<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 30, 1998
REGISTRATION NO.: 333-42067
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
PRE-EFFECTIVE AMENDMENT NO. 1
TO
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. [ ]
---------------------
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 JANUARY 30, 1998
PROSPECTUS
$75,000,000
ASSOCIATED 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), 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 an 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) of the Company, including amounts borrowed under the Company's
existing bank credit agreement (the "Credit Agreement"). At December 31, 1997
the Notes would have been subordinated to approximately $5.9 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 Depositary (as defined). Interest in the Notes will be shown on, and
transfers thereof will be effected only through, records maintained by the
Depositary 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 Depositary'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 of its
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 has commenced a tender 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 $420,000.
------------------
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 DAIN RAUSCHER INCORPORATED
, 1998
<PAGE> 3
[Company logo]
[photographs of homes with vinyl siding and vinyl windows manufactured by the
Company]
Alside Premium Vinyl Siding and Windows
The Company has a number of trademarks and trade names, including
Alside(R), Alpha(R), Centurion(R), Omni(R), UltraCraft(R), UltraGuard(R),
UltraMaxx(R), Williamsport(R), 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 1997, Alside accounted for
approximately 87% 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.
According to an industry study jointly prepared by Sabre Associates, Inc. and
Pure Strategy (the "Sabre Study"), based on unit sales, vinyl siding accounted
for approximately 47% of the exterior siding market in 1996, versus
approximately 17% in 1985 and vinyl windows accounted for approximately 45% of
the residential window market in 1996, versus approximately 27% in 1991.
Additionally, both vinyl siding and vinyl windows have become the preferred
products for professional home remodeling contractors, representing
approximately 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. According to the
Sabre Study, 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 and overall, total sales of vinyl siding and vinyl windows are each
projected to increase approximately 7% annually between 1996 and 2000.
From 1993 to 1997, the Company's net sales and EBITDA (defined as income
from operations plus depreciation and amortization) increased 27.1% and 66.3% to
$397.7 million and $39.6 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 49.0% and represented
over 68.2% of Alside's 1997 sales as compared to 57.3% in 1993.
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 1997, approximately 78% 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 approximately 22.9% of Alside's vinyl siding unit volume
in 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 18.2% of Alside's vinyl siding unit volume in
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. According to the Sabre Study, 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 13%
of the Company's net sales in 1997. 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. The
Company was incorporated in Delaware in 1983.
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 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; 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, 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.
There can be no assurance the Company will have
sufficient funds to pay the purchase price for all
of the Notes the Company may be obligated to
repurchase in the event of a Change of Control. See
"Risk Factors -- Risk of Insufficient Funds to
Repurchase Notes on Change of Control,"
"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 $5.0 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 of the Company
(including Amercord). At December 31, 1997, after
giving effect to the Offerings, the aggregate
amount of Senior Indebtedness outstanding would
have been approximately $5.4 million (excluding
outstanding but undrawn insurance letters of credit
of $2.1 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."
5
<PAGE> 7
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 merge or transfer assets. See
"Description of Notes -- Certain Covenants."
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
On January 29, 1998, the Company commenced the Tender Offer for all of the
Existing Notes and a solicitation of consents from the holders of the Existing
Notes to amend the indenture under which the Existing Notes were issued (the
"Existing Indenture") in order to eliminate substantially all of the restrictive
covenants and certain other provisions contained in the Existing Indenture (the
"Proposed Amendments"). See "Certain Indebtedness -- Existing Notes -- The
Tender Offer/Consent Solicitation." Holders of Existing Notes who tender their
Existing Notes in the Tender Offer will be required to consent to the Proposed
Amendments. Under the terms of the Existing Indenture, consents from the holders
of a majority in principal amount of the Existing Notes will be required to
approve the Proposed Amendments. The Tender Offer is conditioned on the
completion of the Note Offering and the receipt of the requisite consents to the
Proposed Amendments. The Tender Offer will expire on March 2, 1998, unless
extended or terminated, at which time the Company intends to purchase all of the
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 of the Note Offering and borrowings under the Credit
Agreement. See "The Tender Offer."
If only the minimum required percentage of Existing Notes to approve the
Proposed Amendments are tendered in the Tender Offer, approximately $37,500,000
of Existing Notes would remain outstanding after the Note Offering. However, the
Company presently intends to redeem all Existing Notes that remain outstanding
following the Tender Offer promptly after August 15, 1998, the first date on
which the Existing Notes may be redeemed by the Company under the terms of the
Existing Indenture.
THE STOCK OFFERING
Concurrently with the Note Offering, the Company and certain of its
stockholders (the "Selling Stockholders") are offering 2,128,800 shares of
Common Stock (plus up to an additional 319,320 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
(808,520 if the over-allotment option is exercised in full) are being offered by
the Company and 1,428,800 shares of Common Stock (1,639,600 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 of approximately $10.6 million (assuming the Underwriters'
over-allotment option is not exercised). 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>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................................................. $312,972 $352,606 $350,029 $356,471 $397,690
Cost of sales............................................. 230,408 258,669 264,080 255,579 283,514
-------- -------- -------- -------- --------
Gross profit.............................................. 82,564 93,937 85,949 100,892 114,176
Selling, general and administrative expenses.............. 63,670 70,482 73,207 77,740 81,142
-------- -------- -------- -------- --------
Income from operations.................................... 18,894 23,455 12,742 23,152 33,034
Interest expense.......................................... 7,581 10,580 11,474 10,882 9,795
Equity in earnings (loss) of Amercord..................... 1,039 100 537 1,724 (626)
-------- -------- -------- -------- --------
Income before income tax expense.......................... 12,352 12,975 1,805 13,994 22,613
Income tax expense........................................ 4,666 5,101 545 5,172 9,524
-------- -------- -------- -------- --------
Income before extraordinary item.......................... 7,686 7,874 1,260 8,822 13,089
Extraordinary item(1)..................................... 1,876 -- -- -- --
-------- -------- -------- -------- --------
Net income................................................ 5,810 7,874 1,260 8,822 13,089
Preferred dividends....................................... 583 -- -- -- --
-------- -------- -------- -------- --------
Income applicable to common stock......................... $ 5,227 $ 7,874 $ 1,260 $ 8,822 $ 13,089
======== ======== ======== ======== ========
SHARE DATA:
Basic earnings per common share........................... $ 0.84 $ 1.05 $ 0.17 $ 1.16 $ 1.72
Diluted earnings per common share(2)...................... 0.42 1.01 0.16 1.14 1.69
Weighted average number of diluted shares................. 12,352 7,789 7,695 7,746 7,756
Dividends per share....................................... -- -- -- -- $ 0.05
OTHER DATA:
EBITDA(3)................................................. $ 23,779 $ 27,959 $ 18,082 $ 29,025 $ 39,555
Capital expenditures...................................... 5,489 9,323 7,683 8,110 8,758
Cash provided by (used in) operating activities........... 3,982 (3,248) 5,328 15,055 22,496
Cash used in investing activities......................... (4,663) (9,206) (7,203) (8,087) (7,941)
Cash provided by (used in) financing activities........... 1,801 11,648 2,452 (6,863) (15,004)
Ratio of EBITDA to interest expense....................... 3.14x 2.64x 1.58x 2.67x 4.04x
Ratio of earnings to fixed charges........................ 2.16x 1.92x 1.12x 1.93x 2.60x
PRO FORMA DATA:(4)
Income from operations.................................... $ 33,185
Interest expense.......................................... 7,926
Net income................................................ 14,276
Diluted earnings per common share(2)...................... 1.69
Weighted average number of diluted shares................. 8,456
Ratio of earnings to fixed charges........................ 3.04x
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------
AS ADJUSTED FOR
ACTUAL THE OFFERINGS(4)
-------- ----------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................... $ 61,191 $ 67,295
Total assets.............................................. 178,504 181,231
Short-term debt, including current maturities............. 2,314 1,750
Long-term debt, less current maturities................... 78,600 78,600
Stockholders' equity...................................... 44,734 51,047
</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) In accordance with the Securities and Exchange Commission (the "Commission")
Staff Accounting Bulletin, Topic 4D, common shares issued during the
12-month period prior to the initial filing of the Company's registration
statement relating to the Stock Offering at prices below the assumed public
offering price have been included in the calculation as if such shares were
outstanding for all periods presented. In this Prospectus, the Company's
Common Stock and Class B Common Stock are referred to collectively as
"common shares."
(3) 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. EBITDA as presented above for the Company
may not be comparable to similarly titled measures reported by other
companies.
(4) Gives effect to (i) the sale of the Common Stock offered by the Company at
an assumed offering price of $17.00 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
9.5% 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 period and
for Balance Sheet Data, these events are assumed to occur at December 31,
1997. Upon completion of the Tender Offer, the Company will record an
extraordinary charge estimated to be approximately $4.3 million, net of tax
($0.56 per diluted common share), 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 are 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 carefully consider 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 of the Company (including Amercord). 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
December 31, 1997, the Company had approximately $5.9 million of Senior
Indebtedness outstanding (excluding outstanding but undrawn insurance letters of
credit of $2.1 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 December 31, 1997, after giving effect to
the Note Offering (but not the Stock Offering), the Company's total indebtedness
would have been approximately $88.5 million and its stockholders' equity would
have been $40.4 million. See "Capitalization." 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 presently contains and the
Indenture will contain 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
8
<PAGE> 10
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. 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. Although prior to 1997, Alside had generally been able to pass on
price increases in vinyl resin to its customers, there can be no assurance that
in the future 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. 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."
Risks Associated With 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."
Weather Impacts Quarterly Results. 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 from Vinyl Building Product Manufacturers and Alternative
Building Product Materials. 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."
Costs of Environmental Compliance. 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.
Risk of Insufficient Funds to Repurchase Notes 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 Restated Certificate of
Incorporation (the "Certificate") and Restated Bylaws ("Bylaws") 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
10
<PAGE> 12
shares of the Company's Common Stock. See "Description of Capital Stock -- State
Law and Certain Certificate and Bylaw Provisions." Additionally, the Certificate
grants the Company's Board of Directors the authority to issue, without
stockholder approval, up to 100,000 shares of Preferred Stock having such
rights, preferences and privileges as designated by the Board of Directors. The
rights of the holders of the Common Stock will be subject to, and may be
adversely affected by, the rights of the holders of any Preferred Stock that may
be issued in the future. See "Description of Capital Stock -- Preferred Stock."
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 $72,705,000, 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
On January 29, 1998, the Company commenced the Tender Offer for all of the
Existing Notes and a solicitation of consents from the holders of the Existing
Notes to the Proposed Amendments in order to eliminate substantially all of the
restrictive covenants and certain other provisions contained in the Existing
Indenture. See "Certain Indebtedness -- Existing Notes -- The Tender
Offer/Consent Solicitation." Holders of Existing Notes who tender their Existing
Notes in the Tender Offer will be required to consent to the Proposed
Amendments. Under the terms of the Existing Indenture, consents from the holders
of a majority in principal amount of the Existing Notes will be required to
approve the Proposed Amendments. The Tender Offer is conditioned on the
completion of the Note Offering and the receipt of the requisite consents to the
Proposed Amendments. The Tender Offer will expire on March 2, 1998, unless
extended or terminated, 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 Note Offering and borrowings under the Credit
Agreement. The Company intends to close the Note Offering on the day it would
become obligated to pay for the Existing Notes tendered in the Tender Offer. If
necessary, the Company will extend the Tender Offer so that the proceeds of the
Note Offering will be available to pay for the Existing Notes tendered in the
Tender Offer.
If only the minimum required percentage of Existing Notes to approve the
Proposed Amendments are tendered in the Tender Offer, approximately $37,500,000
of Existing Notes would remain outstanding after the Note Offering. However, the
Company presently intends to redeem all Existing Notes that remain outstanding
following the Tender Offer promptly after August 15, 1998, the first date on
which the Existing Notes may be redeemed by the Company under the terms of the
Existing Indenture.
11
<PAGE> 13
THE STOCK OFFERING
Concurrently with the Note Offering, the Company and the Selling
Stockholders are offering 2,128,800 shares of Common Stock (plus up to an
additional 319,320 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 (808,520 if the over-allotment option is exercised in full) are
being sold by the Company and 1,428,800 shares of Common Stock (1,639,600 if the
over-allotment option is exercised in full) are being sold by the Selling
Stockholders. At an assumed initial public offering price of $17.00 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 $10,627,000 ($12,343,000 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.
12
<PAGE> 14
CAPITALIZATION
The following table presents the actual capitalization of the Company at
December 31, 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 at an assumed initial public offering price of
$17.00 per share 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>
DECEMBER 31, 1997
--------------------------------------
AS ADJUSTED
FOR THE AS ADJUSTED
NOTE FOR THE
ACTUAL OFFERING(1) OFFERINGS
-------- ----------- -----------
<S> <C> <C> <C>
Cash and cash equivalents............................... $ 1,935 $ 1,935 $ 4,453
======== ======== ========
Short-term debt:
Revolving line of credit.............................. $ 564 $ 8,109 $ --
Current maturities of long-term debt.................. 1,750 1,750 1,750
-------- -------- --------
Total short-term debt......................... $ 2,314 $ 9,859 $ 1,750
======== ======== ========
Long-term debt, less current maturities:
Taxable Notes......................................... $ 3,600 $ 3,600 $ 3,600
Existing Notes........................................ 75,000 -- --
New Notes............................................. -- 75,000 75,000
-------- -------- --------
Total long-term debt.......................... 78,600 78,600 78,600
-------- -------- --------
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
(6,634,900 issued shares, as further adjusted)..... 12 12 17
Class B Common Stock, par value $.0025 per share;
2,700,000 authorized shares; 2,700,000 issued
shares
(1,700,000 authorized and issued shares, as further
adjusted)........................................ 7 7 4
Capital in excess of par.............................. 505 505 11,130
Less treasury stock, at cost (41,396 shares).......... (542) (542) (542)
Retained earnings..................................... 44,752 40,438 40,438
-------- -------- --------
Total stockholders' equity.................... 44,734 40,421 51,047
-------- -------- --------
Total capitalization.......................... $123,334 $119,021 $129,647
======== ======== ========
</TABLE>
- ---------------
(1) Upon completion of the Tender Offer, the Company will record an
extraordinary charge estimated to be approximately $4.3 million, net of tax
($0.56 per diluted 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.
13
<PAGE> 15
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, 1997 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.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.............................................. $312,972 $352,606 $350,029 $356,471 $397,690
Cost of sales.......................................... 230,408 258,669 264,080 255,579 283,514
-------- -------- -------- -------- --------
Gross profit........................................... 82,564 93,937 85,949 100,892 114,176
Selling, general and administrative expenses........... 63,670 70,482 73,207 77,740 81,142
-------- -------- -------- -------- --------
Income from operations................................. 18,894 23,455 12,742 23,152 33,034
Interest expense....................................... 7,581 10,580 11,474 10,882 9,795
Equity in earnings (loss) of Amercord(1)............... 1,039 100 537 1,724 (626)
-------- -------- -------- -------- --------
Income before income tax expense....................... 12,352 12,975 1,805 13,994 22,613
Income tax expense..................................... 4,666 5,101 545 5,172 9,524
-------- -------- -------- -------- --------
Income before extraordinary item....................... 7,686 7,874 1,260 8,822 13,089
Extraordinary item(2).................................. 1,876 -- -- -- --
-------- -------- -------- -------- --------
Net income............................................. 5,810 7,874 1,260 8,822 13,089
Preferred dividends.................................... 583 -- -- -- --
-------- -------- -------- -------- --------
Income applicable to common stock...................... $ 5,227 $ 7,874 $ 1,260 $ 8,822 $ 13,089
======== ======== ======== ======== ========
SHARE DATA:
Basic earnings per share............................... $ 0.84 $ 1.05 $ 0.17 $ 1.16 $ 1.72
Diluted earnings per common share(3)................... 0.42 1.01 0.16 1.14 1.69
Weighted average number of diluted shares.............. 12,352 7,789 7,695 7,746 7,756
Dividends per share.................................... -- -- -- -- $ 0.05
OTHER DATA:
EBITDA(4).............................................. $ 23,779 $ 27,959 $ 18,082 $ 29,025 $ 39,555
Capital expenditures................................... 5,489 9,323 7,683 8,110 8,758
Cash provided by (used in) operating activities........ 3,982 (3,248) 5,328 15,055 22,496
Cash used in investing activities...................... (4,663) (9,206) (7,203) (8,087) (7,941)
Cash provided by (used in) financing activities........ 1,801 11,648 2,452 (6,863) (15,004)
Ratio of EBITDA to interest expense.................... 3.14x 2.64x 1.58x 2.67x 4.04x
Ratio of earnings to fixed charges..................... 2.16x 1.92x 1.12x 1.93x 2.60x
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................................ $ 51,417 $ 51,336 $ 46,551 $ 51,821 $ 61,191
Total assets........................................... 149,881 169,414 172,053 177,709 178,504
Short-term debt, including current maturities.......... 2,321 15,719 19,921 14,808 2,341
Long-term debt, less current maturities................ 85,600 83,850 82,100 80,350 78,600
Stockholders' equity................................... 14,114 22,046 23,306 32,246 44,734
</TABLE>
- ---------------
(1) In 1996 the Company's equity in the earnings of Amercord was effected by a
change in accounting principle, a settlement of a royalty dispute and an
asset impairment writedown, the net amount of which was approximately
$800,000. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Note 2 to the Financial Statements.
(2) 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.
(3) In accordance with the Commission Staff Accounting Bulletin, Topic 4D,
common shares issued during the 12-month period prior to the initial filing
of the Company's registration statement relating to the Stock Offering at
prices below the assumed public offering price have been included in the
calculation as if such shares were outstanding for all periods presented.
(4) 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. EBITDA as presented above for the Company
may not be comparable to similarly titled measures reported by other
companies.
14
<PAGE> 16
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 each of the three years in
the period ended December 31, 1997, 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,
which include its durability, lower maintenance cost and lower cost compared to
wood and metal. 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.
Prior to 1997, the prices of the Company's vinyl siding products have generally
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.
15
<PAGE> 17
Segment Data. Alside accounted for more than 85% of the Company's net sales
and income from operations in each of the three years in the period ended
December 31, 1997. In 1997, Alside accounted for approximately 85% 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,
------------------------------------------------------
1995 1996 1997
---------------- ---------------- ----------------
% OF % OF % OF
TOTAL TOTAL TOTAL
NET NET NET
AMOUNT SALES AMOUNT SALES AMOUNT SALES
-------- ----- -------- ----- -------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED:
Net sales -- Alside....................................... $300,561 85.9% $314,645 88.3% $344,000 86.5%
Net sales -- AmerCable.................................... 49,468 14.1 41,826 11.7 53,690 13.5
-------- ----- -------- ----- -------- -----
Total net sales..................................... 350,029 100.0 356,471 100.0 397,690 100.0
Gross profit.............................................. 85,949 24.5 100,892 28.3 114,176 28.7
Selling, general and administrative expenses(1)........... 73,207 20.9 77,740 21.8 81,142 20.4
-------- ----- -------- ----- -------- -----
Income from operations.................................... 12,742 3.6 23,152 6.5 33,034 8.3
Interest expense.......................................... 11,474 3.3 10,882 3.1 9,795 2.5
Equity in earnings (loss) of Amercord..................... 537 0.2 1,724 0.5 (626) (0.1)
-------- ----- -------- ----- -------- -----
Income before income tax expense.......................... 1,805 0.5 13,994 3.9 22,613 5.7
Income tax expense........................................ 545 0.1 5,172 1.4 9,524 2.4
-------- ----- -------- ----- -------- -----
Net income.......................................... $ 1,260 0.4% $ 8,822 2.5% $ 13,089 3.3%
======== ===== ======== ===== ======== =====
ALSIDE:
Net sales................................................. $300,561 100.0% $314,645 100.0% $344,000 100.0%
Gross profit.............................................. 85,628 28.5 98,636 31.3 104,716 30.4
Selling, general and administrative expenses.............. 69,078 23.0 72,264 23.0 74,301 21.6
Income from operations.................................... 16,550 5.5 26,372 8.3 30,415 8.8
AMERCABLE:
Net sales................................................. $ 49,468 100.0% $ 41,826 100.0% $ 53,690 100.0%
Gross profit.............................................. 321 0.6 2,256 5.4 9,460 17.6
Selling, general and administrative expenses.............. 1,997 4.0 3,223 7.7 4,374 8.1
Income (loss) from operations............................. (1,676) (3.4) (967) (2.3) 5,086 9.5
</TABLE>
- ---------------
(1) Consolidated selling, general and administrative expenses include corporate
expenses of $2.1 million, $2.3 million and $2.5 million for the years 1995,
1996 and 1997, respectively.
RESULTS OF OPERATIONS
Year Ended December 31, 1997 compared to the Year Ended December 31, 1996.
General. The Company's net sales increased $41.2 million or 11.6% in 1997
as compared to 1996 due to an increase in sales volume at its Alside and
AmerCable divisions. Income from operations increased $9.9 million or 42.7% in
1997 as compared to 1996 due to increased sales volume at Alside and AmerCable
as well as manufacturing efficiency improvements at AmerCable. The Company's net
income increased $4.3 million or 48.4% in 1997 as compared to 1996 due to
increased operating income at its divisions which was partially offset by a loss
from its Amercord affiliate.
Alside. Alside's net sales increased $29.4 million or 9.3% in 1997 as
compared to 1996 due to increased unit sales in virtually all product lines
except metal siding. Unit sales of vinyl siding and vinyl windows increased
11.2% and 16.0%, respectively, in 1997 as compared to 1996. Alside's 1997 sales
were also favorably impacted by increased unit sales volume of cabinets and
vinyl fence of 33.7% and 40.4%, respectively, as compared to 1996. In addition,
the average unit selling price of vinyl siding increased in 1997 due to Alside's
increased sales of premium siding products. The increase in Alside's sales was
partially offset by a decrease in metal siding sales as consumer preference
continued to shift away from metal siding. Gross profit as a percentage of sales
decreased to 30.4% in 1997 as compared to 31.3% in 1996 principally due to
increases in raw materials costs, primarily vinyl resin. Selling, general and
administrative expenses decreased as a percentage of net sales to 21.6% in 1997
from 23.0% in 1996. Selling, general and administrative expenses increased by
2.8% or $2.0 million to $74.3 million in 1997 due primarily to increased
advertising expenditures
16
<PAGE> 18
and higher employee compensation. Income from operations increased 15.3% or $4.0
million in 1997 as compared to 1996 due to increased sales volume which was
partially offset by increased raw material costs.
AmerCable. AmerCable's net sales increased $11.9 million or 28.4% in 1997
as compared to 1996 due to increased sales volume across all product lines.
Gross profit as a percentage of net sales increased to 17.6% in 1997 from 5.4%
in 1996 due to a 35% improvement in manufacturing efficiency (defined by the
Company as production volume per labor hour). The increases in sales and gross
profit were due primarily to AmerCable's implementation of its new business
strategy in May 1996 to focus on the production of core products which better
utilize its manufacturing and distribution capabilities. Selling, general and
administrative expenses increased to $4.4 million in 1997 from $3.2 million in
1996 due to higher incentive compensation. Income from operations increased to
$5.1 million in 1997 as compared to a loss from operations of $967,000 in 1996.
The increase was due to improved manufacturing efficiencies and increased sales
volume.
Amercord. The Company recorded a loss of $626,000 reflecting its share of
the after-tax loss of Amercord for the year ended 1997 as compared to income of
$1.7 million for the same period in 1996. The Company's equity in Amercord's
after-tax income for the year ended 1996 was approximately $900,000 exclusive of
the cumulative change in accounting principle, a royalty settlement and an
equipment writedown. Amercord's net sales decreased 14.5% to $74.9 million in
1997 compared to 1996 due primarily to a decrease in sales volume and a decrease
in the average unit sales price of its products. Gross profit decreased to $1.9
million in 1997 from $7.6 million in 1996 due primarily to lower sales prices
and decreased manufacturing efficiencies. Selling, general and administrative
expenses decreased 9.9% to $2.4 million in 1997 from $2.7 million in 1996.
Other. Net interest expense decreased $1.1 million or 10.0% in 1997 as
compared to 1996 primarily due to a decrease in the average borrowings under the
Company's Credit Agreement as well as 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 1995 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 expenses 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 to $72.3 million in 1996 from $69.1 million in 1995. The
increase in selling, general and administrative expenses was partially offset by
an overall decrease in 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 and the related expenditures
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
17
<PAGE> 19
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 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 expenses increased to
$3.2 million in 1996 from $2.0 million in 1995 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. These severance charges were paid in 1996. 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 expenses 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 Credit Agreement.
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.
18
<PAGE> 20
Quarterly sales and operating profit data for the Company in 1996 and 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>
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
Basic earnings (loss) per common share... (0.46) 0.60 0.73 0.29
Diluted earnings (loss) per common
share(1)............................... (0.45) 0.59 0.71 0.28
1997
Net sales -- Alside...................... $64,827 $ 94,165 $ 98,483 $86,525
Net sales -- AmerCable................... 14,289 13,511 12,644 13,246
------- -------- -------- -------
Total net sales................ 79,116 107,676 111,127 99,771
Gross profit............................. 20,015 32,982 32,616 28,563
Income from operations................... 713 12,155 11,099 9,067
Net income (loss)........................ (1,130) 5,693 4,544 3,982
Basic earnings (loss) per common share... (0.15) 0.75 0.60 0.52
Diluted earnings (loss) per common
share(1)............................... (0.15) 0.73 0.59 0.51
</TABLE>
- ---------------
(1) In accordance with the Commission Staff Accounting Bulletin, Topic 4D,
common stock issued during the 12-month period prior to the initial filing
of the Company's registration statement relating to the Stock Offering at
prices below the assumed public offering price have been included in the
calculation as if such shares were outstanding for all periods presented.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $5.3 million, $15.1 million
and $22.5 million in 1995, 1996 and 1997, respectively. The increased operating
cash flows in 1997 were due primarily to a $4.3 million increase in net income
due to improved operating performance at Alside and AmerCable, as well as lower
working capital requirements in 1997 as compared to 1996. The increased
operating cash flows in 1996 were primarily due to Alside's improved operating
results.
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 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 December 31, 1997, $7.5 million of this facility had been used to
issue a $5.5 million letter of credit securing the Company's taxable variable
rate notes (the "Taxable Notes") as well as $2.0 million securing various
insurance letters of credit. At December 31, 1997 the Company had an available
borrowing capacity under the Credit Agreement of approximately $40.4 million.
Capital expenditures totaled $7.7 million, $8.1 million and $8.8 million in
1995, 1996 and 1997, respectively. Expenditures in 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 1996 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 1995 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.
19
<PAGE> 21
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 has completed its assessment of the effect of Year 2000 on its
management information systems and is currently Year 2000 compliant with respect
to substantially all of its systems. The Company does not expect any material
future expenditures will be required in order to become fully Year 2000
compliant.
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 has commenced a tender offer to purchase all outstanding principal
amount of the Existing Notes. See "The Tender Offer" 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, 2,478,800 shares (before over-allotment) of the Company's Common Stock
in the Stock Offering. Of these shares, 700,000 shares of Common Stock (808,520
shares if the over-allotment option is exercised in full) are being sold by the
Company with the remaining 1,778,800 shares to be sold by certain stockholders
(2,150,620 shares if the over-allotment option is exercised in full). The
consummation of the Stock Offering and the consummation 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 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
The Financial Accounting Standards Board has 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.
20
<PAGE> 22
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 1997, Alside accounted for
approximately 87% 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. According to the Sabre Study,
based on unit sales, vinyl siding accounted for approximately 47% of the
exterior siding market in 1996 versus approximately 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.
According to the Sabre Study, based on unit sales, approximately 45% of all
residential windows sold in 1996 were vinyl windows versus approximately 27% in
1991. 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 the Sabre Study, total sales of vinyl siding and vinyl windows are
each projected to increase approximately 7% annually between 1996 and 2000 and
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 1997, approximately 78% 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.
21
<PAGE> 23
- -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 approximately 22.9% of Alside's vinyl siding unit volume in
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 18.2% of Alside's vinyl siding unit volume in 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. According to the Sabre Study, 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 68% of Alside's 1997 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 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.
22
<PAGE> 24
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 1997. Unit sales of UltraCraft cabinets have increased 33.7% for 1997
as compared to 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 1997, 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 building products manufactured by other companies. Metal
siding products accounted for approximately 19% of Alside's 1993 sales. In 1997,
approximately 6% of Alside's sales were derived from metal siding and related
building 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 1997, approximately 78% 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.
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 individual-
23
<PAGE> 25
ized 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
vinyl 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 22% of Alside's net sales in
1997. 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 1997 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 products. By producing its own vinyl extrusions and glass inserts,
Alside believes it achieves significant cost savings and higher product quality
compared to purchasing these materials from third-party suppliers.
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
24
<PAGE> 26
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. Prior to
1997, Alside generally had been able to pass through price increases in raw
materials to its customers. 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.
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, 24-hour basis. AmerCable accounted for approximately 13% of the
Company's net sales in 1997.
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 1997. For 1997, as compared to 1996, AmerCable's sales increased 28.4% 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 44%, 36% and 20% of its 1997 sales, respectively. AmerCable's
marine, shipboard and transportation cable products meet required industry
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
25
<PAGE> 27
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 eight 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.
Three of the world's largest tire manufacturers, The Goodyear Tire & Rubber
Company ("Goodyear"), Bridgestone/Firestone, Inc. 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 1997, 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 81%, of
Amercord's tire cord output. During 1997, three customers, Michelin, Cooper and
Bridgestone/Firestone, Inc., each purchased in excess of 10%, and collectively
purchased an aggregate of 68%, 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.
26
<PAGE> 28
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 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 has completed its assessment of the effect of
Year 2000 on its management information systems and is currently Year 2000
compliant with respect to substantially all of its systems. The Company 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 Windows 577,000
Ennis, Texas Vinyl Siding Products 256,000
West Salem, Ohio Vinyl Window Extrusions, Fencing and Garage Door Panels 173,000
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 at 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.
27
<PAGE> 29
EMPLOYEES
Alside's employment needs vary seasonally with sales and production levels.
As of December 31, 1997, Alside had approximately 1,500 full-time employees,
including approximately 560 hourly workers. The West Salem, Ohio plant is
Alside's only unionized manufacturing facility, employing approximately 100
covered workers as of December 31, 1997. Additionally, approximately 35 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 principally unskilled labor personnel. The aggregate number of leased
employees in the window plants ranges from approximately 400 to 600 people,
based on seasonal production requirements.
As of December 31, 1997, AmerCable employed 170 people, including 95 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 corrective action
requirements associated with the use of hazardous waste storage facilities at
its Akron, Ohio location. With the exception of a small container 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 pursuant to
the terms of the consent order. 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.
28
<PAGE> 30
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............... 41 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 2001.
(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. Mr. Trabka has informed the
Company that he intends to resign as a Director following the completion of
the Stock Offering. Further, Prudential has informed the Company that it
does not presently intend to exercise its right under the Stockholders'
Agreement to nominate persons to serve as directors following the completion
of the Stock Offering. 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 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.
29
<PAGE> 31
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 and a director of Search Financial
Services 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 Corporation of North America,
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, Inc. 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.
Officers of the Company serve at the discretion of the Board of Directors.
30
<PAGE> 32
EXECUTIVE COMPENSATION
The following table sets forth the annual compensation paid by the Company
for services rendered in 1997, 1996 and 1995 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."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION(1) AWARDS
---------------------------- -----------------
FISCAL SHARES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS/SARS(2) COMPENSATION
--------------------------- ------ -------- -------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
William W. Winspear.................. 1997 $436,667 $342,930 -- $ 31,600(3)
Chairman of the Board, President 1996 $400,000 $214,362 -- $ 30,250
and Chief Executive Officer 1995 $398,333 $ 28,005 -- $ 30,250
Donald L. Kaufman.................... 1997 $378,333 $209,529 100,000 $ 26,000(4)
President and Chief Executive 1996 $345,000 $181,666 -- $102,742
Officer of Alside 1995 $343,335 $102,595 -- $127,199
Robert F. Hogan, Jr.................. 1997 $172,917 $206,654 -- $ 5,600(5)
President and Chief Executive 1996 $150,000 $ -- -- $ 5,250
Officer of AmerCable 1995 $150,000 $ -- -- $ 5,250
Robert L. Winspear................... 1997 $100,816 $ 34,293 -- $ 3,529(6)
Vice President, Treasurer 1996 $ 82,292 $ 21,436 -- $ 2,880
and Secretary 1995 $ 79,583 $ 2,801 -- $ 2,785
</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 Commission.
(2) In February 1997, Mr. Kaufman was granted options to purchase 100,000 shares
of Common Stock at $12.00 per share, the fair market value of the Common
Stock on the date of grant. The options vested 50% on the date of grant and
the balance vests on the second anniversary of the date of the grant.
(3) Includes directors fees of $26,000 and amounts accrued or allocated under
AmerCable's retirement plan of $5,600.
(4) Includes directors fees of $26,000.
(5) Includes amounts accrued or allocated under AmerCable's retirement plan of
$5,600.
(6) Includes amounts accrued or allocated under AmerCable's retirement plan of
$3,529.
31
<PAGE> 33
OPTION/SAR GRANTS IN 1997
The following table provides information regarding the grant of stock
options to the named executive officers in 1997. In addition, hypothetical gains
of 5% and 10%, along with a third column representing a 0% gain (listed in the
table under "Potential Realizable Value at Assumed Annual Rates of Stock Price
Appreciation for Option Term"), are shown for these stock options. These
hypothetical gains are based on assumed rate of annual compound stock price
appreciation of 0%, 5% and 10% from the date the stock options were granted over
the full option term of ten years.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------ POTENTIAL REALIZABLE VALUE
PERCENTAGE OF AT ASSUMED ANNUAL RATES
NUMBER OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS/SARS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE TERM(3)
OPTIONS/SARS EMPLOYEES IN PRICE PER ---------------------------
NAME GRANTED 1997 SHARE(2) EXPIRATION DATE 0% 5% 10%
---- ------------ ------------- --------- ----------------- --- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
William W. Winspear............... 0 --% $ -- -- $-- $ -- $ --
Donald L. Kaufman................. 100,000(1) 100 12.00 February 25, 2007 -- 754,673 1,912,491
Robert F. Hogan................... 0 -- -- -- -- -- --
Robert L. Winspear................ 0 -- -- -- -- -- --
</TABLE>
- ---------------
(1) The exercise price was equal to the fair market value of the Common Stock on
the date of grant. The Company has not granted stock appreciation rights.
(2) The option for such shares became 50% vested on the date of grant and the
balance vests on the second anniversary of the grant.
(3) The potential realizable value portion of the foregoing table illustrate
value that might be realized upon exercise of the option immediately prior
to the expiration of its term, assuming the specified compounded rates of
appreciation on the Common Stock over the term of the option. The use of the
assumed 5% and 10% annual rates of stock price appreciation are established
by the Commission and is not intended by the Company to forecast possible
future appreciation of the price of the Common Stock.
AGGREGATED OPTIONS/SAR EXERCISES IN 1997
AND DECEMBER 31, 1997 OPTION/SAR VALUES
The following table provides information, for each of the named executive
officers, regarding the exercise of options during 1997 and unexercised options
held as of December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
DECEMBER 31, 1997(1) DECEMBER 31, 1997(2)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William W. Winspear.................... -- $-- -- -- $ -- $ --
Donald L. Kaufman...................... -- -- 50,000 50,000 250,000 250,000
Robert F. Hogan........................ -- -- -- -- -- --
Robert L. Winspear..................... -- -- 20,000 -- 281,500 --
</TABLE>
- ---------------
(1) The Company has not granted stock appreciation rights.
(2) Value was determined based upon $17.00 per share (the mid-point of the price
range per share for Common Stock in the Stock Offering) multiplied by the
number of shares of Common Stock of the Company underlying such options.
32
<PAGE> 34
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 1997, 1996 and 1995 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 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. 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. Directors, officers and other key employees of and consultants
to the Company may be selected by the Board of Directors to receive benefits
under the Stock Incentive Plan.
Option Rights. The Board of Directors 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 Board of Directors 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 Board of Directors 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 Board of
Directors 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, Option Rights that are not intended to so qualify or
any combination of the foregoing. At or after the date of grant of any
nonqualified Option Rights, the Board of Directors 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.
33
<PAGE> 35
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 Board of Directors, 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 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 Board of Directors 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 Board of Directors. 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
Board of Directors for the period during which the forfeiture provisions are to
continue. The Board of Directors 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 of 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 Board of Directors 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 Board of Directors 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 Board of Directors on the date of
grant, except that the Board of Directors 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. Except as permitted by the Board of Directors, 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. Except as permitted by the Board of Directors, 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 Board of Directors 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 Board of
Directors though the Board of Directors may delegate all or any portion of its
authority to a committee. In connection with its administration of the Stock
Incentive Plan, the Board of Directors is authorized to interpret the Stock
Incentive Plan and related agreements and other documents. The Board of
Directors may make grants to participants under any
34
<PAGE> 36
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 Board of Directors 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 Board of Directors, but without further approval by the stockholders of the
Company no such amendment (unless expressly allowed pursuant to the adjustment
provisions described above) may increase the aggregate number of shares that may
be issued or transferred plus the amount of shares covered by outstanding
awards.
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. Such long-term capital
gain will be eligible for a reduced rate if the shares are held for more than 18
months.
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.
Such long-term capital gain will be eligible for a reduced rate if the shares
are held for more than 18 months.
If shares of Common Stock acquired upon the timely exercise of an incentive
stock option are disposed of prior to the expiration of either the one or two
year 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.
35
<PAGE> 37
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 corresponding
deduction provided that, among other things, 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.
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 Family Limited Partnership (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 shares of Common Stock, to require Prudential and
subsequent holders of its shares to participate in such sale on a pro rata basis
(but only if the total number of shares of Common Stock to be sold pursuant to
this clause exceeds 50% of the outstanding shares of Common Stock and Class B
Common Stock on a fully diluted 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.
Mr. Trabka has informed the Company that he intends to resign as a Director
following the completion of the Stock Offering. Further, Prudential has informed
the Company that it does not presently intend to exercise its right under the
Stockholders' Agreement to nominate persons to serve as directors following the
completion of the Stock Offering.
36
<PAGE> 38
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 5,639,200 common shares (including shares of the Company's Class B
Common Stock) will be eligible for registration under the Registration Rights
Agreement.
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.
37
<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% 1,000,000 1,700,000 20.5%
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 --
Frank T. Lauinger(4).......................... 25,600 * 12,800 12,800 *
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 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."
(footnotes continued on following page)
38
<PAGE> 40
(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 108,520, 150,000 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.
39
<PAGE> 41
DESCRIPTION OF NOTES
The following is a summary of the principal terms of the Notes and 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, and within 60 days after the closing of a public offering of Common
Stock of the Company (an "Equity Offering"), the Company at its option 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 (the "Equity Offering
Redemption Price"), 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 REDEMPTION PRICE
--------------- ----------------
<S> <C>
2003......................................... %
2004......................................... %
2005......................................... %
2006 and thereafter.......................... 100.000%
</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 outstanding 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 stock 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, other 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 may 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 $564,000 at December 31, 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, sale and leaseback transactions, 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, Indebtedness) of the Company that is
subordinated to Senior Indebtedness. However, once payment that is
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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
caption "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 caption "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, a holder 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
written 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 commencement 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 December 31, 1997 was
approximately $5.9 million (excluding outstanding but undrawn insurance letters
of credit of $2.1 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 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 Persons, (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 the preceding clauses
(ii) and (iv) or a Permitted Investment) in any Person, other than an Investment
in a
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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 calendar 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 $5.0 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 and (c) a
principal amount (1) not in excess of the principal amount 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
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the Company or to a Wholly Owned Subsidiary of the Company, except for preferred
stock issued by a Person 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.
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 $1.0 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
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than $5.0 million (other than an Affiliate Transaction relating to compensation
arrangements for employees who are not otherwise Affiliates), unless (a) the
Company delivers an Officers' Certificate to the Trustee to the same effect as
described in clause (i) above and (b) the Company has received an opinion of an
independent accounting, appraisal or investment banking firm of national
standing to the effect that such Affiliate 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 Partnership, and (b) that certain
Registration Rights Agreement among the Company, Prudential, the Winspear
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), or (c) 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 410 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
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Company may temporarily reduce revolving credit borrowings under the Credit
Agreement or otherwise invest 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. 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.
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.
Merger or Transfer of Assets. 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
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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
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,
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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 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) of the Company or 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 occurs, 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 of principal of, premium, if any, or interest
on the Notes 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 stating that the Event of Default is continuing, (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 remedies in respect of such Event of Default, (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, an officer of the Company is required to certify to
the Trustee in each fiscal quarter whether or not he knows 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,
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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.
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, as amended, 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 an
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 (as
defined in the Indenture), 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
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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 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, insolvency, 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.
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MODIFICATION AND WAIVER
From time to time, when authorized by a resolution of the Company's Board
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 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 at least 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 percentage in
principal amount of the outstanding Notes the Holder of which must consent to
any supplemental indenture or waiver provided for in the Indenture.
The Holders of at least 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 amount owing 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.
DEPOSITARY
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 depositary (the "Depositary"), and
registered in the name of the Depositary 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
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whole by the Depositary to a nominee of such Depositary or to another nominee of
such Depositary or by such Depositary or any such nominee to a successor of such
Depositary or a nominee of such successor.
The Depositary has advised the Company as follows: the Depositary 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 Depositary
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 amounts
of the Participants thereby eliminating the need for physical movement of
securities certificates. The Depositary's Participants include securities
brokers, dealers, banks, trust companies, clearing corporations, and certain
other organizations. The Depositary 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 Depositary'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 Depositary. 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 Depositary 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 Depositary (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 Depositary, or its nominee, is the registered owner of a
Global Note, the Depositary 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 Depositary 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 Depositary 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 Depositary 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 Depositary or its nominee will be made to the
Depositary 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 Depositary, 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
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in principal amount of beneficial interest in such Global Note as shown on the
records of the Depositary. 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 the Depositary is at any time unwilling, unable or ineligible to
continue as Depositary and a successor depositary is not appointed by the
Company within 60 days after the Company is so informed in writing or becomes
aware of the same, the Global Notes will be exchanged 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 Depositary shall instruct the Trustee.
It is expected that such instructions may be based upon directions received by
the Depositary 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 Depositary 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.
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"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 as 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 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 an issuance, sale or
other disposition of any Capital Stock of the Company or Amercord shall not 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
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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
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 Disqualified 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
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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, 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 under the
Credit Agreement 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.
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"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 such Person (i) to purchase or pay (or advance or supply funds for
the purchase or 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 non-performance 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 warrants, 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
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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 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 $1.0 million 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
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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.
"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
specified 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) determined as of the date incurred, (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
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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; 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-1 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
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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 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.
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"Redemption Date" or "redemption date" means the date specified for
redemption of the Notes in accordance with the terms of the Notes and the
Indenture.
"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, (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 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 or its successors or assigns
thereunder, so long as the Trustee shall have been notified in writing of such
successors or assigns, (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 or 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.
"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 are summaries of the principal terms of the Existing Notes,
the Credit Agreement and the Taxable Notes. The full text of the Existing
Indenture, the Credit Agreement and the Taxable Note Indenture 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 outstanding principal amount of the Notes is not purchased in
connection with the Tender Offer, the Existing Notes shall rank equally with the
Notes.
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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 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
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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 has commenced a Tender
Offer for all of the Existing Notes and a solicitation of consents to amend the
Existing Indenture. The Proposed Amendments would eliminate the following
restrictive covenants in the Existing Indenture: (a) covenants which limit the
Company's ability to (i) make certain payments, certain investments, create
additional indebtedness or incur liens, (ii) cause its subsidiaries to issue
preferred stock, (iii) limit its subsidiaries' ability to pay dividends, (iv)
enter into sale or leaseback transactions, (v) enter into certain transactions
with affiliates, (vi) consolidate or merge with another company unless certain
net worth and debt incurrence tests are met, and (b) covenants which obligate
the Company to pay taxes, maintain its properties and insurance, comply with
applicable laws and require independent directors. Additionally, the Proposed
Amendments would amend a cross default provision to specify that a default of $5
million (as opposed to $2 million) must occur under certain other obligations of
the Company prior to such a default resulting in a default under the Existing
Indenture. Holders of Existing Notes who tender their Existing Notes in the
Tender Offer will be required to consent to the Proposed Amendments. Under the
terms of the Existing Indenture, consents from the holders of a majority in
principal amount of the Existing Notes will be required to approve the Proposed
Amendments. The Tender Offer is conditioned on the completion of the Note
Offering and the receipt of the requisite consents to the Proposed Amendments.
Any Existing Notes not validly tendered and accepted for payment pursuant to the
Tender Offer will remain outstanding and rank equally with the Notes. See "The
Tender Offer."
If only the minimum required percentage of Existing Notes to approve the
Proposed Amendments are tendered in the Tender Offer, approximately $37,500,000
of Existing Notes would remain outstanding after the Note Offering. However, the
Company presently intends to redeem all Existing Notes that remain outstanding
following the Tender Offer on August 15, 1998, the first date on which the
Existing Notes may be redeemed by the Company under the terms of the Existing
Indenture. The applicable redemption price on such date is 104.313% of the
outstanding principal amount of the Existing 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 December 31, 1997 was approximately $40.4
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
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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, 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.
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<PAGE> 73
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.
TAXABLE NOTES
In June 1992 the Company issued $15.0 million aggregate principal amount of
Taxable Notes ($5,350,000 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
Certificate and the Company's Bylaws. See "Additional Information."
AUTHORIZED SHARES
Under the Certificate, the Company has the authority to issue 17,800,000
shares consisting of (i) 15,000,000 shares of Common Stock, par value $.0025 per
share ("Common Stock"), (ii) 2,700,000 shares of Class B Common Stock, par value
$.0025 per share ("Class B Common Stock), and (iii) 100,000 shares of Preferred
Stock, par value $.01 per share ("Preferred Stock").
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, 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 1,000,000 shares of Class B
Common Stock into shares of Common Stock (and to convert up to an additional
150,000 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 2,007,300 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.
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Subject to the rights of holders of any outstanding shares of the Company's
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
All 2,700,000 authorized shares of Class B Common Stock are issued and
outstanding and are owned by Prudential. Prudential acquired such shares of
Class B Common Stock (or warrants exercisable for such shares) in 1984 in
connection with the Company's financing of the acquisition of its present
businesses. 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. The Certificate
provides that any shares of Class B Common Stock that are converted into shares
of Common Stock or otherwise acquired by the Company shall be permanently
retired and shall not be reissued.
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, 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
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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 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, each of the Underwriters named
below (the "Underwriters") has severally agreed to purchase, and the Company has
agreed to sell to each of the Underwriters, the principal amount of the Notes
set forth opposite its name below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITER OF THE NOTES
----------- ----------------
<S> <C>
Salomon Brothers Inc........................................ $
Dain Rauscher Incorporated..................................
-----------
Total............................................. $75,000,000
===========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Notes offered hereby are
subject to approval of certain legal matters by counsel and to certain other
conditions. The Underwriters are obligated to take and pay for all of the Notes
offered hereby if any such Notes are taken.
The Underwriters have advised the Company that they propose 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 Underwriters 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 of the Notes, the public
offering price and such concessions may be changed from time to time by the
Underwriters. The Underwriters have informed the Company that the Underwriters
do not intend to confirm sales of the Notes to accounts over which they exercise
discretionary authority.
The Company has agreed to indemnify the Underwriters and the Underwriters
have agreed to indemnify the Company 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 several Underwriters that they
intend to make a market in the Notes after the consummation of the Note
Offering; however, the Underwriters are 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. See "Risk Factors -- Absence of a Public Market."
The Underwriters 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 Underwriters 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 Underwriters are not required to engage in these
activities, and may end any of these activities at any time.
Smith Barney Inc. and Dain Rauscher Incorporated are acting as underwriters
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.
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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, 1997 and 1996, and
for each of the three years in the period ended December 31, 1997, 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.
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
summarize the principal provisions thereof; 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.
76
<PAGE> 78
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Balance Sheets at December 31, 1996 and 1997................ F-3
Statements of Operations for each of the three years in the
period ended December 31, 1997............................ F-4
Statements of Stockholders' Equity for each of the three
years in the period ended December 31, 1997............... F-5
Statements of Cash Flows for each of the three years in the
period ended December 31, 1997............................ 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, 1997 and 1996, and the related statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Associated Materials
Incorporated at December 31, 1997 and 1996, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Dallas, Texas
January 29, 1998
F-2
<PAGE> 80
ASSOCIATED MATERIALS INCORPORATED
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31,
-------------------
1996 1997
-------- --------
<S> <C> <C>
Current assets:
Cash...................................................... $ 2,384 $ 1,935
Accounts receivable, net of allowance for doubtful
accounts of $3,749 and $4,423 at December 31, 1996 and
1997, respectively..................................... 47,208 49,197
Inventories............................................... 58,357 56,621
Income taxes receivable................................... 587 266
Other current assets...................................... 3,025 3,291
-------- --------
Total current assets........................................ 111,561 111,310
Property, plant and equipment, net.......................... 51,649 53,855
Investment in Amercord Inc.................................. 11,320 10,694
Other assets................................................ 3,179 2,645
-------- --------
Total assets................................................ $177,709 $178,504
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdrafts........................................... $ 4,853 $ 4,769
Accounts payable.......................................... 17,114 17,174
Accrued liabilities....................................... 22,965 25,862
Revolving line of credit.................................. 13,058 564
Current portion of long-term debt......................... 1,750 1,750
-------- --------
Total current liabilities................................... 59,740 50,119
Deferred income taxes....................................... 1,884 1,951
Other liabilities........................................... 3,489 3,100
Long-term debt.............................................. 80,350 78,600
Commitments and Contingencies
Stockholders' equity:
Preferred stock, $.01 par value:
Authorized shares -- 100,000 shares at December 31,
1996 and 1997
Issued shares -- 0 at December 31, 1996 and 1997....... -- --
Common stock, $.0025 par value:
Authorized shares -- 15,000,000 at December 31, 1996
and 1997
Issued shares -- 4,893,504 at December 31, 1996 and
4,934,900 at December 31, 1997........................ 12 12
Common stock Class B, $.0025 par value:
Authorized and issued shares -- 2,700,000 at December
31, 1996 and 1997..................................... 7 7
Less: Treasury stock, at cost -- 0 shares at December 31,
1996 and 41,396 at December 31, 1997................... -- (542)
Capital in excess of par.................................. 185 505
Retained earnings......................................... 32,042 44,752
-------- --------
Total stockholders' equity.................................. 32,246 44,734
-------- --------
Total liabilities and stockholders' equity.................. $177,709 $178,504
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 81
ASSOCIATED MATERIALS INCORPORATED
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Net sales.................................................. $350,029 $356,471 $397,690
Cost of sales.............................................. 264,080 255,579 283,514
-------- -------- --------
85,949 100,892 114,176
Selling, general and administrative........................ 73,207 77,740 81,142
-------- -------- --------
Income from operations..................................... 12,742 23,152 33,034
Interest expense........................................... 11,474 10,882 9,795
-------- -------- --------
1,268 12,270 23,239
Equity in earnings (loss) of Amercord Inc. ................ 537 1,724 (626)
-------- -------- --------
Income before income tax expense........................... 1,805 13,994 22,613
Income tax expense......................................... 545 5,172 9,524
-------- -------- --------
Net income................................................. $ 1,260 $ 8,822 $ 13,089
======== ======== ========
Basic earnings per common share............................ $ 0.17 $ 1.16 $ 1.72
======== ======== ========
Diluted earnings per common share.......................... $ 0.16 $ 1.14 $ 1.69
======== ======== ========
</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 IN TOTAL
--------------- --------------- --------------- 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, 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................... -- -- -- -- -- -- -- 13,089 13,089
Cash dividends............... -- -- -- -- -- -- -- (379) (379)
Exercise of Common Stock
options and related tax
benefits................... 41 -- -- -- -- -- 320 -- 320
Purchase of treasury
shares..................... -- -- -- -- 41 (542) -- -- (542)
----- --- ----- --- -- ----- ---- ------- -------
Balance at December 31, 1997... 4,935 $12 2,700 $ 7 41 $(542) $505 $44,752 $44,734
===== === ===== === == ===== ==== ======= =======
</TABLE>
See accompanying notes.
F-5
<PAGE> 83
ASSOCIATED MATERIALS INCORPORATED
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 1,260 $ 8,822 $ 13,089
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 5,340 5,873 6,521
Deferred income taxes..................................... (1,167) 2,002 67
Provision for losses on accounts receivable............... 2,853 3,087 3,500
(Equity) loss in earnings of Amercord Inc................. (537) (1,724) 626
Loss (gain) on sale of assets............................. (446) 10 (348)
Changes in operating assets and liabilities:
Accounts receivable.................................... (4,674) (1,540) (5,489)
Inventories............................................ 3,014 (2,435) 1,736
Other current assets................................... (292) (1,058) (266)
Bank overdrafts........................................ 986 (1,194) (84)
Accounts payable....................................... (2,165) 2,625 60
Accrued liabilities.................................... 1,392 623 2,897
Income taxes receivable/payable........................ 46 (160) 480
Other assets........................................... (45) (203) 96
Other liabilities...................................... (237) 327 (389)
------- ------- --------
Net cash provided by operating activities................... 5,328 15,055 22,496
INVESTING ACTIVITIES
Additions to property, plant and equipment.................. (7,683) (8,110) (8,758)
Proceeds from sale of assets................................ 480 23 817
------- ------- --------
Net cash used in investing activities....................... (7,203) (8,087) (7,941)
FINANCING ACTIVITIES
Net increase (decrease) in revolving line of credit......... 4,202 (5,113) (12,494)
Principal payments of long-term debt........................ (1,750) (1,750) (1,750)
Dividends paid.............................................. -- -- (379)
Treasury stock acquired..................................... -- -- (542)
Options exercised........................................... -- -- 161
------- ------- --------
Net cash provided by (used in) financing activities......... 2,452 (6,863) (15,004)
------- ------- --------
Net increase (decrease) in cash............................. 577 105 (449)
Cash at beginning period.................................... 1,702 2,279 2,384
------- ------- --------
Cash at end of period....................................... $ 2,279 $ 2,384 $ 1,935
======= ======= ========
Supplemental Information:
Cash paid for interest.................................... $11,459 $10,895 $ 10,110
======= ======= ========
Net cash paid for income taxes............................ $ 1,658 $ 3,546 $ 9,098
======= ======= ========
</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 throughout the United States. 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. See Note 2.
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.
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.
F-7
<PAGE> 85
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Derivatives
The Company has an interest rate swap in order to manage interest rate risk
on a portion of its long-term debt (see Note 8). Gains or losses based upon
differences in the market interest rate and the fixed rate are recognized in the
period such differences are incurred. In addition, the Company may attempt to
hedge its position with respect to raw material or currency fluctuations on
specific contracts. In these instances, the Company may enter into forward
contracts or purchase options, the cost of which are realized upon the
completion of the contract. The nominal amounts outstanding under these
contracts were not material at December 31, 1997.
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
$8.0 million, $6.8 million and $6.3 million in 1997, 1996 and 1995,
respectively.
Reclassifications
Certain prior period amounts have been reclassified to conform with the
current period presentation.
F-8
<PAGE> 86
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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, 1997
totals $5,444,000.
Condensed financial information for Amercord is presented below (in
thousands):
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Net sales............................................. $80,764 $87,538 $74,880
Costs and expenses.................................... 77,148 82,229 75,349
------- ------- -------
Income (loss) from operations......................... 3,616 5,309 (469)
Interest expense...................................... (1,911) (1,734) (1,518)
Income tax (expense) benefit.......................... (631) (1,323) 735
------- ------- -------
Income (loss) before cumulative effect of a change in
accounting principle................................ 1,074 2,252 (1,252)
Cumulative effect of a change in accounting principle
(net of tax)........................................ -- 1,196 --
------- ------- -------
Net income (loss)..................................... 1,074 3,448 (1,252)
------- ------- -------
Company's share of net income (loss).................. $ 537 $ 1,724 $ (626)
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL POSITION
DECEMBER 31,
------------------
1996 1997
------- -------
<S> <C> <C>
Assets (pledged)............................................ $52,364 $50,075
Liabilities................................................. 29,152 28,115
Stockholders' equity........................................ 23,212 21,960
</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. Also in 1996, 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 SFAS 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>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Balance at beginning of period............................. $2,563 $2,769 $3,749
Provision for losses..................................... 2,853 3,087 3,500
Losses sustained (net of recoveries)..................... 2,647 2,107 2,826
------ ------ ------
Balance at end of period................................... $2,769 $3,749 $4,423
====== ====== ======
</TABLE>
F-9
<PAGE> 87
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. INVENTORIES
Inventories consist of (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
------- -------
<S> <C> <C>
Raw materials............................................... $14,903 $16,352
Work-in-progress............................................ 5,276 4,936
Finished goods and purchased stock.......................... 38,178 35,333
------- -------
$58,357 $56,621
======= =======
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31 consist of (in thousands):
<TABLE>
<CAPTION>
1996 1997
------- --------
<S> <C> <C>
Land........................................................ $ 1,290 $ 1,290
Buildings................................................... 21,319 22,740
Machinery and equipment..................................... 73,463 79,390
------- --------
96,072 103,420
Less accumulated depreciation............................... 44,423 49,565
------- --------
$51,649 $ 53,855
======= ========
</TABLE>
6. ACCRUED LIABILITIES
Accrued liabilities at December 31 consist of (in thousands):
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Employee compensation....................................... $ 6,558 $ 7,612
Sales promotions and incentives............................. 2,692 3,408
Employee benefits........................................... 8,424 9,201
Interest.................................................... 3,307 3,272
Other....................................................... 1,984 2,369
------- -------
$22,965 $25,862
======= =======
</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. 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 $7,468,000 at
December 31, 1997, of which $5,471,000 was related to the Taxable Notes (see
Note 8) and $1,997,000 was primarily related to insurance. The Company's
available borrowing capacity at December 31, 1997 was approximately $40.4
million. 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.
Interest is payable on the utilized revolving credit facility at either the
prime commercial rate (8.50% at December 31, 1997) or LIBOR (5.72% at December
31, 1997) plus 2.00% 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 8.07% and 8.23% for December 31, 1997 and
1996, respectively.
F-10
<PAGE> 88
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. LONG-TERM DEBT
Long-term debt at December 31 consists of (in thousands):
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Taxable Variable Rate Demand Notes.......................... $ 7,100 $ 5,350
11 1/2% Senior Subordinated Notes due 2003.................. 75,000 75,000
------- -------
82,100 80,350
Less amounts due in one year................................ 1,750 1,750
------- -------
$80,350 $78,600
======= =======
</TABLE>
Scheduled principal payments are $1,750,000 in 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 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, 1997 was
$5,350,000. 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,
1997 was $79,688,000 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 $9,200,000, $7,530,000, $5,319,000, $3,428,000,
$2,565,000 and $1,382,000 for the years ending December 31, 1998, 1999, 2000,
2001, 2002 and thereafter, respectively. Lease expense was approximately
$10,901,000, $10,391,000 and $9,186,000 for the years ended December 31, 1997,
1996 and 1995, 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>
1995 1996 1997
------------------ ------------------ ------------------
CURRENT DEFERRED CURRENT DEFERRED CURRENT DEFERRED
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Federal income taxes.............. $1,559 $ (981) $2,252 $1,918 $7,816 $55
State income taxes................ 153 (186) 918 84 1,641 12
------ ------- ------ ------ ------ ---
$1,712 $(1,167) $3,170 $2,002 $9,457 $67
====== ======= ====== ====== ====== ===
</TABLE>
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>
1996 1997
------- -------
<S> <C> <C>
Deferred tax assets:
Medical benefits.......................................... $ 1,680 $ 1,581
Bad debt expense.......................................... 1,301 1,847
Pension expense........................................... 1,806 3,427
Inventory costs........................................... 994 247
Other..................................................... 805 305
------- -------
Total deferred tax assets................................... 6,586 7,407
Deferred tax liabilities:
Depreciation.............................................. 7,976 8,519
Other..................................................... 494 839
------- -------
Total deferred tax liabilities.............................. 8,470 9,358
------- -------
Net deferred tax liabilities................................ $(1,884) $(1,951)
======= =======
</TABLE>
The reconciliation of the statutory rate to the Company's effective income
tax rate for the years ended December 31 follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Statutory rate.............................................. 34.0% 34.0% 35.0%
State income taxes, net of federal income tax benefit....... 5.6 4.3 4.6
Equity in (earnings) loss of Amercord....................... (8.1) (3.3) .8
Other....................................................... (1.3) 1.9 1.7
---- ---- ----
Effective rate.............................................. 30.2% 36.9% 42.1%
==== ==== ====
</TABLE>
11. STOCKHOLDERS' EQUITY
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 the holder 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.
F-12
<PAGE> 90
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
12. EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued SFAS No. 128 which
replaced the calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Earnings per share amounts for all periods presented
have been restated to conform to SFAS 128 requirements, and in accordance with
the Securities and Exchange Commission ("the Commission") Staff Accounting
Bulletin, Topic 4D, common shares issued during the 12-month period prior to the
initial filing of the registration statement with respect to the proposed
offering of Common Stock at prices below the assumed public offering price have
been included in the calculation of diluted earnings per share as if they were
outstanding for all periods presented (see Note 17).
The following table sets forth the computation of basic and diluted
earnings per share but does not reflect additional shares to be offered in
conjunction with the registration statement with respect to the proposed
offering of Common Stock as disclosed in Note 17:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1996 1997
------ ------ -------
(IN THOUSANDS EXCEPT
PER SHARE DATA)
<S> <C> <C> <C>
Numerator:
Numerator for basic and diluted earnings per common
share -- income available to common shareholders...... $1,260 $8,822 $13,089
Denominator:
Denominator for basic earnings per common
share -- weighted-average shares...................... 7,532 7,594 7,594
Effect of dilutive securities:
Employee stock options................................ 163 152 162
------ ------ -------
Denominator for diluted earnings per common
share -- adjusted weighted-average shares............. 7,695 7,746 7,756
====== ====== =======
Basic earnings per common share............................ $ 0.17 $ 1.16 $ 1.72
====== ====== =======
Diluted earnings per common share.......................... $ 0.16 $ 1.14 $ 1.69
====== ====== =======
</TABLE>
F-13
<PAGE> 91
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
13. STOCK OPTIONS
The Company has a stock option plan, 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 the plan. The
options granted in 1995, 1996 and 1997 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 1995, 1996 and 1997 under this plan are summarized
below:
<TABLE>
<CAPTION>
SHARES EXERCISE PRICE
------- ----------------
<S> <C> <C>
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
Exercised............................................... (40,500) $2.925 to $ 5.00
Granted................................................. 140,000 $12.00 to $16.00
Expired or canceled..................................... (4,500) $5.00
------- ----------------
Options outstanding at December 31, 1997.................. 307,300 $2.925 to $16.00
</TABLE>
Options to purchase 233,550, 189,550 and 239,700 shares were exercisable at
December 31, 1997, 1996 and 1995, respectively. The weighted average exercise
price of options outstanding was $7.79, $3.47 and $2.57 at December 31, 1997,
1996 and 1995, respectively.
The following table summarizes significant ranges of outstanding and
exercisable options at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------------------
WEIGHTED
AVERAGE OPTIONS EXERCISABLE
REMAINING ------------------------
SHARES LIFE IN YEARS EXERCISE PRICE SHARES EXERCISE PRICE
------ ------------- -------------- ------- --------------
<C> <C> <C> <C> <C>
136,800 5.67 $ 2.925 136,800 $ 2.925
30,500 7.41 $ 5.000 26,750 $ 5.000
100,000 9.17 $12.000 50,000 $12.000
40,000 9.42 $16.000 20,000 $16.000
</TABLE>
The Company 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 weighted
average fair value at date of grant for options granted during 1997, 1996, and
1995 was $6.09, $2.56 and $2.39 per option, respectively. 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 1.0% and a weighted-average
expected life of an option of 10 years. A risk-free interest rate of 7.03%,
6.87% and 6.76% was used for 1997, 1996 and 1995, respectively.
Stock based compensation costs would have reduced net income by $389,000,
$17,000 and $55,000 and $.05, $.00 and $.01 per basic and diluted share in 1997,
1996 and 1995, respectively, if the fair values of the options granted in that
year had been recognized as compensation expense on a straight-line basis over
the vesting period of the grant. The pro forma effect on net income for 1997,
1996 and 1995 is not representative of the pro forma effect on net income in
future years because it does not take into consideration pro forma compensation
expense related to grants made prior to 1995.
F-14
<PAGE> 92
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
14. 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>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Net sales:
Building products................................ $300,561 $314,645 $344,000
Electrical cable products........................ 49,468 41,826 53,690
-------- -------- --------
$350,029 $356,471 $397,690
======== ======== ========
Operating profits (losses):
Building products................................ $ 16,550 $ 26,372 $ 30,415
Electrical cable products........................ (1,676) (967) 5,086
Corporate expense................................ (2,132) (2,253) (2,467)
-------- -------- --------
$ 12,742 $ 23,152 $ 33,034
======== ======== ========
Identifiable assets:
Building products................................ $131,570 $133,023 $139,751
Electrical cable products........................ 27,091 24,746 20,349
Corporate........................................ 13,392 19,940 18,404
-------- -------- --------
$172,053 $177,709 $178,504
======== ======== ========
Depreciation and amortization:
Building products................................ $ 3,466 $ 4,282 $ 5,029
Electrical cable products........................ 1,334 1,154 1,096
Corporate........................................ 540 437 396
-------- -------- --------
$ 5,340 $ 5,873 $ 6,521
======== ======== ========
Net additions to property, plant, and equipment:
Building products................................ $ 6,669 $ 6,982 $ 8,108
Electrical cable products........................ 1,014 1,128 635
Corporate........................................ -- -- 15
-------- -------- --------
$ 7,683 $ 8,110 $ 8,758
======== ======== ========
</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.
F-15
<PAGE> 93
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
15. 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 in accordance with actuarially based
assumptions.
The actuarial present value at December 31, 1997 and 1996 was determined
using a discount rate of 7.0% and 7.5%, respectively, and projected compensation
increases of 4.5%. The expected long-term rate of return on assets was 9%. Plan
assets consist primarily of equity securities, 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>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Benefit cost for service during the year............ $ 742 $ 1,110 $ 1,165
Interest cost on projected benefit obligation....... 1,553 1,744 1,863
Return on assets.................................... (3,412) (3,356) (4,614)
Net amortization.................................... 2,360 1,901 2,649
------- ------- -------
Net retirement plan costs........................... $ 1,243 $ 1,399 $ 1,063
======= ======= =======
</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>
1996 1997
------- -------
<S> <C> <C>
Accumulated benefit obligation, including vested benefits of
$17,608 and $22,924, respectively......................... $20,755 $24,066
Effect of projected salary increases........................ 5,490 6,172
------- -------
Present value of the projected benefit obligation........... 26,245 30,238
Plan assets at fair value................................... 23,120 27,363
------- -------
Plan assets less than the present value of the projected
benefit obligations....................................... 3,125 2,875
The recorded pension liability (included in the accrued
current liabilities in the balance sheets) is calculated
by adding to the above amount:
Unrecognized net gains.................................... 3,450 4,489
The portion of the liability which, under SFAS No. 87, is
being amortized over 16 years.......................... (1,127) (905)
------- -------
Recorded pension liability.................................. $ 5,448 $ 6,459
======= =======
</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.
The Company matches up to 3.5% of eligible compensation. For the years ended
December 31, 1997, 1996 and 1995 the Company's pre-tax contributions to the
401(k) Plan were $175,000, $145,000 and $136,000, respectively.
F-16
<PAGE> 94
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
16. CONTINGENCIES
The Company entered into a consent order dated August 25, 1992 with the
United States Environmental Protection Agency pertaining to corrective action
requirements associated with the use of hazardous waste storage facilities at
its Akron, Ohio location. With the exception of a small container 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 pursuant to the terms of the
consent order and as a result the Company is unable to reasonably estimate a
reliable range of the aggregate cost of corrective action at this time. 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.
17. PUBLIC OFFERINGS
The Company has filed a registration statement with the Commission to sell,
through an initial public offering, 2,128,800 shares (before over-allotment) of
the Company's Common Stock (the "Stock Offering"). Of these shares, 700,000
shares of Common Stock (808,520 shares if the over-allotment option is exercised
in full) will be sold by the Company with the remaining 1,428,800 shares to be
sold by certain stockholders. In addition, the Company has filed 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 a 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-17
<PAGE> 95
[map of the United States showing locations of Company
and division headquarters, manufacturing plants and Alside Supply Centers]
Associated Materials Headquarters Alside Headquarters Alside
Manufacturing Plants
Alside Supply Centers AmerCable Amercord Inc.
[photographs of vinyl fence, a vinyl garage door and
kitchen cabinets manufactured by the Company]
Ultra Guard Vinyl Fence Premium Garage Doors
UltraCraft Cabinets
<PAGE> 96
======================================================
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.................... 12
Capitalization........................ 13
Selected Financial Data............... 14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 15
Business.............................. 21
Management............................ 29
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......................... 76
Experts............................... 76
Additional Information................ 76
Index to Financial Statements......... F-1
</TABLE>
======================================================
======================================================
$75,000,000
ASSOCIATED MATERIALS INCORPORATED
% SENIOR SUBORDINATED
NOTES DUE 2008
ASSOCIATED LOGO
------------
PROSPECTUS
, 1998
------------
SALOMON SMITH BARNEY
DAIN RAUSCHER INCORPORATED
======================================================
<PAGE> 97
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........................................... 100,000
Legal fees and expenses..................................... 200,000
Accounting fees and expenses................................ 25,000
Blue sky fees and expenses.................................. 5,000
Indenture trustee fees and expenses......................... 10,000
Rating agency fees and expenses............................. 35,000
Miscellaneous expenses...................................... 14,875
--------
Total............................................. $420,000
========
</TABLE>
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 (iii) based upon or attributable to the Indemnitee gaining
in fact a personal profit to which he was not legally
II-1
<PAGE> 98
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
(filed as Exhibit A to Exhibit 4.1).
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> 99
<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, GCR S.p.A. and Amercord Inc. (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 Inc. 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> 100
<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).
11.1* -- Computation of Earnings Per Share.
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>
- ---------------
* Filed herewith.
(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> 101
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Pre-Effective Amendment No. 1 to the 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 January 29th, 1998.
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
Pre-Effective Amendment to No. 1 to 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
Pre-Effective Amendment No. 1 to the Registration Statement on behalf of each of
the above-named officers and directors of Associated Materials Incorporated on
the 29th day of January, 1998, pursuant to powers of attorney executed on behalf
of each of such officers and directors, and previously filed with the Securities
and Exchange Commission.
*By: /s/ ROBERT L. WINSPEAR
-------------------------------
Robert L. Winspear
Attorney-in-Fact
II-5
<PAGE> 102
INDEX TO EXHIBITS
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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
(filed as Exhibit A to Exhibit 4.1).
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> 103
<TABLE>
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<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, GCR S.p.A. and Amercord Inc. (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 Inc. 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).
11.1* -- Computation of Earnings Per Share.
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>
- ---------------
* Filed herewith.
<PAGE> 1
EXHIBIT 1.1
$75,000,000
ASSOCIATED MATERIALS INCORPORATED
___% Senior Subordinated Notes due 2008
UNDERWRITING AGREEMENT
_____________, 1998
SALOMON BROTHERS INC
DAIN RAUSCHER INCORPORATED
As Representatives of the Several Underwriters
c/o Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
Dear Sirs:
Associated Materials Incorporated, a Delaware corporation (the
"Company"), proposes, upon the terms and conditions set forth herein, to issue
and sell $75,000,000 aggregate principal amount of its ___% Senior Subordinated
Notes due 2008 (the "Debentures") to the several Underwriters named in Schedule
I hereto (the "Underwriters"). The Debentures will be issued pursuant to the
provisions of 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").
The Company wishes to confirm as follows its agreement with you (the
"Representatives") and the other several Underwriters on whose behalf you are
acting, in connection with the several purchases of the Debentures by the
Underwriters.
1. Registration Statement and Prospectus. The Company has
prepared and filed with the Securities and Exchange Commission (the
"Commission") in accordance with the provisions of the Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder
(collectively, the "Act"), a registration statement on Form S-1 under the Act
(the "registration statement"), including a prospectus subject to completion
relating to the Debentures. The term "Registration Statement" as used in this
Agreement means the registration statement (including all financial schedules
and exhibits), as amended at the time it becomes effective, or, if the
registration statement became effective prior to the execution of this
Agreement, as supplemented or amended prior to the execution of this Agreement.
If it is contemplated, at the time this Agreement is executed, that a
post-effective amendment to the Registration Statement will be filed and must
be declared effective before the offering of the Debentures may commence, the
term "Registration Statement" as used in this Agreement means the registration
statement as amended by said post-effective amendment. The term "Prospectus"
as used in this Agreement means the prospectus in the form included in the
Registration Statement, or, if the prospectus included in the Registration
<PAGE> 2
Statement omits information in reliance on Rule 430A under the Act and such
information is included in a prospectus filed with the Commission pursuant to
Rule 424(b) under the Act, the term "Prospectus" as used in this Agreement
means the prospectus in the form included in the Registration Statement as
supplemented by the addition of the Rule 430A information contained in the
prospectus filed with the Commission pursuant to Rule 424(b). The term
"Prepricing Prospectus" as used in this Agreement means the prospectus subject
to completion in the form included in the registration statement at the time of
the initial filing of the registration statement with the Commission, and as
such prospectus shall have been amended from time to time prior to the date of
the Prospectus.
2. Agreements to Sell and Purchase. The Company hereby agrees,
subject to all the terms and conditions set forth herein, to issue and sell to
each Underwriter and, upon the basis of the representations, warranties and
agreements of the Company herein contained and subject to all the terms and
conditions set forth herein, each Underwriter agrees, severally and not
jointly, to purchase from the Company, at a purchase price of ______% of the
principal amount thereof, the principal amount of Debentures set forth opposite
the name of such Underwriter in Schedule I hereto (or such principal amount of
Debentures increased as set forth in Section 10 hereof).
3. Terms of Public Offering. The Company has been advised by you
that the Underwriters propose to make a public offering of their respective
portions of the Debentures as soon after the Registration Statement and this
Agreement have become effective as in your judgment is advisable and initially
to offer the Debentures upon the terms set forth in the Prospectus.
4. Delivery of the Debentures and Payment Therefor. Delivery to
the Underwriters of and payment for the Debentures shall be made at the office
of Salomon Brothers Inc, Seven World Trade Center, New York, NY 10048, at 10:00
A.M., New York City time, on ___________, 1998 (the "Closing Date"). The place
of closing for the Debentures and the Closing Date may be varied by agreement
between you and the Company.
The Debentures will be delivered to you for the accounts of the
several Underwriters against payment of the purchase price therefor by
certified or official bank check or checks payable in New York Clearing House
(next day) funds to the order of the Company and registered in such names and
in such denominations as you shall request prior to 9:30 A.M., New York City
time, on the third business day preceding the Closing Date. The Debentures to
be delivered to the Underwriters shall be made available to you in New York
City for inspection and packaging not later than 9:30 A.M., New York City time,
on the business day next preceding the Closing Date.
5. Agreements of the Company. The Company agrees with the
several Underwriters as follows:
(a) If, at the time this Agreement is executed and
delivered, it is necessary for the Registration Statement or a post-effective
amendment thereto to be declared effective before the offering of the
Debentures may commence, the Company will endeavor to cause the Registration
Statement or such post-effective amendment to become effective as soon as
possible and will
2
<PAGE> 3
advise you promptly and, if requested by you, will confirm such advice in
writing, when the Registration Statement or such post-effective amendment has
become effective.
(b) The Company will advise you promptly and, if
requested by you, will confirm such advice in writing: (i) of any request by
the Commission for amendment of or a supplement to the Registration Statement,
any Prepricing Prospectus or the Prospectus or for additional information; (ii)
of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of the suspension of
qualification of the Debentures for offering or sale in any jurisdiction or the
initiation of any proceeding for such purpose; and (iii) within the period of
time referred to in paragraph (f) below, of any material change in the
Company's condition (financial or other), business, prospects, properties or
results of operations, or of the happening of any event, which makes any
statement of a material fact made in the Registration Statement or the
Prospectus (as then amended or supplemented) untrue or which requires the
making of any additions to or changes in the Registration Statement or the
Prospectus (as then amended or supplemented) in order to state a material fact
required by the Act to be stated therein or necessary in order to make the
statements therein not misleading, or of the necessity to amend or supplement
the Prospectus (as then amended or supplemented) to comply with the Act or any
other applicable law. If at any time the Commission shall issue any stop order
suspending the effectiveness of the Registration Statement, the Company will
make every reasonable effort to obtain the withdrawal of such order at the
earliest possible time.
(c) The Company will furnish to you, without charge (i)
three signed copies of the registration statement as originally filed with the
Commission and of each amendment thereto, including financial statements and
all exhibits to the registration statement, (ii) such number of conformed
copies of the registration statement as originally filed and of each amendment
thereto, but without exhibits, as you may reasonably request, and (iii) such
number of copies of the Indenture as you may reasonably request.
(d) The Company will not (i) file any amendment to the
Registration Statement or make any amendment or supplement to the Prospectus of
which you shall not previously have been advised or to which you shall
reasonably object after being so advised or (ii) so long as, in the opinion of
counsel for the Underwriters, a Prospectus is required to be delivered in
connection with sales by any Underwriter or dealer, file any information,
documents or reports pursuant to the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), without delivering a copy of such information,
documents or reports to you, as Representatives of the Underwriters, prior to
or concurrently with such filing.
(e) Prior to the execution and delivery of this
Agreement, the Company has delivered to you, without charge, in such quantities
as you have requested, copies of each form of the Prepricing Prospectus. The
Company consents to the use, in accordance with the provisions of the Act and
with the securities or Blue Sky laws of the jurisdictions in which the
Debentures are offered by the several Underwriters and by dealers, prior to the
date of the Prospectus, of each Prepricing Prospectus so furnished by the
Company.
(f) As soon after the execution and delivery of this
Agreement as possible and thereafter from time to time for such period as in
the opinion of counsel for the Underwriters a
3
<PAGE> 4
prospectus is required by the Act to be delivered in connection with sales by
any Underwriter or dealer, the Company will expeditiously deliver to each
Underwriter and each dealer, without charge, as many copies of the Prospectus
(and of any amendment or supplement thereto) as you may reasonably request.
The Company consents to the use of the Prospectus (and of any amendment or
supplement thereto) in accordance with the provisions of the Act and with the
securities or Blue Sky laws of the jurisdictions in which the Debentures are
offered by the several Underwriters and by all dealers to whom Debentures may
be sold, both in connection with the offering and sale of the Debentures and
for such period of time thereafter as the Prospectus is required by the Act to
be delivered in connection with sales by any Underwriter or dealer. If during
such period of time any event shall occur that in the judgment of the Company
or in the opinion of counsel for the Underwriters is required to be set forth
in the Prospectus (as then amended or supplemented) or should be set forth
therein in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is necessary
to supplement or amend the Prospectus in order to comply with the Act or any
other applicable law, the Company will forthwith prepare and, subject to the
provisions of paragraph (d) above, file with the Commission an appropriate
supplement or amendment thereto, and will expeditiously furnish to the
Underwriters and dealers a reasonable number of copies thereof. In the event
that the Company and you, as Representatives of the several Underwriters, agree
that the Prospectus should be amended or supplemented, the Company, if
requested by you, will promptly issue a press release announcing or disclosing
the matters to be covered by the proposed amendment or supplement.
(g) The Company will cooperate with you and with counsel
for the Underwriters in connection with the registration or qualification of
the Debentures for offering and sale by the several Underwriters and by dealers
under the securities or Blue Sky laws of such jurisdictions as you may
designate and will file such consents to service of process or other documents
necessary or appropriate in order to effect such registration or qualification;
provided that in no event shall the Company be obligated to qualify to do
business in any jurisdiction where it is not now so qualified or to take any
action which would subject it to service of process in suits, other than those
arising out of the offering or sale of the Debentures, in any jurisdiction
where it is not now so subject.
(h) The Company will make generally available to its
security holders a consolidated earnings statement, which need not be audited,
covering a twelve-month period commencing after the effective date of the
Registration Statement and ending not later than 15 months thereafter, as soon
as practicable after the end of such period, which consolidated earnings
statement shall satisfy the provisions of Section 11(a) of the Act.
(i) So long as any of the Debentures are outstanding, the
Company will furnish to you (i) as soon as available, a copy of each report of
the Company mailed to stockholders generally or filed with the Commission, and
(ii) from time to time such other information concerning the Company as you may
reasonably request.
(j) If this Agreement shall terminate or shall be
terminated after execution pursuant to any provisions hereof (otherwise than
pursuant to the second paragraph of Section 10 hereof or by notice given by you
terminating this Agreement pursuant to Section 10 or Section 11 hereof) or if
this Agreement shall be terminated by the Underwriters because of any failure
or
4
<PAGE> 5
refusal on the part of the Company to comply with the terms or fulfill any of
the conditions of this Agreement, the Company agrees to reimburse the
Representatives for all out-of-pocket expenses (including reasonable fees and
expenses of counsel for the Underwriters) incurred by you in connection
herewith.
(k) The Company will apply the net proceeds from the sale
of the Debentures substantially in accordance with the description set forth in
the Prospectus.
(l) If Rule 430A of the Act is employed, the Company will
timely file the Prospectus pursuant to Rule 424(b) under the Act and will
advise you of the time and manner of such filing.
6. Representations and Warranties of the Company. The Company
represents and warrants to each Underwriter that:
(a) Each Prepricing Prospectus included as part of the
Registration Statement as originally filed or as part of any amendment or
supplement thereto, or filed pursuant to Rule 424 under the Act, complied when
so filed in all material respects with the provisions of the Act. The
Commission has not issued any order preventing or suspending the use of any
Prepricing Prospectus.
(b) The Registration Statement in the form in which it
became or becomes effective and also in such form as it may be when any
post-effective amendment thereto shall become effective and the prospectus and
any supplement or amendment thereto when filed with the Commission under Rule
424(b) under the Act, complied or will comply in all material respects with the
provisions of the Act and will not at any such times contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except that this representation and warranty does not apply to statements in or
omissions from the registration statement or the prospectus made in reliance
upon and in conformity with (i) information relating to any Underwriter
furnished to the Company in writing by or on behalf of any Underwriter through
you expressly for use therein, or (ii) the Trustee's Statement of Eligibility
and Qualification (Form T-1) under the Trust Indenture Act of 1939, as amended
(the "1939 Act").
(c) The execution and delivery of, and the performance by
the Company of its obligations under, this Agreement have been duly and validly
authorized by the Company, and this Agreement has been duly executed and
delivered by the Company and constitutes the valid and legally binding
agreement of the Company, enforceable against the Company in accordance with
its terms, except as rights to indemnity and contribution hereunder may be
limited by federal or state securities laws.
(d) The Indenture has been duly and validly authorized
and, upon its execution and delivery by the Company and assuming due execution
and delivery by the Trustee, will be a valid and binding agreement of the
Company, enforceable in accordance with its terms, except as enforcement
thereof may be limited by bankruptcy, insolvency or other similar laws
affecting
5
<PAGE> 6
creditors' rights generally, and has been (or will have been) duly qualified
under the 1939 Act and conforms to the description thereof in the Registration
Statement and the Prospectus.
(e) The Debentures have been duly authorized and, when
executed by the Company and authenticated by the Trustee in accordance with the
Indenture and delivered to you against payment therefor in accordance with the
terms hereof, will have been validly issued and delivered, and will constitute
valid and binding obligations of the Company entitled to the benefits of the
Indenture and enforceable in accordance with their terms, except as enforcement
thereof may be limited by bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors' rights generally, and the Debentures
will conform to the description thereof in the Registration Statement and the
Prospectus.
(f) The authorized and outstanding capital stock of the
Company is as set forth under the caption "Capitalization" in the Prospectus.
(g) The Company is a corporation duly organized and
validly existing in good standing under the laws of the State of Delaware with
full corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Registration Statement and the
Prospectus, and is duly registered and qualified to conduct its business and is
in good standing in each jurisdiction or place where the nature of its
properties or the conduct of its business requires such registration or
qualification, except where the failure so to register or qualify does not have
a material adverse effect on the condition (financial or other), business,
properties or results of operations of the Company and Amercord (as hereinafter
defined) taken as a whole.
(h) The Company does not have any subsidiaries other than
Amercord, Inc., a Delaware corporation. Amercord is a corporation duly
organized, validly existing and in good standing in the jurisdiction of its
incorporation, with full corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Registration Statement and the Prospectus, and is duly registered and qualified
to conduct its business and is in good standing in each jurisdiction or place
where the nature of its properties or the conduct of its business requires such
registration or qualification, except where the failure so to register or
qualify does not have a material adverse effect on the condition (financial or
other), business, properties, net worth or results of operations of the Company
and Amercord, taken as a whole; all the outstanding shares of capital stock of
Amercord issued to the Company have been duly authorized and validly issued,
are fully paid and nonassessable, and are owned by the Company free and clear
of any lien, adverse claim, security interest, equity or other encumbrance,
except as specifically described in the Registration Statement, including the
exhibits thereto.
(i) There are no legal or governmental proceedings
pending or, to the knowledge of the Company, threatened, against the Company or
Amercord, or to which the Company or Amercord, or to which any of their
respective properties is subject, that are required to be described in the
Registration Statement or the Prospectus but are not described as required, and
there are no agreements, contracts, indentures, leases or other instruments
that are required to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration Statement that are
not described or filed as required by the Act or the Exchange Act.
6
<PAGE> 7
(j) Neither the Company nor Amercord is in violation of
its certificate of incorporation or by-laws or of any law, ordinance,
administrative or governmental rule or regulation applicable to the Company or
Amercord or of any decree of any court or governmental agency or body having
jurisdiction over the Company or Amercord, or in default in any material
respect in the performance of any obligation, agreement or condition contained
in any bond, debenture, note or any other evidence of indebtedness or in any
material agreement, indenture, lease or other instrument to which the Company
or Amercord is a party or by which any of them or any of their respective
properties may be bound.
(k) Neither the issuance and sale of the Debentures, the
execution, delivery or performance of this Agreement and the Indenture by the
Company, nor the consummation by the Company of the transactions contemplated
hereby and thereby (i) requires any consent, approval, authorization or other
order of or registration or filing with, any court, regulatory body,
administrative agency or other governmental body, agency or official (except
such as may be required for the registration of the Debentures under the Act
and the Exchange Act, qualification of the Indenture under the 1939 Act, and
compliance with the securities or Blue Sky laws of various jurisdictions, all
of which have been or will be effected in accordance with this Agreement) or
conflicts or will conflict with or constitutes or will constitute a breach of,
or a default under, the certificate of incorporation or bylaws, of the Company
or Amercord or (ii) conflicts or will conflict with or constitutes or will
constitute a breach of, or a default under, any material agreement, indenture,
lease or other instrument to which the Company or Amercord is a party or by
which either of them or any of their respective properties may be bound, or
violates or will violate any statute, law, regulation or filing or judgment,
injunction, order or decree applicable to the Company or Amercord or any of
their respective properties, or will result in the creation or imposition of
any lien, charge or encumbrance upon any property or assets of the Company or
Amercord pursuant to the terms of any agreement or instrument to which either
of them is a party or by which any of them is bound or to which any of the
property or assets of either of them is subject.
(l) The accountants, Ernst & Young LLP., who have
certified or shall certify the financial statements included or incorporated by
reference in the Registration Statement and the Prospectus (or any amendment or
supplement thereto) are independent public accountants as required by the Act.
(m) The financial statements, together with related
schedules (if any) and notes, included in the Registration Statement and the
Prospectus (and any amendment or supplement thereto), present fairly the
consolidated financial position, results of operations and changes in financial
position of the Company on the basis stated in the Registration Statement at
the respective dates or for the respective periods to which they apply; such
statements and related schedules (if any) and notes have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved, except as disclosed therein; and the other
financial and statistical information and data included or incorporated by
reference in the Registration Statement and the Prospectus (and any amendment
or supplement thereto) are accurately presented and prepared on a basis
consistent with such financial statements and the books and records of the
Company and Amercord.
7
<PAGE> 8
(n) The execution and delivery of, and the performance by
the Company of its obligations under, this Agreement have been duly and validly
authorized by the Company, and this Agreement has been duly executed and
delivered by the Company and constitutes the valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms, except
as rights to indemnity and contribution hereunder may be limited by federal or
state securities laws or the public policy underlying such laws.
(o) Except as disclosed in the Registration Statement and
the Prospectus (or any amendment or supplement thereto), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectus (or any amendment or supplement thereto), neither
the Company nor Amercord has incurred any liability or obligation, direct or
contingent, or entered into any transaction, not in the ordinary course of
business, that is material to the Company and Amercord taken as a whole, and
there has not been any change in the capital stock, or material increase in the
short-term debt or long-term debt, of the Company or Amercord, or any material
adverse change, or any development involving or which may reasonably be
expected to involve, a prospective material adverse change, in the condition
(financial or other), business, or results of operations of the Company and
Amercord taken as a whole.
(p) Each of the Company and Amercord has good and
marketable title to all property (real and personal) described in the
Prospectus as being owned by it, free and clear of all liens, claims, security
interests or other encumbrances except such as are described in the
Registration Statement and the Prospectus or in a document filed as an exhibit
to the Registration Statement and all the property described in the Prospectus
as being held under lease by each of the Company and Amercord is held by it
under valid, subsisting and enforceable leases.
(q) The Company has not distributed and, prior to the
later to occur of (i) the Closing Date and (ii) completion of the distribution
of the Debentures, will not distribute any offering material in connection with
the offering and sale of the Debentures other than the Registration Statement,
the Prepricing Prospectus, the Prospectus or other materials, if any, permitted
by the Act.
(r) Each of the Company and Amercord has such permits,
licenses, franchises and authorizations of governmental or regulatory
authorities ("permits") as are necessary to own its respective properties and
to conduct its business in the manner described in the Prospectus, subject to
such qualifications as may be set forth in the Prospectus; each of the Company
and Amercord has fulfilled and performed all its material obligations with
respect to such permits and no event has occurred which allows, or after notice
or lapse of time would allow, revocation or termination thereof or results in
any other material impairment of the rights of the holder of any such permit,
subject in each case to such qualification as may be set forth in the
Prospectus; and, except as described in the Prospectus, none of such permits
contains any restriction that is materially burdensome to the Company or
Amercord.
(s) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorization;
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and
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<PAGE> 9
to maintain accountability for assets; (iii) access to assets is permitted only
in accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(t) To the Company's knowledge, neither the Company nor
Amercord nor any employee or agent of the Company or Amercord has made any
payment of funds of the Company or Amercord or received or retained any funds
in violation of any applicable law, rule or regulation, which payment, receipt
or retention of funds is of a character required to be disclosed in the
Prospectus.
(u) Each of the Company and Amercord has filed all tax
returns required to be filed through the date hereof or has received valid
extensions thereof, which returns are complete and correct in all material
respects, and neither the Company nor Amercord is in default in the payment of
any taxes which were payable pursuant to said returns or any assessments with
respect thereto, .except where the failure to file, extend the due date of or
pay the same, in the aggregate, would not reasonably be expected to have a
material adverse effect on the condition (financial or other), business, net
worth or results of operations of the Company and Amercord taken as a whole.
(v) Except as described the Prospectus or as provided for
in the registration rights agreement filed as an exhibit to the Registration
Statement, no holder of any security of the Company has any right to require
registration of shares of Common Stock or any other security of the Company
because of the filing of the registration statement or consummation of the
transactions contemplated by this Agreement. All such registration rights are
either not applicable to, or have been waived, or no rights have been asserted
or will be asserted, in connection with the registration of the Debentures
pursuant to the Registration Statement.
(w) The Company and Amercord own all patents, trademarks,
trademark registration, service marks, service mark registrations, trade names,
copyrights, licenses, inventions, trade secrets and rights described in the
Prospectus as being owned by them or necessary for the conduct of their
respective businesses, and the Company is not aware of any claim to the
contrary or any challenge by any other person to the rights of the Company and
Amercord with respect to the foregoing.
(x) The Company has filed in a timely manner each
document or report required to be filed by it pursuant to the Exchange Act and
the rules and regulations thereunder; each such document or report at the time
it was filed conformed in all material respects to the requirements of the
Exchange Act and the rules and regulations thereunder; and none or such
documents or reports contained an untrue statement of any material fact or
omitted to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
7. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless each of you and each other Underwriter and each
person, if any, who controls any Underwriter within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act from and against any and all
losses, claims, damages, liabilities and expenses (including reasonable costs
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<PAGE> 10
of investigation) arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained in any Prepricing Prospectus or
in the Registration Statement or the Prospectus or in any amendment or
supplement thereto, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or expenses arise out of or are based upon
any untrue statement or omission or alleged untrue statement or omission which
has been made therein or omitted therefrom in reliance upon and in conformity
with the information relating to such Underwriter furnished in writing to the
Company by or on behalf of any Underwriter through you expressly for use in
connection therewith; provided, however, that the indemnification contained in
this paragraph (a) with respect to any Prepricing Prospectus shall not inure to
the benefit of any Underwriter (or to the benefit of any person controlling
such Underwriter) on account of any such loss, claim, damage, liability or
expense arising from the sale of the Debentures by such Underwriter to any
person if a copy of the Prospectus shall not have been delivered or sent to
such person within the time required by the Act and the untrue statement or
alleged untrue statement or omission or alleged omission of a material fact
contained in such Prepricing Prospectus was corrected in the Prospectus,
provided that the Company has delivered the Prospectus to the several
Underwriters in requisite quantity on a timely basis to permit such delivery or
sending. The foregoing indemnity agreement shall be in addition to any
liability which the Company may otherwise have.
(b) If any action, suit or proceeding shall be brought against any
Underwriter or any person controlling any Underwriter in respect of which
indemnity may be sought against the Company, such Underwriter or such
controlling person shall promptly notify the Company and the Company shall
assume the defense thereof, including the employment of counsel and payment of
all fees and expenses. Such Underwriter or any such controlling person shall
have the right to employ separate counsel in any such action, suit or
proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Underwriter or such controlling
person unless (i) the Company has agreed in writing to pay such fees and
expenses, (ii) the Company has failed to assume the defense and employ counsel,
or (iii) the named parties to any such action, suit or proceeding (including
any impleaded parties) include both such Underwriter or such controlling person
and the Company and such Underwriter or such controlling person shall have been
advised by its counsel that representation of such indemnified party and the
Company by the same counsel would be inappropriate under applicable standards
of professional conduct (whether or not such representation by the same counsel
has been proposed) due to actual or potential differing interests between them
(in which case the Company shall not have the right to assume the defense of
such action, suit or proceeding on behalf of such Underwriter or such
controlling person). It is understood, however, that the Company shall, in
connection with any one such action, suit or proceeding or separate but
substantially similar or related actions, suits or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of only one separate firm of
attorneys (in addition to any local counsel) at any time for all such
Underwriters and controlling persons not having actual or potential differing
interests with you or among themselves, which firm shall be designated in
writing by Smith Barney Inc., and that all such fees and expenses shall be
reimbursed as they are incurred. The Company shall not be liable for any
settlement of any such action, suit or proceeding effected without its written
consent, but if settled with such written consent, or if there be a final
judgment for the plaintiff in any such action, suit or proceeding, the Company
agrees to indemnify
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<PAGE> 11
and hold harmless any Underwriter, to the extent provided in the preceding
paragraph, and any such controlling person from and against any loss, claim,
damage, liability or expense by reason of such settlement or judgment.
(c) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement, and any person who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, to the
same extent as the foregoing indemnity from the Company to each Underwriter,
but only with respect to information relating to such Underwriter furnished in
writing by or on behalf of such Underwriter through you expressly for use in
the Registration Statement, the Prospectus or any Prepricing Prospectus, or any
amendment or supplement thereto. If any action, suit or proceeding shall be
brought against the Company, any of its directors, any such officer, or any
such controlling person, based on the Registration Statement, the Prospectus or
any Prepricing Prospectus, or any amendment or supplement thereto, and in
respect of which indemnity may be sought against any Underwriter pursuant to
this paragraph (c), such Underwriter shall have the rights and duties given to
the Company by paragraph (b) above (except that if the Company shall have
assumed the defense thereof such Underwriter shall not be required to do so,
but may employ separate counsel therein and participate in the defense thereof,
but the fees and expenses of such counsel shall be at such Underwriter's
expense), and the Company, its directors, any such officer, and any such
controlling person, shall have the rights and duties given to the Underwriters
by paragraph (b) above. The foregoing indemnity agreement shall be in addition
to any liability which the Underwriters may otherwise have.
(d) If the indemnification provided for in this Section 7 is
unavailable to an indemnified party under paragraphs (a) or (c) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses (i) in
such proportion as is appropriate to reflect the relative benefits received by
the Company and the Underwriters from the offering of the Debentures, or (ii)
if the allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
Company and the Underwriters in connection with the statements or omissions
that resulted in such losses, claims, damages, liabilities or expenses, as well
as any other relevant equitable considerations. The relative benefits received
by the Company and the Underwriters shall be deemed to be in the same
proportion as the total net proceeds from the offering (net of underwriting
discounts and commissions but before deducting expenses) received by the
Company bear to the total underwriting discounts and commissions received by
the Underwriters, in each case as set forth in the table on the cover page of
the Prospectus. The relative fault of the Company and the Underwriters shall
be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or by
the Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
(e) The Company and the Underwriters agree that it would not be
just and equitable if contribution pursuant to this Section 7 were determined
by a pro rata allocation (even if the
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<PAGE> 12
Underwriters were treated as one entity for such purpose) or by any other
method of allocation that does not take account of the equitable considerations
referred to in paragraph (d) above. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, liabilities and
expenses referred to in paragraph (d) above shall be deemed to include, subject
to the limitations set forth above, any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating any claim
or defending any such action, suit or proceeding. Notwithstanding the
provisions of this Section 7, no Underwriter shall be required to contribute
any amount in excess of the amount by which the total price of the Debentures
underwritten by it and distributed to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute pursuant to this Section 7 are several in proportion to the
respective principal amounts of Debentures set forth opposite their names in
Schedule I hereto (or such principal amounts of Debentures increased as set
forth in Section 10 hereof) and not joint.
(f) No indemnifying party shall, without the prior written consent
of the indemnified party, effect any settlement of any pending or threatened
action, suit or proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such action, suit or proceeding.
(g) Any losses, claims, damages, liabilities or expenses for which
an indemnified party is entitled to indemnification or contribution under this
Section 7 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 7 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers or any person
controlling the Company, (ii) acceptance of any Debentures and payment therefor
hereunder, and (iii) any termination of this Agreement. A successor to any
Underwriter or any person controlling any Underwriter, or to the Company, its
directors or officers, or any person controlling the Company, shall be entitled
to the benefits of the indemnity, contribution and reimbursement agreements
contained in this Section 7.
8. Conditions of Underwriters' Obligations. The several
obligations of the Underwriters to purchase the Debentures hereunder are subject
to the following conditions:
(a) If, at the time this Agreement is executed and
delivered, it is necessary for the registration statement or a post-effective
amendment thereto to be declared effective before the offering of the
Debentures may commence, the registration statement or such post-effective
amendment shall have become effective not later than 5:30 P.M., New York City
time, on the date hereof, or at such later date and time as shall be consented
to in writing by you, and all filings, if any, required by Rules 424 and 430A
under the Act shall have been timely made; no stop order
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<PAGE> 13
suspending the effectiveness of the registration statement shall have been
issued and no proceeding for that purpose shall have been instituted or, to the
knowledge of the Company or any Underwriter, threatened by the Commission, and
any request of the Commission for additional information (to be included in the
registration statement or the prospectus or otherwise) shall have been complied
with to your reasonable satisfaction.
(b) Subsequent to the effective date of this Agreement,
there shall not have occurred (i) any change, or any development involving a
prospective change, in or affecting the condition (financial or other),
business, properties, net worth, or results of operations of the Company or the
Subsidiaries not contemplated by the Prospectus, which in your reasonable
opinion, as Representatives of the several Underwriters, would materially
adversely affect the market for the Debentures, or (ii) any event or
development relating to or involving the Company or any executive officer or
director of the Company which makes any statement made in the Prospectus untrue
or which, in the opinion of the Company and its counsel or the Underwriters and
their counsel, requires the making of any addition to or change in the
Prospectus in order to state a material fact required by the Act or any other
law to be stated therein or necessary in order to make the statements therein
not misleading, if amending or supplementing the Prospectus to reflect such
event or development would, in your opinion, as Representatives of the several
Underwriters, materially adversely affect the market for the Debentures.
(c) You shall have received on the Closing Date, an
opinion of Jones, Day, Reavis & Pogue, counsel for the Company, dated the
Closing Date and addressed to you, as Representatives of the several
Underwriters, to the effect that:
(i) The Company is a corporation duly
incorporated and validly existing in good standing under the laws of the State
of Delaware with full corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the Registration
Statement and the Prospectus (and any amendment or supplement thereto), and is
duly registered and qualified to conduct its business and is in good standing
in each jurisdiction listed on Exhibit A to such opinion;
(ii) Based on our review of the stock records of
the Company, the authorized and outstanding capital stock of the Company is as
set forth under the caption "Capitalization" in the Prospectus;
(iii) The Debentures have been duly and validly
authorized and executed by the Company and, assuming due authentication of the
Debentures by the Trustee, upon delivery to the Underwriters against payment
therefor in accordance with the terms hereof, will have been validly issued and
delivered, and will constitute valid and binding obligations of the Company
entitled to the benefits of the Indenture;
(iv) The Indenture has been duly and validly
authorized, executed and delivered by the Company and, assuming due execution
and delivery by the Trustee, is a valid and binding agreement of the Company,
enforceable in accordance with its terms, except as enforcement thereof may be
limited by bankruptcy, insolvency or other similar laws affecting creditors'
rights generally, and has been duly qualified under the 1939 Act;
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<PAGE> 14
(v) The Registration Statement and all
post-effective amendments, if any, have become effective under the Act and, to
the best knowledge of such counsel after reasonable inquiry, no stop order
suspending the effectiveness of the Registration Statement has been issued and
no proceedings for that purpose are pending before or contemplated by the
Commission; and any required filing of the Prospectus pursuant to Rule 424(b)
has been made in accordance with Rule 424(b);
(vi) The Company has full corporate power and
authority to enter into this Agreement and to issue, sell and deliver the
Debentures to the Underwriters as provided herein, and this Agreement has been
duly authorized, executed and delivered by the Company and is a valid and
binding agreement of the Company, enforceable against the Company in accordance
with its terms, except as enforcement of rights to indemnity and contribution
hereunder may be limited by Federal or state securities laws or principles of
public policy and subject to the qualification that the enforceability of the
Company's obligations hereunder may be limited by bankruptcy, fraudulent
conveyance, insolvency, reorganization, moratorium, and other laws relating to
or affecting creditors' rights generally and subject to general equitable
principles;
(vii) Neither the Company nor Amercord is in
violation of its respective certificate of incorporation or bylaws;
(viii) Neither the offer, sale or delivery of the
Debentures, the execution, delivery or performance of this Agreement and the
Indenture, compliance by the Company with the provisions hereof and thereof, nor
consummation by the Company of the transactions contemplated hereby and thereby,
conflicts or will conflict with or constitutes or will constitute a breach of,
or a default under, the certificate or articles of incorporation or bylaws, of
the Company or any agreement, indenture, lease or other instrument that is an
exhibit to the Registration Statement (including any indenture, mortgage, deed
of trust, loan agreement, bond, debenture, note agreement, capital lease or
other evidence of indebtedness identified to us as material to the Company by
the Company), or, to the best of our knowledge, breach or otherwise violate any
existing obligation of the Company under any court or administrative order,
judgment or decree, or (iii) violate any applicable provisions of the Delaware
General Corporation Law or of the federal laws of the United States (assuming
compliance with all applicable state securities and Blue Sky laws);
(ix) No consent, approval, authorization or other
order of, or registration or filing with, any court, regulatory body,
administrative agency or other governmental body, agency, or official is
required on the part of the Company (except as have been obtained under the Act,
the Exchange Act, the 1939 Act, and such as may be required under state
securities or Blue Sky laws or as may be required by the rules and regulations
of the NASD) for the issuance and sale of the Debentures to the Underwriters as
contemplated by this Agreement;
(x) The Registration Statement and the
Prospectus and any supplements or amendments thereto (except for the financial
statements and the notes thereto and the schedules and other financial and
statistical data included therein, as to which such counsel need
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<PAGE> 15
not express any opinion) comply as to form in all material respects with the
requirements of the Act; and
(xi) To the actual knowledge of such counsel, (i)
other than as described or contemplated in the Prospectus (or any supplement
thereto), there are no legal or governmental proceedings pending or threatened
against the Company or Amercord, or to which the Company or Amercord, or any of
their property, is subject, which are required to be described in the
Registration Statement or Prospectus (or any amendment or supplement thereto)
and (ii) there are no agreements, contracts, indentures, leases or other
instruments, that are required to be described in the Registration Statement or
the Prospectus (or any amendment or supplement thereto) or to be filed as an
exhibit to the Registration Statement that are not described or filed as
required, as the case may be.
In addition to the matters set forth above, such opinion shall
also include a statement to the effect that although counsel has not
independently verified and is not passing upon, and does not assume any
responsibility for, the accuracy or completeness of the information contained
in the Registration Statement or the Prospectus, such counsel has participated
in the preparation of the Registration Statement and the Prospectus and no
facts have come to the attention of such counsel that have caused it to believe
that the Registration Statement at the time the Registration Statement became
effective, contained an untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus, as of the Closing
Date, contained any untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading (it being
understood that such counsel need express no view with respect to the financial
statements and the notes thereto and the schedules and other financial and
statistical data included in the Registration Statement or the Prospectus).
In rendering their opinion as aforesaid, counsel may rely (i)
as to matters of fact, to the extent such counsel deems appropriate, on
certificates of officers and other representatives of the Company and
certificates of public officials, and (ii) upon an opinion or opinions, each
dated the Closing Date, of other counsel retained by them or the Company as to
laws of any jurisdiction other than the United States or the State of New York,
provided that (a) each such local counsel is acceptable to the Representatives,
and (b) such reliance is expressly authorized by each opinion so relied upon and
a copy of each such opinion is delivered to the Representatives and is, in form
and substance satisfactory to them and their counsel.
(d) You shall have received on the Closing Date an opinion of
Latham & Watkins, counsel for the Underwriters, dated the Closing Date and
addressed to you, as Representatives of the several Underwriters, with respect
to the matters referred to in clauses (iv) through (vi) and clauses (iii),
(iv), (v), (vi) (x) and the statement contained in the second to last
sub-paragraph of the foregoing paragraph (c) and such other related matters as
you may request.
(e) You shall have received letters addressed to you, as
Representatives of the several Underwriters, and dated the date hereof and the
Closing Date from Ernst & Young LLP., independent public accountants,
substantially in the forms heretofore approved by you.
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<PAGE> 16
(f) (i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been taken or, to the knowledge of the Company, shall be
contemplated by the Commission at or prior to the Closing Date; (ii) there
shall not have been any change in the capital stock of the Company nor any
material increase in the short-term or long-term debt of the Company (other
than in the ordinary course of business) from that set forth or contemplated in
the Registration Statement or the Prospectus (or any amendment or Supplement
thereto); (iii) there shall not have been, since the respective dates as of
which information is given in the Registration Statement and the Prospectus (or
any amendment or supplement thereto), except as may otherwise be stated in the
Registration Statement and Prospectus (or any amendment or supplement thereto),
any material adverse change in the condition (financial or other), business,
prospects, properties or results of operations of the Company and Amercord;
(iv) the Company shall not have any liabilities or obligations, direct or
contingent (whether or not in the ordinary course of business), that are
material to the Company, other than those reflected in the Registration
Statement or the Prospectus (or any amendment or supplement thereto); and (v)
all the representations and warranties of the Company contained in this
Agreement shall be true and correct on and as of the date hereof and on and as
of the Closing Date as if made on and as of the Closing Date, and you shall
have received a certificate, dated the Closing Date and signed by the chief
executive officer and the chief financial officer of the Company (or such other
officers as are acceptable to you), to the effect set forth in this Section
8(f) and in Section 8(g) hereof.
(g) The Company shall not have failed at or prior to the Closing
Date to have performed or complied with any of its agreements herein contained
and required to be performed or complied with by it hereunder at or prior to
the Closing Date.
(h) There shall not have been any announcement by any "nationally
recognized statistical rating organization", as defined for purposes of Rule
436(g) under the Act, that (i) it is downgrading its rating assigned to any
debt securities of the Company, or (ii) it is reviewing its rating assigned to
any debt securities of the Company with a view to possible downgrading, or with
negative implications, or direction not determined.
(i) The Company shall have furnished or caused to be furnished to
you such further certificates and documents as you shall have reasonably
requested.
All such opinions, certificates, letters and other documents will be
in compliance with the provisions hereof only if they are satisfactory in form
and substance to you and your counsel.
Any certificate or document signed by any officer of the Company and
delivered to you, as Representatives of the Underwriters, or to counsel for the
Underwriters, shall be deemed a representation and warranty by the Company to
each Underwriter as to the statements made therein.
9. Expenses. The Company agrees to pay the following costs and
expenses and all other costs and expenses incident to the performance by it of
its obligations hereunder: (i) the preparation, printing (or reproduction), and
filing with the Commission of the registration statement (including financial
statements and exhibits thereto), each Prepricing Prospectus, the Prospectus,
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<PAGE> 17
each amendment or supplement to any of them, this Agreement, the Indenture and
the Statement of Eligibility and Qualification of the Trustee; (ii) the
printing (or reproduction) and delivery (including postage, air freight charges
and charges for counting and packaging) of such copies of the registration
statement, each Prepricing Prospectus, the Prospectus, and all amendments or
supplements to any of them, as may be reasonably requested for use in
connection with the offering and sale of the Debentures; (iii) the preparation,
printing (or reproduction), execution and delivery of the Indenture and the
preparation, printing, authentication, issuance and delivery of the Debentures,
including any stamp taxes in connection with the original issuance of the
Debentures; (iv) the printing (or reproduction) and delivery of this Agreement,
the preliminary and supplemental Blue Sky Memoranda and all other agreements or
documents printed (or reproduced) and delivered in connection with the offering
of the Debentures; (v) the registration of the Debentures under the Exchange
Act; (vi) the registration or qualification of the Debentures for offer and
sale under the securities or Blue Sky laws of the several states as provided in
Section 5(g) hereof (including the reasonable fees, expenses and disbursements
of counsel for the Underwriters relating to the preparation, printing (or
reproduction), and delivery of the preliminary and supplemental Blue Sky
Memoranda and such registration and qualification); (vii) the filing fees and
the reasonable fees and expenses of counsel for the Underwriters in connection
with any filings required to be made with the National Association of
Securities Dealers, Inc.; (viii) the fees and expenses of the Trustee; (ix)
the fees and expenses associated with obtaining ratings for the Debentures from
nationally recognized statistical rating organizations; (x) the transportation
and other expenses incurred by or on behalf of Company representatives in
connection with presentations to prospective purchasers of the Debentures; and
(xi) the fees and expenses of the Company's accountants and the fees and
expenses of counsel (including local and special counsel) for the Company.
10. Effective Date of Agreement. This Agreement shall
become effective: (i) upon the execution and delivery hereof by the parties
hereto; or (ii) if, at the time this Agreement is executed and delivered, it is
necessary for the registration statement or a post-effective amendment thereto
to be declared effective before the offering of the Debentures may commence,
when notification of the effectiveness of the registration statement or such
post-effective amendment has been released by the Commission. Until such time
as this Agreement shall have become effective, it may be terminated by the
Company, by notifying you, or by you, as Representatives of the several
Underwriters, by notifying the Company.
If any one or more of the Underwriters shall fail or refuse to
purchase Debentures which it or they are obligated to purchase hereunder on the
Closing Date, and the aggregate principal amount of Debentures which such
defaulting Underwriter or Underwriters are obligated but fail or refuse to
purchase is not more than one-tenth of the aggregate principal amount of
Debentures which the Underwriters are obligated to purchase on the Closing
Date, each non-defaulting Underwriter shall be obligated, severally, in the
proportion which the principal amount of Debentures set forth opposite its name
in Schedule I hereto bears to the aggregate principal amount of Debentures set
forth opposite the names of all non-defaulting Underwriters or in such other
proportion as you may specify in accordance with Section 20 of the Master
Agreement Among Underwriters of Salomon Brothers Inc, to purchase the
Debentures which such defaulting Underwriter or Underwriters are obligated, but
fail or refuse, to purchase. If any one or more of the Underwriters shall fail
or refuse to purchase Debentures which it or they are obligated to purchase on
the Closing Date and the aggregate principal amount of Debentures with respect
to
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<PAGE> 18
which such default occurs is more than one-tenth of the aggregate principal
amount of Debentures which the Underwriters are obligated to purchase on the
Closing Date and arrangements satisfactory to you and the Company for the
purchase of such Debentures by one or more non-defaulting Underwriters or other
party or parties approved by you and the Company are not made within 36 hours
after such default, this Agreement will terminate without liability on the part
of any non-defaulting Underwriter or the Company. In any such case which does
not result in termination of this Agreement, either you or the Company shall
have the right to postpone the Closing Date, but in no event for longer than
seven days, in order that the required changes, if any, in the Registration
Statement and the Prospectus or any other documents or arrangements may be
effected. Any action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any such default of any
such Underwriter under this Agreement. The term "Underwriter" as used in this
Agreement includes, for all purposes of this Agreement, any party not listed in
Schedule I hereto who, with your approval and the approval of the Company,
purchases Debentures which a defaulting Underwriter is obligated, but fails or
refuses, to purchase.
Any notice under this Section 10 may be made by telegram, telecopy or
telephone but shall be subsequently confirmed by letter.
11. Termination of Agreement. This Agreement shall be subject to
termination in your absolute discretion, without liability on the part of any
Underwriter to the Company by notice to the Company, if prior to the Closing
Date, (i) trading in the Common Stock of the Company shall be suspended or
subject to any restriction or limitation not in effect on the date of this
Agreement; (ii) trading in securities generally on the New York Stock Exchange,
the American Stock Exchange or the Nasdaq National Market shall have been
suspended or materially limited, (iii) a general moratorium on commercial
banking activities in New York or Texas shall have been declared by either
federal or state authorities, or (iv) there shall have occurred any outbreak or
escalation of hostilities or other international or domestic calamity, crisis
or change in political, financial or economic conditions, the effect of which
on the financial markets of the United States is such as to make it, in your
judgment, impracticable or inadvisable to commence or continue the offering of
the Debentures on the terms set forth on the cover page of the Prospectus or to
enforce contracts for the resale of the Debentures by the Underwriters. Notice
of such termination may be given to the Company by telegram, telecopy or
telephone and shall be subsequently confirmed by letter.
12. Information Furnished by the Underwriters. The statements set
forth in the last paragraph on the cover page, the stabilization legend on the
inside cover page, and the statements in the first, third, fifth (except the
first sentence thereof) and sixth paragraphs under the caption "Underwriting"
in any Prepricing Prospectus and in the Prospectus, constitute the only
information furnished by or on behalf of the Underwriters through you as such
information is referred to in Sections 6(b) and 7 hereof.
13. Miscellaneous. Except as otherwise provided in Sections 5, 10
and 11 hereof, notice given pursuant to any provision of this Agreement shall
be in writing and shall be delivered (i) if to the Company, at the office of
the Company at Suite 4100 East, 2200 Ross Street, Dallas, Texas, 75201,
Attention: Robert L. Winspear, Vice President, Treasurer and Secretary; or (ii)
if to you, as Representatives of the several Underwriters, care of Salomon
Brothers Inc, Seven World Trade Center, New York, New York 10048, Attention:
Manager, Investment Banking Division.
18
<PAGE> 19
This Agreement has been and is made solely for the benefit of the
several Underwriters, the Company, its directors and officers, and the other
controlling persons referred to in Section 7 hereof and their respective
successors and assigns, to the extent provided herein, and no other person
shall acquire or have any right under or by virtue of this Agreement. Neither
the term "successor" nor the term "successors and assigns" as used in this
Agreement shall include a purchaser from any Underwriter of any of the
Debentures in his status as such purchaser.
14. Applicable Law; Counterparts. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
applicable to contracts made and to be performed within the State of New York.
This Agreement may be signed in various counterparts which together
constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.
Please confirm that the foregoing correctly sets forth the agreement
between the Company and the several Underwriters.
Very truly yours,
ASSOCIATED MATERIALS INCORPORATED
By
----------------------------
Robert L. Winspear
Vice President, Treasurer &
Secretary
Confirmed as of the date first
above mentioned on behalf of
themselves and the other several
Underwriters named in Schedule I
hereto.
SALOMON BROTHERS INC
As Representatives of the Several Underwriters
By SALOMON BROTHERS INC
By
----------------------------
Managing Director
19
<PAGE> 20
SCHEDULE I
ASSOCIATED MATERIALS INCORPORATED
<TABLE>
<CAPTION>
Principal Amount
Underwriter of Debentures
----------- ---------------
<S> <C>
Salomon Brothers Inc .................................................................. $
Dain Rauscher Incorporated ............................................................ $
Total ............................................... $75,000,000
</TABLE>
20
<PAGE> 1
EXHIBIT 4.1
================================================================================
ASSOCIATED MATERIALS INCORPORATED
and
U.S. TRUST COMPANY OF TEXAS, N.A.,
Trustee
--------------------------------------
INDENTURE
Dated as of , 1998
-----------------
--------------------------------------
$100,000,000
____% Senior Subordinated Notes due _________________, 2008
================================================================================
<PAGE> 2
CROSS REFERENCE TABLE*
<TABLE>
<CAPTION>
TIA Indenture
Section Section**
------- ---------
<S> <C> <C>
310 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.08; 7.10; 10.11
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
311 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
312 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.05
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.03
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.03
313 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
(b)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
(b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06;12.02
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
314 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.02;
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.03(a); 12.02
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.04
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.04
(c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.05
(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.03
315 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.05; 12.02
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11
316 (a) (last sentence) . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.08
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.05
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.04
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.07
317 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.08
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.09
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.04
318 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.01
</TABLE>
i
<PAGE> 3
* This Cross Reference Table shall not, for any purpose, be deemed to be
part of the Indenture.
** N.A. means Not Applicable
ii
<PAGE> 4
TABLE OF CONTENTS*
<TABLE>
<S> <C>
ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.01. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02. Other Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 1.03. Incorporation by Reference of Trust Indenture Act. . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 1.04. Rules of Construction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 1.05. Acts of Holders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE 2. THE SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.01. Form and Dating; Payments of Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.02. Execution and Authentication. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 2.03. Registrar and Paying Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 2.04. Paying Agent to Hold Money in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 2.05. Securityholder Lists. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 2.06. Transfer and Exchange. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 2.07. Replacement Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 2.08. Outstanding Securities; Determinations of Holders' Action. . . . . . . . . . . . . . . . . . . . . 25
Section 2.09. Temporary Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 2.10. Cancellation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 2.11. CUSIP Numbers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 2.12. Defaulted Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE 3. REDEMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 3.01. Right to Redeem; Notice to Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 3.02. Selection of Securities to Be Redeemed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 3.03. Notice of Redemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 3.04. Effect of Notice of Redemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 3.05. Deposit of Equity Offering Redemption Price or Redemption Price. . . . . . . . . . . . . . . . . . 29
Section 3.06. Securities Redeemed in Part. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE 4. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 4.01. Payment of Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 4.02. SEC Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 4.03. Compliance Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 4.04. Further Instruments and Acts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 4.05. Maintenance of Office or Agency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 4.06. Limitation on Restricted Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 4.07. Limitation on Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 4.08. Limitation on Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 4.09. Limitation on Restricted Subsidiary Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . 35
</TABLE>
- ----------------------
* This Table of Contents shall not, for any purpose, be deemed to be part of
the Indenture.
iii
<PAGE> 5
<TABLE>
<S> <C>
Section 4.10. Limitation On Other Senior Subordinated Indebtedness. . . . . . . . . . . . . . . . . . . . . . . 35
Section 4.11. Limitation on Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 4.12. Limitation On Issuance of Preferred Stock by Restricted Subsidiaries. . . . . . . . . . . . . . . 36
Section 4.13. Limitation on Dividends and Other Payment Restrictions Affecting Restricted Subsidiaries. . . . . 36
Section 4.14. Limitation On Sale and Leaseback Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 4.15. Limitation on Transactions With Affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 4.16. Limitation on Asset Dispositions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 4.17. Repurchase Upon Change of Control. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 4.18. Payment of Taxes and Other Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 4.19. Maintenance of Properties and Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 4.20. Compliance With Securities Laws Upon Purchase of Securities. . . . . . . . . . . . . . . . . . . . 44
Section 4.21. Compliance With Laws Generally. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 4.22. Preservation of Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 4.23. Maintenance of Records; Access. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 4.24. Composition of Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE 5. SUCCESSOR CORPORATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 5.01. When the Company May Merge or Transfer Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 5.02. Successor Corporation Substituted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
ARTICLE 6. DEFAULTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 6.01. Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 6.02. Acceleration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 6.03. Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 6.04. Waiver of Past Defaults; Recission. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 6.05. Control by Majority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 6.06. Limitation on Suits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 6.07. Rights of Holders to Receive Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 6.08. Collection Suit by Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 6.09. Trustee May File Proofs of Claim. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 6.10. Priorities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 6.11. Undertaking for Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 6.12. Waiver of Stay, Extension or Usury Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 6.13. Restoration of Rights and Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 6.14. Rights and Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 6.15. Delay or Omission Not Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
ARTICLE 7. TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 7.01. Duties of Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 7.02. Rights of Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 7.03. Individual Rights of Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 7.04. Trustee's Disclaimer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 7.05. Notice of Defaults. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 7.06. Reports by Trustee to Holders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 7.07. Compensation and Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
</TABLE>
iv
<PAGE> 6
<TABLE>
<S> <C>
Section 7.08. Replacement of Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 7.09. Successor Trustee by Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 7.10. Eligibility; Disqualification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 7.11. Preferential Collection of Claims Against the Company. . . . . . . . . . . . . . . . . . . . . . . 58
Section 7.12. Trustee's Application for Instructions From the Company. . . . . . . . . . . . . . . . . . . . . . 59
ARTICLE 8. DISCHARGE OF INDENTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 8.01. Discharge of Liability on Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
ARTICLE 9. AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 9.01. Without Consent of Holders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 9.02. With Consent of Holders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 9.03. Compliance With TIA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 9.04. Revocation and Effect of Consents, Waivers and Actions. . . . . . . . . . . . . . . . . . . . . . 61
Section 9.05. Notation on or Exchange of Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 9.06. Trustee to Sign Supplemental Indentures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 9.07. Effect of Supplemental Indentures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
ARTICLE 10. SUBORDINATION OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 10.01. Securities Subordinate to Senior Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 10.02. Payment Over of Proceeds Upon Dissolution, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 10.03. Suspension of Payment When Senior Indebtedness in Default. . . . . . . . . . . . . . . . . . . . 64
Section 10.04. Payment Permitted if No Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 10.05. Subrogation to Rights of Holders of Senior Indebtedness. . . . . . . . . . . . . . . . . . . . . 65
Section 10.06. Provisions Solely to Define Relative Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 10.07. Trustee to Effectuate Subordination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 10.08. No Waiver of Subordination Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 10.09. Notice to Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 10.10. Reliance on Judicial Order or Certificate of Liquidating Agent. . . . . . . . . . . . . . . . . . 67
Section 10.11. Rights of Trustee as a Holder of Senior Indebtedness; Preservation of Trustee's Rights. . . . . . 68
Section 10.12. Article Applicable to Paying Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 10.13. No Suspension of Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 10.14. Trustee's Relation to Senior Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
ARTICLE 11. DEFEASANCE AND COVENANT DEFEASANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 11.01. Option to Effect Defeasance or Covenant Defeasance. . . . . . . . . . . . . . . . . . . . . . . . 69
Section 11.02. Defeasance and Discharge. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 11.03. Covenant Defeasance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 11.04. Conditions to Defeasance or Covenant Defeasance. . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 11.05. Deposited Money and U.S. Government Obligations to Be Held in Trust;
Other Miscellaneous Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 11.06. Reinstatement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
</TABLE>
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<PAGE> 7
<TABLE>
<S> <C>
ARTICLE 12. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 12.01. TIA Controls. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 12.02. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 12.03. Communication by Holders With Other Holders. . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Section 12.04. Certificate and Opinion as to Conditions Precedent. . . . . . . . . . . . . . . . . . . . . . . . 74
Section 12.05. Statements Required in Certificate or Opinion. . . . . . . . . . . . . . . . . . . . . . . . . . 74
Section 12.06. Separability Clause. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Section 12.07. Rules by Trustee, Paying Agent and Registrar. . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Section 12.08. Legal Holidays. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Section 12.09. GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Section 12.10. Successors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Section 12.11. Multiple Originals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Section 12.12. Legal Interest Limitations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
ACCEPTANCE OF TRUST BY TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
ACKNOWLEDGMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
</TABLE>
SCHEDULE I - EXISTING INDEBTEDNESS, LIENS, ETC.
EXHIBIT A - FORM OF SECURITY
EXHIBIT B - FORM OF INTERCOMPANY AGREEMENT
* THIS TABLE OF CONTENTS SHALL NOT, FOR ANY PURPOSE, BE DEEMED TO BE PART
OF THE INDENTURE.
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<PAGE> 8
INDENTURE, dated as of _______________, 1998, between Associated
Materials Incorporated, a Delaware corporation (the "Company"), and U.S. Trust
Company of Texas, N.A., a national banking association (the "Trustee").
RECITALS
The Company has duly authorized the creation of an issue of its ___%
Senior Subordinated Notes due _________________, 2008 (hereinafter called the
"Securities"), of substantially the tenor and amount hereinafter set forth, and
to provide therefor, the Company has duly authorized the execution and delivery
of this Indenture.
This Indenture is subject to, and shall be governed by, the provisions
of the Trust Indenture Act of 1939, as amended, that are required to be part of
and to govern indentures qualified under the Trust Indenture Act of 1939, as
amended.
All acts and things necessary have been done to make the Securities,
when executed by the Company and authenticated and delivered hereunder and duly
issued by the Company, the valid, binding and legal obligations of the Company,
and to make this Indenture a valid agreement of the Company in accordance with
its terms.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually covenanted and agreed, for
the equal and proportionate benefit of all Holders of the Securities, as
follows:
ARTICLE 1.
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01. Definitions.
"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, or 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
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<PAGE> 9
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.
"Amercord" means Amercord Inc., a Delaware corporation and 50%-owned
Affiliate of the Company as of the Initial Issuance Date.
"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 proposes of this definition
as 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 Section 4.06, (iii) sales
of inventory in the ordinary course of business, (iv) a disposition that is
governed by Article 5 or Section 4.17, (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
$1,000,000, provided that the Fair Market Value of all dispositions made
pursuant to this clause (vii) shall not exceed $5,000,000 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.
"Bank Credit Agreement" means the Second Amended and Restated Loan and
Security Agreement dated as of April 2, 1996, between KeyBank, N.A. and the
Company, as now or hereafter amended, modified, renewed or extended, and
including each agreement, instrument or other document relating thereto or to
any refinancing or replacement thereof.
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<PAGE> 10
"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.
"Board of Directors" of any corporation means the Board of Directors
of such corporation or any duly authorized committee of such Board of
Directors.
"Borrowing Base" means, as of any date, an amount equal to the sum of
(i) 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 (ii) 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.
"Business Day" means any day that is not a Saturday, a Sunday or a day
on which banking institutions in New York, New York or Dallas, Texas are
required to close.
"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 l2b-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
3
<PAGE> 11
corporation immediately after the consolidation or merger or (v) the sale of
all or substantially all of the Company's assets to any Person.
"Company" means Associated Materials Incorporated, a Delaware
corporation, until a successor replaces it pursuant to this Indenture and
thereafter means the successor.
"Company Request" means any written request signed in the name of the
Company by an Officer of the Company.
"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 Disqualified Stock of such Person or of
Subsidiaries of such Person held by Persons other than such Person or one of
its
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<PAGE> 12
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, 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.
5
<PAGE> 13
"Depositary" means, with respect to the Securities issuable or issued in
whole or in part in global form, the Person specified in Section 2.01 hereof as
the Depositary with respect to the Securities, until a successor shall have
been appointed and become such pursuant to the applicable provision of this
Indenture, and, thereafter, "Depositary" shall mean or include such successor.
"Designated Senior Indebtedness" means (i) all Indebtedness owing
under the Bank Credit Agreement that constitutes Senior Indebtedness and (ii)
after such Indebtedness under the Bank 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 $10,000,000 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 Securities; 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 Section 4.06.
"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 Securities, provided that, at least $65
million in aggregate principal amount of the Securities shall remain
outstanding immediately after the occurrence of such redemption, which price is
___% of the principal amount of the Securities to be redeemed, plus accrued and
unpaid interest, if any, on such amount to the redemption date.
"Event of Default" means any of the events specified in Section
6.01(a) hereof, provided that any requirements for notice or lapse of time or
both has been satisfied.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" of any Capital Stock, property or other assets
means the fair market value of such Capital Stock, property or other assets at
the time of disposition, provided that any disposition or series of related
dispositions having an aggregate fair market value of $1,000,000 (taking into
account, without limitation, any assumption of Indebtedness in connection with
such disposition) or more shall be approved in good faith by resolution of the
Board of Directors of the Company, including at least a majority of the
Independent Directors.
"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
6
<PAGE> 14
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.
"Global Security" means a Security issued to the Depositary in
accordance with Section 2.02 and bearing the legend required by Section 2.02
and referred to in footnote 1 to the form of Security attached hereto as
Exhibit A and including the additional schedule referred to in footnote 2 to
the form of the Security attached hereto as Exhibit A.
"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 such Person (i) to purchase or pay (or advance or
supply funds for the purchase or 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 non-performance
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 "Securityholder" means a Person in whose name a Security
is registered on the Register, and the word "majority" used in connection with
the term "Holder" or "Securityholder" 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 warrants, rights
or options to acquire such Disqualified Stock valued, in the case of
Disqualified Stock, at the greatest amount payable in respect thereof
7
<PAGE> 15
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 of any property and assets subject to a Lien securing the
Indebtedness of others and the amount of the Indebtedness secured.
"Indenture" means this Indenture, as amended or supplemented from time
to time in accordance with the terms hereof, including the provisions of the
TIA that are deemed to be a part hereof.
"Indenture Obligations" means the obligations of the Company to pay
principal of, premium, if any, and interest on the Securities when due and
payable, whether at maturity or on an interest payment date, or otherwise, and
(to the extent lawful) as provided in the Securities, interest on the overdue
principal, if any, and on the overdue installments of interest, if any, payable
with respect to the Securities and performance of all other obligations of the
Company to the Trustee and the Holders under this Indenture and the Securities,
according to the terms hereunder and thereunder.
"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
8
<PAGE> 16
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 The Prudential Insurance Company of America, or any subsequent
holder of Capital Stock of the Company held by The Prudential Insurance Company
of America 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
Securities.
"Intercompany Agreement" means an intercompany note substantially in
the form attached as an exhibit to this 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 $1,000,000
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 assets, any mortgage, lien, pledge,
charge, security interest, or encumbrance of any kind in respect of such
assets, whether or nor 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
Securities or Indebtedness permitted under Section 4.08 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
9
<PAGE> 17
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.
"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.
"Offer" means a Change of Control Offer or Net Proceeds Offer, as the
case may be.
"Offer Purchase Date" means a Change of Control Purchase Date or Net
Proceeds Purchase Date, as the case may be.
"Officer" means, with respect to any corporation, the Chairman of the
Board, any Vice Chairman, the President, any Vice President, the Treasurer, the
Secretary, any Assistant Treasurer or any Assistant Secretary of such
corporation and any Person routinely performing corresponding functions with
respect to such corporation.
"Officers' Certificate" means a written certificate containing the
information specified in Sections 12.04 and 12.05 herein, signed on behalf of
the Company by two of its Officers and delivered to the Trustee. Each such
certificate shall comply with the provisions of TIA Section 314.
"Opinion of Counsel" means a written opinion containing the
information and setting forth the opinions specified in Sections 12.04 and
12.05, rendered by legal counsel who is reasonably acceptable to the Trustee.
Each such opinion shall comply with the applicable provisions of TIA Section
314.
"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 this Indenture, (iii) Indebtedness of the Company and/or
its Restricted Subsidiaries under or with respect to, the Bank Credit Agreement
that does not exceed an outstanding principal amount equal to the greater of
$65,000,000 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
Bank Credit Agreement)
10
<PAGE> 18
determined as of the date incurred, (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 $5,000,000 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 $5,000,000, 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 outstanding Refinancing Indebtedness incurred to refund, refinance or
replace any Indebtedness incurred pursuant to this clause (ix), not to exceed
$5,000,000, (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 (A) 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 Securities and (B) (1) 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 (2)
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 Section 4.08, 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 Securities 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; 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.
11
<PAGE> 19
"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, (x) capital, surplus and undivided
profits (as of the date of such institution's most recently published financial
statements) in excess of $100,000,000 and (y) 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-1 by Moody's,
(iv) money market mutual or similar funds having assets in excess of
$100,000,000, (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 $100,000,000 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 any Restricted Subsidiary's
Investment therein are rated "A" or better by S&P and "A-2" or better by
Moody's, and (vii) (A) 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 $1,000,000, (B) any Investment in the Company or in
a Wholly-Owned Restricted Subsidiary of the Company, (C) any Investment by the
Company or any Restricted Subsidiary of the Company in a Person, if as a result
of such Investment (1) such Person becomes a Wholly-Owned Restricted Subsidiary
of the Company, or (2) 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, (D) any Investment made as a result of the receipt of noncash
consideration from an Asset Disposition that was made pursuant to and in
compliance with Section 4.16, and (E) any acquisition of assets, solely in
exchange for the issuance of Capital
12
<PAGE> 20
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 is permitted by the terms of this 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 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 Section 4.08 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 $2,500,000 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 of the Company); 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
13
<PAGE> 21
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 Date" or "redemption date" means the date specified for
redemption of the Securities in accordance with the terms of the Securities and
this Indenture.
"Redemption Price" when used with respect to any of the Securities to
be redeemed, means the price at which such Securities are to be redeemed
pursuant to this Indenture.
"Restricted Subsidiary" means (i) any Subsidiary of the Company in
existence on the Initial Issuance Date, (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 could incur at least $1.00 of
additional Indebtedness under Section 4.08(a). 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.
"SEC" means the Securities and Exchange Commission.
"Securities" means any of the securities, as defined in the first
paragraph of the recitals hereof, that are authenticated and delivered under
this Indenture.
"Securityholder" or "Holder" means a Person in whose name a Security
is registered on the Register.
"Senior Indebtedness" shall mean (i) 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
14
<PAGE> 22
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 Securities and (ii) Indebtedness
outstanding on or incurred after the Initial Issuance Date under the Bank
Credit Agreement, including without limitation, all principal, interest
(including post-petition interest), fees, expenses, indemnification obligations
and other amounts 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 (a) for Senior Indebtedness
outstanding under the Bank Credit Agreement, KeyBank, N.A. or its successors or
assigns thereunder, so long as the Trustee shall have been notified in writing
of such successors or assigns, (b) 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 (c) 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.
"Taxable Notes" shall mean those certain Taxable Variable Rate Demand
Notes issued by the Company effective June 26, 1992, under that certain
indenture between the Company and KeyBank, N.A., as Trustee.
15
<PAGE> 23
"TIA" means the Trust Indenture Act of 1939 as in effect on the date
of this Indenture; provided, however, that in the event the TIA is amended
after such date, TIA means, to the extent required by any such amendment, the
TIA as so amended.
"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.
"Trustee" means the party named as the "Trustee" in the first
paragraph of this Indenture, until a successor replaces it pursuant to the
applicable provisions of this Indenture and, thereafter, shall mean such
successor.
"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 of the Company organized or acquired after the Initial
Issuance Date in which all Investments by the Company or any Restricted
Subsidiary of the Company 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 product, finished goods or other materials or assets of any
Unrestricted Subsidiary. The Company shall evidence to the Trustee any
designation pursuant to 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.
"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.
16
<PAGE> 24
Section 1.02. Other Definitions.
<TABLE>
<CAPTION>
Term Defined in
---- ----------
Section
-------
<S> <C>
"Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.05
"Affiliate Transaction" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.15
"Change of Control Offer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.17
"Change of Control Offer Price" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.17
"Change of Control Purchase Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.17
"covenant defeasance" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.03
"defeasance" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.02
"Equity Offering Redemption Price" . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.01
"Event of Default" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.01
"Excess Proceeds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.16
"incurrence" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.08
"Legal Holiday" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.08
"Net Proceeds Offer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.16
"Net Proceeds Offer Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.16
"Net Proceeds Offer Price" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.16
"Net Proceeds Purchase Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.16
"Notice of Default" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.01
"Paying Agent" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.03
"Payment Blockage Period" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.03
"Permitted Junior Securities" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.02
"Register" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.03
"Registrar" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.03
"Required Filing Dates" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.02
"Restricted Payments" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.06
"Securities Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.04
"surviving entity" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.01
"U.S. Government Obligations" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.04
"85% Test" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.16
</TABLE>
Section 1.03. Incorporation by Reference of Trust Indenture Act.
(a) Whenever this Indenture refers to a provision of the TIA, such
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC;
"indenture security" means any of the Securities;
"indenture security holder" means a Holder or Securityholder;
"indenture to be qualified" means this Indenture;
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"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the indenture securities means the Company.
(b) All other TIA terms used in this Indenture that are defined by
the TIA, by TIA reference to another statute or by the rules and regulations
under the TIA have the meanings assigned to them by such definitions.
Section 1.04. Rules of Construction. Unless the context otherwise
requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the
meaning assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) "including" means including, without limitation; and
(5) words in the singular include the plural, and words
in the plural include the singular.
Section 1.05. Acts of Holders.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given or taken
by Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in Person or by agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company.
Such instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of Holders signing such
instrument or instruments. Proof of execution of any such instrument or of a
writing appointing any such agent shall be sufficient for any purpose of this
Indenture (subject to Section 315 of the TIA) and conclusive in favor of the
Trustee or the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness to such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where
such execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
(c) The ownership of the Securities shall be proved by the
Register.
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(d) Any request, demand, authorization, direction, notice,
consent, waiver or other Act of the Holder of any Security shall bind every
future Holder of the same Security and the holder of every Security issued upon
the registration of transfer thereof in respect of anything done, omitted or
suffered to be done by the Trustee or the Company in reliance thereon, whether
or not notation of such action is made upon such Security.
(e) If the Company shall solicit from the Holders any request,
demand, authorization, direction, notice, consent, waiver or other Act, the
Company may, at its option, by or pursuant to a board resolution, fix in
advance a record date for the determination of Holders entitled to give such
request, demand, authorization, direction, notice, consent, waiver or other
Act, but the Company shall have no obligation to do so. If such a record date
is fixed, such request, demand, authorization, direction, notice, consent,
waiver or other Act may be given before or after such record date, but only the
Holders of record at the close of business on such record date shall be deemed
to be Holders for the purposes of determining whether Holders of the requisite
proportion of outstanding Securities have authorized or agreed or consented to
such request, demand, authorization, direction, notice, consent, waiver or
other Act, and for that purpose the outstanding Securities shall be computed as
of such record date; provided that no such authorization, agreement or consent
by the Holders on such record date shall be deemed effective unless it shall
become effective pursuant to the provisions of this Indenture not later than
six months after the record date.
ARTICLE 2.
THE SECURITIES
Section 2.01. Form and Dating; Payments of Interest.
(a) The Securities (including Global Securities) and the Trustee's
certificate of authentication shall be substantially in the form of Exhibit A
attached hereto. The Securities may have notations, legends or endorsements
required by law, stock exchange rule or usage. The form of the Securities and
any notation, legend or endorsement shall be in a form acceptable to the
Company. Each Security shall be dated the date of its authentication. Any
portion of the text of the Security may be set forth on the reverse thereof,
with an appropriate reference thereto on the face of the Security.
(b) The terms and provisions contained in the Securities, attached
hereto as Exhibit A, shall constitute, and are hereby expressly made, a part of
this Indenture. To the extent applicable, the Company and the Trustee, by
their execution and delivery of this Indenture, expressly agree to such terms
and provisions and to be bound thereby.
(c) If so provided in a Company Request pursuant to Section 2.02,
the Securities shall be issued under this Indenture in the form of Global
Securities. In such case, the Depositary Trust Company ("DTC") shall be the
initial Depositary for such Global Securities. Global Securities will be
registered in the name of the Depositary or a nominee of the Depositary. Each
Global Security shall represent such of the outstanding Securities as shall be
specified therein and each shall provide that it shall represent the aggregate
amount of outstanding Securities from time
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<PAGE> 27
to time endorsed thereon and that the aggregate amount of outstanding
Securities represented thereby may from time to time be reduced or increased,
as appropriate, to reflect redemptions. Any endorsement of a Global Security
to reflect the amount of any increase or decrease in the amount of outstanding
Securities represented thereby shall be made by the Trustee in accordance with
instructions given by the Holder thereof as required by Section 2.06 hereof.
(d) Each of the Securities shall bear interest from the applicable
date and such interest shall be payable on the dates specified on the face of
the form of the Securities attached hereto as Exhibit A. Subject to the
provisions of Section 2.12, the person in whose name any security is registered
at the close of business on any record date with respect to any interest
payment date specified therein shall be entitled to receive the interest, if
any, payable on such interest payment date notwithstanding any transfer or
exchange of such Security subsequent to the record date prior to such interest
payment date. The term "record date" as used with respect to any interest
payment date (except a date for payment of defaulted interest) shall mean
________________ or _____________, as applicable, whether or not such record
date is a Business Day.
Section 2.02. Execution and Authentication.
(a) The Securities shall be executed on behalf of the Company by
its Chairman of the Board, one of its Vice Chairmen, its President, its
Treasurer or one of its Vice Presidents, and attested by its Secretary or one
of its Assistant Secretaries and delivered to the Trustee for authentication
and registration. The signature of any such officer on the Securities may be
manual or facsimile.
(b) Securities bearing the manual or facsimile signatures of
individuals who were at any time the proper Officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased
to hold such offices prior to the authentication and delivery of such
Securities or did not hold such offices at the date of such Securities.
(c) No Security shall be entitled to any benefit under this
Indenture or be valid or obligatory for any purpose unless there appears on
such Security a certificate of authentication substantially in the form
provided for herein duly executed by the Trustee by manual signature of an
authorized signatory, and such certificate upon any Security shall be
conclusive evidence, and the only evidence, that such Security has been duly
authenticated and made available for delivery hereunder.
(d) The Trustee shall authenticate and make available for delivery
Securities for original issue in the aggregate principal amount of up to
$100,000,000 upon a written order of the Company signed by an Officer of the
Company, but without any further action by the Company. The aggregate
principal amount of Securities outstanding at any time may not exceed the
amount specified in such order, except as provided in Section 2.07. The
Securities shall be issuable only in denominations of $1,000 and any integral
multiple thereof.
(e) A Company Request pursuant to the preceding paragraph shall
specify the amount of the Securities to be authenticated, the date on which the
original issue of Securities is to be authenticated and whether such Securities
shall be issued in the form of definitive Securities or
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<PAGE> 28
Global Securities. If the Company Request specifies that the Securities are to
issued in the form of one or more Global Securities, then the Company shall
execute and the Trustee shall, in accordance with this Section 2 and such
Company Request, authenticate and deliver one or more Global Securities in
definitive form that (i) shall represent and shall be denominated in an amount
equal to the aggregate principal amount of the Securities, (ii) shall be
registered in the name of the Depositary or a nominee of such Depositary, (iii)
shall, at the instruction of the Company, be delivered by the Trustee to the
Depositary or held by the Trustee on behalf of the Depositary, (iv) shall
include and bear a legend (as set forth in footnote 1 to the form of Security
attached as Exhibit A hereto) substantially to the effect that unless and until
it is exchanged in whole or in part for definitive Securities, such Global
Securities may not be transferred except as a whole by the Depositary to a
nominee of the Depositary or by a nominee of the Depositary to the Depositary
or another nominee of the Depositary or by the Depositary or any such nominee
to a successor Depositary or a nominee of such successor Depositary, and (v)
shall include a schedule as set forth in footnote 2 to the form of Security
attached as Exhibit A hereto.
(f) The Depositary must, at the time of its designation and at all
time when it serves as Depositary, be a clearing agency registered under the
Exchange Act and any other applicable statute or regulation.
(g) The Trustee may appoint an authenticating agent reasonably
acceptable to the Company to authenticate Securities. An authenticating agent
may authenticate Securities whenever the Trustee may do so. Each reference in
this Indenture to authentication by the Trustee includes authentication by such
agent.
(h) In case the Company, pursuant to Article 5, shall be
consolidated or merged with or into any other Person or shall convey, transfer,
lease or otherwise dispose of all or substantially all of its properties and
assets to any Person and the successor Person resulting from such
consolidation, or surviving such merger, or into which the Company shall have
been merged, or the successor Person which shall have received a conveyance,
transfer, lease or other disposition as aforesaid, shall have executed an
indenture supplemental hereto with the Trustee pursuant to Article 5, any of
the Securities authenticated or delivered prior to such consolidation, merger,
conveyance, transfer, lease or other disposition may, from time to time, at the
request of the successor Person, be exchanged for other Securities executed in
the name of the successor Person with such changes in phraseology and form as
may be appropriate, but otherwise in substance of like tenor as the Securities
surrendered for such exchange and of like principal amount; and the Trustee,
upon order of the successor Person, shall authenticate and deliver new
Securities as specified in such request for the purpose of such exchange upon
delivery to the Trustee of the Securities for which the new Securities of the
successor Person will be exchanged. If new Securities shall at any time be
authenticated and delivered in any new name of a successor Person pursuant to
this Section 2.02(h) in exchange or substitution for or upon registration of
transfer of any Securities, such successor Person, at the option of any Holder
but without expense to such Holder, shall provide for the exchange of all
Securities at the time outstanding held by such Holder for new Securities
authenticated and delivered in such new name.
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Section 2.03. Registrar and Paying Agent.
(a) The Company shall maintain or cause to be maintained an office
or agency where Securities may be presented for registration of transfer or for
exchange ("Registrar"), an office or agency where Securities may be presented
or surrendered for purchase or payment ("Paying Agent") and an office or agency
where notices and demands to or upon the Company in respect of the Securities
and this Indenture may be served. The Registrar shall keep a register
("Register") of the Securities and of their transfer and exchange. The Company
may have one or more co-registrars and one or more additional paying agents.
The term "Paying Agent" includes any additional paying agent.
(b) The Company shall enter into an appropriate agency agreement
with any Registrar, Paying Agent or co- registrar (if not the Trustee or the
Company). The agreement shall implement the provisions of this Indenture that
relate to such agent. The Company shall notify the Trustee of the name and
address of any such agent. If the Company fails to maintain a Registrar,
Paying Agent or agent for service of notices or demands, the Trustee shall act
as such and shall be entitled to appropriate compensation therefor pursuant to
Section 7.07. The Company may act as Paying Agent, Registrar or co-registrar
or agent for service of notices and demands, but no Subsidiary or Affiliate of
the Company may so act.
(c) The Company initially appoints the Trustee as Registrar and
Paying Agent and its agent for service of notices and demands with respect to
the Securities and under this Indenture.
Section 2.04. Paying Agent to Hold Money in Trust.
Except as otherwise provided herein, prior to or on each due date of the
principal, premium, if any, and interest on any Security, the Company shall
deposit with the Paying Agent a sum of money in same day funds (or New York
Clearing House funds if such deposit is made prior to the date on which such
deposit is required to be made) sufficient to pay such principal, premium, if
any, and interest so becoming due. The Company shall require each Paying Agent
(other than the Trustee or the Company) to agree in writing (i) that such
Paying Agent shall hold in trust for the benefit of Securityholders and the
Trustee all money held by the Paying Agent for the payment of principal,
premium, if any, and interest on the Securities until such sums shall be paid
to the Securityholders or otherwise disposed of as provided herein, (ii) that
such Paying Agent shall give the Trustee notice of any Default by the Company
(or any other obligor upon the Securities) in the making of any payment of
principal, premium, if any, or interest, and (iii) that at any time during the
continuance of any such Default, the Paying Agent shall, upon the written
request of the Trustee, immediately pay to the Trustee all money so held in
trust and account for any money disbursed by it. The Company at any time may
require a Paying Agent to pay all money held by it to the Trustee and to
account for any money disbursed by it. Upon doing so, the Paying Agent shall
have no further liability for the money so paid over to the Trustee. If the
Company acts as Paying Agent, it shall segregate the money held by it as Paying
Agent and hold it as a separate trust fund for the benefit of Holders and the
Trustee.
Section 2.05. Securityholder Lists. The Trustee shall preserve in
as current a form as is reasonably practicable the most recent list available
to it of the names and addresses of Securityholders. If the Trustee is not the
Registrar, the Company shall cause to be furnished to the Trustee on or before
each interest payment date and at such other times as the Trustee may
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<PAGE> 30
request in writing, within ten calendar days of such written request, a list in
such form as the Trustee may reasonably require of the names and addresses of
Securityholders.
Section 2.06. Transfer and Exchange.
(a) Subject to the provisions of this Section 2.06, upon surrender
for registration of transfer of any Security at the office or agency of the
Company designated as Registrar or co-registrar pursuant to Section 2.03 or at
the office or agency referred to in Section 4.05, the Company shall execute,
and the Trustee shall authenticate and deliver, in the name of the designated
transferee or transferees, one or more new Securities of any authorized
denomination or denominations, of a like aggregate principal amount bearing a
number not contemporaneously outstanding and containing identical terms and
provisions.
(b) Subject to the provisions of this Section 2.06, at the option
of the Holder, Securities may be exchanged for other Securities of any
authorized denomination or denominations containing identical terms and
provisions, of a like aggregate principal amount, upon surrender of the
Securities to be exchanged at such office or agency. Whenever any Securities
are so surrendered for exchange, the Company shall execute, and the Trustee
shall authenticate and make available for delivery, the Securities which the
Holder making the exchange is entitled to receive.
(c) Notwithstanding any other provision of this Section 2.06,
unless and until it is exchanged in whole or in part for definitive Securities,
a Global Security may not be transferred except as a whole by the Depositary or
by such Depositary or any such nominee to a successor Depositary or a nominee
of such successor Depositary.
(d) If (i) the Depositary is at any time unwilling, unable or
ineligible to continue as Depositary and a successor Depositary 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 Company promptly will execute and deliver to the Trustee
definitive Securities, and the Trustee, upon receipt of a Company Request for
the authentication and delivery of such definitive Securities (which the
Company will promptly execute and deliver to the Trustee), will authenticate
and deliver definitive Securities, without charge, in an aggregate principal
amount equal to the principal amount of the outstanding Global Securities, in
exchange for all such Global Securities.
(e) In any exchange provided for in the preceding paragraph, the
Company will execute and the Trustee will authenticate and deliver definitive
Securities in the authorized denominations provided by Section 2.02(d).
(f) Upon the exchange of Global Securities for definitive
Securities, such Global Securities shall be cancelled by the Trustee.
Definitive Securities issued in exchange for Global Securities pursuant to this
Section 2.06 shall be registered in such names and in such authorized
denominations as the Depositary, pursuant to instructions from its direct and
indirect participants or otherwise, shall instruct the Trustee in writing.
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<PAGE> 31
(g) Every Security presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company or the Registrar)
be duly endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Registrar duly executed by the Holder or
his attorney duly authorized in writing.
(h) The Company shall not charge a service charge for any
registration of transfer or exchange, or redemption of Securities, but the
Company may require payment of a sum sufficient to pay any tax or other
governmental charge that may be imposed in connection with the transfer or
exchange of the Securities from the Securityholder requesting such transfer or
exchange (other than any exchange not involving any change in ownership).
(i) The Company shall not be required to make, and the Registrar
need not register, transfers or exchanges of Securities selected for redemption
(except, in the case of Securities to be redeemed in part, the portion thereof
not to be redeemed) or any Securities for a period of 15 calendar days before a
selection of Securities to be redeemed.
(j) All Securities issued upon any registration of transfer or
exchange of Securities shall be the valid obligations of the Company evidencing
the same debt and entitling the Holders thereof to the same benefits under this
Indenture as the Securities surrendered upon such registration of transfer or
exchange.
Section 2.07. Replacement Securities.
(a) If any mutilated Security is surrendered to the Company or the
Trustee, the Company shall execute, and the Trustee shall authenticate and
deliver or exchange therefor, a new Security containing identical terms and of
like principal amount and bearing a number not contemporaneously outstanding.
If the Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Security, and there is delivered to the
Company and the Trustee such security or indemnity as may be required by them
to save each of them harmless, then, in the absence of actual notice to the
Company or the Trustee that such Security has been acquired by a bona fide
purchaser, the Company shall execute, and upon its written request the Trustee
shall authenticate and make available for delivery, in lieu of any such
destroyed, lost or stolen Security, a new Security of like tenor and principal
amount, bearing a number not contemporaneously outstanding.
(b) In case any such mutilated, destroyed, lost or stolen Security
has become or is about to become due and payable, or is about to be purchased
by the Company or the Trustee pursuant to Article 3, the Company in its
discretion may, instead of issuing a new Security, pay or purchase such
Security, as the case may be.
(c) Upon the issuance of any new Securities under this Section
2.07, the Company may require the payment of a sum sufficient to cover any tax
or other governmental charge that may be imposed in relation thereto and any
other expenses (including the fees and expenses of the Trustee) in connection
therewith.
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<PAGE> 32
(d) Every new Security issued pursuant to this Section 2.07 in
lieu of any mutilated, destroyed, lost or stolen Security shall constitute an
original additional contractual obligation of the Company, whether or not the
mutilated, destroyed, lost or stolen Security shall be at any time enforceable
by anyone, and shall be entitled to all benefits of this Indenture equally and
proportionately with any and all other Securities duly issued hereunder.
(e) The provisions of this Section 2.07 are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Securities.
Section 2.08. Outstanding Securities; Determinations of Holders'
Action.
(a) Securities outstanding at any time are all the Securities
authenticated by the Trustee except for those cancelled by it, those delivered
to it for cancellation, those replaced pursuant to Section 2.07, or purchased
by the Company or the Trustee pursuant to Article 3 and those described in this
Section 2.08 as not outstanding. A Security does not cease to be outstanding
because the Company, a Subsidiary of the Company or an Affiliate thereof
(including Amercord) holds the Security; provided, however, that in determining
whether the Holders of the requisite principal amount of Securities have given
or concurred in any request, demand, authorization, direction, notice, consent
or waiver hereunder, Securities owned by the Company, any Subsidiary of the
Company or any Affiliate thereof shall be disregarded and deemed not to be
outstanding; except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent, or waiver, only Securities which the Trustee knows are so owned shall
be disregarded as provided and the remaining Securities shall be evidenced as
outstanding at the time of such determination and therefore shall be considered
in any such determination (including determinations pursuant to Articles 6 and
9). Upon request of the Trustee, the Company shall promptly furnish to the
Trustee an Officers' Certificate listing and identifying all Securities, if
any, owned or held by or for the account of the Company, any Subsidiary of the
Company or, to the knowledge of the Officers executing such Officers'
Certificate, any Affiliate of the Company. The Trustee shall be entitled to
accept such Officers' Certificate as conclusive evidence of the facts of
ownership by the Company and such other Persons of Securities and of the fact
that all Securities not listed thereon are outstanding.
(b) If a Security is replaced pursuant to Section 2.07, it ceases
to be outstanding unless the Trustee receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser.
(c) If the Paying Agent (other than the Company) holds, in
accordance with this Indenture, at maturity or on a Redemption Date, money
sufficient to pay the Securities payable on that date, then immediately after
the date of maturity or such Redemption Date, as the case may be, such
Securities shall cease to be outstanding and interest, if any, on such
Securities shall cease to accrue.
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<PAGE> 33
Section 2.09. Temporary Securities.
(a) Pending the preparation of definitive Securities, the Company
may execute, and upon written request from the Company signed by an Officer of
the Company, the Trustee shall authenticate and make available for delivery,
temporary Securities which are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any authorized denomination, substantially of the
tenor of the definitive Securities in lieu of which they are issued and with
such appropriate insertions, omissions, substitutions and other variations as
the Officers of the Company executing such Securities may determine, as
conclusively evidenced by their execution of such Securities.
(b) If temporary Securities are issued, the Company shall cause
definitive Securities to be prepared without unreasonable delay. After the
preparation of definitive Securities, the temporary Securities shall be
exchangeable for definitive Securities upon surrender of the temporary
Securities at the office or agency of the Company designated for such purpose
pursuant to Section 2.03, without charge to the Holder. Upon surrender for
cancellation of any one or more temporary Securities, the Company shall execute
and the Trustee shall authenticate and make available for delivery in exchange
therefor a like principal amount of definitive Securities of authorized
denominations. Until so exchanged, the temporary Securities shall in all
respects be entitled to the same benefits under this Indenture as definitive
Securities.
Section 2.10. Cancellation. All Securities surrendered for
payment, purchased by the Company, redeemed by the Company or the Trustee
pursuant to Article 3 or surrendered for registration of transfer or exchange
shall, if surrendered to any Person other than the Trustee, be delivered to the
Trustee and shall be promptly cancelled by it. The Company may at any time
deliver to the Trustee for cancellation any Securities previously authenticated
and made available for delivery hereunder which the Company may have acquired
in any manner whatsoever, and all Securities so delivered shall be promptly
cancelled by the Trustee. The Company may not reissue, or issue new Securities
to replace, Securities it has paid or delivered to the Trustee for
cancellation. No Securities shall be authenticated in lieu of or in exchange
for any Securities cancelled as provided in this Section 2.10, except as
expressly permitted by this Indenture. All cancelled Securities held by the
Trustee shall be returned by the Trustee to the Company.
Section 2.11. CUSIP Numbers. The Company, in issuing the
Securities may use "CUSIP" numbers (if then generally in use), and the Trustee
shall use CUSIP numbers in notices of redemption or exchange as a convenience
to Holders; provided that any such notice shall state that no representation is
made as to the correctness of such numbers either as printed on the Securities
or as contained in any notice of redemption or exchange and that reliance may
be placed only on the other identification numbers printed on the Securities
and any redemption shall not be affected by any defect in or omission of such
numbers.
Section 2.12. Defaulted Interest. If the Company defaults in a
payment of interest on the Securities, it shall, prior to or on a subsequent
special record date, pay the Trustee (or the Paying Agent) a sum of money in
immediately available funds sufficient to pay the defaulted interest, plus (to
the extent lawful) any interest payable on the defaulted interest, to the
Persons who are Holders on a subsequent special record date, and such special
record date, as used in this Section 2.12 with respect to the payment of any
defaulted interest, shall mean the 15th calendar day next preceding the date
fixed by the Company for the payment of defaulted interest, whether or not
26
<PAGE> 34
such day is a Business Day. Upon receipt of funds from the Company for the
payment of defaulted interest, the Trustee (or the Paying Agent) shall as
promptly as practicable mail to each Holder a check in payment of the amount of
any such defaulted interest and, to the extent paid by the Company, interest on
the defaulted interest. At least 15 calendar days before the subsequent
special record date, the Company shall mail to each Holder and to the Trustee a
notice that states the subsequent special record date, the payment date and the
amount of defaulted interest to be paid.
ARTICLE 3.
REDEMPTION
Section 3.01. Right to Redeem; Notice to Trustee.
(a) At any time on or before ________________, 2001, and within
60 days after the closing of a public offering of common stock of the Company
(an "Equity Offering"), the Company, at its option may utilize the net proceeds
from any such Equity Offering to redeem up to 25% of the aggregate principal
amount of the Securities at a redemption price equal to ______% of the
principal amount thereof to be redeemed (the "Equity Offering Redemption
Price"), plus accrued and unpaid interest, if any, on such amount to the
redemption date, provided that at least $65,000,000 in aggregate principal
amount of the Securities remain outstanding immediately after the occurrence of
such redemption.
(b) Additionally, at any time on and after _________________,
2003, the Company, at its option, may redeem all, or from time to time any
part, of the Securities, in each case for cash at the Redemption Price
specified in and otherwise in accordance with the provisions of the Securities.
(c) If the Company elects to redeem Securities, it shall deliver
to the Trustee a certified copy of a resolution from the Board of Directors of
the Company authorizing such redemption and shall notify the Trustee in writing
of the record date for determining the Holders who shall receive notice of
redemption (which shall be a date after the date on which the Trustee shall
receive such notice), the Redemption Date, the principal amount of Securities
to be redeemed, the Equity Offering Redemption Price or Redemption Price, as
applicable, and the amount of interest accrued thereon to the Redemption Date,
at least 60 calendar days before the Redemption Date (unless a shorter notice
shall be satisfactory to the Trustee).
Section 3.02. Selection of Securities to Be Redeemed. If less
than all the outstanding Securities are to be redeemed, the Trustee shall
select the Securities 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 the rules of any stock exchange on which the Securities are then
listed). The Trustee shall make the selection not more than 60 calendar days
and not less than 30 calendar days before the Redemption Date from outstanding
Securities not previously called for redemption. The Trustee may select for
redemption portions of the principal of Securities that have denominations
larger than $1,000. Securities and portions thereof selected by the Trustee
shall be in principal amounts of $1,000 or integral multiples of $1,000.
Provisions of this
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Indenture that apply to Securities called for redemption also apply to portions
of Securities called for redemption. The Trustee shall promptly notify the
Company and the Registrar in writing of the Securities or portions of
Securities to be redeemed.
Section 3.03. Notice of Redemption.
(a) At least 30 calendar days but not more than 60 calendar days
before a Redemption Date, the Company shall mail a notice of redemption by
first-class mail, postage prepaid, to each Holder of Securities to be redeemed
at the Holder's last address, as it shall appear on the Register. A copy of
such notice shall be mailed to the Trustee on the same day the notice is mailed
to Holders of Securities.
(b) The notice shall identify the Securities 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
Securities are to be surrendered for payment of the Equity Offering Redemption
Price or the Redemption Price, as applicable;
(iv) that Securities 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 Securities are to
be redeemed, the identification and principal amounts of the particular
Securities 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 Security 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 Securities called for redemption on and after
the Redemption Date;
(vii) the CUSIP number, if any relating to such Securities; and
(viii) in the case of a Security to be redeemed in part, the
aggregate principal amount of such Security to be redeemed and that after the
Redemption Date upon surrender of such Security, a new Security or Securities
in the aggregate principal amount equal to the unredeemed portion thereof will
be issued.
(c) At the Company's written request, the Trustee shall give the
notice of redemption in the Company's name and at the Company's expense;
provided, however, that in all cases, the text of such notice of redemption
shall be prepared by the Company and the Trustee shall have no responsibility
or liability whatsoever with regard to such notice being accurate or correct.
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(d) Upon the receipt by the Trustee of the notice of redemption,
or concurrently with the mailing of the notice of redemption by the Trustee,
the Trustee shall place a stop transfer order with the Registrar covering those
Securities identified in the notice of redemption as being redeemed.
Section 3.04. Effect of Notice of Redemption.
(a) Once notice of redemption is given as provided in Section
3.03, Securities called for redemption become due and payable on the Redemption
Date and at the Equity Offering Redemption Price or the Redemption Price, as
applicable. Upon the later of the Redemption Date and the date such Securities
are surrendered to the Paying Agent, such Securities called for redemption
shall be paid at the Equity Offering Redemption Price or the Redemption Price,
as applicable, plus accrued and unpaid interest to the Redemption Date, if
money sufficient for that purpose has been deposited as provided in Section
3.05.
(b) Notice of redemption shall be deemed to be given when mailed,
whether or not the Holder receives the notice. In any event, failure to give
such notice, or any defect therein, shall not affect the validity of the
proceedings for the redemption of the Securities.
Section 3.05. Deposit of Equity Offering Redemption Price or
Redemption Price. Prior to or on the Redemption Date specified in a notice
of redemption given as provided in Section 3.03, the Company shall deposit with
the Paying Agent (or if the Company is the Paying Agent, shall segregate and
hold in trust) a sum in cash, in collected or immediately available funds,
sufficient to pay the Equity Offering Redemption Price or the Redemption Price,
as applicable, of all Securities to be redeemed on that date, plus accrued and
unpaid interest thereon to the Redemption Date, other than Securities or
portions of Securities called for redemption which prior thereto have been
delivered by the Company or an agent of the Company to the Trustee for
cancellation.
Section 3.06. Securities Redeemed in Part. Upon surrender of a
Security that is redeemed in part pursuant to Section 3.01, the Company shall
execute, and the Trustee shall authenticate and deliver to the Holder of such
Security without service charge, a new Security in an authorized denomination
equal in principal amount of the unredeemed portion of the Security
surrendered.
ARTICLE 4.
COVENANTS
Section 4.01. Payment of Securities.
(a) The Company shall pay the principal of, premium, if any, and
interest (including interest accrued on or after the filing of a petition in
bankruptcy or reorganization relating to the Company, whether or not a claim
for post- filing interest is allowed in such proceeding) on the Securities on
(or prior to) the dates and in the manner provided in the Securities or
pursuant to this Indenture. An installment of principal, premium, if any, or
interest shall be considered paid
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on the applicable date due if on such date the Trustee or the Paying Agent
holds, in accordance with this Indenture, money sufficient to pay all of such
installment then due.
(b) The Company shall pay interest on overdue principal and
premium, if any, and interest on overdue installments of interest (including
interest accruing on or after the filing of a petition in bankruptcy or
reorganization relating to the Company whether or not a claim for post-filing
interest is allowed in such proceeding), to the extent lawful, at the rate per
annum borne by the Securities, which interest on overdue interest shall accrue
from the date such amounts became overdue.
Section 4.02. SEC Reports. So long as any Security is
outstanding, whether or not the Company is subject to Section 13(a) or 15(d) of
the Exchange Act, the Company shall file with the SEC the annual reports,
quarterly reports and other documents which the Company would have been
required to file with the SEC pursuant to Section 13 in respect of the
Securities if the Company were so subject, such documents to be filed with the
SEC 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 SEC (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 SEC pursuant to Section 13 of the
Exchange Act in respect of the Securities as if the Company were subject to
such Section and (ii) if filing such documents by the Company with the SEC 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 names and addresses appear in the
Register, without cost to such Holders, copies of the reports described above.
The Company also shall comply with the other provisions of TIA Section 314(a).
Section 4.03. Compliance Certificates.
(a) The Company shall deliver to the Trustee within 60 calendar
days after the end of each of the Company's fiscal quarters (90 calendar days
after the end of the Company's last fiscal quarter of each year) an Officers'
Certificate stating whether or not the signers, to the best of their knowledge,
know of any Default or Event of Default that occurred during such fiscal
quarter. In the case of the Officers' Certificate delivered within 90 calendar
days after the end of the Company's fiscal year, such certificate shall contain
a certification from the principal executive officer, principal financial
officer or principal accounting officer of the Company stating (i) that a
review of the activities of the Company has been made with a view to
determining whether its obligations under this Indenture have been complied
with and (ii) whether to the knowledge of such officer the Company has complied
with all conditions and covenants under this Indenture. For purposes of this
Section 4.03(a), such compliance shall be determined without regard to any
period of grace or requirement of notice provided under this Indenture. If
they do know of such a Default or Event of Default, the Officers' Certificate
shall describe any such Default or Event of Default, and its status including
its duration. The first Officers' Certificate to be delivered
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pursuant to this Section 4.03(a) shall be for the first fiscal quarter
beginning after the Initial Issuance Date.
(b) The Company shall deliver to the Trustee within 120 calendar
days after the end of the fiscal year a written certificate signed by the
Company's independent public accountants stating (i) that their audit
examination has included a review of the terms of this Indenture and the
Securities as they relate to accounting matters, and (ii) whether, during the
course of their audit examination anything came to their attention that caused
them to believe that the Company had failed to comply with Sections 4.06, 4.08,
4.09, 4.15(b) or 4.16 insofar as they relate to accounting matters and
describing the nature of any such areas of noncompliance.
(c) The Company shall deliver to the Trustee as soon as possible
and in any event within ten calendar days after the Company, as the case may
be, becomes aware of the occurrence of each Default or Event of Default that is
continuing, an Officers' Certificate setting forth the details of such Default
or Event of Default, and the action that the Company proposes to take with
respect thereto.
Section 4.04. Further Instruments and Acts. Upon request of the
Trustee, the Company shall execute and deliver such further instruments and do
such further acts as may be reasonably necessary or proper to carry out more
effectively the purposes of this Indenture.
Section 4.05. Maintenance of Office or Agency.
(a) The Company shall maintain or cause to be maintained in the
Borough of Manhattan, the City of New York, an office or agency of the Trustee,
Registrar and Paying Agent where Securities may be presented or surrendered for
payment, where Securities may be surrendered for registration of transfer,
exchange or redemption and where notices and demands to or upon the Company in
respect of the Securities and this Indenture may be served. The corporate
trust office of the Trustee, U.S. Trust Company of Texas, N.A., c/o United
States Trust Company of New York, 111 Broadway, Lower Level, New York, New York
10006-1906, Attention: Corporate Trust Department, shall initially be such
office or agency for all of the aforesaid purposes. The Company shall give
prompt written notice to the Trustee of any change of location of such office
or agency. If at any time the Company shall fail to maintain or cause to be
maintained any such required office or agency or shall fail to furnish the
Trustee with the address thereof, such presentations, surrenders, notices and
demands may be made or served at the address of the Trustee set forth in
Section 12.02 and the Company hereby appoints the Trustee as its agent to
receive all such presentations, surrenders, notices and demands.
(b) The Company may also from time to time designate one or more
other offices or agencies where the Securities may be presented or surrendered
for any or all such purposes and may from time to time rescind such
designations; provided, however, that no such designation or rescission shall
in any manner relieve the Company of its obligation to maintain or cause to be
maintained an office or agency in the Borough of Manhattan, the City of New
York, for such purposes. The Company shall give prompt written notice to the
Trustee of such designation or rescission and of any change in location of any
such other office or agency.
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Section 4.06. Limitation on Restricted Payments.
(a) 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 this Indenture, and (B) purchases, redemptions,
acquisitions or retirements of Capital Stock of the Company from Persons
holding five percent 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 Securities (other than the Company's 11 1/2% Senior Subordinated Notes due
August 15, 2003), or (B) any Indebtedness of its Unrestricted Subsidiaries
except as permitted pursuant to this 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 this Indenture,
including (x) the execution by the obligor of such obligation of an agreement
substantially in the form of the Intercompany Agreement and (y) if the
foregoing is related to Indebtedness that is not Senior Indebtedness, the
inclusion of subordination provisions substantially similar to those set forth
in Article 10 of this Indenture which subordinate such guarantee to the
Securities to the same extent as if the Securities were Senior Indebtedness
with respect to such guarantee); or
(v) make any Investment (other than as permitted in the
preceding clauses (ii) and (iv) or a Permitted Investment) in any Person, other
than an Investment in a Subsidiary or
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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 Article 10 of this Indenture which subordinate the Investment to the
Securities to the same extent as if the Securities were Senior Indebtedness,
(such payments 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 the 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 Section 4.06, 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 Section 4.08 and after giving pro forma
effect to the Restricted Payment as if the Restricted Payment had been made at
the beginning of the applicable four quarter period.
(b) Notwithstanding any provision in this Section 4.06, in no
event shall the Company or any of its Restricted Subsidiaries make any
Investment in any Unrestricted Subsidiary by any means other than by way of
cash made available through the foregoing test.
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(c) The provisions of this Section 4.06 shall not prevent (i) the
payment of any dividend within 60 calendar 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 $5,000,000 from the Initial Issuance
Date.. For purposes of calculating the aggregate amount of Restricted Payments
made pursuant to Section 4.06(a), payments made under Section 4.06(c)(i) 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.
(d) Prior to making any Restricted Payment under this Section
4.06, 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 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.
Section 4.07. Limitation on Investments. Except for
Investments permitted under Section 4.06, the Company shall not, and shall not
permit any Restricted Subsidiary of the Company to, make any Investments other
than Permitted Investments.
Section 4.08. Limitation on Indebtedness.
(a) Subject to the other provisions of this Section 4.08, 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 Securities and (B) in the case of
Indebtedness subordinated in right of payment to the Securities, the instrument
evidencing such Indebtedness shall include subordination provisions
substantially similar to those set forth in Article 10 of this Indenture
subordinating such Indebtedness to the same extent as if the Securities were
Senior Indebtedness with respect to such Indebtedness and (ii) after giving
effect to the incurrence of such Indebtedness 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.
(b) The Company shall not suffer to exist any Indebtedness
existing on the Initial Issuance Date, other than Indebtedness described on
Schedule I.
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Section 4.09. Limitation on Restricted Subsidiary Indebtedness.
The Company will 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 the Average Life of the Indebtedness being
refunded or refinanced, and (C) a principal amount (1) not in excess of the
principal amount of the Indebtedness being refunded or refinanced plus (2) the
principal amount of any unused revolving credit facility being refunded or
refinanced.
Section 4.10. Limitation On 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 Securities) 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 Securities pursuant to subordination provisions substantially similar to
those set forth in Article 10.
Section 4.11. Limitation on Liens. The Company shall not, and
shall not permit any Restricted Subsidiary 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 Securities, then the Securities 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 Securities, any
such Lien shall be subordinated to a Lien granted to the Holders of the
Securities in the same collateral as that securing such Lien to the same extent
as such subordinated Indebtedness is subordinated to the Securities.
Section 4.12. Limitation On Issuance of Preferred Stock by
Restricted Subsidiaries. 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 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).
Section 4.13. Limitation on Dividends and Other Payment
Restrictions Affecting Restricted Subsidiaries. The Company shall not, and
shall not permit any Restricted Subsidiary
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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 Securities 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 of the Securities 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 this 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 Section 4.11 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.
Section 4.14. Limitation On Sale and Leaseback Transactions.
The Company shall not, and shall not permit any Restricted Subsidiary to, enter
into any sale and leaseback transaction unless (i) the Company or such
Restricted Subsidiary could have incurred the Indebtedness relating to such
sale and leaseback transaction under Section 4.08 and Section 4.11, and (ii)
the net proceeds (other than reasonable transaction costs) of such sale
transaction are at least equal to the fair loanable value (as approved in good
faith by the Company's Board of Directors) of the property so sold.
Section 4.15. Limitation on Transactions With Affiliates.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary of the Company to, directly or indirectly, enter into any
transaction (including without limitation the
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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.
(b) The Company shall not, and shall not permit any of the
Restricted Subsidiaries of the Company to, enter into (i) an Affiliate
Transaction involving or having a potential value of more than $1,000,000
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 Section 4.15 or (ii) an
Affiliate Transaction (or a series of related Affiliate Transactions) involving
or having a potential value of more than $5,000,000 (other than an Affiliate
Transaction relating to compensation arrangements for employees who are not
otherwise Affiliates), unless (x) the Company delivers an Officers' Certificate
to the Trustee to the same effect as described in clause (i) hereinabove and
(y) the Company has received an opinion of an independent accounting, appraisal
or investment banking firm of national standing to the effect that such
Affiliate Transaction is fair to the Company or such Restricted Subsidiary, as
applicable, from a financial point of view, a copy of which opinion shall be
delivered to the Trustee along with the Officers' Certificate described in
clause (x) above. The Trustee shall have no duty or responsibility to
determine the accuracy and correctness of such Officers' Certificate or the
reasonableness of the opinion of the accounting, appraisal or investment
banking firm and shall be fully protected from any liability incurred by it
resulting from its reliance on such Officers' Certificate and fairness opinion.
(c) Notwithstanding anything to the contrary contained herein, 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 the amounts payable to the Company
thereunder may be modified at the option of the Company; provided, that, such
amended or modified management arrangement has been approved by the Company's
Board of Directors; (v) transactions between or among the Company and any
Wholly-Owned Subsidiary, and (vi) (A) that certain Stockholders' Agreement
among the Company, The Prudential Insurance Company of America and the Winspear
Family Limited Partnership, and (B) that certain Registration
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Rights Agreement among the Company, The Prudential Insurance Company of
America, the Winspear Family Limited Partnership and certain other parties
thereto, 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).
Section 4.16. Limitation on Asset Dispositions.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary of the Company 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 Officer's Certificate delivered to the Trustee with the
resolution of the Board of Directors attached thereto) and (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 (i) the repayment of Senior
Indebtedness or (ii) 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 (ii), or (iii) 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 (i), (ii) or (iii) shall constitute "Excess Proceeds"), then the
Company shall make an offer (a "Net Proceeds Offer") to purchase Securities
outstanding in an aggregate principal amount at least equal to such Excess
Proceeds on a date not later than 410 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 Section 4.16(a), the Company may temporarily reduce
revolving credit borrowings under the Bank Credit Agreement or otherwise invest
such Net Proceeds in any other manner not prohibited by this Indenture. For
purposes of this Section 4.16, the principal amount of Securities for which a
Net Proceeds Offer shall be made is referred to as the "Net Proceeds Offer
Amount." 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 this Indenture.
(b) Notwithstanding the foregoing Section 4.16(a), (i) 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
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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 $5,000,000.
(c) Notice of a Net Proceeds Offer shall be mailed by the Trustee
(at the Company's expense) not less than 45 calendar days nor more than 60
calendar days before the Net Proceeds Purchase Date to each Holder of the
Securities at such Holder's last registered address appearing in the Register.
The Net Proceeds Offer shall remain open from the time of mailing until the Net
Proceeds Purchase Date. The notice shall be accompanied by (1) the most
recently filed Annual Report on Form 10-K of the Company, the most recent
subsequently filed Quarterly Report on Form 10-Q of the Company, and any
Current Report on Form S-K of the Company filed subsequent to such Quarterly
Report (or in the event the Company is not required to prepare any of the
foregoing Forms, the comparable information required pursuant to Section 4.02),
(2) a description of any material developments in the Company's business since
the latest annual or quarterly report filed with the Trustee pursuant to
Section 4.02 and, if material, any appropriate pro forma financial information
(including, but not limited to, pro forma income, cash flow and capitalization
after giving effect to such Asset Disposition) and (3) such other information,
if any, concerning the business of the Company which the Company in good faith
believes will enable such Holders to make an informed investment decision. The
Company shall provide the Trustee with copies of all materials to be delivered
with such notice. The notice shall contain all instructions and materials
necessary to enable such Holders to tender Securities pursuant to the Net
Proceeds Offer. The notice shall state:
(i) that the Holder has the right to require the Company
to repurchase, subject to proration, such Holder's Securities at the Net
Proceeds Offer Price and the date by which a Holder must give notice of such
Holder's interest to tender pursuant to the Net Proceeds Offer;
(ii) that the Net Proceeds Offer is being made pursuant to
this Section 4.16 and the reason for the Net Proceeds Offer;
(iii) the Net Proceeds Offer Price, the Net Proceeds Offer
Amount and the Net Proceeds Purchase Date;
(iv) the name and address of the Paying Agent and the
Trustee and that Securities must be surrendered to the Paying Agent to collect
the purchase price;
(v) that any Security not tendered or accepted for
payment shall continue to accrue interest;
(vi) that any Security accepted for payment pursuant to
the Net Proceeds Offer shall cease to accrue interest after the Net Proceeds
Purchase Date;
(vii) that each Holder electing to have a Security
purchased pursuant to a Net Proceeds Offer shall be required to surrender the
Security, with the form entitled "Option of Holder to Elect Purchase" on the
reverse of the Security completed, to the Paying Agent at the address specified
in the notice prior to the close of business on the Net Proceeds Purchase Date;
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(viii) that Holders shall be entitled to withdraw their
election if the Paying Agent receives, not later than the close of business on
the third Business Day immediately preceding the Net Proceeds Purchase Date, a
telegram, telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of Securities the Holder delivered for purchase,
the certificate number of the Securities the Holder delivered and a statement
that such Holder is withdrawing its election to have such Securities purchased;
(ix) that if Securities in a principal amount in excess of
the Net Proceeds Offer Amount are surrendered pursuant to the Net Proceeds
Offer, the Company shall purchase Securities on a pro rata basis (with such
adjustments as may be deemed appropriate by the Company so that only Securities
in denominations of $1,000 or integral multiples of $1,000 shall be acquired);
(x) that Holders whose Securities are purchased only in
part shall be issued new Securities equal in principal amount to the
unpurchased portion of the Securities surrendered; and
(xi) any other information required by applicable law,
rules and regulations including a description of the Company's intended uses
for the Excess Proceeds that are not applied to the repurchase of Securities
pursuant to a Net Proceeds Offer.
(d) 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
which may be promulgated thereunder, such provisions of the Exchange Act, other
applicable federal or state law, or the regulations which may be promulgated
thereunder, shall govern such Net Proceeds Offer in lieu of, and only to the
extent of, such conflicting procedures.
(e) On the Net Proceeds Purchase Date, the Company shall (i)
accept for payment Securities or portions thereof surrendered pursuant to the
Net Proceeds Offer (on a pro rata basis if required pursuant to clause (ix) of
Section 4.16(d)), (ii) deposit with the Paying Agent money in immediately
available funds, sufficient to pay the Net Proceeds Offer Price of all
Securities or portions thereof so accepted, and (iii) deliver to the Trustee
Securities so accepted together with an Officers' Certificate stating the
Securities or portions thereof accepted for payment by the Company. If the
Company complies with its obligations set forth in the immediately preceding
sentence, whether or not a Default or an Event of Default has occurred and is
continuing on the Net Proceeds Purchase Date, the Paying Agent shall as
promptly as practicable mail to each Holder of Securities so accepted a check
in payment of an amount equal to the Net Proceeds Offer Price of such
Securities, and the Company shall execute and the Trustee shall as promptly as
practicable authenticate and mail or deliver to such Holders a new Security
equal in principal amount to any unpurchased portion of the Security
surrendered. Any Securities not so accepted shall be as promptly as
practicable mailed or delivered by the Company to the Holders thereof. The
Company shall publicly announce the results of the Net Proceeds Offer on or as
promptly as practicable after the Net Proceeds Purchase Date. For purposes of
this Section 4.16, the Trustee shall act as the Paying Agent.
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(f) The text of the notice of the Net Proceeds Offer shall be
prepared by the Company and the Trustee shall have no responsibility or
liability whatsoever with regard to or for the accuracy, correctness or
completeness of the information contained in or accompanying such notice.
(g) Upon completion of a Net Proceeds Offer, the amount of Excess
Proceeds shall be reset at zero.
Section 4.17. Repurchase Upon Change of Control.
(a) Within 30 calendar days following the occurrence of a Change
of Control, the Company shall be required to make an offer (a "Change of
Control Offer") to Securityholders to repurchase any and all of the Securities
(in denominations of $1,000 or integral multiples of $1,000) at a purchase
price equal to 101% of the aggregate principal amount plus accrued and unpaid
interest, if any, to the date of purchase ("Change of Control Offer Price").
(b) The Company shall provide the Trustee with notice of a Change
of Control Offer and with all information required to accompany such notice,
not more than 20 calendar days after the Change of Control.
(c) 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 Securities at such Holder's last
registered address appearing in the Register. The Change of Control Offer
shall remain open from the time of the mailing until the Change of Control
Purchase Date. The notice shall be accompanied by (i) the most recently filed
Annual Report on Form 10-K of the Company, the most recent subsequently filed
Quarterly Report on Form 10-Q of the Company, and any Current Report on Form
8-K of the Company filed subsequent to such Quarterly Report (or in the event
the Company is not required to prepare any of the foregoing Forms, the
comparable information required pursuant to Section 4.02), (ii) a description
of any material developments in the Company's business since the latest annual
or quarterly report filed with the Trustee pursuant to Section 4.02 and, if
material, any appropriate pro forma financial information (including but not
limited to pro forma income, cash flow and capitalization after giving effect
to such Change of Control) and (iii) such other information, if any, concerning
the business of the Company which the Company in good faith believes will
enable such Holders to make an informed investment decision. The Company shall
provide the Trustee with copies of all materials to be delivered with such
notice. The notice shall contain all instructions and materials necessary to
enable such Holders to tender Securities pursuant to the Change of Control
Offer. The notice shall state:
(i) that the Change of Control Offer is being made
pursuant to this Section 4.17 and the reason for the Change of Control Offer
and that all Securities tendered shall be accepted for payment;
(ii) the material circumstances and relevant material
facts regarding such Change of Control;
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(iii) the purchase price and the purchase date, which shall
be 25 Business Days from the date such notice is mailed or, if acceptance for
payment and payment is not then lawful, on the earliest subsequent Business Day
on which acceptance for payment and payment is then lawful (a "Change of
Control Purchase Date");
(iv) the name and address of the Paying Agent and the
Trustee and that Securities must be surrendered to the Paying Agent to collect
the purchase price;
(v) that any Security not tendered or accepted for
payment shall continue to accrue interest;
(vi) that any Security accepted for payment pursuant to
the Offer shall cease to accrue interest after the Change of Control Purchase
Date;
(vii) that each Holder electing to have a Security
purchased pursuant to a Change of Control Offer shall be required to surrender
the Security, with the form entitled "Option of Holder to Elect Purchase" on
the reverse of the Security completed, to the Paying Agent at the address
specified in the notice prior to the close of business on the Change of Control
Purchase Date;
(viii) that Holders shall be entitled to withdraw their
election if the Paying Agent receives, not later than the close of business on
the third Business Day immediately preceding the Change of Control Purchase
Date, a telegram, telex, facsimile transmission or letter setting forth the
name of the Holder, the principal amount of Securities the Holder delivered for
purchase, the certificate number of Securities the Holder delivered and a
statement that such Holder is withdrawing its election to have such Securities
purchased;
(ix) that Holders shall be issued new Securities equal in
principal amount to the unpurchased portion of the Securities surrendered if
such Holders only desire part of such Securities to be purchased; and
(x) any other information required by applicable law,
rules and regulations.
(d) 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
which may be promulgated thereunder, such provisions of the Exchange Act, other
applicable federal or state law, or the regulations which may be promulgated
thereunder shall govern such Change of Control offer in lieu of, and only to
the extent of, such conflicting procedures.
(e) On the Change of Control Purchase Date, the Company shall (i)
accept for payment Securities or portions thereof surrendered pursuant to the
Change of Control Offer, (ii) deposit with the Paying Agent money in
immediately available funds, sufficient to pay the Change of Control Offer
Price of all Securities or portions thereof so accepted, and (iii) deliver to
the Trustee Securities so accepted together with an Officer's Certificate
stating the Securities or portions thereof accepted for payment by the Company.
If the Company complies with its obligations set forth in the immediately
preceding sentence, whether or not a Default or an Event
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of Default has occurred and is continuing on the Change of Control Purchase
Date, the Paying Agent shall as promptly as practicable mail or deliver to each
Holder of Securities so accepted a check in payment of an amount equal to the
Change of Control Offer Price of such Securities, and the Company shall execute
and the Trustee shall as promptly as practicable authenticate and mail or
deliver to such Holder, a new Security equal in principal amount to any
unpurchased portion of the Security surrendered. Any Securities not so
accepted shall be as promptly as practicable mailed or delivered by the Company
to the Holders thereof. 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. For purposes of this Section 4.17, the Trustee shall
act as the Paying Agent.
(f) The Company covenants that within 20 days following a Change
of Control and prior to the mailing of the Change of Control notice to Holders,
the Company shall either (1) repay in full all Senior Indebtedness whose terms
require such payment in connection with such event or prohibit repurchase of
the Securities or (2) obtain the requisite consent from holders of such Senior
Indebtedness not repaid in order to permit the repurchase of the Securities as
provided for in this Section 4.17. The Company shall comply with the
provisions of this Section 4.17(f) before it shall be required to repurchase
the Securities 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.
(g) The text of the notice of the Change of Control Offer shall be
prepared by the Company and the Trustee shall have no responsibility or
liability whatsoever with regard to or for the accuracy, correctness or
completeness of the information contained in or accompanying such notice.
Section 4.18. Payment of Taxes and Other Claims. The Company
shall pay or discharge or cause to be paid or discharged, before any penalty
accrues thereon, (i) all taxes, assessments and governmental charges levied or
imposed upon the Company or any Restricted Subsidiary or upon the income,
profits or property or any Restricted Subsidiary and (ii) all lawful claims for
labor, materials and supplies which, if unpaid, would by law become a Lien upon
the property of the Company or any Restricted Subsidiary; provided that neither
the Company nor any Restricted Subsidiary shall be required to pay or discharge
or cause to be paid or discharged any such tax, assessment, charge or claims
the amount, applicability or validity of which is being contested in good faith
by appropriate proceedings and for which adequate provision has been made.
Section 4.19. Maintenance of Properties and Insurance.
(a) The Company shall cause all material properties owned by, or
leased to, it or any Restricted Subsidiary and used or useful in the conduct of
its business or the business of such Restricted Subsidiary to be maintained and
kept in normal condition, repair and working order, reasonable wear and tear,
acts of God and (subject to Section 4.19(b)) uninsured casualties excepted, and
supplied with all necessary equipment and shall cause to be made all reasonable
repairs, renewals, replacements, betterments and improvements thereof, all as
in the judgment of the Company or such Restricted Subsidiary may be necessary
so that the business carried on in connection therewith may be properly and
advantageously conducted at all times; provided that
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nothing in this Section 4.19 shall prevent the Company or any Restricted
Subsidiary from discontinuing the use, operation or maintenance of any of such
properties, if such discontinuance is, in the judgment of the Board of
Directors of the Company or such Restricted Subsidiary, or of any officer (or
other agent employed by the Company or any such Restricted Subsidiary) of the
Company or such Restricted Subsidiary having managerial responsibility for any
such property, desirable in the conduct of the business of the Company or such
Restricted Subsidiary and if such discontinuance is not adverse in any material
respect to the Securityholders.
(b) The Company shall provide or cause to be provided, for itself
and any Restricted Subsidiaries of the Company, insurance (or self insurance)
against loss or damage of the kinds customarily insured against by corporations
similarly situated and owning like properties, including, but not limited to,
public liability insurance, with reputable insurers in such amounts with such
deductibles and by such methods as shall be customary for corporations
similarly situated.
Section 4.20. Compliance With Securities Laws Upon Purchase of
Securities. In connection with any offer to purchase or purchase of
Securities under Section 4.16 or 4.17 hereof, the Company shall (i) comply with
the applicable provisions of the Exchange Act, and the rules and regulations
promulgated thereunder, and (ii) otherwise comply, in all material respects,
with all federal and state securities laws, and the rules and regulations
promulgated thereunder, so as to permit the rights and obligations under
Sections 4.16 and 4.17 to be exercised in the time and in the manner specified
in such Sections.
Section 4.21. Compliance With Laws Generally. The Company shall,
and shall cause each of its Restricted Subsidiaries to, comply in all material
respects with all applicable federal, state, local or foreign laws, rules,
regulations or ordinances, including without limitation such laws, rules,
regulations or ordinances relating to pension, environmental, employee and tax
matters, except where the failure to so comply would not have a material
adverse effect on the Company and its Restricted Subsidiaries taken as a whole.
Section 4.22. Preservation of Rights. The Company shall, and shall
cause each Restricted Subsidiary to, do or cause to be done all things
reasonably necessary to preserve and keep in full force and effect (i) its
respective corporate existence, rights (charter and statutory), licenses and
franchises and (ii) its respective registered trademarks, trade names and
service marks, in each case; provided, however, that the Company shall not be
required to preserve any such right, license, franchise or corporate existence
of a Restricted Subsidiary, or any trademark, trade name or service mark, if
the preservation thereof is no longer desirable in the conduct of the business
of the Company and its Restricted Subsidiaries taken as a whole and the loss
thereof is not adverse in any material respect to the Holders of Securities.
Section 4.23. Maintenance of Records; Access. The Company shall
make and keep books, records and accounts that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets
of the Company and its Restricted Subsidiaries. The Company shall permit the
Trustee to examine and inspect such books, records and accounts upon request of
the Trustee.
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Section 4.24. Composition of Board of Directors. 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 of 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.
ARTICLE 5.
SUCCESSOR CORPORATION
Section 5.01. When the Company May Merge or Transfer Assets.
The Company shall not, and shall not permit any Restricted Subsidiary of the
Company to, (x) 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 (y) 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 of the Company 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
Restricted Subsidiary of the Company (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:
(i) 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 (x) or (y) of this Section
5.01 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 an 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 an indenture supplemental hereto, executed and
delivered to the Trustee, in form and substance satisfactory to the Trustee,
all the obligations of the Company under the Securities and this Indenture, and
this Indenture shall remain in full force and effect;
(ii) immediately before and immediately after giving
effect to such transaction, no Event of Default and no Default shall have
occurred and be continuing;
(iii) the Company or, in the case of a consolidation or
merger or other transaction described in Section 5.01 involving the Company in
which the 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 Section 4.08;
(iv) 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
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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
(v) 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 Section 5.01 and
that all conditions precedent herein provided for relating to such transactions
have been complied with.
Section 5.02. Successor Corporation Substituted. Upon any
consolidation or merger or any other transaction described in Section 5.01, in
accordance with 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 this Indenture with the same effect as if such
successor corporation had been named as the Company herein; and thereafter, if
the Company is dissolved following a transfer of all or substantially all of
its assets in accordance with this Article 5, the Company shall be discharged
and released from all obligations and covenants under this Indenture and the
Securities. 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.
ARTICLE 6.
DEFAULTS AND REMEDIES
Section 6.01. Events of Default.
(a) An "Event of Default" occurs if one of the following shall
have occurred and be continuing, whatever the reason for such Event of Default
and whether or not it shall be occasioned or prohibited by the provisions of
Article 10 or be voluntary or involuntary or be effected by the operation of
law or pursuant to any judgment, decree or order of any court or any order,
rule or regulation of any administrative or governmental body:
(i) the Company defaults in the payment of (A) the
principal of (or premium, if any, on) any Securities 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 Security or in the payment of any other amount owing under this Indenture
or the Securities when the same becomes due and payable, whether or not such
payment shall be prohibited by this Indenture, or the Company defaults in the
performance of, or breaches, the terms of the covenants and agreements as
contained in Section 4.06 and 4.08, and such default continues for a period of
30 calendar days;
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(iii) the Company defaults in the performance of, or
breaches, the terms of the covenants and agreements contained in Section 5.01;
(iv) the Company or any Subsidiary of the Company fails to
comply with, or breaches, any of its covenants or agreements in the Securities
or this Indenture (other than a default in the performance, or breach, of a
covenant or agreement that is specifically dealt with elsewhere in this Article
6) and such failure or breach continues for 60 calendar days after receipt by
the Company of a Notice of Default;
(v) the Company or any Restricted Subsidiary of the
Company defaults 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 Bank Credit
Agreement) when due (after giving effect to any applicable grace period under
such Indebtedness) and the principal amount of such Indebtedness exceeds
$5,000,000 in the aggregate;
(vi) an event of default on any other Indebtedness of the
Company or any Restricted Subsidiary of the Company having an aggregate amount
outstanding in excess of $5,000,000 (excluding the Taxable Notes to the extent
such default does not also constitute an event of default under the Bank 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 any Bankruptcy Law that:
(A) is for relief against the Company or
any Restricted Subsidiary in an involuntary case or proceeding,
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(B) appoints a Custodian, receiver,
liquidator, assignee, trustee, sequestrator (or other similar official) of the
Company or any Restricted Subsidiary 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 $5,000,000 (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.
(b) A Default under clause (iv) of Section 6.01(a) 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 Securities 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 Section 6.01(a)
after receipt of such notice. Any such notice must specify the Default, demand
that it be remedied and state that such notice is a "Notice of Default".
(c) Subject to the provisions of Sections 7.01 and 7.02, the
Trustee shall not be charged with knowledge of a Default or an Event of Default
under this Indenture unless and until written notice thereof has been given to
the Trustee by the Company.
(d) Concurrently with the delivery to the Company of a Notice of
Default pursuant to Section 6.01(b) or a notice of acceleration of the maturity
of the Securities, if any, pursuant to Section 6.02, the Trustee shall use
reasonable efforts to deliver a copy of such notice to KeyBank, N.A. (or its
successor or assign, so long as the Trustee shall have been notified in writing
of such successor or assign).
Section 6.02. Acceleration. If any Event of Default under
clauses (i) (ii), (iii) (iv), (v), (vi) or (ix) of Section 6.01(a) occurs and
is continuing, then the Trustee, in its sole discretion, or the Holders of at
least 25% in aggregate principal amount of the Securities may declare principal
of the Securities and accrued interest immediately due and payable. If any
Event of Default under clauses (vii) or (viii) of Section 6.01(a) occurs, all
principal and interest on the Securities will immediately become due and
payable. The Holders of a majority in aggregate principal amount of the
Securities 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 or interest on any of the Securities) upon conditions provided
in this Indenture.
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Section 6.03. Remedies.
(a) 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
the payment of principal of, premium, if any, or interest on the Securities or
to enforce the performance of any provision of the Securities or this
Indenture.
(b) The Trustee may maintain a proceeding even if the Trustee does
not possess any of the Securities or does not produce any of the Securities in
the proceeding. A delay or omission by the Trustee or any Securityholder in
exercising any right or remedy accruing upon an Event of Default shall not
impair the right or remedy or constitute a waiver of, or acquiescence in, the
Event of Default. No remedy is exclusive of any other remedy. All available
remedies are cumulative.
Section 6.04. Waiver of Past Defaults; Recission.
(a) The Holders of a majority in aggregate principal amount of the
Securities at the time outstanding, by notice to the Trustee (and without
notice to any other Securityholder) may waive an existing Default and its
consequences except (x) an Event of Default described in Section 6.01(a)(i) or
(ii), or (y) a Default in respect of a provision that under Section 9.02 cannot
be amended without the consent of each Securityholder affected. When a Default
is waived, it is deemed cured and shall cease to exist, but no such waiver
shall extend to any subsequent or other Default or impair any consequent right.
This Section 6.04 shall be in lieu of Section 316(a)l(B) of the TIA and said
Section 316(a)1(B) is hereby expressly excluded from this Indenture, as
permitted by the TIA.
(b) At any time after a declaration of acceleration (with respect
to an Event of Default other than those described in Section 6.04(a) (x) or (y)
above) has been made and before a judgment or decree for payment of the money
due has been obtained by the Trustee as provided in this Article 6, the Holders
of a majority in aggregate principal amount of the Securities outstanding, by
written notice to the Company and the Trustee, may rescind and annul such
declaration and its consequences if: (i) the Company has paid or deposited
with the Trustee a sum sufficient to pay (A) all sums paid or advanced by the
Trustee under Section 7.07 and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and (B) the
principal, premium (if any), and interest on any Securities which have become
due otherwise than by such declaration of acceleration and overdue interest
thereon (to the extent of such overdue interest at the rate borne by the
Securities); and (ii) the rescission would not conflict with any judgment or
decree and if all existing Events of Default, other than the non-payment of
amounts owing on the Securities that have become due solely by such declaration
of acceleration, have been cured or waived. No such rescission shall affect
any subsequent Default or impair any right consequent thereon provided in
Section 6.04(a).
Section 6.05. Control by Majority. The Holders of a majority in
aggregate principal amount of the Securities at the time outstanding may direct
the time, method and place of
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conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. However, the Trustee
may refuse to follow any direction that conflicts with law or this Indenture or
that the Trustee determines in good faith is unduly prejudicial to the rights
of other Securityholders or would involve the Trustee in personal liability.
The Trustee may take any other action deemed proper by the Trustee that is not
inconsistent with such direction. This Section 6.05 shall be in lieu of
Section 316(a)l(A) of the TIA and said Section 316(a)l(A) is hereby expressly
excluded from this Indenture, as permitted by the TIA.
Section 6.06. Limitation on Suits.
(a) A Securityholder may not pursue any remedy with respect to
this Indenture or the Securities unless:
(i) the Holder gives to the Trustee written notice
stating that an Event of Default is continuing;
(ii) the Holders of at least 25% in aggregate principal
amount of the Securities at the time outstanding make a written request to the
Trustee to pursue remedies in respect of such Event of Default;
(iii) such Holder or Holders offer and provide to the
Trustee security or indemnity against any loss, liability or expense reasonably
satisfactory to the Trustee;
(iv) the Trustee does not comply 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 Securities at the time outstanding do not
give the Trustee a direction inconsistent with the request.
(b) A Securityholder may not use this Indenture to prejudice the
rights of any other Securityholder or to obtain a preference or priority over
any other Securityholder.
Section 6.07. Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any Holder
to receive payment of the principal amount, premium, if any, interest, or any
other payment required under this Indenture or the Securities, in respect of
the Securities held by such Holder, on or after the respective due dates
expressed in the Securities, any Redemption Date or Offer Purchase Date, or to
bring suit for the enforcement of any such payment on or after such respective
dates, is absolute and unconditional and shall not be impaired or affected
adversely without the consent of each such Holder.
Section 6.08. Collection Suit by Trustee. The Company
covenants that if an Event of Default described in Section 6.01(a) occurs and
is continuing, the Company will, upon demand of the Trustee, pay to it, for the
benefit of the Holders of such Securities, the whole amount then due and
payable on such Securities, with interest upon the overdue amounts and, to the
extent that payment of such interest shall be legally enforceable, upon overdue
interest, at the rate borne
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by the Securities; and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name and as trustee of an express trust, may institute
a judicial proceeding for the collection of the sums demanded to be paid
pursuant to this Section 6.08 and unpaid and may prosecute such proceeding to
judgment or final decree, and may enforce the same against the Company or any
other obligor upon the Securities and collect the moneys adjudged or decreed to
be payable in the manner provided by law out of the property of the Company or
any other obligor upon the Securities, wherever situated.
If an Event of Default with respect to the Securities occurs and is
continuing, the Trustee may in its discretion proceed to protect and enforce
its rights and the rights of the Holders of Securities by such appropriate
judicial proceedings as the Trustee shall deem most effectual to protect and
enforce any such rights, whether for the specific enforcement of any covenant
or agreement in this Indenture or the Securities or in aid of the exercise of
any power granted herein or therein, or to enforce any other proper remedy.
Section 6.09. Trustee May File Proofs of Claim.
(a) In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition
or other judicial proceeding relative to the Company or any other obligor upon
the Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal amount, premium
(if any), Redemption Price, Equity Offering Redemption Price, Change of Control
Offer Price, Net Proceeds Offer Price, interest (if any), or any other payment
required to be made under this Indenture in connection with the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of any such amount) shall be entitled and
empowered, by intervention in such proceeding or otherwise,
(i) to file and prove a claim for the whole amount of the
principal amount, premium, if any, and interest on the Securities, and any
other payment provided for in this Indenture or the Securities, and to file
such other papers or documents as may be necessary or advisable in order to
have the claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel) and of the Holders allowed in such judicial proceeding, and
(ii) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same;
and any Custodian or other similar official in any such judicial proceeding is
hereby authorized by each Holder to make such payments to the Trustee and, in
the event that the Trustee shall consent to the making of such payments
directly to the Holders, to pay to the Trustee any amount
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due it for the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel, and any other amounts due the Trustee
under Section 7.07.
(b) Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting
the Securities or the rights of any Holder thereof, or to authorize the Trustee
to vote in respect of the claim of any Holder in any such proceeding and it is
expressly acknowledged that the Trustee shall not have any duty to take any
such action.
Section 6.10. Priorities.
(a) If the Trustee collects any money pursuant to this Article 6,
it shall pay out the money in the following order;
FIRST: to the Trustee for amounts due under Section 7.07;
SECOND: to Securityholders for amounts due and unpaid on the
Securities for the principal amount, premium, Redemption Price, Equity
Offering Redemption Price, Change of Control Offer Price, Net Proceeds
Offer Price or interest, if any, or any other payment required under
this Indenture or the Securities, as the case may be, ratably, without
preference or priority of any kind, according to the aggregate amounts
due and payable on such Securities; and
THIRD: the balance, if any, to the Company.
(b) The Trustee may fix a record date and payment date for any
payment to Securityholders pursuant to this Section 6.10.
Section 6.11. Undertaking for Costs. In any suit for the
enforcement of any right or remedy under this Indenture or in any suit against
the Trustee for any action taken or omitted by it as Trustee, a court in its
discretion may require the filing by any party litigant (other than the
Trustee) in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees and expenses, against any party litigant in the suit, having
due regard to the merits and good faith of the claims or defenses made by the
party litigant. This Section 6.11 does not apply to a suit by the Trustee, a
suit by a Holder pursuant to Section 6.07 or a suit by Holders of more than 10%
in aggregate principal amount of the Securities at the time outstanding. This
Section 6.11 shall be in lieu of Section 315(e) of the TIA and said Section
315(e) is hereby expressly excluded from this Indenture, as permitted by the
TIA.
Section 6.12. Waiver of Stay, Extension or Usury Laws. The Company
covenants (to the extent that it may lawfully do so) that it shall 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, that would prohibit or
forgive the Company from paying all or any portion of the principal or premium,
if any, or interest on the Securities as contemplated herein or that otherwise
would affect the covenants or the performance of this Indenture; and the
Company (to the extent that it may lawfully do so)
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hereby expressly waives all benefit or advantage of any such law, and covenants
that it shall not hinder, delay or impede the execution of any power herein
granted to the Trustee, but shall suffer and permit the execution of every such
power as though no such law had been enacted.
Section 6.13. Restoration of Rights and Remedies. If the
Trustee or any Holder of a Security has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case the Company, the
Trustee and each such Holder shall, subject to any determination in such
proceeding, be restored severally and respectively to their former positions
hereunder, and thereafter all rights and remedies of the Trustee and each such
Holder shall continue as though no such proceeding had been instituted.
Section 6.14. Rights and Remedies Cumulative. No right or remedy
herein conferred upon or reserved to the Trustee or to each and every Holder of
a Security is intended to be exclusive of any other right or remedy, and every
right and remedy to the extent permitted by law, shall be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
Section 6.15. Delay or Omission Not Waiver. No delay or
omission of the Trustee or of any Holder of any Security to exercise any right
or remedy accruing upon any Event of Default shall impair any such right or
remedy or constitute a waiver of any such Event of Default or an acquiescence
therein. Every right and remedy given by this Article 6 or by law to the
Trustee or to any Holder of a Security may be exercised from time to time, and
as often as may be deemed expedient, by the Trustee or by such Holder, as the
case may be.
ARTICLE 7.
TRUSTEE
Section 7.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise the rights and powers vested in it by this Indenture and
use the same degree of care and skill in its exercise as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default,
(i) the Trustee need perform only those duties that are
specifically set forth in this Indenture or the TIA, and
(ii) in the absence of bad faith on its part, the Trustee
may conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this
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Indenture. However, in the case of any such certificate or opinions which by
any provision hereof are specifically required to be furnished to the Trustee,
the Trustee shall examine the certificates and opinions to determine whether or
not they conform to the requirements of this Indenture, but the Trustee has no
obligation to determine the accuracy or completeness (other than as to
conformity to the requirements with this Indenture) of the statements made
therein.
This Section 7.01(b) shall be in lieu of Section 315(a) of the TIA and said
Section 315(a) is hereby expressly excluded from this Indenture, as permitted
by the TIA.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(i) this paragraph (c) does not limit the effect of
paragraph (b) of this Section 7.01;
(ii) the Trustee shall not be liable for any error of
judgment made in good faith by a trust officer unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
Subparagraphs (c)(i), (ii) and (iii) shall be in lieu of Sections 315(d)(1),
315(d)(2) and 315(d)(3) of the TIA and said Sections 315(d)(1), (2) and (3) are
hereby excluded from this Indenture, as permitted by the TIA.
(d) Every provision of this Indenture that in any way relates to
the Trustee is subject to paragraphs (a), (b), (c) and (e) of this Section
7.01.
(e) The Trustee may refuse to perform any duty or exercise any
right or power or expend or risk its own funds or otherwise incur any financial
liability unless it receives indemnity satisfactory to it against any loss,
liability or expense.
(f) Money held by the Trustee in trust hereunder need not be
segregated from other funds except to the extent required by law. The Trustee
shall be under no liability for interest on any money held by it hereunder
except as the Trustee may otherwise agree in writing with the Company.
Section 7.02. Rights of Trustee. Subject to TIA Section 315
(a) through (d):
(a) The Trustee may rely on any document believed by it to be
genuine and to have been signed or presented by the proper Person. The Trustee
need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel. The Trustee shall
not be liable for any action it takes or omits to take in good faith in
reliance on such Officers' Certificate or Opinion of Counsel.
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(c) The Trustee may act through agents and shall not be
responsible for the willful misconduct or negligence of any agent appointed
with due care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within its
rights or powers under the Indenture, provided that the Trustee's conduct does
not constitute negligence or bad faith.
(e) The Trustee may consult with counsel of its selection and the
advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon.
(f) The Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request or direction
of any of the Holders pursuant to this Indenture, unless such Holders shall
have offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities that might be incurred by it in compliance with such
requests or direction.
(g) Any request, order or demand of the Company contemplated under
this Indenture shall be specifically evidenced by an Officers' Certificate
(unless other evidence in respect thereof be specifically prescribed), and any
resolution of the Board of Directors of the Company may be evidenced to the
Trustee by a copy thereof certified by the Secretary or any Assistant Secretary
of the Company.
Section 7.03. Individual Rights of Trustee. The Trustee in its
individual or any other capacity may become the owner or pledgee of Securities
and may otherwise deal with the Company or its Affiliates with the same rights
it would have if it were not Trustee. Any Paying Agent, Registrar or
co-registrar may do the same with like rights. However, the Trustee must
comply with Sections 7.10 and 7.11.
Section 7.04. Trustee's Disclaimer. The Trustee makes no
representation as to and is not responsible for the validity or adequacy of
this Indenture or the Securities, it shall not be accountable for the Company's
use of the proceeds from the Securities, and it shall not be responsible for
any statement in the registration statement for the Securities under the
Securities Act of 1933, as amended (the "Securities Act") (other than
statements contained in the Form T-1 filed with the SEC under the TIA and any
statements provided by the Trustee in writing specifically for use in such
registration statement) or in this Indenture or the Securities (other than its
certificate of authentication), or the determination as to which beneficial
owners are entitled to receive any notices hereunder.
Section 7.05. Notice of Defaults. If a Default or Event of
Default occurs and is continuing and if it is known to the Trustee, the Trustee
shall mail to each Securityholder as their names and addresses appear on the
Register maintained by the Registrar notice of the Default or Event of Default
within 90 calendar days after it becomes known to the Trustee unless such
Default or Event of Default shall have been cured or waived.
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Section 7.06. Reports by Trustee to Holders.
(a) If required by the TIA at the time any such report is to be
mailed, within 60 calendar days after each May 15, beginning with May 15, 1998,
the Trustee shall mail to each Securityholder in accordance with TIA Section
313(c) a brief report dated as of such May 15, that complies with TIA Section
313(a). The Trustee also shall comply with TIA Section 313(b).
(b) A copy of each report at the time of its mailing to
Securityholders shall be filed with the Company, the SEC and each stock
exchange on which the Securities are listed. The Company agrees to promptly
notify the Trustee whenever the Securities become listed on any stock exchange
and of any delisting thereof.
Section 7.07. Compensation and Indemnity.
(a) The Company agrees:
(i) to pay to the Trustee from time to time such
compensation as shall be agreed in writing between the Company and the Trustee
for all services rendered by it hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee of
an express trust);
(ii) to reimburse the Trustee upon its request for all
reasonable expenses, disbursements and advances incurred or made by the Trustee
in accordance with any provision of this Indenture (including the reasonable
compensation and the expenses, disbursements and advances of its agents and
counsel), except any such expense, disbursement or advance as may be
attributable to its negligence or bad faith; and
(iii) to indemnify the Trustee for, and to hold it harmless
against, any and all loss, liability, damage, cost or expense, incurred without
negligence or bad faith on its part, arising out of or in connection with the
acceptance or administration of this Indenture or the trust hereunder and its
duties hereunder, including the cost and expenses of defending itself against
any claim or liability in connection with the Trustee's service as Trustee.
(b) The Trustee shall have a claim prior to the Securities as to
all property and funds held by it hereunder for any amount owing it or any
predecessor Trustee pursuant to this Section 7.07, except that, subject always
to the provisions of Article 6 and the rights and priorities of the Trustee
established therein, such claim of the Trustee shall not be prior to the claim
of holders of the Securities with respect to money or property held in trust to
pay the principal, premium (if any), interest, Redemption Price, Equity
Offering Redemption Price, Change of Control Offer Price, Net Proceeds Offer
Price, and any other payment required to be made hereunder, as the case may be,
on particular Securities.
(c) The Company's payment obligation pursuant to this Section 7.07
shall be additional Indebtedness hereunder and shall survive the discharge of
this Indenture. When the Trustee incurs expenses after the occurrence of a
Default specified in section 6.01(a)(vii) or
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(viii), the expenses are intended to constitute expenses of administration
under any Bankruptcy Law.
Section 7.08. Replacement of Trustee.
(a) The Trustee may resign by so notifying the Company in writing
at least 30 Business Days prior to the date of the proposed resignation;
provided, however, no such resignation shall be effective until a successor
Trustee has accepted its appointment pursuant to this Section 7.08. The
Holders of a majority in aggregate principal amount of the Securities at the
time outstanding may remove the Trustee by so notifying the Trustee. The
Company shall remove the Trustee if:
(i) the Trustee fails to comply with Section 7.10;
(ii) the Trustee is adjudged bankrupt or insolvent;
(iii) a receiver or public officer takes charge of the
Trustee or its property; or
(iv) the Trustee otherwise becomes incapable of acting.
(b) If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company shall promptly appoint, by
resolution of its Board of Directors, a successor Trustee.
(c) A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Securityholders. The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee.
(d) If a successor Trustee does not take office within 30 calendar
days after the retiring Trustee resigns or is removed, the retiring Trustee,
the Company or the Holders of a majority in aggregate principal amount of the
Securities at the time outstanding may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(e) If the Trustee fails to comply with Section 7.10, any
Securityholder may petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor Trustee under this Indenture.
Section 7.09. Successor Trustee by Merger. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all its corporate trust business or assets to, another corporation or national
banking association, the resulting, surviving or transferee corporation or
national banking association without any further act shall be the successor
Trustee.
Section 7.10. Eligibility; Disqualification. The Trustee shall
at all times satisfy the requirements of TIA Section 310(a)(1), (2) and (5).
The Trustee shall have a combined capital
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and surplus of at least $50,000,000 (or be a member or subsidiary of a bank
holding company system with on aggregate combined capital and surplus of at
least $50,000,000) as set forth in its most recent published annual report of
condition. The Trustee shall comply with TIA Section 310(b). In determining
whether the Trustee has conflicting interests as defined in TIA Section
310(b)(1), the provisions contained in the proviso to TIA Section 310(b)(1)
shall be deemed incorporated herein.
Section 7.11. Preferential Collection of Claims Against the
Company. The Trustee shall comply with TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee that has
resigned or been removed shall be subject to TIA Section 311(a) to the extent
indicated therein, as qualified by TIA Section 311(b).
Section 7.12. Trustee's Application for Instructions From the
Company. Any application by the Trustee for written instructions from the
Company may, at the option of the Trustee, set forth in writing any action
proposed to be taken or omitted by the Trustee under this Indenture and the
date on and/or after which such action shall be taken or such omission shall be
effective. The Trustee shall not be liable for any action taken by, or
omission of, the Trustee in accordance with a proposal included in such
application on or after the date specified in such application (which date
shall not be less than three Business Days after the date any Officer of the
Company actually receives such application, unless any such Officer shall have
consented in writing to any earlier date) unless prior to taking any such
action (or the effective date in the case of an omission), the Trustee shall
have received written instructions in response to such application specifying
any action to be taken or omitted which is different from the action or
omission specified in the Trustee's proposal included in such application.
ARTICLE 8.
DISCHARGE OF INDENTURE
Section 8.01. Discharge of Liability on Securities. If (i)
the Company shall deliver to the Trustee for cancellation all Securities
theretofore authenticated and delivered (other than any Securities that shall
have been destroyed, lost or stolen and in lieu of or in substitution for which
other Securities shall have been an authenticated and delivered) and not
theretofore cancelled, or (ii) all Securities 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 Article 3, 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 Securities (other than any Securities
that have been destroyed, lost or stolen and in lieu of or in substitution for
which other Securities 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 this Indenture shall
cease to be of further force or effect (except as to rights of registration of
transfer or exchange of the Securities provided in this 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
herein relating to the satisfaction and discharge of this
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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 this Indenture, the Trustee must
satisfy and discharge this 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 Securities of all sums due and to become due thereon.
ARTICLE 9.
AMENDMENTS
Section 9.01. Without Consent of Holders. From time to time,
when authorized by a resolution of the Board of Directors of the Company
(certified copies of which shall be retained by the Trustee), the Company and
the Trustee, without notice to or the consent of the Holders of the Securities
issued hereunder, may amend or supplement this Indenture, the Securities, the
Intercompany Agreement and any related document as follows:
(a) to cure any ambiguity, defect or inconsistency, or to correct
or supplement any provision herein that may be defective or inconsistent with
any other provision herein, provided that such amendment does not adversely
affect the rights of any Securityholder; or
(b) to comply with Article 5; or
(c) to provide for uncertificated Securities in addition to
certificated Securities so long as such uncertificated Securities are in
registered form for purposes of the Internal Revenue Code of 1986, as amended;
or
(d) to make any other change that does not adversely affect the
rights of any Securityholder; or
(e) to comply with any requirement of the SEC in connection with
the qualification of this Indenture under the TIA; or
(f) 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.
Section 9.02. With Consent of Holders.
(a) With the written consent of the Holders of at least a majority
in aggregate principal amount of the Securities at the time outstanding, the
Company (when authorized by or pursuant to a resolution from the Board of
Directors of the Company, a certified copy of which has been delivered to the
Trustee) and the Trustee may amend this Indenture, the Securities, the
Intercompany Agreement or any related document or may waive further compliance
by the Company or any of its Subsidiaries with any provisions of this
Indenture, the Securities, the Intercompany Agreement or any related document.
However, without the consent of each Securityholder affected, a waiver or an
amendment of any such agreement pursuant to this Section 9.02(a) may not:
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(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 Security or impair the right to institute suit for
the enforcement of any such payment or make any Security payable in money or
securities other than that stated in the Security;
(ii) make any change in Section 6.04, Section 6.07 or this
Section 9.02; or
(iii) reduce the percentage in principal amount of the
outstanding Securities, the consent of whose Holders is required for any such
amendment or any waiver provided for in this Indenture.
(b) It shall not be necessary for the consent of the Holders under
this Section 9.02 to approve the particular form of any proposed amendment, but
it shall be sufficient if such consent approves the substance thereof.
(c) After an amendment or waiver under this Section 9.02 becomes
effective, the Company shall mail to each Holder a notice briefly describing
the amendment or waiver. Any failure of the Company to mail such notice, or
any defect therein, shall not, however, in any way impair or affect the
validity of any such amendment or waiver.
Section 9.03. Compliance With TIA. Every supplemental indenture
executed pursuant to this Article 9 shall comply with the TIA.
Section 9.04. Revocation and Effect of Consents, Waivers and
Actions.
(a) Until an amendment, waiver or other action by Holders becomes
effective, a consent to it or any other action by a Holder of a Security
hereunder is a continuing consent by the Holder and every subsequent Holder of
that Security or portion of the Security that evidences the same obligation as
the consenting Holder's Security, even if notation of the consent, waiver or
action is not made on the Security. However, any such Holder or subsequent
Holder may revoke the consent, waiver or action as to such Holder's Security or
portion of the Security if the Trustee receives the notice of revocation before
the consent of the requisite aggregate principal amount of the Securities then
outstanding has been obtained and not revoked. After an amendment, waiver or
action becomes effective in accordance with this Article 9, it shall bind every
Securityholder. Any consent or waiver given by a Securityholder with respect
to such matters shall bind each Securityholder giving such consent or waiver
and every subsequent Holder of a Security or portion of a Security that
evidences the same debt.
(b) The Company may, but shall not be obligated to, fix a record
date for the purpose of determining the Holders entitled to consent to any
amendment or waiver. If a record date is fixed, then, notwithstanding the first
two sentences of the immediately preceding paragraph, those Persons who were
Holders at such record date (or their duly designated proxies), and only those
Persons, shall be entitled to consent to such amendment, supplement or waiver or
to revoke any consent previously given, whether or not such Persons continue to
be Holders after such record date. No such consent shall be valid or effective
for more than 90 calendar days after such
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record date unless such amendment or waiver shall have become effective in
accordance with terms of this Article 9.
Section 9.05. Notation on or Exchange of Securities. Securities
authenticated and made available for delivery after any amendment or waiver
pursuant to this Article 9 becomes effective may, and shall if required by the
Trustee, bear a notation in form approved by the Trustee describing any such
amendment or waiver. The Company may, and shall if required by the Trustee,
cause new Securities so modified to be prepared and executed by the Company and
thereafter delivered to the Trustee for authentication and delivery in exchange
for outstanding Securities.
Section 9.06. Trustee to Sign Supplemental Indentures. The
Trustee shall sign any supplemental indenture authorized pursuant to this
Article 9 if the supplemental indenture does not adversely affect the rights,
duties, liabilities or immunities of the Trustee. If such supplemental
indenture does adversely affect the rights, duties, liabilities or immunities
of the Trustee, the Trustee may, but need not, sign it. In signing such
amendment the Trustee shall be entitled to receive, and shall be fully
protected in relying upon, an Officers' Certificate and Opinion of Counsel
stating that such supplemental indenture is authorized or permitted by this
Indenture.
Section 9.07. Effect of Supplemental Indentures. Upon the
execution of any supplemental indenture under this Article 9, this Indenture
shall be modified in accordance therewith, and such supplemental indenture
shall form a part of this Indenture for all purposes, and every Holder of
Securities theretofore or thereafter authenticated and made available for
delivery hereunder shall be bound thereby.
ARTICLE 10.
SUBORDINATION OF SECURITIES
Section 10.01. Securities Subordinate to Senior Indebtedness.
The Company covenants and agrees, and each Holder of a Security, by his
acceptance thereof, likewise covenants and agrees, that, to the extent and in
the manner hereinafter set forth in this Article 10, the Indebtedness
represented by the Securities and the payment of the principal, premium (if
any), Equity Offering Redemption Price, Redemption Price, Change of Control
Offer Price, Net Proceeds Offer Price or interest (if any), and any other
payments required hereunder, on each and all of the Securities are hereby
expressly made subordinate and subject in right of payment as provided in this
Article 10 to the prior payment in full of all Senior Indebtedness including
any payment of any Senior Indebtedness that is rescinded or must otherwise be
returned by any holder of Senior Indebtedness upon the insolvency, bankruptcy
or reorganization of the Company, all as though such payment had not been made;
provided, however, that the Securities, the Indebtedness represented thereby
and the payment of the principal, premium (if any), Equity Offering Redemption
Price, Redemption Price, Change of Control Offer Price, Net Proceeds Offer
Price or interest (if any), and any other payments required hereunder on each
and all of the Securities in all respects shall rank equally with, or prior to,
all existing and future indebtedness
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(including, without limitation, Indebtedness) of the Company that is
subordinated to Senior Indebtedness.
This Article 10 shall constitute a continuing offer to all Persons
who, in reliance upon such provisions, become holders of, or continue to hold
Senior Indebtedness; and such provisions are made for the benefit of the
holders of Senior Indebtedness; and such holders are made obligees hereunder
and they or each of them may enforce such provisions.
Section 10.02. Payment Over of Proceeds Upon Dissolution, Etc. In
the event of (a) 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 (b) any liquidation, dissolution or other winding up of
the Company, whether voluntary or involuntary and whether or not involving
insolvency or bankruptcy, or (c) any assignment for the benefit of creditors or
any other marshaling of assets or liabilities of the Company, then, and in any
such event:
(i) the holders of Senior Indebtedness shall be entitled
to receive payment in full in cash, or payment provided for in cash
equivalents in a manner satisfactory to the holders of the Senior
Indebtedness, of all amounts due on or in respect of all Senior
Indebtedness, or provision shall be made for such payment in cash or
cash equivalents, before the Holders of the Securities 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
Securities are so subordinated as provided in this Article 10; 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 or interest (if any), or any
other payment required hereunder, in connection with the Securities;
and
(ii) 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 this Article 10 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 amount 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
(iii) if, notwithstanding the foregoing provisions of this
Section 10.02, the Trustee or the Holder of any Security shall have
received, subsequent to the occurrence of
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any of the events described in the preceding clauses (a), (b) or (c)
of this Section, 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 payment required hereunder
on the Securities 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, at acceptable to the holders of Senior Indebtedness, any
other manner, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness.
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
set forth in Article 5 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 for the purposes of this
Section 10.02 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 set forth in Article 5.
Section 10.03. Suspension of Payment When Senior Indebtedness in
Default.
(a) Unless Section 10.02 shall be applicable, 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, 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 hereunder or on account of the purchase or redemption or
other acquisition of Securities 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 Securities, including any missed payments.
(b) Unless Section 10.02 shall be applicable, upon (i) the
occurrence of a Non-payment Default and (ii) 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, or interest (if any),
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or any other payments required to be made hereunder or on account of the
purchase or redemption or other acquisition of Securities for a period
("Payment Blockage Period") commencing on the date of receipt by the Company
and Trustee of such notice and ending upon the earlier of (x) more than 179
days having elapsed since receipt of such written notice by the Company or
Trustee, whichever was earlier, (y) 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 such Senior Indebtedness shall have been discharged or
paid in full or (z) 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 clause (x), (y) or (z), the
Company shall resume making any and all required payments in respect of the
Securities, including any missed payments. Notwithstanding any other provision
of this Indenture, only one Payment Blockage Period can be commenced with
respect to the Securities within any 360-day period and no Non-payment Default
with respect to Designated Senior Indebtedness that existed or was continuing
on the date of the commencement 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 event of
default shall have been cured or waived for a period of not less than 90
consecutive days. In no event shall a Payment Blockage Period extend beyond
179 days from the date of the receipt of the notice referred to in clause (2)
hereof.
(c) In the event that, notwithstanding the foregoing, the Company
shall make any payment to the Trustee or the Holder of any Security prohibited
by the foregoing provisions of this Section, then and in such event such
payment shall be paid over and delivered forthwith to the Senior Indebtedness
Representative or as a court shall direct. The Trustee shall be protected
from, and shall not have, any liability incurred by it resulting from its
reliance on any notice from a Senior Indebtedness Representative or the order
of any court.
Section 10.04. Payment Permitted if No Default. Nothing contained
in this Article 10, elsewhere in this Indenture or in any of the Securities
shall prevent the Company, at any time except during the pendency of any case,
proceeding, dissolution, liquidation or other winding up, assignment for the
benefit of creditors or other marshaling of assets and liabilities of the
Company referred to in Section 10.02 or under the conditions described in
Section 10.03, from making payments at any time of the 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 Securities.
Section 10.05. Subrogation to Rights of Holders of Senior
Indebtedness. Subject to the payment in full of all Senior Indebtedness,
Holders of the Securities 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 Securities are
subordinated and which is entitled to like rights of subrogation) to the rights
of the holders of such Senior Indebtedness, from time to time, to receive
payments and distributions of cash, property and securities applicable to the
Senior Indebtedness until the principal, premium (if any), Equity Offering
Redemption Price, Redemption Price, Change of Control Offer Price, Net Proceeds
Offer Price or interest (if any), and any other payment required to be made
hereunder in connection with the
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Securities shall be paid in full. For purposes of such subrogation, no
payments or distributions to the holders of Senior Indebtedness of any cash,
property or securities to which the Holders of the Securities or the Trustee
would be entitled except for the provisions of this Article 10, and no payments
over pursuant to the provisions of this Article 10 to the holders of Senior
Indebtedness by Holders of the Securities or the Trustee, shall, as among the
Company, its creditors other than holders of Senior Indebtedness, and the
Holders of the Securities, be deemed to be a payment or distribution by the
Company to or on account of the Senior Indebtedness.
Section 10.06. Provisions Solely to Define Relative Rights.
The provisions of this Article 10 are intended solely for the purpose of
defining the relative rights of the Holders of the Securities on the one hand
and the holders of Senior Indebtedness on the other hand. Nothing contained in
this Article 10 or elsewhere in this Indenture or in the Securities is intended
to or shall (a) impair, as among the Company, its creditors other than holders
of Senior Indebtedness and the Holders of the Securities, the obligation of the
Company, which is absolute and unconditional, to pay to the Holders of the
Securities the principal, premium (if any) Equity Offering Redemption Price,
Redemption Price, Change of Control Offer Price, Net Proceeds Offer Price or
interest (if any), and any other payment required to be made hereunder in
connection with the Securities as and when the same shall become due and
payable in accordance with their terms; and (b) affect the relative rights
against the Company of the Holders of the Securities and creditors of the
Company other than the holders of Senior Indebtedness.
Section 10.07. Trustee to Effectuate Subordination. Each Holder
of a Security by his acceptance thereof authorizes and directs the Trustee on
his behalf to take such action as may be necessary or appropriate to effectuate
the subordination provided in this Article 10 and appoints the Trustee as his
attorney-in-fact for any and all such purposes, including, in the event of any
dissolution, winding-up, liquidation or reorganization of the Company whether
in bankruptcy, insolvency, receivership proceedings, or otherwise, the timely
filing of a claim for the unpaid balance of the Indebtedness of the Company
owing to such Holder in the form required in such proceedings and the causing
of such claim to be approved.
Section 10.08. No Waiver of Subordination Provisions.
(a) No right of any present or future holder of any Senior
Indebtedness to enforce subordination as herein provided shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
the Company or by any act or failure to act, in good faith, by any such holder,
or by any non-compliance by the Company with the terms, provisions and
covenants of this Indenture, regardless of any knowledge thereof any such
holder may have or be otherwise charged with.
(b) Without limiting the generality of Subsection (a) of this
Section 10.08, the holders of Senior Indebtedness may, at any time and from
time to time, without the consent of or notice to the Trustee or the Holder of
the Securities, without incurring responsibility to the Holders of the
Securities and without impairing or releasing the subordination provided in
this Article 10, or the obligations hereunder of the Holders of the Securities
to the holders of Senior Indebtedness, do any one or more of the following:
(1) change the manner, place or terms of payment or extend the time of payment
of, or renew, alter, or increase (to the extent permitted in this
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Indenture), Senior Indebtedness or any instrument evidencing the same or any
agreement under which Senior Indebtedness is outstanding; (2) sell, exchange,
release or otherwise deal with any property pledged, mortgaged or otherwise
securing Senior Indebtedness; (3) release any Person liable in any manner for
the collection or payment of Senior Indebtedness; (4) exercise or refrain from
exercising any rights against the Company and any other Person; and (5) have
any collateral documents or liens relating to Senior Indebtedness prove to be
unenforceable; provided, however, that in no event shall any such actions limit
the right of the Holders of the Securities to take any action to accelerate the
maturity of the Securities pursuant to Article 6 of this Indenture or to pursue
any rights or remedies hereunder or under applicable laws if the taking of such
action does not otherwise violate the terms of this Article 10.
Section 10.09. Notice to Trustee.
(a) The Company shall give prompt written notice to the Trustee of
any fact known to the Company that would prohibit the making of any payment to
or by the Trustee in respect of the Securities. Notwithstanding the provisions
of this Article 10 or any provision of this Indenture, the Trustee shall not be
charged with knowledge of the existence of any facts that would prohibit the
making of any payment to or by the Trustee in respect of the Securities, unless
and until the Trustee shall have received written notice thereof from the
Company or a Senior Indebtedness Representative; and, prior to the receipt of
any such written notice, the Trustee shall be entitled in all respects to
assume that no such facts exist; provided, however, that if the Trustee shall
not have received the notice provided for in this Section 10.09 at least three
Business Days prior to the date upon which by the terms hereof any money may
become payable for any purpose (including, without limitation, the payment of
the principal, premium (if any), Equity Offering Redemption Price, Redemption
Price, Change of Control Purchase Price, Net Proceeds Offer Price or interest
(if any), and any other payment required to be made hereunder in connection
with any Security), then, anything herein contained to the contrary
notwithstanding, the Trustee shall have full power and authority to receive
such money and to apply the same to the purpose for which such money was
received and shall not be affected by any notice to the contrary which may be
received by it within three Business Days prior to such date.
(b) The Trustee shall be entitled to rely on the delivery to it of
a written notice to the Trustee and the Company by a Person representing
himself to be a Senior Indebtedness Representative or a holder of Senior
Indebtedness (or a trustee, fiduciary or agent therefor). In the event that the
Trustee determines in good faith that further evidence is required with respect
to the right of any Person as a holder of Senior Indebtedness to participate in
any payment or distribution pursuant to this Article 10, the Trustee may
request such Person to furnish evidence to the reasonable satisfaction of the
Trustee as to the amount of Senior Indebtedness held by such Person, the extent
to which such Person is entitled to participate in such payment or distribution
and any other facts pertinent to the rights of such Person under this Article
10, and if such evidence is not furnished, the Trustee may defer any payment to
such Person pending judicial determination as to the right of such Person to
receive such payment.
Section 10.10. Reliance on Judicial Order or Certificate of
Liquidating Agent. Upon any payment or distribution of assets of the
Company referred to in this Article 10, the Trustee and the Holders of the
Securities shall be entitled to rely upon any order or decree entered by any
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court in which such insolvency, bankruptcy, receivership, liquidation,
reorganization, dissolution, winding up or similar case or proceeding is
pending, or a certificate of the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee for the benefit of creditors, agent or other
Person making such payment or distribution, delivered to the Trustee or to the
Holders of Securities, for the purpose of ascertaining the Persons entitled to
participate in such payment or distribution, the holders of Senior Indebtedness
and other indebtedness of the Company, the amount thereof or payable thereon,
the amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article 10.
Section 10.11. Rights of Trustee as a Holder of Senior Indebtedness;
Preservation of Trustee's Rights. The Trustee in its individual capacity shall
be entitled to all the rights set forth in this Article 10 with respect to any
Senior Indebtedness that may at any time be held by it, to the same extent as
any Indenture shall deprive the Trustee of any of its rights as such holder.
Nothing in this Article 10 shall apply to claims of, or payments to, the
Trustee under or pursuant to Article 7. Notwithstanding anything contained
herein to the contrary, the Trustee is subject to TIA Section 310(b).
Section 10.12. Article Applicable to Paying Agents. In case at
any time any Paying Agent other than the Trustee shall have been appointed by
the Company and be then acting under this Indenture, the terms "Trustee" as
used in this Article 10 shall in such case (unless the context otherwise
requires) be construed as extending to and including such Paying Agent within
its meaning as fully for all intents and purposes as if such Paying Agent were
named in this Article 10 in addition to or in place of the Trustee except for
purposes of delivery of a notice pursuant to Section 10.03; provided, however,
that this Section 10.12 shall not apply to the Company or any Affiliate of the
Company if it or such Affiliate acts as Paying Agent.
Section 10.13. No Suspension of Remedies. Nothing contained
in this Article 10 shall limit the right of the Trustee or the Holders of
Securities to take any action to accelerate the maturity of the Securities
pursuant to Article 6 of this Indenture or to pursue any right or remedies
hereunder or under applicable law, subject to the rights, if any, under this
Article 10 of the holders, from time to time, of Senior Indebtedness.
Section 10.14. Trustee's Relation to Senior Indebtedness.
With respect to the holders of Senior Indebtedness, the Trustee undertakes to
perform or to observe only such of its covenants and obligations as are
specifically set forth in this Article 10, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Article 10 against the Trustee or shall otherwise be deemed to exist.
The Trustee shall not be deemed to owe any fiduciary or other duty to the
holders of Senior Indebtedness and the Trustee shall not be liable to any
holder of Senior Indebtedness if it shall mistakenly pay over or deliver to
Holders, the Company or any other Person moneys or assets to which any holder
of Senior Indebtedness shall be entitled by virtue of this Article 10 or
otherwise, unless such mistaken payment or delivery is made as a result of any
negligent act, negligent failure to act or willful misconduct on the part of
the Trustee.
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ARTICLE 11.
DEFEASANCE AND COVENANT DEFEASANCE
Section 11.01. Option to Effect Defeasance or Covenant Defeasance.
The Company may, at its option by resolution of the Board of Directors, a
certified copy of which has been delivered to the Trustee, at any time, with
respect to the Securities, elect to have either Section 11.02 or Section 11.03
be applied to all outstanding Securities upon compliance with the conditions
set forth below in this Article 11.
Section 11.02. Defeasance and Discharge. Upon the Company's
exercise under Section 11.01 of the option applicable to this Section 11.02,
the Company and its Subsidiaries shall be deemed to have been discharged from
their respective obligations with respect to all outstanding Securities on the
date the conditions set forth below are satisfied (hereinafter "defeasance").
For this purpose, such defeasance means that the Company shall be deemed to
have paid and discharged the entire Indebtedness represented by the outstanding
Securities, which shall thereafter be deemed to be "outstanding" only for the
purposes of Section 11.05 and the other Sections of this Indenture referred to
in (a) and (b) below, and to have satisfied all its other obligations under
such Securities and this Indenture (and the Trustee, on demand of and at the
expense of the Company, shall execute proper instruments acknowledging the
same), except for the following which shall survive until otherwise terminated
or discharged hereunder: (a) the rights of Holders of outstanding Securities to
receive, solely from the trust fund described in Section 11.04 and as more
fully set forth in such Section, payments in respect of the Principal Amount,
premium (if any) and interest on such Securities when such payments are due,
(b) the Company's obligations with respect to such Securities under Sections
2.06, 2.07, 2.09, 4.05 and 4.22 (only as it relates to the Company's corporate
existence and franchises), (c) the rights, powers, trusts, duties and
immunities of the Trustee hereunder and the Company's obligations in connection
therewith and (d) this Article 11. Subject to compliance with this Article 11,
the Company may exercise its option under this Section 11.02 notwithstanding
the prior exercise of its option under Section 11.03 with respect to the
Securities.
Section 11.03. Covenant Defeasance. Upon the Company's exercise
under Section 11.01 of the option applicable to this Section 11.03, the Company
and its Subsidiaries shall be released from their respective obligations under
the covenants contained in Articles 5 and 10 and in Sections 4.06 through 4.17,
4.20 and 4.24 with respect to the outstanding Securities on and after the date
the conditions set forth below are satisfied (hereinafter, "covenant
defeasance"), and the Securities shall thereafter be deemed to be 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, but shall continue to be deemed "outstanding" for all other purposes
hereunder (it being understood that such Securities shall not be deemed
outstanding for financial accounting purposes). For this purpose, such
covenant defeasance means that, with respect to the outstanding Securities, 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
herein to any such covenant or by reason of any reference in any such covenant
to any other provision herein or in any other document and such omission to
comply shall not constitute a Default or an Event of
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<PAGE> 76
Default under Sections 6.01(a)(i)(B) or (C), 6.01(a)(ii) (only as to Sections
4.06 and 4.08), 6.01(a)(iii) or Section 6.01(a)(iv), but, except as specified
above, the remainder of this Indenture and such Securities shall be unaffected
thereby. In addition, upon the Company's exercise under Section 11.01 of the
option applicable to Section 11.03, Sections 6.01(a)(iii) through 6.01(a)(ix)
(other than Section 6.01(a)(vii) and Section 6.01(a)(viii)) shall not
constitute Events of Default.
Section 11.04. Conditions to Defeasance or Covenant Defeasance.
The following shall be the conditions to application of either Section 11.02 or
Section 11.03 to the outstanding Securities:
(a) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements of
Section 7.10 who shall agree to comply with the provisions of this Article 11
applicable to it) as trust funds in trust for the purpose of making the
following payments, specifically pledged as security for, and dedicated solely
to, the benefit of the Holders of such Securities, (A) cash in U.S. dollars in
an amount, or (B) U.S. Government Obligations (defined below), 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 sufficient, in the opinion of a
nationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, to pay and discharge
and which shall be applied by the Trustee (or other qualifying trustee) to pay
and discharge, (i) the principal, premium, if any, interest and all other
amounts owing with respect to the outstanding Securities on their Stated
Maturity, (ii) any mandatory payments applicable to the outstanding Securities
on the day on which such payments are due and payable in accordance with the
terms of this Indenture and of such Securities and (iii) any fees, expenses and
other amounts owing to the Trustee under this Indenture or otherwise and an
amount mutually agreed upon by the Company and the Trustee to compensate the
Trustee for, and pay the costs and expenses of the administration of the funds
and other assets held by the Trustee pursuant to this Article 11 and any
ongoing obligations under this Indenture after the defeasance has occurred;
provided that the Trustee shall have been irrevocably instructed to apply such
money or the proceeds of such U.S. Government Obligations to said payments with
respect to the Securities. For this purpose, "U.S. Government Obligations"
means securities that are (x) direct obligations of the United States of
America for the timely payment of which its full faith and credit is pledged or
(y) obligations of a Person controlled or supervised by and acting as an agency
or instrumentality of the United States of America the timely payment of which
is unconditionally guaranteed as a full faith and credit obligation by the
United States of America, which, in either case, are not callable or redeemable
at the option of the issuer thereof, and shall also include a depository
receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act
of 1933, as amended), as custodian with respect to any such U.S. Government
Obligation or a specific payment of principal of or interest on any such U.S.
Government Obligation held by such custodian for the account of the holder of
such depository receipt; provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to
the holder of such depository receipt from any amount received by the custodian
in respect of the U.S. Government Obligation or the specific payment of
principal of or interest on the U.S. Government Obligation evidenced by such
depository receipt;
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<PAGE> 77
(b) In the case of an election under Section 11.02, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United States
stating that (i) the Company has received from, or there has been published by,
the Internal Revenue Service a ruling or (ii) since the date of this 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 Securities 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;
(c) In the case of an election under Section 11.03, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United States
to the effect that the Holders of the outstanding Securities will not recognize
income, gain or loss for Federal income tax purposes as a result of such
covenant defeasance and will be subject to Federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such covenant defeasance had not occurred;
(d) No Default or Event of Default with respect to the Securities
shall have occurred and be continuing on the date of such deposit or, insofar
as Section 6.01(a)(vii) or (viii) is concerned, at any time during the period
ending on the 91st day after the date of such deposit (it being understood that
this condition shall not be deemed satisfied until the expiration of such
period);
(e) Such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, this Indenture or any
other material agreement or instrument to which the Company is a party or by
which it is bound;
(f) In the case of an election under either Section 11.02 or
11.03, the Company shall have delivered to the Trustee an Opinion of Counsel
acceptable in form and substance to the Trustee, in its sole discretion 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, insolvency,
reorganization or similar laws affecting creditors' rights generally;
(g) In the case of an election under either Section 11.02 or
11.03, the Company shall have delivered to the Trustee an Officers' Certificate
stating that the deposit made by the Company pursuant to its election under
Section 11.02 or 11.03 was not made by the Company with the intent of
preferring the Holders over other creditors of the Company or with the intent
of defeating, hindering, delaying or defrauding creditors of the Company or
others; and
(h) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel in the United States, each stating that
all conditions precedent provided for relating to either the defeasance under
Section 11.02 or the covenant defeasance under Section 11.03 (as the case may
be) have been complied with as contemplated by this Section 11.04.
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<PAGE> 78
On and after the date the conditions set forth above are
satisfied, the United States dollars or U.S. Government Obligations so
deposited shall not be subject to the rights of the holders of Senior
Indebtedness pursuant to the provisions of Article 10.
Section 11.05. Deposited Money and U.S. Government Obligations to Be
Held in Trust; Other Miscellaneous Provisions. All money and U.S.
Government Obligations (including the proceeds thereof) deposited with the
Trustee (or other qualifying trustee, collectively, for purposes of this
Section 11.05, the "Trustee") pursuant to Section 11.04 in respect of the
outstanding Securities shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Securities and this Indenture, to the
payment, either directly or through any Paying Agent (excluding, however, the
Company acting as its own Paying Agent) as the Trustee may determine, to the
Holders of such Securities of all sums due and to become due thereon, but such
money need not be segregated from other funds except to the extent required by
law. Money and U.S. Government Obligations so held in trust are not subject to
Article 10.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the cash or U.S. Government
Obligations deposited pursuant to Section 11.04 or the principal and interest
received in respect thereof other than any such tax, fee or other charge that
by law is for the account of the Holders of the outstanding Securities.
Anything in this Article 11 to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon request any
money or U.S. Government Obligations held by it as provided in Section 11.04
which, in the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee (which may be the opinion delivered under Section 11.04(a)), are in
excess of the amount thereof which would then be required to be deposited to
effect an equivalent defeasance or covenant defeasance.
Section 11.06. Reinstatement. If the Trustee or Paying Agent is
unable to apply any United States dollars or U.S. Government Obligations in
accordance with Section 11.02 or 11.03, as the case may be, by reason of any
order of judgment of any court or governmental authority enjoining, restraining
or otherwise prohibiting such application, then the Company's obligations under
this Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to Section 11.02 or 11.03, as the case may be,
until such time as the Trustee or Paying Agent is permitted to apply all such
money in accordance with Section 11.02 or 11.03, as the case may be; provided,
however, that, if the Company makes any payment on any Security following the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Securities to receive such payment from the money held
by the Trustee or Paying Agent.
ARTICLE 12.
MISCELLANEOUS
Section 12.01. TIA Controls. If any provision of this Indenture
limits, qualifies or conflicts with the duties imposed by operation of
subsection (c) of Section 318 of the TIA, the
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<PAGE> 79
imposed duties shall control. The provisions of Sections 310 to 317,
inclusive, of the TIA that impose duties on any Person (including provisions
automatically deemed included in an indenture unless this Indenture provides
that such provisions are excluded) are a part of and govern this Indenture,
except as, and to the extent, expressly excluded from this Indenture, as
permitted by the TIA.
Section 12.02. Notices.
(a) Any notice or communication shall be in writing and delivered
in Person or mailed by first-class mail, postage prepaid, addressed as follows:
If to the Company:
Associated Materials Incorporated
2200 Ross Avenue, Ste. 4100 East
Dallas, Texas 75201
Attn: Treasurer
If to the Trustee:
U.S. Trust Company of Texas, N.A.
2001 Ross Avenue, Ste. 2700
Dallas, Texas 75201
Attention: Corporate Trust Department
If to KeyBank, N.A.:
KeyBank, N.A.
127 Public Square, 6th Floor
Cleveland, OH 44114
Attention: Ken Horner
(b) The Company or the Trustee by notice to the other may
designate additional or different addresses for subsequent notices or
communications.
(c) Any notice or communication given to a Securityholder shall be
mailed to the Securityholder at the Securityholder's address as it appears on
the Register maintained by the Registrar and shall be sufficiently given if so
mailed within the time prescribed.
(d) Failure to mail a notice or communication to a Securityholder
or any defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not received by the addressee; provided,
however, that the Trustee shall be deemed to have received any
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<PAGE> 80
notice or communication directed to it only at such time as such notice or
communication is actually received by its offices at its address for notice set
forth above.
(e) If the Company mails a notice or communication to the
Securityholders, it shall mail a copy to the Trustee and each Registrar, Paying
Agent or co-registrar.
Section 12.03. Communication by Holders With Other Holders.
Securityholders may communicate pursuant to TIA Section 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar, the Paying Agent and
anyone else shall have the protection of TIA Section 312(c).
Section 12.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take any
action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate stating that, in the opinion of the
signers, all conditions precedent, if any, provided for this Indenture relating
to the proposed action have been complied with; and
(b) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
Section 12.05. Statements Required in Certificate or Opinion.
Each Officers' Certificate or Opinion of Counsel with respect to compliance
with a covenant or condition provided for in this Indenture shall be duly
executed and shall include:
(a) a statement that each Person making such Officers' Certificate
or Opinion of Counsel has read such covenant or condition;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such Officers' Certificate or Opinion of Counsel are based;
(c) a statement that, in the opinion of such Person, such Person
has made such examination or investigation as is necessary to enable such
Person to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(d) a statement that, in the opinion of such Person, such covenant
or condition has been complied with; provided, however, that with respect to
matters of fact, an Opinion of Counsel may rely on an Officers' Certificate or
certificates of public officials.
Section 12.06. Separability Clause. In case any provisions in
this Indenture or in the Securities shall be invalid, illegal or unenforceable,
the validity, legality and enforceability of the remaining provisions shall not
in any way be affected or impaired thereby.
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<PAGE> 81
Section 12.07. Rules by Trustee, Paying Agent and Registrar.
The Trustee may make reasonable rules for action by or a meeting of
Securityholders. The Registrar and Paying Agent may make reasonable rules for
their functions.
Section 12.08. Legal Holidays. A "Legal Holiday" is any day other
than a Business Day. If any specified date (including a date for giving
notice) is a Legal Holiday, the action shall be taken on the next succeeding
day that is not a Legal Holiday, and, if the action to be taken on such date is
a payment in respect of the Securities, no principal, premium, if any, or
interest installment shall accrue interest for the intervening period.
SECTION 12.09. GOVERNING LAW. THIS INDENTURE AND THE SECURITIES
SHALL BE 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.
Section 12.10. Successors. All agreements of the Company in
this Indenture and the Securities shall bind its successors and assigns. All
agreements of the Trustee in this Indenture shall bind its successors and
assigns.
Section 12.11. Multiple Originals. The parties may sign any
number of copies of this Indenture. Each signed copy shall be an original, but
all of them together represent the same agreement. One signed copy is enough
to prove this Indenture.
Section 12.12. Legal Interest Limitations. This Indenture and
the Securities are intended to conform strictly to all applicable state and
federal usury laws, and they are hereby expressly limited so that in no
contingency or event whatsoever, whether by reason of acceleration of the
maturity of the Securities or otherwise, shall the amount contracted for,
charged or received by the Securityholders for the use, forbearance or
detention of the money to be loaned by them to the Company, or for the payment
or performance of any covenant or obligation contained in this Indenture, the
Security or any other document evidencing, securing or pertaining to the
Indebtedness evidenced by the Securities that may be legally deemed to be for
the use, forbearance or detention of money, exceed the maximum amount that the
Securityholders are legally entitled to contract for, charge or collect under
applicable state or federal law. If from any circumstance whatsoever,
fulfillment of any provision in this Indenture, the Security or such other
document, at the time performance of such provision is due, involves
transcending the limit of validity prescribed by law, then the obligation to be
fulfilled shall be automatically reduced to the limit of such validity, and if
from any such circumstance any Securityholder ever receives as interest or
otherwise an amount in excess of the maximum that can be legally collected,
then such amount that would be excessive interest shall be applied to the
reduction of the principal amount of the Securities held by such Person, and
any other amounts due under any other instrument evidencing, securing or
pertaining to the Indebtedness evidenced by the Securities, but not to the
payment of interest; and if such amount which would be excessive interest
exceeds the unpaid balance of principal of such Securities and all other non-
interest indebtedness described above, then such additional amount shall be
refunded to the Company. All sums paid or agreed to be paid by the Company for
the use, forbearance or detention of money by the Company to
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<PAGE> 82
Securityholders shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the term of such Indebtedness until
payment in full so that the amount of interest on account of such Indebtedness
is uniform throughout the term thereof and does not exceed the maximum
permitted by applicable law. The terms and provisions of this Section 12.13
shall control and supersede every other provision of this Indenture, the
Securities and all related documents.
ACCEPTANCE OF TRUST BY TRUSTEE
U.S. Trust Company of Texas, N.A. hereby accepts the trusts in this
Indenture declared and provided, upon the terms and conditions hereinabove set
forth.
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<PAGE> 83
SIGNATURES
IN WITNESS WHEREOF, the undersigned, being duly authorized, have
executed this Indenture on behalf of the respective parties hereto as of the
date first above written.
ASSOCIATED MATERIALS INCORPORATED
By:
-------------------------------------
U.S. TRUST COMPANY OF TEXAS, N.A.
as Trustee
By:
-------------------------------------
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<PAGE> 84
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
On this ___th day of _____________,1998, before me personally came
___________________________________ to me known, who, being by me duly sworn,
did depose and say that he resides at ___________, Texas; that he is the __ of
ASSOCIATED MATERIALS INCORPORATED one of the corporations described in and
which executed the above instrument; that he knows the corporate seal of said
corporation; that the seal or a facsimile thereof affixed to the said
instrument is such corporate seal or a facsimile thereof; that is/was so
affixed by authority of the Board of Directors of said corporation, and that he
signed his name thereto by like authority.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
-----------------------------
Notary Public
STATE OF TEXAS )
) ss:
COUNTY OF DALLAS )
On this ___th day of ___________,1998, before me personally came
___________________________________, to me known, who, being by me duly sworn,
did depose, acknowledge and say that he resides at____________________; that he
is a __ of U.S. Trust Company of Texas, N.A., one of the corporations
described in and which executed the above instrument; that he knows the
corporate seal of said corporation; that the seal or a facsimile thereof
affixed to the said instrument is such corporate seal or a facsimile thereof;
that is/was so affixed by authority of the Board of Directors of said
corporation, and that he signed his name thereto by like authority.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
-----------------------------
Notary Public
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<PAGE> 85
SCHEDULE I
EXISTING INDEBTEDNESS
<TABLE>
<CAPTION>
Amount Collateral
------ ----------
<S> <C> <C>
Bank Credit Agreement $50,000,000 Certain of the Company's bank deposits and all
accounts receivable, inventory, machinery and
equipment, contract rights and general
intangibles, other than the Company's shares of
Amercord Inc.
Taxable Notes $4,950,000 Secured by Letter of Credit issued by KeyBank
11 1/2 Senior $75,000,000
Subordinated Notes
</TABLE>
Various other amounts and forms of Indebtedness that are immaterial, in an
amount that does not exceed $500,000 in the aggregate.
<PAGE> 86
EXHIBIT A
FORM OF SECURITY
<PAGE> 87
EXHIBIT A
[FORM OF FACE OF SECURITY]
ASSOCIATED MATERIALS INCORPORATED
% Senior Subordinated Notes due 2008
No. _____________ $ __________
Associated Materials Incorporated, a Delaware corporation (the "Company," which
term includes any successor corporation under the Indenture hereinafter
referred to), promises to pay to ________________ or registered assigns, the
principal amount of ____________ Dollars ($________) on ______________, 2008.
Interest Payment Dates:________________________________________.
Record Dates: ___________________________.
Additional provisions of this Security are set forth on the other side
of this Security.
Dated: _______________
ASSOCIATED MATERIALS INCORPORATED
[SEAL] By:
--------------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
By:
--------------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
TRUSTEE'S CERTIFICATE
OF AUTHENTICATION
This is one of the [Global] Securities referred
to in the within-mentioned Indenture.
U.S. Trust Company of Texas, N.A., as Trustee
By:
--------------------------------
Authorized Signatory
A-1
<PAGE> 88
[FORM OF REVERSE SIDE OF SECURITY]
____% Senior Subordinated Notes due 2008
[Unless and until it is exchanged in whole or in part for Securities
in definitive form, this Security may not be transferred except as a whole by
the Depositary to a nominee of the Depositary or by a nominee of the Depositary
to the Depositary or another nominee of the Depositary or by the Depositary or
any such nominee to a successor Depositary or a nominee of such successor
Depositary. Unless this certificate is presented by an authorized
representative of The Depositary Trust Company (55 Water Street, New York, New
York) ("DTC"), to the issuer or its agent for registration of transfer,
exchange or payment, and any certificate issued is registered in the name of
Cede & Co. or such other name as may be requested by an authorized
representative of DTC (and any payment is made to Cede & Co. or such other
entity as may be requested by an authorized representative of DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an
interest herein.]1
1. Interest
Associated Materials Incorporated, a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Security
at the rate per annum shown above. Interest shall be payable semi-annually on
each Interest Payment Date, commencing _________________, 1998. Interest on
the Securities shall accrue from the most recent date to which interest has
been paid, or if no interest has been paid, from __________________, 1998;
provided, that, if there is no existing Default in the payment of interest and
if this Security is authenticated between a record date referred to on the face
hereof and the succeeding Interest Payment Date, interest shall accrue from
such succeeding Interest Payment Date. Interest shall be computed on the basis
of a 360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal and interest on
overdue installments of interest, to the extent lawful, at the rate per annum
borne by the Securities.
2. Method of Payment
On each Interest Payment Date the Company shall pay interest on the
Securities (except defaulted interest) to the Persons who are registered
Holders at the close of business on __________________ and ____________, as
applicable, whether or not such record date is a Business Day (the "record
date") immediately preceding such Interest Payment Date, even if the Security
is cancelled on registration of transfer or registration of exchange after such
record date (other than with respect to the purchase of Securities pursuant to
an offer to purchase Securities made in connection with Sections 4.16 or 4.17
of the Indenture). Holders must surrender Securities to a Paying Agent to
collect principal payments. Principal, premium, if any, interest and any other
amounts due pursuant to the terms of this Security or the Indenture shall be
paid in money of the United States
__________________________________
1 This legend should be included only if the Security is issued in Global
form.
A-2
<PAGE> 89
that at the time of payment is legal tender for payment of public and private
debts; provided, however, that so long as this Security is a Global Security
such payments will be made in immediately available funds and the Company may
pay principal, premium, if any, and interest due on a Security which is not a
Global Security by check payable in such money. The Company may mail an
interest payment with respect to any Security that is not a Global Security to
a Securityholder's registered address.
3. Paying Agent and Registrar
Initially, the Trustee shall act as Paying Agent and Registrar. The
Company may appoint and change any Paying Agent or Registrar without notice,
other than notice to the Trustee. The Company may act as Paying Agent,
Registrar or co-registrar.
4. Indenture; Subordination
The Company issued the Securities under an Indenture, dated as of
___________________, 1998 (the "Indenture"), between the Company and the
Trustee. In addition to the terms set forth herein, the terms of the
Securities include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939, as in effect on the
date of the Indenture (the ("TIA") and as provided in the Indenture.
Capitalized terms used herein and not defined herein have the meanings ascribed
thereto in the Indenture. The Securities are subject to all such terms, and
Securityholders are referred to the Indenture and the TIA for a statement of
those terms.
The Securities are limited to $100,000,000 aggregate principal amount.
The Indebtedness evidenced by the Securities is, to the extent and in the
manner provided in the Indenture, subordinate and subject in right of payment
to the prior payment in full of all Senior Indebtedness (as defined in the
Indenture), whether outstanding on the date of the Indenture or thereafter, and
this Security is issued subject to such provisions. Each Holder of this
Security, by its acceptance hereof, agrees to and shall be bound by such
provisions, and authorizes and directs the Trustee on behalf of the Holder to
take such action as may be necessary or appropriate to effect the subordination
as provided in the Indenture.
5. Optional Redemption
The Company may redeem up to 25% of the aggregate principal amount of
the Securities at any time on or before , 2001 and within 60 days following the
closing of a public offering of common stock of the Company and utilizing the
net proceeds therefrom; provided that at least $65,000000 in aggregate
principal amount of the Securities remain outstanding after the occurrence of
such redemption. Any such redemption shall be made at a redemption price of
__________% of the principal amount of the Securities, plus accrued and unpaid
interest, if any, on such amount to the Redemption Date.
In addition, the Securities are redeemable as a whole, or from time to
time in part, at any time on and after , 2003, at the option of the Company at
the following redemption
A-3
<PAGE> 90
prices (expressed as a percentage of principal), together with accrued and
unpaid interest to the Redemption Date, if redeemed in the twelve-month period
commencing:
<TABLE>
<CAPTION>
June 1 Redemption Price
------ ----------------
<S> <C>
2003 %
2004 %
2005 %
2006 and thereafter 100.000%
</TABLE>
Notice of redemption shall be mailed at least 30 calendar days but not
more than 60 calendar days before the Redemption Date to each Holder of
Securities to be redeemed at the Holder's registered address. Securities in
denominations larger than $1,000 of principal amount may be redeemed in part
but only in integral multiples of $1,000 of principal amount.
6. Requirement That the Company Offer to Purchase Securities Under
Certain Circumstances
Subject to the terms and conditions of the Indenture, the Company
shall be obligated in certain circumstances to apply the Excess Proceeds from
certain Asset Dispositions to offer to purchase Securities at 100% of principal
amount plus accrued interest in accordance with Section 4.16 of the Indenture.
Subject to the terms and conditions of the Indenture, within 30
calendar days following the occurrence of a Change of Control of the Company,
the Company is obligated to offer to purchase any and all of the Securities
pursuant to Section 4.17 of the Indenture, at a price equal to 101% of
aggregate principal amount plus accrued and unpaid interest, if any, to the
date of purchase.
7. Denominations; Transfer; Exchange
The Securities are issuable in denominations of $1,000 of principal
amount and integral multiples of $1,000 of principal amount. A Holder may
transfer or exchange Securities in accordance with the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law, or permitted by the Indenture. The Registrar need not transfer or
exchange any Securities selected for redemption (except, in the case of a
Security to be redeemed in part, the portion of the Security not to be
redeemed) or any Securities for a period of 15 calendar days before a selection
of Securities to be redeemed.
8. Persons Deemed Owners
The registered Holder of this Security may be treated as the absolute
owner of this Security for all purposes whether or not this Security shall be
overdue and notwithstanding any notation of ownership or other writing hereon
made by anyone other than the Company or the Trustee.
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<PAGE> 91
9. Amendment; Waiver
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture, the Securities, the Intercompany Agreement and any related documents
may be amended with the written consent of the Holders of at least a majority
in aggregate principal amount of the Securities at the time outstanding and
(ii) certain defaults and noncompliance with certain provisions of the
Indenture, the Securities, the Intercompany Agreement and any related documents
may be waived with the written consent of the Holders of a majority in
aggregate principal amount of the Securities at the time outstanding. Subject
to certain exceptions set forth in the Indenture, without the consent of any
Securityholder, the Company and the Trustee may amend the Indenture, the
Securities, the Intercompany Agreement and any related documents to cure any
ambiguity, defect or inconsistency or to correct or supplement any provision
herein or therein, that may be defective or inconsistent with any other
provision herein or therein, provided that such amendment does not adversely
affect the rights of any Securityholder; or to comply with Article 5 of the
Indenture; or to provide for uncertificated Securities in addition to
certificated Securities; or to comply with any requirements of the SEC in
connection with the qualification of the Indenture under the TIA; or to make
any change that does not adversely affect the rights of any Securityholder; or
to add to the covenants of the Company for the benefit of the Holders or to
surrender any right or power conferred upon the Company.
10. Defaults and Remedies
Under the Indenture, Events of Default include, among other things,
(i) a default in payment of the principal of (or premium, if any, on) any
Securities when the same becomes due and payable at maturity, by acceleration
or otherwise, or default in payment of the Equity Offering Redemption Price or
Redemption Price on the applicable Redemption Date or of the Change of Control
Offer Price or Net Proceeds Offer Price on the applicable offer purchase date,
(ii) a default in the payment of interest on any Security when the same becomes
due and payable, whether or not such payment shall be prohibited by the
Indenture, or a default under certain provisions of the Indenture, subject to
the grace period contained in the Indenture, (iii) the Company defaults in the
performance of, or breaches the terms of, certain covenants and agreements
contained in the Indenture, (iv) the Company or any Subsidiary of the Company
fails to comply with, or breaches, any other covenants or agreements in the
Securities or the Indenture and such failure or breach continues for 60
calendar days after receipt by the Company of a Notice of Default, (v) the
Company or any Restricted Subsidiary of the Company defaults 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 Company's Taxable Notes to the extent such default does not
constitute a default under the Bank Credit Agreement) when due (after giving
effect to any applicable grace period under such Indebtedness) and the
principal amount of such Indebtedness exceeds $5,000,000 in the aggregate, (vi)
an event of default on any other Indebtedness of the Company or any Restricted
Subsidiary of the Company having an aggregate amount outstanding in excess of
$5,000,000 (excluding the Taxable Notes of the Company to the extent such
default does not also constitute an event of default under the Bank 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) certain events of bankruptcy or insolvency
involving the Company or any Restricted Subsidiary, or (viii) final judgments
for the payment of amounts in excess of $5,000,000 (net of amounts covered by
insurance as to which a claim has been made and no reservation of rights is
being
A-5
<PAGE> 92
asserted by such carrier) are rendered against the Company or any material
Restricted Subsidiary of the Company and 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 such judgment remains unstayed or
undischarged for a 60-day period. If an Event of Default occurs and is
continuing, the Trustee, or the Holders of at least 25% in aggregate principal
amount of the Securities at the time outstanding, may declare all the
Securities to be due and payable immediately. Certain events of bankruptcy or
insolvency are Events of Default that shall result in the Securities becoming
due and payable immediately upon the occurrence of such Events of Default.
Securityholders may not enforce the Indenture or the Securities except
as provided in the Indenture. The Trustee may refuse to enforce the Indenture
or the Securities unless it receives reasonable indemnity or security. Subject
to certain limitations, Holders of a majority in aggregate principal amount of
the Securities at the time outstanding may direct the Trustee in its exercise
of any trust or power.
11. Trustee Dealings With the Company
Subject to certain limitations imposed by the TIA, the Trustee under
the Indenture, in its individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with and collect obligations owed
to it by the Company or its Affiliates and may otherwise deal with the Company
or its Affiliates with the same rights it would have if it were not Trustee.
12. No Recourse Against Others
A director, officer, employee or stockholder, as such, of the Company
shall not have any liability for any obligations of the Company under the
Securities or the Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation. By accepting a Security, each
Securityholder waives and releases all such liability. The waiver and release
are part of the consideration for the issue of the Securities.
13. Authentication
This Security shall not be valid until an authorized signatory of the
Trustee manually signs the Trustee's Certificate of Authentication on the other
side of this Security.
14. Defeasance
The Securities, and certain covenants of the Indenture, are subject to
defeasance as described in the Indenture.
15. GOVERNING LAW
THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS
A-6
<PAGE> 93
APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT
REGARD TO PRINCIPLES OF CONFLICT OF LAWS.
The Company will furnish without charge to any Holder of Securities
upon written request a copy of the Indenture which has in it the text of this
Security in larger type. Requests may be made to:
Associated Materials Incorporated
2200 Ross Avenue, Suite 4100 East
Dallas, Texas 75201
Attn: Treasurer
A-7
<PAGE> 94
[ASSIGNMENT FORM]
If you, the holder, want to assign this Security, fill in the form below:
I or we assign and transfer this Security to
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address, zip code and social security number or
tax ID number)
and irrevocably appoint
- --------------------------------------------------------------------------------
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for such agent.
Customary abbreviations may be used in the name of a Securityholder or an
assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with right of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
Date: Signature:
-------------------- --------------------------------
--------------------------------
(Sign exactly as your name(s) appear(s)
on the other side of this Security)
Signature Guaranteed
By:
-----------------------------------
A-8
<PAGE> 95
(FORM OF OPTION OF HOLDER TO ELECT PURCHASE]
If you wish to elect to have this Security purchased by the Company
pursuant to Section 4.16 or 4.17 of the Indenture, check the box: [ ]
If you wish to elect to have only part of this Security purchased by
the Company pursuant to Section 4.16 or 4.17 of the Indenture, state the amount
in integral multiples of $1,000: $
Date: Signature:
-------------------- --------------------------------
--------------------------------
(Sign exactly as your name(s) appear(s)
on the other side of this Security)
Signature Guaranteed
By:
-----------------------------------
A-9
<PAGE> 96
SCHEDULE OF EXCHANGES OF DEFINITIVE SECURITY2
The following exchanges of a part of this Global Security for
Definitive Securities have been made:
<TABLE>
<CAPTION>
Date of Amount of decrease in Amount of increase in Principal Amount of this Signature of authorized
Exchange Principal Amount of Principal Amount of Global Security following officer of Trustee
this Global Security this Global Security such decrease (or increase
<S> <C> <C> <C> <C>
</TABLE>
__________________________________
2 This schedule should be included only if the Security is issued in Global
form.
A-10
<PAGE> 97
EXHIBIT B
FORM OF INTERCOMPANY AGREEMENT
<PAGE> 98
EXHIBIT B
INTERCOMPANY NOTE
Dallas, Texas
FOR VALUE RECEIVED, the undersigned, _______________________, a
corporation ("Maker"), hereby unconditionally promises to pay to the order of
Associated Materials Incorporated, a Delaware corporation ("Payee"), at 2200
Ross Avenue, Suite 4100 East, Dallas, Texas 75201, or such other address given
to Maker by Payee, the principal sum of $_________.
SECTION 1. Payment Obligations. Maker shall pay interest on
_____________ of each year. Interest shall accrue at the rate of ______.
All unpaid principal of and accrued but unpaid interest On this Note
shall be payable on ____________, _____.
SECTION 2. Default Rate. All past due principal of and, to the
extent permitted by applicable law, interest upon this Note shall bear interest
at the lesser of the highest lawful rate and ____ per annum.
SECTION 3. Rights and Remedies. If Maker shall fail to pay when due
the accrued interest on this Note and such failure shall not be cured within
thirty (30) days, then Payee may declare the unpaid principal of this Note, and
unpaid interest on this Note, to be immediately due and payable, and the same
shall thereupon become due and payable, without notice, demand, presentment,
notice of dishonor, notice of acceleration, notice of intent to accelerate,
protest or other formalities of any kind, all of which are hereby expressly
waived by Maker.
SECTION 4. Waiver. Maker and each surety, endorser, guarantor and
other party ever liable for payment of any sums of money payable upon this
Note, jointly and severally waive presentment, demand, protest, notice of
protest and non-payment or other notice of any kind, and agree that their
liability under this Note shall not be affected by any renewal or extension in
the time of payment hereof, or in any indulgences, or by any release or change
in any Security for the payment of this Note, and hereby consent to any and
all, renewals, extensions, indulgences, releases or changes, regardless of the
number of such renewals, extensions, indulgences, releases or changes.
No waiver by Payee of any of its rights or remedies hereunder or under
any other document evidencing or securing this Note or otherwise, shall be
considered a waiver of any other subsequent right or remedy of Payee; no delay
or omission in the exercise or enforcement by Payee of any rights or remedies
shall ever be construed as a waiver of any right or remedy of Payee; and no
exercise or enforcement of any such rights or remedies shall ever be held to
exhaust any right or remedy of Payee.
SECTION 5. Subsequent Advances. This Note shall represent the unpaid
principal balance of an account payable owing by Maker to Payee on the date
hereof. Payee shall have no obligation to make any additional advances to
Maker.
B-1
<PAGE> 99
SECTION 6. Notice. Whenever this Note requires or permits any
notice, approval, request or demand from one party to another, the notice,
approval, request or demand must be in writing and shall be deemed to have been
given when personally served or when deposited in the United States mails,
registered or certified, return receipt requested, addressed to the party to be
notified at the following address (or at such other address as may have been
designated by written notice):
Payee: Associated Materials Incorporated
2200 Ross Avenue, Suite 4100 East
Dallas, Texas 75201
Attn: Treasurer
Maker: __________________________________________
__________________________________________
__________________________________________
The foregoing is not intended and shall not be deemed under any
circumstances to require the holder hereof to give notice of any type or nature
to Maker not expressly required by other provisions of this Note.
SECTION 7. Usury Laws. Regardless of any provisions contained in
this Note, the Payee shall never be deemed to have contracted for or be
entitled to receive, collect or apply as interest on the Note, any amount in
excess of the highest lawful rate, and, in the event Payee ever receives,
collects or applies as interest any such excess, such amount which would be
excessive interest shall be applied to the reduction of the unpaid principal
balance of this Note, and, if the principal balance of this Note is paid in
full, any remaining excess shall forthwith be paid to Maker. In determining
whether or not the interest paid or payable under any specific contingency
exceeds the highest lawful rate, Maker and Payee shall, to the maximum extent
permitted under applicable law, (i) characterize any non-principal payment
(other than payments which are expressly designated as interest payments
hereunder) as an expense, fee, or premium, rather than as interest, (ii)
exclude voluntary prepayments and the effects thereof, and (iii) spread the
total amount of interest throughout the entire contemplated term of this Note
so that the interest rate is uniform throughout such term.
SECTION 8. Applicable Law. THIS NOTE IS INTENDED TO BE PERFORMED IN
THE STATE OF TEXAS. EXCEPT TO THE EXTENT THAT THE LAWS OF THE UNITED STATES
MAY APPLY TO THE TERMS HEREOF, THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS,
WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS THEREOF, SHALL GOVERN THE
VALIDITY, CONSTRUCTION, ENFORCEMENT AND INTERPRETATION OF THIS NOTE.
By:
-------------------------------------
, Treasurer
---------------------
B-2
<PAGE> 1
EXHIBIT 5.1
[Letterhead of Jones, Day, Reavis & Pogue]
January 28, 1998
Associated Materials Incorporated
2200 Ross Avenue, Suite 4100 East
Dallas, Texas 75201
Re: Issuance and Sale of $75,000,000 Aggregate Principal Amount of
Senior Subordinated Notes due 2008 of Associated Materials
Incorporated
Ladies and Gentlemen:
We are acting as counsel to Associated Materials Incorporated,
a Delaware corporation (the "Company"), in connection with the issuance and
sale of $75,000,000 aggregate principal amount of Senior Subordinated Notes due
2008 (the "Notes") of the Company. The Notes are to be issued pursuant to an
Indenture (the "Indenture") between the Company and U.S. Trust Company of
Texas, N.A., as trustee (the "Trustee"), and sold pursuant to an Underwriting
Agreement (the "Underwriting Agreement") among the Company and Salomon Brothers
Inc and Dain Rauscher Incorporated, as the underwriters pursuant to the
Underwriting Agreement (the "Underwriters").
We have examined such documents, records and matters of law as
we have deemed necessary for purposes of this opinion. Based on the foregoing,
we are of the opinion that the Notes have been duly authorized by the Company,
and when (i) duly executed by the Company and duly authenticated by the Trustee
in accordance with the terms of the Indenture, and (ii) delivered to and paid
for by the Underwriters in accordance with the Underwriting Agreement, the
Notes will be valid and binding obligations of the Company and will be entitled
to the benefits of the Indenture.
We hereby consent to the filing of this opinion letter as
Exhibit 5.1 to the Registration Statement on Form S-1 (Commission File No.
333-42067) (the "Registration Statement") filed by the Company to effect the
registration of the Notes under the Securities Act of 1933, as amended, and to
the reference to our Firm under the caption "Legal Matters" in the Prospectus
constituting a part of the Registration Statement.
Very truly yours,
/s/ Jones, Day, Reavis & Pogue
Jones, Day, Reavis & Pogue
<PAGE> 1
EXHIBIT 11.1
ASSOCIATED MATERIALS INCORPORATED
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1993 1994 1995 1996 1997
------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Income applicable to common stock........... $ 5,227 $7,874 $1,260 $8,822 $13,089
======= ====== ====== ====== =======
Weighted average number of basic common
shares outstanding........................ 6,235 7,532 7,532 7,594 7,594
Basic earnings per common share............. $ 0.84 $ 1.05 $ 0.17 $ 1.16 $ 1.72
======= ====== ====== ====== =======
Exercise outstanding warrants and options... 6,249 439 402 352 307
Repurchase of shares under the treasury
stock method.............................. (132) (182) (239) (200) (145)
Weighted average number of diluted common
shares outstanding........................ 12,352 7,789 7,695 7,746 7,756
Diluted earnings per common share........... $ 0.42 $ 1.01 $ 0.16 $ 1.14 $ 1.69
======= ====== ====== ====== =======
</TABLE>
<PAGE> 1
EXHIBIT 12.1
ASSOCIATED MATERIALS INCORPORATED
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PRO FORMA
----------------------------------------------- ---------
1993 1994 1995 1996 1997 1997
------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Income before income tax expense.... $12,352 $12,975 $ 1,805 $13,994 $22,613 $24,632
Fixed Charges:
Interest expense.................. $ 7,581 $10,580 $11,474 $10,882 $ 9,795 $ 7,926
Portion of rents representative of
interest factor................ 2,833 2,957 3,301 3,737 3,904 3,904
Amortization of debt.............. 202 540 540 445 398 247
------- ------- ------- ------- ------- -------
Total fixed charges....... $10,616 $14,077 $15,315 $15,064 $14,097 $12,077
Earnings.......................... $22,968 $27,052 $17,120 $29,058 $36,710 $36,709
Ratio of earnings to fixed
charges........................... 2.16x 1.92x 1.12x 1.93x 2.60x 3.04x
======= ======= ======= ======= ======= =======
</TABLE>
<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 January 29, 1998 in
the Registration Statement (Form S-1 No. 333-42067) 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
January 29, 1998
