<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 12, 1997
REGISTRATION NO.: 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
ASSOCIATED MATERIALS INCORPORATED
(Exact name of Registrant as specified in its charter)
<TABLE>
<C> <C> <C>
DELAWARE 3089 75-1872487
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
2200 ROSS AVENUE, SUITE 4100 EAST
DALLAS, TEXAS 75201
214-220-4600
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
---------------------
ROBERT L. WINSPEAR
VICE PRESIDENT, TREASURER AND SECRETARY
2200 ROSS AVENUE, SUITE 4100 EAST
DALLAS, TEXAS 75201
214-220-4600
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------------
Copies to:
<TABLE>
<C> <C>
JAMES E. O'BANNON
JONES, DAY, REAVIS & POGUE THOMAS A. EDWARDS
2300 TRAMMELL CROW CENTER LATHAM & WATKINS
2001 ROSS AVENUE 701 "B" STREET, SUITE 2100
DALLAS, TEXAS 75201 SAN DIEGO, CALIFORNIA 92101
214-220-3939 619-236-1234
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=======================================================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Senior Subordinated Notes due 2008..... $75,000,000 100% $75,000,000 $22,125
=======================================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculation of the registration fee, in
accordance with Rule 457(a).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED DECEMBER 12, 1997
PROSPECTUS
$75,000,000
[LOGO]
ASSOCIATED MATERIALS INCORPORATED
% SENIOR SUBORDINATED NOTES DUE 2008
------------------
The % Senior Subordinated Notes due 2008 (the "Notes") are being offered
hereby (the "Note Offering") by Associated Materials Incorporated ("Associated
Materials" or the "Company"). The Notes will bear interest at the rate of %
per annum, payable semi-annually, on and of each year,
commencing , 1998. The Notes are redeemable for cash at any time on or
after 2003, at the option of the Company, in whole or in part, at
the redemption prices set forth herein, plus accrued and unpaid interest, if
any, to the redemption date. The Company also may redeem up to 25% of the
principal amount of the Notes, at any time on or before , 2001 at the
redemption price set forth herein plus accrued interest, if any, to the date of
redemption from the net proceeds of a public offering of the Company's Common
Stock (as defined); provided however, that immediately after giving effect to
any such redemption, not less than $65 million aggregate principal amount of the
Notes remains outstanding.
Upon a Change of Control (as defined herein), each holder of the Notes will
have the right to require the repurchase of such holder's Notes by the Company
in cash at a purchase price equal to 101% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the date of purchase. In addition, under
certain circumstances, the Company will be required to offer to purchase Notes,
and pay accrued interest thereon, from the proceeds of certain Asset Disposition
(as defined). See "Description of the Notes."
The Notes are general, unsecured obligations of the Company. The Notes are
subordinated in right of payment to all present and future Senior Indebtedness
(as defined herein) of the Company, including amounts borrowed under the
Company's existing Credit Agreement (the "Credit Agreement"). At September 30,
1997 the Notes would have been subordinated to approximately $ million of
Senior Indebtedness. As of the date of this Prospectus, the Company had no
outstanding Indebtedness (as defined) other than the Existing Notes (as defined)
which will rank equally with the Notes. See "Capitalization."
Ownership of the Notes will be maintained in book-entry form by or through
the Depository (as defined herein). Interest in the Notes will be shown on, and
transfers thereof will be effected only through, records maintained by the
Depository and its participants. Beneficial owners of the Notes will not have
the right to receive physical certificates evidencing their ownership of the
Notes except under the limited circumstances described herein. Settlement for
the Notes will be made in immediately available funds. The Notes will trade in
the Depository's Same-Day Funds Settlement System and secondary market trading
activity for the Notes will therefore settle in immediately available funds. All
payments of principal of, premium, if any, and interest on the Notes will be
made by the Company in immediately available funds so long as the Notes are
maintained in book-entry form. Beneficial interests in the Notes may be
acquired, or subsequently transferred, only in denominations of $1,000 and
integral multiples thereof.
Concurrently with the Note Offering, the Company and certain stockholders
are offering shares of the Company's Common Stock (the "Stock Offering") by a
separate prospectus. The consummation of the Note Offering and the consummation
of the Stock Offering are not conditioned upon each other. The Company presently
intends to offer (the "Tender Offer" which, together with the Note Offering and
the Stock Offering, are collectively referred to herein as the "Offerings") to
purchase for cash all of its 11 1/2% Senior Subordinated Notes due August 15,
2003 (the "Existing Notes"), of which $75,000,000 aggregate principal amount are
currently outstanding. The consummation of the Note Offering and the Tender
Offer are contingent upon each other.
SEE "RISK FACTORS" BEGINNING ON PAGE 8 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN
THE NOTES OFFERED HEREBY.
------------------
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.
<TABLE>
<CAPTION>
================================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNTS(2) COMPANY(3)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note % % %
- ----------------------------------------------------------------------------------------------------------------
Total(3) $ $ $
================================================================================================================
</TABLE>
(1) Plus accrued interest, if any, from the date of issuance.
(2) For information regarding indemnification of the Underwriter, see
"Underwriting."
(3) Before deducting expenses payable by the Company estimated at $ .
------------------
The Notes are being offered by the Underwriter subject to prior sale, when,
as and if accepted by them, and subject to certain conditions. It is expected
that delivery of the Notes will be made on a book-entry basis through the
facilities of the Depository Trust Company on or about , 1998.
------------------
SALOMON SMITH BARNEY
, 1998
<PAGE> 3
[photographs of Company products]
The Company has a number of trademarks and trade names, including AlphaH,
AlsideH, CenturionH, OmniH, UltraCraftH, UltraGuardH, UltraMaxxH, WilliamsportH,
CenterLock(TM), Charter Oak(TM), Conquest(TM), Excalibur(TM), Geneva(TM),
Greenbriar(TM), Highland Cedar(TM), Odyssey(TM), and Performance Series -- New
Construction(TM).
------------------
CERTAIN PERSONS PARTICIPATING IN THE NOTE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES, INCLUDING
BY OVER-ALLOTMENT, ENTERING STABILIZATION BIDS, EFFECTING SYNDICATE-COVERING
TRANSACTIONS AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES
SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
Unless the context requires otherwise, the term the "Company" refers to the
business and operations of Associated Materials Incorporated, including Alside
and AmerCable, but not Amercord. This Prospectus contains certain
forward-looking statements. See "Risk Factors."
THE COMPANY
Associated Materials is a leading, vertically integrated manufacturer and
nationwide distributor of exterior residential building products through its
Alside division ("Alside"). Alside's core products are vinyl siding and vinyl
windows. These products are marketed on a wholesale basis to more than 30,000
professional contractors engaged in home remodeling and new home construction,
principally through Alside's nationwide network of 66 Alside Supply Centers. In
recent years Alside has expanded its product offerings to include vinyl fencing,
vinyl decking and vinyl garage doors. In 1996, Alside accounted for
approximately 88% of the Company's net sales. In addition to Alside, the
Company's operations include its AmerCable division ("AmerCable"), a specialty
electrical cable manufacturer. Amercord Inc. ("Amercord"), a 50%-owned affiliate
managed by the Company, manufactures and sells steel cord and bead wire to tire
manufacturers.
Alside competes in the vinyl siding and vinyl window segments of the
exterior residential building products market. Since the early 1980's, vinyl
products have commanded an increasing share of the exterior siding and window
market due to the greater durability, lower maintenance requirements and lower
cost associated with vinyl compared to other materials such as wood and metal.
Based on unit sales, vinyl siding accounted for approximately 47% of the
exterior siding market in 1996, versus 17% in 1985 and vinyl windows accounted
for approximately 45% of the residential window market in 1996, versus 15% in
1986. Both vinyl siding and vinyl windows have become the preferred products for
professional home remodeling contractors, representing 62% and 75% of the home
remodeling market for siding and windows in 1996, respectively. More recently,
vinyl siding and vinyl windows have achieved increased acceptance in the new
construction market. Sales of vinyl siding and vinyl windows in the new
construction market are each expected to grow at a rate of approximately 10%
annually from 1996 to 2000. Overall, total sales of vinyl siding and vinyl
windows are each projected to increase approximately 7% annually between 1996
and 2000.
From 1992 to 1996, the Company's net sales and EBITDA (defined as income
from operations plus depreciation and amortization) increased 28.5% and 50.8% to
$356.5 million and $29.0 million, respectively. The Company's EBITDA has
increased at a faster rate than its net sales primarily due to a shift in
product mix from lower margin metal siding to higher margin vinyl products,
which the Company both manufactures and distributes. Over the past five years,
sales of vinyl siding and vinyl windows have increased 56.0% and represented
over 65.6% of Alside's 1996 sales as compared to 54.1% in 1992.
The Company believes that it is well positioned to capitalize on the
growing demand for vinyl building products. The following business strategy
should enable the Company to (i) maintain Alside's position as a leading
manufacturer and distributor of exterior residential building products, (ii)
continue to increase sales, and (iii) strengthen operating margins.
- - Company-Owned Distribution. Alside is one of only two major vinyl siding
manufacturers that markets its products primarily through a company-owned
distribution network. The Company believes that distributing products through
its nationwide network of 66 Alside Supply Centers provides Alside with
certain competitive advantages, including (i) long-standing customer
relationships, (ii) the ability to implement targeted marketing programs, and
(iii) a permanent presence in local markets. In 1996, approximately 80% of
Alside's net sales were made through its Supply Centers. In 1995, the Company
initiated a number of programs at its Supply Centers designed to enhance the
quality and training of its marketing and sales personnel and added additional
sales personnel. The Company believes these actions have increased, and will
continue to increase, Alside's market share and profitability.
3
<PAGE> 5
- - New Product Development. The Company intends to capitalize on Alside's vinyl
manufacturing expertise by continuing to develop and introduce new innovative
products that offer performance, cost and other advantages. For example, in
late 1995, Alside introduced Charter Oak, a patented premium siding product,
which accounted for 22.5% of Alside's vinyl siding unit volume in the first
nine months of 1997. In early 1997, Alside introduced Conquest, a siding
product designed to increase Alside's penetration of the economy market
segment. Conquest accounted for approximately 17.5% of Alside's siding unit
volume in the first nine months of 1997. Additionally, Alside, has broadened
its product range by introducing a number of other vinyl products such as
vinyl fencing in 1993 and vinyl decking and a redesigned vinyl garage door in
1997.
- - New Construction Market. Industry sources indicate that the new construction
market will continue to be the fastest growing segment in the vinyl siding and
vinyl window industry. The Company intends to increase Alside's penetration of
the new construction market through a number of initiatives including new
product introductions such as Conquest, a recently formed sales group and
targeted marketing programs. As consolidation among builders continues and as
builders attempt to reduce the number of vendors used, the Company believes
that as a low-cost manufacturer with a national, company-owned distribution
system, Alside is well positioned to increase sales to nationwide
homebuilders.
- - Low-Cost and Vertically Integrated Operations. The Company believes that
Alside is a low-cost manufacturer of vinyl siding and other vinyl products due
to its manufacturing expertise, state-of-the-art technology and ability to
employ economies of scale. In addition, Alside's ability to produce its own
vinyl window extrusions and glass inserts, coupled with its high-speed welding
and cleaning equipment, provide it with cost and quality advantages over other
window manufacturers that are not as large or as vertically integrated as
Alside.
- - Manufacturing Capacity Expansion. Alside expects to significantly expand its
vinyl siding production capacity by increasing capacity at its existing vinyl
siding plant and by building a new vinyl siding manufacturing facility to meet
its future sales expectations. The Company intends to initially invest
approximately $12 million in the new facility, which is expected to become
operational in 1999.
The Company's other operating division, AmerCable, manufactures and markets
a variety of specialty electrical cable used in underground and surface mining,
shipboard, marine, offshore drilling, transportation and a variety of other
specialized industrial applications. AmerCable accounted for approximately 12%
of the Company's net sales in 1996. As a result of a shift of strategy in
mid-1996 to focus on its core products, AmerCable has lowered its costs and
improved manufacturing efficiencies and on-time delivery rates, thereby
substantially improving its profitability.
The Company's executive offices are located at Suite 4100 East, 2200 Ross
Avenue, Dallas, Texas 75201, and its telephone number is (214) 220-4600.
4
<PAGE> 6
THE NOTE OFFERING
SECURITIES OFFERED......... $75.0 million of % Senior Subordinated Notes
due 2008 (the "Notes").
INTEREST PAYMENT DATES..... and , commencing
, 1998.
OPTIONAL REDEMPTION........ The Notes are redeemable at the Company's option,
in whole or in part, at any time on or after
, 2003, at the redemption prices set
forth herein, plus accrued and unpaid interest to
the redemption date. The Company also may redeem up
to % of the principal amount of the Notes at
any time on or before , 2001 at the
redemption price set forth herein plus accrued
interest, if any, to the date of redemption from
the net proceeds of a public offering of the
Company's Common Stock; provided however, that
immediately after giving effect to any such
redemption, not less than $65 million aggregate
principal amount of the Notes remains outstanding.
See "Description of Notes -- Optional Redemption by
the Company."
OFFERS TO PURCHASE......... Upon a Change of Control (as defined), the Company
will be required to offer to purchase all of the
Notes at 101% of the principal amount thereof, plus
accrued and unpaid interest to the date of
repurchase. See "Description of Notes -- Repurchase
at the Option of Holders Upon Change of Control"
and "-- Certain Definitions." In addition, in the
event that aggregate Excess Proceeds (as defined)
from any Asset Disposition exceed $ million, the
Company will be required to utilize the Excess
Proceeds to fund an offer to all holders to
repurchase the Notes, subject to certain conditions
and exceptions and possible proration, at a
purchase price equal to 100% of the principal
amount of the Notes plus accrued interest to the
date of repurchase. See "Description of
Notes -- Certain Covenants -- Limitations on Asset
Dispositions."
RANKING.................... The Notes will be unsecured obligations of the
Company and will be subordinated in right of
payment to all existing and future Senior
Indebtedness of the Company. The Notes will rank
pari passu with the Existing Notes (if all
outstanding principal amount of the Existing Notes
is not purchased in connection with the Tender
Offer) and will rank pari passu with, or prior to,
existing and future Indebtedness of the Company
that is subordinated to Senior Indebtedness. The
Notes will be effectively subordinated to any
Indebtedness (including trade payables) and
preferred stock of subsidiaries (currently there
are no Subsidiaries) or affiliates (including
Amercord) of the Company. At September 30, 1997,
after giving effect to the Offerings, the aggregate
amount of Senior Indebtedness outstanding would
have been approximately $ million (excluding
outstanding but undrawn letters of credit of $
million). As of the date of this Prospectus, no
senior subordinated indebtedness of the Company was
outstanding other than the Existing Notes. See
"Description of Notes -- Subordination."
CERTAIN COVENANTS.......... The Indenture will contain certain covenants that,
among other restrictions, limit the ability of the
Company to incur additional Indebtedness, pay
dividends, make certain investments, repurchase
capital stock or subordinated indebtedness, create
certain liens, enter into certain transactions with
affiliates and consolidate or merge. See
"Description of Notes -- Certain Covenants."
5
<PAGE> 7
USE OF PROCEEDS............ The net proceeds of the Note Offering will be used
to fund, in part, the Tender Offer for the Existing
Notes. See "The Tender Offer" and "Use of
Proceeds."
THE TENDER OFFER
The Company presently intends to commence a tender offer for all of the
Existing Notes and a solicitation of consents from the holders of the Existing
Notes to eliminate substantially all of the restrictive covenants and certain
other provisions contained in the indenture pursuant to which the Existing Notes
were issued (the "Existing Indenture"). The successful completion of the Tender
Offer will be conditioned on the valid tender and consent of a majority of the
outstanding Existing Notes and the consummation of the Note Offering. Once
commenced, the Tender Offer will expire after 20 business days, unless further
extended, at which time the Company intends to purchase all of the Existing
Notes validly tendered using the net proceeds of the Note Offering. The Company
intends to fund the costs associated with the purchase of the Existing Notes
pursuant to the Tender Offer, including the anticipated prepayment premium and
the related transaction costs, with the proceeds of the sale of the Notes and
borrowings under the Credit Agreement. See "The Tender Offer."
THE STOCK OFFERING
Concurrently with the Note Offering, the Company and certain of its
stockholders (the "Selling Stockholders") are offering 2,466,000 shares of
Common Stock (plus up to an additional 369,900 shares, in the aggregate,
pursuant to an option granted to the Underwriters by the Company and certain of
the Selling Stockholders, solely to cover over-allotments, if any). Of the
shares being offered in the Stock Offering, 700,000 shares of Common Stock
(806,600 if the over-allotment option is exercised in full) are being offered by
the Company and 1,766,000 shares of Common Stock (2,029,300 if the
over-allotment option is exercised in full) are being offered by the Selling
Stockholders. The Stock Offering is expected to generate net cash proceeds to
the Company (assuming the Underwriters' over-allotment option is not exercised)
of approximately $ million. The Company will not receive any of the proceeds
from the sale of shares of Common Stock by the Selling Stockholders. The
consummation of the Note Offering and the consummation of the Stock Offering are
not conditioned upon each other. See "The Stock Offering."
6
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.............................. $277,318 $312,972 $352,606 $350,029 $356,471 $264,518 $297,919
Cost of sales.......................... 202,979 230,408 258,669 264,080 255,579 189,320 212,306
-------- -------- -------- -------- -------- -------- --------
Gross profit........................... 74,339 82,564 93,937 85,949 100,892 75,198 85,613
Selling, general and administrative
expenses............................. 59,507 63,670 70,482 73,207 77,740 57,944 61,646
-------- -------- -------- -------- -------- -------- --------
Income from operations................. 14,832 18,894 23,455 12,742 23,152 17,254 23,967
Interest expense....................... 6,754 7,581 10,580 11,474 10,882 8,285 7,501
Equity in earnings (loss) of
Amercord............................. 760 1,039 100 537 1,724 1,440 (624)
-------- -------- -------- -------- -------- -------- --------
Income before income tax expense....... 8,838 12,352 12,975 1,805 13,994 10,409 15,842
Income tax expense..................... 3,137 4,666 5,101 545 5,172 3,777 6,735
-------- -------- -------- -------- -------- -------- --------
Income before extraordinary item....... 5,701 7,686 7,874 1,260 8,822 6,632 9,107
Extraordinary item(1).................. -- 1,876 -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income............................. 5,701 5,810 7,874 1,260 8,822 6,632 9,107
Preferred dividends.................... 911 583 -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Income applicable to common stock...... $ 4,790 $ 5,227 $ 7,874 $ 1,260 $ 8,822 $ 6,632 $ 9,107
======== ======== ======== ======== ======== ======== ========
SHARE DATA:
Earnings per common share.............. $ 0.31 $ 0.42 $ 1.02 $ 0.16 $ 1.14 $ 0.86 $ 1.17
Weighted average number of shares...... 15,550 12,320 7,757 7,663 7,714 7,699 7,776
Dividends per share.................... -- -- -- -- -- -- $ 0.05
OTHER DATA:
EBITDA(2).............................. $ 19,253 $ 23,779 $ 27,959 $ 18,082 $ 29,025 $ 21,621 $ 28,708
Capital expenditures................... 2,818 5,489 9,323 7,683 8,110 6,897 6,330
Ratio of EBITDA to interest expense.... 2.85x 3.14x 2.64x 1.58x 2.67x 2.61x 3.83x
Ratio of earnings to fixed charges..... 1.84x 2.05x 1.88x 1.05x 1.78x 1.76x 2.48x
PRO FORMA DATA:(3)
Income from operations.................................... $ $
Interest expense..........................................
Net income................................................
Earnings per common share.................................
Weighted average number of shares.........................
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------
AS ADJUSTED
FOR THE
ACTUAL OFFERINGS(3)
-------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................... $ 59,158 $
Total assets.............................................. 190,441
Short-term debt, including current maturities............. 6,719
Long-term debt, less current maturities................... 79,050 79,050
Stockholders' equity...................................... 40,753
</TABLE>
- ---------------
(1) The extraordinary item represents, net of tax, the loss recognized on the
prepayment premium paid on the retirement of the Company's 15% Senior
Secured Notes in August 1993.
(2) EBITDA is calculated as income from operations plus depreciation and
amortization. The Company has included information concerning EBITDA because
it believes that EBITDA is used by certain investors as one measure of an
issuer's historical ability to service its debt. EBITDA should not be
considered by an investor as an alternative to, or more meaningful than, net
income as an indicator of the Company's operating performance or to cash
flows as a measure of liquidity.
(3) Gives effect to (i) the sale of the Common Stock offered by the Company at
an estimated offering price of $ per share and the application of the
estimated net proceeds therefrom to the repayment of indebtedness under the
Credit Agreement pending the use of such proceeds as described in "The Stock
Offering," and (ii) the issuance of the Notes at an assumed interest rate
of % and the application of the estimated net proceeds therefrom,
together with the borrowings under the Credit Agreement, to purchase all of
the outstanding principal amount of the Existing Notes in connection with
the Tender Offer and to pay related transaction costs. For Income Statement
Data, these events are assumed to occur at the beginning of the respective
periods and for Balance Sheet Data, these events are assumed to occur at
September 30, 1997. Upon completion of the Tender Offer, the Company will
record an extraordinary charge estimated to be $ million, net of tax
($ per share of Common Stock), for the prepayment premium expected to
be paid with respect to the Tender Offer and the write off of unamortized
debt issuance costs associated with the Existing Notes.
7
<PAGE> 9
RISK FACTORS
This Prospectus contains forward-looking statements that are based on the
beliefs of, and estimates and assumptions made by and information currently
available to, the Company's management. When used in this Prospectus, the words
"anticipate," "believe," "estimate," "expect," "intend," and similar
expressions, as they relate to the Company or the Company's management, identify
forward-looking statements. Such statements are subject to certain risks and
uncertainties. Actual results and events may vary materially from those
discussed in the forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed below. Further,
certain forward-looking statements included in this Prospectus assume the
completion of the Stock Offering, the Note Offering and the Tender Offer, which
transactions have yet to be completed and which may not be completed. The
failure to complete any of these transactions will impact the Company's capital
structure, as more fully described under "Capitalization" and could have certain
other effects, which are more fully described herein. Prospective investors
should also carefully consider, among other things, the following factors in
evaluating the Company and its business before purchasing the Notes offered
hereby.
Subordination of the Notes. The Notes are unsecured, senior subordinated
obligations of the Company and are subordinated in right of payment to all
existing and future Senior Indebtedness of the Company, including without
limitation amounts outstanding under the Credit Agreement. The Notes are
effectively subordinated to any Indebtedness (including trade payables) and
preferred stock of subsidiaries (currently there are no Subsidiaries) or
affiliates (including Amercord) of the Company. The indebtedness under the
Credit Agreement will continue to be secured by all accounts receivable,
inventory, machinery and equipment, contract rights and general intangibles of
the Company. See "Company Indebtedness -- Credit Agreement -- Collateral." As of
September 30, 1997, the Company had approximately $ million of Senior
Indebtedness outstanding (excluding outstanding but undrawn letters of credit of
$ million). See "Description of Notes -- Subordination."
As a result of the subordination of the Notes, in the event of any
voluntary or involuntary bankruptcy or insolvency proceedings or any
receivership, liquidation, reorganization, dissolution or other winding-up of
the Company (whether or not involving bankruptcy or insolvency) or any similar
proceeding relating to the Company, or if by reason of a default, the Notes are
declared due and payable before their Stated Maturity (as defined), the holders
of all Senior Indebtedness then outstanding will be entitled to receive payment
in full of all principal of and premium, if any, or interest prior to any
payment on the Notes (other than shares of stock or subordinated indebtedness
provided by a plan of reorganization or adjustment that does not alter the
rights of holders of Senior Indebtedness). By reason of such subordination, in
the event of insolvency, unsecured creditors of the Company who are not holders
of the Notes may recover more, ratably, than holders of the Notes.
In addition, in the event and during the continuation of a non-payment
default with respect to any Designated Senior Indebtedness (as defined), no
payment on account of principal or premium, if any, or interest may be made on
the Notes for a specified period. See "Description of Notes -- Subordination."
Substantial Financial Leverage. Following the Offerings, the Company will
continue to be highly leveraged. As of September 30, 1997, after giving effect
to the Offerings, the Company's total indebtedness would have been approximately
$ million and its stockholders' equity would have been $ million. See
"Capitalization." Although the Company believes that it has adequate financial
resources to meet its debt service obligations, maintain current operations and
provide sufficient funds for capital expenditures at historical levels, the
Company's high level of indebtedness presents certain risks to its security
holders and conceivably could adversely affect or impair, among other things,
the ability of the Company to obtain additional financing in the future and to
respond to market and general economic conditions, extraordinary capital
requirements (including the proposed construction of a new vinyl siding
manufacturing facility) and other factors. The Credit Agreement includes
covenants that require the maintenance of certain financial ratios and net worth
and that place restrictions on the repurchase of Common Stock and the payment of
dividends. Outstanding borrowings under the Credit Agreement are collateralized
by substantially all of the assets of the Company. In addition, the Existing
Indenture contains and the Indenture will contain covenants
8
<PAGE> 10
that, among other things, limit the ability of the Company to incur additional
indebtedness, pay dividends, make certain investments and repurchase stock or
subordinated indebtedness. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Use of Proceeds."
General Industry, Economic, Interest Rates and Other Conditions. The
exterior residential building products industry in which Alside operates may be
significantly affected by changes in national and local economic and other
conditions, including employment levels, changing demographic considerations,
availability of financing, interest rates and consumer confidence, all of which
are outside of the Company's control. A prolonged recession affecting the
residential construction industry could result in a significant decrease in the
Company's financial performance.
Substantial Operating Leverage. The Company operates with substantial
operating leverage. A significant portion of Alside's selling, general and
administrative expenses are fixed costs which do not fluctuate proportionately
with sales. As a result, a percentage decline in Alside's net sales has a
greater percentage effect on Alside's operating income.
Fluctuating Raw Material Costs and Availability. The principal raw material
component of Alside's vinyl products is vinyl resin, which historically has
fluctuated significantly in price. Although Alside historically has been able to
pass on price increases in vinyl resin to its customers, there can be no
assurance that the market will respond favorably to such selling price increases
or that the Company will otherwise be able to absorb such cost increases without
significantly affecting its margins. Alside generally did not adjust its prices
to pass on increases or decreases in vinyl resin prices during 1996 and 1997.
Additionally, a major interruption in the delivery of vinyl resin to Alside
would disrupt Alside's operations and could have an adverse effect on the
Company's financial condition and results of operations. Alside has contracts
with two vendors to supply substantially all of its vinyl resin requirements and
believes its requirements could also be met by other suppliers. Copper is the
principal raw material used by AmerCable in the manufacture of its products.
Historically, copper has been subject to rapid price movements. A decrease in
the price of copper may also affect the Company's gross margins as AmerCable
prices its cable products based upon market prices for copper at the time of
shipment. As a result, sudden decreases in copper prices can result in lower
gross profit margins in future periods. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Manufacturing Expansion. The Company presently intends to start
construction of a new vinyl siding manufacturing facility in 1998 with
operations anticipated to commence in 1999. The construction of a new facility
involves certain risks, including construction cost overruns and delays, the
hiring and training of new employees, compliance with environmental health and
safety and other regulatory requirements and the costs associated with the
acquisition of new production equipment, tooling and other machinery. The
inability of the Company to commence full-scale commercial production at its new
manufacturing facility in a timely manner could have an adverse effect on the
Company's results of operations and financial condition. In addition, at such
time as the Company commences production at this new facility, it may from time
to time experience lower than anticipated manufacturing efficiencies that may
adversely affect the Company's results of operations and financial condition.
Further, there can be no assurance that the Company will successfully integrate
the new facility with its existing manufacturing facilities or that it will
achieve the anticipated benefits and efficiencies from its expanded
manufacturing operations. In addition, the Company's operating results could be
adversely affected if sales of the Company's products do not increase at a rate
sufficient to offset the Company's increased expenses resulting from this
expansion. See "The Stock Offering" and "Business -- Manufacturing."
Quarterly Fluctuations. Because most of Alside's building products are
intended for exterior use, sales tend to be lower during periods of inclement
weather. Weather conditions in the first quarter of each calendar year usually
result in that quarter producing significantly less sales revenue than in any
other period of the year. Consequently, the Company has historically had net
losses in the first quarter and reduced profits from operations in the fourth
quarter of each calendar year. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Quarterly Financial Data."
9
<PAGE> 11
Competition. With the exception of Owens Corning, no other company within
the vinyl residential siding market competes with Alside in both manufacturing
and distribution. However, Alside does compete with other manufacturers of vinyl
building products, including Aluminum Company of America, CertainTeed
Corporation, Jannock Limited, Nortek, Inc. and Royal Group Technologies Limited.
Some of these companies are larger and have greater financial resources than the
Company. The Company also competes with Owens Corning and numerous large and
small distributors of building products in its capacity as a distributor of such
products. Additionally, the Company's products face competition from alternative
materials: wood and aluminum in the window markets, and wood, masonry and metal
in the siding market. While the Company believes Alside's products are
competitive, and in most sectors are gaining share at the expense of alternative
materials due to vinyl's superior qualities, including its lower material cost,
durability and low maintenance requirements, there can be no assurance the
Company will not be adversely impacted by its competitors or alternative
materials. See "Business -- Alside -- Competition."
Regulations and Environmental Considerations. The Company's operations are
subject to various environmental statutes and regulations, including laws and
regulations addressing materials used in the manufacturing of the Company's
products. In addition, certain of the Company's operations are subject to
federal, state and local environmental laws and regulations that impose
limitations on the discharge of pollutants into the air and water and establish
standards for the treatment, storage and disposal of solid and hazardous wastes.
Although the Company believes it has made sufficient capital expenditures to
maintain compliance with existing laws and regulations, future expenditures may
be necessary as compliance standards and technology change. Unforeseen
significant expenditures required to maintain such compliance, including
unforeseen liabilities, could have an adverse effect on the Company's business
and financial condition. See "Business -- Government Regulation and
Environmental Matters."
Absence of a Public Market. The Notes are a new issue of securities for
which there is currently no public market. Although the Underwriter has informed
the Company that it intends to make a market in the Notes, the Underwriter is
not obligated to do so, and there has been no public market for the Notes and
there can be no assurance that any such market will develop or that holders will
have the ability to sell their Notes, and any market making activity may be
discontinued at any time. If such market making activities do occur, the Notes
may trade at prices higher or lower than the principal amount thereof, depending
on many factors, including prevailing interest rates, the Company's operating
results and the market for similar securities. The Company does not intend to
apply for listing of the Notes on any securities exchange.
Limitations on Change of Control. Upon the occurrence of a Change of
Control, the Company will be required under certain circumstances to make an
offer for cash to repurchase the Notes at a price equal to 101% of the principal
amount thereof, together with accrued and unpaid interest to the date of
repurchase. If a Change of Control were to occur, there can be no assurance that
the Company would have sufficient funds to pay the purchase price for all of the
Notes that the Company might be required to purchase. Certain events involving a
Change of Control may result in an event of default under the Credit Agreement
or other indebtedness of the Company that may be incurred in the future. In the
event a Change of Control occurs at a time when the Company is prohibited from
purchasing the Notes, the Company could seek the consent of its lenders to
purchase the Notes or could attempt to refinance the borrowings that contain
such prohibition. If the Company does not obtain such a consent or repay such
borrowings, the Company would remain prohibited from purchasing the Notes. In
such case, the Company's failure to purchase tendered Notes would constitute an
Event of Default under the Indenture. If, as result thereof, a default occurs
with respect to any Senior Indebtedness, the subordination provisions of the
Notes would require payment in full of the Credit Agreement and any other such
Senior Indebtedness before repurchase of the Notes. See "Company Indebtedness,"
"Description of Notes -- Subordination" and "-- Repurchase at the Option of the
Holders -- Change of Control."
Anti-Takeover Provisions. The Company's Certificate (as defined) and Bylaws
(as defined) contain certain provisions that could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from attempting to acquire, control of the Company. Such provisions may limit
the price that certain investors may be willing to pay in the future for shares
of the Company's Common Stock. See "Description of Capital Stock -- State Law
and Certain Certificate and Bylaw Provisions."
10
<PAGE> 12
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Notes being offered by
the Company hereby are estimated to be approximately $ , after
deducting underwriting discounts and commissions and estimated expenses of the
Note Offering payable by the Company. The Company presently intends to use such
net proceeds, together with borrowings under the Credit Agreement, to purchase
all Existing Notes validly tendered pursuant to the Tender Offer. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
THE TENDER OFFER
The Company presently intends to commence a tender offer for all of the
Existing Notes and a solicitation of consents from the holders of the Existing
Notes to eliminate substantially all of the restrictive covenants and certain
other provisions contained in the Existing Indenture. The successful completion
of the Tender Offer will be conditioned on the valid tender and consent of a
majority of the outstanding Existing Notes and the consummation of the Note
Offering. Once commenced, the Tender Offer will expire after 20 business days,
unless further extended, at which time the Company expects to purchase all
Existing Notes validly tendered. The Company intends to fund the costs
associated with the purchase of the Existing Notes pursuant to the Tender Offer,
including the anticipated prepayment premium and the related transaction costs,
with the net proceeds from the sale of the Notes and borrowings under the Credit
Agreement.
THE STOCK OFFERING
Concurrently with the Note Offering, the Company and the Selling
Stockholders are offering 2,466,000 shares of Common Stock (plus up to an
additional 369,900 shares pursuant to an option granted to the Underwriters by
the Company and certain Selling Stockholders, solely to cover over-allotments,
if any). Of the shares being sold in the Stock Offering, 700,000 shares of
Common Stock (806,600 if the over-allotment option is exercised in full) are
being sold by the Company and 1,766,000 shares of Common Stock (2,029,300 if the
over-allotment option is exercised in full) are being sold by the Selling
Stockholders. At an assumed initial public offering price of $ per
share, the net proceeds to the Company from the sale of the 700,000 shares of
Common Stock being offered by the Company in the Stock Offering are estimated to
be approximately $ ($ if the Underwriters' over-allotment
option is exercised in full) after deducting underwriting discounts and
commissions and estimated expenses of the Stock Offering payable by the Company.
The Company intends to use such net proceeds to fund, in part, the
Company's 1998 capital expenditure plan, including the construction of a new
vinyl siding manufacturing facility in order to expand the Company's production
capacity. Although the Company is in the initial planning stages with respect to
the construction of this facility, the Company presently estimates that the
construction cost of such facility (including the initial operating equipment)
will be approximately $12 million. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Business -- Manufacturing." Pending such use, the Company
intends to use its net proceeds from the Stock Offering to repay outstanding
borrowings under the Credit Agreement. The Company will not receive any of the
proceeds from the sale of shares of Common Stock by the Selling Stockholders.
The consummation of the Note Offering and the consummation of the Stock Offering
are not conditioned upon each other.
11
<PAGE> 13
CAPITALIZATION
The following table presents the actual capitalization of the Company at
September 30, 1997 and (i) as adjusted to give effect to the issuance of the
Notes in the Note Offering and the use of the net proceeds therefrom to fund the
Tender Offer assuming all Existing Notes are purchased, and (ii) as further
adjusted to give effect to the sale of 700,000 shares of Common Stock by the
Company in the Stock Offering and for the application of the net proceeds of the
Stock Offering to the repayment of indebtedness under the Credit Agreement
pending the use of such proceeds as described in "The Stock Offering."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------------------------
AS ADJUSTED
FOR THE AS ADJUSTED
NOTE FOR THE
ACTUAL OFFERING(1) OFFERINGS
-------- ----------- -----------
<S> <C> <C> <C>
CASH AND CASH EQUIVALENTS............................... $ 2,595 $ 2,595 $
======== ======= =======
SHORT-TERM DEBT:
Revolving line of credit.............................. $ 4,969 $ $
Current maturities of long-term debt.................. 1,750 1,750 1,750
-------- ------- -------
Total short-term debt......................... $ 6,719 $ $
======== ======= =======
LONG-TERM DEBT, LESS CURRENT MATURITIES:
Taxable Notes......................................... $ 4,050 $ 4,050 $ 4,050
Existing Notes........................................ 75,000 -- --
New Notes............................................. -- 75,000 75,000
-------- ------- -------
Total long-term debt.......................... 79,050 79,050 79,050
STOCKHOLDERS' EQUITY:
Preferred Stock, par value $.01 per share,
100,000 authorized shares; none issued............. -- -- --
Common Stock, par value $.0025 per share;
15,000,000 authorized shares; 4,934,900 issued
shares
(6,984,900 issued shares, as further adjusted)..... 12 12 14
Class B Common Stock, par value $.0025 per share;
2,700,000 authorized shares; 2,700,000 issued
shares
(1,350,000 authorized and issued shares, as further
adjusted ........................................ 7 7 3
Capital in excess of par.............................. 505 505
Less treasury stock, at cost (41,396 shares).......... (542) (542) (542)
Retained earnings..................................... 40,771
-------- ------- -------
Total stockholders' equity.................... 40,753
-------- ------- -------
Total capitalization.......................... $119,803 $ $
======== ======= =======
</TABLE>
- ---------------
(1) Upon completion of the Tender Offer, the Company will record an
extraordinary charge estimated to be million, net of tax ($0.
per share of Common Stock), for the prepayment premium expected to be
paid with respect to the Tender Offer for the Existing Notes and the write
off of unamortized debt issuance costs associated with the Existing Notes.
12
<PAGE> 14
SELECTED FINANCIAL DATA
The selected financial data presented below as of and for each of the years
in the five-year period ended December 31, 1996 were derived from the financial
statements of the Company which have been audited by Ernst & Young LLP,
independent auditors. The data should be read in conjunction with the financial
statements, related notes and other financial information included elsewhere in
this Prospectus. The selected financial data presented below as of and for the
nine-month periods ended September 30, 1996 and 1997 have not been audited, but,
in the opinion of management, include all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly such information in
accordance with generally accepted accounting principles applied on a consistent
basis. Interim results are not indicative of the Company's results for the full
fiscal year, principally because of the seasonal nature of the Company's
business. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Quarterly Financial Data."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales......................... $277,318 $312,972 $352,606 $350,029 $356,471 $264,518 $297,919
Cost of sales..................... 202,979 230,408 258,669 264,080 255,579 189,320 212,306
-------- -------- -------- -------- -------- -------- --------
Gross profit...................... 74,339 82,564 93,937 85,949 100,892 75,198 85,613
Selling, general and
administrative expenses......... 59,507 63,670 70,482 73,207 77,740 57,944 61,646
-------- -------- -------- -------- -------- -------- --------
Income from operations............ 14,832 18,894 23,455 12,742 23,152 17,254 23,967
Interest expense.................. 6,754 7,581 10,580 11,474 10,882 8,285 7,501
Equity in earnings (loss) of
Amercord........................ 760 1,039 100 537 1,724 1,440 (624)
-------- -------- -------- -------- -------- -------- --------
Income before income tax
expense......................... 8,838 12,352 12,975 1,805 13,994 10,409 15,842
Income tax expense................ 3,137 4,666 5,101 545 5,172 3,777 6,735
-------- -------- -------- -------- -------- -------- --------
Income before extraordinary
item............................ 5,701 7,686 7,874 1,260 8,822 6,632 9,107
Extraordinary item(1)............. -- 1,876 -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income........................ 5,701 5,810 7,874 1,260 8,822 6,632 9,107
Preferred dividends............... 911 583 -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Income applicable to common
stock........................... $ 4,790 $ 5,227 $ 7,874 $ 1,260 $ 8,822 $ 6,632 $ 9,107
======== ======== ======== ======== ======== ======== ========
SHARE DATA:
Earnings per common share......... $ 0.31 $ 0.42 $ 1.02 $ 0.16 $ 1.14 $ 0.86 $ 1.17
Weighted average number of
shares.......................... 15,550 12,320 7,757 7,663 7,714 7,699 7,776
Dividends per share............... -- -- -- -- -- -- $ 0.05
OTHER DATA:
EBITDA(2)......................... $ 19,253 $ 23,779 $ 27,959 $ 18,082 $ 29,025 $ 21,621 $ 28,708
Capital expenditures.............. 2,818 5,489 9,323 7,683 8,110 6,897 6,330
Ratio of EBITDA to interest
expense......................... 2.85x 3.14x 2.64x 1.58x 2.67x 2.61x 3.83x
Ratio of earnings to fixed
charges......................... 1.84x 2.05x 1.88x 1.05x 1.78x 1.76x 2.48x
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------- SEPTEMBER 30,
1992 1993 1994 1995 1996 1997
-------- -------- -------- -------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.......................... $ 25,721 $ 51,417 $ 51,336 $ 46,551 $ 51,821 $ 59,158
Total assets............................. 129,762 149,881 169,414 172,053 177,709 190,441
Short-term debt, including current
maturities............................. 22,790 2,321 15,719 19,921 14,808 6,719
Long-term debt, less current
maturities............................. 29,209 85,600 83,850 82,100 80,350 79,050
Redeemable preferred stock............... 9,000 -- -- -- -- --
Stockholders' equity..................... 30,325 14,114 22,046 23,306 32,246 40,753
</TABLE>
- ---------------
(1) The extraordinary item represents, net of tax, the loss recognized on the
prepayment premium paid on the retirement of the Company's 15% Senior
Secured Notes in August 1993.
(2) EBITDA is calculated as income from operations plus depreciation and
amortization. The Company has included information concerning EBITDA because
it believes that EBITDA is used by certain investors as one measure of an
issuer's historical ability to service its debt. EBITDA should not be
considered by an investor as an alternative to, or more meaningful than, net
income as an indicator of the Company's operating performance or to cash
flows as a measure of liquidity.
13
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
General. The Company consists of two operating divisions, Alside and
AmerCable. In addition, Amercord, a 50%-owned affiliate, is accounted for using
the equity method. The Company's results of operations are primarily affected by
the operating results of Alside, which accounted for more than 85% of the
Company's net sales in each of the last three years. Because its residential
building products are consumer durable goods, Alside's sales are impacted by the
availability of consumer credit, consumer interest rates, employment trends,
changes in levels of consumer confidence, national and regional trends in new
housing starts and general economic conditions. Alside's sales are also affected
by changes in consumer preferences with respect to types of building products.
Alside's products are used in the repair and remodeling, as well as the new
construction, sectors of the building industry. For the nine months ended
September 30, 1997 and each of the three years in the period ended December 31,
1996, Alside believes that its sales were made primarily to the repair and
remodeling sector.
The Company believes that vinyl building products will continue to gain
market share from metal and wood products due to vinyl's favorable attributes.
Although no assurances can be given, the Company further believes that these
increases in market share, together with Alside's increased marketing efforts,
will increase Alside's sales of vinyl siding, vinyl windows and other
complementary building products.
The principal raw material used in Alside's products is vinyl resin which
in the past has fluctuated significantly in price. These fluctuations can impact
Alside's profitability. In general, short-term fluctuations in vinyl resin
prices do not affect the selling prices of the Company's vinyl window products.
Historically, the prices of the Company's vinyl siding products have increased
or decreased with the price of vinyl resin. During 1996 the average price of
vinyl resin was lower than 1995 levels. In 1997, the price of vinyl resin
increased during the first six months and then declined. Alside did not
generally pass on any additional costs or savings resulting from the
fluctuations in resin prices in 1996 and 1997.
The Company operates with substantial operating and financial leverage.
Significant portions of Alside's selling, general and administrative expenses
are fixed costs that neither increase nor decrease proportionately with sales.
As a result, a percentage change in Alside's net sales will have a greater
percentage effect on Alside's income from operations. In addition, interest
expense related to the Company's long-term debt is relatively fixed.
AmerCable. AmerCable modified its business strategy in the second quarter
of 1996 to focus on a core group of cable products that AmerCable believed
better utilized its manufacturing efficiencies and marketing and distribution
capabilities. Concurrently with this shift in its business strategy, AmerCable
reduced its workforce by approximately 15% to eliminate certain non-value added
processes and to focus its efforts on its core products. As a result of this
strategy, AmerCable has lowered its costs and improved manufacturing
efficiencies and on-time delivery rates, thereby substantially improving its
profitability.
Amercord. The Company presently expects Amercord's average selling prices
to decline further during 1998. Although Amercord continues to develop programs
to reduce its cost structure and improve its manufacturing efficiencies, the
Company does not currently expect Amercord to earn a profit in 1998. Since its
inception as a separate enterprise in 1986, Amercord has satisfied its working
capital and capital expenditure requirements from internally generated funds and
independent credit facilities that are not guaranteed by the Company and
Amercord has neither received capital from the Company nor made any
distributions to the Company. The Company presently believes that Amercord's
internally generated cash flow and credit facilities will provide sufficient
capital to fund its operations and currently planned capital expenditures and as
a result, the Company does not presently anticipate a need to make additional
capital contributions to Amercord.
14
<PAGE> 16
Segment Data. Alside accounted for more than 85% of the Company's net sales
and income from operations for the nine months ended September 30, 1997 and 1996
and in each of the three years in the period ended December 31, 1996. In 1996,
Alside accounted for approximately 104% of the Company's income from operations
exclusive of corporate selling, general and administrative expenses. Management
believes that a discussion of the Company's results and financial position for
these periods is enhanced by presenting segment information for Alside and
AmerCable. The tables below set forth for the periods indicated certain items
from the Company's financial statements:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------ -----------------------------------
1994 1995 1996 1996 1997
---------------- ---------------- ---------------- ---------------- ----------------
% OF % OF % OF % OF % OF
TOTAL TOTAL TOTAL TOTAL TOTAL
NET NET NET NET NET
AMOUNT SALES AMOUNT SALES AMOUNT SALES AMOUNT SALES AMOUNT SALES
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED:
Net sales -- Alside.......... $310,926 88.2% $300,561 85.9% $314,645 88.3% $233,686 88.3% $257,475 86.4%
Net sales -- AmerCable....... 41,680 11.8 49,468 14.1 41,826 11.7 30,832 11.7 40,444 13.6
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total net sales........ 352,606 100.0 350,029 100.0 356,471 100.0 264,518 100.0 297,919 100.0
Gross profit................. 93,937 26.6 85,949 24.5 100,892 28.3 75,198 28.4 85,613 28.7
Selling, general and
administrative
expenses(1)................ 70,482 20.0 73,207 20.9 77,740 21.8 57,944 21.9 61,646 20.7
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Income from operations....... 23,455 6.7 12,742 3.6 23,152 6.5 17,254 6.5 23,967 8.0
Interest expense............. 10,580 3.0 11,474 3.3 10,882 3.1 8,285 3.1 7,501 2.5
Equity in earnings (loss) of
Amercord................... 100 0.0 537 0.2 1,724 0.5 1,440 0.5 (624) (0.2)
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Income before income tax
expense.................... 12,975 3.7 1,805 0.5 13,994 3.9 10,409 3.9 15,842 5.3
Income tax expense........... 5,101 1.5 545 0.1 5,172 1.4 3,777 1.4 6,735 2.2
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Net income............. $ 7,874 2.2% $ 1,260 0.4% $ 8,822 2.5% $ 6,632 2.5% $ 9,107 3.1%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
ALSIDE:
Net sales.................... $310,926 100.0% $300,561 100.0% $314,645 100.0% $233,686 100.0% $257,475 100.0%
Gross profit................. 93,781 30.2 85,628 28.5 98,636 31.3 74,083 31.7 78,914 30.6
Selling, general and
administrative expenses.... 65,978 21.2 69,078 23.0 72,264 23.0 53,654 23.0 56,449 21.9
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Income from
operations........... $ 27,803 8.9% $ 16,550 5.5% $ 26,372 8.3% $ 20,429 8.7% $ 22,465 8.7%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
AMERCABLE:
Net sales.................... $ 41,680 100.0% $ 49,468 100.0% $ 41,826 100.0% $ 30,832 100.0% $ 40,444 100.0%
Gross profit................. 156 0.4 321 0.6 2,256 5.4 1,115 3.6 6,699 16.6
Selling, general and
administrative expenses.... 1,702 4.1 1,997 4.0 3,223 7.7 2,502 8.1 3,295 8.2
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Income (loss) from
operations........... $ (1,546) (3.7)% $ (1,676) (3.4)% $ (967) (2.3)% $ (1,387) (4.5)% $ 3,404 8.4%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
- ---------------
(1) Consolidated selling, general and administrative expenses include corporate
expenses of $2.8 million, $2.1 million and $2.3 million for the years 1994,
1995 and 1996, respectively, and $1.8 million and $1.9 million for the
nine-month periods ended September 30, 1996 and 1997.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1997 compared to the Nine Months Ended
September 30, 1996.
General. The Company's net sales increased 12.6% to $297.9 million for the
nine-month period ended September 30, 1997 compared to the same period in 1996
due to net sales increases of 10.2% and 31.2% for Alside and AmerCable,
respectively. The increased income from operations was due to higher sales
volume at both Alside and AmerCable as well as substantial production efficiency
gains at AmerCable. The Company's net income increased 37.3% to $9.1 million for
the nine months ended September 30, 1997 as compared to the 1996 period
primarily due to higher income from operations at its Alside and AmerCable
divisions.
Alside. Alside's net sales increased $23.8 million or 10.2% for the nine
months ended September 30, 1997 as compared to the same period in 1996 due
primarily to increased unit sales of vinyl siding and vinyl windows of 11.6% and
19.3%, respectively. Gross profit as a percentage of net sales decreased to
30.6% for the nine-month period ended September 30, 1997 as compared to 31.7%
for the same period in 1996 principally
15
<PAGE> 17
due to increased raw material costs, including vinyl resin. Selling, general and
administrative expense increased to $56.4 million for the nine months ended
September 30, 1997 from $53.7 million for the same period in 1996 but decreased
as a percentage of net sales. The increase in selling, general and
administrative expense was due primarily to increased advertising expenditures
and employee compensation. Alside's income from operations increased 10.0% or
$2.0 million to $22.5 million for the nine months ended September 30, 1997 as
compared to $20.4 million for the same period in 1996. The increase in income
from operations was due to increased sales volume across the majority of
Alside's product lines which were partially offset by the higher raw material
costs which Alside did not pass through to its customers.
AmerCable. AmerCable's net sales increased $9.6 million or 31.2% for the
nine months ended September 30, 1997 as compared to the same period in 1996 due
to increased sales volume and prices. Gross profit as a percentage of net sales
increased to 16.6% for the nine months ended September 30, 1997 from 3.6% for
the same period in 1996 due to improved labor productivity and material
efficiencies and higher sales prices. Selling, general and administrative
expense increased to $3.3 million for the nine months ended September 30, 1997
compared to $2.5 million in the same period of 1996 due to higher incentive
compensation. Income from operations was $3.4 million for the nine months ended
September 30, 1997 compared to a loss from operations of $1.4 million for the
same period in 1996 due primarily to increased sales volume and sales prices, as
well as lower production costs.
Amercord. The Company recorded a loss of $624,000 reflecting its share of
the after tax loss of Amercord for the nine months ended September 30, 1997 as
compared to income of $1.4 million for the same period in 1996. The Company's
share of after-tax income for the nine months ended September 30, 1996 was
$639,000 exclusive of the Company's share of the cumulative change in accounting
principle, a royalty settlement and an equipment writedown. Amercord's net sales
decreased 12.2% to $57.6 million in the nine-month period ended September 30,
1997 as compared to the same period in 1996 due primarily to a decrease in sales
volume and the average unit selling price of its products. Gross profit
decreased from $5.7 million for the nine months ended September 30, 1996 to $1.4
million for the same period in 1997 due primarily to lower sales prices and
decreased manufacturing efficiencies. Selling, general and administrative
expense increased to $2.2 million for the nine months ended September 30, 1997
from $2.0 million for the same period in 1996.
Other. Net interest expense decreased $784,000 or 9.5% in the nine months
ended September 30, 1997 compared with the same period in 1996 due to lower
borrowing requirements experienced on the Company's line of credit. The Company
recorded interest income of $280,000 related to a $1.4 million income tax
refund.
Year Ended December 31, 1996 compared to the Year Ended December 31, 1995.
General. The Company's net sales increased $6.4 million or 1.8% in 1996,
compared with 1995, due to higher Alside sales volume which was partially offset
by lower AmerCable sales volume. The Company's income from operations increased
$10.4 million or 81.7% in 1996 as compared to 1995 due primarily to higher sales
volume and lower raw material costs at its Alside division. The Company's net
income increased $7.6 million to $8.8 million for the year ended December 31,
1996 as compared to the 1995 period due primarily to higher income from
operations at its Alside division as well as improvements at both AmerCable and
Amercord.
Alside. Alside's net sales increased $14.1 million or 4.7% in 1996 compared
with 1995 due to increased sales volume of vinyl siding, vinyl windows, vinyl
fencing and complementary building products distributed through its Supply
Centers. Unit sales of vinyl siding and vinyl windows increased by 8.9% and
5.2%, respectively, in 1996 as compared to 1995. The increase in vinyl product
sales was partially offset by a decrease in sales of metal siding as consumer
preference continued to shift from metal to vinyl products. Gross profit as a
percentage of net sales increased to 31.3% in the 1996 period from 28.5% in the
1995 period as a result of lower material costs, primarily vinyl resin. Selling,
general and administrative expense remained constant as a percentage of net
sales at 23.0% for 1996 and 1995. Increased advertising costs, higher lease
expenses associated with both new and expanded Supply Centers, and higher
employee incentive compensation resulted in an increase in selling, general and
administrative expense from $69.1 million in 1995 to $72.3 million in 1996. The
increase in selling, general and administrative expense was partially offset by
an overall decrease in
16
<PAGE> 18
salaries of $800,000 consisting of a $1.8 million decrease in Alside's
headquarters salaries and a $1.0 million increase in Supply Center salaries for
the period ended December 31, 1996. The decrease in Alside's headquarters
salaries was primarily the result of Alside's reengineering program in which
many of the business processes performed at Alside's Akron, Ohio headquarters
either were eliminated or transferred to Supply Center personnel. The personnel
reductions related to this program were substantially completed in 1996.
Alside's income from operations was $26.4 million for the period ended December
31, 1996 compared to $16.6 million for the same period in 1995. The increase in
income from operations of $9.8 million or 59.3% was due primarily to higher
sales volume and a decrease in vinyl resin costs.
AmerCable. AmerCable's net sales decreased $7.6 million or 15.4% in 1996 as
compared to 1995 due to a decrease in sales volume and lower copper prices which
were only partially offset by higher sales prices. The decrease in sales volume
and the higher sales prices were due primarily to the implementation of
AmerCable's modified business strategy which focuses on producing core products
which better utilize its manufacturing efficiencies and marketing and
distribution capabilities. Despite the decrease in sales volume resulting from
the modified strategy, profit margins have increased across all product lines
due to the focus on fewer products. AmerCable generally prices its products
based upon the copper price at the time of shipment; therefore, decreased copper
prices during 1996 accounted for approximately 25% of the decrease in sales. The
marine, shipboard and transportation ("M/S/T") product line had the most
significant volume decrease as AmerCable decreased its focus on transportation
products having lower profit margins. Increased sales of higher margin marine
products partially offset the decrease in sales volume. AmerCable's gross profit
increased as a percentage of sales to 5.4% in 1996 as compared to 0.6% in 1995
due to improved manufacturing efficiencies, better material utilization and
higher selling prices. Selling, general and administrative expense increased
from $2.0 million in 1995 to $3.2 million in 1996 due to the severance charges
described below and the costs associated with the opening of a distribution
center in Houston, Texas. AmerCable's loss from operations in 1996 was $967,000
compared to a loss of $1.7 million in 1995 due to decreased sales volume being
offset by higher sales prices, lower copper prices and improved manufacturing
efficiencies. During the first half of 1996, AmerCable recorded charges of
$500,000 to write down copper inventory to its net realizable value and $275,000
for severance charges related to a 15% workforce reduction as part of a business
reorganization. Net of these charges, AmerCable's loss from operations for the
year ended 1996 was $192,000. AmerCable recorded income from operations of
$931,000 for the second half of 1996.
Amercord. The Company recorded $1.7 million in equity in the after-tax
earnings of Amercord in 1996 compared to $537,000 during the same period in
1995. In 1996, Amercord recorded a $1.2 million gain to reflect the cumulative
effect of an accounting change when it changed its accounting policy for
maintenance parts. Amercord now capitalizes the cost of these parts upon
purchase and expenses such parts when used in the production cycle. Amercord
previously expensed the maintenance parts upon purchase. Amercord recorded a
pre-tax gain of $3.1 million in connection with the settlement of disputed
royalty payments for the years 1990-1995 and recorded a $2.7 million loss for a
write down of certain production equipment pursuant to Statement of Financial
Accounting Standards No. 121. The Company's equity in the earnings of Amercord,
exclusive of the items described above, was approximately $900,000. Amercord's
net sales increased 8.4% to $87.5 million in 1996 from $80.8 million in 1995
primarily due to a 9.9% and a 7.6% increase in tire bead and tire cord volume,
respectively. Gross profit increased $1.7 million or 29.0% in 1996 compared with
the same period in 1995 due to higher sales and lower unit production costs
experienced in 1996. Selling, general and administrative expense as a percentage
of net sales remained constant at 3% for 1996 and 1995.
Other. The Company's net interest expense decreased $592,000 or 5.2% in
1996 compared with the same period in 1995 primarily due to a decrease in the
average borrowings under the Company's revolving line of credit.
Year Ended December 31, 1995 compared to the Year Ended December 31, 1994.
General. The Company's net sales decreased by 1% in 1995, compared with
1994, due to decreased sales volume at its Alside division which was only
partially offset by increased sales volume at its AmerCable division. Income
from operations decreased $10.7 million to $12.7 million due primarily to higher
raw material
17
<PAGE> 19
costs and higher selling, general and administrative expenses. Net income
decreased to $1.2 million in 1995 for these reasons.
Alside. Alside's net sales decreased $10.4 million or 3.3% in 1995,
compared with 1994, due principally to decreases in sales of metal and vinyl
siding and accessories and other complementary building products distributed
through its Supply Centers, which decreases were partially offset by sales
increases in vinyl fencing and windows. A reduction of 5.0% in unit sales of
vinyl siding in 1995 as compared to 1994 was partially offset by price increases
implemented to offset increases in raw material costs, principally vinyl resin.
Gross profit as a percentage of net sales decreased to 28.5% in the 1995 period
from 30.2% in the 1994 period due primarily to higher unit vinyl window
production costs and increases in the cost of vinyl resin. Although Alside was
able to recover the cost of vinyl resin price increases, it was not able to
recover any incremental margin on the vinyl resin price increases for its vinyl
siding products which caused its gross profit percentage to decline. Alside
experienced higher window production costs, including raw material and direct
labor costs, which it was unable to fully pass through to its customers. The
higher window production costs in 1995 were partially due to the start-up of
Alside's third window manufacturing facility in Akron, Ohio. Selling, general
and administrative expense increased $3.1 million or 4.7% due principally to
severance costs, higher self-insured losses as well as higher lease expenses
associated with both new and expanded Supply Centers. Alside recorded severance
charges of $1.2 million in the last two quarters of 1995 related to the
severance of approximately 70 personnel at its Akron, Ohio headquarters as a
result of the reengineering program discussed above. Selling, general and
administrative expense as a percentage of net sales increased to 23.0% in the
1995 period from 21.2% in the 1994 period due to the cost increases discussed
above. Alside's income from operations in the 1995 period was $16.6 million, an
$11.3 million or 40.5% decrease over the 1994 period due principally to lower
sales volume, increased production costs experienced in 1995, particularly in
vinyl windows, and an increased level of selling, general and administrative
costs.
AmerCable. AmerCable's net sales increased $7.8 million or 18.7% in 1995
compared with 1994 due to a 13.1% increase in sales volume experienced in 1995.
Sales were also aided by price increases implemented to offset raw material
costs, principally copper strand and rubber compounds. Gross profit as a
percentage of net sales increased slightly in 1995 compared to 1994. Lower unit
production costs experienced in 1995 as compared to 1994 were offset by lower
sales prices experienced on certain shipboard and transportation cable sales.
The lower shipboard and transportation sales prices were a result of several
fixed-price contracts received in 1994 that were adversely impacted by increases
in raw material costs when the products were produced in the first half of 1995.
In addition, during 1995, AmerCable recorded a $700,000 charge to write down
certain inventory to net realizable value. Selling, general and administrative
expense as a percentage of net sales remained relatively constant in the two
periods being compared. AmerCable's loss from operations in 1995 was $1.7
million compared to $1.5 million for the same period in 1994 as a result of
increased sales being more than offset by the loss on fixed-price contracts,
higher material costs, and the inventory writedown described above.
Amercord. The Company recorded $537,000 in equity in the after-tax earnings
of Amercord in 1995 compared to $100,000 during the same period in 1994.
Amercord's net sales increased 8.8% to $80.8 million in 1995 from $74.2 million
in 1994 as a 23.5% increase in tire bead volume and a 8.0% increase in tire cord
volume was partially offset by a 1.4% and 4.3% decrease in tire bead and tire
cord unit selling prices, respectively. Gross profit increased $1.0 million or
21.1% in 1995 compared with the same period in 1994 as higher sales and lower
unit production costs experienced in 1995 were offset by industry competitive
pressures which have significantly decreased the average unit selling price for
tire cord. Selling, general and administrative expenses decreased from $2.5
million in 1994 to $2.3 million in 1995. Amercord's interest expense increased
slightly from $1.8 million in 1994 to $1.9 million in 1995.
Other. The Company's net interest expense increased $894,000 or 8.4% in
1995 compared with the same period in 1994 primarily due to an increase in the
average borrowings under the Company's revolving line of credit as well as
increases in short-term interest rates from the prior year.
18
<PAGE> 20
QUARTERLY FINANCIAL DATA
General. Because most of Alside's building products are intended for
exterior use, Alside's sales and operating profits tend to be lower during
periods of inclement weather. Weather conditions in the first quarter of each
calendar year historically result in that quarter producing significantly less
sales revenue than in any other period of the year. As a result, the Company has
historically had losses in the first quarter and reduced profits in the fourth
quarter of each calendar year due to the significant impact of Alside on the
Company's performance.
Quarterly sales and operating profit data for the Company in 1995, 1996 and
the first, second and third quarters of 1997 are shown in the table below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1995
Net sales -- Alside..................... $58,435 $ 80,247 $ 86,614 $75,265
Net sales -- AmerCable.................. 12,887 13,429 11,259 11,893
------- -------- -------- -------
Total net sales............... 71,322 93,676 97,873 87,158
Gross profit............................ 15,973 23,863 25,005 21,108
Income (loss) from operations........... (1,540) 5,509 5,887 2,886
Net income (loss)....................... (2,486) 1,789 1,702 255
Net earnings (loss) per share........... (0.32) 0.23 0.22 0.03
1996
Net sales -- Alside..................... $55,113 $ 85,403 $ 93,170 $80,959
Net sales -- AmerCable.................. 10,313 10,530 9,989 10,994
------- -------- -------- -------
Total net sales............... 65,426 95,933 103,159 91,953
Gross profit............................ 14,555 28,680 31,963 25,694
Income (loss) from operations........... (3,222) 9,010 11,466 5,898
Net income (loss)....................... (3,473) 4,571 5,532 2,192
Net earnings (loss) per share........... (0.45) 0.59 0.72 0.28
1997
Net sales -- Alside..................... $64,827 $ 94,165 $ 98,483
Net sales -- AmerCable.................. 14,289 13,511 12,644
------- -------- --------
Total net sales............... 79,116 107,676 111,127
Gross profit............................ 20,015 32,982 32,616
Income from operations.................. 713 12,155 11,099
Net income (loss)....................... (1,130) 5,693 4,544
Net earnings (loss) per share........... (0.15) 0.73 0.58
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by (used in) operating activities was $(3.3) million,
$5.3 million and $15.1 million in 1994, 1995 and 1996, respectively. Net cash
provided by operating activities was $16.7 million for the nine months ended
September 30, 1997 compared to $9.9 million for the same period of 1996. The
increased operating cash flows in 1996 were primarily due to Alside's improved
operating results. The increase in accounts receivable was due to the increase
in sales for 1996. The increase in inventory reflected a wider product offering
by Alside which was offset by the corresponding increase in accounts payable and
accrued liabilities. Cash flows from operations increased in 1995 as compared to
1994 because of lower working capital requirements.
In April 1996, the Company amended and restated the Credit Agreement to
increase the facility to permit borrowings of up to $50 million and to extend
the term to May 31, 1999. Available borrowings under the Credit Agreement are
limited to the lesser of the total facility less unused letters of credit or
availability
19
<PAGE> 21
based on percentages of eligible accounts receivable and inventories. The Credit
Agreement is secured by substantially all of the Company's assets other than the
Company's owned real property and its shares of Amercord. At September 30, 1997,
$8.5 million of this facility had been used to issue a letter of credit securing
the outstanding $5.9 million of the Company's taxable variable rate notes (the
"Taxable Notes") as well as various insurance letters of credit. At September
30, 1997 the Company had an available borrowing capacity under the Credit
Agreement of approximately $36.6 million. Following the Offerings, the Company
estimates that it will have an available borrowing capacity under the Credit
Agreement of $ .
Capital expenditures totaled $9.3 million, $7.7 million and $8.1 million in
1994, 1995, and 1996, respectively. Capital expenditures for the nine-month
period ended September 30, 1997 were $6.3 million. Expenditures in the
nine-month period ended September 30, 1997 were $6.3 million. Expenditures in
the nine-month period ended September 30, 1997 were primarily used to increase
vinyl extrusion capacity for siding, windows and fencing as well as to increase
and automate window fabrication capacity. Expenditures in the 1996 period were
primarily used to increase Alside's capacity to produce welded vinyl windows,
enhance the Company's window tooling design capability, continue automating its
window assembly process, and increase vinyl window extrusion capacity.
Significant expenditures made during the 1995 and 1994 periods include
expenditures to further automate the window assembly process and to purchase
equipment to be used for the production of vinyl fencing and vinyl garage doors.
The Company has historically funded such capital expenditure requirements out of
cash generated from operating activities and borrowings under its bank credit
facility.
The Company believes that historical capital expenditures represent a base
level of spending needed to maintain its vinyl siding and vinyl window
production equipment as well as provide for modest increases in plant
productivity and operating capacity. Presently anticipated capital expenditures
for 1998 of $25 million include funds for the construction of a new vinyl siding
manufacturing facility to increase vinyl siding extrusion capacity, as well as
expenditures to increase window welding capacity and window assembly capacity.
The net proceeds of the Stock Offering will be used to partially fund capital
expenditures in 1998. In the event the Company would decide not to proceed with
the Stock Offering, the Company presently intends to seek to fund substantially
all of its current 1998 capital expenditure plan with cash from operations,
available borrowings under the Credit Agreement and, if necessary, alternative
sources of financing.
The Company believes that future cash flows from operations and its
borrowing capacity under the Credit Agreement, together with the net proceeds
from the Offerings, will be sufficient to satisfy debt service requirements,
maintain current operations and provide sufficient capital for presently
anticipated capital expenditures. However, there can be no assurances that the
cash so generated by the Company will be sufficient for such purposes.
The Company currently has outstanding $75,000,000 of the Existing Notes.
The Existing Notes are callable at the option of the Company beginning in August
1998 at 104.313% of the outstanding principal amount thereof, decreasing to 100%
of the principal amount in August 2001. In connection with the Note Offering,
the Company presently intends to make an offer to purchase all outstanding
principal amount of the Existing Notes. See "Description of Notes" and "Company
Indebtedness -- Existing Notes."
The Company has filed a registration statement with the Securities and
Exchange Commission (the "Commission") to sell, through an initial public
offering, 2,466,000 shares (before over-allotment) of the Company's Common Stock
in the Stock Offering. Of these shares, 700,000 shares of Common Stock (806,600
shares if the over-allotment option is exercised in full) are being sold by the
Company with the remaining 1,766,000 shares to be sold by certain stockholders
(2,039,300 shares if the over-allotment option is exercised in full). The
consummation of the Stock Offering and the consumation of the Note Offering are
not contingent upon each other. See "The Stock Offering."
EFFECTS OF INFLATION
The Company believes that the effects of inflation on its operations have
not been material during the past three years. Inflation could adversely affect
the Company if inflation results in significantly higher interest rates or
substantial weakness in economic conditions. Alside's principal raw material,
vinyl resin, has been
20
<PAGE> 22
subject to rapid price increments. Although Alside has historically been able to
pass on price increases to its customers, Alside did not generally pass on any
additional costs or savings resulting from the fluctuation in resin prices in
1996 and 1997. No assurances can be given that Alside will be able to pass on
any price increases in the future.
FINANCIAL ACCOUNTING STANDARDS
In February 1997 the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 128 Earnings Per Share ("SFAS No. 128"),
which specifies a new methodology for calculating earnings per share and is
effective for fiscal years ending after December 15, 1997. This statement will
have no effect on the financial position, results of operations or cash flows of
the Company but will require a restatement of prior period earnings per share.
The Company believes that the earnings per share calculated under SFAS No. 128
will not be materially different than the current method used.
In addition, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 Reporting Comprehensive Income and
Statement of Financial Accounting Standards No. 131 Disclosures About Segments
of an Enterprise and Related Information which are effective for financial
statement periods beginning after December 15, 1997. The Company believes that
these statements will have no effect on the Company's financial position,
results of operations or cash flows.
21
<PAGE> 23
BUSINESS
Associated Materials is a leading, vertically integrated manufacturer and
nationwide distributor of exterior residential building products through its
Alside division. Alside's core products are vinyl siding and vinyl windows.
These products are marketed on a wholesale basis to more than 30,000
professional contractors engaged in home remodeling and new home construction
principally through Alside's nationwide network of 66 Alside Supply Centers. In
recent years Alside has expanded its product offerings to include vinyl fencing,
vinyl decking and vinyl garage doors. In 1996, Alside accounted for
approximately 88% of the Company's net sales. In addition to Alside, the
Company's operations include its AmerCable division, a specialty electrical
cable manufacturer. Amercord, a 50%-owned affiliate managed by the Company,
manufactures and sells steel cord and bead wire to tire manufacturers.
INDUSTRY OVERVIEW
Vinyl siding competes with other materials, such as wood, masonry and
metals, for a share of the residential siding market. Vinyl siding has greater
durability and requires less maintenance than wood siding, and generally is less
expensive than wood, masonry or metal siding. Based on unit sales, vinyl siding
accounted for approximately 47% of the exterior siding market in 1996 versus 17%
in 1985. Since the early 1980's, vinyl siding has become the preferred siding
product for professional home remodeling contractors and their customers, and
commanded approximately 62% of the home remodeling marketplace for siding in
1996. More recently, vinyl siding has achieved increased acceptance in the new
construction market, as builders and home buyers have recognized vinyl's low
maintenance, durability and price advantages. The Company believes that vinyl
siding will continue to gain market share in the new residential construction
market while remaining the preferred product of the remodeling marketplace.
Vinyl windows require less maintenance, are more durable than either wood
or aluminum windows and provide greater energy efficiency than aluminum windows.
Based on unit sales, approximately 45% of all residential windows sold in 1996
were vinyl windows versus 15% in 1986. Since the early 1980's, vinyl windows
have become the preferred window product for professional home remodeling
contractors and their customers, and commanded approximately 75% of the home
remodeling marketplace for windows in 1996. More recently, vinyl windows have
achieved increased acceptance in the new construction market as a result of
builders and home buyers recognizing vinyl's favorable attributes, the enactment
of local legal or building code requirements that mandate more energy efficient
windows and the increased development and promotion of vinyl window products by
national window manufacturers. The Company believes that vinyl windows will
continue to gain market share in the new residential construction market while
remaining the preferred product of the remodeling marketplace.
According to industry sources, total sales of vinyl siding and vinyl
windows are each projected to increase approximately 7% annually between 1996
and 2000. The new construction market for each of these vinyl products is
expected to grow at a rate of approximately 10% per year from 1996 to 2000.
BUSINESS STRATEGY
The Company believes that it is well positioned to capitalize on the
growing demand for vinyl building products. The following business strategy
should enable the Company to (i) maintain Alside's position as a leading
manufacturer and distributor of exterior residential building products, (ii)
continue to increase sales, and (iii) strengthen operating margins.
- - Company-Owned Distribution. Alside is one of only two major vinyl siding
manufacturers that markets its products primarily through a company-owned
distribution network. The Company believes that distributing products through
its nationwide network of 66 Alside Supply Centers provides Alside with
certain competitive advantages, including (i) long-standing customer
relationships, (ii) the ability to implement targeted marketing programs, and
(iii) a permanent presence in local markets. In 1996, approximately 80% of
Alside's net sales were made through its Supply Centers. In 1995, the Company
initiated a number of programs at its Supply Centers designed to enhance the
quality and training of its marketing and sales
22
<PAGE> 24
personnel and added additional sales personnel. The Company believes these
actions have increased, and will continue to increase, Alside's market share
and profitability.
- -New Product Development. The Company intends to capitalize on Alside's vinyl
manufacturing expertise by continuing to develop and introduce new innovative
products that offer performance, cost and other advantages. For example, in
late 1995, Alside introduced Charter Oak, a patented premium siding product,
which accounted for 22.5% of Alside's vinyl siding unit volume in the first
nine months of 1997. In early 1997, Alside introduced Conquest, a siding
product designed to increase Alside's penetration of the economy market
segment. Conquest accounted for approximately 17.5% of Alside's siding unit
volume in the first nine months of 1997. Additionally, Alside, has broadened
its product range by introducing a number of other vinyl products such as vinyl
fencing in 1993 and vinyl decking and a redesigned vinyl garage door in 1997.
- -New Construction Market. Industry sources indicate that the new construction
market will continue to be the fastest growing segment in the vinyl siding and
vinyl window industry. The Company intends to increase Alside's penetration of
the new construction market through a number of initiatives including new
product introductions such as Conquest, a recently formed sales group and
targeted marketing programs. As consolidation among builders continues and as
builders attempt to reduce the number of vendors used, the Company believes
that as a low-cost manufacturer with a national, company-owned distribution
system, Alside is well positioned to increase sales to nationwide homebuilders.
- -Low-Cost and Vertically Integrated Operations. The Company believes that Alside
is a low-cost manufacturer of vinyl siding and other vinyl products due to its
manufacturing expertise, state-of-the-art technology and ability to employ
economies of scale. In addition, Alside's ability to produce its own vinyl
window extrusions and glass inserts, coupled with its high-speed welding and
cleaning equipment, provide it with cost and quality advantages over other
window manufacturers that are not as large or as vertically integrated as
Alside.
- -Manufacturing Capacity Expansion. Alside expects to significantly expand its
vinyl siding production capacity by increasing capacity at its existing vinyl
siding plant and by building a new vinyl siding manufacturing facility to meet
its future sales expectations. The Company intends to initially invest
approximately $12 million in the new facility, which is expected to become
operational in 1999.
ALSIDE
Products. Alside's principal product offerings are vinyl siding and vinyl
windows, which together accounted for approximately 66% of Alside's 1996 net
sales. Alside also manufactures a variety of other products including vinyl
fencing, vinyl decking, vinyl garage doors and semi-custom cabinets.
The vinyl siding market consists of four segments: builder, economy,
standard and premium. Vinyl siding quality is determined by its rigidity,
resistance to fading, thickness and ease of installation as well as other
factors. Historically, Alside targeted its products primarily to the standard
segment. More recently, the Company has broadened its product lines to increase
its penetration of the premium and economy segments. For example, in late 1995,
Alside introduced its patented Charter Oak siding which enabled Alside to
significantly penetrate the premium segment of the vinyl siding market. In 1997,
Alside introduced its Conquest siding product which has enabled Alside to
achieve additional market penetration in the economy segment of the siding
industry. While the Company currently does not manufacture a siding product
specifically designed for the builder segment of the market, it does market its
Conquest and Alpha products to the new construction market. In addition, the
Company intends to produce a product specifically targeted for this market
following the construction of its new vinyl siding manufacturing facility. In
addition to the new products described above, Alside has increased the number of
colors and profiles offered within its existing siding products and continues to
increase and improve upon the breadth of its vinyl siding product line. Alside
offers limited warranties ranging from 50 year warranties to lifetime warranties
with its siding products.
Alside divides its window products into the economy, standard and premium
categories. Product quality within the vinyl window industry is determined by a
number of competitive features including method of
23
<PAGE> 25
construction and materials used. Rather than manufacturing standard size
windows, Alside custom manufactures virtually all of its windows to fit existing
window openings. Custom fabrication provides Alside's customers with a product
that is less expensive to install and more attractive after installation. All of
Alside's window products are accompanied by a limited lifetime warranty.
A summary of Alside's siding and window product offerings is presented in
the table below according to the Company's product line classification and
includes the new CenterLock product which the Company intends to introduce in
the first quarter of 1998.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
PRODUCT LINE SIDING PRODUCTS WINDOW PRODUCTS
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Premium Charter Oak UltraMaxx
Greenbriar Omni
Highland Cedar
Williamsport
- ------------------------------------------------------------------------------------
Standard Odyssey Geneva
CenterLock Excalibur
- ------------------------------------------------------------------------------------
Economy Conquest Performance Series --
Alpha New Construction
Centurion
- ------------------------------------------------------------------------------------
</TABLE>
In addition to its siding and window product lines, Alside also
manufactures semi-custom cabinets for the kitchen and bath under the brand name
UltraCraft. Alside's sales of cabinets accounted for approximately 5% of its net
sales in 1996. Unit sales of UltraCraft cabinets have increased 38.6% for the
nine-month period ended September 30, 1997 as compared to the same period in
1996 due to the Company's efforts to expand and improve its dealer customer
base. In 1993, Alside introduced vinyl fencing as a product line under the brand
name UltraGuard, currently a leading brand of both agricultural and residential
vinyl fencing. Although sales of UltraGuard fencing accounted for less than 5%
of Alside's net sales in 1996, unit sales of UltraGuard have increased at an
annual rate of over 35% since its introduction. Alside introduced a raised panel
vinyl garage door in 1997 under the brand name Premium Garage Doors. Alside
primarily markets its cabinets, fencing and garage doors through independent
dealers and not through its Supply Centers.
To complete its line of siding products, Alside also distributes metal
siding and related products manufactured by other companies. Metal siding
products accounted for approximately 19% of Alside's 1993 sales. In 1996,
approximately 10% of Alside's sales were derived from metal siding and related
products. The Company expects the sale of metal siding products to continue to
decline as these products are displaced by vinyl products. Alside also
selectively distributes a variety of complementary building products
manufactured by others, including wood windows, roofing materials, insulation,
cabinets and installation equipment.
Marketing and Distribution. Traditionally, most vinyl siding has been sold
to the home remodeling marketplace through independent distributors. The Company
believes that Alside is one of only two major vinyl siding manufacturers that
market their products primarily through company-owned distribution centers.
Alside has a nationwide distribution network of 66 Alside Supply Centers which
market Alside manufactured products and other complementary building products to
more than 30,000 professional home improvement and new construction contractors.
The Company believes that Alside Supply Centers provide "one-stop shopping" to
meet the specialized needs of its contractor-customers by distributing more than
2,000 building and remodeling products, including a broad range of
Company-manufactured vinyl siding and vinyl windows as well as products
manufactured by others, including metal siding, wood windows, roofing materials,
insulation, cabinets and installation equipment. In 1996, approximately 80% of
Alside's sales were made through its Supply Centers. In addition to sales and
promotional support, contractors look to their local Alside Supply Center to
provide a broad range of specialty product offerings in order to maximize their
ability to attract remodeling and homebuilding customers.
24
<PAGE> 26
Alside believes that distributing products through its Supply Centers
provides the Company with certain competitive advantages such as (i)
long-standing customer relationships, (ii) the ability to implement targeted
marketing programs and (iii) a permanent presence in local markets. Many of
Alside's contractor-customers have established, long-standing relationships with
their local Supply Center based upon individualized service and credit terms,
quality products, timely delivery, breadth of product offerings, strong sales
and promotional programs and competitive prices. Alside supports its
contractor-customer base with marketing and promotional programs that include
product sample cases, sales literature, product videos and other sales and
promotional materials. Professional contractors use these materials to sell
remodeling construction services to prospective customers. The customer
generally relies on the professional contractor to specify the brand of siding
or window to be purchased, subject to the customer's price, color and quality
requirements. Alside's daily contact with its contractor-customers also enables
it to closely monitor activity in each of the remodeling and new construction
markets in which Alside competes. This direct presence in the marketplace
permits Alside to obtain current local market information, providing Alside with
the ability to act promptly to adapt its product offerings on a
location-by-location basis.
Many of Alside's contractor-customers install both vinyl siding and vinyl
windows. Because Alside manufactures and distributes both vinyl windows and
vinyl siding, its contractor-customers can acquire both products from a single
source, which the Company believes provides Alside with a competitive advantage
in marketing these products to its target customer base. Furthermore, Alside has
the ability to achieve economies of scale in sales and marketing by developing
integrated programs on either a national or local basis for its vinyl siding and
window products.
Each of Alside's 66 Supply Centers is evaluated as a separate profit
center, and compensation of Supply Center personnel is based in part on the
Supply Center's operating results. Decisions to open new Supply Centers, and to
close or relocate existing Supply Centers, are based on Alside's continuing
assessment of market conditions and individual location profitability. Alside
added two Supply Centers to its distribution network in 1996. No additional
Supply Centers were added in 1997. The Company presently expects to open up to
four new Supply Centers in 1998.
Through certain of its Supply Centers, Alside's Builder Service Division
provides full-service product installation of its vinyl siding products,
principally to new homebuilders who value the importance of installation
services. Alside also provides installation services for vinyl replacement
windows through certain of its Supply Centers.
Alside also sells its manufactured products to large direct dealers and
distributors, generally in those areas where no Alside Supply Center currently
exists. Such sales accounted for approximately 20% of Alside's net sales in
1996. Despite their aggregate lower percentage of total sales, Alside's largest
individual customers are its large direct dealers and independent distributors.
Alside carefully monitors and evaluates its activity with these customers to
ensure the profitability of this higher volume and lower margin business. No
single customer accounted for 5% or more of Alside's 1996 sales. Alside
increased its network of independent distributors in 1997 and intends to seek to
further increase its network of independent distributors in 1998 in strategic
areas to improve its penetration into certain markets.
Manufacturing. Alside currently manufactures all of its vinyl siding at its
Ennis, Texas plant, which the Company believes is a low-cost manufacturing
facility. In 1998, the Company intends to expand its production capacity at this
plant. In order to meet its current sales expectations for Alside's siding
products, the Company intends to begin construction of a new vinyl manufacturing
facility in 1998. The new facility, which is expected to become operational in
1999, would initially increase Alside's vinyl siding production capacity by
approximately 25%. With a moderate investment in additional production
equipment, the Company expects that Alside's total vinyl siding production
capacity will be increased by approximately 50% from its 1998 capacity. Alside
also operates a vinyl extrusion facility in West Salem, Ohio to produce vinyl
window extrusions as well as vinyl fence and garage door panels. Alside operates
three window fabrication plants which each use vinyl extrusions manufactured by
Alside for the majority of their production requirements, produce their own
glass inserts and utilize high speed welding and cleaning equipment for their
welded window
25
<PAGE> 27
products. By producing vinyl extrusions and glass inserts, Alside believes it
achieves significant cost savings and higher product quality than many of its
competitors.
Alside's vinyl extrusion plants generally operate on a three shift basis to
optimize equipment productivity and utilize additional equipment to increase
capacity to meet higher seasonal needs. Alside's window plants generally operate
on a single shift basis utilizing both a second shift and increased numbers of
leased production personnel to meet higher seasonal needs.
Raw Materials. The principal raw materials used by Alside are vinyl resins,
resin stabilizers and pigments, packaging materials, window hardware and glass,
all of which are available from a number of suppliers. The price of vinyl resin
has been, and may continue to be, volatile. Alside has contracts with two
suppliers to purchase substantially all of its vinyl resin requirements and
believes that its requirements could also be met by other suppliers.
Historically, Alside generally has been able to pass through price increases in
raw materials to its customers. However, Alside did not adjust its prices to
pass on increases or decreases in vinyl resin prices in 1996 and 1997. There can
be no assurance that Alside will be able to pass on cost increases in vinyl
resin in the future.
Competition. Except for Owens Corning, no company within the residential
siding industry competes with Alside on both the manufacturing and distribution
levels. There are, however, numerous small and large manufacturers of metal and
vinyl siding products, including Aluminum Company of America, CertainTeed
Corporation, Jannock Limited, Nortek, Inc. and Royal Group Technologies Limited,
some of whom are larger in size and have greater financial resources than the
Company. Alside competes with Owens Corning and numerous large and small
distributors of building products in its capacity as a distributor of such
products. The market for vinyl replacement windows is highly fragmented, and
Alside believes that no single manufacturer accounts for a significant
percentage of national sales. Alside believes that the market trend towards
sales of welded vinyl windows, which Alside began manufacturing in 1992 and
which require expensive, more sophisticated production equipment, will result in
further consolidation of the window fabrication industry. Alside and its
competitors generally compete on price, product performance, and sales and
service support to professional contractors. Competition varies by region.
Alside also faces competition from alternative materials: wood and aluminum in
the window markets, and wood, masonry and metal in the siding market. However,
the Company believes Alside's products are competitive, and in most sectors are
gaining share at the expense of alternative materials due to vinyl's superior
qualities, including its lower material cost, durability and low maintenance
requirements.
AMERCABLE
AmerCable manufactures and markets a variety of jacketed electrical cable
utilized in underground and surface mining, shipboard, marine, offshore
drilling, transportation and a variety of other specialized industrial
applications. AmerCable principally manufactures specialty cable designed to
meet industry technical standards and end-users' specifications. AmerCable
markets its cable principally to independent distributors who resell to the end
user, except for those products that are distributed through its Offshore/Marine
Cable Specialist division. AmerCable's electrical cable plant operates on a
five-day, twenty-four hour basis. AmerCable accounted for approximately 12% of
the Company's net sales in 1996.
AmerCable modified its business strategy in the second quarter of 1996 to
focus on a core group of cable products which enabled AmerCable to take
advantage of manufacturing efficiencies as well as marketing and distribution
capabilities. Concurrently with this shift in its business strategy, AmerCable
reduced its workforce by approximately 15% to eliminate certain non-value added
processes and to focus its efforts on its core products. As a result of this
strategy, AmerCable has experienced lower costs, improved manufacturing
efficiencies and on-time delivery rates, and substantially improved productivity
in the nine months ended September 30, 1997. For the nine months ended September
30, 1997, as compared to the same period in 1996, AmerCable's sales increased
31.2% due to increased sales volume and prices.
AmerCable manufactures and sells three types of cable products: mining
cables; marine, shipboard and transportation cables; and industrial cables which
accounted for 49%, 30% and 21% of its 1996 sales, respectively. AmerCable's
marine, shipboard and transportation cable products meet required industry
26
<PAGE> 28
specifications for low smoke and low/non halogen characteristics. AmerCable
completes its line of cable products with industrial and utility cable products,
including diesel locomotive cable, portable power cable, jumper cable and
flexible robotic power distribution cable.
The principal raw material used by AmerCable is copper strand, which is
available from a number of suppliers. Historically, copper strand has been
subject to rapid price movements. AmerCable generally prices its cable products
based upon market prices for copper at time of shipment. As a result, sudden
decreases in copper prices can result in inventory being in excess of its net
realizable value. During 1996, AmerCable recorded a charge of $500,000 to write
copper inventory down to its net realizable value due to a sudden decrease in
copper prices. In certain instances, AmerCable may guarantee a fixed copper
price for its products where there is a significant time lag between the
purchase order and shipment. In these cases, AmerCable generally attempts to
hedge its position on copper.
AmerCable competes with numerous large and small manufacturers, including
BICC Cables Corporation, Rockbestos Suprenant Cable Corp., BIW Cable System,
Inc., General Cable Corporation, and Essex Group Inc. Many of its competitors
have substantially greater resources than the Company. AmerCable generally does
not compete in the more commodity-oriented wire and cable markets, such as
residential building wire and computer network cable.
AMERCORD
Amercord, the Company's 50%-owned affiliate, principally manufactures and
markets steel cord and bead wire to the tire manufacturing industry. Tire cord
is comprised of fine strands of steel wire used to reinforce the tread area in
radial tires. Tire bead wire is used in the manufacturing of all tires to hold
the tire to the rim. Amercord is jointly owned by the Company and Ivaco, Inc.
("Ivaco"), a Canadian steel and wire producer. Pursuant to an agreement with
Ivaco, the Company provides management services relating to the day-to-day
operations of Amercord for an annual fee of $200,000, principally for financial
management services. Since its inception as a separate enterprise in 1986,
Amercord has satisfied its working capital and capital expenditure requirements
from internally generated funds and existing credit facilities. Due to such
requirements, no dividends have been paid to the Company or Ivaco and no further
cash contributions have been made to Amercord by the Company or Ivaco. The
Company believes Amercord's internally generated cash flow and credit facilities
will provide sufficient capital to fund its currently planned capital
expenditures.
Amercord believes it is one of ten domestic tire cord manufacturers and one
of six domestic tire bead manufacturers. Tire cord competitors include larger
companies such as Bekaert Corporation (U.S.A.) ("Bekaert") and American Tokyo
Rope, Inc., each of which have greater capital resources than Amercord. Two of
the world's largest tire manufacturers, The Goodyear Tire & Rubber Company
("Goodyear") and Michelin North America ("Michelin"), also produce a significant
portion of their steel tire cord requirements. Tire bead competitors include
Bekaert and National-Standard Company. Amercord is one of only two tire
reinforcement suppliers that manufacture both tire cord and tire bead. Amercord
believes that this capability improves its competitive position.
Amercord has a small customer base. During 1996, three customers, Michelin,
Cooper Tire and Rubber Company ("Cooper") and Dunlop Tire Corporation, each
purchased in excess of 10%, and collectively purchased an aggregate of 84%, of
Amercord's tire cord output. During 1996, four customers, Michelin, Cooper,
Goodyear and Bridgestone/Firestone, Inc., each purchased in excess of 10%, and
collectively purchased an aggregate of 82%, of Amercord's tire bead wire output.
As a result of the relatively small number of customers, the loss of one or more
major customers could have a material adverse effect on Amercord's business.
Additionally, further consolidation in the tire industry could require Amercord
to become more closely aligned with fewer tire manufacturers.
MANAGEMENT INFORMATION SYSTEMS
The Company uses a variety of hardware and software technologies in its
operations. Alside utilizes mainframe computer systems to operate its accounting
and certain manufacturing systems. Each Alside Supply Center has its own IBM
AS400 computer which processes inventory, receivables and other financial
27
<PAGE> 29
data, which data is transmitted to Alside's headquarters on a daily basis.
AmerCable installed a new financial and manufacturing information system in 1996
which runs on a PC platform. The Company is currently working toward becoming
Year 2000 compliant and does not expect any material future expenditures will be
required in order to become Year 2000 compliant.
PROPERTIES
The Company's manufacturing operations include both owned and leased
facilities as described below:
<TABLE>
<CAPTION>
LOCATION PRINCIPAL USE SQUARE FEET
-------- ------------- -----------
<S> <C> <C>
ALSIDE
Akron, Ohio Alside Headquarters 70,000
Vinyl Fencing, Vinyl Garage Doors and Vinyl 577,000
Windows
Ennis, Texas Vinyl Siding Products 256,000
West Salem, Ohio Vinyl Window Extrusions, Fencing and Garage 173,000
Door Panels
Liberty, North Carolina Cabinets 154,000
Kinston, North Carolina Vinyl Windows 236,000(1)
Cedar Rapids, Iowa Vinyl Windows 128,000(1)
AMERCABLE
El Dorado, Arkansas AmerCable Headquarters and Electrical Cable 317,000
</TABLE>
- ---------------
(1) Leased facilities.
Management believes that the Company's manufacturing plants are generally
in good operating condition and are adequate to meet anticipated requirements in
the near future. The Company is currently planning to significantly increase its
vinyl production capacity by constructing a new vinyl manufacturing facility.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "-- Manufacturing."
Alside also operates 66 Alside Supply Centers in major metropolitan areas
throughout the United States. Except for one owned location in Akron, Ohio, the
Company leases its Supply Centers for terms generally ranging from five to seven
years with renewal options. The Supply Centers range in size from 6,000 square
feet to 55,000 square feet depending on their sales volume and the breadth and
type of products offered in each location.
The leases for Alside's window plants extend through 2000 for the Cedar
Rapids location, and 2003 for the Kinston location. Each lease is renewable at
the Company's option for an additional five-year period. The Company's corporate
headquarters occupy approximately 3,500 square feet of leased office space in
Dallas, Texas. Under the Credit Agreement, the bank lender holds a security
interest in the Company's contract rights, including real property leases.
EMPLOYEES
Alside's employment needs vary seasonally with sales and production levels.
As of September 30, 1997, Alside had approximately 1,500 full-time employees,
including approximately 570 hourly workers. The West Salem, Ohio plant is
Alside's only unionized manufacturing facility, employing approximately 100
covered workers. Additionally, approximately 40 hourly workers in certain Supply
Center locations are covered by collective bargaining agreements. The Company
considers Alside's labor relations to be good.
Alside operates vinyl window manufacturing plants in Cedar Rapids, Iowa;
Kinston, North Carolina; and Akron, Ohio with leased employees. The Company
believes that the employee leasing program provides it with scheduling
flexibility for seasonal production loads and with competitive advantages in
obtaining
28
<PAGE> 30
principally unskilled labor personnel. The aggregate number of leased employees
in the window plants ranges from approximately 500 to 700 people, based on
seasonal production requirements.
As of September 30, 1997, AmerCable employed 160 people, including 93
hourly workers, none of whom are covered by collective bargaining agreements.
AmerCable maintains good relations with its employees.
TRADEMARKS AND PATENTS
Alside has registered and nonregistered trade names and trademarks covering
the principal brand names and product lines under which its products are
marketed. Although Alside considers each of these items to be valuable, the
Company does not currently believe such property, other than the "Alside(R)"
trademark, to be material. Alside has obtained patents on certain claims
associated with its siding products, which the Company believes distinguish
Alside's new products from those of its competitors.
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
The Company is subject to numerous federal and state statutes and
regulations relating to, among other things, air and water quality, the
discharge of materials into the environment and safety and health issues. The
Company does not expect compliance with such provisions to have a material
impact on the Company's earnings or competitive position in the foreseeable
future. Additionally, no significant capital expenditures are presently
anticipated related to compliance with such provisions.
The Company entered into a consent order dated August 25, 1992 with the
United States Environmental Protection Agency pertaining to the alleged use of
hazardous waste storage facilities at its Akron, Ohio location. With the
exception of a small above-ground storage area, the use of such facilities was
terminated prior to the acquisition of the Alside assets by the Company from USX
Corporation ("USX") in 1984. The effects of the past practices at this facility
are continuing to be investigated. The Company believes that USX bears financial
responsibility for substantially all of the direct costs of corrective action at
such facilities under the relevant contract terms and under statutory and common
law. To date, USX has reimbursed the Company for substantially all of the direct
costs of corrective action at such facilities, and the Company expects that USX
will continue to reimburse the Company for substantially all of the direct costs
of corrective action at such facilities. As a result, the Company believes that
any material claims resulting from this proceeding will not have a material
adverse effect on the Company.
LEGAL PROCEEDINGS
The Company is involved from time to time in litigation arising in the
ordinary course of its business, none of which, after giving effect to the
Company's existing insurance coverage, is expected to have a material adverse
effect on the Company.
29
<PAGE> 31
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The Directors, executive officers and certain key employees of the Company
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
William W. Winspear(1)............ 64 Chairman of the Board, President and Chief Executive
Officer of the Company
Donald L. Kaufman(1).............. 66 President and Chief Executive Officer of Alside and
Vice President and Director of the Company
Richard I. Galland(2)(3).......... 81 Director
James F. Leary(3)(4).............. 67 Director
Alan B. Lerner(1)................. 67 Director
A. A. Meitz(3)(4)................. 60 Director
Gary D. Trabka(2)(5).............. 43 Director
Robert F. Hogan, Jr............... 40 President and Chief Executive Officer of AmerCable
and Vice President of the Company
Robert L. Winspear................ 32 Vice President, Treasurer and Secretary of the
Company
James R. Bussman(6)............... 50 Executive Vice President -- Corporate Services of
Alside and Vice President of the Company
Michael R. St. Clair(6)........... 51 Executive Vice President -- Finance of Alside and
Vice President of the Company
Wayne D. Fredrick(6).............. 51 Group Vice President -- Window Products of Alside
Benjamin L. McGarry(6)............ 50 Group Vice President -- Vinyl Manufacturing of Alside
</TABLE>
- ---------------
(1) Serves in the class of directors whose terms expire at the Annual Meeting of
Stockholders in 2000.
(2) Serves in the class of directors whose terms expire at the Annual Meeting of
Stockholders in 1998.
(3) Member of the Compensation Committee and the Audit Committee.
(4) Serves in the class of directors whose terms expire at the Annual Meeting of
Stockholders in 1999.
(5) Pursuant to an agreement among The Prudential Company of America
("Prudential"), the Winspear Partnership and the Company (the "Stockholders'
Agreement"), Prudential may, under certain circumstances, nominate up to
three persons to the Board of Directors of the Company and the Winspear
Partnership has agreed to vote its shares of Common Stock in favor of such
nominees. Pursuant to the Stockholders' Agreement, Prudential designated Mr.
Trabka to serve as a Director of the Company. The Company does not
anticipate that Prudential will nominate additional directors pending the
completion of the Offerings. See "Certain Relationships and Related
Transactions -- Stockholders' Agreement."
(6) Messrs. Bussman, St. Clair, Fredrick and McGarry are considered key
employees of the Company because of their responsibilities as divisional
officers in the respective capacities indicated. The Company does not,
however, consider such employees to be executive officers of the Company.
The following is a brief description of the business experience of the
Directors, executive officers and certain key employees of the Company for at
least the past five years.
Mr. William W. Winspear has been Chairman of the Board, President and Chief
Executive Officer of the Company since its inception in 1983. Mr. Winspear was
President and Chief Executive Officer of Chaparral
30
<PAGE> 32
Steel Company from 1975 to 1982. Mr. William W. Winspear is Chairman of the
Board of Amercord. Mr. Winspear is the father of Robert L. Winspear.
Mr. Kaufman has been President of Alside since 1974 and has been Chief
Executive Officer of Alside since 1982. Mr. Kaufman joined Alside in 1955 and
became a Director and a Vice President of the Company in 1984.
Mr. Galland became a Director of the Company in 1984. Mr. Galland was
formerly Chairman of the Board and Chief Executive Officer of American Petrofina
Incorporated, an energy exploration and production company and formerly Of
Counsel to the law firm of Jones, Day, Reavis & Pogue. Mr. Galland is also a
director of D. R. Horton, Inc., a homebuilding company, and Texas Industries,
Inc., a steel and construction materials production company.
Mr. Leary became a Director of the Company in 1984. Since September 1995,
Mr. Leary has been Vice Chairman -- Finance of Search Capital Group, Inc., a
consumer finance company, as well as serving as President of Sunwestern
Management Inc., an investment management company, since 1982. Mr. Leary is also
a director of Capstone Growth Fund and Capstone Fixed Income Fund, and Phase-Out
of America, Inc., a company that manufactures smoking cessation devices.
Mr. Lerner became a Director of the Company in May 1997. Mr. Lerner retired
as Senior Executive Vice President from Associates First Capital Corporation, a
consumer and commercial finance company in 1993, where he had been employed
since 1981.
Mr. Meitz became a Director of the Company in 1993. Mr. Meitz retired as
Senior Vice President of the consulting firm of Booz, Allen & Hamilton in 1994
where he was employed since 1965. Mr. Meitz is a director of Greyhound Lines,
Inc., and Banctec, Inc., a computer systems development and support services
company.
Mr. Trabka became a Director of the Company in February 1994. Mr. Trabka
has been a Managing Director of the Prudential Capital Group since February
1989. Prior to 1989 Mr. Trabka was Vice President of Corporate Finance with
Prudential. Mr. Trabka serves as a director of Food Barn Stores, Inc., a retail
grocery chain at the request of Prudential. Mr. Trabka is also a director of the
Prudential Home Mortgage Company, Inc. Mr. Trabka has been designated by
Prudential to serve as a director of the Company pursuant to the Stockholders'
Agreement. See "Certain Relationships and Transactions -- Stockholders'
Agreement."
Mr. Hogan has been President and Chief Executive Officer of AmerCable since
November 1993 and Vice President of the Company since 1984. Prior to becoming
President of AmerCable, Mr. Hogan was Treasurer and Secretary of the Company
from 1984 to 1993.
Mr. Robert L. Winspear joined the Company in June 1993 and was named Vice
President, Treasurer and Secretary in October 1993. Prior to joining the
Company, Mr. Winspear was a Senior in the Financial Consulting and Audit
division of Arthur Andersen LLP, where he had been employed since 1988. Mr.
Winspear is also a director of Amercord. Mr. Winspear is the son of William W.
Winspear.
Mr. Bussman has been Executive Vice President -- Corporate Services of
Alside since 1983. Mr. Bussman has held various other positions with Alside
since 1972, and was named a Vice President of the Company in 1984.
Mr. St. Clair was named Executive Vice President -- Finance of Alside in
December 1994. Mr. St. Clair had been Senior Vice President -- Finance of Alside
since joining the Company from The Warner & Swasey Company, Inc., a machine tool
manufacturing company in 1985. Mr. St. Clair was named a Vice President of the
Company in 1986.
Mr. Fredrick was named Group Vice President -- Window Products of Alside in
January 1997. From 1990 to 1996, Mr. Fredrick was Senior Vice
President -- Window Products of Alside. Mr. Fredrick joined Alside in 1973.
Mr. McGarry was named Group Vice President -- Vinyl Manufacturing of Alside
in January 1997. From 1984 to 1996, Mr. McGarry was Senior Vice
President -- Manufacturing of Alside. Mr. McGarry joined Alside in 1980.
31
<PAGE> 33
Officers of the Company serve at the discretion of the Board of Directors.
EXECUTIVE COMPENSATION
The following table sets forth the annual compensation paid by the Company
for services rendered in 1996, 1995 and 1994 by the Chief Executive Officer and
each of the other executive officers of the Company. For the purposes of this
report, Messrs. W.W. Winspear, Kaufman, Hogan and R.L. Winspear are referred to
as the "named executive officers."
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE(1)
-------------------------------------------------
FISCAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
--------------------------- ------ -------- -------- ---------------
<S> <C> <C> <C> <C>
William W. Winspear 1996 $400,000 $214,362 $ 30,250(2)
Chairman of the Board, President 1995 $398,333 $ 28,005 $ 30,250
and Chief Executive Officer 1994 $376,666 $328,908 $ 28,250
Donald L. Kaufman 1996 $345,000 $181,666 $102,742(3)
President and Chief Executive 1995 $343,335 $102,595 $127,199
Officer of Alside 1994 $318,350 $200,023 $ 80,385
Robert F. Hogan, Jr. 1996 $150,000 $ 0 $ 5,250(4)
President and Chief Executive 1995 $150,000 $ 0 $ 5,250
Officer of AmerCable 1994 $147,500 $ 0 $ 5,250
Robert L. Winspear 1996 $ 82,292 $ 21,436 $ 2,880(5)
Vice President, Treasurer 1995 $ 79,583 $ 2,801 $ 2,785
and Secretary 1994 $ 74,167 $ 19,734 $ 2,596
</TABLE>
- ---------------
(1) Perquisites and other personal benefits received by the named executive
officers are not included in the Summary Compensation Table because the
aggregate amount of such compensation, if any, did not meet disclosure
thresholds established under current regulations of the Securities and
Exchange Commission (the "Commission"). During 1996, 1995 and 1994, no named
executive officer was granted any options to purchase any class of common
stock of the Company or any stock appreciation rights with respect to such
shares.
(2) Includes directors fees of $25,000 and amounts accrued or allocated under
AmerCable's retirement plan of $5,250.
(3) Includes directors fees of $25,000. Mr. Kaufman also received a cash payment
of $77,742 in 1996 representing the present value of additional pension
benefits that would otherwise have been accrued for his benefit under the
Alside Retirement Plan but for Internal Revenue Service benefit limitations.
See "-- Compensation and Incentive Programs -- Executive Agreement."
(4) Includes amounts accrued or allocated under AmerCable's retirement plan of
$5,250.
(5) Includes amounts accrued or allocated under AmerCable's retirement plan of
$2,880.
COMPENSATION AND INCENTIVE PROGRAMS
Profit Sharing Plan. The Company maintains a profit sharing plan (the
"Profit Sharing Plan") providing for annual bonus awards to certain key
employees, including each of the executive officers of the Company. Such bonus
amounts are based on the Company and, in the cases of Alside and AmerCable
personnel, the divisions meeting certain performance goals established by the
Company's Board of Directors. The Profit Sharing Plan is administered by the
Compensation Committee of the Board of Directors (the "Compensation Committee"),
none of the members of which is eligible for a bonus award pursuant to this
Plan. Bonus payments under the Profit Sharing Plan are not guaranteed. Cash
bonuses accrued under the Profit Sharing Plan in 1996, 1995 and 1994 to each of
the named executive officers are set forth in the Summary Compensation Table.
Alside Retirement Plan. The Company maintains a defined benefit pension
plan, the Alside Retirement Plan (the "Alside Plan"). The Alside Plan covers all
Alside employees who have completed one year of
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<PAGE> 34
service, except for various designated groups of hourly and union employees. Mr.
Kaufman is the only executive officer of the Company entitled to receive
benefits pursuant to the Alside Plan. Mr. Kaufman, who is age 66, would be
eligible to receive a monthly pension amount of approximately $14,000 if he were
to retire in 1998. The Company believes that Mr. Kaufman intends to remain in
his current position as President and Chief Executive Officer of Alside and has
no current intention to retire.
Executive Agreement. Pursuant to an agreement with the Company, Mr. Kaufman
is entitled to receive severance pay in an amount equal to his total earnings
for the twelve-month period prior to the termination of his employment for any
reason.
STOCK INCENTIVE PLAN
General. The Company's 1994 Stock Incentive Plan, as amended (the "Stock
Incentive Plan"), provides that the number of shares of Common Stock that may be
issued or transferred, plus the amount of shares of Common Stock covered by
outstanding awards granted under the Stock Incentive Plan, shall not in the
aggregate exceed 800,000. Presently, options for 307,300 shares of Common Stock
have been granted under the Stock Incentive Plan. In February 1997, the Company
granted options to purchase 100,000 shares of Common Stock to Mr. Kaufman at
$12.00 per share. In May 1997, the Company granted options to purchase 40,000
shares of Common Stock to Mr. Lerner at $16.00 per share. See " -- Director
Compensation." The Company currently does not intend to issue a significant
number of options under the Stock Incentive Plan in the near future.
Eligibility. Officers, including officers who are members of the Board of
Directors, and other key employees of and consultants to the Company may be
selected by the Compensation Committee to receive benefits under the Stock
Incentive Plan.
Option Rights. The Compensation Committee may grant rights ("Option
Rights") that entitle the optionee to purchase shares of Common Stock at a price
equal to or greater than market value on the date of grant. The option price is
payable at the time of exercise (i) in cash or cash equivalent, (ii) by the
transfer to the Company of shares of Common Stock that are already owned by the
optionee and have a value at the time of exercise equal to the option price,
(iii) with any other legal consideration the Compensation Committee may deem
appropriate, or (iv) by any combination of the foregoing methods of payment. Any
grant may provide for deferred payment of the option price from the proceeds of
sale through a broker on the date of exercise of some or all of the shares of
Common Stock to which the exercise relates. The Compensation Committee has the
authority to specify at any time that Restricted Shares (as defined), or other
shares of Common Stock which are subject to risk of forfeiture or restrictions
on transfer will be accepted for part or all of the option price. In such event,
the Compensation Committee may provide that the shares of Common Stock received
upon exercise of the stock option will be subject to the same risks of
forfeiture or restrictions on transfer which applied to the shares used as
payment for the option price.
Option Rights granted under the Stock Incentive Plan may be Option Rights
that are intended to qualify as "incentive stock options" within the meaning of
Section 422 of the Code or Option Rights that are not intended to so qualify. At
or after the date of grant of any nonqualified Option Rights, the Compensation
Committee may provide for the payment of dividend equivalents to the optionee on
a current, deferred or contingent basis or may provide that dividend equivalents
be credited against the option price.
No Option Right may be exercised more than 10 years from the date of grant.
Each grant must specify the conditions, including as and to the extent
determined by the Compensation Committee, the period of continuous employment or
continuous engagement of consulting services by the Company or any subsidiary,
that are necessary before the Option Rights will become exercisable, and may
provide for the earlier exercise of the Option Rights, including, without
limitation, in the event of a change in control of the Company or other similar
transaction or event. Successive grants may be made to the same optionee
regardless of whether Option Rights previously granted to him or her remain
unexercised.
Restricted Shares. An award of "Restricted Shares" involves the immediate
transfer by the Company to a participant of ownership of a specific number of
shares of Common Stock in consideration of the
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<PAGE> 35
performance of services. The participant is entitled immediately to voting,
dividend and other ownership rights in the shares. The transfer may be made
without additional consideration or for consideration in an amount that is less
than the market value of the shares on the date of grant, as the Compensation
Committee may determine.
Restricted Shares must be subject to a "substantial risk of forfeiture"
within the meaning of Section 83 of the Code for a period to be determined by
the Compensation Committee. An example would be a provision that the Restricted
Shares would be forfeited if the participant ceased to serve the Company as an
officer or other key employee during a specified period of years. In order to
enforce these forfeiture provisions, the transferability of Restricted Shares
will be prohibited or restricted in a manner and to the extent prescribed by the
Compensation Committee for the period during which the forfeiture provisions are
to continue. The Compensation Committee may provide for a shorter period during
which the forfeiture provisions are to apply, including, without limitation, in
the event of a change in control the Company or other similar transaction or
event.
Deferred Shares. An award of "Deferred Shares" constitutes an agreement by
the Company to deliver shares of Common Stock to the participant in the future
in consideration of the performance of services, subject to the fulfillment of
such conditions during the Deferral Period (as defined in the Stock Incentive
Plan) as the Compensation Committee may specify. During the Deferral Period, the
participant has no right to transfer any rights under the award and no right to
vote the shares covered by the award. On or after the date of any grant of
Deferred Shares, the Compensation Committee may authorize the payment of
dividend equivalents thereon on a current, deferred or contingent basis in
either cash or additional shares of Common Stock. Grants of Deferred Shares may
be made without additional consideration or for consideration in an amount that
is less than the market value of the shares on the date of grant. Deferred
Shares must be subject to a Deferral Period, as determined by the Compensation
Committee on the date of grant, except that the Compensation Committee may
provide for a shorter Deferral Period, including, without limitation, in the
event of change in control of the Company or other similar transaction or event.
Transferability. No Option Right, or other "derivative security" within the
meaning of Rule 16b-3 under the Exchange Act is transferable by a participant
except by will or the laws of descent and distribution. Option Rights may not be
exercised during a participant's lifetime except by the participant or, in the
event of his or her incapacity, by his or her guardian or legal representative
acting in a fiduciary capacity on behalf of the participant under state law and
court supervision.
Adjustments. The maximum number of shares of Common Stock that may be
issued or transferred under the Stock Incentive Plan, the number of shares
covered by outstanding awards and the option prices per share applicable
thereto, are subject to adjustment in the event of stock dividends, stock
splits, combinations of shares, recapitalizations, mergers, consolidations,
spin-offs, reorganizations, liquidations, issuances of rights or warrants, and
similar transactions or events. In the event of any such transaction or event,
the Compensation Committee may in its discretion provide in substitution for any
or all outstanding awards under the Stock Incentive Plan such alternative
consideration as it may in good faith determine to be equitable in the
circumstances and may require the surrender of all awards so replaced.
Administration. The Stock Incentive Plan is administered by the
Compensation Committee. In connection with its administration of the Stock
Incentive Plan, the Compensation Committee is authorized to interpret the Stock
Incentive Plan and related agreements and other documents. The Compensation
Committee may make grants to participants under any or a combination of all of
the various categories of awards that are authorized under the Stock Incentive
Plan and may provide for special terms for awards to participants who are
foreign nationals, as the Compensation Committee may consider necessary or
appropriate to accommodate differences in local law, tax policy or custom.
Amendments. The Stock Incentive Plan may be amended from time to time by
the Compensation Committee, but without further approval by the stockholders of
the Company no such amendment (unless expressly allowed pursuant to the
adjustment provisions described above) may (i) increase the aggregate number of
shares that may be issued or transferred plus the amount of shares covered by
outstanding awards,
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<PAGE> 36
or (ii) otherwise cause Rule 16b-3 under the Exchange Act to cease to be
applicable to the Stock Incentive Plan.
Federal Income Tax Consequences. The following is a brief summary of
certain of the federal income tax consequences of certain transactions under the
Stock Incentive Plan based on federal income tax laws in effect on the date of
this Prospectus. This summary is not intended to be exhaustive and does not
describe state or local tax consequences.
Nonqualified Option Rights. In general: (i) no income will be recognized by
an optionee at the time a nonqualified Option Right is granted; (ii) at the time
of exercise of a nonqualified Option Right, ordinary income will be recognized
by the optionee in an amount equal to the difference between the option price
paid for the shares and the fair market value of the shares if they are
nonrestricted on the date of exercise; and (iii) at the time of sale of shares
acquired pursuant to the exercise of a nonqualified Option Right, any
appreciation (or depreciation) in the value of the shares after the date of
exercise will be treated as either short-term or long-term capital gain (or
loss) depending on how long the shares have been held.
Incentive Stock Options. No income generally will be recognized by an
optionee upon the grant or exercise of an incentive stock option. If shares of
Common Stock are issued to an optionee pursuant to the exercise of an incentive
stock option and no disqualifying disposition of the shares is made by the
optionee within two years after the date of grant or within one year after the
transfer of the shares to the optionee, then upon the sale of the shares any
amount realized in excess of the option price will be taxed to the optionee as
long-term capital gain and any loss sustained will be long-term capital loss.
If shares of Common Stock acquired upon the exercise of an incentive stock
option are disposed of prior to the expiration of either holding period
described above, the optionee generally will recognize ordinary income in the
year of disposition in an amount equal to any excess of the fair market value of
the shares at the time of exercise (or, if less, the amount realized on the
disposition of the shares in a sale or exchange) over the option price paid for
the shares. Any further gain (or loss) realized by the optionee generally will
be taxed as short-term or long-term capital gain (or loss) depending on the
holding period.
Restricted Shares. A recipient of Restricted Shares generally will be
subject to tax at ordinary income rates on the fair market value of the
Restricted Shares reduced by any amount paid by the recipient at such time as
the shares are no longer subject to a risk of forfeiture or restrictions on
transfer for purposes of Section 83 of the Code. However, a recipient who so
elects under Section 83(b) of the Code within 30 days of the date of transfer of
the shares will have taxable ordinary income on the date of transfer of the
shares equal to the excess of the fair market value of the share (determined
without regard to the risk of forfeiture or restrictions on transfer) over any
purchase price paid for the shares. If a Section 83(b) election has not been
made, any non-restricted dividends received with respect to Restricted Shares
that are subject at that time to a risk of forfeiture or restrictions on
transfer generally will be treated as compensation that is taxable as ordinary
income to the recipient.
Deferred Shares. No income generally will be recognized upon the grant of
Deferred Shares. The recipient of a grant of Deferred Shares generally will be
subject to tax at ordinary income rates on the fair market value of
nonrestricted shares of Common Stock on the date that the Deferred Shares are
transferred to the recipient, reduced by any amount paid by the recipient, and
the capital gains or loss holding periods for the Deferred Shares will also
commence on that date.
Special Rules Applicable to Officers and Directors. In limited
circumstances where the sale of stock that is received as the result of a grant
of an award could subject an officer or Director to suit under Section 16(b) of
the Exchange Act, the tax consequences to the officer or Director may differ
from the tax consequences described above. In these circumstances, unless a
special election has been made, the principal difference usually will be to
postpone valuation and taxation of the stock received so long as the sale of
stock received could be subject the officer or Director to suit under Section
16(b) of the Exchange Act, but no longer than six months.
Tax Consequences to the Company. To the extent that a participant
recognizes ordinary income in the circumstance described above, the Company for
which the participant performs services will be entitled to a
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<PAGE> 37
corresponding deduction provided that, among other things, (i) the income meets
the test of reasonableness, is an ordinary and necessary business expense, is
not subject to the annual compensation limitation set forth in Section 162(m) of
the Code and is not "excess parachute payment" within the meaning of Section
280G of the Code, and (ii) any applicable withholding obligations are satisfied.
DIRECTOR COMPENSATION
Directors, including Directors who are employees of the Company, receive an
annual retainer of $16,000 plus $2,500 for each Directors' meeting attended.
Directors are also reimbursed for reasonable travel expenses incurred in
connection with attendance at Directors' meetings.
Mr. Lerner was granted options to purchase 40,000 shares of Common Stock at
$16.00 per share in May 1997 upon first being elected to the Board of Directors
and the Company. The options became 50% vested on the date of grant and the
balance vests on the second anniversary of the date of grant.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
STOCKHOLDERS' AGREEMENT
Prudential, the Winspear Partnership and the Company are parties to a
Stockholders' Agreement. Pursuant to the Stockholders' Agreement, Prudential and
the Winspear Partnership have agreed that (i) if the Winspear Partnership, or
any subsequent holder of its shares of Common Stock, intends to sell any of such
shares (other than in a public offering), to permit Prudential to participate in
such sale on a pro rata basis and (ii) if the Winspear Partnership, or any
subsequent holder of its shares of Common Stock, elects to sell such number of
its shares of Common Stock as would (together with the shares Prudential is
required to sell under this clause) exceed 50% of the outstanding shares of
Common Stock and Class B Common Stock on a fully diluted basis, to require
Prudential and subsequent holders of its shares to participate in such sale on a
pro rata basis. The Stockholders' Agreement also requires, so long as Prudential
and certain Prudential affiliates beneficially own at least 15% of the
outstanding Common Stock (on a fully diluted basis), all shares of Common Stock
subject to the Stockholders' Agreement to be voted to elect two or three persons
designated by Prudential to the Company's Board of Directors (depending on the
number of directors making up the Board), or if Prudential and certain
Prudential affiliates beneficially own at least 5% (but less than 15%) of the
Common Stock, to elect to the Board one person designated by Prudential. Unless
terminated earlier, the Stockholders' Agreement expires on August 19, 2003.
Pursuant to the Stockholders' Agreement, Prudential designated Mr. Trabka
to serve as a Director of the Company. Prudential currently has the right to
nominate two additional directors. The Company does not anticipate that
Prudential will nominate additional directors pending the completion of the
Offerings.
REGISTRATION RIGHTS AGREEMENT
Under the terms of an agreement among the Company, Prudential and certain
other stockholders (the "Registration Rights Agreement"), beginning one year
after the completion of the Stock Offering, upon the request of either
Prudential or the Winspear Partnership and its private transferees the Company
shall, subject to certain exceptions, be required to effect two registrations of
the Common Stock, provided that certain minimum and maximum numbers of shares
are included in the request. The Registration Rights Agreement also grants
secondary offering rights ("piggy-back" rights) to Prudential, the Winspear
Partnership and certain other stockholders in connection with such requested
registrations and any other Company registration of Common Stock or Common Stock
equivalents. The registration rights may not be transferred, with certain
exceptions, to persons who, after such transfer, would hold less than 100,000
shares of Common Stock or Class B Common Stock. Following the Stock Offering, an
aggregate of 5,322,000 common shares (including shares of the Company's Class B
Common Stock) will be eligible for registration under the Registration Rights
Agreement.
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<PAGE> 38
The Registration Rights Agreement further provides that the Company will
bear all expenses associated with the Company's obligation to effect such
registrations, other than underwriting discounts, commissions and transfer
taxes, if any. The Company's obligation to pay such expenses includes the
out-of-pocket expenses (including legal and accounting expenses) for the first
registration of Common Stock by Prudential or its private transferees, up to
$100,000, and for the first registration of Common Stock by the Winspear
Partnership or its private transferees, up to $100,000, including the
registration effected in connection with the Stock Offering.
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<PAGE> 39
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth as of the date of this Prospectus, the
beneficial ownership of Common Stock by (i) each person known by the Company to
own beneficially more than 5% of the outstanding Common Stock, (ii) each
Director of the Company, (iii) each executive officer, (iv) each Selling
Stockholder and (v) all Directors and executive officers as a group, and as
adjusted to reflect the Stock Offering. Unless otherwise indicated below, to the
knowledge of the Company, all persons listed below have sole voting and
investment power with respect to their shares of Common Stock.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
BEFORE THE STOCK OFFERING SHARES AFTER THE STOCK OFFERING
------------------------- TO BE -------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT(1) SOLD NUMBER PERCENT(1)
------------------------ ---------- ----------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
William W. Winspear........................... 3,851,200 50.7% 0 3,851,200 46.4%
2200 Ross Avenue, Suite 4100 East
Dallas, TX 75201(2)(3)
The Prudential Insurance Company of America... 2,700,000 35.6% 1,350,000 1,350,000 16.3%
Four Gateway Center
100 Mulberry Street
Newark, NJ 07102(4)(5)(6)
Richard I. Galland............................ 40,000 * 0 40,000 *
Robert F. Hogan, Jr........................... 80,000 1.1% 0 80,000 *
Donald L. Kaufman(7).......................... 367,000 4.8% 0 367,000 4.4%
James F. Leary(8)............................. 10,000 * 0 10,000 *
Alan B. Lerner(8)............................. 20,000 * 0 20,000 *
A.A. Meitz(8)................................. 40,000 * 0 40,000 *
Gary D. Trabka(9)............................. 0 -- 0 0 --
Robert L. Winspear(3)(4)(6)(8)................ 80,800 1.1% 0 80,800 *
Deborah J. Allan(3)(4)........................ 60,800 * 60,800 0 --
C. Glen Beattie(4)............................ 80,000 1.1% 80,000 0 --
Barbara W. Meyer(3)(4)........................ 60,800 * 60,800 0 --
Donald W. Winspear(3)(4)...................... 60,800 * 60,800 0 --
Malcolm G. Winspear(3) (4).................... 60,800 * 60,800 0 --
Principal Financial Securities, Inc.(4)....... 92,800 1.2% 92,800 0 --
All Directors and executive officers as a
group (9 persons)........................... 4,489,000 59.1% 0 4,489,000 54.1%
</TABLE>
- ---------------
* Less than 1%.
(1) The percentages shown assume the conversion of all outstanding shares of
Class B Common Stock into shares of Common Stock. See Note 5 below.
(2) All such shares are held of record by the Winspear Partnership of which Mr.
William W. Winspear is the Managing General Partner.
(3) William W. Winspear is the father of Robert L. Winspear, Deborah J. Allan,
Barbara W. Meyer, Donald W. Winspear and Malcolm G. Winspear.
(4) Each of these stockholders is selling shares of Common Stock in the Stock
Offering or will sell shares of Common Stock if the over-allotment option
granted to the Underwriters in the Stock Offering is exercised. Such
stockholders are referred to collectively herein as the "Selling
Stockholders."
(5) Prudential owns of record 2,700,000 shares of Class B Common Stock which may
be converted at any time at the election of the holder into Common Stock on
a one to one basis. The holder of shares of
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<PAGE> 40
Class B Common Stock has rights and privileges identical to the rights and
privileges of the Common Stock, except that the holder of shares of Class B
Common Stock may vote (with the holders of Common Stock) only on (i) any
amendment to the Company's Certificate of Incorporation, (ii) any sale or
other disposition of all or substantially all of the Company's assets, (iii)
any merger or consolidation of the Company, and (iv) any liquidation,
dissolution or winding up of the Company. See "Description of Capital
Stock -- Class B Common Stock."
(6) The Company, Prudential and Robert L. Winspear have granted to the
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to a maximum of 106,600, 202,500 and 60,800
shares of Common Stock, respectively, solely to cover over-allotments. The
number of shares of Common Stock shown in the table above to be beneficially
owned by such stockholders after the Stock Offering assumes that the
over-allotment option is not exercised.
(7) Includes options exercisable within 60 days of the date of this Prospectus
for 50,000 shares and includes 132,000 shares of Common Stock held by trusts
for the benefit of certain members of Mr. Kaufman's family, as to which Mr.
Kaufman disclaims beneficial ownership. Excludes 6,000 held by a charitable
foundation of which Mr. Kaufman is trustee, as to which Mr. Kaufman
disclaims beneficial ownership.
(8) Includes options exercisable within 60 days of the date of this Prospectus
by Messrs. Leary, Lerner, Meitz and R.L. Winspear for 10,000, 20,000, 40,000
and 20,000 shares, respectively.
(9) Mr. Trabka is a Managing Director of the Prudential Capital Group. See Note
5.
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<PAGE> 41
DESCRIPTION OF NOTES
The following summary of the principal terms of the Notes and the Indenture
does not purport to be complete and is subject to the detailed provisions of,
and qualified in its entirety by reference to, the Indenture. A copy of the
Indenture has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part and reference to such exhibit is hereby made,
including the definitions therein of certain terms that are used herein or are
not otherwise defined in this Prospectus, as well as those terms made a part of
the Indenture by the Trust Indenture Act of 1939, as amended. See "Available
Information."
GENERAL
The Notes will be issued under an indenture to be dated as of ,
1998 (the "Indenture") between the Company and U.S. Trust Company of Texas,
N.A., as trustee (the "Trustee"), a copy of the form of which has been filed as
an exhibit to the Registration Statement of which this Prospectus is a part.
Certain capitalized terms below are defined under "-- Certain Definitions"
below.
TERMS
The Notes will be unsecured senior subordinated obligations of the Company,
will mature on , 2008, and will bear interest at the rate per annum
stated on the cover page hereof from , 1998, payable semiannually on
and of each year, commencing , 1998, to the
persons who are registered holders thereof at the close of business on the
and preceding such interest payment date. The Trustee will
authenticate and deliver Notes for original issue in an aggregate principal
amount of $75,000,000 in this Note Offering. The Indenture will provide for
Notes to be issued in an aggregate principal amount of up to $100,000,000.
Interest on the Notes will be computed on the basis of a 360-day year of
twelve 30-day months. Principal and interest will be payable at the office of
the Trustee in Dallas, Texas and New York, New York, but, at the option of the
Company, interest may be paid by check mailed to the registered holders at their
registered addresses. Until otherwise designated by the Company, the Notes will
be transferable and exchangeable at the office of the Trustee and will be
payable at the office of the Trustee in Dallas, Texas and New York, New York.
The Notes will be issued in denominations of $1,000 and any integral multiple
thereof.
OPTIONAL REDEMPTION BY THE COMPANY
At any time after the date of this Prospectus and on or before
, 2001, the Company, at its option and within 60 days after the closing of a
public offering of Common Stock of the Company (an "Equity Offering"), may
utilize the net proceeds from any such Equity Offering to redeem up to 25% of
the aggregate principal amount of the Notes at a redemption price equal to
% of the principal amount thereof to be redeemed, plus accrued and unpaid
interest, if any, on such amount to the redemption date, provided that at least
$65 million in aggregate principal amount of the Notes remain outstanding
immediately after the occurrence of such redemption.
On or after , 2003, the Notes will be redeemable, at the option
of the Company, at any time in whole or in part, at the redemption prices
(expressed as percentages of the principal amount) set forth below, plus accrued
interest to the redemption date, if redeemed during the 12-month period
commencing of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION YEAR PRICE
--------------- -----
<S> <C>
2003................................................. %
2004................................................. %
2005................................................. %
2006 and thereafter.................................. %
</TABLE>
40
<PAGE> 42
NOTICE OF REDEMPTION AND SELECTION OF NOTES TO BE REDEEMED
Notice of redemption shall be mailed at least 30 but not more than 60
calendar days before the redemption date to each Holder of Notes to be redeemed
at such Holder's registered address. The notice of redemption shall identify the
Notes to be redeemed and shall state (i) the redemption date, (ii) the Equity
Offering Redemption Price or the Redemption Price, as applicable, (iii) the name
and address of the Paying Agent to whom Notes are to be surrendered for payment
of the Equity Offering Redemption Price or the Redemption Price, as applicable,
(iv) that Notes called for redemption must be surrendered to the Paying Agent to
collect the Equity Offering Redemption Price or the Redemption Price, as
applicable, and accrued and unpaid interest, (v) if fewer than all the
outstanding Notes are to be redeemed, the identification and principal amounts
of the particular Notes to be redeemed, (vi) that on the Redemption Date the
Equity Offering Redemption Price or the Redemption Price, as applicable, will
become due and payable upon each such Note or portion thereof, and that unless
the Company defaults in paying such Equity Offering Redemption Price or
Redemption Price, interest shall cease to accrue on Notes called for redemption
on and after the Redemption Date, (vii) the CUSIP number, if any, relating to
such Notes, and (viii) in the case of a Note to be redeemed in part, the
aggregate principal amount of such Note to be redeemed and that after the
Redemption Date upon surrender of such Note, a new Note or Notes in the
aggregate principal amount equal to the unredeemed portion thereof will be
issued. If less than all of the Notes are to be redeemed, the Trustee shall
select the Notes to be redeemed pro rata, by lot or by such other method as the
Trustee may deem fair and appropriate so long as such method is not prohibited
by any securities exchange on which the Notes are then listed. The Trustee shall
make the selection from Notes outstanding and not previously called for
redemption. The Trustee may select for redemption portions of the principal of
Notes that have denominations larger than $1,000. Notes and portions thereof
selected by the Trustee for redemption shall be in amounts of $1,000 or integral
multiples of $1,000.
REPURCHASE AT THE OPTION OF HOLDERS UPON CHANGE OF CONTROL
Within 30 calendar days following the occurrence of a Change of Control,
the Company is required to make an offer (a "Change of Control Offer") to
Noteholders to repurchase any and all of the Notes (in denominations of $1,000
or integral multiples of $1,000) at a purchase price in cash equal to 101% of
the aggregate principal amount, plus accrued and unpaid interest, if any, to the
date of purchase (the "Change of Control Offer Price").
The Company shall provide the Trustee with notice of a Change of Control
Offer, and with all information required by the Indenture to accompany such
notice, not more than 20 calendar days after the Change of Control. Notice of a
Change of Control Offer shall be mailed by the Trustee (at the Company's
expense) not more than 30 calendar days after the Change of Control to each
Holder of the Notes at such Holder's last registered address appearing in the
Register. The Change of Control Offer shall remain open until the later of 25
Business Days following the time of mailing or the date on which acceptance of
the Notes for payment and payment are lawful (the "Change of Control Purchase
Date").
The Company shall also comply with any applicable tender offer rules then
in effect, including Section 14(e) of the Exchange Act and Rule 14e-1
promulgated thereunder, in connection with a Change of Control Offer. To the
extent that any of the procedures relating to the making and accepting of a
Change of Control Offer conflict with the provisions of the Exchange Act, other
applicable federal or state law or the regulations that may be promulgated
thereunder, such provisions of the Exchange Act, applicable federal or state law
or the regulations that may be promulgated thereunder, shall govern such Change
of Control Offer in lieu of, and only to the extent of, such conflicting
procedures.
The Company shall publicly announce the results of the Change of Control
Offer on or as promptly as practicable after the Change of Control Purchase
Date.
Within 20 calendar days following a Change of Control and prior to the
mailing of the Change of Control notice to Holders, the Company covenants to
either (i) repay in full all Senior Indebtedness whose terms require such
payment in connection with such event or prohibit repurchase of the Notes, or
(ii) obtain the requisite consent from holders of such Senior Indebtedness not
repaid in order to permit the repurchase of the
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Notes as provided for in the Indenture. The Company shall comply with provisions
of this paragraph before it shall be required to repurchase the Notes upon a
Change of Control, and any failure to comply with this paragraph shall
constitute a Default in the performance of a covenant for purposes of
determining whether an Event of Default has occurred, which would, in turn,
constitute a default under the Credit Agreement. In such circumstances, the
subordination provisions in the Indenture would likely restrict payments to the
Holders of the Notes.
The repurchase of the Notes by the Company prior to their maturity pursuant
to certain covenants in the Indenture will be subject to restrictions under the
Credit Agreement relating to the prepayment of any subordinated indebtedness,
including the Notes. In general, the Credit Agreement would prohibit such
repayment, unless sufficient cumulative net income and other amounts are
available to make such payment. See "Company Indebtedness -- Credit Agreement --
Covenants." Additionally, the Credit Agreement provides that certain changes in
the ownership of the Company's Common Stock is an event of default thereunder.
See "Company Indebtedness -- Credit Agreement -- Events of Default." Such an
event would, upon notice by KeyBank to the Trustee, suspend payments (including
payments relating to a Change of Control Offer) with respect to the Notes. See
" -- Subordination" below. The Company's ability to repurchase the Notes will
also be dependent upon the availability of cash and other financing sources to
consummate such a repurchase. The Company currently expects to incur additional
indebtedness to finance its capital expenditure and general business
requirements and, therefore, the Company's ability to incur additional
indebtedness to repurchase the Notes may be adversely affected by what might
then be a higher debt to equity ratio. See "Management's Discussion and Analysis
of Financial Conditions and Results of Operations -- Liquidity and Capital
Resources." Any failure of the Company to repurchase the Notes in accordance
with the terms of the Indenture because of such constraints would result in a
default under the Credit Agreement and could result in defaults under the other
debt instruments to which the Company may then be a party. Outstanding
borrowings under the Credit Agreement were $ million at September 30, 1997.
A Change of Control does not include the acquisition of the Voting Stock of
the Company by any Person who is an Affiliate of the Company on the Initial
Issuance Date or a change in a majority of the Board of Directors of the
Company, if such majority of the Company's directors are elected by Persons who
are Affiliates of the Company on the Initial Issuance Date. See "-- Certain
Definitions" below. Except for the Change of Control put provisions, the Asset
Disposition redemption provisions and the limitations on dividends and
redemptions of Capital Stock, incurrence of Indebtedness, Liens and mergers and
consolidations, the Indenture will not contain any covenants or provisions that
would afford Noteholders protection in the event of a highly leveraged
transaction, reorganization, restructuring, merger or similar transaction. The
Company could, in the future, enter into certain transactions, including
acquisitions and transactions involving Unrestricted Subsidiaries that are not
restricted by the terms of the Indenture, refinancing or other
recapitalizations, that would not constitute a Change of Control under the
Indenture, but that would increase the amount of Indebtedness outstanding at
such time or otherwise affect the Company's capital structure or credit ratings.
See "-- Certain Covenants" below. The terms of the Indenture do not permit the
Company's Board of Directors or the Trustee, without the written consent of the
Noteholders, to waive or modify the Company's obligations to make a Change of
Control Offer.
The Change of Control provision of the Indenture may make it more difficult
or discourage a takeover of the Company and the removal of incumbent management.
The Change of Control provision is not the result of a plan by management to
adopt an anti-takeover provision.
SUBORDINATION
The payment of principal, premium (if any), Equity Offering Redemption
Price, Redemption Price, Change of Control Offer Price, Net Proceeds Offer Price
or interest (if any) on the Notes and any other payment obligations of the
Company under the Indenture are subordinated in right of payment to the extent
described in the Indenture to the prior payment in full of all Senior
Indebtedness, whether outstanding on the date of the Indenture or thereafter
created, incurred, assumed or guaranteed; provided, however, that the Notes
shall rank equally with, or prior to, all existing and future indebtedness
(including, without limitation,
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Indebtedness) of the Company that is subordinated to Senior Indebtedness.
However, once payment that is permitted under the Indenture has been deposited
into any defeasance trust described under "Defeasance and Covenant Defeasance"
below, payment from the money or the proceeds of U.S. Government Obligations
held in such defeasance trust will not be subordinated to any Senior
Indebtedness.
In the event of (i) any insolvency or Bankruptcy case or proceeding, or any
receivership, liquidation, reorganization or other similar case or proceeding in
connection therewith, relative to the Company or to its creditors, as such, or
to its assets, or (ii) any liquidation, dissolution or other winding up of the
Company, whether voluntary or involuntary and whether or not involving
insolvency or bankruptcy, or (iii) any assignment for the benefit of creditors
or any other marshaling of assets or liabilities of the Company, then, and in
any such event: (a) the holders of Senior Indebtedness shall be entitled to
receive payment in full in cash, or payment provided for in cash or cash
equivalents in a manner satisfactory to the holders of the Senior Indebtedness,
of all amounts due on or in respect of a Senior Indebtedness, or provision shall
be made for such payment in cash or cash equivalents, before the Holders of the
Notes are entitled to receive any payment or distribution of any kind or
character (excluding securities of the Company or any other corporation that are
equity securities or are subordinated in right of payment to all Senior
Indebtedness, that may at the time be outstanding, to substantially the same
extent as, or to a greater extent than, the Notes are so subordinated (such
securities are hereinafter collectively referred to as "Permitted Junior
Securities")) on account of the principal, premium (if any), Equity Offering
Redemption Price, Redemption Price, Change of Control Offer Price, Net Proceeds
Offer Price, interest (if any) or any other payment required under the
Indenture, in connection with the Notes, (b) any payment or distribution of
assets of the Company of any kind or character, whether in cash, property or
securities (excluding Permitted Junior Securities), by set-off, or otherwise, to
which the Holders or the Trustee would be entitled but for the provisions of the
Indenture described herein, shall be paid by the liquidating trustee or agent or
other person making such payment or distribution, whether a trustee in
bankruptcy, a receiver or liquidating trustee or otherwise, directly to the
holders of Senior Indebtedness or their representative or representatives or to
the trustee or trustees under any Indenture under which any instruments
evidencing any of such Senior Indebtedness may have been issued, ratably
according to the aggregate amounts remaining unpaid on account of the Senior
Indebtedness held or represented by each, to the extent necessary to make
payment in full in cash equivalents or cash, of all Senior Indebtedness
remaining unpaid, after giving effect to any concurrent payment or distribution
to the holders of such Senior Indebtedness, and (c) if, notwithstanding the
foregoing, the Trustee or the Holder of any Note shall have received, subsequent
to the occurrence of any of the events described in the preceding clauses (i),
(ii) or (iii) of this paragraph, any payment or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, in
respect of principal, premium (if any), Equity Offering Redemption Price,
Redemption Price, Change of Control Offer Price, Net Proceeds Offer Price,
interest (if any) or any other required payment on the Notes under the Indenture
before all Senior Indebtedness is paid in full or payment thereof provided for,
then and in such event, such payment or distribution (excluding Permitted Junior
Securities) shall be paid over or delivered forthwith to the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other
person making payment or distribution of assets of the Company for application
to the payment of all Senior Indebtedness remaining unpaid, to the extent
necessary to pay all Senior Indebtedness in full in cash equivalents, cash or,
as acceptable to the holders of Senior Indebtedness, in any other manner, after
giving effect to any concurrent payment or distribution to or for the holders of
Senior Indebtedness. By reason of such subordination, in the event of
insolvency, creditors of the Company who are not Holders of the Notes may
recover more ratably than Holders of the Notes.
The consolidation of the Company with, or the merger of the Company with or
into, another person or the liquidation or dissolution of the Company following
the conveyance, transfer or lease of its properties and assets substantially as
an entirety to another person upon the terms and conditions described under the
heading "Consolidation or Merger" below shall not be deemed a dissolution,
winding up, liquidation, reorganization, assignment for the benefit of creditors
or marshaling of assets and liabilities of the Company if the person formed by
such consolidation or the surviving entity of such merger or the person which
acquires by conveyance, transfer or lease such properties and assets
substantially in their entirety, as the case may be, shall, as a part of such
consolidation, merger, conveyance, transfer or lease, comply with the conditions
of the Indenture described under the heading "Consolidation of Merger" below.
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Unless certain conditions described in the Indenture apply, upon (i) the
occurrence of a Payment Default, and (ii) receipt by the Trustee and the Company
from a holder or representative of holders of Designated Senior Indebtedness of
written notice of such occurrence, then no payment or distribution of any assets
of the Company of any kind or character (excluding Permitted Junior Securities)
shall be made by the Company on account of the principal amount, premium (if
any), Equity Offering Redemption Price, Redemption Price, Change of Control
Offer Price, Net Proceeds Offer Price, interest (if any) or any other payment
required to be made on the Notes or on account of the purchase or redemption or
other acquisition of Notes unless and until such payment default shall have been
cured or waived by the holder of Senior Indebtedness or shall have ceased to
exist or such Senior Indebtedness shall have been discharged or paid in full,
after which the Company shall resume making any and all required payments in
respect of the Notes, including any missed payments. However, the obligation of
the Company to make payment of principal, premium (if any), Equity Offering
Redemption Price, Redemption Price, Change of Control Offer Price, Net Proceeds
Offer Price, interest or any other payment required to be made on the Notes will
not otherwise be affected.
Unless certain conditions described in the Indenture apply, upon (i) the
occurrence of a Non-payment Default and (ii) the receipt by the Trustee and the
Company from a Senior Indebtedness Representative of written notice of such
occurrence, no payment or distribution of any assets of the Company of any
character (excluding Permitted Junior Securities) shall be made by the Company
on account of the principal, premium (if any), Equity Offering Redemption Price,
Redemption Price, Change of Control Offer Price, Net Proceeds Offer Price,
interest (if any) or any other payments required to be made on the Notes or on
account of the purchase or redemption or other acquisition of the Notes for the
period specified below (the "Payment Blockage Period"). However, the obligation
of the Company to make payment of principal, premium (if any), Equity Offering
Redemption Price, Redemption Price Change of Control Offer Price, Net Proceeds
Offer Price, interest or any other payment required to be made on the Notes will
not otherwise be affected.
The Payment Blockage Period will commence upon the date of receipt of
notice of the Non-payment Default by the Company and the Trustee from a Senior
Indebtedness Representative and will end upon the earlier of (i) more than 179
days having elapsed since the receipt of such notice by the Company or the
Trustee (whichever was earlier), (ii) the date on which such Non-payment Default
shall have been cured or waived by the holder of Senior Indebtedness or shall
have ceased to exist or on which such Senior Indebtedness shall have been
discharged or paid in full, or (iii) the date on which such Payment Blockage
Period shall have been terminated by written notice to the Company or the
Trustee from the Designated Senior Indebtedness holder or representative
initiating such Payment Blockage Period, after which, in the case of (i), (ii)
or (iii) above, the Company shall resume making any and all required payments in
respect of the Notes, including any missed payments. Only one Payment Blockage
Period may be commenced within any 360-day period. No Non-payment Default with
respect to Designated Senior Indebtedness that existed or was continuing on the
date of any Payment Blockage Period will be, or can be, made the basis for the
commencement of a second Payment Blockage Period, whether or not within a period
of 360 consecutive days, unless such default has been cured or waived for a
period of not less than 90 consecutive days. In no event will a Payment Blockage
Period extend beyond 179 days from the earlier of the date of the receipt by the
Company and the Trustee of the notice initiating such Payment Blockage Period.
Subject to the payment in full of all Senior Indebtedness, the Holders of
the Notes shall be subrogated (equally and ratably with the holders of all
Indebtedness of the Company which is subordinated to Senior Indebtedness of the
Company to the same extent as the Notes are subordinated and which is entitled
to like rights of subrogation) to the rights of the holders of Senior
Indebtedness, from time to time, to receive payments and distributions of cash,
property and securities applicable to the Senior Indebtedness until the
principal amount, premium (if any), Equity Offering Redemption Price, Redemption
Price, Change of Control Offer Price, Net Proceeds Offer Price, interest (if
any) and any other payment required to be made under the Indenture in connection
with the Notes shall be paid in full.
By reason of such subordination, in the event of a distribution of assets
upon liquidation or insolvency, the holders of Senior Indebtedness may recover
more, ratably, than Holders of the Notes and funds that would be otherwise
payable to the Holders of the Notes will be paid to the holders of the Senior
Indebtedness to the
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extent necessary to pay the Senior Indebtedness in full, and the Company may be
unable to meet its obligations fully with respect to the Notes. The amount of
Senior Indebtedness of the Company outstanding on September 30, 1997 was
approximately $ million (excluding outstanding but undrawn letters of credit
of $ million).
CERTAIN COVENANTS
Financial and Other Data. So long as any Note is outstanding, whether or
not the Company is subject to Section 13(a) or 15(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), the Company shall file with the
Commission the annual reports, quarterly reports and other documents which the
Company would have been required to file with the Commission pursuant to such
Section 13 in respect of the Notes if the Company were so subject, such
documents to be filed with the Commission on or prior to the respective dates by
which the Company would have been so required or any extension thereof in
compliance with the rules and regulations of the Commission (the "Required
Filing Dates"). The Company shall also in any event (i) within 15 days after
each Required Filing Date file with the Trustee copies of the annual reports,
quarterly reports and other documents (but excluding preliminary proxy materials
filed pursuant to Section 14 of the Exchange Act and Regulation 14a-6
promulgated thereunder) that the Company would have been required to file with
the Commission pursuant to Section 13 of the Exchange Act in respect of the
Notes as if the Company were subject to such Section, and (ii) if filing such
documents by the Company with the Commission is not permitted under the Exchange
Act, within 15 days after each Required Filing Date file with the Trustee and,
within 30 days after each Required Filing Date, transmit by mail to all Holders,
as their name and addresses appear in the Register, without cost to such
Holders, copies of the reports described above.
Limitation on Restricted Payments. The Indenture provides that the Company
shall not, and shall not permit any Restricted Subsidiary of the Company to,
directly or indirectly (i) declare or pay any dividend on, or make any
distribution to the holders of, any Capital Stock of the Company or a Restricted
Subsidiary, other than dividends or distributions (a) from a Restricted
Subsidiary of the Company to the Company or to a Wholly Owned Subsidiary of the
Company or (b) payable in Capital Stock of the Company that is not Disqualified
Stock (ii) purchase, repay, redeem or otherwise acquire or retire for value any
Capital Stock of the Company or any of its Subsidiaries or Amercord (other than
Wholly Owned Subsidiaries of the Company), or any options, warrants or other
rights to acquire such Capital Stock other than (a) in connection with a
transaction whereby such Subsidiary or Amercord becomes a Wholly Owned
Subsidiary of the Company or such Subsidiary or Amercord is being merged with or
into the Company or a Wholly Owned Subsidiary of the Company in accordance with
the terms of the Indenture, and (b) purchases, redemptions, acquisitions or
retirements of Capital Stock of the Company from Persons holding 5% or less of
the outstanding Capital Stock of the Company for an amount not to exceed an
amount equal to $500,000 in the aggregate during any calendar year, plus the
aggregate cash proceeds received by the Company during such calendar year from
any issuance of Capital Stock by the Company to such Person, (iii) prepay,
repay, purchase, redeem, defease or otherwise acquire or retire for value prior
to any scheduled maturity, scheduled principal payment, scheduled repayment or
scheduled sinking fund payment, (a) any Indebtedness of the Company or any of
its Restricted Subsidiaries that ranks pari passu with or junior in right of
payment to the prior payment of the Notes (other than the Existing Notes), (b)
any Indebtedness of its Unrestricted Subsidiaries, except as permitted pursuant
to the Indenture, (iv) incur, create or assume any guarantee of Indebtedness of
any Affiliate (other than (a) guarantees by the Company of Indebtedness of a
Wholly Owned Subsidiary of the Company, (b) guarantees of Indebtedness of the
Company by any Restricted Subsidiary, (c) guarantees of Indebtedness of any
Subsidiary or Amercord pursuant to a transaction whereby any such Subsidiary or
Amercord would become a Wholly Owned Subsidiary of the Company, or (d)
guarantees by a Restricted Subsidiary of Indebtedness of another Restricted
Subsidiary, in each case in accordance with the terms of the Indenture,
including (1) the execution by the obligor of such obligation of an agreement
substantially in the form of the Intercompany Agreement, and (2) if the
foregoing is related to Indebtedness that is not Senior Indebtedness, the
inclusion of subordination provisions substantially similar to those set forth
in the Indenture which subordinate such guarantee to the Notes to the same
extent as if the Notes were Senior Indebtedness with respect to such guarantee),
or (v) make any Investment (other than as permitted in
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the preceding clauses (ii) and (iv) or a Permitted Investment) in any Person,
other than an Investment in a Subsidiary or Amercord if such Subsidiary or
Amercord becomes a Wholly Owned Subsidiary of the Company in connection with
such investment, provided that to the extent applicable (a) the obligation of
the obligor in any such Investment is subject to an Intercompany Agreement, and
(b) the agreement governing any obligation to fund the Investment includes
provisions substantially similar to those set forth in the Indenture which
subordinate the Investment to the Notes to the same extent as if the Notes were
Senior Indebtedness (such payment or other actions described in the foregoing
clauses (i) through (v) are collectively referred to as "Restricted Payments"),
if at the time of any such Restricted Payment, and after giving effect thereto
on a pro forma basis, (a) a Default or an Event of Default exists or shall have
occurred and be continuing or would result therefrom, or (b) the aggregate
amount of all Restricted Payments declared or made after the Initial Issuance
date including such Restricted Payment (the amount of any such payment, if other
than cash, shall be the amount approved in good faith by resolution of the Board
of Directors of the Company, including at least a majority of the Independent
Directors) shall exceed the sum of: (1) 50% of Consolidated Net Income, or, in
the event the aggregate Consolidated Net Income shall be a loss, minus 100% of
such loss, of the Company and its Restricted Subsidiaries earned on a cumulative
basis during the period beginning on the last day of the Company's last fiscal
quarter that ended prior to the Initial Issuance Date to the end of the fiscal
quarter immediately preceding the date of such Restricted Payment (treated as a
single accounting period), plus (2) 100% of the aggregate net proceeds received
by the Company as capital contributions to the Company from the issuance or sale
(other than to a Restricted Subsidiary of the Company or Amercord) of Capital
Stock (other than Disqualified Stock) of the Company, including any such shares
issued upon exercise of any warrants, options or similar rights subsequent to
the Initial Issuance Date (but not including any amount received by the Company
from the purchase of Capital Stock to the extent such amounts were already taken
into account in clause (ii)(b) above), plus (3) the net proceeds received by the
Company from the issuance or sale of Indebtedness for cash that is convertible
into Capital Stock of the Company after the Initial Issuance Date to the extent
that such Indebtedness is actually converted into Capital Stock (other than
Disqualified Stock), plus (4) 100% of the net cash proceeds received by the
Company or any of its Restricted Subsidiaries in connection with a sale,
disposition or liquidation of any Investment in an Unrestricted Subsidiary that
was made in accordance with this covenant, plus (5) 100% of the net cash
proceeds received by the Company from (a) the sale or other disposition of the
Capital Stock of Amercord, (b) any dividend or other distribution from Amercord
or (c) the Company could not incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to the "Limitation on Indebtedness" covenant
described herein and after giving pro forma effect thereto as if the Restricted
Payment had been made at the beginning of the applicable four quarter period.
Notwithstanding the covenant described above, the Company and its
Restricted Subsidiaries shall not make any Investment in any Unrestricted
Subsidiary by any means other than by way of cash made available through the
test contained in the Restricted Payments covenant. The foregoing covenant will
not prevent (i) the payment of any dividend within 60 days after the date of its
declaration if the dividend would have been permitted on the date of
declaration, (ii) the declaration or payment of any dividend on shares of
Capital Stock payable solely in shares of Capital Stock (other than Disqualified
Stock), (iii) the declaration or payment of any dividend or other distribution
payable from an Unrestricted Subsidiary to the Company or any Wholly Owned
Subsidiary, and (iv) the making of additional Restricted Payments in a
cumulative amount not to exceed $ million from the Initial Issuance Date.
For purposes of calculating the aggregate amount of Restricted Payments made
pursuant to the preceding paragraph, payments made under clause (i) of this
paragraph shall be included in such amount, provided that dividends paid within
60 calendar days of the date of declaration shall be deemed to be paid at the
date of declaration.
Prior to making any Restricted Payment under this covenant, the Company
shall deliver to the Trustee an Officers' Certificate setting forth the
computation by which the amount available for Restricted Payments was determined
and stating that no Default or Event of Default exists and is continuing and
that no Default or Event of Default shall result from making the Restricted
Payment. The Trustee shall have no duty or responsibility to determine the
accuracy or correctness of such computation and shall be fully protected from
any liability incurred by it resulting from its reliance on such Officers'
Certificate.
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Limitation on Investments. The Indenture provides that, except for
Investments made as Restricted Payments in compliance with the "Limitation on
Restricted Payments" covenant, the Company shall not, and shall not permit any
Restricted Subsidiary of the Company to, make any Investments other than
Permitted Investments.
Limitation on Indebtedness. The Indenture provides that the Company shall
not, directly or indirectly, create, incur, issue, assume, guarantee or in any
other manner become directly or indirectly liable or responsible for
(collectively, an "incurrence") any Indebtedness (including Acquired
Indebtedness) other than Permitted Indebtedness, unless at the time of such
event (i)(a) any such Indebtedness or Acquired Indebtedness (other than Senior
Indebtedness) has no sinking fund or amortization payment date or final maturity
prior to the Stated Maturity of the Notes, and (b) in the case of Indebtedness
subordinated in right of payment to the Notes, the instrument evidencing such
Indebtedness shall include subordination provisions substantially similar to
those set forth in the Indenture subordinating such Indebtedness to the same
extent as if the Notes were Senior Indebtedness with respect to such
Indebtedness, and (ii) after giving effect to the incurrence of such
Indebtedness (which Indebtedness may only be incurred by the Company) and to any
acquisition being financed through the incurrence of such Indebtedness and to
any Acquired Indebtedness incurred or assumed therewith on a pro forma basis,
the Consolidated Interest Coverage ratio for the most recently ended four full
fiscal quarters for which financial statements are available immediately
preceding the date on which such additional Indebtedness is incurred would have
been at least 2.0 to 1.0.
The Company shall not suffer to exist any Indebtedness existing on the
Initial Issuance Date, other than as described on a schedule to the Indenture.
Limitation on Restricted Subsidiary Indebtedness. The Company may not
permit any Restricted Subsidiary to issue, incur, guarantee, assume or in any
other manner become directly or indirectly liable or otherwise responsible for
(collectively, "issue") any Indebtedness except (i) Indebtedness issued to and
held by the Company, (ii) Indebtedness issued and outstanding on or prior to the
date on which such Subsidiary became a Restricted Subsidiary (other than
Indebtedness issued in connection with or in anticipation of its becoming a
Restricted Subsidiary), (iii) guarantees of Indebtedness of another Restricted
Subsidiary, or (iv) Indebtedness issued to refund or refinance Indebtedness
referred to in clauses (i) or (ii), provided that the Indebtedness so issued
will have (a) a Stated Maturity later than the Stated Maturity of the
Indebtedness being refunded or refinanced, (b) an Average Life at least equal to
(1) the Average Life of the Indebtedness being refunded or refinanced plus (2)
the principal amount of any unused revolving credit facility being refunded or
refinanced.
Limitation Upon Other Senior Subordinated Indebtedness. The Company will
not, and will not permit any Restricted Subsidiary to, incur, create, assume,
guarantee or in any other manner become directly or indirectly liable with
respect to or be responsible for, or permit to remain outstanding, any
Indebtedness (other than the Notes) that is subordinate or junior in right of
payment to any Senior Indebtedness of the Company unless such Indebtedness is
also pari passu with, or subordinate in right of payment to, the Notes pursuant
to subordination provisions substantially similar to those set forth in the
Indenture.
Limitation on Liens. The Indenture will provide that the Company will not,
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume or suffer to exist any Lien securing
Indebtedness or trade payables on any asset now owned or hereafter acquired, or
any income or profits therefrom or assign or convey any right to receive income
therefrom, except Permitted Liens, unless (i) if such Lien secures Indebtedness
which is pari passu in right of payment with the Notes, then the Notes are
secured on an equal and ratable basis with the obligation so secured until such
time as such obligation is no longer secured by a Lien or (ii) if such Lien
secures Indebtedness which is subordinated in right of payment to the Notes, any
such Lien shall be subordinated to a Lien granted to the Holders of the Notes in
the same collateral as that securing such Lien to the same extent as such
subordinated Indebtedness is subordinated to the Notes.
Limitation on Issuance of Preferred Stock by Restricted Subsidiaries. The
Indenture provides that the Company shall not permit any Restricted Subsidiary
to issue any preferred or preference stock other than to the Company or to a
Wholly Owned Subsidiary of the Company, except for preferred stock issued by a
Person
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prior to the time (i) such Person becomes a Restricted Subsidiary (other than
preferred stock issued in connection with or in anticipation of such Person
becoming a Restricted Subsidiary), (ii) such Person merges with or into a
Restricted Subsidiary, or (iii) a Restricted Subsidiary of the Company merges
with or into such Person, provided that such preferred stock was not issued by
such Person in anticipation of the type of transaction contemplated by clauses
(i), (ii), or (iii).
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Indenture provides that the Company shall not, and shall not
permit any Restricted Subsidiary to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of such Restricted Subsidiary to (i) pay dividends or make any other
distributions (a) on its Capital Stock, or (b) with respect to any other
interest or participation in, or measured by, its profits, (ii) pay any
Indebtedness owed to the Company or any of its Restricted Subsidiaries, (iii)
make any Investment in the Company or any of its Restricted Subsidiaries, (iv)
transfer any of its properties or assets to the Company or any of its Restricted
Subsidiaries, (v) grant liens or security interests on such Restricted
Subsidiary's assets in favor of the Holders, or (vi) guarantee the Notes or any
renewals or refinancings thereof, except for such encumbrances or restrictions
existing under or by reason of (a) scheduled written agreements in effect on the
Initial Issuance Date or under any agreement that extends, renews, refinances or
replaces the agreements containing such restrictions, provided, that the terms
and conditions of any such restrictions are not materially less favorable to the
Holders than those under or pursuant to the agreement evidencing the
Indebtedness so extended, renewed, refinanced or replaced, (b) applicable law,
(c) any instrument governing Indebtedness or Capital Stock of a Person acquired
by the Company or any of its Restricted Subsidiaries as in effect at the time of
such acquisition (except to the extent such Indebtedness was incurred in
connection with or in contemplation of such acquisition), which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person, or the property or assets of the Person, so
acquired, provided that, in the case of Indebtedness, such Indebtedness was
permitted by the terms of the Indenture to be incurred, (d) customary
non-assignment provisions in leases entered into in the ordinary course of
business and consistent with past practices, (e) purchase money obligations for
property acquired in the ordinary course of business that impose restrictions of
the nature described in clause (iv) above on the property so acquired, (f) any
agreement for the sale of a Restricted Subsidiary that restricts distributions
by that Restricted Subsidiary pending its sale, (g) Refinancing Indebtedness,
provided that the restrictions contained in the agreements governing such
Refinancing Indebtedness are no more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being refinanced, (h)
secured Indebtedness otherwise permitted to be incurred pursuant to the
provisions of the covenant described above under the caption "-- Limitation on
Liens" that limits the right of the debtor to dispose of the assets securing
such Indebtedness, (i) provisions with respect to the disposition or
distribution of assets or property in joint venture agreements and other similar
agreements entered into in the ordinary course of business, and (j) restrictions
on cash or other deposits or net worth imposed by customers under contracts
entered into in the ordinary course of business.
Limitation on Transactions With Affiliates. The Indenture provides that the
Company shall not and shall not permit any Restricted Subsidiary to, directly or
indirectly, enter into any transaction (including without limitation the
purchase, sale, lease or exchange of any property or the rendering of any
service) with an Affiliate (including an Unrestricted Subsidiary) (an "Affiliate
Transaction"), unless such transaction is on terms no less favorable to the
Company or such Restricted Subsidiary than those that could be obtained in a
comparable arms' length transaction with an entity that is not an Affiliate or
Unrestricted Subsidiary.
In addition, the Company shall not, and shall not permit any of the
Restricted Subsidiaries to, enter into (i) an Affiliate Transaction involving or
having a potential value of more than $1 million unless the Company delivers an
Officers' Certificate to the Trustee generally describing such transaction and
certifying that the transaction has been approved in good faith by resolution of
the Board of Directors of the Company (including a majority of the Independent
Directors) or a committee of Independent Directors and such resolution provides
that such Affiliate Transaction complies with the requirements of this covenant,
or (ii) an Affiliate Transaction (or series of related Affiliate Transactions)
involving or having a potential value of more than $5.0 million (other than an
Affiliate Transaction relating to compensation arrangements for employees who
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are not otherwise Affiliates), unless the Company delivers an Officers'
Certificate to the Trustee to the same effect as described in clause (i) above
and the Company has received an opinion of an independent accounting, appraisal
or investment banking firm of national standing to the effect that the
transaction is fair to the Company or such Restricted Subsidiary, as applicable,
from a financial point of view.
Notwithstanding anything to the contrary contained in the Indenture, the
foregoing provisions shall not apply to (i) any employment agreement entered
into by the Company or any of its Restricted Subsidiaries in the ordinary course
of business and consistent with the past practice of the Company or such
Restricted Subsidiary, (ii) payment of indemnities and fees to directors of the
Company and any of its Restricted Subsidiaries, (iii) payments pursuant to any
tax sharing agreement or arrangement among the Company and its Subsidiaries,
provided, however, the tax sharing agreement shall provide that each
Unrestricted Subsidiary shall pay annually (or more frequently if required to
make estimated tax payments) to the Company an amount equal to the amount of
income tax that such Unrestricted Subsidiary would have paid if the Unrestricted
Subsidiary's income tax liability was determined as if it were not a member of a
consolidated group, and such amount shall be paid prior to the date the Company
must make payment to the relevant taxing authority, (iv) any management
arrangement relating to Amercord, on terms that are not materially less
favorable to the Holders than the management agreement among Amercord, the
Company and Ivaco that is in effect on the Initial Issuance Date, provided that
such agreement may be terminated or amounts payable to the Company thereunder
may be modified at the option of the Company, and provided further that such
amended or modified management arrangement has been approved by the Board of
Directors of the Company, (v) transactions between or among the Company and any
Wholly Owned Subsidiary, and (vi) (a) that certain Stockholders' Agreement among
the Company, Prudential and the Winspear Family Limited Partnership, and (b)
that certain Registration Rights Agreement among the Company, Prudential, the
Winspear Family Limited Partnership and certain other parties, all as in effect
on the Initial Issuance Date or as thereafter amended or modified such that the
terms thereof are not materially less favorable to the Holders, provided, that,
any such amendment or modification has been approved by the Company's Board of
Directors (including a majority of the Independent Directors).
Limitation on Asset Dispositions. The Indenture provides that the Company
shall not, and shall not permit any Restricted Subsidiary to, make any Asset
Disposition unless (i) the consideration received from such Asset Disposition is
at least equal to the fair market value of the Capital Stock, property or other
assets sold (as certified by an Officers' Certificate delivered to the Trustee
with the resolution of the Board of Directors attached thereto), (ii) at least
85% of the consideration received from such Asset Disposition is in the form of
cash or cash equivalents (the "85% Test"), provided that the amount of any
liabilities (as shown on the Company's or such Restricted Subsidiary's most
recent balance sheet or in the notes thereto) of the Company or such Restricted
Subsidiary that are assumed by the transferee in any Asset Disposition (other
than liabilities that are incurred in connection with or in anticipation of such
Asset Disposition) as a credit against the purchase price therefor shall be
deemed to be cash to the extent of the amount credited for purposes of the 85%
Test. To the extent that, within 360 calendar days following the Asset
Disposition, the Company does not apply, or does not cause its Restricted
Subsidiary to apply, the Net Proceeds to (a) the repayment of Senior
Indebtedness, (b) acquire one or more Persons or businesses engaged in, or
assets used in, similar lines of business conducted by the Company as of the
Initial Issuance Date, or enter into a binding contract to use Net Proceeds for
the purposes set forth in this clause (b), and (c) to reimburse the Company or
its Restricted Subsidiaries for expenditures made and costs incurred to repair,
rebuild, replace or restore property subject to loss, damage or taking to the
extent the Net Proceeds consist of insurance proceeds received on account of
such loss, damage or taking (the Net Proceeds that are not applied as provided
in clauses (a), (b) and (c) shall constitute "Excess Proceeds"), then the
Company shall make an offer (a "Net Proceeds Offer") to purchase Notes
outstanding in an aggregate principal amount at least equal to such Excess
Proceeds on a date not later than 360 calendar days after the date of such Asset
Disposition (the "Net Proceeds Purchase Date") at a purchase price equal to 100%
of the principal amount thereof, plus accrued interest to the Net Proceeds
Purchase Date (the "Net Proceeds Offer Price"). Until such time as the Net
Proceeds from any Asset Disposition are applied in accordance with the second
sentence of this paragraph, the Company may temporarily reduce revolving credit
borrowings under the Credit Agreement or otherwise invest
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such Net Proceeds in any manner not prohibited by the Indenture. The Net
Proceeds Offer shall be effected pursuant to procedures set forth in the
Indenture.
Notwithstanding the foregoing, the Indenture provides (i) that the Company
shall not, and shall not permit any Restricted Subsidiary to, directly or
indirectly, make any Asset Disposition of any of the Capital Stock of a
Restricted Subsidiary except pursuant to an Asset Disposition of all of the
Capital Stock of such Restricted Subsidiary, and (ii) the Company shall not be
required to make a Net Proceeds Offer unless the aggregate amount of the Excess
Proceeds from one or more Asset Dispositions exceeds $5.0 million. To the extent
that any Excess Proceeds remain after consummation of a Net Proceeds Offer, the
Company may use such Excess Proceeds for any purpose not otherwise prohibited by
the Indenture.
The Company shall also comply with any applicable tender offer rules then
in effect, including Section 14(e) of the Exchange Act and Rule 14e-1
promulgated thereunder, in connection with a Net Proceeds Offer. To the extent
that any of the procedures relating to the making and accepting of a Net
Proceeds Offer conflict with the provisions of the Exchange Act, other
applicable federal or state law, or the regulations that may be promulgated
thereunder, such provisions of the Exchange Act, other applicable federal or
state law, or the regulations that may be promulgated thereunder, shall govern
such Net Proceeds Offer in lieu of, and only to the extent of, such conflicting
procedures.
As described above, the repurchase of the Notes by the Company prior to
their Stated Maturity pursuant to certain covenants in the Indenture will be
subject to restrictions under the Credit Agreement relating to the prepayments
of any subordinated indebtedness, including the Notes. In general, the Credit
Agreement would prohibit such repayment, unless sufficient cumulative net income
and other amounts are available to make such payment. See "Company Indebtedness
- -- Credit Agreement -- Covenants." Any failure of the Company to repurchase the
Notes in accordance with the terms of the Indenture because of such constraints
would result in a default under the Credit Agreement and could result in
defaults under the other debt instruments to which the Company may then be a
party.
Composition of Board of Directors. The Indenture provides that the Company
shall use its best efforts to include at all times not less than two Independent
Directors as members of the Board of Directors of the Company; provided that
neither the Company nor any Restricted Subsidiary shall engage in any
transaction or take any other action requiring approval by the Board of
Directors, including at least a majority of the Independent Directors, until
such time as the Board of Directors includes at least two Independent Directors.
Consolidation or Merger. The Indenture provides that the Company shall not,
and shall not permit any Restricted Subsidiary to (i) consolidate with or merge
with or into or convey, transfer, sell, assign, lease or otherwise dispose of
all or substantially all of its properties and assets as an entirety (either in
one transaction or a series of transactions) to any Person (other than the
Company or a Wholly Owned Subsidiary of the Company), or (ii) permit any Person
(other than the Company or a Wholly Owned Subsidiary of the Company) to
consolidate with or merge with or into the Company or any Restricted Subsidiary
or convey, transfer or lease its properties and assets substantially as an
entirety (either in one transaction or a series of transactions) to the Company
or a Restricted Subsidiary (except that a Wholly Owned Subsidiary of the Company
may merge into or transfer all or substantially all of its assets to the Company
or a Wholly Owned Subsidiary of the Company), unless (a) the Company or a Wholly
Owned Subsidiary of the Company shall be the continuing Person or, in the case
of a consolidation, merger or other transaction described in clauses (i) or (ii)
of this paragraph, involving the Company in which the Company is not the
continuing or acquiring Person, the Person formed by such consolidation or into
which the Company is merged or to which the properties and assets of the
Company, substantially as a entirety, are transferred (the "surviving entity")
shall be a corporation, partnership or trust organized and existing under the
laws of the United States of America or any state thereof or the District of
Columbia and shall expressly assume, by a supplemental indenture, executed and
delivered to the Trustee in form and substance reasonably satisfactory to the
Trustee, all the obligations of the Company under the Note and the Indenture,
and the Indenture shall remain in full force and effect, (b) immediately before
and immediately after giving effect to such transaction, no Event of Default and
no Default shall have occurred and be continuing, (c) the Company or, in the
case of a consolidation or merger or other transaction described in this
covenant involving the Company in which the
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Company is not the continuing person, the surviving entity, after giving pro
forma effect to such transaction, could incur $1.00 of additional Indebtedness
(other than Permitted Indebtedness) under the "Limitation on Indebtedness"
covenant, (d) immediately after giving effect to any such transaction that
involves either the merger or consolidation of the Company or a Restricted
Subsidiary, or the sale of all or substantially all of the assets of the
Company, the Consolidated Net Worth of the Company, or, in the case of a
consolidation or merger involving the Company in which the Company is not the
continuing Person, the surviving entity, shall be equal to or greater than the
Consolidated Net Worth of the Company immediately before such transaction, and
(e) either the Company or the surviving entity shall deliver, or cause to be
delivered to the Trustee, in form and substance reasonably satisfactory to the
Trustee, an Officers' Certificate and an Opinion of Counsel, each stating that
such consolidation, merger or transfer and the supplemental indenture with
respect thereto comply with this covenant and that all conditions precedent
herein provided for relating to such transactions have been complied with.
Upon any consolidation or merger or any other transaction described in the
foregoing, the successor corporation formed by such consolidation or into which
the Company is merged or to which such transfer is made, shall succeed to, and
be substituted for, and may exercise every right and power of the Company under
the Indenture with the same effect as if such successor corporation had been
named as the Company therein; and thereafter, if the Company is dissolved
following a transfer of all or substantially all of its assets in accordance
with the Indenture, the Company shall be discharged and released from all
obligations and covenants under the Indenture and the Notes. The Trustee shall
enter into a supplemental indenture to evidence the succession and substitution
of such successor person and such discharge and release of the Company.
DEFAULTS AND REMEDIES
Under the Indenture, an "Event of Default" occurs if one of the following
shall have occurred and be continuing: (i) the Company defaults in the payment
of (a) the principal of (or premium, if any, on) any Notes when the same becomes
due and payable at maturity, by acceleration or otherwise on the required
payment date thereof, (b) the Equity Offering Redemption Price or Redemption
Price on any redemption date, or (c) the Change of Control Offer Price or the
Net Proceeds Offer Price on the applicable offer purchase date relating to such
offer, (ii) the Company defaults in the payment of interest on any Note or in
the payment of any other amount owing under the Indenture or the Note when the
same becomes due and payable, whether or not such payment shall be prohibited by
the Indenture, or the Company defaults in the performance of, or breaches the
"Limitation on Restricted Payments" covenant or the "Limitation on Indebtedness"
covenant, and such default continues for a period of 30 calendar days, (iii) the
Company defaults in the performance of, or breaches, the "Consolidation or
Merger" covenant, (iv) the Company or any Subsidiary of the Company fails to
comply with, or breaches any of its other covenants or agreements in the Note or
the Indenture (other than those referred to in clauses (i), (ii) and (iii)
above) and such failure or breach continues for 60 calendar days after receipt
by the Company of a Notice of Default, (v) default by the Company or any
Restricted Subsidiary in the payment of any principal of or interest on any
Indebtedness (other than Indebtedness constituting reimbursement obligations
with respect to the letter(s) of credit securing the Taxable Notes to the extent
such default does not also constitute a default under the Credit Agreement) when
due (after giving effect to any applicable grace periods under such
Indebtedness) and the principal amount of such indebtedness exceeds $5.0 million
in the aggregate, (vi) an event of default on any other Indebtedness of the
Company or any Restricted Subsidiary having an aggregate amount outstanding in
excess of $5.0 million (excluding the Taxable Notes to the extent such default
does not also constitute an event of default under the Credit Agreement), and
such event of default shall result in such Indebtedness becoming, whether by
declaration or otherwise, due and payable in advance of its scheduled maturity,
(vii) the Company or any Restricted Subsidiary pursuant to or within the meaning
of any Bankruptcy Law: (a) commences a voluntary case or proceeding, (b)
consents to the entry of an order for relief against it in an involuntary case
or proceeding, (c) consents to the appointment of a custodian receiver,
liquidator, assignee, trustee, sequestrator (or other similar official) of the
Company or for all or substantially all of its property, (d) makes a general
assignment for the benefit of its creditors, or (e) admits in writing its
inability to pay its debts generally as they become due, (viii) a court of
competent jurisdiction enters an order or decree under
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any Bankruptcy Law that: (a) is for relief against the Company or any Restricted
Subsidiary in an involuntary case or proceeding, (b) appoints a Custodian,
receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) for any Restricted Subsidiary of the Company or for all or
substantially all of its respective properties, or (c) orders the winding up or
the liquidation of the Company or any Restricted Subsidiary, and in each case
the order or decree remains unstayed and in effect for 60 calendar days, or (ix)
judgments for the payment of money which in the aggregate exceed $5.0 million
(net of amounts covered by insurance as to which a claim has been made and no
reservation of rights is being asserted by such carrier) shall be rendered
against the Company or any material Restricted Subsidiary by a court of
competent jurisdiction and (a) any creditor has commenced any enforcement
proceeding upon such judgment in accordance with applicable law and such
enforcement proceeding is not stayed or dismissed within five Business Days of
the commencement thereof or (b) any such judgment shall remain unstayed or
undischarged for a period of 60 calendar days.
A Default under clause (iv) of the immediately preceding paragraph is not
an Event of Default until the Trustee notifies the Company, or the Holders of at
least 25% in aggregate principal amount of the Notes at the time outstanding
notify the Company and the Trustee, of the Default and the Company does not cure
such Default within the time specified in clause (iv) of the immediately
preceding paragraph after receipt of such notice. If any Event of Default under
clauses (i), (ii), (iii), (iv), (v) or (ix) of the immediately preceding
paragraph occurs and is continuing, then the Trustee, in its sole discretion, or
the Holders of at least 25% in aggregate principal amount of the Notes may
declare the principal of the Notes and accrued interest immediately due and
payable. If any Event of Default under clauses (vii) or (viii) of the
immediately preceding paragraph occur, all principal and interest on the Notes
will immediately become due and payable. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy by proceeding at law or
in equity to collect any payment due, or to enforce the performance of any
provision, under the Notes or the Indenture. The Holders of a majority in
aggregate principal amount of the Notes then outstanding, by written notice to
the Trustee and to the Company, may rescind an acceleration (except an
acceleration due to a default in payment of the principal of or interest on any
of the Notes) upon conditions provided in the Indenture. Except to enforce the
right to receive payments of principal of and interest on the Notes when due, no
Holder of a Note may pursue any remedy with respect to the Indenture or the
Notes unless (i) the Holder has given to the Trustee written notice of a
continuing Event of Default, (ii) Holders of at least 25% in aggregate principal
amount of the Notes issued under the Indenture then outstanding have made a
written request to the Trustee to pursue the remedy, (iii) such Holders have
offered and provided to the Trustee indemnity reasonably satisfactory to the
Trustee against any loss, liability or expense, (iv) the Trustee has not
complied with the request within 60 calendar days after receipt of the notice,
the request and the offer of security or indemnity, and (v) during such 60-day
period, the Holders of a majority in aggregate principal amount of the Notes
then outstanding do not give the Trustee a direction that is inconsistent with
the request. The Holders of a majority in aggregate principal amount of the
Notes then outstanding under the Indenture may 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 it. However, the Trustee may refuse
to follow any direction that conflicts with law or the Indenture or that the
Trustee determines may be unduly prejudicial to the rights of another Holder or
that involves the Trustee in personal liability. The Trustee may take any other
action deemed proper by the Trustee that is not inconsistent with such
direction. Any money collected by the Trustee in respect to the Notes shall be
paid out first, to the Trustee for any amounts owed to it under the Indenture,
second, to the Holders for amounts due and unpaid on the Notes, and finally, if
there is any balance remaining, to the Company.
Under the Indenture, two officers of the Company are required to certify to
the Trustee in each fiscal quarter whether or not they know of any Default or
Event of Default that occurred during the prior fiscal quarter and, if
applicable, describe such Default or Event of Default and the status thereof. In
addition, for each fiscal year, the Company's independent auditors are to
provide a report, in connection with their audit examination, stating that they
have reviewed certain terms of the Indenture and the Notes, and stating whether
it has come to their attention that the Company is not in compliance with such
terms as they relate to accounting matters and describing the nature of any
noncompliance.
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The Company has covenanted (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law or any usury or
other law wherever enacted, now or at any time hereafter in force, which may
affect the covenants or the performance of the Indenture, and the Company
expressly waives (to the extent that it may lawfully do so) all benefit or
advantage of any such law and covenants that it shall not hinder, delay or
impede the execution of any power granted to the Trustee under the Indenture,
but shall suffer and permit the execution of every such power as though no such
law had been enacted.
The Trust Indenture Act of 1939 contains limitations on the rights of the
Trustee, should it become a creditor of the Company, to obtain payment of claims
in certain cases or to realize on certain property received by it in respect of
any such claims, as security or otherwise. The Trustee is permitted to engage in
other transactions, provided that if it acquires any conflicting interest it
must eliminate such conflict upon the occurrence of an Event of Default or else
resign.
DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have the
obligations of the Company discharged with respect to the outstanding Notes
("defeasance"). Such defeasance means that the Company shall be deemed to have
paid and discharged the entire Indebtedness represented by the outstanding Notes
and to have satisfied all its other obligations under such Notes and the
Indenture, except for (i) the rights of Holders of outstanding Notes to receive,
solely from the trust fund described below, payments in respect of the
principal, premium, if any, and accrued interest on such Notes when such
payments are due, (ii) the Company's obligations with respect to the Notes
concerning issuing temporary Notes, registration of transfer of Notes, and
replacement of mutilated, destroyed, lost or stolen Notes, the maintenance of an
office or agency for payment, and the maintenance of its corporate existence and
franchises, (iii) the rights, powers, trusts, duties and immunities of the
Trustee and the Company's obligations in connection therewith, and (iv) the
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
Subsidiaries released with respect to certain covenants that are described in
the Indenture ("covenant defeasance"), and thereafter, the Company and its
Subsidiaries may omit to comply with and shall have no liability in respect of
any term, condition or limitation set forth in any such covenant, whether
directly or indirectly by reason of any reference elsewhere in the Indenture to
any such covenant or by reason of any reference in any such covenant to any
other provision in the Indenture or in any other document and any omission to
comply with such obligations thereafter shall not constitute a Default or so
Event of Default with respect to the Notes, and the Notes shall thereafter be
deemed not "outstanding" for the purposes of any direction, waiver, consent or
declaration or act of Holders (and the consequences of any thereof) in
connection with such covenants. In the event covenant defeasance occurs, certain
events (not including non-payment, bankruptcy and insolvency events) described
under "-- Events of Default" will no longer constitute Events of Default with
respect to the outstanding Notes.
In order to exercise either defeasance or covenant defeasance with respect
to the outstanding Notes, (i) the Company must irrevocably deposit with the
Trustee or with a substitute trustee, as trust funds in trust, specifically
pledged as security for, and dedicated solely to the benefit of the Holders of
the Notes, cash in U.S. dollars in an amount, or U.S. Government Obligations, or
a combination thereof, that through the scheduled payment of principal and
interest in respect thereof in accordance with their terms will provide not
later than one day before the due date of any payment, cash in U.S. dollars in
an amount, or a combination thereof in such amounts, sufficient, in the opinion
of a nationally recognized firm of independent public accountants, to pay and
discharge (a) the principal, premium, if any, interest and all other amounts
owing with respect to the outstanding Notes on the Stated Maturity, (b) any
mandatory payments applicable to the outstanding Notes on the day on which such
payments are due and payable in accordance with the terms of the Indenture and
of such Notes, and (c) fees and other amounts owing to the Trustee or necessary
to compensate and reimburse the Trustee for its administration of the funds and
its ongoing obligations under the Indenture; provided that the Trustee shall
have been irrevocably instructed to apply such money or the proceeds of such
U.S. Government Obligations to said payment with respect to the Notes, (ii) in
the case of a defeasance, the Company shall have delivered to the Trustee an
Opinion of Counsel stating that (a) the
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Company has received from, or there has been published by, the Internal Revenue
Service a ruling or (b) since the date of the Indenture, there has been a change
in the applicable federal income tax law, in either case to the effect that, and
based thereon such opinion shall confirm that, the Holders of the outstanding
Notes will not recognize income, gain or loss for federal income tax purposes as
a result of such defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been the
case if such defeasance had not occurred, (iii) in the case of a covenant
defeasance, the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that the Holders of the outstanding Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such covenant defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same time 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
clauses (vii) or (viii) under the first paragraph "Events of Default" is
concerned, at any time during the period ending on the 91st day after the date
of deposit, (v) such 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 is a party or by
which it is bound, (vi) in the case of defeasance or covenant defeasance, the
Company shall have delivered to the Trustee an Opinion of Counsel to the effect
that after the 91st day following the deposit, the trust funds will not be
subject to the effect of any applicable bankruptcy, reorganization or similar
laws affecting creditors' rights generally, (vii) in the case of defeasance or
covenant defeasance, the Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit made by the Company pursuant
thereto was not made by the Company with the intent of preferring the Holders of
Notes over other creditors of the Company or with the intent of defeating,
hindering, delaying or defrauding creditors of the Company or others, and (viii)
the Company shall have delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that all conditions precedent provided for
relating to either the defeasance or the covenant defeasance, as the case may
be, have been complied with.
SATISFACTION AND DISCHARGE OF INDENTURE
The Indenture will be discharged and canceled upon the delivery by the
Company to the Trustee for cancellation of all the Notes theretofore
authenticated and delivered (other than any Notes that shall have been
destroyed, lost or stolen and in lieu of or in substitution for which other
Notes shall have been authenticated and delivered) and not theretofore canceled,
or (ii) all Notes not theretofore surrendered or delivered to the Trustee for
cancellation shall have become due and payable, or are by their terms to become
due and payable within one year or are to be called for redemption within one
year in accordance with the Indenture, and the Company shall irrevocably deposit
with the Trustee, as trust funds solely for the benefit of the Holders for that
purpose, an amount sufficient to pay at maturity or upon redemption all of the
Notes (other than any Notes that have been destroyed, lost or stolen and in lieu
of or in substitution for which other Notes shall have been authenticated and
delivered) not theretofore surrendered or delivered to the Trustee for
cancellation, including principal, premium, if any, and interest due or to
become due to such date of maturity or redemption date, as the case may be, then
the Indenture shall cease to be of further force or effect (except as to rights
of registration of transfer or exchange of the Notes provided in the Indenture)
and, at the written request of the Company, accompanied by an Officers'
Certificate and Opinion of Counsel, each stating that all conditions precedent
provided for in the Indenture relating to the satisfaction and discharge of the
Indenture have been complied with, and upon payment of the reasonable costs,
charges and expenses incurred or to be incurred by the Trustee in relation
thereto or in carrying out the provisions of the Indenture, the Trustee must
satisfy and discharge the Indenture; provided, that the Company's obligations
with respect to the payment of principal, premium, if any, and interest will not
terminate until the same shall apply the moneys so deposited to the payment to
the Holders of Notes of all sums due and to become due thereon.
MODIFICATION AND WAIVER
From time to time, when authorized by a resolution of their respective
Boards of Directors, the Company and the Trustee, without notice to or the
consent of the Holders of the Notes issued thereunder, may amend or supplement
the Indenture, the Notes and related documents for certain specified purposes,
including to cure any ambiguity, defect or inconsistency, or to correct or
supplement any provision of the Indenture that may be
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defective or inconsistent with any other provision therein, provided that such
amendment does not adversely affect the rights of any Noteholder; to comply with
the "Merger and Consolidation" covenant; to make any other change that does not
adversely affect the rights of any Noteholder; to comply with any requirement of
the Commission in connection with the qualification of the Indenture under the
Trust Indenture Act of 1939, as amended; or to add to the covenants of the
Company for the benefit of the Holders or to surrender any right or power herein
conferred upon the Company. Other amendments and modifications to and waivers of
future compliances with any provisions of the Indenture, the Notes and related
documents may be made with the consent of the Holders of a majority in principal
amount of the Notes then outstanding, except that, without the consent of each
Holder of the applicable Notes affected thereby, no supplemental indenture may
(i) make any change to the Stated Maturity of, the principal of, premium, if
any, on, any interest on, or any Equity Offering Redemption Price, Redemption
Price, Net Proceeds Offer Price or Change of Control Offer Price of, any Notes
or impair the right to institute suit for the enforcement of any such payment or
make any Notes payable in money or securities other than that stated in the
Notes, (ii) make any changes in these provisions or the provisions governing
waiver of past Defaults or the rights of Holders to receive payment of interest
on and principal of such Notes, or (iii) reduce the amount of Notes the Holder
of which must consent to any supplemental indenture or waiver provided for in
the Indenture.
The Holders of not less than a majority in aggregate principal amount of
the Notes outstanding, on behalf of the Holder of all of the Notes, may waive
any past Default with respect to certain restrictive covenants and provisions of
the Indenture with respect to the Notes and the consequences of such Default but
may not do so with respect to any default in the payment of the principal
amount, Equity Offering Redemption Price, Redemption Price, Change of Control
Offer Price, Net Proceeds Offer Price or any other required payment under the
Indenture when the same becomes due and payable as herein provided, whether at
its Stated Maturity, upon redemption, upon declaration of acceleration, when due
for purchase by the Company or otherwise, whether or not such payment shall be
prohibited by this Indenture, or any such covenant or provision which cannot be
modified or amended without the consent of each outstanding Note affected.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee thereunder 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 under the
Indenture and use the same degree of care and skill in its exercise as a prudent
man would exercise under the circumstances in the conduct of his own affairs.
The Trustee is U.S. Trust Company of Texas, N.A., Dallas, Texas.
The Indenture and provisions of the Trust Indenture Act of 1939, as
amended, contain limitations on the rights of the Trustee, should it become a
creditor of the Company, to obtain payment of claims in certain cases or to
realize on certain property received by it in respect of any such claims, as
security or otherwise. The Trustee is permitted to engage in other transactions;
provided, however, that if it acquires any conflicting interest it must
eliminate such conflict upon the occurrence of a Default or resign.
DEPOSITORY
Upon issuance, all Notes will be represented by one or more fully
registered Global Notes. Each such Global Note will be deposited with, or on
behalf of, The Depository Trust Company, as depository (the "Depository"), and
registered in the name of the Depository or a nominee thereof. Unless and until
it is exchanged in whole or in part for Notes in definitive form, no Global Note
may be transferred except as a whole by the Depository to a nominee of such
Depository or to another nominee of such Depository or by such Depository or any
such nominee to a successor of such Depository or a nominee of such successor.
The Depository has advised the Company as follows: the Depository is a
limited-purpose trust company organized under the Banking Law of the State of
New York, a member of the Federal Reserve System, a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. The Depository
was created to hold securities of its participants ("Participants") and to
facilitate the clearance and settlement of securities transactions among its
Participants in such securities through electronic book-entry changes in
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amounts of the Participants thereby eliminating the need for physical movement
of securities certificates. The Depository's Participants include securities
brokers, dealers, banks, trust companies, clearing corporations, and certain
other organizations. The Depository is owned by a number of Participants and by
the New York Stock Exchange, Inc., the American Stock Exchange Inc. and the
National Association of Securities Dealers, Inc. Access to the Depository's
book-entry system is also 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").
Purchases of Notes must be made by or through Participants, which will
receive a credit on the records of the Depository. The ownership interest of
each actual purchaser of a Note (the "Beneficial Owner") is in turn to be
recorded on the Participants' or Indirect Participants' records. Beneficial
Owners will not receive written confirmation from the Depository of their
purchase, but Beneficial Owners are expected to receive written confirmations
providing details of the transaction, as well as periodic statements of their
holdings, from the Participant or Indirect Participant through which the
Beneficial Owner entered into the transaction. Ownership of beneficial interests
in Global Notes will be shown on, and the transfer of such ownership interests
will be effected only through, records maintained by the Depository (with
respect to interests of Participants) and on the records of Participants (with
respect to interests of persons held through Participants). The laws of some
states may require that certain purchasers of securities take physical delivery
of such securities in definitive form. Such limits and such laws may impair the
ability to own, transfer or pledge beneficial interests in Global Notes.
So long as the Depository, or its nominee, is the registered owner of a
Global Note, the Depository or its nominee, as the case may be, will be
considered the sole owner or holder of the Notes represented by such Global Note
for all purposes under the Indenture. Except as provided below, Beneficial
Owners of a Global Note will not be entitled to have the Notes represented by
such Global Note registered in their names, will not receive or be entitled to
receive physical delivery of the Notes in definitive form and will not be
considered the owners or holders thereof under the Indenture. Accordingly, each
person owning a beneficial interest in a Global Note must rely on the procedures
of the Depository and, if such person is not a Participant, on the procedures of
the Participant through which such person owns its interest, to exercise any
rights of a holder under the Indenture. The Company understands that under
existing industry practices, in the event that the Company requests any action
of Holders of Notes or an owner of a beneficial interest in a Global Note
desires to give or take any action which the holder of a Note is entitled to
give or take under the Indenture, the Depository would authorize the
Participants holding the relevant beneficial interests to give or take such
action, and such Participants would authorize Beneficial Owners owning through
such Participants to give or take such action or would otherwise act upon the
instructions of Beneficial Owners. Conveyance of notices and other
communications by the Depository to Participants, by Participants to Indirect
Participants, and by Participants and Indirect Participants to Beneficial Owners
will be governed by arrangements among them, subject to any statutory or
regulatory requirements as may be in effect from time to time.
Payment of the principal of, premium, if any, and interest on Notes
registered in the name of the Depository or its nominee will be made to the
Depository or its nominee, as the case may be, as the Holder of the Global Note
or Global Notes representing such Notes. None of the Company, the Trustee or any
other agent of the Company or agent of the Trustee will have any responsibility
or liability for any aspect of the records relating to or payments made on
account of beneficial ownership interests or for supervising or reviewing any
records relating to such beneficial ownership interests. The Company expects
that the Depository, upon receipt of any payment of principal, premium, if any,
or interest in respect of a Global Note will credit the accounts of the
Participants with payment in amounts proportionate to their respective holdings
in principal amount of beneficial interest in such Global Note as shown on the
records of the Depository. The Company also expects that payments by
Participants to Beneficial Owners will be governed by standing customer
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name," and
will be the responsibility of such Participants.
If (i) the Depository is at any time unwilling, unable or ineligible to
continue as Depository and a successor depository is not appointed by the
Company within 60 days after the Company is so informed in writing or becomes
aware of the same, or (ii) an Event of Default has occurred and is continuing,
the Global
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Notes will be exchange for Notes in definitive form of like tenor and of an
equal aggregate principal amount, in denominations of $1,000 and integral
multiples thereof. Such definitive Notes shall be registered in such name or
names as the Depository shall instruct the Trustee. It is expected that such
instructions may be based upon directions received by the Depository from
Participants with respect to ownership of beneficial interests in Global Notes.
No service charge will be made for the registration of transfer or exchange
of Notes, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith. Principal of,
premium, if any, and interest on definitive Notes (if issued) will be payable
and such Notes may be surrendered for registration of transfer or exchange at
the office or agency of the Company maintained for such purpose in The City of
New York, located initially at the corporate trust office of the Trustee. At the
option of the Company, payment of interest on definitive Notes (if issued) may
be made by check mailed to the addresses of the persons entitled thereto as they
appear on the securities register.
SAME-DAY SETTLEMENT AND PAYMENT
All payments of principal of, premium, if any and interest on the Notes
will be made by the Company in immediately available funds, so long as the Notes
are maintained in book-entry form and the procedures of the Depository permit
such payments to be made in immediately available funds.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants contained in the Indenture or herein. Reference in made to the
Indenture for the full definition of all such terms as well as any other
capitalized terms used herein for which no definition is provided.
"Acquired Indebtedness" of any particular Person means Indebtedness of any
other Person existing at the time such other Person merged with or into or
became a Subsidiary of such particular Person or that was assumed by such
particular Person in connection with the acquisition of assets from any other
Person, and not incurred in connection with, or in contemplation of, such other
Person merging with or into such particular Person or becoming a Subsidiary of
such particular Person or such acquisition, or the acquisition of assets from
such other Person.
"Affiliate" means, with respect to a Particular Person, (i) any Person
that, directly or indirectly, is in control of, is controlled by, of is under
direct or indirect common control with, such particular Person, (ii) any Person
who is a director, executive officer or general partner (a) of such particular
Person, (b) of any Subsidiary of such particular Person, or (c) of any Person
described in clause (i) above, (iii) any trust or estate in which such
particular Person, or the spouse or any relative of such Person, or any relative
of such spouse, has a beneficial interest or as to which such particular Person,
or the spouse or any relative of such particular Person, or any relative of such
spouse, serves as trustee or in a similar fiduciary capacity, or (iv) the spouse
or any relative of such particular Person, or any relative of such spouse. For
purposes of this definition, (i) "control" of a Person shall mean the power,
direct or indirect (a) to vote five percent or more of the securities having
ordinary voting power for the election of directors of such Person, or (b) to
direct or cause the direction of the management and policies of such Person
whether by contract or otherwise; and the terms "controlling" and "controlled
by" have meanings correlative to the foregoing, and (ii) a "relative" of a
Person shall mean an ancestor, descendant or sibling of such Person.
Notwithstanding the foregoing, the term "Affiliate" shall not include any Wholly
Owned Subsidiary of the Company.
"Asset Disposition" means any sale, lease, conveyance, disposition or other
transfer (or series of related sales, leases, conveyances, dispositions or other
transfers) (including without limitation a sale and leaseback transaction) of
any Capital Stock of any Restricted Subsidiary (whether or not upon original
issuance), by the Company or any Restricted Subsidiary, or of any property or
other assets (each referred to for the purposes of this definition a
"disposition") by the Company or any of its Restricted Subsidiaries, whether for
cash or other consideration, other than (i) a disposition by a Restricted
Subsidiary to the Company, (ii) a disposition that is an Investment (to the
extent such Investment may be deemed to constitute an Asset Disposition) or a
Restricted Payment permitted under the "Restricted Payments" covenant, (iii)
sales of inventory in the
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ordinary course of business, (iv) a disposition that is governed by the "Merger
and Consolidation" or "Repurchase at the Option of Holders Upon Change of
Control" covenant, (v) dispositions between the Company and a Wholly Owned
Restricted Subsidiary of the Company or between Wholly Owned Restricted
Subsidiaries of the Company, (vi) a disposition of Capital Stock of a Restricted
Subsidiary to the Company or a Wholly Owned Restricted Subsidiary of the
Company, or (vii) any other disposition of Capital Stock, property or assets in
a single transaction or a series of related transactions of the Company or any
Restricted Subsidiary having a Fair Market Value of less than $1.0 million,
provided that the Fair Market Value of all dispositions made pursuant to this
clause (vii) shall not exceed $5.0 million in the aggregate during any 12-month
period. It is specifically acknowledged and agreed that neither an issuance,
sale or other disposition of any Capital Stock of the Company or Amercord shall
be deemed an "Asset Disposition."
"Average Life" means, with respect to any Indebtedness, as at any date of
determination, the quotient obtained by dividing (i) the sum of the products of
(a) the number of years from such date or dates of each successive scheduled
principal payment (including, without limitation, any sinking fund requirements)
of such Indebtedness multiplied by (b) the amount of each such principal payment
by (ii) the sum of all such principal payments.
"Bankruptcy Law" means the Bankruptcy Reform Act of 1978, codified at Title
11 of the United States Code, as amended from time to time, or any similar
federal or state law for the relief of debtors.
"Borrowing Base" means, as of any date, an amount equal to the sum of (a)
85% of the face amount of all accounts receivable owned by the Company and its
Restricted Subsidiaries as of such date that are not more than 90 days past due,
and (b) 65% of the book value of all inventory owned by the Company and its
Restricted Subsidiaries as of such date, all calculated on a consolidated basis
and in accordance with GAAP. To the extent that information is not available as
to the amount of accounts receivable or inventory as of a specific date, the
Company may utilize the most recent available information for purposes of
calculating the Borrowing Base.
"Capital Stock" of any Person means any and all shares, interests,
participations, rights or other equivalents (however designated) of such
Person's capital stock and any warrants, rights, options and similar rights to
acquire such capital stock, whether now outstanding or issued after the Initial
Issuance Date.
"Capitalized Lease Obligations" means, as applied to any Person, any
obligation relating to any property (whether real, personal or mixed) by that
Person which, in accordance with GAAP, has been recorded as a capital lease on
the balance sheet of such Person.
"Change of Control" means (i) the acquisition, including through merger,
consolidation or otherwise, by any Person or any Persons acting together which
would constitute a "group" (a "Group") for purposes of Section 13(d) of the
Exchange Act, together with all affiliates and associates (as defined in Rule
12b-2 under the Exchange Act) thereof, of direct or indirect beneficial
ownership (as defined in Rule 13d-3 under the Exchange Act) of more than 50% of
the Voting Stock of the Company, other than an acquisition by a Person or
Persons who on the Initial Issuance Date are Affiliates of the Company, (ii) the
election by any Person or Group, together with all affiliates and associates
thereof, of a sufficient number of its or their nominees to the Board of
Directors of the Company such that such nominees, when added to any existing
directors remaining on such Board of Directors after such election who are
affiliates or associates of such Person or Group, shall constitute a majority of
such Board of Directors, other than the election by a Person or Persons who on
the Initial Issuance Date are Affiliates of the Company, (iii) the approval by
the Company's stockholders of any plan or proposal for the liquidation or
dissolution of the Company, (iv) the consummation of any consolidation or merger
of the Company (a) in which the Company is not the continuing or surviving
corporation, or (b) pursuant to which the Common Stock of the Company would be
converted into cash, securities or other property, in each case other than a
consolidation or merger of the Company in which the holders of the Company's
Common Stock immediately prior to the consolidation or merger hold, directly or
indirectly, at least a majority of the common equity of the continuing or
surviving corporation immediately after the consolidation or merger or (v) the
sale of all or substantially all of the Company's assets to any Person. In
connection with clause (v) of the preceding sentence, the Indenture does not
quantify what constitutes "all or substantially all" of the Company's assets.
The Indenture provides that the Notes and Indenture shall be
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governed by and construed in accordance with the laws of the State of New York,
as applied to contracts made or entered into and performed within the State of
New York, without regard to principles of conflict of laws. Under existing New
York law, there is no established quantitative definition of "all or
substantially all" of the assets of a corporation. An analysis of all the
then-relevant facts and circumstances and applicable legal authority would be
required to establish whether a Change of Control has occurred. In the event in
uncertainty exists as to whether a Change of Control has in fact occurred, such
uncertainty could adversely affect the ability of a Noteholder to assert its
rights to cause the Company to repurchase its Notes under the Change of Control
put provision of the Indenture.
"Consolidated Interest Coverage Ratio" means the ratio of (i) the sum of
Consolidated Net Income, Consolidated Interest Expense and Consolidated Tax
Expense, plus depreciation, and, without duplication, all amortization, in each
case, for such period, of the Company and its Restricted Subsidiaries on a
consolidated basis all as determined in accordance with GAAP, to (ii) pro forma
Consolidated Interest Expense; plus cash preferred dividends (tax-effected) for
the preceding four fiscal quarters. In calculating the Consolidated Interest
Coverage Ratio on a pro forma basis, (a) any Indebtedness bearing a floating
interest rate shall be computed as if the rate in effect on the date of
computation had been the applicable rate for the entire period, (b) the actual
average daily outstanding principal amount of all committed revolving credit
facilities for the period for which the Consolidated Interest Coverage Ratio is
being calculated shall be deemed to be outstanding, (c) if the Company or any of
its Restricted Subsidiaries incurs any Indebtedness subsequent to the
commencement of the period for which the Consolidated Interest Coverage Ratio is
being calculated but prior to the event for which the calculation of the
Consolidated Interest Coverage Ratio is made, then the Consolidated Interest
Coverage Ratio shall be calculated to give pro forma effect to such incurrence
of Indebtedness (with any revolving Indebtedness so incurred being computed in
accordance with clause (b) above) and (if applicable) the application of the net
proceeds therefrom to repay other Indebtedness as if such transaction(s) had
occurred at the beginning of the applicable period, and (d)(1) the acquisition
of any company or business or interest therein by the Company or any Restricted
Subsidiary, or (2) the disposition of any Restricted Subsidiary or assets or
other properties comprising a division or line of business of the Company or any
Restricted Subsidiary, since the first day of such period, including any
acquisition or disposition that will be consummated simultaneously with the
issuance of Indebtedness giving rise to the event for which the calculation of
the Consolidated Interest Coverage Ratio shall be calculated, as if such
acquisition or disposition occurred at the beginning of such period.
"Consolidated Interest Expense" of any Person means, for any period,
without duplication, the total interest expense of such Person and its
Subsidiaries (which as to the Company shall mean Restricted Subsidiaries only)
determined on a consolidated basis in accordance with GAAP, including (i)
non-cash, payable-in-kind interest, (ii) interest expense attributable to
Capitalized Lease Obligations, (iii) amortization of debt discount and debt
issue cost, but only with respect to transactions consummated after the Initial
Issuance Date, (iv) commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing, (v) net costs
under Interest Rate Protection Agreements (including amortization of discount),
and (vi) dividends in respect of preferred stock of such Person or of
Subsidiaries of such Person held by Persons other than such Person or one of its
Wholly Owned Subsidiaries (which as to the Company shall mean Restricted
Subsidiaries only), but excluding capitalized interest.
"Consolidated Net Income" of any Person means, for any period, the
aggregate of the Net Income of such Person and its Subsidiaries (which as to the
Company shall mean Restricted Subsidiaries only) for such Period, on a
consolidated basis, determined in accordance with GAAP, provided, however,
excluding (i) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such transaction, (ii) the Net
Income of any Person accounted for by the equity method of accounting, provided,
that Net Income of any such Person shall be included to the extent of dividends
or distributions actually paid to the Company or its Restricted Subsidiaries
during the period in question, and (iii) the Net Income of any Restricted
Subsidiary to the extent such Net Income is subject to any restrictions or
encumbrances on such Subsidiary's ability to make distributions to the Company,
provided, that Net Income of any such Person shall be included to the extent of
dividends or distributions actually paid to the Company or its Restricted
Subsidiaries during the period in question. For purposes of this definition,
"Net Income" of any Person means,
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for any period, the net income (or loss) of such Person determined in accordance
with GAAP, excluding, however, from the determination (i) any net gain or loss
from extraordinary items (including upon the early extinguishment of
Indebtedness), and (ii) any gain or loss realized upon the sale or other
disposition during such period (including without limitation dispositions
pursuant to sale and leaseback transactions) of any real property, equipment or
other asset of such Person, which is not sold or otherwise disposed of in the
ordinary course of business, or of any Capital Stock of such Person or a
Subsidiary of such Person.
"Consolidated Net Worth" of any Person means, as of any date, the amount
which, in accordance with GAAP, would be set forth under the caption
"stockholders' equity" (or any like caption) on the consolidated balance sheet
of such Person and its Subsidiaries, less amounts attributable to Disqualified
Stock of such Person or any of its Subsidiaries (and, as to the Company, less
amounts attributable to the Capital Stock of any Unrestricted Subsidiary).
"Consolidated Tax Expense" means for any period the aggregate of the
federal, state, local and foreign income tax expense of the Company and its
Restricted Subsidiaries for such period, on a consolidated basis as determined
in accordance with GAAP, to the extent deducted in computing Consolidated Net
Income.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement, commodity hedging agreement or other similar agreement or arrangement
designed to protect the Company or any of its Subsidiaries against fluctuations
in currency values and commodity values.
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator, custodian or similar official under any Bankruptcy Law.
"Default" means any event, act or condition that is, or after notice or
passage of time or both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) all Indebtedness owing to
KeyBank and its successors and assigns under the Credit Agreement that
constitutes Senior Indebtedness and (ii) after such Indebtedness under the
Credit Agreement has been paid in full or upon written consent of the Senior
Indebtedness Representative with respect to such Indebtedness, any other Senior
Indebtedness which, at the time of determination, has an aggregate principal
amount outstanding (including the committed but unused principal amount of any
revolving Indebtedness) of at least $10.0 million and is specifically designated
by the Company in the instrument evidencing such Senior Indebtedness as
"Designated Senior Indebtedness."
"Disqualified Stock" of any Person means any Capital Stock of such Person
that, by its terms (or by the terms of any security into which it is convertible
or for which it is exercisable, redeemable or exchangeable) 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 final maturity of the Notes, provided, however, that any
Disqualified Stock that would constitute Disqualified Stock solely because the
holders thereof have the right to require the Company to repurchase such Capital
Stock upon the occurrence of a Change of Control or Asset Disposition shall not
constitute Disqualified Stock if the terms of such Capital Stock provide that
the Company may not repurchase or redeem any such Capital Stock pursuant to such
provisions unless such repurchase or redemption complies with the "Restricted
Payments" covenant.
"Equity Offering Redemption Price" means the price at which the Company may
elect to redeem, on or before , 2001, up to 25% of the aggregate
principal amount of the Notes, provided that, at least $65 million in aggregate
principal amount of the Notes shall remain outstanding immediately after the
occurrence of such redemption, which price is % of the principal amount of
the Notes to be redeemed, plus accrued and unpaid interest, if any, on such
amount to the redemption date.
"GAAP" means generally accepted accounting principles as applied in the
United States 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, from time to time.
"guarantee" by any Person means any obligation, contingent or otherwise, of
such Person directly or indirectly guaranteeing or in any manner being
responsible for any Indebtedness of any other Person and, without limiting the
generality of the foregoing, any obligation, direct or indirect, contingent or
otherwise, of
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such Person (i) to purchase or pay (or advance or supply funds for the purchase
of payment of) such Indebtedness of such other Person (whether arising by virtue
of participation arrangements, by agreement to keep well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise), or (ii) entered into for the purpose of
assuring the obligor of such Indebtedness in any other manner of the payment
thereof or to protect such obligee against loss in respect thereof, in whole or
in part (including, without limiting the generality of the foregoing, payment of
damages in the event of nonperformance or the payment of amounts drawn down by
letter of credit); provided that the term "guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business.
"Holder" or "Noteholder" means a person in whose name a Note is registered
on the Register, and the word "majority" used in connection with the term
"Holder" or "Noteholder," shall signify the "majority in principal amounts,"
whether or not so expressed.
"Indebtedness" of any Person means, at any date, and without duplication,
any obligation or indebtedness, whether or not contingent, for or in respect of:
(i) money borrowed (whether or not for a cash consideration and whether or not
the recourse of the lender is to the whole of the assets of such Person or only
a portion thereof) and premiums (if any) and capitalized interest (if any) in
respect thereof, (ii) all obligations (if any) with respect to any debenture,
bond, note or similar instrument (whether or not issued for a cash consideration
and including a purchase money obligation), (iii) liabilities of such Person in
respect of any letter of credit (or reimbursement agreements with respect
thereto), bankers' acceptance or note purchase facility or any liability with
respect to any recourse receivables purchase, factoring or discounting
arrangement, (iv) all obligations of such Person with respect to Capitalized
Lease Obligations (whether in respect of buildings, machinery, equipment or
otherwise), (v) all obligations created or arising under any deferred purchase
or conditional sale agreement or arrangement or representing the deferred and
unpaid balance of the purchase price of any property (including pursuant to
financing leases, conditional sales or other title retention agreements), or
other title retention agreements, except any such balance that represents a
Trade Payable, (vi) all obligations of such Person to purchase, redeem, retire,
defease or otherwise acquire for value any Disqualified Stock of such Person or
any warranties, rights or options to acquire such Disqualified Stock valued, in
the case of Disqualified Stock, at the greatest amount payable in respect
thereof on a liquidation (whether voluntary or involuntary) plus accrued and
unpaid dividends, (vii) the amount that would be payable by the Company as a
result of the termination on the date of determination of Currency Agreements
and Interest Rate Protection Agreements, if and to the extent any of the
foregoing obligations or indebtedness described in clauses (i) through (vii)
above (other than letters of credit, Currency Agreements and Interest Rate
Protection Agreements) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, (viii) the liquidation value of
preferred stock (except that Indebtedness shall not include preferred stock of
the Company), (ix) direct or indirect guarantees of all Indebtedness referred to
in clauses (i) through (viii) above of other Persons and all dividends of other
Persons for the Payment of which, in either case, such Person is directly or
indirectly responsible or liable as obligor, guarantor or otherwise (including
by virtue of contractual obligations which, if material, would require
quantified disclosure pursuant to Standard 47 of the Financial Accounting
Standards Board) or legally binding agreements by any person (a) to pay or
purchase such Indebtedness or to advance or supply funds for the payment or
purchase of such Indebtedness, (b) to purchase, sell or lease (as lessee or
lessor) property, or to purchase or sell services, primarily for the purpose of
enabling the debtor to make payment of such Indebtedness, (c) to supply funds to
or in any other manner invest in the debtor (including any agreement to pay for
property or services irrespective of whether such property is received or such
services are rendered), or (d) otherwise to assure in a legally binding manner
any Person to whom Indebtedness is owed against loss, and (x) all Indebtedness
of the types referred to in clauses (i) through (ix) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any encumbrance on any asset owned by such Person,
even though such Person has not assumed or become liable for the payment of such
Indebtedness. The amount of Indebtedness of any Person at any date shall be
(without duplication) (i) the outstanding balance at such date of all
unconditional obligations as described above and the maximum liability of any
such contingent obligations at such date, and (ii) in the case of Indebtedness
of others secured by a Lien to which the property or assets owned or held by
such Person is subject, the lesser of the fair market value at such date
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of any property and assets subject to a Lien securing the Indebtedness of others
and the amount of the Indebtedness secured.
"Independent Director" means a director of the Company who (i) is not an
employee or Affiliate of the Company or any Subsidiary of the Company (other
than by reason of his status as a director of the Company or one or more of its
Subsidiaries), and (ii) has no material business or professional relationship
with the Company or any Subsidiary of the Company, or any of its Affiliates. For
purposes of this definition, (a) a "material business or professional
relationship" means any business or professional relationship with the Company
or a Subsidiary of the Company of any of the types described in, and that
exceeds any applicable disclosure threshold set forth in, Item 404(b) of
Regulation S-K promulgated pursuant to the Exchange Act, and (b) no director
designated by Prudential or any subsequent holder of Capital Stock of the
Company held by Prudential on the Initial Issuance Date (to the extent such
subsequent holder has a contractual right to designate any director of the
Company), shall be considered to be an Independent Director.
"Initial Issuance Date" means the date of original issuance of the Notes.
"Intercompany Agreement" means an intercompany note substantially in the
form attached as an exhibit to the Indenture.
"Interest Rate Protection Agreement" of any Person means any interest rate
swap agreement, interest rate collar agreement, option or future contract or
other similar agreement or arrangement designed to protect such Person or any of
its Subsidiaries against fluctuations in interest rates.
"Investment" means any direct or indirect advance, loan or other extension
of credit 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 of Capital Stock, bonds, notes,
debentures or other securities issued by, any other Person, other than (i) loans
or advances made to employees in the ordinary course of business not in excess
of $250,000 outstanding at any time to any employee or $ in the
aggregate at any time, and (ii) advances to customers in the ordinary course of
business that are recorded as accounts receivable or notes receivable arising
therefrom on the balance sheet of any Person or its Subsidiaries.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Net Proceeds" means the aggregate amount of consideration received by the
Company or any of its Restricted Subsidiaries with respect to any Asset
Disposition, after deducting therefrom brokerage commissions and other
reasonable fees and expenses (including appraisal fees, survey charges,
engineering fees, title insurance premiums, legal fees, finder's fees, loan
origination and similar fees, underwriting fees, investment banking fees and
other similar commissions or fees; any filing, recording or registration fees,
costs and expenses; and any recording, transfer, sales and income taxes), and
also less any amounts required to be applied substantially simultaneously with
the consummation of such Asset Disposition to retire all or a portion of the
Notes or Indebtedness permitted under the "Limitation on Indebtedness" covenant
having the benefit of a Lien on the property or assets so transferred, to the
extent, but only to the extent, that (i) such amounts are paid by the Company or
one of its Restricted Subsidiaries or are amounts for which the Company or one
of its Restricted Subsidiaries or any of their properties is directly and not
contingently liable, as the case may be, and properly attributable to the
transaction in respect of which such consideration is received or to the asset
that is the subject of such transaction, and (ii) the matters referred to in
clause (i) above are set forth in a certificate signed by the principal
financial officer, the President or any Vice President of the Company, the
statements in which shall be true and correct in all material respects;
provided, however, that Net Proceeds shall exclude non-cash proceeds (including
deferred payment obligations) received from any such transaction but will
include such proceeds when and as received by the Company or any Restricted
Subsidiary in cash.
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"Non-payment Default" means any event (other than a Payment Default) the
occurrence of which entitles one or more Persons to accelerate the maturity of
any Designated Senior Indebtedness, following any applicable grace period or
notice required to be given in connection therewith.
"Officer's Certificate" means a written certificate containing information
required under the Indenture that is signed on behalf of the Company by two of
its officers and delivered to the Trustee. Each such Certificate must comply
with the applicable provisions of the Trust Indenture Act of 1939, as amended.
"Payment Default" means any default in the payment of principal, premium,
if any, or interest, if any, on any Designated Senior Indebtedness beyond any
applicable grace period with respect thereto.
"Permitted Indebtedness" means (i) Indebtedness of the Company or any
Restricted Subsidiary on the Initial Issuance Date, (ii) Indebtedness of the
Company pursuant to the Indenture, (iii) Indebtedness of the Company and/or its
Restricted Subsidiaries under or with respect to, the Credit Agreement that does
not exceed an outstanding principal amount equal to the greater of $65.0 million
or the Borrowing Base (including for purposes of this limit, without
duplication, principal amounts due under the Taxable Notes and the maximum
amount that can be drawn under any letters of credit issued under the Credit
Agreement), (iv) Capitalized Lease Obligations incurred to refinance Capitalized
Lease Obligations of the Company and its Restricted Subsidiaries in existence on
the Initial Issuance Date, (v) guarantees of Indebtedness of Wholly Owned
Subsidiaries of the Company, (vi) loans or advances from a Restricted Subsidiary
to the Company or a Wholly Owned Subsidiary of the Company, provided that the
obligation of such obligor is subject to an Intercompany Agreement, (vii) the
incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness
represented by Capitalized Lease Obligations, mortgage financings or purchase
money obligations, in each case incurred for the purpose of financing all or any
part of the purchase price or cost of construction or improvement of property,
plant or equipment used in the business of the Company or such Restricted
Subsidiary, in an aggregate principal amount not to exceed $5.0 million at any
time outstanding, (viii) the incurrence by the Company or any of its Restricted
Subsidiaries of Acquired Indebtedness in connection with the acquisition of
assets or a new Subsidiary; provided that the principal amount (or accreted
value, as applicable) of such Acquired Indebtedness, together with any other
outstanding Acquired Indebtedness incurred pursuant to this clause (viii) and
any outstanding Refinancing Indebtedness incurred to refund, refinance or
replace any Acquired Indebtedness incurred pursuant to this clause (viii), does
not exceed $5.0 million, and (ix) the incurrence by the Company or any of its
Restricted Subsidiaries of additional Indebtedness in an aggregate principal
amount (or accreted value, as applicable) at any time outstanding, including all
Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (ix), not to exceed $5.0 million,
(x) the incurrence by the Company or any of its Restricted Subsidiaries of
Intercompany Indebtedness between or among the Company or any of its Wholly
Owned Restricted Subsidiaries, provided, however, that (i) if the Company is the
obligor on such Indebtedness, such Indebtedness is expressly subordinated to the
prior payment in full in cash of all Obligations with respect to the Notes and
(ii)(a) any subsequent issuance or transfer of Capital Stock that results in any
such Indebtedness being held by a Person other than the Company or a Wholly
Owned Restricted Subsidiary thereof and (b) any sale or other transfer of any
such Indebtedness to a Person that is not either the Company or a Wholly Owned
Restricted Subsidiary thereof shall be deemed, in each case, to constitute an
incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as
the case may be, that was not permitted by this clause (x); (xi) the incurrence
by the Company or any of its Restricted Subsidiaries of Currency Agreements and
Interest Rate Protection Agreements, (xii) guaranties by the Company or any of
its Restricted Subsidiaries of Indebtedness of the Company or a Restricted
Subsidiary that is otherwise permitted by the "Limitation on Indebtedness"
covenant, and (xiii) new Indebtedness issued to repay, renew, refund or
refinance Indebtedness of the Company or any Restricted Subsidiary (such new
Indebtedness being "Refinancing Indebtedness"), provided, however, that such
Refinancing Indebtedness (a) does not exceed the then-outstanding principal or
accreted amount less any amounts used to permanently repay or prepay such
Indebtedness (plus the committed but unused principal amount of any revolving
indebtedness) of, (b) ranks in right of payment to the Notes at least to the
same extent as, and (c) has an Average Life and stated maturity equal to, or
greater than, the Indebtedness so repaid, refunded or refinanced;
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provided further, however, that a Restricted Subsidiary shall not incur
Refinancing Indebtedness to repay, renew, refund or refinance Indebtedness of
the Company or another Subsidiary of the Company.
"Permitted Investment" means any Investment in the following kinds of
instruments: (i) readily marketable obligations issued or unconditionally
guaranteed as to principal and interest by the United States of America or by
any agency or authority controlled or supervised by and acting as an
instrumentality of the United States of America if, on the date of purchase or
other acquisition of any such instrument by the Company or any Restricted
Subsidiary of the Company, the remaining term to maturity or interest rate
adjustment is not more than three years, (ii) obligations (including, but not
limited to, demand or time deposits, bankers' acceptances, Eurodollar deposits,
repurchase agreements and certificates of deposit) issued by a depository
institution or trust company incorporated under the laws of the United States of
America, any state thereof or the District of Columbia, provided that (a) such
instrument has a final maturity not more than one year from the date of purchase
thereof by the Company or any Restricted Subsidiary of the Company, and (b) such
depository institution or trust company has, at the time of the Company's or
such Restricted Subsidiary's Investment therein or contractual commitment
providing for such Investment, (1) capital, surplus and undivided profits (as of
the date of such institution's most recently published financial statements) in
excess of $100.0 million, and (2) the long-term unsecured debt obligations
(other than such obligations rated on the basis of the credit of a person or
entity other than such institution) of such institution, at the time of the
Company's or such Restricted Subsidiary's Investment therein or contractual
commitment providing for such Investment, are rated "A" or better by Standard &
Poor's Corporation ("S&P") and "A-2" or better by Moody's Investor Service, Inc.
("Moody's"), (iii) commercial paper issued by any corporation, if such
commercial paper has, at the time of the Company's or any Restricted
Subsidiary's Investment therein or contractual commitment providing for such
Investment, credit ratings of at least A-1 by S&P and P- I by Moody's, (iv)
money market mutual or similar funds having assets in excess of $100.0 million,
(v) money market preferred stock rated "A" or above by S&P, (vi) demand or time
deposit accounts used in the ordinary course of business with commercial banks,
provided that (a) the balances thereof are at all times fully insured as to
principal and interest by the Federal Deposit Insurance Corporation or any
successor thereto, or (b) such commercial bank has, at the time of the Company's
or such Restricted Subsidiary's investment therein, (1) capital, surplus and
undivided profits (as of the date of such institution's most recently published
financial statements) in excess of $100.0 million, and (2) the long-term
unsecured debt obligations (other than such obligations rated on the basis of
the credit of a person or entity other then such institution) of such
institution, at the time of the Company's or any Restricted Subsidiary's
Investment therein are rated "A" or better by S&P and "A-2" or better by
Moody's, and (vii) other Investments in any Person having an aggregate fair
market value (measured on the date each such Investment was made and without
giving effect to subsequent changes in value), when taken together with all
other Investments made pursuant to this clause (vii) that are at the time
outstanding, not to exceed $1.0 million, (2) any Investment in the Company or in
a Wholly Owned Restricted Subsidiary of the Company, (3) any Investment by the
Company or any Restricted Subsidiary of the Company in a Person, if as a result
of such Investment (i) such Person becomes a Wholly Owned Restricted Subsidiary
of the Company, or (ii) such Person is merged, consolidated or amalgamated with
or into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or a Wholly Owned Restricted Subsidiary of the
Company, (4) any Investment made as a result of the receipt of noncash
consideration from an Asset Disposition that was made pursuant to an in
compliance with the "Asset Disposition" covenant, and (5) any acquisition of
assets, solely in exchange for the issuance of Capital Stock (other than
Disqualified Stock) of the Company. In the event that either S&P or Moody's
ceases to publish ratings of the type provided herein, a replacement rating
agency shall be selected by the Company with the consent of the Trustee, and in
each case the rating of such replacement rating agency most nearly equivalent to
the corresponding S&P or Moody's rating, as the case may be, shall be used for
purposes hereof.
"Permitted Liens" means (i) Liens on assets securing Senior Indebtedness
that was permitted by the terms of the Indenture to be incurred; (ii) Liens in
favor of the Company; (iii) Liens on property of a Person existing at the time
such Person is merged into or consolidated with the Company or any Subsidiary of
the Company; provided that such Liens were in existence prior to the
contemplation of such merger or consolidation and do not extend to any assets
other than those of the Person merged into or consolidated with the Company;
(iv) Liens on property existing at the time of acquisition thereof by the
Company or any
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Subsidiary of the Company, provided that such Liens were in existence prior to
the contemplation of such acquisition; (v) Liens to secure the performance of
statutory obligations, surety or appeal bonds, performance bonds, workman's
compensation, unemployment insurance or other obligations of a like nature
incurred in the ordinary course of business; (vi) Liens to secure Indebtedness
(including Capitalized Lease Obligations) permitted by clause (ii) of the
covenant entitled "Limitation on Indebtedness" and clause (vii), of the
definition of "Permitted Indebtedness" covering only the assets acquired with
such Indebtedness; (vii) Liens existing on the date of the Indenture; (viii)
Liens for taxes, assessments or governmental charges or claims and landlords',
carriers', warehousemen's, mechanic's, materialmen's, repairmen's and other like
liens, in each case for amounts that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded, provided that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made therefor; and
(ix) Liens incurred in the ordinary course of business of the Company or any
Subsidiary of the Company with respect to obligations that do not exceed $2.5
million at any one time outstanding and that (a) are not incurred in connection
with the borrowing of money or the obtaining of advances or credit (other than
trade credit in the ordinary course of business), and (b) do not in the
aggregate materially detract from the value of the property or materially impair
the use thereof in the operation of business by the Company or such Subsidiary.
"Person" means any individual, corporation, partnership, joint venture,
incorporated or unincorporated association, joint-stock company, trust
unincorporated organization or government or other agency or political
subdivision thereof or other entity of any kind.
"Purchase Money Obligation" means any Indebtedness secured by a Lien on
assets related to the business of the Company and its Restricted Subsidiaries,
and any additions and accessions thereto, that are purchased or constructed by
the Company or any Restricted Subsidiary at any time after the Initial Issuance
Date (excluding the assets of any Person at the time such Person becomes a
Restricted Subsidiary); provided that (i) the security agreement, conditional
sales or other title retention contract pursuant to which the Lien on such
assets is created (together, for the purposes of this definition, the "Security
Agreement") shall be entered into within 180 calendar days after the purchase or
substantial completion of the construction of such assets and shall at all times
be confined solely to the assets so purchased or acquired, any additions and
accessions thereto and any proceeds therefrom, (ii) at no time shall the
aggregate principal amount of the outstanding Indebtedness secured thereby be
increased, except in connection with the purchase of additions and accessions
thereto and except in respect of fees and other obligations in respect of such
Indebtedness, (iii) (a) the aggregate outstanding principal amount of
Indebtedness secured thereby (determined on a per asset basis in the case of any
additions and accessions) shall not at the time such Security Agreement is
entered into exceed 90% of the purchase price to the Company or any Restricted
Subsidiary of the assets subject thereto, or (b) the Indebtedness secured
thereby shall be with recourse solely to the assets so purchased or acquired,
any additions and accessions thereto and any proceeds therefrom; provided
further, that if the Company or any Restricted Subsidiary has entered into a
legally binding commitment to execute a Security Agreement with respect to a
specified asset or assets and the Company or such Restricted Subsidiary executes
such Security Agreement within 30 calendar days after the date (for the purposes
of this definition, the "commitment date") on which it entered into such
commitment, the Security Agreement shall be deemed to have been entered into on
the commitment date, (iv) the purchase costs for such assets are or should be
included in "additions to property, plant or equipment" in accordance with GAAP,
and (v) the purchase of such assets is not part of any acquisition of any
Person.
"Redemption Price" when used with respect to any Note to be redeemed, means
the price at which it is to be redeemed pursuant to Indenture.
"Restricted Subsidiary" means (i) any Subsidiary of the Company in
existence on the Initial Issuance Date other than Amercord, (ii) any Subsidiary
of the Company organized or acquired after the Initial Issuance Date, unless
such Subsidiary shall have been designated as an Unrestricted Subsidiary by
resolution of the Board of Directors as provided in and in compliance with the
definition of "Unrestricted Subsidiary," and (iii) an Unrestricted Subsidiary
that is designated as a Restricted Subsidiary of the Company by the Board of
Directors of the Company; provided that, immediately after giving effect to the
designation referred to in clause (iii), no Default or Event of Default shall
have occurred and be continuing and the Company
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could incur at least $1.00 of additional Indebtedness under the "Limitation on
Indebtedness" covenant. The Company shall evidence any such designation to the
Trustee by promptly filing with the Trustee an Officers' Certificate certifying
that such designation has been made and stating that such designation complies
with the requirements of the immediately preceding sentence.
"Senior Indebtedness" shall mean (i) the principal of and premium, if any,
and interest on all other monetary obligations of every kind or nature due on or
in connection with any Indebtedness of the Company (other than as otherwise
provided in this definition), whether outstanding on the Initial Issuance 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 and (ii)
Indebtedness outstanding on or incurred after the Initial Issuance Date under
the Credit Agreement, including without limitation all principal, interest
(including post-petition interest), fees, expenses, indemnification obligations
and other covenants owing thereunder. Notwithstanding the foregoing, Senior
Indebtedness shall not include (a) the principal of and premium, if any, and
interest on and all other monetary obligations of every kind or nature due on or
in connection with any Indebtedness of the Company to a Subsidiary or any other
Affiliate of the Company or any of such Affiliate's subsidiaries, (b)
Indebtedness that is subordinate or junior in right of payment to any
Indebtedness of the Company, (c) Indebtedness that, when incurred, was without
recourse to the Company, (d) any liability for federal, state, local or other
taxes owed or owing by the Company, (e) that portion of any Indebtedness which
at the time of issuance is issued in violation of this Indenture, (f)
Indebtedness that is represented by Disqualified Stock, (g) amounts owing under
leases (other than any Capitalized Lease Obligations), or (h) all amounts owed
with respect to Trade Payables.
"Senior Indebtedness Representative" means (i) for Senior Indebtedness
outstanding under the Credit Agreement, KeyBank, N.A., or its successor or
assign thereunder, so long as the Trustee shall have been notified in writing of
such successor or assign, (ii) for any issue of Designated Senior Indebtedness
whose holders have appointed an agent, trustee or other representative to act on
their behalf, such agent, trustee or representative, and (iii) for any other
issue of Designated Senior Indebtedness, any holder (or holders acting jointly)
of more than 50% of the aggregate outstanding principal amount thereof.
"Stated Maturity" means, when used with respect to any security, the date
specified in such security as the fixed date on which an amount equal to the
principal of such security is due and payable.
"Subsidiary" means, with respect to any Person, (i) a corporation of which
more than 50% of whose Capital Stock with voting power (without regard to the
occurrence of any contingency that does or may suspend or dilute the voting
rights of such stock), to elect directors is at the time, directly or
indirectly, owned by such Person, by one or more Subsidiaries of such Person or
by such Person and one or more Subsidiaries thereof, or (ii) any other Person
(other than a corporation) in which such Person, one or more Subsidiaries
thereof or such Person and one or more Subsidiaries thereof, directly or
indirectly, at the date of determination thereof has more than a 50% ownership
interest and the power to direct the policies, management and affairs thereof.
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"Trade Payables" of any Person means accounts payable or any other
indebtedness or monetary obligations to trade creditors created, assumed or
guaranteed by such Person or any of its Subsidiaries in the ordinary course of
business in connection with the obtaining of materials or services.
"Unrestricted Subsidiary" means, until such time as any of the following
may be designated as a Restricted Subsidiary of the Company by the Board of
Directors of the Company as provided in and in compliance with the definition of
"Restricted Subsidiary," any Subsidiary of the Company or of a Restricted
Subsidiary organized or acquired after the Initial Issuance Date in which all
Investments by the Company of any Restricted Subsidiary are made only from funds
available for the making of Restricted Payments and that is designated
concurrently with its organization or acquisition as an Unrestricted Subsidiary
by resolution of the Board of Directors of the Company, and provided, further,
that neither the Company nor any Restricted Subsidiary, or any of their assets,
shall be liable in any manner, whether as an obligor, guarantor, or pledgor in
respect of any Indebtedness of such Unrestricted Subsidiary, any Indebtedness
being without any recourse to the Company or any of its Restricted Subsidiaries,
nor shall the Company or any of its Restricted Subsidiaries have any "keep well"
or other similar arrangement with any lender to an Unrestricted Subsidiary nor
shall the Company or any Restricted Subsidiary be committed or obligated to
purchase any minimum amount of products, finished goods or other materials or
assets of any Unrestricted Subsidiary. The Company shall evidence to the Trustee
any designation pursuant to clause (ii) of the immediately preceding sentence by
promptly filing with the Trustee an Officers' Certificate certifying that such
designation has been made.
"Voting Stock" means the Capital Stock of any class or kind ordinarily
(without regard to the occurrence of any contingency) having the power to vote
for the election of directors of the Company.
"Weighted Average Life" means, as of any date, with respect to any debt
security, the quotient obtained by dividing (i) the sum of the products of the
number of years from such date to the dates of each successive scheduled
principal payment (including any sinking fund payment requirements) of such debt
security multiplied by the amount of such principal payment, by (iii) the sum of
all such principal payments.
"Wholly Owned Subsidiary" of any Person means any Subsidiary of such Person
the entire voting share capital of which, other than directors' qualifying
shares if required by applicable law, is owned by such Person (either directly
or indirectly through Wholly Owned Subsidiaries), but excluding an Unrestricted
Subsidiary.
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COMPANY INDEBTEDNESS
The following summaries of the principal terms of the Existing Notes, the
Credit Agreement and the Taxable Notes do not purport to be complete and are
subject to the detailed provisions of, and qualified in their entirety by
reference to, the Existing Indenture, the Credit Agreement and the Taxable Note
Indenture, copies of which have been filed as exhibits to the Registration
Statement of which this Prospectus is a part and to which exhibits reference is
hereby made. See "Available Information."
EXISTING NOTES
General. The Existing Notes are issued under an indenture dated as of
August 1, 1993 (the "Existing Indenture") between the Company and U.S. Trust
Company of Texas, N.A., as trustee (the "Trustee"), a copy of the form of which
has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. Terms used with initial capital letters under the caption
"Company Indebtedness -- Existing Notes" but not defined therein shall have the
meanings set forth in the Existing Indenture.
Terms. The Existing Notes are unsecured senior subordinated obligations of
the Company and mature on August 15, 2003. The Existing Notes bear interest at
11 1/2% per annum, payable semiannually on February 15 and August 15 of each
year, to the persons who are registered holders thereof at the close of business
on the August 1 and February 1 preceding such interest payment date. The Company
currently has $75,000,000 aggregate principal amount of the Existing Notes
outstanding.
Interest on the Existing Notes is computed on the basis of a 360-day year
of twelve 30-day months. Principal and interest are payable at the office of the
Trustee in Dallas, Texas and New York, New York, but, at the option of the
Company, interest may be paid by checks mailed to the registered holders at
their registered addresses. Until otherwise designated by the Company, the
Existing Notes are transferable and exchangeable at the office of the Trustee
and are payable at the office of the Trustee in Dallas, Texas and New York, New
York. The Existing Notes have been issued in fully registered form, without
coupons, in denominations of $1,000 and integral multiples thereof.
Optional Redemption by the Company. The Existing Notes are callable at the
option of the Company beginning in August 1998 at 104.313% of the outstanding
principal amount thereof, decreasing to 100% of the principal amount in August
2001.
Repurchase at the Option of Holders Upon Change of Control. Within 30
calendar days following the occurrence of a Change of Control, the Company is
required to make an offer to the holders of the Existing Notes to repurchase any
and all of the Existing Notes (in denominations of $1,000 or integral multiples
of $1,000) at a purchase price in cash equal to 101% of the aggregate principal
amount, plus accrued and unpaid interest, if any, to the date of purchase.
Limitation on Asset Dispositions. The Existing Indenture generally limits
the ability of the Company and its Restricted Subsidiaries to sell, lease,
assign or transfer their assets outside the ordinary course of business (an
"Asset Disposition") unless the consideration received is equal to the fair
market value of the assets disposed of and at least 85% of such consideration is
in the form of cash or cash equivalents. If the Company or a Restricted
Subsidiary effects an Asset Disposition, but does not within one year use the
proceeds to (i) repay Senior Indebtedness, or (ii) acquire a new entity engaged
in a business similar to that of the Company, the Company, is required to make
an offer to purchase Existing Notes in an aggregate principal amount equal to
the proceeds received from such Asset Disposition but not used as provided in
clauses (i) and (ii) above.
Subordination. The payment of principal, premium (if any) or interest on
the Existing Notes and any other payment obligations of the Company under the
Existing Indenture are subordinated in right of payment to the extent described
in the Existing Indenture to the prior payment in full of all existing and
future Senior Indebtedness (including all indebtedness incurred pursuant to the
Credit Agreement); provided, however, that the Existing Notes shall rank equally
with or prior to, all existing and future indebtedness of the Company that is
subordinated to Senior Indebtedness. See "Credit Agreement -- Events of Default"
below. If all outstand-
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ing principal amount of the Notes is not purchased in connection with the Tender
Offer, the Existing Notes shall rank equally with the Notes.
Covenants. The Existing Indenture generally provides that the Company shall
not, and shall not permit its Restricted Subsidiaries to, directly or
indirectly, (with certain exceptions described in full in the Existing
Indenture), make any Restricted Payment (as described below) if at the time of
any such Restricted Payment, and after giving effect thereto on a pro forma
basis, (a) a default or an Event of Default under the Existing Indenture exists
or shall have occurred and be continuing or would result therefrom, (b) the
aggregate amount of all Restricted Payments declared or made after the date of
original issuance of the Existing Notes (the "Initial Issuance Date") including
such Restricted Payment shall exceed certain sums as set forth in the Existing
Indenture, or (c) the Company could not incur $1.00 of additional Indebtedness
(other than Indebtedness permitted under the Existing Indenture ("Permitted
Indebtedness") pursuant to a covenant in the Existing Indenture limiting further
Indebtedness and after giving pro form effect thereto as if the Restricted
Payment had been made at the beginning of the applicable four quarter period.
Pursuant to the Existing Indenture, if the Company or its Restricted
Subsidiaries should make the following payments or take the following actions it
would be a Restricted Payment: (i) declare or pay any dividend on, or make any
distribution to the holders of, any Capital Stock of the Company or a Restricted
Subsidiary (with certain exceptions), (ii) purchase, repay, redeem or otherwise
acquire or retire for value any Capital Stock of the Company or any of its
Subsidiaries or Amercord (other than Wholly-Owned Subsidiaries of the Company),
or any options, warrants, or other rights to acquire such Capital Stock (with
certain exceptions, including (a) in connection with a transaction whereby such
Subsidiary or Amercord becomes a Wholly-Owned Subsidiary of the Company or such
Subsidiary or Amercord is being merged with or into the Company or a
Wholly-Owned Subsidiary of the Company in accordance with the terms of the
Existing Indenture, (b) purchases, redemptions, acquisitions or retirements of
Capital Stock of the Company from persons holding 5% or less of the outstanding
Capital Stock of the Company for an amount not to exceed (1) $500,000 in the
aggregate during any calendar year, or (2) $1.5 million over the term of the
Existing Notes, and (c) purchases or acquisitions by the Company of Capital
Stock of Amercord or advances or loans by the Company to Amercord for an amount
not to exceed $2.0 million in the aggregate), (iii) prepay, repay, purchase,
redeem, defease or otherwise acquire or retire for value prior to any scheduled
maturity, scheduled principal payment, scheduled repayment or scheduled sinking
fund payment, (a) any Indebtedness of the Company or any of its Restricted
Subsidiaries that ranks pari passu with or junior in right of payment to the
prior payment of the Existing Notes, or (b) Indebtedness of certain of its
Subsidiaries, except as permitted pursuant to the Existing Indenture, (iv)
incur, create or assume any guarantee of Indebtedness of any Affiliate (with
certain exceptions), or (v) make any Investment (other than as permitted in the
preceding clauses (ii) and (iv) or certain other Permitted Investments).
The Existing Indenture also limits the Company's and its Restricted
Subsidiaries' ability (in each case with certain exceptions described fully in
the Existing Indenture) to (i) incur additional debt for borrowed money, (ii)
grant liens or encumbrances on assets of the Company or its Restricted
Subsidiaries, (iii) merge with or into another entity, (iv) engage in
transactions with Affiliates except on an arms-length basis, (v) issue preferred
stock, (vi) restrict the ability of a Restricted Subsidiary to pay dividends,
pay Indebtedness owed to the Company, invest in the Company, grant liens to the
holders of the Existing Notes or guarantee the Existing Notes, or (vii) enter
into a sale-leaseback transaction.
Events of Default. In general under the Existing Indenture, an "Event of
Default" occurs if one of the following shall have occurred and be continuing:
(i) the Company defaults on the payment of principal, interest or any other
payment obligation under the Existing Indenture when the same becomes due and
payable, (ii) the Company or any of its Subsidiaries fails to comply with, or
breaches, any of its other covenants or agreements in the Existing Notes or the
Existing Indenture and such failure or breach continues for 30 calendar days
after receipt by the Company of a notice of default, (iii) the Company or any
Restricted Subsidiary fail to pay principal of or interest on any Indebtedness
when due and the principal amount of such Indebtedness exceeds $2.0 million in
aggregate, (iv) an event of default on any other Indebtedness of the Company or
any Restricted Subsidiary having an aggregate amount outstanding in excess of
$2.0 million, and such event of default shall result in such Indebtedness
becoming, whether by declaration or otherwise, due and
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payable in advance of its scheduled maturity, (v) certain events of bankruptcy
or insolvency of the Company or its Restricted Subsidiaries, (vi) a breach of
the Company's agreement to not merge or sell all of its assets unless the
Company or its Wholly-Owned Subsidiary is the Continuing Person and maintains
the same consolidated net worth, or (vii) judgments against the Company or its
Restricted Subsidiaries for the payment of money which in the aggregate exceed
$2.0 million.
Upon the occurrence of an Event of Default, the principal and accrued
interest on the Existing Notes may be declared immediately due and payable, or
upon the occurrence of certain Events of Default, the principal and interest on
the Existing Notes will automatically become due and payable. All payment
obligations of the Company under the Existing Indenture and the Existing Notes
are subordinated in right of payment to the prior payment in full of all
existing and future Senior Indebtedness, including all indebtedness incurred
pursuant to the Credit Agreement. See "Credit Agreement -- Events of Default"
below.
The Tender Offer/Consent Solicitation. The Company intends to commence a
cash tender offer for all of the Existing Notes and a solicitation of consents
to eliminate substantially all of the restrictive covenants described below. See
"The Tender Offer." Consummation of the Tender Offer is subject to the valid
tender of a majority in principal amount of the outstanding Existing Notes and
certain other conditions. Any Existing Notes not validly tendered and accepted
for payment pursuant to the Tender Offer will remain outstanding and rank
equally with the Notes.
CREDIT AGREEMENT
Interest Rate and Term. The Credit Agreement provides for a $50.0 million
total credit facility, consisting of a revolving credit facility, a letter of
credit facility (with a sublimit of $6.0 million), and an irrevocable bond
letter of credit securing the payment of the Taxable Notes (the "Bond Letter of
Credit"). See "-- Taxable Notes" below. Borrowings under the revolving credit
facility will bear interest, at the option of the Company, at either (i) the
prime commercial rate, or (ii) LIBOR (30, 60 or 90 day) plus a premium which
varies based upon the Company's financial performance (2.0% since October 1,
1997). KeyBank N.A. ("Key Bank"), the bank lender under the Credit Agreement,
receives a fee of 1.5% per annum on all letters of credit, including the Bond
Letter of Credit. The fee on the unused portion of the revolving credit line is
0.25%.
Collateral. Borrowings under the Credit Agreement are secured by first
liens on certain of the Company's bank deposits and all of the Company's
accounts receivable, inventory, machinery and equipment, contract rights and
general intangibles, other than the Company's owned real property and shares of
Amercord. Borrowings under the revolving credit facility after adjustment for
undrawn letters of credit, including the Bond Letter of Credit, are limited to
85% of eligible accounts receivable plus the lesser of 40% of finished goods and
raw material inventory or $20 million. The Company's available borrowing
capacity under the Credit Agreement at September 30, 1997 was approximately
$36.6 million.
Covenants. Under the Credit Agreement, the Company will be required to meet
certain financial covenants, including (i) a minimum adjusted tangible net
worth, including the outstanding principal amount of the Existing Notes
(calculated at the end of each calendar quarter), of at least $83.04 million
plus 50% of consolidated net income (after provision for income taxes), if
positive, for each quarter following the effective date of the Credit Agreement,
(ii) an EBIT to interest expense coverage ratio (calculated at the end of each
calendar quarter using a rolling 12-month period) of at least 1.1 to 0, (iii)
total liabilities (excluding the Existing Notes) to adjusted tangible net worth
ratio of not greater than 1.0 to 1.0 at all times, and (iv) a cash flow coverage
ratio (as defined below) (calculated at the end of each calendar quarter,
commencing March 31, 1996, using a rolling 12-month period) of at least 1.0 to
1.0 at all times. The cash flow coverage ratio is determined, in general, by
dividing the sum of after tax net income (net of the effect of Amercord),
depreciation, amortization, interest expense, cash dividends received from
Amercord, and principal payments on the Taxable Notes by the sum of all
principal payments on funded indebtedness (including the Existing Notes, but
excluding payments made in respect of the revolving loans pursuant to the Credit
Agreement), interest expense, dividends, redemptions, purchases and other
distributions made by the Company with respect to its capital stock. The Credit
Agreement also contains a number of customary affirmative covenants,
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including the delivery of annual audited and monthly unaudited financial
statements, compliance certificates and the maintenance of liability and
property insurance.
Under the Credit Agreement, the Company is prohibited, except upon terms
substantially similar to those applicable to Restricted Payments under the
Existing Indenture, from making any restricted junior payments ("Restricted
Junior Payments") including (i) any cash dividend or other distribution to
holders of the Company's capital stock, (ii) any redemption, retirement, sinking
fund or similar payment, purchase or other acquisition of any shares of the
Company's capital stock (except from persons holding 5% or less of such capital
stock and in an amount not to exceed $500,000 per year), (iii) any payment made
to redeem, purchase, repurchase or retire, or to obtain the surrender of any
outstanding warrants, options or other rights to acquire, any shares of the
Company's capital stock outstanding on or after the date of the Credit
Agreement, and (iv) any payment or prepayment of principal of, or redemption,
purchase or acquisition of, any subordinated indebtedness, including the
Existing Notes. The Credit Agreement also restricts the Company's ability to (i)
incur additional debt for borrowed money other than the Existing Notes (with
certain specified exceptions), (ii) grant liens or encumbrances on the assets of
the Company and its subsidiaries (with certain specified exceptions), (iii)
merge with or into any other person, (iv) sell, lease, assign or transfer assets
outside the ordinary course of business (with certain specified exceptions), and
(v) make or acquire investments (other than investments made after August 19,
1993 and prior to May 31, 1999 of up to $1.0 million in Amercord and certain
other specified investments).
Events of Default. The Credit Agreement contains events of default relating
to, among other things (i) the failure to pay principal, interest or other
amounts owed thereunder when due, (ii) the failure to observe or perform any
covenant contained therein, (iii) any material representation, warranty or
statement made by the Company or any of its officers proving to be incorrect in
any material respect when made or deemed to be made, (iv) any failure to make
any payment in respect of any other debt for borrowed money (including
guarantees and rent payments under capital leases) in excess of $100,000 in the
aggregate when due (after expiration of any grace period) or to make lease
payments when due in an aggregate amount of more than $100,000 in any month, (v)
any failure to observe or perform any covenant in any agreement relating to the
Taxable Notes which results in the acceleration of such indebtedness, (vi) a
judgment or order for the payment of money in excess of $500,000 or that
otherwise will have a material adverse effect on the Company, and either the
filing of a lien or assessment with respect thereto which is not released within
30 days or the enforcement of such order or judgment having not been stayed,
vacated or bonded pending appeal, (vii) any security agreement delivered in
connection therewith ceasing to be in full force and effect, (viii) the failure
by the Company to conduct its business substantially as currently conducted or
the replacement of a material portion of the Company's management employees for
reasons not supported by good business practices, (ix) the failure of William W.
Winspear and his affiliates to own at least 20% of the outstanding Common Stock,
or the failure of William W. Winspear, Prudential and their respective
affiliates to own at least 60% of the outstanding Common Stock, if William W.
Winspear and his affiliates own at least 10% of the outstanding Common Stock and
William W. Winspear remains an active executive officer of the Company, (x) any
material uninsured damage to or loss, theft or destruction of any material
portion of the collateral, and (xi) certain events of bankruptcy or insolvency.
In the event of a default under the Credit Agreement (whether as a result
of the failure to comply with a payment or other covenant, a cross-default
provision or otherwise), KeyBank will have a prior, secured claim on a
substantial portion of the assets of the Company. See "Risk
Factors -- Substantial Financial Leverage" and "-- Collateral." In the event of
a default on any principal or interest payment under the Credit Agreement, no
payments of principal and/or interest may be made with respect to the Existing
Notes, until such default is cured or waived. In the event of a non-payment
default under the Credit Agreement, KeyBank has the right, upon notice to the
Company and the Trustee, to cause the Company to suspend payments of principal
and/or interest with respect to the Existing Notes, for a period of up to 180
days; provided however, that such a suspension may only be invoked once every
360 days.
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TAXABLE NOTES
In June 1992 the Company issued $15.0 million aggregate principal amount of
Taxable Notes ($ million aggregate principal amount outstanding as of
December 31, 1997) pursuant to a trust indenture with KeyBank, as trustee. The
Taxable Notes are secured by the Bond Letter of Credit issued under the Credit
Agreement. The Taxable Notes are payable in quarterly installments ranging from
$400,000 to $450,000 through January 1, 1999, with the remaining balance due on
April 1, 1999. The interest rate on the Taxable Notes is reset weekly at the
higher of the 30-day or 90-day commercial paper rate, plus 0.125%. Effective
April 5, 1993, the Company entered into an interest rate swap agreement, the
effect of which was to fix the interests rate on the Taxable Notes at 5.57% per
annum through April 1998. Additionally, the Company pays an annual fee to equal
to 1.5% of the amount available to be drawn under the Bond Letter of Credit.
DESCRIPTION OF CAPITAL STOCK
The following statements with respect to the Company's capital stock and
certain other matters are subject to the detailed provisions of the Company's
Restated Certificate of Incorporation (the "Certificate") and the Company's
Restated Bylaws (the "Bylaws"). See "Additional Information."
COMMON STOCK
Under the Certificate, the Company has authority to issue 15,000,000 shares
of Common Stock, par value $.0025 per share ("Common Stock"). As of the date
this Prospectus and prior to the sale of the shares pursuant to the Stock
Offering, there were 4,893,504 shares of Common Stock issued and outstanding,
which were held by 27 stockholders of record. As of the date of this Prospectus,
the Company has outstanding the following securities convertible into, and
options exercisable for, shares of Common Stock: (i) 2,700,000 shares of Class B
Common Stock, par value $.0025 per share ("Class B Common Stock"), each of which
is convertible into one share of Common Stock (see "-- Class B Common Stock"
below), and (ii) options to acquire an aggregate of 307,300 shares of Common
Stock. In connection with the Stock Offering, Prudential has agreed to convert
1,350,000 shares of Class B Common Stock into shares of Common Stock (and to
convert up to an additional 202,500 shares of Class B Common Stock if the
Underwriters' over-allotment option is exercised in full), and to sell all such
shares of Common Stock in the Stock Offering. After giving effect to the Stock
Offering, if all such conversion rights or options were exercised, the Company
would be obligated to issue an additional 1,657,300 shares of Common Stock.
Holders of shares of Common Stock are entitled to one vote per share in the
election of directors and all other matters submitted to a vote of stockholders.
Such holders do not have the right to cumulate their votes in the election of
directors. Holders of Common Stock have no redemption or conversion rights and
no preemptive or other rights to subscribe for securities of the Company. The
outstanding shares of Common Stock are fully paid and non-assessable.
Subject to the rights of holders of any outstanding shares of the Company's
Preferred Stock, par value $.01 per share ("Preferred Stock"), all shares of
Common Stock, together with all shares of Class B Common Stock, are entitled to
(i) to share equally in dividends from sources legally available therefor when,
as and if declared by the Board of Directors, and (ii) upon dissolution of the
Company, to receive pro rata any assets of the Company after the satisfaction of
corporate liabilities.
Payment of cash dividends is restricted by covenants in the Credit
Agreement and the Existing Indenture and will be restricted by the New
Indenture.
CLASS B COMMON STOCK
Under the Certificate, the Company has authority to issue 2,700,000 shares
of Class B Common Stock, all of which are outstanding and owned by Prudential.
Each share of Class B Common Stock may be converted at any time at the election
of the holder into one share of Common Stock.
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Holders of shares of Class B Common Stock have rights and privileges
identical to holders of shares of Common Stock, except that shares of Class B
Common Stock may be voted (with the Common Stock as a single class) only on (i)
any amendment to the Certificate, (ii) any sale or other disposition of all or
substantially all of the Company's assets on which the holders of shares of
Common Stock have the right to vote, (iii) any merger or consolidation of the
Company on which the holders of shares of Common Stock have the right to vote,
and (iv) any liquidation, dissolution or winding up of the Company on which the
holders of shares of Common Stock have the right to vote.
PREFERRED STOCK
Under the Certificate, the Company has authority to issue 100,000 shares of
Preferred Stock. As of the date of this Prospectus, no shares of Preferred Stock
are outstanding and the Company has no present intention to issue any shares of
Preferred Stock.
Preferred Stock may be issued, from time to time in one or more series, and
the Board of Directors, without further approval of the stockholders, is
authorized to fix the dividend rights and terms, redemption rights and terms,
liquidation preferences, conversion rights, voting rights and sinking fund
provisions applicable to each such series of Preferred Stock. If the Company
issues a series of Preferred Stock in the future that has voting rights or
preference over the Common Stock with respect to the payment of dividends and
upon the Company's liquidation, dissolution or winding up, the rights of the
holders of the Common Stock offered hereby may be adversely affected. The
issuance of shares of Preferred Stock could be utilized, under certain
circumstances, in an attempt to prevent an acquisition of the Company.
STATE LAW AND CERTAIN CERTIFICATE AND BYLAW PROVISIONS
The Company is subject to the provisions of Section 203 of the General
Corporation Law of the State of Delaware (the "DGCL"). Section 203 prohibits a
publicly-held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an "interested stockholder," unless
the business combination is approved in a prescribed manner. A "business
combination" includes mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. Subject to certain exceptions,
an "interested stockholder" is a person who, together with affiliates and
associates, owns (or within the previous three years, did own) 15% or more of
the corporation's voting stock. This statute contains provisions enabling a
corporation to avoid the statute's restrictions if the stockholders holding a
majority of the corporation's voting stock approve an amendment to the
corporation's certificate of incorporation or bylaws. The Company's Certificate
and Bylaws do not contain such a provision, and the Company does not presently
intend to submit such a provision to its stockholders. Under Section 203, the
term "interested stockholder" does not include any person who owned shares in
excess of the 15% limitation prior to December 23, 1987 or any person who
acquired shares in excess of the 15% limitation from a pre-December 23, 1987
owner by gift or in a transaction in which no consideration was exchanged. Under
such provisions, the Company believes neither the Winspear Partnership nor
Prudential should be considered "interested stockholders" subject to the
provisions of Section 203.
The Certificate contains provisions which provide for a classified board of
directors consisting of three classes with directors serving staggered
three-year terms. Therefore, only one third of the directors are subject to
election by the stockholders each year. Under the DGCL, if a board of directors
is classified, a director may not be removed except for cause unless the
corporation's articles of incorporation provide otherwise. The Certificate
provides that until such time as Prudential and its affiliates are the record
holders of less than 5% of the outstanding Common Stock (on a fully diluted
basis), any director or the entire Board of Directors may be removed, with or
without cause, by the holders of a majority of the outstanding shares of the
Company entitled to vote in an election of Directors. The Certificate also
provides that until such time as Prudential and its affiliates own less than 5%
of the outstanding Common Stock (on a fully diluted basis) the holders of 25% or
more of the outstanding Common Stock shall have the right to call a special
meeting of stockholders solely for the purpose of removing any Director, filling
any vacancy created thereby and amending the Bylaws. The Certificate provides
that, except with respect to the removal and replacement of directors while
Prudential and
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its affiliates own 5% or more of the outstanding Common Stock, the stockholders
may not take action by written consent, as the DGCL would otherwise permit, but
can act only at a meeting of the stockholders. A special meeting of the
stockholders can be called by the Chairman of the Board or Chief Executive
Officer or at the request of a majority of the Board of Directors and by the
stockholders under the circumstances described above.
The Certificate provides that, to the full extent permitted by the DGCL or
any other applicable laws as presently or hereafter in effect, no Director of
the Company in his capacity shall be personally liable to the Company in his
capacity as a director of the Company. The DGCL does not permit limitation of
liability of any director (i) for breach of the director's duty of loyalty to
the Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) in
respect of certain unlawful dividend payments or stock redemptions or
repurchases, or (iv) for any transaction from which the director derived an
improper personal benefit. The Company has entered into certain agreements
("Indemnification Agreements") with each of its Directors and executive officers
designed to give effect to the foregoing provisions of the Certificate and to
provide certain additional assurances against the possibility of uninsured
liability. The effect of these provisions and the Indemnification Agreements
will be to eliminate the rights of the Company and its stockholders (through
stockholders' derivative suits on behalf of the Company) to recover monetary
damages against a director for breach of fiduciary duty as a director (including
breaches resulting from negligence or gross negligence) except in the situations
described in clauses (i)-(iv) of the second sentence of this paragraph. These
provisions and the Indemnification Agreements will not alter the liability of
Directors of the Company under federal securities laws.
The provisions of the DGCL, the Certificate and the Bylaws discussed above
would make more difficult or discourage a proxy contest or the acquisition of
control by a holder of a substantial block of the Company's stock or the removal
of the incumbent Board of Directors. Such provisions could also have the effect
of discouraging a third party from making a tender offer or otherwise attempting
to obtain control of the Company, even though such an attempt might be
beneficial to the Company and its stockholders. In addition, since these
provisions are designed to discourage accumulations of large blocks of the
Company's stock by purchasers whose objective is to have such stock repurchased
by the Company at a premium, such provisions could tend to reduce the temporary
fluctuations in the market price of the Common Stock which are caused by such
accumulations. Accordingly, stockholders could be deprived of certain
opportunities to sell their stock at a temporarily higher market price.
TRANSFER AGENT AND REGISTRAR
ChaseMellon Shareholder Services, L.L.C. is the transfer agent and
registrar for the Company's Common Stock.
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UNDERWRITING
Upon the terms and subject to the conditions stated in the Underwriting
Agreement dated the date of this Prospectus, Salomon Brothers Inc (the
"Underwriter") has agreed to purchase, and the Company has agreed to sell to
such Underwriter, $75,000,000 aggregate principal amount of Notes. The
Underwriting Agreement provides that the obligations of the Underwriter to pay
for and accept delivery of the Notes are subject to approval of certain legal
matters by its counsel and to certain other conditions. The Underwriter is
obligated to take and pay for all of the Notes offered hereby if any such Notes
are taken.
The Underwriter has advised the Company that it proposes initially to offer
part of the Notes directly to the public at the public offering price set forth
on the cover page of this prospectus and part to certain dealers at a price
which represents a concession not in excess of % of the principal amount of
the Notes. The Underwriter may allow, and such dealers may reallow, a concession
not in excess of % of the principal amount of the Notes to certain other
dealers. After the public offering, the public offering price and such
concessions may be changed from time to time by the Underwriter. The Underwriter
has informed the Company that the Underwriter does not intend to confirm sales
to accounts over which it exercises discretionary authority.
The Company and the Underwriter have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.
The Notes are a new issue of securities which have no established trading
market. It is expected that the Notes will be sold to a limited number of
investors. The Company has been advised by the Underwriter that it intends to
make a market in the Notes after the consummation of the Note Offering; however,
the Underwriter is not obligated to do so, and any such market-making, if
commenced, may be terminated at any time without notice. No assurance can be
given as to the liquidity of the trading market, if any, for the Notes.
The Underwriter may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Exchange Act. Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids for and purchases of the Notes so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the Notes in the open market in order to cover
syndicate short positions. Penalty bids permit the Underwriter to reclaim a
selling concession from a syndicate member when the Notes originally sold by
such syndicate member is purchased in a stabilizing transaction or syndicate
covering transaction to cover syndicate short positions. Such stabilizing
transactions, syndicate covering transactions and penalty bids may cause the
price of the Notes to be higher than it would otherwise be in the absence of
such transactions. The Underwriter is not required to engage in these
activities, and may end any of these activities at any time.
Smith Barney Inc. is acting as an underwriter in connection with the Stock
Offering. Smith Barney Inc. and Salomon Brothers Inc are affiliated but
separately registered broker/dealers under the common control of Salomon Smith
Barney Holdings Inc.
LEGAL MATTERS
Certain matters as to the legality of the Notes offered hereby are being
passed upon by Jones, Day, Reavis & Pogue, Dallas, Texas, counsel to the
Company. Certain legal matters in connection with the Note Offering will be
passed upon for the Underwriters by Latham & Watkins, San Diego, California.
EXPERTS
The financial statements of the Company at December 31, 1996 and 1995, and
for each of the three years in the period ended December 31, 1996, appearing in
this Prospectus and Registration Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included herein in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
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ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Notes offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain parts of which have been omitted in accordance with the rules
and regulations of the Commission. For further information with respect to the
Company and the Notes offered hereby, reference is made to the Registration
Statement, including the exhibits filed as part thereof. Statements made in this
Prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete; with respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to such exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith files reports and
other information with the Commission. Such reports and other information may be
inspected and copied at prescribed rates at the Public Reference Room of the
Commission, at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the public
reference facilities maintained by the Commission at 7 World Trade Center, New
York, New York 10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such materials can be obtained by mail at prescribed rates from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission and that is located at
http://www.sec.gov.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Balance Sheets at December 31, 1995 and 1996 and September
30, 1997 (unaudited)...................................... F-3
Statements of Operations for each of the three years in the
period ended December 31, 1996 and the nine months ended
September 30, 1996 and 1997 (unaudited)................... F-4
Statements of Stockholders' Equity for each of the three
years in the period ended December 31, 1996 and the nine
months ended September 30, 1997 (unaudited)............... F-5
Statements of Cash Flows for each of the three years in the
period ended December 31, 1996 and the nine months ended
September 30, 1996 and 1997 (unaudited)................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 79
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Associated Materials Incorporated
Dallas, Texas
We have audited the accompanying balance sheets of Associated Materials
Incorporated as of December 31, 1996 and 1995, and the related statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Associated Materials
Incorporated at December 31, 1996 and 1995, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Dallas, Texas
February 14, 1997, except for Note 16,
as to which the date is December 10, 1997
F-2
<PAGE> 80
ASSOCIATED MATERIALS INCORPORATED
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31,
------------------- SEPTEMBER 30,
1995 1996 1997
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash...................................................... $ 2,279 $ 2,384 $ 2,595
Accounts receivable, net of allowance for doubtful
accounts of $2,769, $3,749 and $6,417 at December 31,
1995 and 1996 and September 30, 1997, respectively...... 48,755 47,208 54,833
Inventories............................................... 55,922 58,357 63,092
Income taxes receivable................................... 427 587 --
Other current assets...................................... 1,967 3,025 3,129
-------- -------- --------
Total current assets............................... 109,350 111,561 123,649
Property, plant and equipment, net.......................... 49,566 51,649 53,544
Investment in Amercord Inc.................................. 9,596 11,320 10,694
Deferred tax assets......................................... 118 -- --
Other assets................................................ 3,423 3,179 2,554
-------- -------- --------
Total assets....................................... $172,053 $177,709 $190,441
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdrafts........................................... $ 6,047 $ 4,853 $ 5,177
Accounts payable.......................................... 14,489 17,114 25,451
Accrued liabilities....................................... 22,342 22,965 25,662
Revolving line of credit.................................. 18,171 13,058 4,969
Income taxes payable...................................... -- -- 1,482
Current portion of long-term debt......................... 1,750 1,750 1,750
-------- -------- --------
Total current liabilities.......................... 62,799 59,740 64,491
Deferred income taxes....................................... -- 1,884 2,946
Other liabilities........................................... 3,848 3,489 3,201
Long-term debt.............................................. 82,100 80,350 79,050
Commitments and Contingencies
Stockholders' equity:
Preferred stock, $.01 par value:
Authorized shares -- 100,000 shares at December 31, 1995
and 1996 and September 30, 1997
Issued shares -- 0 at December 31, 1995 and 1996 and
September 30, 1997.................................... -- -- --
Common stock, $.0025 par value:
Authorized shares -- 15,000,000 at December 31, 1995 and
1996 and September 30, 1997
Issued shares -- 4,832,000 at December 31, 1995,
4,893,504 at December 31, 1996, and 4,934,900 at
September 30, 1997.................................... 12 12 12
Common stock Class B, $.0025 par value:
Authorized and issued shares -- 2,700,000 at December
31, 1995 and 1996 and September 30, 1997.............. 7 7 7
Less: Treasury stock, at cost -- 0 shares at December 31,
1995 and 1996 and 41,396 at September 30, 1997.......... -- -- (542)
Capital in excess of par.................................. 67 185 505
Retained earnings......................................... 23,220 32,042 40,771
-------- -------- --------
Total stockholders' equity......................... 23,306 32,246 40,753
-------- -------- --------
Total liabilities and stockholders' equity......... $172,053 $177,709 $190,441
======== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 81
ASSOCIATED MATERIALS INCORPORATED
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales................................. $352,606 $350,029 $356,471 $264,518 $297,919
Cost of sales............................. 258,669 264,080 255,579 189,320 212,306
-------- -------- -------- -------- --------
93,937 85,949 100,892 75,198 85,613
Selling, general and administrative....... 70,482 73,207 77,740 57,944 61,646
-------- -------- -------- -------- --------
Income from operations.................... 23,455 12,742 23,152 17,254 23,967
Interest expense.......................... 10,580 11,474 10,882 8,285 7,501
-------- -------- -------- -------- --------
12,875 1,268 12,270 8,969 16,466
Equity in earnings (loss) of Amercord
Inc. ................................... 100 537 1,724 1,440 (624)
-------- -------- -------- -------- --------
Income before income tax expense.......... 12,975 1,805 13,994 10,409 15,842
Income tax expense........................ 5,101 545 5,172 3,777 6,735
-------- -------- -------- -------- --------
Net income................................ $ 7,874 $ 1,260 $ 8,822 $ 6,632 $ 9,107
======== ======== ======== ======== ========
Earnings per common share:................ $ 1.02 $ 0.16 $ 1.14 $ 0.86 $ 1.17
======== ======== ======== ======== ========
Weighted average common and common
equivalent shares outstanding........... 7,757 7,663 7,714 7,699 7,776
======== ======== ======== ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 82
ASSOCIATED MATERIALS INCORPORATED
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS B
COMMON STOCK COMMON STOCK TREASURY STOCK CAPITAL TOTAL
--------------- --------------- --------------- IN EXCESS RETAINED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT OF PAR EARNINGS EQUITY
------ ------ ------ ------ ------ ------ --------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993................. 4,808 $12 2,700 $7 -- $ -- $ 9 $14,086 $14,114
Net income........... -- -- -- -- -- -- 7,874 7,874
Exercise of Common
Stock options and
related tax
benefits........... 24 -- -- -- -- -- 58 -- 58
----- --- ----- -- -- ----- ---- ------- -------
Balance at December 31,
1994................. 4,832 12 2,700 7 -- -- 67 21,960 22,046
Net income........... -- -- 1,260 1,260
----- --- ----- -- -- ----- ---- ------- -------
Balance at December 31,
1995................. 4,832 12 2,700 7 -- -- 67 23,220 23,306
Net income........... -- -- -- -- -- -- -- 8,822 8,822
Exercise of Common
Stock options and
related tax
benefits........... 62 -- -- -- -- -- 118 -- 118
----- --- ----- -- -- ----- ---- ------- -------
Balance at December 31,
1996................. 4,894 12 2,700 7 -- -- 185 32,042 32,246
Net income
(unaudited)........ -- -- -- -- -- -- -- 9,107 9,107
Cash dividends
(unaudited)........ -- -- -- -- -- -- -- (379) (379)
Exercise of Common
Stock options and
related tax
benefits
(unaudited)........ 41 -- -- -- -- -- 320 -- 320
Purchase of treasury
shares
(unaudited)........ -- -- -- -- 41 (542) -- -- (542)
----- --- ----- -- -- ----- ---- ------- -------
Balance at September
30, 1997
(unaudited).......... 4,935 $12 2,700 $7 41 $(542) $505 $40,771 $40,753
===== === ===== == == ===== ==== ======= =======
</TABLE>
See accompanying notes.
F-5
<PAGE> 83
ASSOCIATED MATERIALS INCORPORATED
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................. $ 7,874 $ 1,260 $ 8,822 $ 6,632 $ 9,107
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization............. 4,504 5,340 5,873 4,367 4,741
Deferred income taxes..................... (1,093) (1,167) 2,002 1,885 1,062
Provision for losses on accounts
receivable............................. 2,104 2,853 3,087 2,389 2,676
Equity (earnings) loss in earnings of
Amercord Inc........................... (100) (537) (1,724) (1,440) 624
Loss (gain) on sale of assets............. (31) (446) 10 -- --
Changes in operating assets and liabilities:
Accounts receivable....................... (8,849) (4,674) (1,540) (7,363) (10,301)
Inventories............................... (7,936) 3,014 (2,435) (4,390) (4,735)
Other current assets...................... (267) (292) (1,058) (320) (104)
Bank overdrafts........................... (680) 986 (1,194) (510) 324
Accounts payable.......................... (386) (2,165) 2,625 7,046 8,337
Accrued liabilities....................... 2,509 1,392 623 329 2,697
Income taxes receivable/payable........... (560) 46 (160) 1,676 2,228
Other assets.............................. (85) (45) (203) (121) 328
Other liabilities......................... (252) (237) 327 (277) (317)
------- ------- ------- ------- --------
Net cash provided by (used in) operating
activities................................ (3,248) 5,328 15,055 9,903 16,667
INVESTING ACTIVITIES
Additions to property, plant and
equipment................................. (9,323) (7,683) (8,110) (6,897) (6,330)
Proceeds from sale of assets................ 117 480 23 32 23
------- ------- ------- ------- --------
Net cash used in investing activities....... (9,206) (7,203) (8,087) (6,865) (6,307)
FINANCING ACTIVITIES
Net increase (decrease) in revolving line
of credit................................. 13,398 4,202 (5,113) (1,056) (8,089)
Principal payments of long-term debt........ (1,750) (1,750) (1,750) (1,300) (1,300)
Dividends paid.............................. -- -- -- -- (379)
Treasury stock acquired..................... -- -- -- -- (542)
Options exercised........................... -- -- -- -- 161
------- ------- ------- ------- --------
Net cash provided by (used in) financing
activities................................ 11,648 2,452 (6,863) (2,356) (10,149)
------- ------- ------- ------- --------
Net increase (decrease) in cash............. (806) 577 105 682 211
Cash at beginning period.................... 2,508 1,702 2,279 2,279 2,384
------- ------- ------- ------- --------
Cash at end of period....................... $ 1,702 $ 2,279 $ 2,384 $ 2,961 $ 2,595
======= ======= ======= ======= ========
Supplemental Information:
Cash paid for interest...................... $10,518 $11,459 $10,895 $10,451 $ 9,940
======= ======= ======= ======= ========
Net cash paid for income taxes.............. $ 6,739 $ 1,658 $ 3,546 $ 247 $ 3,445
======= ======= ======= ======= ========
</TABLE>
See accompanying notes
F-6
<PAGE> 84
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
Line of Business
Associated Materials Incorporated (the "Company") consists of two operating
divisions, Alside and AmerCable, and a 50%-owned affiliate, Amercord Inc.
("Amercord"), which is accounted for using the equity method. Alside is engaged
principally in the manufacture and distribution of exterior residential building
products to professional contractors. AmerCable manufactures jacketed electrical
cable utilized in a variety of industrial applications. Amercord manufactures
and sells steel tire cord and tire bead wire used in the tire manufacturing
industry.
Accounting Changes
During 1996 the Company adopted Statement of Financial Accounting Standards
No. 123 "Accounting for Stock-Based Compensation" ("SFAS No. 123"). SFAS No. 123
allows the Company to use the intrinsic value method or the fair market value to
determine the cost of stock compensation. The Company will continue to use the
intrinsic value method to measure stock-based compensation costs in accordance
with APB Opinion No. 25.
The Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" ("SFAS No. 121") during 1996. The adoption of SFAS No. 121 had
no effect on the financial statements at the time of adoption. An impairment
loss was recorded for the Company's affiliate, Amercord, as discussed in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations."
In February 1997 the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 128, "Earnings Per Share" ("SFAS No. 128"),
which specifies a new methodology for calculating earnings per share and is
effective for fiscal years ending after December 15, 1997. This statement will
have no effect on the financial position, results of operations or cash flows of
the Company but will require a restatement of prior period earnings per share.
The Company believes that the earnings per share calculated under SFAS No. 128
will not be materially different than the current method used.
In addition, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" and
Statement of Financial Accounting Standards No. 131, "Disclosures About Segments
of an Enterprise and Related Information" which are effective for financial
statement periods beginning after December 15, 1997. The Company believes that
these statements will have no effect on the Company's financial position,
results of operations or cash flows.
Revenue Recognition
Product sales are recognized at the time of shipment.
Inventories
Inventories are valued at the lower of cost (first-in, first-out) or
market.
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Depreciation is provided
by the straight-line method over the estimated useful lives of the assets which
range from 3 to 30 years.
F-7
<PAGE> 85
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Federal Income Tax
Income taxes have been provided using the liability method in accordance
with Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes."
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Negative book balances
are classified as bank overdrafts on the accompanying balance sheets.
Earnings Per Common Share
Earnings per common share computations, determined using the treasury stock
method, were based on weighted average common and common equivalent shares
outstanding during the periods presented. Fully diluted earnings per common
share are not significantly different than primary earnings per common share.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions regarding the reported amounts of assets and liabilities, disclosure
of contingent assets and liabilities at the date of the financial statements,
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Advertising
The Company expenses advertising costs as incurred. Advertising expense was
$6.8 million, $6.3 million, and $5.5 million in 1996, 1995 and 1994,
respectively.
Reclassifications
Certain prior period amounts have been reclassified to conform with the
current period presentation.
Unaudited Condensed Financial Statements
In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation of the
Company's unaudited condensed financial statements as of September 30, 1997 and
for the nine months ended September 30, 1997 and 1996 have been included.
Operating results for the nine months ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the entire year.
2. INVESTMENT IN AMERCORD
The Company's investment in Amercord, a 50% owned affiliate, is accounted
for using the equity method. Amercord manufactures and sells steel tire cord and
tire bead wire used in the tire manufacturing industry. Equity in the
undistributed earnings of Amercord since acquisition through December 31, 1996
totals $6,070,000.
F-8
<PAGE> 86
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Condensed financial information for Amercord is presented below (in
thousands):
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Net sales............................................. $74,226 $80,764 $87,538
Costs and expenses.................................... 72,070 77,148 82,229
------- ------- -------
Income from operations................................ 2,156 3,616 5,309
Interest expense...................................... (1,842) (1,911) (1,734)
Income tax expense.................................... (114) (631) (1,323)
------- ------- -------
Net income before cumulative effect of a change in
accounting principle................................ 200 1,074 2,252
Cumulative effect of a change in accounting principle
(net of tax)........................................ -- -- 1,196
------- ------- -------
Net income............................................ 200 1,074 3,448
------- ------- -------
Company's share of net income......................... $ 100 $ 537 $ 1,724
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL POSITION
DECEMBER 31,
------------------
1995 1996
------- -------
<S> <C> <C>
Assets (pledged):
Current assets............................................ $14,408 $15,829
Noncurrent assets......................................... 40,791 36,535
------- -------
Total assets (pledged)............................ $55,199 $52,364
======= =======
Liabilities and stockholders' equity:
Current liabilities....................................... $14,063 $15,486
Noncurrent liabilities.................................... 21,370 13,666
Stockholders' equity...................................... 19,766 23,212
------- -------
Total liabilities and stockholders' equity........ $55,199 $52,364
======= =======
</TABLE>
In 1996, Amercord recorded a $1,196,000 gain to reflect the cumulative
effect of an accounting change when it changed its accounting policy for
maintenance parts. Amercord now capitalizes the cost of these parts upon
purchase and expenses such parts when used in the production cycle. Amercord
previously expensed the maintenance parts upon purchase. Amercord recorded a
pre-tax gain of $3,093,000 in connection with the settlement of disputed royalty
payments for the years 1990-1995 and recorded a $2,723,000 loss for a write down
of certain production equipment pursuant to Statement of Financial Accounting
Standards No. 121.
3. ALLOWANCE FOR DOUBTFUL ACCOUNTS
Changes in the allowance for doubtful accounts on accounts receivable for
the years ended December 31 consist of (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Balance at beginning of period........................... $2,684 $2,563 $2,769
Provision for losses................................... 2,104 2,853 3,087
Losses sustained (net of recoveries)................... 2,225 2,647 2,107
------ ------ ------
Balance at end of period................................. $2,563 $2,769 $3,749
====== ====== ======
</TABLE>
F-9
<PAGE> 87
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. INVENTORIES
Inventories consist of (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ SEPTEMBER 30,
1995 1996 1997
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials...................................... $12,962 $14,903 $16,780
Work-in-progress................................... 6,175 5,276 5,410
Finished goods and purchased stock................. 36,785 38,178 40,902
------- ------- -------
$55,922 $58,357 $63,092
======= ======= =======
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31 consist of (in thousands):
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Land........................................................ $ 1,290 $ 1,290
Buildings................................................... 20,034 21,319
Machinery and equipment..................................... 67,611 73,463
------- -------
88,935 96,072
Less accumulated depreciation............................... 39,369 44,423
------- -------
$49,566 $51,649
======= =======
</TABLE>
6. ACCRUED LIABILITIES
Accrued liabilities at December 31 consist of (in thousands):
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Employee compensation....................................... $ 5,928 $ 6,558
Sales promotions and incentives............................. 2,143 2,692
Employee benefits........................................... 8,814 8,424
Interest.................................................... 3,320 3,307
Other....................................................... 2,137 1,984
------- -------
$22,342 $22,965
======= =======
</TABLE>
7. REVOLVING CREDIT ARRANGEMENTS
In April 1996, the Company amended and restated its credit agreement with
KeyBank N.A. ("Credit Agreement") to increase the total credit facility to $50
million and extend the term to May 31, 1999. During 1996, the total credit
facility ranged between $40 million and $50 million. The total credit facility
at December 31, 1996 was $50 million. Available borrowings under the Credit
Agreement are limited to the lesser of the total facility less unused letters of
credit or availability based on percentages of eligible accounts receivable and
inventories. Unused letters of credit totaled $9,125,000 at December 31, 1996,
of which $7,261,000 was related to the Taxable Notes (see Note 8) and $890,000
was related to insurance. The Company's available borrowing capacity at December
31, 1996 was approximately $27,817,000. The Credit Agreement includes covenants
that require the maintenance of certain financial ratios and net worth and that
place restrictions on the repurchase of common stock and the payment of
dividends. Outstanding borrowings under the agreement are collateralized by
substantially all of the assets of the Company.
F-10
<PAGE> 88
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Interest is payable on the utilized revolving credit facility at either the
prime commercial rate (8.25% at December 31, 1996) or LIBOR (5.53% at December
31, 1996) plus 2.25% at the option of the Company and on the unused credit
facility at a rate of .25%. Letter of credit fees of 1.5% are paid at
origination.
The weighted average interest rate for borrowings under the revolving
credit facility during the period was 8.23% and 8.67% for December 31, 1996 and
1995, respectively.
8. LONG-TERM DEBT
Long-term debt at December 31 consists of (in thousands):
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Taxable Variable Rate Demand Notes.......................... $ 8,850 $ 7,100
11 1/2% Senior Subordinated Notes due 2003.................. 75,000 75,000
------- -------
83,850 82,100
Less amounts due in one year................................ 1,750 1,750
------- -------
$82,100 $80,350
======= =======
</TABLE>
Scheduled principal payments are $1,750,000 in each year through 1998 and
$3,600,000 in 1999.
Interest on the Taxable Variable Rate Demand Notes (the "Taxable Notes")
was payable monthly at the greater of the 30 or 90 day commercial paper rate
plus 0.125%. Effective April 5, 1993, the Company entered into an interest rate
swap which fixed the interest rate on the Taxable Notes at 5.57% per annum for a
period of five years. The Taxable Notes are payable in quarterly installments
ranging from $400,000 to $450,000 through January 1, 1999, with the remaining
balance due on April 1, 1999. The Taxable Notes are secured by an irrevocable
letter of credit in accordance with the credit agreement (see Note 7). The
Taxable Notes contain similar covenants and restrictions in the Company's Credit
Agreement described in Note 7.
Interest on the Senior Subordinated Notes is payable semiannually. The
Senior Subordinated Notes are unsecured. The Indenture pursuant to which the
Senior Subordinated Notes were issued contains covenants that, among other
things, limit the ability of the Company to incur additional indebtedness, pay
dividends, make certain investments and repurchase stock or subordinated
indebtedness.
The estimated fair value of the Taxable Notes at December 31, 1996 was
$7,100,000. The Taxable Notes have a variable interest rate and therefore trade
at face value. The fair value of the Senior Subordinated Notes at December 31,
1996 was $77,250,000 based upon quoted market price.
9. COMMITMENTS
Commitments for future minimum lease payments under noncancelable operating
leases, principally for manufacturing and distribution facilities and certain
equipment, are approximately $8,111,000, $6,432,000, $4,761,000, $3,117,000,
$1,734,000, and $1,598,000 for the years ending December 31, 1997, 1998, 1999,
2000, 2001, and thereafter, respectively. Lease expense was approximately
$10,391,000, $9,186,000, and $8,525,000 for the years ended December 31, 1996,
1995 and 1994, respectively.
F-11
<PAGE> 89
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. INCOME TAXES
Income tax expense for the years ended December 31 consists of (in
thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- ------
<S> <C> <C> <C>
Current................................................... $ 6,194 $ 1,712 $3,170
Deferred.................................................. (1,093) (1,167) 2,002
------- ------- ------
$ 5,101 $ 545 $5,172
======= ======= ======
</TABLE>
State income tax expense was $918,000, $153,000, and $1,034,000 for the
years ended December 31, 1996, 1995, and 1994, respectively.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred income taxes as of December 31 are as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1996
------ -------
<S> <C> <C>
Deferred tax assets:
Medical benefits.......................................... $1,642 $ 1,680
Bad debt expense.......................................... 1,040 1,301
Pension expense........................................... 2,239 1,806
Inventory costs........................................... 1,319 994
Other..................................................... 1,218 805
------ -------
Total deferred tax assets................................... 7,458 6,586
Deferred tax liabilities:
Depreciation.............................................. 7,163 7,976
Other..................................................... 177 494
------ -------
Total deferred tax liabilities.............................. 7,340 8,470
------ -------
Net deferred tax assets (liabilities)....................... $ 118 $(1,884)
====== =======
</TABLE>
The reconciliation of the statutory rate to the Company's effective income
tax rate for the years ended December 31 follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Statutory rate.............................................. 34.2% 34.0% 34.0%
State income taxes, net of federal income tax benefit....... 5.3 5.6 4.3
Equity in earnings of Amercord.............................. (0.2) (8.1) (3.3)
Other....................................................... -- (1.3) 1.9
---- ---- ----
Effective rate.............................................. 39.3% 30.2% 36.9%
==== ==== ====
</TABLE>
11. STOCKHOLDERS' EQUITY
On September 14, 1994, the Company amended and restated its Certificate of
Incorporation to (i) change the par value of the Common Stock and Class B Common
Stock from no par value to a par value of $.0025 per share, (ii) increase the
number of authorized shares of Common Stock from 10 million to 15 million and
increase the number of authorized shares of Class B Common Stock from 1.35
million to 2.7 million, and (iii) authorize 100,000 shares of Preferred Stock
$.01 par value. In addition, on such date the Company effected a two-for-one
stock split of the then issued and outstanding shares of Common Stock and Class
B Common Stock. All common stock and share data presented have been adjusted
retroactively for the stock split and new par value (after the split) of $.0025
per share.
F-12
<PAGE> 90
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Class B Common Stock is convertible on a one-for-one basis into Common
Stock at any time subject to legal restrictions, if any, applicable to the
holder of such shares. The Class B Common Stock has the same rights and
privileges extended to the Common Stock except that holders of Class B Common
Stock may vote only on matters pertaining to changes in the Certificate of
Incorporation; the sale, lease, or disposition of certain assets; mergers or
consolidations; or the liquidation or dissolution of the Company.
12. STOCK OPTIONS
The Company has stock option plans, whereby it grants non-statutory stock
options to certain directors, officers and key employees. The Company has
authorized 800,000 shares of common stock to be issued under these plans. The
options granted in 1994, 1995 and 1996 were granted at fair market value on the
grant date and are exercisable for ten years. One-half of the options vest upon
grant date and the remainder vest after two years.
Transactions during 1994, 1995 and 1996 under this plan are summarized
below:
<TABLE>
<CAPTION>
SHARES PRICE
------- ---------------
<S> <C> <C>
Options outstanding at December 31, 1993................... 315,800 $.003 to $5.00
Exercised................................................ (24,000) $.003
Granted.................................................. 12,000 $6.00
Expired or canceled...................................... (4,800) $.003
-------
Options outstanding at December 31, 1994................... 299,000 $.003 to $6.00
Granted.................................................. 33,000 $5.00
Expired or canceled...................................... (69,800) $.003 to $6.00
-------
Options outstanding at December 31, 1995................... 262,200 $.003 to $5.00
Exercised................................................ (62,400) $.003
Granted.................................................. 12,500 $5.00
------- ---------------
Options outstanding at December 31, 1996................... 212,300 $2.925 to $5.00
</TABLE>
Options to purchase 189,550, 239,700, and 195,100 shares were exercisable
at December 31, 1996, 1995 and 1994. The weighted average exercise price of
options outstanding was $3.47 and $2.57 at December 31, 1996 and 1995,
respectively.
The following table summarizes significant ranges of outstanding and
exercisable options at December 31, 1996:
<TABLE>
<CAPTION>
RANGE OPTIONS OUTSTANDING OPTIONS EXERCISABLE
IN --------------------------------------------- --------------------------
EXERCISE WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
PRICES SHARES LIFE IN YEARS EXERCISE PRICE SHARES EXERCISE PRICE
-------- ------- ---------------- ---------------- ------- ----------------
<S> <C> <C> <C> <C> <C>
$2.925................. 156,800 6.67 $2.925 156,800 $2.925
$5.000................. 55,500 8.59 $5.000 32,750 $5.000
</TABLE>
The Company has adopted the disclosure provisions of SFAS No. 123 in 1996,
and continues to measure stock-based compensation in accordance with APB No. 25.
Pro forma information regarding net income and earnings per share is required by
SFAS No. 123, and has been determined as if the Company had accounted for its
stock options under the fair value method of that Statement. The fair value of
the options was estimated at the date of the grant using the minimum value
method option pricing model assuming dividend yields of 0.0% and a
weighted-average expected life of an option of 10 years. A risk-free interest
rate of 6.87% and 6.76% was used for 1996 and 1995, respectively. The effect of
applying SFAS No. 123's fair value method to the Company's stock options results
in net income and earnings per share that are not materially different from the
amounts reported.
F-13
<PAGE> 91
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
13. SEGMENTS OF BUSINESS
The Company operates in two industry segments: building products and
electrical cable products. The principal business activities of the building
segment include the manufacture of vinyl siding, vinyl replacement windows and
cabinets, and the wholesale distribution of these and other complementary
building products principally to professional home remodeling and new
construction contractors. The principal business activity of the electrical
cable segment is the manufacture and sale of jacketed electrical cable.
Comparative financial data by industry segment for the years ended December
31 are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Net sales:
Building products.................................. $310,926 $300,561 $314,645
Electrical cable products.......................... 41,680 49,468 41,826
-------- -------- --------
$352,606 $350,029 $356,471
======== ======== ========
Operating profits (losses):
Building products.................................. $ 27,803 $ 16,550 $ 26,372
Electrical cable products.......................... (1,546) (1,676) (967)
Corporate expense.................................. (2,802) (2,132) (2,253)
-------- -------- --------
$ 23,455 $ 12,742 $ 23,152
======== ======== ========
Identifiable assets:
Building products.................................. $129,109 $131,570 $133,023
Electrical cable products.......................... 26,877 27,091 24,746
Corporate.......................................... 13,428 13,392 19,940
-------- -------- --------
$169,414 $172,053 $177,709
======== ======== ========
Depreciation and amortization:
Building products.................................. $ 2,716 $ 3,466 $ 4,282
Electrical cable products.......................... 1,248 1,334 1,154
Corporate.......................................... 540 540 437
-------- -------- --------
$ 4,504 $ 5,340 $ 5,873
======== ======== ========
Net additions to property, plant, and equipment:
Building products.................................. $ 7,920 $ 6,669 $ 6,982
Electrical cable products.......................... 1,403 1,014 1,128
-------- -------- --------
$ 9,323 $ 7,683 $ 8,110
======== ======== ========
</TABLE>
The Company operates principally in the United States. Operating profit for
each segment is net sales less operating expenses. Identifiable assets by
segment are those used in the Company's operations in each segment. Corporate
assets are principally the Company's investment in Amercord. Neither aggregate
export sales nor sales to a single customer have accounted for 10% or more of
consolidated net sales in any of the years presented.
14. RETIREMENT PLANS
The Company has defined benefit contributory pension plans (the "Plans")
covering substantially all of its salaried employees and certain nonsalaried
employees. Employees are fully vested upon attaining five years of service
including past service with the businesses acquired by the Company. The
Company's policy is to fund pension costs as required.
F-14
<PAGE> 92
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The actuarial present value at December 31, 1996 and 1995 was determined
using a discount rate of 7.5% and projected compensation increases of 4.5%. The
expected long-term rate of return on assets was 9%. Plan assets consist
primarily of common stock, U.S. government obligations, corporate bonds and real
estate.
Retirement plan costs, as determined by the projected unit credit cost
method, are summarized below for the years ended December 31 (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------ ------- -------
<S> <C> <C> <C>
Benefit cost for service during the year.................. $ 738 $ 742 $ 1,110
Interest cost on projected benefit obligation............. 1,341 1,553 1,744
Return on assets.......................................... (120) (3,412) (3,356)
Net amortization.......................................... (919) 2,360 1,901
------ ------- -------
Net retirement plan costs................................. $1,040 $ 1,243 $ 1,399
====== ======= =======
</TABLE>
A schedule reconciling the projected benefit obligation with the Company's
recorded pension liability as of December 31 is shown below (in thousands):
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Accumulated benefit obligation, including vested benefits of
$19,752 and $17,608, respectively......................... $18,854 $20,755
Effect of projected salary increases........................ 5,421 5,490
------- -------
Present value of the projected benefit obligation........... 24,275 26,245
Plan assets at fair value................................... 18,785 23,120
------- -------
Plan assets less than the present value of the projected
benefit obligation........................................ 5,490 3,125
The recorded pension liability (included in accrued current
liabilities in the balance sheets) is calculated by adding
to the above amount:
Unrecognized net gains.................................... 1,216 3,450
The portion of the liability which, under SFAS No. 87, is
being amortized over 16 years.......................... (1,350) (1,127)
------- -------
Recorded pension liability.................................. $ 5,356 $ 5,448
======= =======
</TABLE>
The Company sponsors a defined contribution plan (the "401(k) Plan")
intended to provide assistance in accumulating personal savings for retirement.
The 401(k) Plan qualified as a tax-exempt plan under Sections 401(a) and 401(k)
of the Internal Revenue Code and covers all full-time employees of AmerCable.
For the years ended December 31, 1996, 1995 and 1994 the Company's pre-tax
contributions to the 401(k) Plan were $145,000, $136,000 and $123,000,
respectively.
15. CONTINGENCIES
The Company entered into a consent order dated August 25, 1992 with the
United States Environmental Protection Agency pertaining to the alleged use of
hazardous waste storage facilities at its Akron, Ohio location. With the
exception of a small above-ground storage area, the use of such facilities was
terminated prior to the acquisition of the facilities by the Company from USX
Corporation (USX) in 1984. The Company believes that USX bears financial
responsibility for substantially all of the direct costs of corrective action at
such facilities under relevant contract terms and under statutory and common
law. The effects of the past practices of this facility are continuing to be
investigated. To date, USX has reimbursed the Company for substantially all of
the direct costs of corrective action at such facilities. The Company expects
that USX will continue to reimburse the Company for substantially all of the
direct costs of corrective action at such facilities. As a result, the Company
believes that any material claims resulting from this proceeding will not have a
material adverse effect on the Company.
F-15
<PAGE> 93
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
During 1996, Statement of Position 96-1 "Environmental Remediation
Liabilities" was issued effective for fiscal years beginning after December 15,
1996. SOP 96-1 provides authoritative guidance on the recognition, measurement
and disclosure of environmental remediation liabilities. The Company believes
the application of SOP 96-1 will not have a material effect on the financial
statements upon application.
16. SUBSEQUENT EVENTS
The Company intends to file a registration statement with the Securities
and Exchange Commission (the "Commission") to sell, through an initial public
offering, 2,466,000 shares (before over-allotment) of the Company's Common Stock
(the "Stock Offering"). Of these shares, 700,000 shares of Common Stock (806,600
shares if the over-allotment option is exercised in full) will be sold by the
Company with the remaining 1,766,000 shares to be sold by certain stockholders.
In addition, the Company intends to file a registration statement with the
Commission to sell $75,000,000 aggregate principal amount of Senior Subordinated
Notes due 2008 (the "New Notes"). The issuance of the New Notes in such offering
(the "Note Offering") is conditioned upon the successful completion of an
anticipated tender offer and consent solicitation with respect to the Company's
outstanding Senior Subordinated Notes (Note 8). The Stock Offering is not
contingent upon the completion of the Note Offering and the Note Offering is not
contingent upon the completion of the Stock Offering.
F-16
<PAGE> 94
[Map of the United States showing locations of Company
and division headquarters and Alside Supply Centers.]
<PAGE> 95
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY THE UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO WHICH IT RELATES
IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH
STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 8
Use of Proceeds....................... 11
The Tender Offer...................... 11
The Stock Offering.................... 11
Capitalization........................ 12
Selected Financial Data............... 13
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 14
Business.............................. 22
Management............................ 30
Certain Relationships and Related
Transactions........................ 36
Principal and Selling Stockholders.... 38
Description of Notes.................. 40
Company Indebtedness.................. 68
Description of Capital Stock.......... 72
Underwriting.......................... 75
Legal Matters......................... 75
Experts............................... 75
Additional Information................ 76
Index to Financial Statements......... F-1
</TABLE>
======================================================
======================================================
$75,000,000
ASSOCIATED MATERIALS INCORPORATED
% SENIOR SUBORDINATED
NOTES DUE 2008
[LOGO]
------------
PROSPECTUS
, 1998
------------
SALOMON SMITH BARNEY
======================================================
<PAGE> 96
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Estimated expenses payable in connection with the issuance and distribution
of the securities to be registered, other than underwriting discounts and
expenses, are as follows:
<TABLE>
<S> <C>
SEC registration fee........................................ $22,125
NASD filing fee............................................. 8,000
Printing expenses........................................... *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue sky fees and expenses.................................. *
Indenture trustee fees and expenses......................... *
Rating agency fees and expenses............................. *
Miscellaneous expenses...................................... *
-------
Total............................................. $ *
=======
</TABLE>
- ---------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Restated Certificate of Incorporation (the "Certificate") of the
Company provides that to the full extent permitted by the General Corporation
Law of the State of Delaware ("DGCL") or any other applicable laws as presently
or hereafter in effect, no director of the Company shall be personally liable to
the Company or its stockholders for or with respect to any acts or omissions in
the performance of his or her duties as a director of the Company. The DGCL
would not permit limitation of liability of any such director (i) for breach of
such director's duty of loyalty to the Company or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) in respect of certain unlawful dividend payments
or stock redemptions or repurchases, or (iv) for any transaction for which such
person derived an improper personal benefit. The Certificate and the Company's
Bylaws ("Bylaws") provide that each person who is or was a director or officer
of the Company, or each such person who is or was serving at the request of the
Board of Directors or an officer of the Company, as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise (including the heirs, executors and administrators of such
person), shall be indemnified by the Company to the full extent permitted by the
DGCL or any other applicable laws as presently or hereafter in effect.
The Company has entered into certain agreements (the "Indemnification
Agreements") with each of its directors and executive officers (each an
"Indemnitee") designed to give effect to the foregoing provisions of the
Certificate and Bylaws. The Indemnification Agreements are intended to provide
certain additional assurances against the possibility of uninsured liability
primarily because the Indemnification Agreements (i) specify the extent to which
the Indemnitees shall be entitled to receive benefits not expressly set forth in
the DGCL, and (ii) include a number of procedural provisions designed to provide
certainty in administration of the rights to indemnity. Pursuant to the
Indemnification Agreements, among other things, an Indemnitee will be entitled
to indemnification as provided by the DGCL and, in general, subject to
limitations (if any) imposed by applicable law, to indemnification for any
amount which the Indemnitee is or becomes legally obligated to pay relating to
failure to act or neglect or breach of duty, including any actual or alleged
error, misstatement or misleading statement, which such person commits, suffers,
permits or acquiesces in while acting in the Indemnitee's position with the
Company. The right to receive payments in excess of those expressly provided for
in the DGCL is not required under the Indemnification Agreements in connection
with any claim against the Indemnitee (i) for which payment is actually made to
the Indemnitee under a valid and collectible insurance policy, (ii) which
results in a final, nonappealable order for the Indemnitee to pay a fine or
similar governmental imposition which the Company is prohibited by applicable
law from paying, or
II-1
<PAGE> 97
(iii) based upon or attributable to the Indemnitee gaining in fact a personal
profit to which he was not legally entitled, including without limitation
profits made from the purchase and sale by the Indemnitee of equity securities
of the Company which are not recoverable by the Company pursuant to Section
16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and profits arising from transactions in publicly traded securities of the
Company which were effected by the Indemnitee in violation of Section 10(b) of
the Exchange Act or Rule 10b-5 promulgated thereunder.
The Company has purchased and maintains insurance on behalf of any person
who is or was a director or officer against any loss arising from any claim
asserted against him and incurred by him in any such capacity, subject to
certain exclusions.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the three years ended November 30, 1997, the Company issued 102,900
shares of Common Stock, par value $.0025 per share, upon exercise from time to
time of options granted to officers and employees of the Company, for $161,195
in the aggregate. These transactions were exempt from the registration
requirements of the Securities Act pursuant to Section 3(b) of the Securities
Act and Rule 701 thereunder.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
<C> <S>
1.1* -- Form of Underwriting Agreement.
3.1 -- Restated Certificate of Incorporation, as amended, of
Associated Materials Incorporated (the "Company")
(incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-1, Commission
File No. 33-84110 (the "1994 Registration Statement")).
3.2 -- Restated Bylaws of the Company (incorporated by reference
to Exhibit 3.2 of the 1994 Registration Statement).
4.1* -- Form of Indenture between the Company and U.S. Trust
Company of Texas, N.A., as Trustee (the "New Indenture").
4.2* -- Form of Senior Subordinated Note under the New Indenture.
4.3 -- Indenture, dated as of August 1, 1993, between the
Company and U.S. Trust Company of Texas, N.A., as Trustee
(the "Indenture") incorporated by reference to Exhibit
4.1 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993 (the "1993 Form 10-
K")).
4.4 -- Form of Senior Subordinated Note issuable under the
Indenture (incorporated by reference to Exhibit 4.2 to
the Company's Registration Statement on Form S-1,
Commission File No. 33-64788 (the "1993 Registration
Statement")).
4.5 -- Registration Rights Agreement, dated as of August 19,
1993, among the Company, PruSupply Capital Assets, Inc.
("PruSupply"), W.W. Winspear, M.M. Winspear, D.J. Allan,
M.G. Winspear, D.W. Winspear, R.L. Winspear, B.W. Meyer,
The Principal/The Eppler, Guerin & Turner, Inc., Frank T.
Lauinger, John Wallace and Bonnie B. Smith (incorporated
by reference to Exhibit 4.3 to the 1993 Form 10-K).
4.6 -- Stockholders' Agreement, dated as of August 19, 1993,
among the Company, PruSupply, W.W. Winspear and M.M.
Winspear (incorporated by Reference to Exhibit 4.4 to the
1993 Form 10-K).
4.7 -- Amendment to the Stockholders' Agreement, dated as of
April 1, 1994, among the Company, PruSupply, W.W.
Winspear and M.M. Winspear (incorporated by reference to
Exhibit 4.5 to the 1994 Registration Statement).
</TABLE>
II-2
<PAGE> 98
<TABLE>
<CAPTION>
<C> <S>
4.8 -- Second Amendment to the Stockholders' Agreement, dated as
of July 1, 1994, among the Company, PruSupply, W.W.
Winspear and M.M. Winspear (incorporated by reference to
Exhibit 4.6 to the 1994 Registration Statement).
4.9 -- Third Amendment to the Stockholders' Agreement, dated as
of October 12, 1994, among the Company, Prudential and
the Winspear Family Limited Partnership (incorporated by
reference to Exhibit 4.15 to the 1994 Registration
Statement).
4.10 -- Assumption Agreement, effective as of July 29, 1994, by
the Winspear Family Limited Partnership (incorporated by
reference to Exhibit 4.7 to the 1994 Registration
Statement).
4.11 -- Assumption Agreement, effective as of September 30, 1994
by the Prudential Insurance Company of America
("Prudential") (incorporated by reference to Exhibit 4.14
to the 1994 Registration Statement).
4.12 -- Trust Indenture, dated as of June 1, 1992, between the
Company and KeyBank, N.A. (formerly Society National
Bank) ("KeyBank"), relating to the Company's taxable
variable rate demand notes ("Taxable Notes")
(incorporated by reference to Exhibit 4.43 to the 1993
Registration Statement).
4.13 -- Remarketing Agreement, dated as of June 1, 1992, between
the Company and KeyBank as Remarketing Agent, relating to
the Taxable Notes (incorporated by reference to Exhibit
4.44 to the 1993 Registration Statement).
4.14 -- Note Purchase Agreement, dated as of June 26, 1992,
between the Company and Automated Cash Management Trust,
relating to the Taxable Notes (incorporated by reference
to Exhibit 4.45 to the 1993 Registration Statement).
4.15 -- Irrevocable Letter of Credit, dated as of June 1, 1992,
between the Company and KeyBank relating to the Taxable
Notes (incorporated by reference to Exhibit 4.46 to the
1993 Registration Statement).
4.16 -- Master Agreement, dated as of April 5, 1993, between the
Company and KeyBank evidencing an interest rate swap
relating to the Taxable Notes (incorporated by reference
to Exhibit 4.47 to the 1993 Registration Statement).
5.1* -- Form of Opinion of Jones, Day, Reavis & Pogue.
10.1 -- Agreement of Sale, dated as of January 30, 1984, between
USX Corporation (formerly United States Steel
Corporation) ("USX") and the Company (incorporated by
reference to Exhibit 10.1 to the 1993 Registration
Statement).
10.2 -- Amendment Agreement, dated as of February 29, 1984,
between USX and the Company (incorporated by reference to
Exhibit 10.2 to the 1993 Registration Statement).
10.3 -- Subscription and Stockholders Agreement, dated as of June
25, 1986, among the Company, Florida Wire and Cable
Company ("Florida Wire"), GCR S.p.A. ("GCR") and Amercord
(the "Subscription Agreement") (incorporated by reference
to Exhibit 10.5 to the 1993 Registration Statement).
10.4 -- Management Agreement, effective as of May 1, 1986,
between Amercord and the Company (incorporated by
reference to Exhibit 10.8 to the 1993 Registration
Statement).
10.5 -- Form of Indemnification Agreement between the Company and
each of the Directors and executive officers of the
Company (incorporated by reference to Exhibit 10.14 to
the 1994 Registration Statement).
10.6 -- Profit Sharing Plan of the Company (incorporated by
reference to Exhibit 10.15 to the 1993 Registration
Statement).
10.7 -- Alside Retirement Plan (incorporated by reference to
Exhibit 10.16 to the 1993 Registration Statement).
</TABLE>
II-3
<PAGE> 99
<TABLE>
<CAPTION>
<C> <S>
10.8 -- Associated Materials Incorporated Amended and Restated
1994 Stock Incentive Plan (incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the period ended June 30, 1997).
10.9 -- Letter Agreement, dated May 13, 1983, between Donald L.
Kaufman and Company, as amended (incorporated by
reference to Exhibit 10.4 to the 1994 Registration
Statement).
10.10 -- Second Amended and Restated Loan and Security Agreement,
dated as of April 2, 1996, between the Company and
KeyBank (the "Credit Agreement") (incorporated by
reference to Exhibit 10.1 to the March 31, 1996 Form
10-Q).
10.11 -- Third Amended and Restated Note, dated April 2, 1996,
from the Company to KeyBank relating to the Credit
Agreement (incorporated by reference to Exhibit 10.1 to
the March 31, 1996 Form 10-Q).
12.1 -- Computation of Ratio of Earnings to Fixed Charges.
21.1 -- List of Subsidiaries of the Company.
23.1* -- Consent of Jones, Day, Reavis & Pogue (included in
Exhibit 5.1).
23.2 -- Consent of Ernst & Young LLP.
24.1 -- Powers of Attorney of Directors and certain executive
officers of the Company.
25.1 -- Statement of Eligibility and Qualification of Trustee on
Form T-1.
</TABLE>
- ---------------
* To be filed by amendment
(b) Financial Statement Schedules:
All financial statement schedules have been omitted since the required
information is not present or not present in amounts sufficient to require
submission of schedules, or because the information required is included in
the financial statements and notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-4
<PAGE> 100
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Registration Statement on Form S-1 to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Dallas, State of
Texas on December 11, 1997.
ASSOCIATED MATERIALS INCORPORATED
By: /s/ ROBERT L. WINSPEAR
------------------------------------
Robert L. Winspear
Vice President, Secretary and
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
WILLIAM W. WINSPEAR* Chairman of the Board, President and Chief
- ----------------------------------------------------- Executive Officer (Principal Executive
William W. Winspear Officer)
/s/ ROBERT L. WINSPEAR Vice President, Secretary and Treasurer
- ----------------------------------------------------- (Principal Financial and Accounting Officer)
Robert L. Winspear
RICHARD I. GALLAND* Director
- -----------------------------------------------------
Richard I. Galland
DONALD L. KAUFMAN* Director
- -----------------------------------------------------
Donald L. Kaufman
JAMES F. LEARY* Director
- -----------------------------------------------------
James F. Leary
ALAN B. LERNER* Director
- -----------------------------------------------------
Alan B. Lerner
A. A. MEITZ* Director
- -----------------------------------------------------
A. A. Meitz
GARY D. TRABKA* Director
- -----------------------------------------------------
Gary D. Trabka
</TABLE>
Robert L. Winspear, by signing his name hereto, does sign and execute this
Registration Statement on behalf of each of the above-named officers and
directors of Associated Materials Incorporated on the 11th day of December,
1997, pursuant to powers of attorney executed on behalf of each of such officers
and directors, and contemporaneously filed hereunto with the Securities and
Exchange Commission.
*By: /s/ ROBERT L. WINSPEAR
-------------------------------
Robert L. Winspear
Attorney-in-Fact
II-5
<PAGE> 101
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
<C> <S>
1.1* -- Form of Underwriting Agreement.
3.1 -- Restated Certificate of Incorporation, as amended, of
Associated Materials Incorporated (the "Company")
(incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-1, Commission
File No. 33-84110 (the "1994 Registration Statement")).
3.2 -- Restated Bylaws of the Company (incorporated by reference
to Exhibit 3.2 of the 1994 Registration Statement).
4.1* -- Form of Indenture between the Company and U.S. Trust
Company of Texas, N.A., as Trustee (the "New Indenture").
4.2* -- Form of Senior Subordinated Note under the New Indenture.
4.3 -- Indenture, dated as of August 1, 1993, between the
Company and U.S. Trust Company of Texas, N.A., as Trustee
(the "Indenture") incorporated by reference to Exhibit
4.1 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993 (the "1993 Form 10-
K")).
4.4 -- Form of Senior Subordinated Note issuable under the
Indenture (incorporated by reference to Exhibit 4.2 to
the Company's Registration Statement on Form S-1,
Commission File No. 33-64788 (the "1993 Registration
Statement")).
4.5 -- Registration Rights Agreement, dated as of August 19,
1993, among the Company, PruSupply Capital Assets, Inc.
("PruSupply"), W.W. Winspear, M.M. Winspear, D.J. Allan,
M.G. Winspear, D.W. Winspear, R.L. Winspear, B.W. Meyer,
The Principal/The Eppler, Guerin & Turner, Inc., Frank T.
Lauinger, John Wallace and Bonnie B. Smith (incorporated
by reference to Exhibit 4.3 to the 1993 Form 10-K).
4.6 -- Stockholders' Agreement, dated as of August 19, 1993,
among the Company, PruSupply, W.W. Winspear and M.M.
Winspear (incorporated by Reference to Exhibit 4.4 to the
1993 Form 10-K).
4.7 -- Amendment to the Stockholders' Agreement, dated as of
April 1, 1994, among the Company, PruSupply, W.W.
Winspear and M.M. Winspear (incorporated by reference to
Exhibit 4.5 to the 1994 Registration Statement).
4.8 -- Second Amendment to the Stockholders' Agreement, dated as
of July 1, 1994, among the Company, PruSupply, W.W.
Winspear and M.M. Winspear (incorporated by reference to
Exhibit 4.6 to the 1994 Registration Statement).
4.9 -- Third Amendment to the Stockholders' Agreement, dated as
of October 12, 1994, among the Company, Prudential and
the Winspear Family Limited Partnership (incorporated by
reference to Exhibit 4.15 to the 1994 Registration
Statement).
4.10 -- Assumption Agreement, effective as of July 29, 1994, by
the Winspear Family Limited Partnership (incorporated by
reference to Exhibit 4.7 to the 1994 Registration
Statement).
4.11 -- Assumption Agreement, effective as of September 30, 1994
by the Prudential Insurance Company of America
("Prudential") (incorporated by reference to Exhibit 4.14
to the 1994 Registration Statement).
4.12 -- Trust Indenture, dated as of June 1, 1992, between the
Company and KeyBank, N.A. (formerly Society National
Bank) ("KeyBank"), relating to the Company's taxable
variable rate demand notes ("Taxable Notes")
(incorporated by reference to Exhibit 4.43 to the 1993
Registration Statement).
4.13 -- Remarketing Agreement, dated as of June 1, 1992, between
the Company and KeyBank as Remarketing Agent, relating to
the Taxable Notes (incorporated by reference to Exhibit
4.44 to the 1993 Registration Statement).
4.14 -- Note Purchase Agreement, dated as of June 26, 1992,
between the Company and Automated Cash Management Trust,
relating to the Taxable Notes (incorporated by reference
to Exhibit 4.45 to the 1993 Registration Statement).
</TABLE>
<PAGE> 102
<TABLE>
<CAPTION>
<C> <S>
4.15 -- Irrevocable Letter of Credit, dated as of June 1, 1992,
between the Company and KeyBank relating to the Taxable
Notes (incorporated by reference to Exhibit 4.46 to the
1993 Registration Statement).
4.16 -- Master Agreement, dated as of April 5, 1993, between the
Company and KeyBank evidencing an interest rate swap
relating to the Taxable Notes (incorporated by reference
to Exhibit 4.47 to the 1993 Registration Statement).
5.1* -- Form of Opinion of Jones, Day, Reavis & Pogue.
10.1 -- Agreement of Sale, dated as of January 30, 1984, between
USX Corporation (formerly United States Steel
Corporation) ("USX") and the Company (incorporated by
reference to Exhibit 10.1 to the 1993 Registration
Statement).
10.2 -- Amendment Agreement, dated as of February 29, 1984,
between USX and the Company (incorporated by reference to
Exhibit 10.2 to the 1993 Registration Statement).
10.3 -- Subscription and Stockholders Agreement, dated as of June
25, 1986, among the Company, Florida Wire and Cable
Company ("Florida Wire"), GCR S.p.A. ("GCR") and Amercord
(the "Subscription Agreement") (incorporated by reference
to Exhibit 10.5 to the 1993 Registration Statement).
10.4 -- Management Agreement, effective as of May 1, 1986,
between Amercord and the Company (incorporated by
reference to Exhibit 10.8 to the 1993 Registration
Statement).
10.5 -- Form of Indemnification Agreement between the Company and
each of the Directors and executive officers of the
Company (incorporated by reference to Exhibit 10.14 to
the 1994 Registration Statement).
10.6 -- Profit Sharing Plan of the Company (incorporated by
reference to Exhibit 10.15 to the 1993 Registration
Statement).
10.7 -- Alside Retirement Plan (incorporated by reference to
Exhibit 10.16 to the 1993 Registration Statement).
10.8 -- Associated Materials Incorporated Amended and Restated
1994 Stock Incentive Plan (incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the period ended June 30, 1997).
10.9 -- Letter Agreement, dated May 13, 1983, between Donald L.
Kaufman and Company, as amended (incorporated by
reference to Exhibit 10.4 to the 1994 Registration
Statement).
10.10 -- Second Amended and Restated Loan and Security Agreement,
dated as of April 2, 1996, between the Company and
KeyBank (the "Credit Agreement") (incorporated by
reference to Exhibit 10.1 to the March 31, 1996 Form
10-Q).
10.11 -- Third Amended and Restated Note, dated April 2, 1996,
from the Company to KeyBank relating to the Credit
Agreement (incorporated by reference to Exhibit 10.1 to
the March 31, 1996 Form 10-Q).
12.1 -- Computation of Ratio of Earnings to Fixed Charges.
21.1 -- List of Subsidiaries of the Company.
23.1* -- Consent of Jones, Day, Reavis & Pogue (included in
Exhibit 5.1).
23.2 -- Consent of Ernst & Young LLP.
24.1 -- Powers of Attorney of Directors and certain executive
officers of the Company.
25.1 -- Statement of Eligibility and Qualification of Trustee on
Form T-1.
</TABLE>
- ---------------
* To be filed by amendment
<PAGE> 1
EXHIBIT 12.1
ASSOCIATED MATERIALS INCORPORATED
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income (loss) from operations.... $14,832 $18,894 $23,455 $12,742 $23,152 $17,254 $23,967
Add:
Portion of rents representative
of interest factor............. 2,866 2,833 2,957 3,301 3,737 2,746 3,110
------- ------- ------- ------- ------- ------- -------
Total earnings (as
adjusted)............... $17,698 $21,727 $26,412 $16,043 $26,889 $20,000 $27,077
======= ======= ======= ======= ======= ======= =======
Fixed Charges:
Interest expense................. $ 6,754 $ 7,581 $10,580 $11,474 $10,882 $ 8,285 $ 7,501
Portion of rents representative
of interest factor............. 2,866 2,833 2,957 3,301 3,737 2,746 3,110
Amortization of debt............. -- 202 540 540 445 345 298
------- ------- ------- ------- ------- ------- -------
Total fixed charges....... $ 9,620 $10,616 $14,077 $15,315 $15,064 $11,376 $10,909
======= ======= ======= ======= ======= ======= =======
Ratio of earnings to fixed
charges.......................... 1.84 2.05 1.88 1.05 1.78 1.76 2.48
======= ======= ======= ======= ======= ======= =======
</TABLE>
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES OF ASSOCIATED MATERIALS INCORPORATED
NONE
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Financial Data" and to the use of our report dated February 14, 1997,
except for Note 16, as to which the date is December 10, 1997, in the
Registration Statement (Form S-1) and related Prospectus of Associated Materials
Incorporated for the registration of $75,000,000 aggregate principal amount of
senior subordinated notes due 2008.
/s/ ERNST & YOUNG LLP
Dallas, Texas
December 10, 1997
<PAGE> 1
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned hereby
constitutes and appoints William W. Winspear, Robert L. Winspear, James E.
O'Bannon and Randolph D. Addison, Jr. and each of them, the true and lawful
attorney or attorneys-in-fact, with full power of substitution and
resubstitution, for him and in his name, place and stead, to sign on his behalf
as a director or officer or both, as the case may be, of Associated Materials
Incorporated (the "Corporation") a Registration Statement on Form S-1 (and any
abbreviated registration statement relating thereto permitted pursuant to Rule
462(b) under the Securities Act of 1933, as amended (the "Securities Act")), for
the purpose of registering under the Securities Act, debt securities of the
Corporation in the aggregate principal amount not to exceed $100,000,000, and to
sign any or all amendments and any or all post-effective amendments to such
Registration Statement (and any such abbreviated registration statement) and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney or attorneys-in-fact, and each of them with or without the others, full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could in person, hereby ratifying and confirming all
that said attorney or attorneys-in-fact or any of them or their substitutes, may
lawfully do or cause to be done by virtue hereof.
<TABLE>
<C> <C>
/s/ WILLIAM W. WINSPEAR /s/ ROBERT L. WINSPEAR
- -------------------------------------------- --------------------------------------------
William W. Winspear Robert L. Winspear
/s/ RICHARD I. GALLAND /s/ DONALD L. KAUFMAN
- -------------------------------------------- --------------------------------------------
Richard I. Galland Donald L. Kaufman
/s/ JAMES F. LEARY /s/ ALAN B. LERNER
- -------------------------------------------- --------------------------------------------
James F. Leary Alan B. Lerner
/s/ A. A. MEITZ /s/ GARY D. TRABKA
- -------------------------------------------- --------------------------------------------
A. A. Meitz Gary D. Trabka
</TABLE>
Dated: November 25, 1997
<PAGE> 1
EXHIBIT 25.1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
-------------------------
STATEMENT OF ELIGIBILITY AND QUALIFICATION UNDER THE TRUST
INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS
TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A
TRUSTEE PURSUANT TO SECTION 305(b)(2)_________
-------------------------
U.S. TRUST COMPANY OF TEXAS, N.A.
(Exact name of trustee as specified in its charter)
75-2353745
(State of incorporation (I.R.S. employer
if not a national bank) identification No.)
2001 Ross Ave, Suite 2700 75201
Dallas, Texas (Zip Code)
(Address of trustee's
principal executive offices)
Compliance Officer
U.S. Trust Company of Texas, N.A.
2001 Ross Ave, Suite 2700
Dallas, Texas 75201
(214) 754-1200
(Name, address and telephone number of agent for service)
-------------------------
Associated Materials Incorporated
(Exact name of obligor as specified in its charter)
Delaware 75-1872487
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
2200 Ross Avenue, Suite 4100 East
Dallas, Texas 75201
(Address of principal executive offices) (Zip Code)
-------------------------
______% Senior Subordinated Notes due 2008
(Title of the indenture securities)
================================================================================
<PAGE> 2
GENERAL
1. General Information.
Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
Federal Reserve Bank of Dallas (11th District),
Dallas, Texas (Board of Governors of the
Federal Reserve System)
Federal Deposit Insurance Corporation, Dallas, Texas
The Office of the Comptroller of the Currency,
Dallas, Texas
(b) Whether it is authorized to exercise corporate trust powers.
The Trustee is authorized to exercise corporate
trust powers.
2. Affiliations with Obligor and Underwriters.
If the obligor or any underwriter for the obligor is an affiliate of
the Trustee, describe each such affiliation.
None.
3. Voting Securities of the Trustee.
Furnish the following information as to each class of voting
securities of the Trustee:
<TABLE>
<CAPTION>
As of December 4, 1997
- --------------------------------------------------------------------------------
Col A. Col B.
- --------------------------------------------------------------------------------
Title of Class Amount Outstanding
- --------------------------------------------------------------------------------
<S> <C>
Capital Stock - par value $100 per share 5,000 shares
</TABLE>
4. Trusteeships under Other Indentures.
-----------------------------------
Not Applicable
5. Interlocking Directorates and Similar Relationships with the Obligor
--------------------------------------------------------------------
or Underwriters.
---------------
Not Applicable
<PAGE> 3
6. Voting Securities of the Trustee Owned by the Obligor or its
------------------------------------------------------------
Officials.
---------
Not Applicable
7. Voting Securities of the Trustee Owned by Underwriters or their
---------------------------------------------------------------
Officials.
---------
Not Applicable
8. Securities of the Obligor Owned or Held by the Trustee.
------------------------------------------------------
Not Applicable
9. Securities of Underwriters Owned or Held by the Trustee.
-------------------------------------------------------
Not Applicable
10. Ownership or Holdings by the Trustee of Voting Securities of Certain
--------------------------------------------------------------------
Affiliates or Security Holders of the Obligor.
---------------------------------------------
Not Applicable
11. Ownership or Holdings by the Trustee of any Securities of a Person
------------------------------------------------------------------
Owning 50 Percent or More of the Voting Securities of the Obligor.
-----------------------------------------------------------------
Not Applicable
12. Indebtedness of the Obligor to the Trustee.
------------------------------------------
Not Applicable
13. Defaults by the Obligor.
-----------------------
Not Applicable
14. Affiliations with the Underwriters.
----------------------------------
Not Applicable
15. Foreign Trustee.
---------------
Not Applicable
16. List of Exhibits.
----------------
T-1.1 - A copy of the Articles of Association of U.S. Trust Company
of Texas, N.A.. incorporated herein by reference to Exhibit
T-1.1 filed with Form T-1 Statement, Registration No.
22-21897.
<PAGE> 4
16. (con't.)
T-1.2 - A copy of the certificate of authority of the Trustee to
commence business; incorporated herein by reference to
Exhibit T-1.2 filed with Form T-1 Statement, Registration
No. 22-21897.
T-1.3 - A copy of the authorization of the Trustee to exercise
corporate trust powers; incorporated herein by reference to
Exhibit T-1.3 filed with Form T-1 Statement, Registration
No. 22-21897.
T-1.4 - A copy of the By-laws of the U.S. Trust Company of Texas,
N.A.. as amended to date; incorporated herein by reference
to Exhibit T-1.4 filed with Form T-1 Statement,
Registration No. 22-21897.
T-1.6 - The consent of the Trustee required by Section 321(b) of
the Trust Indenture Act of 1939.
T-1.7 - A copy of the latest report of condition of the Trustee
published pursuant to law or the requirements of its
supervising or examining authority.
NOTE
As of December 4, 1997, the Trustee had 5,000 shares of Capital Stock
outstanding, all of which are owned by U.S. T.L.P.O. Corp. As of December 4,
1997, U.S. T.L.P.O. Corp. had 35 shares of Capital Stock outstanding, all of
which are owned by U.S. Trust Corporation. U.S. Trust Corporation had
outstanding 19,033,829 shares of $5 par value Common Stock as of December 4,
1997.
The term "Trustee" in Items 2, 5, 6, 7, 8, 9, 10 and 11 refers to each of U.S
Trust Company of Texas, N.A., U.S. T.L.P.O. Corp. and U.S. Trust Corporation.
Inasmuch as this Form T-1 is filed prior to the ascertainment by the Trustee of
all the facts on which to base responsive answers to Items 2, 5, 6, 7, 9, 10
and 11, the answers to said Items are based upon incomplete information. Items
2, 5, 6, 7, 9, 10 and 11 may, however, be considered correct unless amended by
an amendment to this Form T-1.
In answering any items in this Statement of Eligibility and Qualification which
relates to matters peculiarly within the knowledge of the obligors or their
directors or officers, or an underwriter for the obligors, the Trustee has
relied upon information furnished to it by the obligors and will rely on
information to be furnished by the obligors or such underwriter, and the
Trustee disclaims responsibility for the accuracy or completeness of such
information.
-------------------------
<PAGE> 5
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the Trustee,
U.S Trust Company of Texas, N.A., a national banking association organized
under the laws of the United States of America, has duly caused this statement
of eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of Dallas, and State of Texas on the
4th day of December, 1997.
U.S. Trust Company
of Texas, N.A., Trustee
By: /s/ John Stohlmann
----------------------------------
John Stohlmann
Vice President
<PAGE> 6
Exhibit T-1.6
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act of
1939 as amended in connection with the proposed issue of Associated Materials
Incorporated _____% senior Subordinated Notes due 2008, we hereby consent that
reports of examination by Federal, State, Territorial or District authorities
may be furnished by such authorities to the Securities and Exchange Commission
upon request therefore.
U.S. Trust Company of Texas, N.A.
By: /s/ John Stohlmann
----------------------------------
John Stohlmann
Vice President
<PAGE> 7
<TABLE>
<S> <C>
Board of Governors of the Federal Reserve System
OMB Number: 7100-0036
Federal Financial Institutions Examination Council
Federal Deposit Insurance Corporation
OMB Number: 3064-0052
Office of the Comptroller of the Currency
OMB Number: 1557-0081
Expires March 31, 2000
Please Refer to Page i, Table of Contents,
(LOGO) for the required disclosure of estimated [1]
burden.
- ------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED REPORTS OF CONDITION AND INCOME FOR
A BANK WITH DOMESTIC OFFICES ONLY AND
TOTAL ASSETS OF LESS THAN $100 MILLION - - FFIEC 034
(970331)
-----------
REPORT AT THE CLOSE OF BUSINESS September 30,1997 (RCRI 9999)
This report is required by law: 12 U.S.C. Section 324 (State This report form is to be filed by banks with domestic
member banks); 12 U.S.C. Section 1817 (State nonmember banks); offices only. Banks with branches and consolidated
and 12 U.S.C. Section 161 (National banks). subsidiaries in U.S. territories and possessions, Edge or
Agreement subsidiaries, foreign branches, consolidated
foreign subsidiaries, or International Banking Facilities
must file FFIEC 031.
- ------------------------------------------------------------------------------------------------------------------------------
NOTE: The Reports of Condition and Income must be signed by an The Reports of Condition and Income are to be prepared in
authorized officer and the Report of Condition must be attested accordance with Federal regulatory authority instructions.
to by not less than two directors (trustees) for State NOTE: these instructions may in some cases differ from
nonmember banks and three directors for State member National and generally accepted accounting principles.
Banks.
We, the undersigned directors (trustees), attest to the
I, Alfred B. Childs, SVP & Cashier correctness of this Report of Condition (including the
------------------------------------------------------------ supporting schedules) and declare that it has been examined
Name and Title of Officer Authorized to Sign Report by us and to the best of our knowledge and belief has been
prepared in conformance with the instructions issued by the
of the named bank do hereby declare that these Reports of appropriate Federal regulatory authority and is true and
Condition and Income (including the supporting schedules) have correct.
been prepared in conformance with the instructions issued by
the appropriate Federal regulatory authority and are true to /s/ Stuart M. Pearman
the best of my knowledge and belief. -----------------------------------------------------------
Director (Trustee)
/s/ Alfred B. Childs /s/ J.T. Moore
- -------------------------------------------------------------- -----------------------------------------------------------
Signature of Officer Authorized to Sign Report Director (Trustee)
10/15/97 /s/ Peter J. Denker
- -------------------------------------------------------------- -----------------------------------------------------------
Date of Signature Director (Trustee)
- ------------------------------------------------------------------------------------------------------------------------------
FOR BANKS SUBMITTING HARD COPY REPORT FORMS:
STATE MEMBER BANKS: Return the original and one copy to the NATIONAL BANKS: Return the original only in the special
appropriate Federal Reserve District Bank. return address envelope provided. If express mail is used
in lieu of the special return address envelope, return the
STATE NONMEMBER BANKS: Return the original only in the original only to the FDIC, c/o Quality Data Systems, 2127 Espey
special return address envelope provided. If express mail Court, Suite 204, Crofton, MD 21114.
is used in lieu of the special return address envelope,
return the original only to the FDIC, c/o Quality Data
Systems, 2127 Espey Court, Suite 204, Crofton, MD 21114.
- ------------------------------------------------------------------------------------------------------------------------------
09-30-97
FDIC Certificate Number ____________ Banks should affix the address label in this space.
(RCRI 9050)
U. S. Trust Company of Texas, National Association
----------------------------------------------------------
Legal Title of Bank (TEXT 9010)
2001 Ross Avenue, Suite 2700
----------------------------------------------------------
City (TEXT 9130)
Dallas, TX 75201
----------------------------------------------------------
State Abbrev. (TEXT 9200) Zip Code (TEXT 9220)
</TABLE>
Board of Governors of the Federal Reserve System, Federal Deposit Insurance
Corporation, Office of the Comptroller of the Currency
<PAGE> 8
<TABLE>
<S> <C> <C> <C>
U.S. TRUST COMPANY OF TEXAS, N.A. Call Date: 09/30/97 State #: 6797 FFIEC 034
2100 ROSS AVENUE, SUITE 2700 Vendor ID: D Cert #: 33217 RC-2
DALLAS, TX 75201 Transit #: 11101765
---------
9
---------
</TABLE>
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR JUNE 30, 1997
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
SCHEDULE RC - BALANCE SHEET
<TABLE>
<CAPTION>
C100<-
Dollar Amounts in Thousands
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
RCON
1. Cash and balances due from depository institutions: ----
a. Noninterest-bearing balances and currency and coin(1,2)_________________________________ 0081 882 1.a
b. Interest bearing balances(3)____________________________________________________________ 0071 916 1.b
2. Securities:
a. Held-to-maturity securities (from Schedule RC-B, column A)______________________________ 1754 0 2.a
b. Available-for-sale securities (from Schedule RC-B, column D)____________________________ 1773 128,787 2.b
3. Federal funds sold (4) and securities purchased under agreements to resell__________________ 1350 6,000 3
RCON
4. Loans and lease financing receivables: ----
a. Loans and leases, net of unearned income (from Schedule RC-C)__________ 2122 12,545 4.a
b. LESS: Allowance for loan and lease losses_____________________________ 3123 200 4.b
c. LESS: Allocated transfer risk reserve_________________________________ 3128 0 4.c
RCON
d. Loans and leases, net of unearned income, allowance, and reserve ----
(item 4.a minus 4.b and 4.c)___________________________________________________________ 2125 12,345 4.d
5. Trading assets______________________________________________________________________________ 3545 0 5.
6. Premises and fixed assets (including capitalized leases)____________________________________ 2145 694 6.
7. Other real estate owned (from Schedule RC-M)________________________________________________ 2150 0 7.
8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M)____ 2130 0 8.
9. Customers' liability to this bank on acceptances outstanding________________________________ 2155 0 9.
10. Intangible assets (from Schedule RC-M)______________________________________________________ 2143 0 10.
11. Other assets (from Schedule RC-F)___________________________________________________________ 2160 2,070 11.
12. a. Total assets (sum of items 1 through 11)________________________________________________ 2170 151,694 12.a
b. Losses deferred pursuant to U.S.C. 1823(j)______________________________________________ 0306 0 12.b
c. Total assets and losses deferred pursuant to 12 U.S.C. 1823(j)
(sum of items 12.a and 12.b)__________________________________________________________ 0307 151,694 12.c
</TABLE>
(1) Includes cash items in process of collection and unposed debits.
(2) The amount reported in this item must be greater than or equal to the sum
of Schedule RC-M, items 3.a and 3.b.
(3) Includes time certificates of deposit not held for trading.
(4) Report `term federal funds sold' in Schedule RC, item 4.a, `Loans and
leases, net of unearned income,' and in Schedule RC-C, part 1.
(5) Report securities purchased under agreements to resell that involve the
receipt of immediately available funds and mature in one business day or
roll over under a continuing contract in Schedule RC, item 3.a, `Federal
funds sold.'
<PAGE> 9
<TABLE>
<S> <C> <C> <C>
U.S. TRUST COMPANY OF TEXAS, N.A. Call Date: 06/30/97 State #: 6797 FFIEC 034
2100 ROSS AVENUE, SUITE 2700 Vendor ID: D Cert #: 33217 RC-2
DALLAS, TX 75201 Transit #: 11101765
---------
10
---------
</TABLE>
SCHEDULE RC - CONTINUED
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LIABILITIES
13. Deposits: RCON
a. In domestic offices (sum of totals of ----
columns A and C from Schedule RC-E)_________________________________ RCON 2200 116,013 13.a
----
(1) Noninterest-bearing(1) _________________________________________ 6631 8,660 13.a.1
(2) Interest-bearing________________________________________________ 6636 107,353
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs
(1) Noninterest-bearing_____________________________________________________
(2) Interest-bearing________________________________________________________
RCON
----
14. Federal funds purchased(2) and securities sold under agreements to repurchase________________ 2800 0 14
15. a. Demand notes issued to the U.S. Treasury_________________________________________________ 2840 0 15.a
b. Trading liabilities______________________________________________________________________ 3548 0 15.b
16. Other borrowed money:
a. WITH A REMAINING MATURITY OF ONE YEAR OR LESS____________________________________________ 2332 7,000 16.a
b. WITH A REMAINING MATURITY OF MORE THAN ONE YEAR THROUGH THREE YEARS______________________ A547 1,000 16.b
c. WITH A REMAINING MATURITY OF MORE THAN THREE YEARS_______________________________________ A548 3,000 16.c
17. Not applicable
18. Bank's liability on acceptances executed and outstanding_____________________________________ 2920 0 18.
19. Subordinated notes and debentures ___________________________________________________________ 3200 0 19.
20. Other liabilities (from Schedule RC-G)_______________________________________________________ 2930 1,990 20.
21. Total liabilities (sum of items 13 through 20)_______________________________________________ 2948 129,003 21.
22. Not applicable
EQUITY CAPITAL RCON 7,000 23.
----
23. Perpetual preferred stock and related surplus________________________________________________ 3838
24. Common stock_________________________________________________________________________________ 3230 500 24.
25. Surplus (exclude all surplus related to preferred stock)_____________________________________ 3839 8,384 25.
26. a. Undivided profits and capital reserves___________________________________________________ 3632 6,512 26.a
b. Net unrealized holding gains (losses) on available-for-sale securities___________________ 8434 295 26.b
27. Cumulative foreign currency translation adjustments_____________________________________________
28. a. Total equity capital (sum of items 23 through 27)________________________________________ 3210 22,691 28.a
b. Losses deferred pursuant to 12 U.S.C. 1823(j)____________________________________________ 0306 0 28.b
c. Total equity capital and losses deferred pursuant to 12 U.S.C. 1823(j)
(sum of items 28.a and 28.b)_____________________________________________________________ 3559 22,691 28.c
29. Total liabilities, limited-life preferred stock, equity capital, and
losses deferred pursuant to 12 U.S.C. 1823(j) (sum of items 21, 22, and 28.c)___________________ 2257 151,694 29.
MEMORANDUM
TO BE REPORTED ONLY WITH THE MARCH REPORT OF CONDITION.
1. Indicate in the box at the right the number of the statement below that best RCON Number
describes the most comprehensive level of auditing work performed for the ---- ------
bank by independent external auditors as of any date during 1995________________________________ 6724 N/A M.1
1 = Independent audit of the bank conducted in accordance 4 = Directors' examination of the bank performed by other
with generally accepted auditing standards by certified external auditors (may be required by state chartering
public accounting firm which submits a report on the bank authority)
2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by external
conducted in accordance with generally accepted auditing auditors
standards by a certified public accounting firm which 6 = Compilation of the bank's financial statements by
submits a report on the consolidated holding company (but external auditors
not on the bank separately) 7 = Other audit procedures (excluding tax preparation
3 = Directors' examination of the bank conducted in accordance work)
with generally accepted auditing standards by a certified 8 = No external audit work
public accounting firm (may be required by state chartering
authority)
</TABLE>
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
(2) Report "term federal funds purchased" in Schedule RC, item 16,
`Other borrowed money.'
(3) Report securities sold under agreements to repurchase that involve the
receipt of immediately available funds and mature in one business day or
roll over under a continuing contract in Schedule RC, item 14.a, `Federal
funds purchased.'
