly November
1994 to October 2004
(interest rate -- 8.85% at December 31, 1997 and 1996).... 2,000 2,637
Note payable, Dutch Guilder Borrowing, due June 2000
(interest rate -- 7.05% at December 31, 1997 and 1996) 1,634 1,883
Note payable, Irish Punt Borrowing, due monthly from
February 1997 to February 2002
(interest rate -- 25.41% at December 31, 1997).............. 214 --
-------- -------
324,792 87,512
Less -- current maturities.................................. 722 483
-------- -------
Total long-term debt........................................ $324,070 $87,029
======== =======
</TABLE>
F-13
<PAGE> 118
GBC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The scheduled maturities of long-term debt for each of the five years
subsequent to December 31, 1997, are as follows (000 omitted):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31 AMOUNT
- ----------- ------
<C> <S> <C>
1998 ............................................................ $ 722
1999 ............................................................ 772
2000 ............................................................ 2,176
2001 ............................................................ 484
2002 ............................................................ 656
</TABLE>
Interest paid by the Company was $23,626,000, $6,638,000, and $4,180,000 in
1997, 1996, and 1995, respectively.
7. FINANCIAL INSTRUMENTS
Interest Rate Swaps, Treasury Rate-Lock and Caps
The Company enters into interest rate swap, treasury rate-lock and interest
rate cap agreements to hedge its interest rate exposures. Under interest rate
swap agreements, the Company agrees with other parties to exchange, at specified
intervals, the differences between fixed-rate and floating-rate interest amounts
calculated by reference to an agreed-upon notional principal amount. The fair
value of the interest rate swap agreements is estimated using quotes from
brokers and represents the cash requirement if the existing agreements had been
settled at year end. Selected information related to the Company's interest rate
swap agreement is as follows (amounts in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
---- ----
<S> <C> <C>
Notional amount............................................. $165.0 $90.0
Fair value.................................................. 166.3 89.7
------ -----
Net unrecognized gain (loss).............................. $ (1.3) $ 0.3
====== =====
</TABLE>
The Company entered into treasury rate-lock agreements to hedge interest
rates on a portion of its long-term debt. At December 31, 1997 the agreements,
which had a total notional principal amount of $100.0 million, had a fair value
of $101.5 million.
The Company has entered into interest rate cap agreements with commercial
banks, which require the Company to pay a one-time fee based upon a notional
principal amount. Interest rate cap agreements entitle the Company to receive
the amounts, if any, by which floating interest rates exceed the fixed rates
stated in the agreements. The agreements had a total notional principal of $25.0
million and $15.0 million at December 31, 1997 and 1996. At December 31, 1997
and 1996, the fair market value of the interest rate caps was not materially
different than the notional principal amounts.
The Company is exposed to potential losses in the event of nonperformance
by the counterparties to the interest rate swap, treasury rate-lock and cap
agreements.
Letters of Credit
The Company is contingently liable for performance under letters of credit
in the normal course of business. At December 31, 1997 and 1996, letters of
credit outstanding totaled $15.6 million and $16.0 million, respectively. Of
these letters of credit, (i) $10.5 million and $8.8 million are used to support
outstanding Industrial Revenue/Development Bonds of the Company as of 1997 and
1996, respectively, and (ii) an additional $2.0 million and $3.8 million in 1997
and 1996, respectively, were supported by high-quality, short-term investments
held by a trustee in accordance with the terms of certain of the Company's
Industrial Revenue/Development Bonds. In the Company's past experience,
virtually no claims have been made against
F-14
<PAGE> 119
GBC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
these financial instruments, and no material losses are expected to occur in the
foreseeable future. Therefore, the face value of these letters of credit is
estimated to approximate their fair value.
Foreign Exchange Contracts
The Company enters into foreign exchange contracts to hedge foreign
currency risks. These contracts hedge firmly committed transactions such as
inventory purchases, royalties and management fees. The hedged transactions are
recorded based upon the nature of the transaction (e.g., costs related to
inventory purchases are recorded to inventory and recognized in cost of sales).
At December 31, 1997, the Company had foreign exchange contracts with various
maturities through December 31, 1998, to purchase $1.6 million of foreign
currencies and $117.5 million of U.S. dollars. The fair market value of the
contracts at the 1997 year-end spot rates was approximately $1.6 million greater
than the contracted amount. At December 31, 1996, the Company had foreign
exchange contracts with various maturities through December 31, 1997 to purchase
$4.7 million of foreign currencies and $38.7 million of U.S. dollars. The fair
market value of the contracts at the 1996 year-end spot rates was approximately
$0.6 million less than the contracted amount.
8. RENTS AND LEASES
Future minimum rental payments and guaranteed residual payments required
for all noncancelable lease terms in excess of one year as of December 31, 1997
are as follows (000 omitted):
<TABLE>
<CAPTION>
OPERATING
DECEMBER 31 LEASES
----------- ---------
<S> <C>
1998........................................................ $11,071
1999........................................................ 9,212
2000........................................................ 7,674
2001........................................................ 4,430
2002........................................................ 12,013
Future years................................................ 22,660
-------
Total minimum lease payments.............................. $67,060
=======
</TABLE>
Total rental expense for the years ended December 31, 1997, 1996 and 1995
was $9,356,000, $8,253,000 and $8,235,000, respectively.
9. COMMON STOCK AND STOCK OPTIONS
The Company's Certificate of Incorporation provides for 40,000,000
authorized shares of common stock, $.125 par value per share and 4,796,550
shares of Class B common stock, $.125 par value per share. Each Class B share is
entitled to 15 votes and is to be automatically converted into one share of
common stock upon transfer thereof. All of the Class B shares are owned by Lane
Industries, Inc., the Company's majority stockholder.
F-15
<PAGE> 120
GBC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1997, the Company adopted SFAS 128, "Earnings Per
Share", which requires the presentation of basic and diluted earnings per share.
The following table illustrates the computation of basic and diluted earnings
per share (000 omitted):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1997 1996 1995
---------------------- ---- ---- ----
<S> <C> <C> <C>
Numerator:
Net Income................................................ $28,667 $25,213 $21,500
Denominator:
Denominator for basic earnings per share -- weighted
average shares......................................... 15,760 15,743 15,740
Effect of dilutive securities:
Employee stock options.................................... 130 66 57
------- ------- -------
Denominator for diluted earnings per share -- adjusted
weighted-average shares and assumed conversions........... 15,890 15,809 15,797
------- ------- -------
Earnings per share -- basic................................. $1.82 $1.60 $1.37
------- ------- -------
Earnings per share -- diluted............................... $1.80 $1.59 $1.36
======= ======= =======
</TABLE>
The Company has a non-qualified stock option plan for officers, including
officers who are directors and other key employees of the Company. Options may
be granted during a ten-year period at a purchase price of not less than 85% of
the fair market value on the date of the grant. Options granted may be exercised
in four equal parts over a period not to exceed eight years from the date of
grant, except that no part of an option may be exercised until at least one year
from the date of grant has elapsed. The Company accounts for this plan under APB
Opinion No. 25, "Accounting for Stock Issued to Employees", under which no
compensation cost has been recognized. Had compensation cost for this plan been
determined as defined as FASB Statement No. 123, "Accounting for Stock-Based
Compensation", the Company's net income and earnings per share would have been
reduced to the following pro forma amounts (000 omitted, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1997 1996(A)
---------------------- ---- -------
<S> <C> <C>
Net Income:
As Reported........................................... $28,667 $25,213
Pro Forma............................................. $28,200 $23,783
Earnings per share -- basic:
As Reported........................................... $ 1.82 $ 1.60
Pro Forma............................................. $ 1.79 $ 1.51
Earnings per share -- diluted:
As Reported........................................... $ 1.80 $ 1.59
Pro Forma............................................. $ 1.77 $ 1.50
</TABLE>
- -------------------------
(a) 1996 Earnings Per Share data has been restated for the
adoption of SFAS No. 128, "Earnings Per Share."
F-16
<PAGE> 121
GBC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the stock option activity is as follows (000 omitted):
<TABLE>
<CAPTION>
1997 1996
WTD. AVG. WTD. AVG.
EXERCISE EXERCISE
-------------- --------------
YEAR ENDED DECEMBER 31 SHARES PRICE SHARES PRICE
---------------------- ------ ----- ------ -----
<S> <C> <C> <C> <C>
Shares under option at beginning of year........... 435 $20 300 $17
Options granted.................................... 84 30 236 23
Options exercised.................................. (51) 18 (88) 16
Options expired/canceled........................... (6) 20 (13) 17
--- --- --- ---
Shares under option at end of year................. 462 $22 435 $20
--- --- --- ---
Options exercisable................................ 48 $18 51 $17
--- --- --- ---
Weighted average fair value of options granted..... $13.72 $10.23
====== ======
</TABLE>
The 462,183 options outstanding at December 31, 1997 have exercise prices
between $14.50 and $30.50 per share, with a weighted average exercise price of
$22.09 per share and a weighted average remaining contractual life of 4.1 years.
The fair value of each option granted is estimated on the grant date using
the Black-Scholes option pricing model. The following assumptions were made in
estimating fair value:
<TABLE>
<CAPTION>
1997 1996
ASSUMPTION WTD. AVG. WTD. AVG.
---------- --------- ---------
<S> <C> <C>
Dividend yield............................................. 1.51% 1.83%
Risk-free interest rate.................................... 6.50% 6.33%
Expected life.............................................. 8 years 8 years
Expected volatility........................................ 37.17% 38.24%
</TABLE>
10. INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Future tax benefits, such as net operating loss carryforwards, are
recognized to the extent that realization of such benefits is more likely than
not.
The provision for income taxes was as follows (000 omitted):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Currently payable:
Federal.......................................... $11,000 $ 7,988 $10,449
State............................................ 2,759 1,672 1,576
Foreign.......................................... 3,927 5,250 3,671
------- ------- -------
Total current................................. 17,686 14,910 15,696
------- ------- -------
Deferred payable:
Federal.......................................... 2,797 1,918 (1,672)
Foreign.......................................... (970) 513 309
------- ------- -------
Total deferred................................ 1,827 2,431 (1,363)
------- ------- -------
Total provision............................... $19,513 $17,341 $14,333
======= ======= =======
</TABLE>
F-17
<PAGE> 122
GBC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's effective income tax rate varies from the statutory Federal
income tax rate as a result of the following factors:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
U.S. Statutory rate......................................... 35.0% 35.0% 35.0%
Tax allocation (benefit) charge*............................ (0.5) 0.5 --
State income taxes, net of Federal income tax benefit....... 3.7 2.6 2.9
Net effect of international subsidiaries' foreign tax rates
after balance sheet translation gains and losses.......... 5.2 (0.3) 0.3
Net effect of remission of foreign earnings................. (2.0) 0.3 1.1
Non-tax deductible items, principally goodwill.............. 0.6 0.6 0.7
Other, net.................................................. (1.5) 2.1 --
---- ---- ----
Effective tax rate.......................................... 40.5% 40.8% 40.0%
==== ==== ====
</TABLE>
- -------------------------
* The (benefit) charge results from a tax allocation agreement between the
Company and Lane Industries, Inc. entered into in 1978. Under the terms of the
agreement, Lane Industries, Inc. has agreed to share with the Company a
portion of the Federal income tax savings or additional costs, if any,
resulting from filing consolidated income tax returns. Lane Industries, Inc.
is the Company's majority stockholder.
Income before taxes was as follows (000 omitted):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
United States................................. $46,897 $26,489 $24,542
Foreign....................................... 1,283 16,065 11,291
------- ------- -------
Total income before taxes..................... $48,180 $42,554 $35,833
======= ======= =======
</TABLE>
F-18
<PAGE> 123
GBC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows (000 omitted):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Inventory............................................. $ 2,353 $ 2,548
Foreign............................................... 2,806 1,457
Worker's compensation................................. 813 820
Restructuring reserves................................ 1,053 2,770
Vacation pay.......................................... 840 857
Other................................................. 1,458 3,001
Foreign tax credits................................... 4,872 4,187
Capital loss carryovers............................... 313 313
Net operating loss carryovers......................... 3,139 1,419
------- -------
Gross deferred tax assets............................... 17,647 17,372
------- -------
Valuation allowance..................................... (8,324) (5,919)
------- -------
Total deferred tax assets............................... 9,323 11,453
------- -------
Deferred tax liabilities:
Depreciation.......................................... 3,310 3,492
Amortization.......................................... 6,114 4,306
Foreign............................................... 3,438 3,062
Withholding taxes..................................... 1,253 1,179
Other................................................. 216 148
------- -------
Total deferred tax liabilities.......................... 14,331 12,187
------- -------
Net deferred tax liabilities............................ $(5,008) $ (734)
======= =======
</TABLE>
A valuation allowance is provided to reduce the deferred tax assets to a
level which, more likely than not, will be realized. The net deferred tax assets
reflects management's estimate of the amount which will be realized from future
profitability which can be predicted with reasonable accuracy.
The Company provides U.S. income taxes on the earnings expected to be
distributed by its foreign subsidiaries. Under the current remitter concept, the
Company has excess foreign tax credits available to reduce Federal income taxes
in future years. The Company has established a valuation allowance for the
foreign tax credits that the Company anticipates will expire unutilized five
years after cash dividends are actually paid.
At December 31, 1997, the Company has $3,139,000 of net operating loss
carryforwards available to reduce future taxable income of certain international
subsidiaries. These loss carryforwards expire in the years 1998 through 2003 or
have an unlimited carryover period. A valuation allowance has been provided for
a portion of the deferred tax assets related to those loss carryforwards which
may expire unutilized.
Income taxes paid were $13,526,000, $11,730,000 and $13,240,000 in 1997,
1996 and 1995, respectively.
F-19
<PAGE> 124
GBC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. BUSINESS SEGMENTS AND FOREIGN OPERATIONS
The Company is engaged predominantly in one line of business, namely the
design, manufacture and distribution of branded office equipment, related
supplies and thermal laminating films. The Company's major products include (i)
binding supplies and equipment, (ii) laminating equipment and supplies, (iii)
visual communication products (such as marker boards, bulletin boards, easels
and flip charts), (iv) paper shredders and (v) thermal laminating films (used
primarily to encapsulate or protect documents, book covers and other
school-related supplies). These products are either manufactured in one of the
Company's twenty-two plants located throughout the world or sourced from third
parties. GBC products are sold through a network of direct sales and
telemarketing personnel, office product superstores, wholesalers,
contract/commercial stationers, and other retail dealers. The Company provides
maintenance repairs on certain machines it sells through a trained field service
organization and through trained dealers.
The Company's products are sold primarily in North America, Europe, Japan
and Australia to users in the business, education, commercial/professional and
government markets. The Company has a large base of customers and is not
dependent on any single customer for a significant portion of its business.
Financial information for the three years ended December 31, 1997, 1996 and
1995, by geographical area is summarized on the following page. Sales between
geographic areas are made at market value less allowances for additional
manufacturing, marketing and administrative costs to be incurred by the
affiliated company. Export sales to foreign customers ($19,763,000 in 1997,
$14,781,000 in 1996 and $15,039,000 in 1995) have been classified in the
following tables as part of the United States sales.
F-20
<PAGE> 125
GBC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
UNITED OTHER
YEAR ENDED DECEMBER 31, 1997 TOTAL ELIMINATIONS STATES EUROPE INTERNATIONAL
---------------------------- ----- ------------ ------ ------ -------------
(000 OMITTED)
<S> <C> <C> <C> <C> <C>
Sales:
Unaffiliated customers................ $770,001 $ -- $563,127 $103,231 $103,643
Between geographic areas.............. -- (43,908) 41,287 844 1,777
-------- -------- -------- -------- --------
Total Sales $770,001 $(43,908) $604,414 $104,075 $105,420
======== ======== ======== ======== ========
Operating income........................ $ 74,332 $ 347 $ 60,378 $ 9,456 $ 4,151
Other income (expense)*................. (1,575) (10,333) 17,224 (5,379) (3,087)
Interest (expense)...................... (24,577) -- (21,535) (1,821) (1,221)
-------- -------- -------- -------- --------
Income before taxes..................... $ 48,180 $ (9,986) $ 56,067 $ 2,256 $ (157)
======== ======== ======== ======== ========
Assets.................................. $692,914 $(50,385) $610,866 $ 69,000 $ 63,433
-------- -------- -------- -------- --------
Depreciation and amortization........... $ 27,208 $ -- $ 23,572 $ 2,059 $ 1,577
-------- -------- -------- -------- --------
Capital expenditures.................... $ 29,619 $ -- $ 23,585 $ 3,673 $ 2,361
-------- -------- -------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
UNITED OTHER
YEAR ENDED DECEMBER 31, 1996 TOTAL ELIMINATIONS STATES EUROPE INTERNATIONAL
---------------------------- ----- ------------ ------ ------ -------------
(000 OMITTED)
<S> <C> <C> <C> <C> <C>
Sales:
Unaffiliated customers................. $536,836 $ -- $364,581 $92,622 $79,633
Between geographic areas............... -- (40,907) 35,897 1,287 3,723
-------- -------- -------- ------- -------
$536,836 $(40,907) $400,478 $93,909 $83,356
======== ======== ======== ======= =======
Operating income......................... $ 47,715 $ (912) $ 30,692 $13,064 $ 4,871
Other income (expense)*.................. 1,011 (2,653) 1,904 (1,867) 3,627
Interest (expense)....................... (6,172) 837 (4,303) (781) (1,925)
-------- -------- -------- ------- -------
Income before taxes...................... $ 42,554 $ (2,728) $ 28,293 $10,416 $ 6,573
======== ======== ======== ======= =======
Assets................................... $393,706 $(37,907) $316,162 $57,899 $57,552
-------- -------- -------- ------- -------
Depreciation and amortization............ $ 15,018 $ -- $ 12,012 $ 1,991 $ 1,015
-------- -------- -------- ------- -------
Capital expenditures..................... $ 27,778 $ -- $ 23,205 $ 3,952 $ 621
-------- -------- -------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
UNITED OTHER
YEAR ENDED DECEMBER 31, 1995 TOTAL ELIMINATIONS STATES EUROPE INTERNATIONAL
---------------------------- ----- ------------ ------ ------ -------------
(000 OMITTED)
<S> <C> <C> <C> <C> <C>
Sales:
Unaffiliated customers................. $458,391 $ -- $308,220 $87,202 $62,969
Between geographic areas............... -- (42,485) 37,983 1,639 2,863
-------- -------- -------- ------- -------
$458,391 $(42,485) $346,203 $88,841 $65,832
======== ======== ======== ======= =======
Operating income......................... $ 40,094 $ 603 $ 24,881 $ 9,902 $ 4,708
Other income (expense)*.................. (2) (2,446) 4,555 (1,715) (396)
Interest (expense)....................... (4,259) 203 (3,385) (808) (269)
-------- -------- -------- ------- -------
Income before taxes...................... $ 35,833 $ (1,640) $ 26,051 $ 7,379 $ 4,043
======== ======== ======== ======= =======
Assets................................... $298,872 $(21,532) $239,152 $44,801 $36,451
-------- -------- -------- ------- -------
Depreciation and amortization............ $ 12,814 $ -- $ 10,300 $ 1,981 $ 533
-------- -------- -------- ------- -------
Capital expenditures..................... $ 15,046 $ -- $ 13,591 $ 1,077 $ 378
-------- -------- -------- ------- -------
</TABLE>
- -------------------------
* Other income (expense) is comprised principally of foreign currency
transaction gains and losses, interest income, dividend and royalty income,
gains and losses on the disposal of capital assets, amortization of patents
and other transactions.
F-21
<PAGE> 126
GBC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1997 and 1996 was as follows (000
omitted except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
1997
Sales............................................ $180,505 $187,436 $196,613 $205,447
Gross profit..................................... 75,936 81,147 84,155 88,138
Income before taxes.............................. 11,286 12,018 12,038 12,838
Net income....................................... 6,772 7,211 6,855 7,829
Net income per common share:
Basic.......................................... $.43 $.46 $.44 $.50
Diluted........................................ $.43 $.45 $.43 $.50
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
1996
Sales............................................ $126,346 $135,338 $132,996 $142,156
Gross profit..................................... 50,669 55,572 55,105 59,541
Income before taxes.............................. 10,179 11,070 10,066 11,239
Net income....................................... 6,006 6,531 5,939 6,737
Net income per common share:
Basic.......................................... $.38 $.41 $.38 $.43
Diluted........................................ $.38 $.41 $.38 $.42
</TABLE>
13. ACQUISITIONS
Effective January 1, 1997, the Company completed the purchase of the assets
and business of Quartet Manufacturing Company. Located in Skokie, Illinois,
Quartet manufactures and distributes visual communications products including
marker boards, bulletin boards, and easels. The total consideration paid for
Quartet was approximately $216.0 million.
The following unaudited pro forma consolidated results of operations have
been prepared as if the acquisition of Quartet had occurred as of the beginning
of fiscal 1996 (000 omitted):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
1996
------------
<S> <C>
Net sales................................................... $685,862
Net income.................................................. 27,686
Earnings per common share:
Basic..................................................... 1.76
Diluted................................................... 1.75
</TABLE>
Adjustments to the statements of earnings include additional depreciation
and interest charges, goodwill amortization, the reduction of certain other
expenses and income tax effects. The pro forma information is provided for
illustrative purposes only and is not necessarily reflective of the results of
operations that would have actually occurred had the transaction been in effect
for the period presented.
F-22
<PAGE> 127
GBC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On April 23, 1997, the Company completed the purchase of all of the capital
stock of Baker School Specialty, a manufacturer of presentation boards. The
total purchase price for Baker, including assumption of debt, was $19.2 million.
During 1997, the Company made several smaller acquisitions acquiring the
assets of Visucom, Danka Datakey, Jenrite and Printing Wire Supplies. These
companies enhance and expand GBC's product offerings and services in Australia,
New Zealand and Europe. Total consideration paid for these acquisitions was
approximately $5.3 million.
On October 10, 1996, the Company entered into an agreement with GMP Co.,
Ltd. of South Korea to jointly develop and market lamination equipment and
supplies. With the agreement, the Company became a 33% equity shareholder in
GMP, a leading worldwide supplier of laminating systems. The total consideration
paid for the investment in GMP was $9.9 million.
On January 19, 1996, the Company acquired the business and certain assets
of the T.A.C. Group, which operated under the name of Fordigraph. The business,
located in Australia, is a distributor of paper shredders, mail room equipment,
laminating machines, presentation products, binding systems and supplies. The
total consideration paid for Fordigraph was $12.1 million.
On December 21, 1995, the Company acquired Pro-Tech Engineering Co., Inc.,
headquartered in Madison, Wisconsin. Pro-Tech manufactures lamination equipment
and distributes supplies used in the digital printing market. The consideration
paid for Pro-Tech was $7.3 million. Additional consideration may also be paid
contingent upon the achievement of specified levels of earnings through December
31, 1998.
All acquisitions have been accounted for as purchase transactions, with the
results of operations included in the financial statements since the date of the
acquisition. The excess of the purchase price over the net assets acquired is
estimated to be approximately $169.0 million in 1997, $8.0 million in 1996 and
$6.0 million in 1995.
14. SUBSEQUENT EVENTS
Allfax Acquisition
On January 22, 1998, the Company acquired the Allfax group of companies, a
privately-held office products manufacturer and marketer headquartered in
Peterborough, England.
Ibico Acquisition
On February 27, 1998, the Company acquired Ibico AG, which is headquartered
in Zurich, Switzerland. Ibico manufactures and markets binding and laminating
machines and related supplies. Cash consideration paid and debt assumed
approximates $130.0 million and is subject to adjustment based upon Ibico's
final 1997 results and working capital. The unallocated purchase cost exceeds
the estimated net assets of Ibico by approximately $75 million. The purchase
price will be allocated to the assets and liabilities of Ibico based upon fair
market values. Valuations and studies to determine the fair market value of
assets are currently in process. Intangible assets related to the Ibico
acquisition will be amortized over their estimated lives on a straight-line
basis. The results of operations of Ibico will be included with the results of
the Company from March 1, 1998 and will be accounted for as a purchase.
F-23
<PAGE> 128
GBC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
To fund the Ibico acquisition, the Company borrowed a total of $60.0
million from Lane Industries, Inc. ("LII"). The borrowing was pursuant to a Note
Purchase Agreement entered into with LII which provides, in pertinent part, that
(i) the Company may borrow up to $100.0 million from LII at any time prior to
April 30, 1998; (ii) that all borrowings are subordinated to any other
indebtedness of the Company; (iii) that all borrowings shall bear interest at a
rate per annum that floats with LIBOR for three month loans as published by The
Wall Street Journal plus a 2% margin through May 26, 1998 and margins ranging
from 4% to 8% thereafter; and, (iv) that all borrowings, unless prepaid, would
be due on April 14, 2002. There are certain covenants made by the Company in
connection with the loan which, in the aggregate, are less restrictive than
those covenants made to its existing senior lenders.
Sale of Subsidiary
Effective June 30, 1998, the Company completed the sale of substantially
all of the assets of its U.S. RingBinder business. This transaction represents
the Company's exit from the business of manufacturing and distributing metal
ring elements which are used in looseleaf binders and similar products, and
demonstrates a continuation of the Company's ongoing strategy to concentrate its
investments and efforts in its core businesses. A one-time pre-tax charge
related to the sale ranging from $2.9 million to $3.5 million, or $0.11-$0.13
net per diluted share, will be recorded in the Company's earnings for the second
quarter ended June 30, 1998.
Senior Subordinated Notes
On May 27, 1998, the Company issued $150 million of 9 3/8% Senior
Subordinated Notes due 2008. The Notes are unconditionally guaranteed by the
Company's direct and indirect domestic restricted subsidiaries. The Notes will
be effectively subordinated in right of payment to all obligations of any
subsidiary that is not a guarantor.
F-24
<PAGE> 129
GBC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The following tables present condensed consolidating financial information
for: Parent (General Binding Corporation, including domestic operations);
Guarantors (domestic restricted subsidiaries); and Non-Guarantors (international
subsidiaries). Each of the Guarantors is a direct or indirect wholly owned
subsidiary of the Parent. The Guarantors have jointly and severally and fully
and unconditionally guaranteed the Senior Subordinated Notes (see note 14) of
the Company. The Company has determined that separate financial statements and
other disclosures concerning the Guarantors are not material to investors. The
following condensed consolidating financial information presents the results of
operations, financial position and cash flows of the Parent, Guarantors, and
Non-Guarantors (in each case carrying investments under the equity method), and
the eliminations necessary to arrive at the information for the Company on a
consolidated basis.
CONSOLIDATING BALANCE SHEETS
(000 OMITTED)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------------------------------------------
NON-
PARENT GUARANTORS(a) GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................. $ 1,098 $ (26) $ 2,681 $ -- $ 3,753
Receivables, net........................... 100,939 9,224 50,624 -- 160,787
Inventories, at lower of cost or market.... 86,418 17,875 39,276 -- 143,569
Deferred tax assets........................ 5,889 855 2,806 (227) 9,323
Other...................................... 5,689 1,311 3,313 -- 10,313
Due from affiliates........................ 31,181 140,614 2,856 (174,651) --
-------- -------- -------- --------- --------
Total current assets..................... 231,214 169,853 101,556 (174,878) 327,745
Net property, plant and equipment............ 85,319 10,598 17,504 -- 113,421
Cost in excess of fair value of assets of
acquired companies, net of amortization.... 163,564 32,425 8,554 -- 204,543
Other........................................ 45,716 4,472 3,525 (6,508) 47,205
Investment in subsidiaries................... 194,295 27,062 -- (221,357) --
-------- -------- -------- --------- --------
Total assets............................. $720,108 $244,410 $131,139 $(402,743) $692,914
======== ======== ======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable.............................. $ 14,968 -- $ 25,279 -- $ 40,247
Current maturities of long-term debt....... 350 -- 372 -- 722
Accounts payable........................... 28,139 5,727 9,113 -- 42,979
Accrued liabilities:
Salaries, wages and profit sharing
contributions............................ 9,850 921 3,442 -- 14,213
Taxes, other than income................... 1,923 410 1,428 -- 3,761
Deferred income on maintenance
agreements............................... 6,249 433 3,128 -- 9,810
Other...................................... 28,007 3,245 9,118 -- 40,370
Due to affiliates.......................... 113,467 39,515 26,450 (179,432) --
-------- -------- -------- --------- --------
Total current liabilities................ 202,953 50,251 78,330 (179,432) 152,102
Long-term debt -- affiliated................. -- -- 6,558 (6,558) --
Long-term debt, less current maturities...... 311,860 1,050 11,160 -- 324,070
Other long-term liabilities.................. 6,710 338 4,320 -- 11,368
Deferred tax liabilities..................... 7,542 3,351 3,438 -- 14,331
Stockholders' equity:
Common stock............................... 1,962 26 5,164 (5,190) 1,962
Class B common stock....................... 300 -- -- -- 300
Additional paid-in capital................. 9,708 67,024 8,105 (75,129) 9,708
Cumulative translation adjustments......... (6,108) (3,630) (6,031) 9,661 (6,108)
Retained earnings.......................... 208,394 126,000 20,095 (146,095) 208,394
Treasury stock............................. (23,213) -- -- -- (23,213)
-------- -------- -------- --------- --------
Total stockholders' equity............... 191,043 189,420 27,333 (216,753) 191,043
-------- -------- -------- --------- --------
Total liabilities and stockholders'
equity............................. $720,108 $244,410 $131,139 $(402,743) $692,914
======== ======== ======== ========= ========
</TABLE>
- -------------------------
(a) Effective June 30, 1998, the Company sold its US RingBinder business (USRB).
As of December 31, 1997, USRB had stockholder's equity of $11.8 million.
F-25
<PAGE> 130
GBC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING BALANCE SHEETS
(000 OMITTED)
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------------------------------------
NON-
PARENT GUARANTORS(a) GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.............. $ 1,899 $ (1,005) $ 5,827 $ -- $ 6,721
Receivables, net....................... 62,915 10,926 42,024 -- 115,865
Inventories, at lower of cost or
market............................... 41,980 18,116 36,638 -- 96,734
Deferred tax assets.................... 8,231 1,753 1,457 12 11,453
Other.................................. 2,816 1,354 2,271 -- 6,441
Due from affiliates.................... 29,011 115,018 735 (144,764) --
-------- -------- -------- --------- --------
Total current assets................. 146,852 146,162 88,952 (144,752) 237,214
Net property, plant and equipment........ 43,783 10,047 15,181 -- 69,011
Cost in excess of fair value of assets of
acquired companies, net of
amortization........................... 2,556 33,493 7,461 -- 43,510
Other.................................... 44,007 6,008 3,305 (9,349) 43,971
Investment in subsidiaries............... 209,986 30,323 -- (240,309) --
-------- -------- -------- --------- --------
Total assets......................... $447,184 $226,033 $114,899 $(394,410) $393,706
======== ======== ======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable.......................... $ 18,540 -- $ 13,160 -- $ 31,700
Current maturities of long-term debt... 150 -- 333 -- 483
Accounts payable....................... 15,333 5,730 7,443 -- 28,506
Accrued liabilities:
Salaries, wages and profit sharing
contributions........................ 8,942 1,519 3,964 -- 14,425
Taxes, other than income............... 1,694 141 1,201 -- 3,036
Deferred income on maintenance
agreements........................... 6,228 261 3,131 -- 9,620
Other.................................. 13,221 4,964 6,174 -- 24,359
Due to affiliates...................... 120,964 1,425 22,342 (144,731) --
-------- -------- -------- --------- --------
Total current liabilities............ 185,072 14,040 57,748 (144,731) 112,129
Long-term debt -- affiliated............. -- -- 9,349 (9,349) --
Long-term debt, less current
maturities............................. 78,324 1,050 7,655 -- 87,029
Other long-term liabilities.............. 5,929 339 3,961 -- 10,229
Deferred tax liabilities................. 5,727 3,398 3,062 -- 12,187
Stockholders' equity:
Common stock........................... 1,962 26 5,008 (5,034) 1,962
Class B common stock................... 300 -- -- -- 300
Additional paid-in capital............. 8,564 83,446 -- (83,446) 8,564
Cumulative translation adjustments..... (3,035) (688) (2,999) 3,687 (3,035)
Retained earnings...................... 186,663 124,422 31,115 (155,537) 186,663
Treasury stock......................... (22,322) -- -- -- (22,322)
-------- -------- -------- --------- --------
Total stockholders' equity........... 172,132 207,206 33,124 (240,330) 172,132
-------- -------- -------- --------- --------
Total liabilities and
stockholders' equity.......... $447,184 $226,033 $114,899 $(394,410) $393,706
======== ======== ======== ========= ========
</TABLE>
- -------------------------
(a) Effective June 30, 1998, the Company sold its US RingBinder business (USRB).
As of December 31, 1996, USRB had stockholder's equity of $11.2 million.
F-26
<PAGE> 131
GBC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING INCOME STATEMENTS
(000 OMITTED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------------------------
NON-
PARENT GUARANTORS(a) GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Unaffiliated sales................. $517,143 $ 45,983 $206,875 $ -- $770,001
Affiliated sales................... 33,657 27,377 6,256 (67,290) --
-------- -------- -------- -------- --------
Total sales................... 550,800 73,360 213,131 (67,290) 770,001
Cost of sales, including
development and engineering...... 317,364 62,316 128,556 (67,611) 440,625
Selling, service and
administrative................... 167,229 9,561 70,395 -- 247,185
Amortization of goodwill and
related intangibles.............. 6,180 1,290 389 -- 7,859
-------- -------- -------- -------- --------
Operating income.............. 60,027 193 13,791 321 74,332
Interest........................... 32,564 1,392 3,042 (12,421) 24,577
Other (income) expense, net........ (14,993) (14,812) 8,800 22,580 1,575
-------- -------- -------- -------- --------
Income before taxes and
undistributed earnings of
wholly-owned subsidiaries... 42,456 13,613 1,949 (9,838) 48,180
Income taxes....................... 13,203 3,369 2,810 131 19,513
Income before undistributed
earnings of wholly-owned
subsidiaries................ 29,253 10,244 (861) (9,969) 28,667
Undistributed earnings (loss) of
wholly-owned subsidiaries........ (586) (8,471) -- 9,057 --
-------- -------- -------- -------- --------
Net income.................... $ 28,667 $ 1,773 $ (861) $ (912) $ 28,667
======== ======== ======== ======== ========
</TABLE>
- -------------------------
(a) Effective June 30, 1998, the Company sold its US RingBinder business (USRB).
For the year ended December 31, 1997, USRB had net income of $590,000.
F-27
<PAGE> 132
GBC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING INCOME STATEMENTS
(000 OMITTED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------------------------
NON-
PARENT GUARANTORS(a) GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Unaffiliated sales................. $307,453 $ 57,138 $172,245 $ -- $536,836
Affiliated sales................... 47,763 11,296 3,696 (62,755) --
-------- -------- -------- -------- --------
Total sales................... 355,216 68,434 175,941 (62,755) 536,836
Cost of sales, including
development and engineering...... 225,509 52,707 99,770 (62,037) 315,949
Selling, service and
administrative................... 103,220 10,191 58,062 -- 171,473
Amortization of goodwill and
related intangibles.............. 95 1,295 309 -- 1,699
-------- -------- -------- -------- --------
Operating income.............. 26,392 4,241 17,800 (718) 47,715
Interest........................... 13,967 1,401 2,705 (11,901) 6,172
Other (income) expense, net........ (4,031) (10,225) (1,774) 15,019 (1,011)
-------- -------- -------- -------- --------
Income before taxes and
undistributed earnings of
wholly-owned subsidiaries... 16,456 13,065 16,869 (3,836) 42,554
Income taxes....................... 8,033 3,736 5,859 (287) 17,341
Income before undistributed
earnings of wholly-owned
subsidiaries................ 8,423 9,329 11,010 (3,549) 25,213
Undistributed earnings of
wholly-owned subsidiaries........ 16,788 7,301 -- (24,089) --
-------- -------- -------- -------- --------
Net income.................... $ 25,211 $ 16,630 $ 11,010 $(27,638) $ 25,213
======== ======== ======== ======== ========
</TABLE>
- -------------------------
(a) Effective June 30, 1998, the Company sold its US RingBinder business (USRB).
For the year ended December 31, 1996, USRB had net income of $1.3 million.
F-28
<PAGE> 133
GBC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING INCOME STATEMENTS
(000 OMITTED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-------------------------------------------------------------------
NON-
PARENT GUARANTORS(a) GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Unaffiliated sales................. $272,225 $ 36,002 $150,164 $ -- $458,391
Affiliated sales................... 49,133 4,442 2,419 (55,994) --
-------- -------- -------- -------- --------
Total sales................... 321,358 40,444 152,583 (55,994) 458,391
Cost of sales, including
development and engineering...... 201,999 31,074 87,545 (56,912) 263,706
Selling, service and
administrative................... 95,731 6,879 51,080 -- 153,690
Amortization of goodwill and
related intangibles.............. 117 784 -- -- 901
-------- -------- -------- -------- --------
Operating income.............. 23,511 1,707 13,958 918 40,094
Interest........................... 11,188 1,141 1,077 (9,147) 4,259
Other (income) expense, net........ (3,583) (9,911) 1,902 11,594 2
-------- -------- -------- -------- --------
Income before taxes and
undistributed earnings of
wholly-owned subsidiaries... 15,906 10,477 10,979 (1,529) 35,833
Income taxes....................... 6,363 3,633 3,970 367 14,333
Income before undistributed
earnings of wholly-owned
subsidiaries................ 9,543 6,844 7,009 (1,896) 21,500
Undistributed earnings of
wholly-owned subsidiaries........ 11,957 6,922 -- (18,879) --
-------- -------- -------- -------- --------
Net income.................... $ 21,500 $ 13,766 $ 7,009 $(20,775) $ 21,500
======== ======== ======== ======== ========
</TABLE>
- -------------------------
(a) Effective June 30, 1998, the Company sold its US RingBinder business (USRB).
For the year ended December 31, 1995, USRB had net income of $1.0 million.
F-29
<PAGE> 134
GBC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENT OF CASH FLOWS
(000 OMITTED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
---------------------------------------------------------------------
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES................. $ 30,686 $ 6,119 $ (3,136) $(12,951) $ 20,718
--------- ------- -------- -------- ---------
INVESTING ACTIVITIES:
Capital expenditures................... (20,502) (4,035) (5,082) -- (29,619)
Proceeds from sale of plant and
equipment............................ 3,402 606 694 -- 4,702
Payments for acquisitions and
investments, net of cash acquired.... (238,762) (1,710) (757) -- (241,230)
--------- ------- -------- -------- ---------
Net cash used in investing
activities........................... (255,862) (5,140) (5,145) -- (266,147)
--------- ------- -------- -------- ---------
FINANCING ACTIVITIES:
Increase (reduction) in notes
payable.............................. (9,571) -- 13,912 -- 4,341
(Repayment) of long-term debt.......... -- -- (502) -- (502)
Increase in long-term debt............. 240,950 -- 2,786 2,792 246,528
(Reduction) increase in current portion
of long-term debt.................... -- -- 80 -- 80
Dividends paid......................... (6,935) -- (10,159) 10,159 (6,935)
Purchases of treasury stock............ (1,011) -- -- -- (1,011)
Proceeds from the exercise of stock
options.............................. 942 -- -- -- 942
--------- ------- -------- -------- ---------
Net cash provided by financing
activities........................... 224,375 -- 6,117 12,951 243,443
--------- ------- -------- -------- ---------
Effect of exchange rates on cash....... -- -- (982) -- (982)
--------- ------- -------- -------- ---------
NET (DECREASE) INCREASE IN CASH & CASH
EQUIVALENTS.......................... (801) 979 (3,146) -- (2,968)
Cash and cash equivalents at the
beginning of year.................... 1,899 (1,005) 5,827 -- 6,721
--------- ------- -------- -------- ---------
Cash and cash equivalents at the end of
the period........................... $ 1,098 $ (26) $ 2,681 $ -- $ 3,753
========= ======= ======== ======== =========
</TABLE>
F-30
<PAGE> 135
GBC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000 OMITTED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------------------------
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES............................ 395 868 4,136 (3,119) 2,280
-------- -------- -------- -------- --------
INVESTING ACTIVITIES:
Capital expenditures.................... (21,639) (1,576) (4,563) -- (27,778)
Proceeds from sale of plant and
equipment............................. -- -- 3,676 -- 3,676
Payments for acquisitions and
investments, net of cash acquired..... (17,097) -- (11,784) -- (28,881)
-------- -------- -------- -------- --------
Net cash used in investing activities... (38,736) (1,576) (12,671) -- (52,983)
-------- -------- -------- -------- --------
FINANCING ACTIVITIES:
Increase (reduction) in notes payable... 10,700 -- 3,492 -- 14,192
(Repayment) of long-term debt........... -- -- -- --
Increase in long-term debt.............. 32,874 -- 10,709 -- 43,583
(Reduction) increase in current portion
of long-term debt..................... -- -- (358) -- (358)
Dividends paid.......................... (6,769) -- (3,119) 3,119 (6,769)
Purchases of treasury stock............. (1,645) -- -- -- (1,645)
Proceeds from the exercise of stock
options............................... 1,463 -- -- -- 1,463
-------- -------- -------- -------- --------
Net cash provided by financing
activities............................ 36,623 -- 10,724 3,119 50,466
-------- -------- -------- -------- --------
Effect of exchange rates on cash........ -- -- 94 -- 94
-------- -------- -------- -------- --------
NET (DECREASE) INCREASE IN CASH & CASH
EQUIVALENTS........................... (1,718) (708) 2,283 -- (143)
Cash and cash equivalents at the
beginning of year..................... 3,617 (297) 3,544 -- 6,864
-------- -------- -------- -------- --------
Cash and cash equivalents at the end of
the period............................ $ 1,899 $ (1,005) $ 5,827 $ -- $ 6,721
======== ======== ======== ======== ========
</TABLE>
F-31
<PAGE> 136
GBC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENT OF CASH FLOWS
(000 OMITTED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
----------------------------------------------------------------
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES.............................. $ 24,589 1,974 917 (496) 26,984
-------- ------ ------ ------ --------
INVESTING ACTIVITIES:
Capital expenditures...................... (12,612) (1,030) (1,404) -- (15,046)
Proceeds from sale of plant and
equipment............................... 312 269 1,799 -- 2,380
Government training subsidy from new plant
investment.............................. -- -- 746 -- 746
Payments for acquisitions and investments,
net of cash acquired.................... -- (1,458) -- -- (1,458)
-------- ------ ------ ------ --------
Net cash used in investing activities..... (12,300) (2,219) 1,141 -- (13,378)
-------- ------ ------ ------ --------
FINANCING ACTIVITIES:
Increase (reduction) in notes payable..... (6,532) -- 103 -- (6,429)
Increase (decrease) in long-term debt..... 1,800 141 1,621 (1,950) 1,612
(Reduction) increase in current portion of
long-term debt.......................... (190) -- (6) -- (196)
Dividends paid............................ (6,611) -- (2,446) 2,446 (6,611)
Purchases of treasury stock............... (1,141) -- -- -- (1,141)
Proceeds from the exercise of stock
options................................. 624 -- -- -- 624
-------- ------ ------ ------ --------
Net cash provided by (used in) financing
activities.............................. (12,050) 141 (728) 496 (12,141)
-------- ------ ------ ------ --------
Effect of exchange rates on cash.......... -- -- (170) -- (170)
NET (DECREASE) INCREASE IN CASH & CASH
EQUIVALENTS............................. 239 (104) 1,160 -- 1,295
Cash and cash equivalents at the beginning
of year................................. 3,378 (193) 2,384 -- 5,569
-------- ------ ------ ------ --------
Cash and cash equivalents at the end of
the period.............................. $ 3,617 (297) 3,544 -- $ 6,864
======== ====== ====== ====== ========
</TABLE>
F-32
<PAGE> 137
GENERAL BINDING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(000'S OMITTED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents................................. $ 13,347 $ 3,753
Receivables, net.......................................... 184,499 160,787
Inventories --
Raw materials.......................................... 46,858 53,082
Work in process........................................ 10,357 12,693
Finished goods......................................... 111,478 77,794
-------- --------
Total inventories................................. 168,693 143,569
Deferred tax assets....................................... 7,737 9,323
Other..................................................... 17,963 10,313
-------- --------
Total current assets.............................. 392,239 327,745
Property, plant and equipment............................... 205,110 190,441
Less -- accumulated depreciation............................ (78,991) (77,020)
-------- --------
Net property, plant and equipment......................... 126,119 113,421
Other long-term assets:
Cost in excess of fair value of assets of acquired
companies, net of amortization......................... 298,006 204,543
Other..................................................... 53,025 47,205
-------- --------
Total assets................................................ $869,389 $692,914
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable............................................. $ 70,271 $ 40,247
Current maturities of long-term debt...................... 691 722
Accounts payable.......................................... 57,028 42,979
Accrued liabilities....................................... 71,446 68,154
-------- --------
Total current liabilities......................... 199,436 152,102
-------- --------
Long-term debt.............................................. 450,023 324,070
Other long-term liabilities................................. 12,398 11,368
Deferred tax liabilities.................................... 14,161 14,331
Stockholders' Equity
Common stock.............................................. 1,962 1,962
Class B common stock...................................... 300 300
Additional paid-in capital................................ 10,148 9,708
Cumulative translation adjustment......................... (7,046) (6,108)
Retained earnings......................................... 213,754 208,394
Treasury stock............................................ (25,747) (23,213)
-------- --------
Total stockholders' equity........................ 193,371 191,043
-------- --------
Total liabilities and stockholders' equity.................. $869,389 $692,914
======== ========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
F-33
<PAGE> 138
GENERAL BINDING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(000'S OMITTED, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Net Sales................................................... $213,944 $180,505
Cost of sales, including development and engineering........ 122,004 104,569
Selling, service and administrative......................... 69,664 57,333
Amortization of goodwill and related intangibles............ 2,470 1,629
-------- --------
Operating income.......................................... 19,806 16,974
Interest expense............................................ 7,472 5,228
Other expense, net.......................................... 509 460
-------- --------
Income before taxes....................................... 11,825 11,286
Income taxes................................................ 4,730 4,514
-------- --------
Net income................................................ $ 7,095 $ 6,772
======== ========
Net income per common share
Basic..................................................... $ 0.45 $ 0.43
Diluted................................................... 0.45 0.43
Weighted average number of common shares outstanding
Basic..................................................... 15,761 15,761
Diluted................................................... 15,878 15,927
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
F-34
<PAGE> 139
GENERAL BINDING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(000'S OMITTED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
MARCH 31, MARCH 31,
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income.................................................. $ 7,095 $ 6,772
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 8,021 7,016
(Decrease) increase in non-current deferred taxes......... (170) (77)
Provision for doubtful accounts........................... 392 601
(Increase) in other long term assets...................... (3,466) (1,334)
Other.................................................. 357 215
Changes in current assets and liabilities:
(Increase) in receivables................................. (4,033) (10,264)
(Increase) decrease in inventories........................ 4,001 (4,349)
(Increase) in other current assets........................ (5,039) (5,162)
(Increase) decrease in deferred tax assets................ 1,558 (415)
Increase (decrease) in accounts payable and accrued
expenses............................................... (5,602) (2,369)
Increase in taxes on income............................... 1,365 1,792
Increase in deferred income on service agreements......... 168 236
--------- ---------
Net cash provided by (used in) operating activities......... 4,647 (7,338)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (6,385) (6,219)
Proceeds from sale of plant and equipment................. 42 --
Payments for acquisitions, net of cash acquired........... (137,983) (214,999)
--------- ---------
Net cash (used in ) investing activities.................... (144,326) (221,218)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in notes payable...................... 30,274 19,159
Payments of long-term debt................................ (104) --
Long term borrowings...................................... 122,888 212,000
Increase (decrease) in current portion of long-term
obligations............................................ (1) 88
Dividends paid............................................ (1,736) (1,735)
Purchases of treasury stock............................... (2,601) (517)
Proceeds from the exercise of stock options............... 509 539
--------- ---------
Net cash provided by financing activities................... 149,229 229,534
--------- ---------
Effect of exchange rates on cash............................ 44 (255)
--------- ---------
NET INCREASE IN CASH & CASH EQUIVALENTS..................... 9,594 723
Cash and cash equivalents at the beginning of year.......... 3,753 6,721
--------- ---------
Cash and cash equivalents at the end of the period.......... $ 13,347 $ 7,444
========= =========
Supplemental Disclosure of Cash Flow Information
Cash Paid During the Period for:
Interest............................................... $ 6,891 $ 2,952
Income taxes, net of refunds........................... 4,239 4,123
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
F-35
<PAGE> 140
GENERAL BINDING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of
General Binding Corporation and its subsidiaries ("GBC" or the "Company"). These
financial statements have been prepared by the Company, pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. The Company believes that the
disclosures included in these condensed consolidated financial statements are
adequate to make the information presented not misleading. It is suggested that
these condensed consolidated financial statements be read in conjunction with
the financial statements and the notes thereto included in the Company's 1997
Annual Report on Form 10-K. In the opinion of the Company, all adjustments
necessary to present fairly the financial position of GBC and Subsidiaries as of
March 31, 1998 and December 31, 1997, and the results of their operations for
the three months ended March 31, 1998 and 1997 have been included. Operating
results for any interim period are not necessarily indicative of results that
may be expected for the full year.
(2) LONG-TERM DEBT
Long-term debt consists of the following at March 31, 1998 and December 31,
1997 -- outstanding borrowings denominated in foreign currencies have been
converted to U.S. Dollars (000 omitted):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
<S> <C> <C>
REVOLVING CREDIT FACILITY
Classified as long-term on the basis of the Company's
intention to refinance these borrowings
U.S. dollar borrowings -- (weighted average floating
interest rate 6.43% at March 31, 1998 and 6.61% at
December 31, 1997)........................................ $351,000 $302,400
British pounds borrowings -- (floating interest rate 8.25%
at March 31, 1998)........................................ 13,648 --
Dutch guilder borrowings -- (floating interest rate 4.20% at
March 31, 1998 and 4.22% at December 31, 1997)............ 5,570 4,728
INTERNATIONAL CREDIT AGREEMENT
Australian dollar borrowings -- due July 2000 (floating
interest rate 6.30% at March 31, 1998 and 6.68% at
December 31, 1997)........................................ 2,715 2,722
INDUSTRIAL REVENUE/DEVELOPMENT BONDS
Industrial Revenue Bond -- due annually from July 1994 to
July 2008 (floating interest rate 3.95% at March 31, 1998
and 4.60% at December 31, 1997)........................... 1,750 1,750
Industrial Revenue Bond -- due annually from June 2002 to
June 2006 (floating interest rate 3.80% at March 31, 1998
and 4.20% at December 31, 1997)........................... 1,056 1,050
Industrial Development Bond -- due March 2026 (floating
interest rate 3.80% at March 31, 1998 and 3.95% at
December 31, 1997)........................................ 7,510 7,510
Industrial Revenue Bond -- due semiannually October 1997 to
October 1999 (floating interest rate 6.88% at March 31,
1998 and December 31, 1997)............................... 200 200
Industrial Revenue Bond -- Irish punt borrowing, due
September 2000 (floating interest rate 6.75% at March 31,
1998 and December 31, 1997)............................... 304 365
</TABLE>
F-36
<PAGE> 141
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
<S> <C> <C>
NOTES PAYABLES
Note Payable -- Lane Industries, Inc. due April 2002
(floating interest rate of 7.78% at March 31, 1998)....... $ 60,000 --
Note Payable, Dutch guilder borrowing -- due monthly from
November 1994 to October 2004 (fixed interest rate 8.85%
at March 31, 1998 and December 31, 1997).................. 1,593 $ 1,711
Note Payable, Dutch guilder borrowing -- due June 2000
(fixed interest rate of 7.05% at March 31, 1998 and at
December 31, 1997)........................................ 1,588 1,634
Notes Payables -- various maturities (weighted average
floating interest rate 10.9% at March 31, 1998)........... 3,089 --
-------- --------
Total Long-Term Debt........................................ $450,023 $324,070
======== ========
</TABLE>
(3) COMPREHENSIVE INCOME
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income" was adopted during the first quarter 1998. This statement
established guidelines for the reporting and display of comprehensive income and
its components in financial statements. The currency translation adjustment is
the Company's only item which will be classified as comprehensive income.
Companies are required to report total comprehensive income for interim
periods beginning the first quarter of 1998. Comprehensive income was $6,157,000
and $4,662,000 for the first quarter of 1998 and 1997, respectively.
(4) NEW ACCOUNTING STANDARDS
The Company will adopt SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information" effective with year-end reporting. This
statement will require the Company to present information in the notes to the
financial statements regarding reportable operating segments using the same
basis as is used for internally evaluating segment performance and deciding how
to allocate resources to segments. The Company is currently evaluating the
requirements of this standard and, upon adoption, may disclose more than one
reportable segment.
F-37
<PAGE> 142
(5) EARNINGS PER SHARE
SFAS No. 128 "Earnings Per Share" was adopted by the Company in the fourth
quarter of 1997 and supersedes the Company's previous standards for computing
net income per share under APB Opinion No. 15. The new standard requires dual
presentation of net income per common share and net income per common share,
assuming dilution, on the face of the income statement. All prior year per share
data for 1997 has been restated in accordance with the new standard. In
accordance with SFAS No. 128, net income per common share was computed as
follows (000 omitted, except per share amounts):
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS ENDING
----------------------
MARCH 31, MARCH 31,
1998 1997
--------- ---------
<S> <C> <C>
(A) Net income available to common shareholders............. $7,095 $6,772
====== ======
(B) Weighted average number of common shares outstanding.... 15,761 15,761
Additional common shares issuable under employee stock
options using the treasury stock method................ 117 166
------ ------
(C) Weighted average number of common shares outstanding
assuming the exercise of stock options.................. 15,878 15,927
====== ======
Net income per common share (A)/(B)......................... $ 0.45 $ 0.43
====== ======
Net income per common share, assuming dilution (A)/(C)...... $ 0.45 $ 0.43
====== ======
</TABLE>
F-38
<PAGE> 143
(6) CONDENSED CONSOLIDATING FINANCIAL INFORMATION
CONSOLIDATING BALANCE SHEETS
(UNAUDITED)
(000 OMITTED)
<TABLE>
<CAPTION>
MARCH 31, 1998
-------------------------------------------------------------------
NON-
PARENT GUARANTORS(A) GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $ 2,756 $ 373 $ 10,218 $ -- $ 13,347
Receivables, net............................ 103,480 16,949 64,070 -- 184,499
Inventories, at lower of cost or market..... 73,880 32,623 62,190 -- 168,693
Deferred tax assets......................... 6,049 855 1,263 (430) 7,737
Other....................................... 7,478 3,042 7,443 -- 17,963
Due from affiliates......................... 29,265 25,721 2,495 (57,481) --
-------- -------- -------- --------- --------
Total current assets...................... 222,908 79,563 147,679 (57,911) 392,239
Net property, plant and equipment............. 85,768 15,926 24,425 -- 126,119
Cost in excess of fair value of assets of
acquired companies, net of amortization..... 164,717 50,956 82,333 -- 298,006
Other......................................... 46,342 5,126 8,157 (6,600) 53,025
Investment in subsidiaries.................... 212,523 165,517 -- (378,040) --
-------- -------- -------- --------- --------
Total assets.............................. $732,258 $317,088 $262,594 $(442,551) $869,389
======== ======== ======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable............................... $ 16,352 $ 4,804 $ 49,115 $ -- $ 70,271
Current maturities of long-term debt........ 350 -- 341 -- 691
Accounts payable............................ 31,265 9,118 16,645 -- 57,028
Accrued liabilities:
Salaries, wages and profit sharing
contributions............................. 17,235 718 3,079 -- 21,032
Taxes, other than income.................... 1,470 (28) 1,322 -- 2,764
Deferred income on maintenance
agreements................................ 6,436 -- 3,181 -- 9,617
Other....................................... 16,054 8,363 13,391 225 38,033
Due to affiliates........................... 958 50,308 42,106 (93,372) --
-------- -------- -------- --------- --------
Total current liabilities................. 90,120 73,283 129,180 (93,147) 199,436
Long-term debt -- affiliated.................. -- -- 6,558 (6,558) --
Long-term debt, less current maturities....... 434,108 2,392 13,523 -- 450,023
Other long-term liabilities................... 7,245 334 4,669 150 12,398
Deferred tax liabilities...................... 7,414 3,350 3,397 -- 14,161
Stockholders' equity:
Common stock................................ 1,962 4,026 2,531 (6,557) 1,962
Class B common stock........................ 300 -- -- -- 300
Additional paid-in capital.................. 10,148 111,838 87,641 (199,479) 10,148
Cumulative translation adjustments.......... (7,047) (4,408) (6,889) 11,298 (7,046)
Retained earnings........................... 213,755 126,273 21,984 (148,258) 213,755
Treasury stock.............................. (25,747) -- -- -- (25,747)
-------- -------- -------- --------- --------
Total stockholders' equity................ 193,371 237,729 105,267 (342,996) 193,371
-------- -------- -------- --------- --------
Total liabilities and stockholders'
equity.............................. $732,258 $317,088 $262,594 $(442,551) $869,389
======== ======== ======== ========= ========
</TABLE>
- -------------------------
(a) Effective June 30, 1998, the Company sold its US RingBinder business (USRB).
As of March 31, 1998, USRB had stockholder's equity of $12.1 million.
F-39
<PAGE> 144
CONSOLIDATING INCOME STATEMENTS
(UNAUDITED)
(000 OMITTED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
-------------------------------------------------------------------
NON-
PARENT GUARANTORS(A) GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Unaffiliated sales................. $140,580 $ 7,318 $66,046 $ -- $213,944
Affiliated sales................... 15,739 3,739 3,795 (23,273) --
-------- ------- ------- -------- --------
Total sales................... 156,319 11,057 69,841 (23,273) 213,944
Cost of sales, including
development and engineering...... 90,865 11,277 43,612 (23,750) 122,004
Selling, service and
administrative................... 46,732 1,602 21,330 -- 69,664
Amortization of goodwill and
related intangibles.............. 1,878 321 271 -- 2,470
-------- ------- ------- -------- --------
Operating income.............. 16,844 (2,143) 4,628 477 19,806
Interest........................... 9,220 332 1,033 (3,113) 7,472
Other (income) expense, net........ (604) (2,435) 435 3,113 508
-------- ------- ------- -------- --------
Income before taxes and
undistributed earnings of
wholly-owned subsidiaries... 8,228 (40) 3,160 477 11,825
Income taxes....................... 3,069 186 1,282 193 4,730
-------- ------- ------- -------- --------
Income (loss) before
undistributed earnings of
wholly-owned subsidiaries... 5,159 (226) 1,878 284 7,095
Undistributed earnings (loss) of
wholly-owned subsidiaries........ 1,936 685 -- (2,621) --
-------- ------- ------- -------- --------
Net income.................... $ 7,095 $ 459 $ 1,878 $ (2,337) $ 7,095
======== ======= ======= ======== ========
</TABLE>
- -------------------------
(a) Effective June 30, 1998, the Company sold its US RingBinder business (USRB).
For the three months ended March 31, 1998, USRB had net income of $302,000.
F-40
<PAGE> 145
CONSOLIDATING STATEMENT OF CASH FLOWS
(UNAUDITED)
(000 OMITTED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
-----------------------------------------------------------------
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES(A).............. $(103,379) $ 124,756 $ (16,880) $ 150 $ 4,647
--------- --------- --------- --------- ---------
INVESTING ACTIVITIES:
Capital expenditures................... (3,972) (1,437) (976) -- (6,385)
Proceeds from sale of plant and
equipment............................ -- 7 35 -- 42
Capital contributions to
subsidiaries......................... (15,045) 15,045 -- -- --
Payments for acquisitions and
investments, net of cash acquired.... -- (137,983) -- -- (137,983)
--------- --------- --------- --------- ---------
Net cash used in investing
activities........................... (19,017) (124,368) (941) -- (144,326)
--------- --------- --------- --------- ---------
FINANCING ACTIVITIES:
Increase (reduction) in notes
payable.............................. 6,166 -- 24,108 -- 30,274
Increase (decrease) in long-term
debt................................. 121,716 11 1,207 (150) 122,784
(Reduction) increase in current portion
of long-term debt.................... -- -- (1) -- (1)
Dividends paid......................... (1,736) -- -- -- (1,736)
Purchases of treasury stock............ (2,601) -- -- -- (2,601)
Proceeds from the exercise of stock
options.............................. 509 -- -- -- 509
--------- --------- --------- --------- ---------
Net cash provided by (used in)
financing activities................. 124,054 11 25,314 (150) 149,229
--------- --------- --------- --------- ---------
Effect of exchange rates on cash....... -- -- 44 -- 44
NET (DECREASE) INCREASE IN CASH & CASH
EQUIVALENTS.......................... 1,658 399 7,537 -- 9,594
Cash and cash equivalents at the
beginning of year.................... 1,098 (26) 2,681 -- 3,753
--------- --------- --------- --------- ---------
Cash and cash equivalents at the end of
the period........................... 2,756 373 10,218 -- 13,347
========= ========= ========= ========= =========
</TABLE>
- -------------------------
(a) During the three months ended March 31, 1998, the Parent repaid an
intercompany balance due to GBC International, Inc. in the amount of
$114,935. This amount was then used to purchase Ibico AG.
F-41
<PAGE> 146
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Ibico AG and its subsidiaries
We have audited the accompanying consolidated balance sheet of Ibico AG and
its subsidiaries as of December 31, 1997, and the related consolidated
statements of income and cash flows for the year then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Ibico AG and
its subsidiaries as of December 31, 1997 and the results of its operations and
its cash flows for the year then ended, in conformity with International
Accounting Standards.
International Accounting Standards vary in certain significant respects
from accounting principles generally accepted in the United States. Application
of accounting principles generally accepted in the United States would have
affected results of operations for the year ended December 31, 1997 and
stockholders' equity as of December 31, 1997, to the extent summarized in Note
23 to the consolidated financial statements.
KPMG Fides Peat
Zurich, Switzerland
May 4, 1998
F-42
<PAGE> 147
IBICO AG AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
(IN THOUSAND CHF
AND USD)
<S> <C> <C>
CHF USD(1)
ASSETS
Current assets:
Liquid assets............................................. 9,594 6,565
Customer discounted drafts................................ 789 540
Securities................................................ 94 64
Trade receivables:
From third parties..................................... 24,140 16,519
From unconsolidated affiliates......................... 3,773 2,582
Reserve for doubtful accounts.......................... (1,516) (1,037)
Other receivables third parties........................... 3,120 2,135
Inventories............................................... 39,515 27,040
Other receivables, prepaid expenses and accrued income.... 5,511 3,771
------- ------
Total current assets................................. 85,020 58,179
------- ------
Property, plant and equipment, net:
Land...................................................... 300 205
Buildings and installations............................... 6,476 4,432
Leasehold improvements.................................... 591 404
Machinery and equipment................................... 6,847 4,685
Equipment, vehicles and tools............................. 3,022 2,068
Computer equipment........................................ 726 497
------- ------
Total property, plant and equipment.................. 17,962 12,291
------- ------
Other long-term assets:
Long-term receivables..................................... 2,171 1,486
Unconsolidated investments................................ 209 143
Intangible assets, net.................................... 5,042 3,450
------- ------
Total other long-term assets......................... 7,422 5,079
------- ------
Total assets......................................... 110,404 75,549
======= ======
</TABLE>
- -------------------------
(1) See Note 1(j) to the Consolidated Financial Statements for an explanation of
the convenience translation. The unaudited U.S. dollar (USD) convenience
translation is not covered by the report of independent accountants.
See accompanying notes to the Consolidated Financial Statements.
F-43
<PAGE> 148
IBICO AG AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
(IN THOUSAND CHF
AND USD)
<S> <C> <C>
CHF USD(1)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank loans and overdrafts................................. 36,839 25,209
Trade payables to third parties........................... 12,451 8,520
Other liabilities to third parties........................ 2,087 1,428
Liabilities from short-term financing..................... 1,604 1,098
Current portion of long-term liabilities.................. 700 479
Accrued expenses.......................................... 10,903 7,460
------- ------
Total current liabilities............................ 64,584 44,194
------- ------
Long-term liabilities:
Long-term debts........................................... 23,778 16,271
Provisions................................................ 2,325 1,591
------- ------
Total long-term liabilities.......................... 26,103 17,862
------- ------
Minority interest........................................... 578 396
------- ------
Stockholders' equity:
Share capital............................................. 2,000 1,369
Consolidated reserves..................................... 18,464 12,648
Net loss for the year..................................... (1,325) (920)
------- ------
Total stockholders' equity........................... 19,139 13,097
------- ------
Total liabilities and stockholders' equity........... 110,404 75,549
======= ======
</TABLE>
- -------------------------
(1) See Note 1(j) to the Consolidated Financial Statements for an explanation of
the convenience translation. The unaudited USD convenience translation is
not covered by the report of independent accountants.
See accompanying notes to the Consolidated Financial Statements.
F-44
<PAGE> 149
IBICO AG AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1997
------------------
(IN THOUSAND CHF
AND USD)
<S> <C> <C>
CHF USD(1)
Total revenues.............................................. 163,424 113,498
Costs and expenses:
Cost of sales............................................... 109,108 75,776
Selling, general and administrative......................... 48,722 33,837
Restructuring expense....................................... 1,700 1,181
------- -------
Operating income.......................................... 3,894 2,704
Interest expense............................................ 5,127 3,561
Other income, net........................................... (812) (564)
------- -------
Loss before taxes......................................... (421) (293)
Income taxes................................................ 616 428
------- -------
Loss before minority interest............................. (1,037) (721)
Minority interest........................................... (288) (200)
------- -------
Net loss.................................................. (1,325) (921)
======= =======
</TABLE>
- -------------------------
(1) See Note 1(j) to the Consolidated Financial Statements for an explanation of
the convenience translation. The unaudited USD convenience translation is
not covered by the report of independent accountants.
See accompanying notes to the Consolidated Financial Statements.
F-45
<PAGE> 150
IBICO AG AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1997
--------------------
(IN THOUSAND CHF
AND USD)
<S> <C> <C>
CHF USD(1)
CASH PROVIDED BY OPERATING ACTIVITIES:
Net loss before minority interests.......................... (1,037) (721)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 4,056 2,817
Release of provisions..................................... (2,123) (1,474)
Other non-cash income, net................................ (205) (141)
------ -------
Movement in net working capital:
Decrease in customer discounted drafts.................... 167 116
(Increase) in securities.................................. (43) (30)
(Increase) in trade receivables........................... (2,728) (1,895)
Decrease in inventories................................... 5,307 3,685
(Increase) in other receivables........................... (303) (210)
Increase in trade payables................................ 111 77
Increase in other liabilities............................. 4,641 3,223
------ -------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 7,843 5,447
------ -------
CASH USED IN INVESTING ACTIVITIES:
(Increase) in investments in tangible/intangible fixed
assets.................................................... (7,538) (5,235)
(Increase) in financial fixed assets........................ (2,036) (1,414)
Decrease in unconsolidated investments...................... 177 123
Decrease in fixed assets.................................... 141 98
------ -------
NET CASH USED IN INVESTING ACTIVITIES....................... (9,256) (6,428)
------ -------
CASH PROVIDED BY FINANCING ACTIVITIES:
Increase in current portion of long-term liabilities........ 700 486
Increase in long term debts................................. 8,359 5,805
(Decrease) in bank loans and overdrafts..................... (576) (400)
------ -------
NET CASH PROVIDED BY FINANCING ACTIVITIES................... 8,483 5,891
------ -------
(Decrease) due to currency translation...................... (296) (636)
------ -------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 6,774 4,274
Cash and cash equivalents at beginning of period............ 2,820 2,291
------ -------
Cash and cash equivalents at end of period.................. 9,594 6,565
====== =======
SUPPLEMENTARY CASH FLOW INFORMATION:
Cash paid -- taxes.......................................... 890 618
Cash paid -- interest....................................... 4,871 3,383
Cash received -- interest................................... 365 253
</TABLE>
- -------------------------
(1) See Note 1(j) to the Consolidated Financial Statements for an explanation of
the convenience translation. The unaudited USD convenience translation is
not covered by the report of independent accountants.
See accompanying notes to the Consolidated Financial Statements.
F-46
<PAGE> 151
IBICO AG AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSAND CHF)
1. SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies adopted in the preparation of the
Group's consolidated financial statements are set out below.
(A) Basis of Preparation
The consolidated financial statements of Ibico AG and its subsidiaries have
been prepared in accordance with the accounting standards issued by the
International Accounting Standards Committee (IASC) and the requirements of
Swiss Law. They have been prepared on a historical cost basis and do not take
into account increases in the market value of assets, except where stated.
(B) Principles of Consolidation
The consolidated financial statements include all subsidiaries that are
controlled by the parent company, other than those excluded because control is
assumed to be temporary or due to long term restrictions significantly impairing
a subsidiary's ability to transfer funds to the parent company.
Control is presumed to exist where more than one half of a subsidiary's
voting power is controlled by the parent company or the parent company is able
to govern the financial and operating policies of a subsidiary, or control the
removal or appointment of a majority of a subsidiary's board of directors.
All intercompany balances and transactions, such as intercompany profits
included in inventories of goods produced in the Group have been eliminated.
(C) Intangible Assets
Intangible assets represent capitalized research and development costs and
a patent. The patent is amortized over its estimated useful life of 5 years.
Expenses on research and development for products which can be launched on the
market within a period of two years are capitalized and depreciated over three
years.
(D) Foreign Currency
Transactions. Transactions in currencies other than the parent company's
operating currency are converted at the rate of exchange at the transaction
date. At the balance sheet date, foreign currency and monetary assets and
liabilities, other than those covered by forward exchange contracts, are
converted at the rate of exchange ruling at that date. Resulting exchange
differences are recognized in the income for the period.
Translation of Financial Statements. The subsidiaries of the Group are
considered foreign entities. Accordingly, assets and liabilities of foreign
enterprises are translated at rates applicable at the balance sheet date, while
items of income and expense are translated at average exchange rates. Resulting
exchange differences are recorded directly against consolidated reserves,
through a foreign currency translation reserve.
(E) Taxation
The Group adopts the liability method of tax accounting, whereby deferred
tax balances are calculated at the rate at which it is estimated that tax will
be paid (or recovered) when timing differences reverse.
Tax expense is calculated on net income, adjusted for permanent differences
between taxable and accounting income. Taxes on timing differences arising from
items being brought to account in different periods for tax and accounting
purposes, are carried in the balance sheet as deferred tax assets or
liabilities.
F-47
<PAGE> 152
IBICO AG AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred tax assets arising from tax losses yet to be recovered, are only
carried forward if there is assurance beyond any reasonable doubt that future
taxable income will be sufficient to allow the benefit of the tax loss to be
realized.
(F) Inventories
Inventories are valued at lower of cost or market. Cost is calculated using
the first-in, first-out method and includes expenditures incurred in acquiring
the inventories and bringing them to their existing condition and location.
(G) Tangible Fixed Assets
Property, plant and equipment are stated at historical cost and are
depreciated using the straight-line method over their estimated useful lives.
Land is not depreciated.
Assets are depreciated over the following periods:
<TABLE>
<S> <C>
Buildings................................................... 30 years
Machinery and equipment..................................... 10 years
Computer hardware and software.............................. 3 years
Furniture and office machines............................... 10 years
Vehicles.................................................... 4 years
Leasehold improvements...................................... rental contract
</TABLE>
(H) Government Grants
Government grants related to fixed assets are accounted for as deferred
income and are recognized in the profit and loss account, on a straight-line
basis over the estimated useful life of the assets.
(I) Revenue Recognition
Revenue is recognized when products are delivered.
(J) Convenience Translation (unaudited)
The consolidated financial statements presented herein are expressed in
Swiss francs (CHF). However, solely for the convenience of the reader, the
consolidated financial statements as of and for the year ended December 31,
1997, have been translated into United States dollars an average rate of
approximately 1.44 CHF=US$1.00 and year-end rate of approximately 1.46
CHF=US$1.00. Such rates were computed and derived from exchange rates published
in the Wall Street Journal. This translation should not be construed as a
representation that the amounts shown could be converted into U.S. dollars.
2. ACTIVITIES
The activities of the group are comprised of manufacturing and sales of
office products (machinery and equipment).
3. RESTATEMENT
It was determined during 1997 that the Company's provision for slow-moving,
excess and obsolete inventory was understated. The correction for the
understatement of the accrual balance at December 31, 1996 is reflected as an
adjustment to opening consolidated reserves at January 1, 1997 as it is not
practical to restate 1996 earnings for the impact of this error. The impact of
this adjustment is to reduce consolidated reserves at January 1, 1997 by CHF
1,641 (net of CHF 961 tax).
F-48
<PAGE> 153
IBICO AG AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. TRADE RECEIVABLES -- THIRD PARTIES
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
(IN THOUSAND CHF)
<S> <C>
Trade receivables -- third parties.......................... 24,140
Less: reserve for doubtful accounts -- third parties........ (1,366)
------
Net trade receivables -- third parties...................... 22,774
======
</TABLE>
Trade receivables are presented at their net realizable values after
deduction of reserve for doubtful accounts -- third parties. These reserves
cover both specific debts and a general allowance which covers the general
credit risk in trade receivables -- third parties.
5. INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
(IN THOUSAND CHF)
<S> <C>
Spare parts, raw material, semi-finished goods and
packaging................................................. 20,310
Finished goods.............................................. 22,890
Goods in transit............................................ 1,872
Inventory reserve........................................... (5,557)
------
Total inventories........................................... 39,515
======
</TABLE>
F-49
<PAGE> 154
IBICO AG AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. MOVEMENT OF PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
EQUIPMENT,
BUILDINGS, LEASEHOLD MACHINERY, VEHICLES, COMPUTER
LAND INSTALLATIONS IMPROVEMENTS EQUIPMENT TOOLS EQUIPMENT TOTAL
---- ------------- ------------ ---------- ---------- --------- -----
CHF CHF CHF CHF CHF CHF CHF
<S> <C> <C> <C> <C> <C> <C> <C>
COST:
Balance at January 1,
1997.................... 297 7,772 936 15,981 8,004 3,002 35,992
Additions................. 3 -- 411 1,831 426 860 3,531
Disposals................. -- -- (11) (386) (353) (123) (873)
Reclassifications......... -- -- -- (5) -- -- (5)
Currency translation
adjustments............. -- 51 8 (454) (287) 19 (663)
--- ----- ----- ------ ----- ----- ------
Balance at December 31,
1997.................... 300 7,823 1,344 16,967 7,790 3,758 37,982
--- ----- ----- ------ ----- ----- ------
DEPRECIATION:
Balance at January 1,
1997.................... -- 1,083 671 9,211 4,475 2,453 17,893
Additions................. -- 261 96 1,390 728 700 3,175
Disposals................. -- -- (11) (272) (326) (123) (732)
Currency translation
adjustments............. -- 3 (3) (209) (109) 2 (316)
--- ----- ----- ------ ----- ----- ------
Balance at December 31,
1997.................... -- 1,347 753 10,120 4,768 3,032 20,020
--- ----- ----- ------ ----- ----- ------
Net book value January 1,
1997.................... 297 6,689 265 6,770 3,529 549 18,099
=== ===== ===== ====== ===== ===== ======
Net book value December
31, 1997................ 300 6,476 591 6,847 3,022 726 17,962
=== ===== ===== ====== ===== ===== ======
</TABLE>
Net book value of fixed assets held under government grants at December 31,
1997 was CHF 1,302. Net book value of fixed assets held under finance lease at
December 31, 1997 was CHF 1,228.
F-50
<PAGE> 155
IBICO AG AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INTANGIBLE ASSETS
<TABLE>
<CAPTION>
RESEARCH & POLYCOMB
DEVELOPMENT PATENT TOTAL
----------- -------- -----
CHF CHF CHF
<S> <C> <C> <C>
COST:
Balance at January 1, 1997.................................. 3,976 -- 3,976
Additions................................................... 1,585 2,422 4,007
Disposals................................................... (16) -- (16)
Currency translation adjustments............................ 18 -- 18
----- ----- -----
Balance at December 31, 1997................................ 5,563 2,422 7,985
----- ----- -----
DEPRECIATION:
Balance at January 1, 1997.................................. 2,048 -- 2,048
Additions................................................... 881 -- 881
Disposals................................................... (16) -- (16)
Currency translation adjustments............................ 30 -- 30
----- ----- -----
Balance at December 31, 1997................................ 2,943 -- 2,943
----- ----- -----
Net book value January 1, 1997.............................. 1,928 -- 1,928
===== ===== =====
Net book value December 31, 1997............................ 2,620 2,422 5,042
===== ===== =====
</TABLE>
8. RELATED PARTY TRANSACTIONS
Amounts due from related parties of the previous shareholder (refer to Note
21):
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------
(IN THOUSAND CHF)
<S> <C>
Trade receivables.......................................... 339
Other receivables.......................................... 548
-----
887
=====
Rent expense to related parties............................ 657
=====
</TABLE>
9. ASSETS PLEDGED
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------
(IN THOUSAND CHF)
<S> <C>
Trade receivables -- third parties....................... 19,540
Land and buildings....................................... 2,745
Patent................................................... 2,422
------
24,707
======
</TABLE>
10. BANK LOANS SECURED
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
(IN THOUSAND CHF)
<S> <C>
Short-term bank loans (secured by assets pledged)........... 20,374
======
</TABLE>
F-51
<PAGE> 156
IBICO AG AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. ACCRUED EXPENSES
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
(IN THOUSAND CHF)
<S> <C>
Accrued taxes............................................. 1,458
Accrued expenses.......................................... 9,445
------
10,903
======
</TABLE>
12. LONG-TERM DEBTS
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
(IN THOUSAND CHF)
<S> <C>
Long-term financing........................................ 22,735
Leasing liabilities -- long-term portion................... 1,043
------
23,778
======
</TABLE>
An amount of CHF 20,000 of the long-term financing as of December 31, 1997
is due in 1999 and owed to a related party of the new shareholder (refer to Note
21). The interest rate ranges from 6.0% to 7.0%.
13. PROVISIONS
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
(IN THOUSAND CHF)
<S> <C>
Other accruals............................................. 760
Deferred tax liability..................................... 1,565
------
2,325
======
</TABLE>
Refer to Note 16 for income tax.
14. STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SHARE CONSOLIDATED
CAPITAL RESERVES NET LOSS TOTAL
------- ------------ -------- -----
CHF CHF CHF CHF
<S> <C> <C> <C> <C>
Balance at January 1, 1997 before
restatement......................... 2,000 20,785 -- 22,785
Restatement (see Note 3).............. -- (1,642) -- (1,642)
----- ------ ------ ------
Balance at January 1, 1997 after
restatement......................... 2,000 19,143 -- 21,143
Currency translation adjustment....... -- (679) -- (679)
Net loss.............................. -- -- (1,325) (1,325)
----- ------ ------ ------
Balance at December 31, 1997.......... 2,000 18,464 (1,325) 19,139
===== ====== ====== ======
</TABLE>
The capital stock is divided into 400 fully paid bearer shares of CHF 5,000
each.
F-52
<PAGE> 157
IBICO AG AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. OPERATING LEASE AND LONG-TERM RENTAL COMMITMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
(IN THOUSAND CHF)
<S> <C>
Operating lease and long-term rental commitments due:
Between one and two years................................. 4,410
Between two and three years............................... 541
Between three and four years.............................. 546
Between four and five years............................... 164
Later than five years..................................... 289
------
5,950
======
</TABLE>
16. INCOME TAX
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
(IN THOUSAND CHF)
<S> <C>
Income tax expense:
Current tax............................................... 2,831
Deferred tax.............................................. (2,215)
------
616
======
</TABLE>
Tax Loss Carry Forwards:
At December 31, 1997, the subsidiaries of the Group had taxable losses
amounting to approximately CHF 928 which are available to be offset against
future taxable income of these subsidiaries. Thereof taxable losses in the
amount of CHF 190 have been recognized as a deferred tax asset of CHF 67; CHF
738 have not been recognized, as their recovery is not assured beyond any
reasonable doubt.
Deferred tax assets:
Due to temporary differences, deferred tax assets of CHF 2,504 are included
in prepaid expenses at December 31, 1997.
17. UNUSUAL EXPENSE
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
(IN THOUSAND CHF)
<S> <C>
Restructuring expense..................................... 1,700
Other unusual expenses.................................... 101
------
Unusual expenses.......................................... 1,801
======
</TABLE>
18. RESEARCH AND DEVELOPMENT
Research and development costs expensed as incurred in 1997 amounted to CHF
204 (refer to Note 7 for capitalized research and development costs).
F-53
<PAGE> 158
IBICO AG AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
19. CONTINGENT LIABILITIES
The Group is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Group's consolidated financial position, results of operations and liquidity.
20. RETIREMENT BENEFIT COSTS
IBICO INC., USA
The Company has a defined contribution 401(k) plan and a 10% money purchase
pension for the benefit of substantially all of its U.S. employees.
Contributions for the year ended December 31, 1997 amounted to CHF 309. The
401(k) plan provides for both discretionary and matching contributions on the
part of the Company.
IBICO AG, ZURICH
Ibico AG is required by Swiss law to provide a Defined Contribution Plan
for all its employees. An additional Ibico-Vorsorgestiftung pension plan (also a
Defined Contribution Plan) is available for management only. Under the terms of
this Defined Contribution Plan, which is voluntary and covers managers only, a
contribution from the employer of 4% is made based upon the participant's
salary. The company's expense for the contribution was approximately CHF 40 for
1997. Defined Contribution Plans provide in addition to pension cost, against
disability and, in case of a sudden death, for the dependents of the deceased.
ALL OTHER IBICO EMPLOYEE BENEFIT PLANS
Total employer cost in 1997 for defined contribution plans amount to CHF
163.
21. SUBSEQUENT EVENT (UNAUDITED)
On February 27, 1998 pursuant to the terms of a Stock Purchase Agreement
dated October 17, 1997, the shareholder sold 100% of the share capital of Ibico
AG to General Binding Corporation (GBC). Following the purchase, the legal form
of Ibico AG was changed to Ibico GmbH.
F-54
<PAGE> 159
IBICO AG AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
22. THE GROUP'S CONSOLIDATED SUBSIDIARIES
<TABLE>
<CAPTION>
COMPANY SHARE CAPITAL
COUNTRY CURRENCY AMOUNT FUNCTION HOLDINGS
------- -------- ------------- -------- --------
<S> <C> <C> <C> <C>
Ibico AG......................................... CHF 2,000,000 HG 100%
Zurich/CH (Parent Company)
Ibico Deutschland GmbH........................... DEM 100,000 SA 100%
Lottstetten/D
Interbinding GmbH................................ DEM 100,000 PR 100%
Lottstetten/D
Ibico Portugesa Lda.............................. PTE 390,000,000 PR 100%
Porto/P
Ibico Nederland B.V.............................. NLG 40,000 SA 100%
Waalwyk/NL
S.A. Ibico France................................ FRF 10,000,000 SA 100%
Paris/F
Ibico Ltd........................................ GBP 10,000 SA 100%
London/GB
Ibico Italia Srl................................. ITL 22,750,000 SA 100%
Milano/I
Ibico Iberia SA.................................. ESP 10,000,000 SA 100%
Madrid/E
Ibico Scandinavia AB............................. SEK 500,000 SA 75%
Helsingborg/S
Ibico Inc........................................ USD 4,000,000 HG/SA 100%
Chicago/USA with subsidiaries
-- Ibico Canada Inc............................ CND 197,000 SA
-- Anillos Plasticos de Mexico SA.............. MXN 4,525,500 PR
Ibico Chile SA................................... CLP 18,361,000 SA 100%
Santiago/Chile
Ibico Holding Singapore Pte. Ltd. Singapore with
subsidiary..................................... SGD 3,000,000 HG 100%
-- Ibico Singapore Pte. Ltd. .................. SA
</TABLE>
- -------------------------
FUNCTION:
HG Holding
PR Production
SA Sales
F-55
<PAGE> 160
IBICO AG AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
23. SIGNIFICANT DIFFERENCES BETWEEN INTERNATIONAL ACCOUNTING STANDARDS (IAS) AND
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES
The consolidated financial statements have been prepared in accordance with
IAS which differs in certain significant respects from Generally Accepted
Accounting Principles in the United States ("US GAAP") as set forth below:
(a) Research and development -- expenses on research and development
for products which can be launched in the market within a period of two
years are capitalized and depreciated over three years for IAS purposes.
Under US GAAP, such costs are expensed as incurred.
(b) General accruals -- under US GAAP, an accrual for a loss
contingency is recorded by a charge to income if it is both probable than
an asset has been impaired or a liability has been incurred and the minimum
amount of loss can be reasonably estimated. Unspecified liability reserves
for future losses, costs or risks do not meet the conditions for accrual.
According to IAS, accruals or provisions may be recorded for uncertain
liabilities and loss contingencies. Application of IAS may also lead to
higher accrual balances and reserves for possible risks than are allowed
under US GAAP.
Application of US GAAP would have had the following approximate effect on
the Company's net loss and stockholders' equity for the year ended December 31,
1997:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1997
---------------------
CHF USD
------ ------
<S> <C> <C>
Net loss as reported under IAS.............................. (1,325) (921)
Increase (decrease) for:
Research and development............................... (692) (481)
General accruals....................................... (28) (19)
Deferred tax impact.................................... 191 133
------ ------
Approximate net loss under US GAAP..................... (1,854) (1,288)
====== ======
Stockholders' equity under IAS.............................. 19,139 13,097
Increase (decrease) for:
Research and development............................... (2,620) (1,793)
General accruals....................................... 93 64
Deferred tax impact.................................... 702 480
------ ------
Approximate stockholders' equity under US GAAP......... 17,314 11,848
====== ======
</TABLE>
F-56
<PAGE> 161
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER
CONTAINED HEREIN, 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 THE SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION
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 CIRCUMSTANCES, CREATE ANY IMPLICATION THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information........................... i
Incorporation of Certain Documents By
Reference..................................... ii
Prospectus Summary.............................. 1
Risk Factors.................................... 14
Use of Proceeds................................. 20
Capitalization.................................. 21
Selected Historical Consolidated Financial
Data.......................................... 22
Unaudited Combined Pro Forma Condensed Financial
Data.......................................... 23
Unaudited Combined Pro Forma Condensed Statement
of Operations and Other Financial Data........ 24
Unaudited Combined Pro Forma Condensed Balance
Sheet......................................... 26
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 28
Business........................................ 33
Management...................................... 43
Principal Stockholders.......................... 50
Certain Relationships and Related
Transactions.................................. 51
Description of Credit Facility.................. 52
Description of the Notes........................ 53
Exchange Offer.................................. 84
Certain United States Federal Tax
Considerations................................ 92
Book-Entry; Delivery and Form................... 97
Plan of Distribution............................ 98
Legal Matters................................... 99
Experts......................................... 99
Index to Financial Statements................... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
-----------------------------------------
PROSPECTUS
-----------------------------------------
[GENERAL BINDING CORPORATION LOGO]
GENERAL BINDING CORPORATION
OFFER TO EXCHANGE
9 3/8% SENIOR SUBORDINATED NOTES DUE 2008 FOR ANY AND ALL OUTSTANDING 9 3/8%
SENIOR SUBORDINATED NOTES DUE 2008
AUGUST 6, 1998
- ------------------------------------------------------
- ------------------------------------------------------
