<PAGE>
As filed with the Securities and Exchange Commission on June 21, 1996
Registration No. 333-3006
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
AMENDMENT NO. 3 TO FORM S-1
REGISTRATION STATEMENT
Under the Securities Act of 1933
------------------------
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
STATIONERY HOUSE INC. VIP DIVISION
WILLIAMHOUSE OF CALIFORNIA, INC.
THE PRECIOUS COLLECTION, INC.
REGENCY SONNELL GREETINGS, INC.
REGENCY THERMOGRAPHERS, INC.
REGENCY THERMOGRAPHERS OF CALIFORNIA, INC.
REGENCY THERMOGRAPHERS OF ILLINOIS, INC.
REGENCY THERMOGRAPHERS OF WASHINGTON, INC.
AMERICAN OFFICE PRODUCTS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 2678 25-1512956
DELAWARE 2678 23-2575118
COLORADO 2678 84-0807780
TEXAS 2678 13-2841515
CALIFORNIA 2771 95-3887676
DELAWARE 2678 13-1960400
CALIFORNIA 2678 95-2314024
ILLINOIS 2759 36-2274605
WASHINGTON 2678 91-0730734
MICHIGAN 2678 61-1011285
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation
or organization)
17304 PRESTON ROAD, SUITE 700
DALLAS, TX 75252-5613
(214) 733-6200
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------
GREGORY M. BENSON
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
17304 PRESTON ROAD, SUITE 700
DALLAS, TX 75252-5613
(214) 733-6200
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
LANCE C. BALK
KIRKLAND & ELLIS
153 EAST 53RD STREET
NEW YORK, NY 10022-4675
(212) 446-4800
------------------------
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. [X]
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
of 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 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.
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<TABLE>
<CAPTION>
Cross Reference Sheet Pursuant to Item 501(b) of Regulation S-K
Showing Location in Prospectus of Information Required by Items of Part I of Form S-1
REGISTRATION STATEMENT
ITEM NUMBER AND CAPTION CAPTION OR LOCATION IN PROSPECTUS
- ------------------------------------------------------ --------------------------------------------------------
<S> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus Inside Front Cover Page; Outside Back Cover Page
3. Summary Information, Risk Factors, Ratio of
Earnings to Fixed Charges Prospectus Summary; Selected Historical Consolidated
Financial Data; Risk Factors; Summary Unaudited Pro
Forma Financial Information for the Company;
Summary Historical Consolidated Financial Data
Williamhouse
4. Use of Proceeds Prospectus Summary; Use of Proceeds
5. Determination of Offering Price Not applicable
6. Dilution Not applicable
7. Selling Security Holders Not applicable
8. Plan of Distribution Plan of Distribution
9. Description of Security to be Registered Cover Page; Prospectus Summary; Description of
Exchange Notes
10. Interests of Named Experts and Counsel Experts; Legal Matters
11. Information with Respect to the Registrants Outside Front Cover Page; Prospectus Summary; The
Company; The Transactions; Proposed Initial Public
Offering; Risk Factors; Use of Proceeds; Capitalization;
Summary Unaudited Pro Forma Financial Data;
Unaudited Pro Forma Consolidated Statement of Income;
Selected Historical Consolidated Financial Data;
Management's Discussion and Analysis of Financial
Condition and Results of Operations; Business;
Management; Principal Stockholders; Certain
Relationships and Related Transactions; Description of
Bank Credit Agreement; Description of New Bank Credit
Agreement; Description of Accounts Receivable Facility
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities Not applicable
- --------------------------
</TABLE>
<PAGE>
PROSPECTUS
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
OFFER TO EXCHANGE ITS 13% SENIOR SUBORDINATED
NOTES DUE 2005, SERIES B FOR ANY AND ALL OF ITS
OUTSTANDING 13% SENIOR SUBORDINATED NOTES DUE 2005.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME,
ON JULY 22, 1996, UNLESS EXTENDED.
American Pad & Paper Company of Delaware, Inc., formerly known as
Williamhouse-Regency of Delaware, Inc. (the "Company"), hereby offers (the
"Exchange Offer"), upon the terms and conditions set forth in this Prospectus
(the "Prospectus") and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), to exchange $1,000 principal amount of its 13% Senior
Subordinated Notes due 2005, Series B (the "Exchange Notes"), registered under
the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement of which this Prospectus is a part, for each $1000
principal amount of its outstanding 13% Senior Subordinated Notes due 2005 (the
"Notes"), of which $200,000,000 principal amount is outstanding. The form and
terms of the Exchange Notes are the same as the form and term of the Notes
(which they replace) except that the Exchange Notes will bear a Series B
designation and will have been registered under the Securities Act and,
therefore, will not bear legends restricting their transfer and will not contain
certain provisions relating to an increase in the interest rate which were
included in the terms of the Notes in certain circumstances relating to the
timing of the Exchange Offer. The Exchange Notes will evidence the same debt as
the Notes (which they replace) and will be issued under and be entitled to the
benefits of the Indenture, dated as of December 1, 1995, between the Company,
the Subsidiary Guarantors (as defined) and IBJ Schroder Bank & Trust Company
(the "Indenture") governing the Notes. See "The Exchange Offer" and "Description
of Exchange Notes." The Exchange Notes will be fully and unconditionally
guaranteed on a senior subordinated basis by each of the Company's existing
subsidiaries, jointly and severally, except Notepad Funding Corporation, a
receivables entity (collectively, the "Subsidiary Guarantors"). The Guarantees
(as defined) will be general unsecured obligations of the Subsidiary Guarantors
and will be subordinated in right of payment to all existing and future
Guarantor Senior Debt (as defined). As of March 31, 1996, the Company had
approximately $253.5 million of Senior Debt and the Subsidiary Guarantors had
approximately $8.6 million of Guarantor Senior Debt (excluding guarantees of
Senior Debt). The Guarantees will be senior in right of payment of any
indebtedness of the Subsidiary Guarantors which is, by its express terms,
subordinated to the Guarantees, none of which was outstanding as of March 31,
1996. The Exchange Notes will be general unsecured obligations of the Company,
subordinated in right of payment to all existing and future Senior Debt (as
defined) of the Company, which will include borrowings under the Bank Credit
Agreement (as defined). As of March 31, 1996, the Company had approximately
$45.7 million available to be drawn under the revolving credit portion and
letter of credit facility of the Bank Credit Agreement.
The Company will accept for exchange any and all Notes validly tendered and
not withdrawn prior to 5:00 p.m., New York City time, on July 22, 1996, unless
extended by the Company in its sole discretion (the "Expiration Date"). Tenders
of Notes may be withdrawn at any time prior to 5:00 p.m. on the Expiration Date.
The Exchange Offer is subject to certain customary conditions. The Notes were
sold by the Company on December 1, 1995, to the Initial Purchasers (as defined)
in a transaction not registered under the Securities Act in reliance upon an
exemption under the Securities Act. The Initial Purchasers subsequently placed
the Notes with qualified institutional buyers in reliance upon Rule 144A under
the Securities Act and with institutional accredited investors that agreed to
comply with certain transfer restrictions and other conditions. Accordingly,
the Notes may not be reoffered, resold or otherwise transferred in the United
States unless registered under the Securities Act or unless an applicable
exemption from the registration requirements of the Securities Act is available.
The Exchange Notes are being offered hereunder in order to satisfy the
obligations of the Company and Subsidiary Guarantors under the Registration
Rights Agreement (as defined) entered into by the Company and Subsidiary
Guarantors in connection with the offering of the Notes. See "The Exchange
Offer."
Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission") to third parties, the Company believes
the Exchange Notes issued pursuant to the Exchange Offer may be offered for
resale, resold and otherwise transferred by any holder thereof (other than any
such holder that is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business and
such holder has no arrangement or understanding with any person to participate
in the distribution of such Exchange Notes. See "The Exchange Offer -- Purpose
and Effect of the Exchange Offer" and "The Exchange Offer -- Resale of the
Exchange Notes." Each broker-dealer (a "Participating Broker-Dealer") that
receives Exchange Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a participating Broker-Dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a Participating Broker-Dealer in connection with resales of Exchange
Notes received in exchange for Notes where such Notes were acquired by such
Participating Broker-Dealer as a result of market-making activities or other
trading activities. The Company has agreed that, for a period of 180 days after
the Expiration Date, it will make this Prospectus available to any Participating
Broker-Dealer for use in connection with any such resale. See "Plan of
Distribution."
Holders of Notes not tendered and accepted in the Exchange Offer will
continue to hold such Notes and will be entitled to all the rights and benefits
and will be subject to the limitations applicable thereto under the Indenture
and with respect to transfer under the Securities Act. The Company will pay all
the expenses incurred by it incident to the Exchange Offer. See "The Exchange
Offer."
SEE "RISK FACTORS," BEGINNING ON PAGE 16, FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS WHO TENDER THEIR NOTES IN THE
EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Prospectus is June 21, 1996.
<PAGE>
There has not previously been any public market for the Notes or the
Exchange Notes. The Company does not intend to list the Exchange Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system. Accordingly, no assurance can be given that an active public
or other market will develop for the Exchange Notes or as to the liquidity of
the trading market for the Exchange Notes. See "Risk Factors - Absence of Public
Market." Moreover, to the extent that Notes are tendered and accepted in the
Exchange Offer, the trading market for untendered and tendered but unaccepted
Notes would be adversely affected.
The Company expects that the Exchange Notes issued pursuant to this
Exchange Offer will be issued in the form of a Global Certificate (as defined),
which will be deposited with, or on behalf of, The Depository Trust Company (the
"Depository") and registered in its name or in the name of its nominee.
Beneficial interests in the Global Certificate representing the Exchange Notes
will be shown on, and transfers thereof will be effected through, records
maintained by the Depository and its participants. After the initial issuance of
the Global Certificate, Exchange Notes in certified form will be issued in
exchange for the Global Certificate only on the terms set forth in the
Indenture. See "Description of Exchange Notes -- Book Entry; Delivery and Form."
Ampad(R), Evidence(R), Embassy(R), Gold Fibre(R), SCM(TM), World Fibre(TM),
Williamhouse(TM), Peel & Seel(R), Kent(TM), Karolton(R), Huxley(TM) and
Century(TM) are trademarks of the Company.
AVAILABLE INFORMATION
The Company and Subsidiary Guarantors have filed with the Commission a
Registration Statement on Form S-1 (the "Exchange Offer Registration Statement,"
which term shall encompass all amendments, exhibits, annexes and schedules
thereto) pursuant to the Securities Act, and the rules and regulations
promulgated thereunder, covering the Exchange Notes being offered hereby. This
Prospectus does not contain all the information set forth in the Exchange Offer
Registration Statement. In addition, the Company's parent corporation has filed
a Registration Statement on Form S-1 (Registration No. 333-4000) relating to a
proposed initial public offering of Common Stock (the "Equity Registration
Statement"). For further information with respect to the Company, the Subsidiary
Guarantors, and the Exchange Offer, reference is made to the Exchange Offer
Registration Statement. Statements made in this Prospectus as to the contents of
any contract, agreement or other document referred to are not necessarily
complete. With respect to each such contract, agreement or other document filed
as an exhibit to the Exchange Offer Registration Statement, reference is made to
the exhibit for a more complete description of the document or matter involved,
and each such statement shall be deemed qualified in its entirety by such
reference. The Exchange Offer Registration Statement and the Equity Registration
Statement, including the exhibits thereto, can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, at the Regional Offices of the Commission
at 7 World Trade Center, New York, New York 10048 and at Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such materials can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. Such material may also be accessed electronically by means of the
Commission's home page on the Internet at http://www.sec.gov.
As a result of the filing of the Exchange Offer Registration Statement with
the Commission, the Company will become subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith will be required to file periodic reports and
other information with the Commission. The obligation of the Company to file
periodic reports and other information with the Commission will be suspended if
the Exchange Notes are held of record by fewer than 300 holders as of the
beginning of any fiscal year of the Company other than the fiscal year in which
the Exchange Offer Registration Statement is declared effective. In the event
the Company ceases to be subject to the informational requirements of the
Exchange Act, the Company will be required under the Indenture to continue to
file with the Commission the annual and quarterly reports, information,
documents or other reports, including, without limitation, reports on Forms 10-
K, 10-Q and 8-K, which would be required pursuant to the information
requirements of the Exchange Act. The Company will also furnish such other
reports as may be required by law.
The Company and the Subsidiary Guarantors' principal executive offices are
located at 17304 Preston Road, Dallas, Texas 75252; their telephone number is
(214) 733-6200.
1
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial data, including
the Consolidated Financial Statements and notes thereto included elsewhere in
this Prospectus. Unless otherwise stated in this Prospectus, references to (a)
the "Company" shall mean American Pad & Paper Company of Delaware, Inc.
(formerly known as Williamhouse-Regency of Delaware Inc.) and its consolidated
subsidiaries; (b) "APP" shall mean American Pad & Paper Company, the indirect
parent of the Company; (c) "Williamhouse" shall mean the operations of the
Company prior to its acquisition by APP on October 31, 1995 (the "Acquisition");
and (d) "Ampad" shall mean Ampad Corporation, the former operating subsidiary of
APP, prior to Ampad's merger with and into Williamhouse immediately prior to the
Acquisition (the "Merger"). See "The Transactions." Although the Company was
the surviving corporation in the Merger, Ampad has been treated as the acquiring
corporation for accounting purposes. On May 29, 1996, the Company executed a
definitive agreement to purchase the Niagara Envelope Company, Inc. ("Niagara").
Financial data presented herein on a pro forma basis for the year ended
December 31, 1995 gives effect to the Acquisition, the other transactions
related thereto and the acquisition of Niagara as if such transactions occurred
on January 1, 1995. See "Unaudited Pro Forma Financial Data."
THE COMPANY
The Company is one of the largest manufacturers and marketers of paper-based
office products (excluding computer forms and copy paper) in the $60 billion to
$70 billion North American office products industry. The Company offers a broad
product line including nationally branded and private label writing pads, file
folders, envelopes and other office products. Through its Ampad division, the
Company is among the largest and most important suppliers of pads and other
paper-based writing products, filing supplies and envelopes to many of the
largest and fastest growing office products distributors. Acquired in October
1995, the Company's Williamhouse division is the leading supplier of mill
branded, specialty and commodity envelopes to paper merchants/distributors. The
Company's strategy is to grow by focusing on the largest and fastest growing
office product distribution channels, making acquisitions, introducing new
product lines, broadening product distribution across its channels and
maintaining its position among the lowest-cost manufacturers in the industry.
As a result of this strategy, the Company's sales have grown at a compound
annual rate of approximately 34% from 1992 to 1995. For the year ended
December 31, 1995, the Company had net sales of $617.2 million and income from
operations of $57.3 million on the pro forma basis described herein. See
"Unaudited Pro Forma Financial Data."
Since the mid-1980s, the office products industry has experienced significant
changes in the channels through which office products are distributed such as
the emergence of new channels, including national office products superstores,
national contract stationers and mass merchandisers, and consolidation within
these and other channels. As a result of these changes, approximately 6,800
office product distributors existed in 1994 compared with approximately 13,300
in 1987. The channels through which office products are distributed from the
manufacturer to the end-user include retail channels such as national office
products superstores, mass merchandisers and warehouse clubs; commercial
channels such as national contract stationers; paper merchants/distributors; and
other channels such as regional distributors, school campuses and direct mail.
The Company believes that sales of office products through retail channels are
approximately $20 billion to $25 billion. The three dominant national
superstores (Office Depot, OfficeMax and Staples) have experienced significant
growth over the past three years and currently account for approximately 17% of
total retail office products sales and approximately 6% of total office products
sales. The Company believes that sales of office products through commercial
channels are approximately $25 billion to $30 billion. Principally through the
acquisition of smaller, regional contract stationers, national contract
stationers (including Boise Cascade Office Products, BT Office Products,
Corporate Express, U.S. Office Products and the contract stationer divisions of
Office Depot and Staples) have grown more rapidly than other commercial
channels. These national contract stationers now account for approximately 25%
of commercial office products sales and approximately 11% of total office
products sales. Certain office products, particularly envelopes, are sold
predominantly through paper merchants/distributors or directly to end users.
Paper merchants/distributors currently account for approximately 30% of the
envelope market. The three largest paper merchants (ResourceNet, Unisource and
Zellerbach) have experienced significant growth primarily through consolidation.
1
<PAGE>
The Company has targeted and will continue to target those customers driving
consolidation in the retail, commercial and paper merchant distribution channels
and believes that it is uniquely positioned to meet the special requirements of
these customers. These customers seek suppliers, such as the Company, who are
able to offer broad product lines, higher value-added innovative products,
national distribution capabilities, low costs and reliable service. Furthermore,
as these customers continue to grow and as they consolidate their supplier
bases, the Company's ability to meet their special requirements becomes an
increasingly important competitive advantage. Recognizing Ampad's potential for
growth through the changing distribution channels, Bain Capital, Inc. ("Bain
Capital") and management formed APP and purchased Ampad from Mead Corporation
("Mead") in 1992. Since that time, management has enhanced the Company's scale,
broadened its product line, expanded upon its national presence and strengthened
its distribution capabilities through acquisition and innovation while
simultaneously delivering higher customer service levels. As a result, the
Company's net sales through the most rapidly growing retail and commercial
channels increased from $8.8 million in 1992 to $134.8 million ($164.5 million
on a pro forma basis) in 1995.
The following chart illustrates the Company's principal corporate structure as
well as its principal products, customers and brands in its primary business
segments. Certain of the operations of the Williamhouse division are conducted
through wholly owned subsidiaries of the Company.
AMERICAN PAD & PAPER COMPANY
|
WR ACQUISITION, INC.
|
THE COMPANY (ISSUER)
|
_________________________________
| |
AMPAD DIVISION WILLIAMHOUSE DIVISION
Products: . Pads and Notebooks . Envelopes
. Filing Supplies . Invitations
. Envelopes . Announcements
. Christmas and Holiday Cards
Customers: . Retailers . Paper Merchants/Distributors
. Contract Stationers . Jobbers
. Wholesalers . Personalizing Businesses
. Buying Groups
Selected Brands: . Ampad(R) . Century(TM)
. Embassy(R) . Huxley(TM)
. Evidence(R) . Karolton(R)
. Globe-Weis(R) . Kent(TM)
. Gold Fibre(R) . Peel & Seel(R)
. SCM(TM) . Williamhouse(TM)
. World Fibre(TM)
2
<PAGE>
COMPETITIVE STRENGTHS
The combination of the Company's products, customers and national scale
distinguishes it as a leading manufacturer and marketer of paper-based office
products (excluding computer forms and copy paper) in North America. The Company
attributes this position and its continued opportunities for growth and
profitability to the following competitive strengths:
. Market Leader. The Company has achieved market leadership in core products
sold to customers in the largest and fastest growing office products
channels by offering one of the broadest assortments of high quality
products in the industry. Furthermore, the Company enjoys national brand
awareness in many of its product lines, including Ampad, Century, Embassy,
Evidence, Gold Fibre, Huxley, Karolton, Kent, Peel & Seel, SCM,
Williamhouse and World Fibre.
. Well-Positioned and Diversified Customer Base. The Company has substantial
opportunities for growth within several distribution channels of the office
products industry. The Company has focused on the largest and fastest
growing office products channels. Several of the Company's largest
customers, such as Boise Cascade Office Products, BT Office Products,
Corporate Express, Office Depot, OfficeMax and Staples, are expected by
industry analysts to experience annual revenue growth of 15% to 35% over
the next five years. The Company's Williamhouse division maintains
particularly strong relationships with the largest and fastest growing
paper merchants/distributors in the market, including ResourceNet,
Unisource and Zellerbach. The Company also maintains strong customer
relationships across all of the other office products distribution
channels, including mass merchandisers, warehouse clubs, office products
wholesalers and independent dealers.
. National Scale and Service Capability. The Company's extensive product
line, multiple brands and broad price point coverage provide significant
advantages and economies of scale in selling to and servicing its
customers. The Company has become an increasingly important strategic
partner to its customers as they seek higher value-added products, simplify
their purchasing organizations and consolidate their relationships among
selected national suppliers. The Company's national presence and network
of 22 strategically located facilities have enabled it to maintain rapid
and efficient order fulfillment standards. In addition, the Company's
advanced electronic data interchange ("EDI") capabilities enable it to meet
its customers' EDI requirements, executing automated transactions rapidly,
efficiently and accurately.
. Innovation New Products. The Company has introduced several innovative
products as part of its marketing strategy to differentiate itself from
other suppliers and enhance profitability. Recent examples include Gold
Fibre classic and designer notebooks, Papers with a Purpose, World Fibre
ground-wood writing pads and Peel & Seel envelopes. Products introduced
since 1992 accounted for over $70 million of the Company's 1995 net sales.
The Company's brand recognition and presence with its national customers
allows it to more easily introduce new or acquired product lines to those
customers.
. Low-Cost Manufacturer. The Company believes it is among the lowest-cost
manufacturers of paper-based office products in the industry. The Company
ensures its low-cost manufacturing position through its paper purchasing
and distribution advantages as well as its maintenance of modern and
efficient manufacturing technology and a high quality workforce. The
Company has been successful in reducing costs with each of its acquisitions
in the last three years by continually streamlining its manufacturing
processes and overhead structure. From 1992 to 1995, the Company reduced
its fixed manufacturing costs from 7.4% to 5.2% of net sales and its
selling, general and administrative expenses from 10.5% to 7.2% of net
sales. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Overview."
. Purchasing Advantages. The Company has strong relationships with most of
the country's largest paper mills, many of which have been conducting
business with the Company for more than 30 years. The Company believes it
is one of the largest purchasers of the principal paper grades used in its
manufacturing operations. In addition, the Company has the largest number
of designated mill relationships which involve some of the largest and most
recognized paper mill brands such as Hammermill, Hopper, Neenah and
Strathmore. These relationships afford the Company certain paper
purchasing advantages, including stable supply and favorable pricing
arrangements.
3
<PAGE>
. Proven Management Team With Successful Track Record. The Company's senior
operating management team averages over 25 years each in the paper products
industry. Management has succeeded in increasing sales and operating
profitability by recognizing and acting on the transition to the fastest
growing distribution channels, introducing higher value-added products,
acquiring complementary product lines (Karolton in December 1993, SCM
Office Supplies, Inc. ("SCM") in July 1994 and certain product lines of
Huxley and Globe-Weis in July 1994 and August 1995, respectively),
improving manufacturing processes and reducing overhead and administrative
costs.
GROWTH STRATEGY
The Company's strategy is to maintain and strengthen its leadership position
by focusing on the following.
. Focus on Rapidly Growing Customers. The Company serves many of the largest
and best positioned customers in the office products market segment
including national office product superstores, mass merchandisers and
warehouse clubs, national contract stationers and national paper
merchants/distributors. For 1995 on a pro forma basis, approximately 15.3%
of the Company's net sales were to national office product superstores,
7.8% to mass merchandisers and warehouse clubs, 9.1% to national contract
stationers and 19.7% to the three largest national paper merchants/
distributors. Anticipating further consolidation in the office products
industry, the Company expects that its national scope and broad product
line will be increasingly important in meeting the need of its customers.
The Company will continue to target those customers driving consolidation
in the office products industry.
. Continue to Introduce New Products. New, higher value-added products give
the Company a greater selection to offer its customers and improve product
line profitability for both the Company and its customers. The Company
plans to differentiate itself from other suppliers and improve
profitability through product innovation, differentiation and line
extensions.
. Pursue Complementary Product Line and Strategic Acquisitions. The office
products industry is highly fragmented despite continuing consolidation
among its manufacturers. The Company is leading consolidation among
manufacturers of writing products, filing supplies and envelopes. The SCM
and Williamhouse acquisitions broadened the Company's product line to
include filing products and envelopes and enhanced its presence in the
growing distribution channels. The Globe-Weis acquisition and the
Company's agreement to acquire Niagara demonstrate its commitment to
strengthening its competitive and strategic position within its markets.
The Company believes that there are significant opportunities to acquire
companies in both its existing and complementary product lines. In
addition, the Company intends to enter new office products markets through
acquisitions of established companies in those markets.
. Broaden Product Distribution. The Company's market presence and
distribution strengths uniquely position it to sell new or acquired product
lines across its distribution channels, including national office product
superstores, national contract stationers, office product wholesalers and
mass merchandisers. As an important part of its growth strategy, for
example, the Company has successfully introduced the envelope product lines
acquired in the Acquisition, previously distributed primarily through paper
merchants/distributors, to Ampad division's distribution channels under the
Ampad and private label names. The Company estimates that this market
opportunity is approximately $350 million in annual net sales.
. Continue to Reduce Costs. The Company has identified and is in the process
of implementing cost reductions in connection with the Acquisition that are
expected to result in approximately $7.4 million of annualized cost
savings. In addition, management plans to implement further identified
cost reductions beyond 1996.
THE TRANSACTIONS
Acquisition. On October 3, 1995, APP agreed to acquire in a merger transaction
all of the outstanding stock of WR Acquisition, Inc. ("WR"), the parent
corporation of Williamhouse. In a series of transactions, APP exchanged 100% of
the capital stock of its then wholly owned subsidiary, Ampad Corporation, for
newly issued shares of WR. WR then
4
<PAGE>
effected the Merger of Ampad with and into Williamhouse, with Williamhouse being
the surviving legal entity. WR was then merged with a wholly owned subsidiary
of APP, pursuant to which WR's stockholders (other than APP and affiliates)
received an aggregate of $140.0 million in cash plus reimbursement of certain
expenses of $4.0 million. As a result of the transactions, APP now owns all of
the issued capital stock of WR, which in turn owns all of the issued capital
stock of the Company. APP is owned by the Company's senior management team
(Messrs. Hanson, Gard and Benson) and Bain Capital and its related investors.
See "Principal Stockholders." In connection with the Acquisition, the Company
refinanced approximately $119.1 million of indebtedness, including prepayment
penalties of approximately $1.7 million. Concurrently with the closing of the
Acquisition on October 31, 1995 (the "Closing"), the Company incurred borrowings
under a bank credit agreement (the "Bank Credit Agreement") and the Company
entered into a new non-recourse, off-balance sheet accounts receivable
securitization program (the "Accounts Receivable Facility"). Bain Capital
assisted the Company in analyzing, negotiating and arranging the financing for
the Acquisition. Following the Acquisition, the Company's name was changed to
American Pad & Paper Company of Delaware, Inc.
Tender Offer and Consent Solicitation. On October 23, 1995, an offer (as
amended, the "Tender Offer") was commenced to purchase for cash all of the
Company's 11 1/2% Senior Subordinated Debentures due 2005 (the "Old Debentures")
and a related solicitation (the "Consent Solicitation") of consents to modify
certain terms of the indenture under which the Old Debentures were issued. The
Company received consents and tenders representing 99.9% in aggregate principal
amount of the Old Debentures outstanding at a price of 109% of the aggregate
principal amount of the Old Debentures. As of the date hereof, there are no Old
Debentures outstanding.
Refinancing. Since the Acquisition, the Company has effected the following
additional transactions (such transactions, together with the Acquisition, the
entering into of the Accounts Receivable Facility and the incurrence of
borrowings under the Bank Credit Agreement being referred to collectively as the
"Transactions"): (i) the offering of the Notes (the "Offering"); (ii) the
Tender Offer and the related Consent Solicitation; (iii) the redemption of $70.6
million of preferred stock and preferred stock equivalents of APP (collectively,
the "Preferred Stock"); and (iv) the payment of a $4.5 million cash dividend to
pay the liquidation preference, including the return of original costs, on APP's
Class P Common Stock (the "Class P Common Stock Dividend").
Certain Arrangements Relating to the Acquisition. Prior to the Acquisition,
APP declared a dividend on its common stock and Class P Common Stock (the "Class
P Common Stock") of one share of Preferred Stock for each ten shares of common
stock and Class P Common Stock. In December 1995, APP redeemed on a pro rata
basis a portion of such Preferred Stock with an aggregate liquidation value of
approximately $70.6 million from the proceeds of the Offering. At the same time,
APP declared a cash dividend of approximately $4.5 million on its Class P Common
Stock and, thereafter, converted all outstanding Class P Common Stock on a
share-for-share basis into common stock. The Company's senior management team
(Messrs. Hanson, Gard and Benson) received an aggregate of 5,400 shares of
Preferred Stock as a result of the Preferred Stock Dividend and cash
consideration of approximately $9.2 million as a result of the redemption of
certain of these shares of Preferred Stock and Preferred Stock equivalents. In
connection with the Acquisition, members of Williamhouse's management received
substantial payments for their equity interests in Williamhouse. Bain Capital
was paid a fee of $5.0 million by Ampad for, among other things, its services in
analyzing, negotiating and arranging the financing for the Acquisition. See
"Certain Relationships and Related Transactions."
Employment Agreements. In June 1996, the Company and Charles G. Hanson, III
entered into an employment agreement pursuant to which Mr. Hanson agreed to
serve as the Chief Executive Officer of the Company for a period of three years
for an annual base salary equal to at least $450,000 plus an annual bonus of up
to 100% of his annual base salary (upon the Company achieving certain operating
targets) and certain fringe benefits. Russell M. Gard entered into a similar
agreement whereby he agreed to serve as the Chief Operating Officer of the
Company for an annual base salary equal to at least $400,000 plus an annual
bonus of up to 100% of his annual base salary (upon the Company achieving
certain operating targets) and certain fringe benefits. Gregory M. Benson has
an agreement with the Company pursuant to which he is entitled to an annual base
salary of at least $175,000, a bonus of up to 100% of his average annual base
salary and certain other payments. See "Management-Management Agreements."
5
<PAGE>
SALE OF PERSONALIZING DIVISION
The Company's management identified the personalizing division of Williamhouse
(the "Personalizing Division") as a nonstrategic asset following the Acquisition
and has decided to pursue a sale of the Personalizing Division. As a result,
the financial statements of the Company included elsewhere in this Prospectus
reflect the Personalizing Division as "Assets for Sale" as of December 31, 1995
and March 31, 1996. On June 6, 1996, the Company signed a definitive agreement
with a potential buyer to sell the Personalizing Division. Under the terms of
the agreement, the Company will receive gross proceeds of approximately $60
million (subject to certain closing adjustments) from the sale of the
Personalizing Division, which it expects to complete by the end of June 1996.
The sales agreement is subject to certain conditions, some of which are outside
the control of the Company. As a result, no assurance can be given that the
sale will be completed or if completed, on the terms set forth in the sales
agreement. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Overview."
PENDING ACQUISITION OF NIAGARA
On May 29, 1996, the Company executed a definitive agreement to acquire
Niagara for an aggregate purchase price of approximately $50 million, plus $5.0
million to be paid under a one-year consulting services agreement (the "Niagara
Acquisition"). Niagara supplies mill branded, specialty and commodity envelopes
to paper merchants/distributors through four manufacturing facilities located
near Buffalo, Chicago, Dallas and Denver. Niagara had 1995 net sales of
approximately $106 million and operating income of approximately $8.5 million.
The Company expects the Niagara Acquisition to be completed by the middle of
July 1996. The Company believes that the Niagara Acquisition will strengthen
the Company's distribution capabilities in the Midwest, provide additional
manufacturing capacity and provide opportunities to achieve operating
improvements through the consolidation of Niagara's operations with those of the
Company. The completion of the Niagara Acquisition is subject to certain
conditions.
Although the Company regularly engages in discussions with companies regarding
potential acquisitions, it currently does not have any agreements or
understandings relating to acquisitions other than the Niagara Acquisition.
USE OF PROCEEDS
There will be no cash proceeds to the Company or the Subsidiary Guarantors
from the exchange pursuant to the Exchange Offer. The Company received
approximately $194 million in net proceeds from the sale of the Notes in the
Offering. The net proceeds were used by the Company (i) to repurchase for
approximately $109.0 million in cash the Old Debentures in connection with the
Tender Offer and Consent Solicitation, together with accrued interest thereon of
$5.3 million, (ii) to redeem approximately $70.6 million in aggregate
liquidation value of Preferred Stock, (iii) to pay the Class P Common Stock
Dividend of $4.5 million, (iv) to provide working capital and (v) to pay related
fees and expenses related to the Transactions. See "Use of Proceeds."
THE NOTES OFFERING
NOTES.......................... The Notes were sold by the Company on December
1, 1995, to BT Securities Corporation and
Wasserstein Perella Securities, Inc.
(collectively, the "Initial Purchasers")
pursuant to a Purchase Agreement, dated
November 17, 1995. The Initial Purchasers
subsequently resold the Notes to qualified
institutional buyers or accredited investors
pursuant to Rule 144A under the Securities
Act.
REGISTRATION RIGHTS.AGREEMENTS.. Pursuant to the Purchase Agreement, the
Company, the Subsidiary Guarantors and the
Initial Purchasers entered into a Registration
Rights Agreement, dated December 1, 1995 (the
"Registration Rights Agreement"), which grants
the holders of the Notes certain exchange and
registration rights. The Exchange Offer is
intended to satisfy such exchange rights which
terminate upon the consummation of the
Exchange Offer.
6
<PAGE>
THE EXCHANGE OFFER
SECURITIES OFFERED.......... $200,000,000 aggregate principal amount of 13%
Senior Subordinated Notes due 2005, Series B (the
"Exchange Notes").
THE EXCHANGE OFFER.......... $1,000 principal amount of the Exchange Notes in
exchange for each $1,000 principal amount of Notes.
As of the date hereof, $200,000,000 aggregate
principal amount of Notes are outstanding. The
Company will issue the Exchange Notes to holders on
or promptly after the Expiration Date.
Based on an interpretation by the staff of the
Commission set forth in no-action letters issued to
third parties, the Company believes that Exchange
Notes issued pursuant to the Exchange Offer in
exchange for Notes may be offered for resale,
resold and otherwise transferred by any holder
thereof (other than any such holder which is an
"affiliate" of the Company within the meaning of
Rule 405 under the Securities Act) without
compliance with the registration and prospectus
delivery provisions of the Securities Act, provided
that such Exchange Notes are acquired in the
ordinary course of such holder's business and that
such Holder does not intend to participate and has
no arrangement or understanding with any person to
participate in the distribution of such Exchange
Notes.
Each Participating Broker-Dealer that receives
Exchange Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale
of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a
prospectus, a Participating Broker-Dealer will not
be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented
from time to time, may be used by a Participating
Broker-Dealer in connection with resales of
Exchange Notes received in exchange for Notes where
such Notes were acquired by such Participating
Broker-Dealer as a result of market-making
activities or other trading activities. The Company
has agreed that, for a period of 180 days after the
Expiration Date, it will make this Prospectus
available to any Participating Broker-Dealer for
use in connection with any such resale. See "Plan
of Distribution."
Any holder who tenders in the Exchange Offer with
the intention to participate, or for the purpose of
participating, in a distribution of the Exchange
Notes could not rely on the position of the staff
of the Commission enunciated in no-action letters
and, in the absence of an exemption therefrom, must
comply with the registration and prospectus
delivery requirements of the Securities Act in
connection with any resale transaction. Failure to
comply with such requirements in such instance may
result in such holder incurring liability under the
Securities Act for which the holder is not
indemnified by the Company.
EXPIRATION DATE............. 5:00 p.m., New York City time, on July 22, 1996,
unless the Exchange Offer is extended, in which
case the term "Expiration Date" means the latest
date and time to which the Exchange Offer is
extended.
7
<PAGE>
ACCRUED INTEREST ON THE EXCHANGE
NOTE AND NOTES...................... Each Exchange Note will bear interest
from its issuance date. Holders of Notes
that are accepted for exchange will
receive, in cash, accrued interest
thereon to, but not including, the
issuance date of the Exchange Notes. Such
interest will be paid with the first
interest payment on the Exchange Notes.
Interest on the Notes accepted for
exchange will cease to accrue upon
issuance of the Exchange Notes.
CONDITIONS TO THE EXCHANGE
OFFER............................... The Exchange Offer is subject to certain
customary conditions, which may be waived
by the Company. See "The Exchange Offer
-- Conditions."
PROCEDURES FOR TENDERING NOTES........ Each holder of Notes wishing to accept
the Exchange Offer must complete, sign
and date the accompanying Letter of
Transmittal, or a facsimile thereof, in
accordance with the instructions
contained herein and therein, and mail or
otherwise deliver such Letter of
Transmittal, or such facsimile, together
with the Notes and any other required
documentation to the Exchange Agent (as
defined) at the address set forth herein.
By executing the Letter of Transmittal,
each holder will represent to the Company
that, among other things, the Exchange
Notes acquired pursuant to the Exchange
Offer are being obtained in the ordinary
course of business of the person
receiving such Exchange Notes, whether or
not such person is the holder, that
neither the holder nor any such other
person has any arrangement or
understanding with any person to
participate in the distribution of such
Exchange Notes and that neither the
holder nor any such other person is an
"affiliate," as defined under Rule 405 of
the Securities Act, of the Company. See
"The Exchange Offer -- Purpose and Effect
of the Exchange Offer" and "-- Procedures
for Tendering."
UNTENDERED NOTES...................... Following the consummation of the
Exchange Offer, holders of Notes eligible
to participate but who do not tender
their Notes will not have any further
registration rights and such Notes will
continue to be subject to certain
restrictions on transfer. Accordingly,
the liquidity of the market for such
Notes could be adversely affected upon
consummation of the Exchange Offer if
such holder does not participate in the
Exchange Offer.
CONSEQUENCES OF FAILURE
TO EXCHANGE......................... The Notes that are not exchanged pursuant
to the Exchange Offer will remain
restricted securities. Accordingly, such
Notes may be resold only (i) to the
Company, (ii) pursuant to Rule 144A or
Rule 144 under the Securities Act or
pursuant to some other exemption under
the Securities Act, (iii) outside the
United States to a foreign person
pursuant to the requirements of Rule 904
under the Securities Act, or (iv)
pursuant to an effective registration
statement under the Securities Act. See
"The Exchange Offer -- Consequences of
Failure to Exchange."
8
<PAGE>
SHELF REGISTRATION
STATEMENT.......................... If any holder of the Notes (other than any
such holder which is an "affiliate" of the
Company or the Subsidiary Guarantors
within the meaning of Rule 405 under the
Securities Act) is not eligible under
applicable securities laws to participate
in the Exchange Offer, and such holder has
satisfied certain conditions relating to
the provision of information to the
Company for use therein, the Company and
the Subsidiary Guarantors have agreed to
register the Notes on a shelf registration
statement (the "Shelf Registration
Statement") and use their best efforts to
cause it to be declared effective by the
Commission as promptly as practical on or
after the consummation of the Exchange
Offer. The Company and the Subsidiary
Guarantors have agreed to maintain the
effectiveness of the Shelf Registration
Statement for, under certain
circumstances, a maximum of three years
from the date of issuance of the Notes, to
cover resales of the Notes held by any
such holders.
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS.................. Any beneficial owner whose Notes are
registered in the name of a broker,
dealer, commercial bank, trust company or
other nominee and who wishes to tender
should contact such registered holder
promptly and instruct such registered
holder to tender on such beneficial
owner's behalf. If such beneficial owner
wishes to tender on such owner's own
behalf, such owner must, prior to
completing and executing the Letter of
Transmittal and delivering its Notes,
either make appropriate arrangements to
register ownership of the Notes in such
owner's name or obtain a properly
completed bond power from the registered
holder. The transfer or registered
ownership may take considerable time.
GUARANTEED DELIVERY
PROCEDURES......................... Holders of Notes who wish to tender their
Notes and whose Notes are not immediately
available or who cannot deliver their
Notes, the Letter of Transmittal or any
other documents required by the Letter of
Transmittal to the Exchange Agent (or
comply with the procedures for book-entry
transfer) on or prior to the Expiration
Date must tender their Notes according to
the guaranteed delivery procedures set
forth in "The Exchange Offer -- Guaranteed
Delivery Procedures."
WITHDRAWAL RIGHTS.................... Tenders may be withdrawn at any time prior
to 5:00 p.m., New York City time, on the
Expiration Date.
ACCEPTANCE OF NOTES AND DELIVERY
OF EXCHANGE NOTES.................. The Company will accept for exchange any
and all Notes which are properly tendered
in the Exchange Offer prior to 5:00 p.m.,
New York City time, on the Expiration
Date. The Exchange Notes issued pursuant
to the Exchange Offer will be delivered
promptly following the Expiration Date.
See "The Exchange Offer - Terms of the
Exchange Offer."
MATERIAL FEDERAL INCOME TAX
CONSEQUENCES....................... The exchange pursuant to the Exchange
Offer should not be a taxable event for
Federal income tax purposes. See "Certain
Material Federal Income Tax Consequences."
EXCHANGE AGENT....................... IBJ Schroder Bank & Trust Company
9
<PAGE>
THE EXCHANGE NOTES
GENERAL..................... The form and terms of the Exchange Notes are the
same as the form and terms of the Notes (which they
replace) except that (i) the Exchange Notes bear a
Series B designation, (ii) the Exchange Notes have
been registered under the Securities Act and,
therefore, will not bear legends restricting the
transfer thereof, and (iii) the holders of Exchange
Notes will not be entitled to certain rights under
the Registration Rights Agreement, including the
provisions providing for an increase in the
interest rate on the Notes in certain circumstances
relating to the timing of the Exchange Offer, which
rights will terminate when the Exchange Offer is
consummated. See "The Exchange Offer--Purpose and
Effect of the Exchange Offer." The Exchange Notes
will evidence the same debt as the Notes and will
be entitled to the benefits of the Indenture. See
"Description of Exchange Notes." The Notes and the
Exchange Notes are sometimes referred to herein
collectively as the "Senior Notes."
MATURITY DATE............... November 15, 2005.
INTEREST PAYMENT DATES...... Interest on the Exchange Notes will accrue from the
date of original issuance (the "Issue Date") and is
payable semi-annually on each May 15 and November
15, commencing November 15, 1996.
RANKING..................... The Exchange Notes and Guarantees will be general
unsecured obligations of the Company and Subsidiary
Guarantors and will be subordinated in right of
payment to all existing and future Senior Debt of
the Company and Guarantor Senior Debt of the
Subsidiary Guarantors, respectively. The Senior
Notes will rank pari passu with any future senior
subordinated indebtedness of the Company and
Subsidiary Guarantors and will rank senior to all
other subordinated indebtedness of the Company and
Subsidiary Guarantors. As of March 31, 1996, the
Company had approximately $253.5 million of Senior
Debt (excluding $8.6 million of Senior Debt owed by
a Subsidiary Guarantor, which is being sold subject
to such debt. See "Business--Sale of Personalizing
Division"). As of March 31, 1996, the Company had
approximately $45.7 million available to be drawn
under the revolving credit portion and letter
credit facility of the Bank Credit Agreement, which
amounts would have been Senior Debt. Under the
Indenture (without giving effect to the
restrictions in the Bank Credit Agreement), the
Company could have incurred approximately $74
million of additional indebtedness, including
indebtedness senior in right of payment to the
Exchange Notes, at March 31, 1996.
OPTIONAL REDEMPTION......... The Exchange Notes are redeemable, in whole or in
part, at the option of the Company on or after
November 15, 2000, at the redemption prices set
forth herein plus accrued interest to the date of
redemption. See "Description of Exchange Notes -
Redemption." In addition, prior to
10
<PAGE>
November 15, 1998, the Company, at its option, may
redeem up to 35% of the aggregate principal amount
of the Exchange Notes originally issued in the
Offering with the net cash proceeds of one or more
Public Equity Offerings (as defined), at the
redemption prices set forth herein plus accrued
interest to the date of redemption. APP has filed a
registration statement with the Commission for the
purpose of registering the initial public offering
(the "Proposed Equity Offering") of its Common
Stock, par value $.01 per share (the "Common
Stock"). The net proceeds to APP from the Proposed
Equity Offering are currently estimated to be
approximately $187 million. APP intends to use a
portion of such proceeds to allow the Company to
redeem approximately $70 million aggregate
principal amount of the Notes or Exchange Notes
from the holders thereof on a pro rata basis and to
allow the Company to pay approximately $8 million
in redemption premiums thereon. There can be no
assurance that APP will consummate the Proposed
Equity Offering, or if it does, that it will use
the proceeds therefrom to redeem amounts
outstanding under the Notes or the Exchange Notes.
See "Proposed Initial Public Offering."
CHANGE OF CONTROL........... Upon a Change of Control, each holder will have the
right to require the Company to repurchase such
holder's Exchange Notes at a price equal to 101% of
the principal amount thereof plus accrued interest
to the date of repurchase.
GUARANTEES.................. The Exchange Notes will be fully and
unconditionally guaranteed (the "Guarantees") on a
senior subordinated basis by the Subsidiary
Guarantors jointly and severally. The Guarantees
will be general unsecured obligations of the
Subsidiary Guarantors and will be subordinated in
right of payment to all existing and future
Guarantor Senior Debt. As of March 31, 1996, the
Subsidiary Guarantors collectively had
approximately $8.6 million of Guarantor Senior Debt
(excluding guarantees of Senior Debt). As permitted
under the Indenture, the Company expects to merge
certain of the Subsidiary Guarantors with and into
itself following the sale of the Personalizing
Division.
CERTAIN COVENANTS........... The Indenture governing the Exchange Notes contains
certain covenants that limit the ability of the
Company and certain of its subsidiaries to, among
other things, incur additional indebtedness, pay
dividends or make certain other restricted
payments, consummate certain asset sales, enter
into certain transactions with affiliates, incur
indebtedness that is subordinate in right of
payment to any Senior Debt and senior in right of
payment to the Exchange Notes, incur liens, impose
restrictions on the ability of a subsidiary to pay
dividends or make certain payments to the Company
and its subsidiaries, merge or consolidate with any
other person or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially
all of the assets of the Company. In addition, the
Indenture requires the Company to use 50% of the
net cash proceeds of an Initial Public Offering (as
defined) to repay up to $50 million of indebtedness
of the Company.
For additional information regarding the Notes, see "Description of Exchange
Notes."
11
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
THE COMPANY
The summary historical consolidated financial data set forth below for the
years ended December 31, 1993, 1994 and 1995 have been derived from, and are
qualified by reference to, the audited consolidated financial statements of the
Company, included elsewhere in this Prospectus. Although the Company was the
surviving corporation in the Merger, Ampad has been treated as the acquiring
corporation for accounting purposes. As a result, the income statement and
other data for the year ended December 31, 1995 reflect the historical
operations of Ampad and the results of the Company for the two-month period
ended December 31, 1995. The historical consolidated financial data set forth
below for the three months ended March 31, 1995 and 1996 have been derived from
the unaudited consolidated financial statements of the Company, which, in the
opinion of the Company, reflect all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation. Results for the three
months ended March 31, 1996 are not necessarily indicative of results for the
full year. The summary historical consolidated financial data set forth below
should be read in conjunction with, and are qualified by reference to,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the audited consolidated financial statements and accompanying
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------------------- -----------------------
1993 1994 1995 1995 1996
---------- ------------ ------------ ---------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA (1)(2)(3):
Net sales...................................... $104,277 $120,443 $ 259,341 $47,691 $121,418
Cost of sales(4)............................... 88,491 113,394 211,814 42,394 97,889
-------- -------- --------- ------- --------
Gross profit................................... 15,786 7,049(4) 47,527 5,297 23,529
Selling, general and administrative expenses... 10,765 10,615 18,545 2,749 11,026
Nonrecurring compensation charge(5)............ -- -- 27,632 -- --
-------- -------- --------- ------- --------
Income (loss) from operations.................. 5,021 (3,566) 1,350 2,548 12,503
Interest expense............................... 3,320 4,560 13,657 1,656 12,542
Other (income) expense......................... (167) (90) (735) (65) (269)
-------- -------- --------- ------- --------
Income (loss) before income taxes.............. 1,868 (8,036) (11,572) 957 230
Provision for (benefit from) income taxes...... 64 (488) (6,538) 366 102
-------- -------- --------- ------- --------
Income (loss) before extraordinary item........ 1,804 (7,548) (5,034) 591 128
Extraordinary loss from extinguishment of debt, -- -- (9,652) -- --
net of income tax benefit.................... -------- -------- --------- ------- --------
Net income (loss).............................. $ 1,804 ($7,548) ($14,686) $ 591 $ 128
======== ======== ========= ======= ========
OTHER DATA:
Consolidated EBITDA, as defined (6)............ $ 4,575 $ 4,345 $ 38,760 $ 5,718 $ 14,142
Depreciation and amortization.................. 159 942 4,248 528 3,020
Capital expenditures........................... 1,656 942 5,640 2,530 2,321
Ratio of earnings to fixed charges (7)......... 1.5x --(8) --(8) 1.5x 1.0x
BALANCE SHEET DATA: DECEMBER 31, MARCH 31,
1995 1996
------------- ------------
Working capital.............................................................. $108,924 $109,238
Total assets................................................................. 504,356 500,794
Long-term debt, less current maturities...................................... 443,794 440,453
Stockholders' equity (deficit)(9)............................................ (66,421) (66,293)
</TABLE>
- ------------------
(1) Effective July 5, 1994, Ampad acquired the assets and assumed certain
liabilities of SCM Office Supplies, Inc. (the "SCM Acquisition"). The
acquisition has been accounted for under the purchase method of accounting
and, accordingly, the operating results have been included with Ampad's
results since the date of acquisition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 3 of
the Notes to Consolidated Financial Statements of the Company included
herein.
12
<PAGE>
(2) Effective August 16, 1995, Ampad acquired the inventories and certain
equipment of the file folder and hanging file product lines of the Globe-
Weis office products division ("Globe-Weis") of Atapco (as defined) (the
"Globe-Weis Acquisition"). The acquisition has been accounted for under
the purchase method of accounting and, accordingly, the operating results
have been included in Ampad's results since the date of acquisition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 3 of the Notes to Consolidated Financial Statements of
the Company included herein.
(3) Effective October 31, 1995, Ampad acquired Williamhouse in the Acquisition.
The Acquisition has been accounted for under the purchase method of
accounting and accordingly, the operating results of Williamhouse, except
for the Personalizing Division, for the two month period ended December 31,
1995 have been included in Ampad's results for the year ended December 31,
1995. The Personalizing Division was held for sale at December 31, 1995
and March 31, 1996. As such, the operating results of the Personalizing
Division are excluded from the results of operations for the two month
period ended December 31, 1995 (period subsequent to the Acquisition) and
the three months ended March 31, 1996. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 3 of
the Notes of Consolidated Financial Statements of the Company included
herein.
(4) Inventory cost is determined using the last-in, first-out ("LIFO") method
of valuation. Gross profit in the fourth quarter of 1994 was adversely
impacted by a significant increase in paper prices, resulting in a $5.4
million charge for LIFO in advance of Ampad's raising selling prices in the
first quarter of 1995.
(5) Includes non-cash stock option compensation of $24.3 million directly
related to the Acquisition as well as other non-recurring cash and non-cash
charges aggregating $3.3 million (see Note 9 of Notes to Consolidated
Financial Statements).
(6) "Consolidated EBITDA, as defined" is defined under the Indenture pursuant
to which the Notes were issued as income from operations, prior to
adjustment for the effect of the LIFO method of inventory valuation, plus
depreciation and amortization expense, non-recurring charges and other non-
cash expense items. See "Description of Exchange Notes - Certain
Covenants." Consolidated EBITDA, as defined should not be considered as an
alternative to net income as a measure of operating results or to cash
flows as a measure of liquidity in accordance with generally accepted
accounting principles.
(7) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest
expense, amortization of deferred financing fees and one-third of the rent
expense from operating leases, which management believes is a reasonable
approximation of an interest factor.
(8) Earnings were insufficient to cover fixed charges by approximately $8.0
million and $11.6 million during the year ended December 31, 1994 and 1995,
respectively.
(9) Includes $70.6 million to redeem a portion of the Preferred Stock and $4.5
million to pay the Class P Common Stock Dividend.
13
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
THE COMPANY
The following summary unaudited pro forma financial data set forth below for
the year ended December 31, 1995 gives pro forma effect in the manner described
under "Unaudited Pro Forma Financial Data" and the notes thereto to the
Transactions, the Globe-Weis Acquisition, the pending disposal of the
Personalizing Division and the Niagara Acquisition, as if each had occurred on
January 1, 1995. The following summary unaudited pro forma financial data set
forth below for the three month period ended March 31, 1996 gives effect in the
manner described under "Unaudited Pro Forma Financial Data" of the pending sale
of the Personalizing Division and the Niagara Acquisition as if each had
occurred on January 1, 1996. The Income Statement Data and Other Data for the
year ended December 31, 1995 and the three month period ended March 31, 1996 do
not purport to represent what the Company's results of operations actually would
have been if the foregoing transactions had actually occurred as of such dates
or what such results will be for any future periods. The Income Statement Data
and Other Data for the year ended December 31, 1995 do not give effect to
certain non-recurring charges expected to result from the Transactions,
including certain non-cash compensation charges directly related to the
Acquisition and an extraordinary charge for the write-off of deferred financing
fees and direct expenses to retire existing Ampad and Williamhouse debt. The
final allocation of purchase price and the resulting amortization expense in the
income statement data may differ somewhat from the preliminary estimates for the
reasons described in more detail in "Unaudited Pro Forma Financial Data" and in
Note 3 of the Notes to Consolidated Financial Statements of the Company. The
Income Statement Data and Other Data for the year ended December 31, 1995 and
the three months ended March 31, 1996 do not give effect to the Proposed Equity
Offering. See "Proposed Initial Public Offering." The information contained in
this table should be read in conjunction with the "Unaudited Pro Forma Financial
Data," "Selected Historical Consolidated Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the audited consolidated financial statements and accompanying notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA
--------------------------------------
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1995 MARCH 31, 1996
----------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
INCOME STATEMENT DATA:
Net sales............................................ $617,167 $149,735
Cost of sales(1)..................................... 481,804 121,245
-------- --------
Gross profit......................................... 135,363 28,490
Selling, general and administrative expenses......... 74,678 14,493
Nonrecurring compensation charge(2).................. 3,367 --
-------- --------
Income from operations............................... 57,318 13,997
Interest expense..................................... 52,202 12,231
Other (income) expense............................... (642) (265)
-------- --------
Income before income taxes........................... 5,758 2,031
Provision for income taxes........................... 1,315 799
-------- --------
Net income........................................... $ 4,443 $ 1,232
======== ========
OTHER DATA:
Consolidated EBITDA, as defined(3)................... $ 89,438 $ 15,453
Depreciation and amortization........................ 17,982 3,803
Capital expenditures................................. 13,688 3,087
Ratio of earnings to fixed charges(4)................ 1.1x 1.2x
</TABLE>
- ------------
(1) Inventory cost is determined using the LIFO method of valuation.
(2) Excludes $33,809 of non-recurring non-cash compensation charges from stock
options directly related to the Acquisition.
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(3) "Consolidated EBITDA, as defined" is defined under the Indenture pursuant
to which the Notes were issued as income from operations, prior to
adjustment for the effect of the LIFO method of inventory valuation, plus
depreciation and amortization expense, non-recurring charges and other non-
cash expense items. See "Description of Exchange Notes - Certain
Covenants." Consolidated EBITDA, as defined should not be considered as an
alternative to net income as a measure of operating results or to cash
flows as a measure of liquidity in accordance with generally accepted
accounting principles.
(4) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest
expense, amortization of deferred financing fees and one-third of the rent
expense from operating leases, which management believes is a reasonable
approximation of an interest factor.
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RISK FACTORS
Prospective investors should carefully consider the following factors in
addition to the other information set forth in this Prospectus before tendering
in the Exchange Offer.
RISKS ASSOCIATED WITH SUBSTANTIAL LEVERAGE AND ABILITY TO SERVICE DEBT
In connection with the Transactions, the Company incurred a significant amount
of indebtedness. On March 31, 1996, the Company's indebtedness was approximately
$453.5 million (excluding $5.8 million of indebtedness expected to be assumed in
the Personalizing Division sale and reflected in "Assets held for Sale" at
March 31, 1996) and its stockholders' deficit was $(66.3) million. In addition,
subject to the restrictions in the Bank Credit Agreement and the Indenture, the
Company may incur additional indebtedness from time to time to finance
acquisitions or capital expenditures or for other purposes. For the twelve-
month period ended March 31, 1996, the Company's ratio of earnings to fixed
charges was 1.2 to 1.0 on a pro forma basis.
The level of the Company's indebtedness could have important consequences to
holders of the Exchange Notes, including: (i) a substantial portion of the
Company's cash flow from operations must be dedicated to debt service and will
not be available for other purposes, (ii) the Company's ability to obtain
additional debt financing in the future for working capital, capital
expenditures or acquisitions may be limited and (iii) the Company's level of
indebtedness could limit its flexibility in reacting to changes in the industry
and conditions generally. Certain of the Company's competitors currently operate
on a less leveraged basis and have significantly greater operating and financing
flexibility than the Company.
The Company's ability to pay interest on the Exchange Notes and to satisfy its
other debt obligations will depend upon its future operating performance, which
will be affected by prevailing economic conditions and financial, business and
other factors, certain of which are beyond its control. The Company anticipates
that its operating cash flow, together with borrowings under the Bank Credit
Agreement, will be sufficient to meet its operating expenses and to service its
debt requirements as they become due. However, if the Company is unable to
service its indebtedness it will be forced to adopt an alternative strategy that
may include actions such as reducing or delaying capital expenditures, selling
assets, restructuring or refinancing its indebtedness, or seeking additional
equity capital. There can be no assurance that any of these strategies could be
effected on satisfactory terms, if at all. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
RISKS RELATING TO THE SUBORDINATION OF EXCHANGE NOTES AND THE GUARANTEES
The Exchange Notes and the Guarantees will be subordinated in right of payment
to all Senior Debt of the Company and Guarantor Senior Debt of the Subsidiary
Guarantors, respectively. In the event of bankruptcy, liquidation or
reorganization of the Company or the Subsidiary Guarantors, the assets of the
Company or the Subsidiary Guarantors will be available to pay obligations on the
Exchange Notes only after all Senior Debt or Guarantor Senior Debt, as the case
may be, has been paid in full, and there may not be sufficient assets remaining
to pay amounts due on any or all of the Exchange Notes then outstanding. In
addition, indebtedness outstanding under the Bank Credit Agreement will be
secured by substantially all of the assets of the Company and its subsidiaries.
As of March 31, 1996, the Company had approximately $253.5 million of Senior
Debt and the Subsidiary Guarantors had approximately $8.6 million of Guarantor
Senior Debt (excluding guarantees of Senior Debt). Additional Senior Debt and
Guarantor Senior Debt may be incurred by the Company and the Subsidiary
Guarantors from time to time subject to certain restrictions contained in the
Bank Credit Agreement and the Indenture. As of March 31, 1996, the Company had
approximately $45.7 million available to be drawn under the revolving credit
portion and letter of credit facility of the Bank Credit Agreement, which
amounts would have been Senior Debt. Under the Indenture (without giving effect
to the restrictions in the Bank Credit Agreement), the Company could have
incurred approximately $74 million of additional indebtedness, including
indebtedness senior in right of payment to the Exchange Notes, at March 31,
1996. See "Description of Bank Credit Agreement" and "Description of Exchange
Notes."
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS
The Indenture restricts, among other things, the Company and the Subsidiary
Guarantors' ability to incur additional indebtedness, incur liens, pay dividends
or make certain other restricted payments, consummate certain asset sales, enter
into certain transactions with affiliates, incur indebtedness that is
subordinate in right of payment to any Senior Debt or
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<PAGE>
Guarantor Senior Debt and senior in right of payment to the Exchange Notes or
the Guarantees, as the case may be, impose restrictions on the ability of a
subsidiary to pay dividends or make certain payments to the Company, merge or
consolidate with any other person or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of the assets of the Company. In
addition, the Bank Credit Agreement contains other and more restrictive
covenants and prohibits the Company from prepaying its other indebtedness
(including the Exchange Notes). See "Description of Exchange Notes--Certain
Covenants" and "Description of Bank Credit Agreement." Contemporaneously with,
and conditioned upon, the Proposed Equity Offering, the Company intends to
refinance and retire all remaining indebtedness under the Bank Credit Agreement
with the proceeds of loans under a new bank credit agreement. The Company
anticipates that the new bank credit agreement will impose operating and
financial restrictions on the Company similar to those contained in the Bank
Credit Agreement. See "Proposed Initial Public Offering."
CROSS DEFAULT RISKS
The Bank Credit Agreement requires the Company to maintain specified financial
ratios and satisfy certain financial condition tests. The Company's ability to
meet those financial ratios and tests can be affected by events beyond its
control, and there can be no assurance that the Company will meet those tests.
A breach of any of these covenants could result in a default under the Bank
Credit Agreement and/or the Indenture. Upon the occurrence of an event of
default under the Bank Credit Agreement, the lenders could elect to declare all
amounts outstanding under the Bank Credit Agreement, together with accrued
interest, to be immediately due and payable. If the Company were unable to
repay those amounts, the lenders could proceed against the collateral granted to
them to secure that indebtedness. If the lenders under the Bank Credit
Agreement accelerate the payment of the indebtedness, there can be no assurance
that the assets of the Company would be sufficient to repay in full such
indebtedness and the other indebtedness of the Company, including the Exchange
Notes. Substantially all the assets of the Company are pledged as security
under the Bank Credit Agreement. See "Description of Bank Credit Agreement."
The Company expects that its new bank credit agreement will contain similar
provisions.
RISKS RELATING TO REPURCHASE OBLIGATION
Under the Indenture, upon the occurrence of a Change in Control (as defined),
each holder of the Notes may require the Company to repurchase all or a portion
of such holder's Notes or Exchange Notes at 101% of the principal amount
thereof, together with accrued and unpaid interest, if any, to the date of
repurchase. If a Change of Control occurs, there can be no assurance that the
agreements controlling the Company's then-existing Senior Debt would permit the
Company to make payments pursuant to a Change of Control Offer (as defined)
without prior repayment of such Senior Debt or that the Company would have
available funds sufficient to purchase all of the Notes or Exchange Notes that
might be delivered by the holders thereof. Such limitations may have the effect
of delaying, deterring or preventing a third-party takeover attempt.
RISKS RELATING TO ACQUISITION STRATEGY
The Company expects to continue its strategy of identifying and acquiring
companies or assets that would enable the Company to offer complementary product
lines and that management considers likely to enhance the Company's operations
and profitability. In furtherance of this strategy, the Company executed a
definitive agreement to acquire Niagara on May 29, 1996. The completion of the
Niagara Acquisition is subject to certain conditions. While the Company expects
the Niagara Acquisition will be completed, no assurance can be given that such
conditions will be satisfied. In addition, there can be no assurance that the
Company will continue to acquire businesses or assets on satisfactory terms or
that any business or assets acquired by the Company will be integrated
successfully into the Company's operations or be able to operate profitably.
RISKS ASSOCIATED WITH FLUCTUATIONS IN PAPER COSTS
The Company's principal raw material is paper. While paper prices have
increased by an average of less than 1% annually since 1989, certain commodity
grades have shown considerable price volatility during that period. This
volatility negatively impacted the Company's earnings in 1994, particularly in
the fourth quarter, as a result of the Company's inability to implement price
changes in many of its product lines without giving its customers advance
notification. Beginning in January 1995, the Company adopted new pricing
policies enabling it to set product prices consistent with the Company's cost of
paper at the time of shipment. To date, such policies have been accepted by
customers; however, no assurance can be given that the Company will continue to
be successful in maintaining such
17
<PAGE>
pricing policies or that future price fluctuations in the price of paper will
not have a material adverse effect on the Company. Fluctuation in paper prices
can have an effect on quarterly comparisons of the results of operations and
financial condition of the Company. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Overview."
SUPPLIER RELATIONSHIPS
The Company has strong relationships with most of the country's largest paper
mills, many of which have been doing business with the Company for more than 30
years. The Company is one of the largest purchasers of the principal paper
grades used in its manufacturing operations. In addition, the Company has the
largest number of designated mill relationships which involve some of the
largest and most recognized paper mill brands such as Hammermill, Hopper, Neenah
and Strathmore. These relationships afford the Company certain paper purchasing
advantages, including stable supply and favorable pricing arrangements. While
these relationships are stable, all but one of the designated manufacturer
arrangements are oral and terminable at will at the option of either party.
Although the Company is not dependent on any single supplier relationship, there
can be no assurance that the termination of one or more of these supplier or
designated manufacturer relationships would not have a material adverse effect
on the Company. While the Company has been able to obtain sufficient paper
supplies during recent paper shortages and otherwise, the Company is subject to
the risk that it will be unable to purchase sufficient quantities of paper to
meet its production requirements during times of tight supply. An interruption
in the Company's supply of paper could have a material adverse effect on the
Company's business. See "Business--Products and Services" and "Industry--
Distribution."
DEPENDENCE UPON SIGNIFICANT CUSTOMERS
The Company's aggregate net sales to Sam's Warehouse Club/Wal-Mart and Office
Depot accounted for approximately 14.8% and 12.7% of the Company's net sales for
1995, respectively. The Company's top five customers accounted for
approximately 50.3% of its net sales in 1995 (32.0% on a pro forma basis). A
significant decrease or interruption in business from Sam's Warehouse Club/Wal-
Mart or Office Depot or from any other of the Company's significant customers
could have a material adverse effect on the Company. See "Business--Sales,
Distribution and Marketing."
INFLUENCE OF CERTAIN STOCKHOLDERS
The Company is an indirect, wholly owned subsidiary of APP. The Company's
senior management team and Bain Capital and its related investors currently own
approximately 97% of the outstanding capital stock of APP. After giving effect
to the Proposed Equity Offering, management and Bain Capital are expected to
beneficially own approximately 41% of the outstanding Common Stock of APP
(approximately 32.6% if the underwriters' over-allotment option is exercised in
full). By virtue of this stock ownership, these stockholders will continue to
have significant influence over all matters submitted to a vote of the holders
of Common Stock, including the election of a majority of the directors,
amendments to APP's Restated Certificate of Incorporation and By-laws and
approval of significant corporation transactions, following the Proposed Equity
Offering. Such concentration of stock ownership could have the effect of
delaying, deterring or preventing a change in control of APP that might
otherwise be beneficial to holders of Notes. See "Proposed Initial Public
Offering."
COMPETITION
The paper-based office products market is highly competitive. The Company
competes with other national and local manufacturers in many product segments.
Certain of the Company's principal competitors are less highly-leveraged than
the Company and may be better able to withstand volatile market conditions
within the paper industry. There can be no assurance that the Company will not
encounter increased competition in the future, which could have a material
adverse effect on the Company's business. See "Business--Competition."
DEPENDENCE ON KEY EXECUTIVES
The Company is dependent to a large degree on the services of its senior
management team and there can be no assurance that such individuals will remain
with the Company. The loss of any of these individuals could have a material
adverse effect on the Company. The Company has recently entered into three-year
employment agreements with its Chief Executive Officer and Chief Operating
Officer. See "Management."
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<PAGE>
IMPACT OF ENVIRONMENTAL REGULATION
The Company is subject to the requirements of federal, state, and local
environmental and occupational health and safety laws and regulations. While
there can be no assurance that the Company is at all times in complete
compliance with all such requirements, the Company believes that any
noncompliance is unlikely to have a material adverse effect on the Company.
The Company has made and will continue to make capital expenditures to comply
with environmental requirements. As is the case with manufacturers in general,
if a release of hazardous substances occurs on or from the Company's properties
or any associated offsite disposal location, or if contamination from prior
activities is discovered at any of the Company's properties, the Company may be
held liable and the amount of such liability could be material. The Company's
Ampad division has been named a potentially responsible party for cleanup costs
under the federal Comprehensive Environmental Response, Compensation and
Liability Act at five waste disposal sites and is aware that Niagara has been
named as a potentially responsible party at one site. See "Business--
Environmental, Health and Safety Matters."
RISKS ASSOCIATED WITH FRAUDULENT TRANSFER STATUTES
The incurrence by the Company and the Subsidiary Guarantors of indebtedness
such as the Notes, the Exchange Notes and the Guarantees to finance the
Transactions may be subject to review under relevant state and federal
fraudulent conveyance laws if a bankruptcy case or lawsuit is commenced by or on
behalf of unpaid creditors of the Company or the Subsidiary Guarantors. Under
these laws, if a court were to find that, after giving effect to the sale of the
Notes and the application of the net proceeds therefrom, either (a) the Company
or the Subsidiary Guarantors incurred such indebtedness with the intent of
hindering, delaying or defrauding creditors or (b) the Company or the Subsidiary
Guarantors received less than reasonably equivalent value or consideration for
incurring such indebtedness and (i) was insolvent or was rendered insolvent by
reason of such transactions, (ii) was engaged in a business or transaction for
which the assets remaining with the Company or the Subsidiary Guarantors
constituted unreasonably small capital or (iii) intended to incur, or believed
that it would incur, debts beyond its ability to pay such debts as they matured,
such court may subordinate such indebtedness to presently existing and future
indebtedness of the Company or the Subsidiary Guarantors, as the case may be,
avoid the issuance of such indebtedness and direct the repayment of any amounts
paid thereunder to the Company's or the Subsidiary Guarantors', as the case may
be, creditors or take other action detrimental to the holders of such
indebtedness.
The measure of insolvency for purposes of determining whether a transfer is
avoidable as a fraudulent transfer varies depending upon the law of the
jurisdiction which is being applied. Generally, however, a debtor would be
considered insolvent if the sum of all its liabilities, including contingent
liabilities, were greater than the value of all its property at a fair
valuation, or if the present fair saleable value of the debtor's assets were
less than the amount required to repay its probable liabilities on its debts,
including contingent liabilities, as they become absolute and matured.
There can be no assurance as to what standard a court would apply in order to
determine solvency. To the extent that proceeds from the sale of the Notes were
used to finance the Transactions, a court may find that the Company or the
Subsidiary Guarantors, as the case may be, did not receive fair consideration or
reasonably equivalent value for the incurrence of the indebtedness represented
thereby. In addition, if a court were to find that any of the components of the
Transactions constituted a fraudulent transfer, to the extent that proceeds from
the sale of the Notes were used to finance such Transactions, a court may find
that the Company or the Subsidiary Guarantors, as the case may be, did not
receive fair consideration or reasonably equivalent value for the incurrence of
the indebtedness represented by the Notes or the Guarantees, as the case may be.
Pursuant to the terms of the Guarantees, the liability of each Subsidiary
Guarantor is limited to the maximum amount of indebtedness permitted, at the
time of the grant of such Guarantee, to be incurred in compliance with
fraudulent conveyance or similar laws.
Each of the Company and the Subsidiary Guarantors believes that it received or
will receive equivalent value at the time the indebtedness under the Notes, the
Exchange Notes and the Guarantees was or is incurred. In addition, neither the
Company nor the Subsidiary Guarantors believes that it, after giving effect to
the Transactions, (i) was or will be insolvent or rendered insolvent, (ii) was
or will be engaged in a business or transaction for which its remaining assets
constituted unreasonably small capital or (iii) intends or intended to incur, or
believes or believed that it will or would incur, debts beyond its ability to
pay such debts as they mature. These beliefs are based on the Company's
operating history and analysis of internal cash flow projections and estimated
values of assets and liabilities of the Company and the Subsidiary Guarantors at
the time of the offering of the Notes and the Exchange Notes. There can be no
assurance, however, that a court passing on these issues would make the same
determination.
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ABSENCE OF PUBLIC MARKET
Prior to the Exchange Offer, there has not been any public market for the
Notes. The Notes have not been registered under the Securities Act and will be
subject to restrictions on transferability to the extent that they are not
exchanged for Exchange Notes by holders who are entitled to participate in this
Exchange Offer. The holders of Notes (other than any such holder that is an
affiliate of the company within the meaning of Rule 405 under the Securities
Act) who are not eligible to participate in the Exchange Offer are entitled to
certain registration rights, and the Company may be required to file a Shelf
Registration Statement with respect to such Notes. The Exchange Notes will
constitute a new issue of securities with no established trading market. The
Company does not intend to list the Exchange Notes on any national securities
exchange or to seek approval for quotation through any automated quotation
system. The Initial Purchasers of the Notes currently make a market in the
Notes, but they are not obligated to do so and may discontinue such market
making at any time. In addition, such market making activity will be subject to
the limits imposed by the Securities Act and the Exchange Act and may be limited
during the Exchange Offer and the pendency of the Shelf Registration Statement.
Accordingly, no assurance can be given that an active public or other market
will develop for the Exchange Notes or as to the liquidity of the trading market
for the Exchange Notes. If a trading market does not develop or is not
maintained, holders of the Exchange Notes may experience difficulty in reselling
the Exchange Notes or may be unable to sell them at all. If a market for the
Exchange Notes develops, any such market may be discontinued at any time.
If a public trading market develops for the Exchange Notes, future trading
prices of such securities will depend on many factors, including, among other
things, prevailing interest rates, the Company's results of operations and the
market for similar securities. Depending on prevailing interest rates, the
market for similar securities and other factors, including the financial
condition of the Company, the Exchange Notes may trade at a discount from their
principal amount.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Notes who do not exchange their Notes for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Notes as set forth in the legend thereon and in the Offering
Memorandum, dated November 17, 1995, because the Notes were issued pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Notes may not be offered or sold unless registered under the
Securities Act and applicable state securities laws, or pursuant to an exemption
therefrom, or in a transaction not subject to the Securities Act and applicable
state securities laws. The Company does not intend to register the Notes under
the Securities Act and, after consummation of the Exchange Offer, will not be
obligated to do so except under limited circumstances. See "The Exchange Offer
- -- Purpose and Effect." Based on an interpretation by the staff of the
Commission set forth in no-action letters issued to third parties, the Company
believes that the Exchange Notes issued pursuant to the Exchange Offer in
exchange for Notes may be offered for resale, resold or otherwise transferred by
holders thereof (other than any such holder which is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such Exchange Notes are acquired in the ordinary
course of such holders' business, such holders have no arrangement with any
person to participate in the distribution of such Exchange Notes and neither
such holders nor any such other person is engaging in or intends to engage in a
distribution of such Exchange Notes. Any holder of Notes who tenders in the
Exchange Offer for the purpose of participating in a distribution of the
Exchange Notes may be deemed to have received restricted securities and, if so,
will be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives Exchange Notes for its own account in exchange
for Notes, where such Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange Notes.
See "Plan of Distribution." To the extent the Notes are tendered and accepted
in the Exchange Offer, the trading market for untendered and tendered but
unaccepted Notes could be adversely affected. See "The Exchange Offer."
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THE TRANSACTIONS
THE ACQUISITION
APP, WHR Acquisition, Inc. and WR, the parent corporation of Williamhouse,
entered into an Agreement and Plan of Merger, dated as of October 3, 1995 (the
"Acquisition Agreement"), pursuant to which the Acquisition was consummated on
October 31, 1995. WHR Acquisition, Inc. was a newly organized wholly owned
subsidiary of APP that was formed to effect the Acquisition. WR acquired Ampad
Corporation in exchange for newly issued shares of WR common stock. Ampad
Corporation was then merged with and into Williamhouse, and WHR Acquisition,
Inc. merged into WR and the stockholders of WR (other than WHR Acquisition, Inc.
and its affiliates) received the Acquisition consideration. As a result of the
transactions, APP now owns all of the issued capital stock of WR, which in turn
owns all of the issued capital stock of the Company. APP is owned by the
Company's senior management team (Messrs. Hanson, Gard and Benson) and Bain
Capital and its related investors. See "Principal Stockholders." Bain Capital
assisted the Company in analyzing, negotiating and arranging the financing for
the Acquisition. Following the acquisition, the Company's name was changed to
American Pad & Paper Company of Delaware, Inc.
As consideration for the Acquisition, WHR Acquisition, Inc. paid $140 million
for the common stock of WR Acquisition, Inc. and $4 million for certain expenses
of the selling stockholders. In connection with the Acquisition, the Company
refinanced approximately $119.1 million of indebtedness. The cash portion of
the purchase price was paid at the Closing, except for $25.2 million, which
certain former stockholders of WR Acquisition, Inc. elected to defer until
January 1996. Funding for the Acquisition consisted of borrowings under the Bank
Credit Agreement and the proceeds of the Accounts Receivable Facility. The Bank
Credit Agreement provides for $245 million of term loans, a $45 million
revolving credit facility and a $13.4 million letter of credit facility relating
to Williamhouse's outstanding industrial revenue bonds (the "IRBs").
TENDER OFFER AND CONSENT SOLICITATION
On October 23, 1995, WHR Acquisition, Inc. commenced the Tender Offer to
purchase for cash all of the Old Debentures and the related Consent Solicitation
to modify certain terms of the indenture for the Old Debentures. The purchase
price paid in respect of validly tendered Old Debentures and related consents
was 109% of their principal amount, plus accrued interest up to, but not
including, the date of purchase. The Company received consents and tenders
representing 99.9% in aggregate principal amount of the Old Debentures
outstanding. As of the date hereof, there are no Old Debentures outstanding.
REFINANCING
The Company has effected the following additional Transactions: (i) the
Offering of the Notes; (ii) the Tender Offer and the related Consent
Solicitation; (iii) the redemption of $70.6 million of the Preferred Stock of
APP; and (iv) the payment of the Class P Common Stock Dividend. The Company
received approximately $194 million in net proceeds from the sale of the Notes
in the Offering. The net proceeds were used by the Company (i) to repurchase
for approximately $109.0 million in cash the Old Debentures in connection with
the Tender Offer and Consent Solicitation, together with accrued interest
thereon of $5.3 million, (ii) to redeem approximately $70.6 million in aggregate
liquidation value of Preferred Stock, (iii) to pay the Class P Common Stock
Dividend of $4.5 million, (iv) to provide working capital and (v) to pay related
fees and expenses. See "Use of Proceeds."
PROPOSED INITIAL PUBLIC OFFERING
On April 25, 1996, APP filed with the Commission a registration statement
relating to the initial public offering of up to 15,625,000 shares of Common
Stock. In connection with the Proposed Equity Offering, APP will effect a
recapitalization (the "Recapitalization") whereby (i) all outstanding shares of
its Preferred Stock will be converted into shares of Common Stock, (ii) all
outstanding options to purchase shares of its Preferred Stock will be converted
into options to purchase shares of Common Stock and (iii) a 8.1192-for-one split
of all common stock and common stock equivalents outstanding will be effected.
Contemporaneously with, and conditioned upon, the Proposed Equity Offering, the
Company intends to refinance and retire all remaining indebtedness under the
Bank Credit Agreement with the proceeds of loans under a new bank credit
agreement (the "New Bank Credit Agreement"). See "Description of New Bank
Credit Agreement."
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Certain members of the Company's senior management team (Messrs. Hanson, Gard
and Benson) and Bain Capital and its related investors currently own
approximately 97% of the outstanding capital stock of APP. After giving effect
to the Proposed Equity Offering, management and Bain Capital will beneficially
own approximately 41% of the outstanding shares of Common Stock (approximately
32.6% if the underwriters' over-allotment option is exercised in full).
The net proceeds to APP from the Proposed Equity Offering are estimated to be
approximately $187 million. APP intends to use such proceeds to repay
approximately $107 million of the indebtedness incurred under the Bank Credit
Agreement, (ii) allow the Company to redeem approximately $70 million aggregate
principal amount of the Notes or the Exchange Notes from the holders thereof on
a pro rata basis, (iii) allow the Company to pay approximately $8 million in
redemption premiums on the Notes or Exchange Notes and (iv) pay Bain Capital a
fee of approximately $2 million in connection with the Proposed Equity Offering.
The Company currently expects that the Proposed Equity Offering will be
completed by the end of June 1996. The Company expects that the reduction in
indebtedness from the application of such net proceeds will enhance its ability
to make future acquisitions. There can be no assurance that APP will consummate
the Proposed Equity Offering, or if it does, that it will use the net proceeds
therefrom as set forth herein. The Exchange Offer is not conditioned upon or
subject to the consummation of the Proposed Equity Offering.
USE OF PROCEEDS
This Exchange Offer is intended to satisfy certain of the Company's and the
Subsidiary Guarantors' obligation under the Purchase Agreement and the
Registration Rights Agreement. In consideration for issuing the Exchange Notes
contemplated in this Prospectus, the Company will receive Notes in like
principal amount, the form and terms of which are the same as the form and terms
of the Exchange Notes (which they replace), except as otherwise described
herein. The Notes surrendered in exchange for Exchange Notes will be retired
and canceled and cannot be reissued. Accordingly, issuance of the Exchange
Notes will not result in any increase or decrease in the indebtedness of the
Company or the Subsidiary Guarantors. As such, no effect has been given to the
Exchange Offer in the pro forma statements or capitalization tables. The
Company will not receive any proceeds from the Exchange Offer. The net proceeds
to the Company from the Offering of the Notes on December 1, 1995, were
approximately $194 million (after deducting the Initial Purchasers' discount and
certain fees and expenses relating to the Offering). The net proceeds of the
Offering were used by the Company (i) to repurchase for approximately $109.0
million in cash the Old Debentures in connection with the Tender Offer and
Consent Solicitation, together with accrued interest thereon of $5.3 million,
(ii) to redeem approximately $70.6 million in aggregate liquidation value of
Preferred Stock, (iii) to pay the Class P Common Stock Dividend of $4.5 million,
(iv) to provide working capital and (v) to pay related fees and expenses.
22
<PAGE>
CAPITALIZATION
(UNAUDITED)
The following table sets forth at March 31, 1996, the actual capitalization of
the Company and the pro forma capitalization of the Company after giving effect
to the Niagara Acquisition. This table should be read in conjunction with
"Selected Historical Consolidated Financial Data" and "Unaudited Pro Forma
Financial Data" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------
ACTUAL PRO FORMA
------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents........................... $ 20,108 $ 606 (1)
======== ========
Current maturities of long-term debt:
Term Loans, IRBs and other indebtedness--current.. $ 13,066 $ 13,366 (2)
======== ========
Long-term debt:
Revolving Credit Facility......................... $ -- $ 32,992 (3)
Term Loans........................................ 231,625 231,625
IRBs and other indebtedness....................... 8,828 12,428 (2)
Notes............................................. 200,000 200,000
-------- --------
Total long-term debt........................... 440,453 477,045
Stockholder's equity (deficit)...................... (66,293) (66,293)
-------- --------
Total capitalization........................... $374,160 $410,752
======== ========
</TABLE>
- ---------------
(1) Reflects the cash used to fund a portion of the Niagara purchase price
($20,108) plus cash acquired in the Niagara Acquisition ($606).
(2) Reflects Niagara IRB debt assumed of $3,900, including current maturities
of $300.
(3) Reflects the borrowings on the Revolver to fund a portion of the Niagara
purchase price.
23
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The following Unaudited Pro Forma Consolidated Statement of Income for the
year ended December 31, 1995 gives effect to the Transactions, the Globe-Weis
Acquisition, the pending disposal of the Personalizing Division and the Niagara
Acquisition as if they had occurred on January 1, 1995. The Unaudited Pro Forma
consolidated Statement of Income for the three months ended March 31, 1996 gives
effect to the pending sale of the Personalizing Division and the Niagara
Acquisition as if they had occurred on January 1, 1996. The unaudited pro forma
financial data are based on the historical financial statements of the Company,
Williamhouse and Niagara and the assumptions and adjustments described in the
accompanying notes. The Unaudited Pro Forma Consolidated Statements of Income
do not (i) purport to represent what the Company's results of operations
actually would have been if the foregoing transactions had occurred as of the
dates indicated or what such results will be for any future periods, or (ii)
give effect to certain non-recurring charges expected to result from the
Transactions, including certain non-cash compensation charges directly related
to the Acquisition and an extraordinary charge from the write-off of deferred
financing fees and direct expenses resulting from the refinancing of existing
Ampad and Williamhouse debt. The Unaudited Pro Forma Consolidated Statements of
Income for the year ended December 31, 1995 and the three months ended March 31,
1996 and the Unaudited Consolidated Balance Sheet at March 31, 1996, do not
give effect to the Proposed Equity Offering. See "Proposed Initial Public
Offering."
The Unaudited Pro Forma Consolidated Balance Sheet at March 31, 1996 gives
effect to the Niagara Acquisition as if such transaction had occurred as of
March 31, 1996. The historical financial statements of the Company already
reflect the Transactions, the Globe-Weis Acquisition and the pending disposal
of the Personalizing Division as of March 31, 1996. The historical financial
statements and the Unaudited Pro Forma Consolidated Statements of Income reflect
the preliminary allocation of purchase price to the Company's tangible and
intangible assets and liabilities. The final allocation of purchase price, and
the resulting amortization expense may differ somewhat from the preliminary
estimates primarily due to the final allocation being based on (a) the actual
proceeds to be received from the disposal of the Personalizing Division and (b)
the actual closing date amounts of assets and liabilities and actual appraisal
of property and equipment and any identifiable intangible assets related to the
Niagara Acquisition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 3 of the Notes to Consolidated
Financial Statements of the Company included herein.
The Notes surrendered in exchange for the Exchange Notes will be retired and
canceled and cannot be reissued. Accordingly, issuance of the Exchange Notes
will not result in any increase or decrease in the indebtedness of the Company
or the Subsidiary Guarantors. As such no effect has been given to the Exchange
Offer in the unaudited pro forma financial data set forth herein.
The unaudited pro forma financial data are based upon assumptions that the
Company believes are reasonable and should be read in conjunction with the
Consolidated Financial Statements of the Company, Williamhouse and Niagara and
the accompanying notes thereto included elsewhere in this Prospectus.
24
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
THE COMPANY WILLIAMHOUSE HISTORICAL
FOR THE YEAR FOR THE TEN- NIAGARA FOR
ENDED GLOBE-WEIS MONTH PERIOD THE YEAR ENDED
DECEMBER 31, ACQUISITION ENDED OCTOBER DECEMBER 31, TRANSACTIONS COMPANY
1995 ADJUSTMENTS(1) 31, 1995 1995 ADJUSTMENTS PRO FORMA
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales........................... $259,341 $32,600 $219,366 $105,860 $ -- $617,167
Cost of sales....................... 211,814 32,860 152,781 82,193 (375) (4) 481,804
2,339 (6)
1,108 (6)
(916) (13)
-------- ------- -------- -------- ------- --------
Gross profit........................ 47,527 (260) 66,585 23,667 (2,156) 135,363
Selling, general and
administrative expenses........... 18,545 358 39,866 15,187 1,820 (2(b)) 74,678
1,000 (3)
2,862 (3)
(7,029) (5)
1,063 (10)
(1,828) (11)
(974) (11)
5,000 (12)
(192) (13)
(1,000) (14)
Nonrecurring compensation
charge............................ 27,632 -- 9,544 -- (33,809) (9) 3,367
-------- ------- -------- -------- ------- --------
Income (loss) from
operations........................ 1,350 (618) 17,175 8,480 30,931 57,318
Interest expense.................... 13,657 -- 11,615 922 26,008 (2(a)) 52,202
Other (income) expense.............. (735) -- (124) 217 -- (642)
-------- ------- -------- -------- ------- --------
Income (loss) before
income taxes...................... (11,572) (618) 5,684 7,341 4,923 5,758
Provision for (benefit from)
income taxes...................... (6,538) (247)(7) 2,224 2,762 3,114 (8) 1,315
-------- ------- -------- -------- ------- --------
Net income (loss) from continuing
operations and before
extraordinary items............... ($5,034) ($371) $ 3,460 $ 4,579 $ 1,809 $ 4,443
======== ======= ======== ======== ======= ========
</TABLE>
See accompanying notes.
25
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THE COMPANY NIAGARA FOR THE
FOR THE THREE THREE MONTHS
MONTHS ENDED ENDED MARCH TRANSACTIONS COMPANY
MARCH 31, 1996 31, 1996 ADJUSTMENTS PRO FORMA
-------------- --------------- ------------ ---------
<S> <C> <C> <C> <C>
Net sales........................................ $121,418 $28,317 $149,735
Cost of sales.................................... 97,889 23,314 $ 277 (6) 121,245
(235) (13)
-------- ------- ------- --------
Gross profit..................................... 23,529 5,003 (42) 28,490
Selling, general and administrative expenses..... 11,026 2,423 93 (3) 14,493
1,250 (12)
(49) (13)
(250) (14)
-------- ------- ------- --------
Income from operations........................... 12,503 2,580 (1,086) 13,997
Interest expense................................. 12,542 147 (458) (2)(a)) 12,231
Other (income) expense........................... (269) 4 (265)
-------- ------- ------- --------
Income before income taxes....................... 230 2,429 (628) 2,031
Provision for income taxes....................... 102 911 (214) (8) 799
-------- ------- ------- --------
Net income from continuing operations and before
extraordinary items.............................. $ 128 $ 1,518 $ (414) $ 1,232
======== ======= ======= ========
</TABLE>
See accompanying notes.
26
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
AND THE THREE MONTHS ENDED MARCH 31, 1996
(DOLLARS IN THOUSANDS)
The Unaudited Pro Forma Consolidated Statements of Income give effect to the
following unaudited pro forma adjustments:
(1) Reflects the inclusion of Globe-Weis unaudited historical results of
operations for the seven and one-half months ended August 15, 1995.
Globe-Weis' results after August 15, 1995 are included in the
Company's historical results. Operating data for preacquisition
periods for Globe-Weis are set forth below:
YEAR ENDED
DECEMBER 31, 1995
-----------------
Net sales........................................... $32,600
Cost of sales(a).................................... 32,860
-------
Gross profit (loss)................................. (260)
Selling, general and administrative expenses(a)..... 358
-------
Income (loss) from operations....................... ($618)
=======
________________________
(a) Certain reclassifications were made to the unaudited historical results of
operations to conform to the Company's presentation.
27
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
STATEMENT OF INCOME--(CONTINUED)
(DOLLARS IN THOUSANDS)
(2(a)) Addition to pro forma interest expense for the year ended December 31,
1995 is summarized below. As the Transactions (including the acquisition
of Williamhouse) were principally completed on October 31, 1995, the
following table presents actual interest expense for the Company for the
two-month period ended December 31, 1995. Certain additional adjustments
are set forth below to adjust historical interest expense for the two-
month period to reflect the completion of the Transactions and the
Niagara Acquisition during the period. Unless otherwise noted, pro forma
amounts set forth below represent ten months activity prior to the
Transactions.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
Elimination of Ampad, Williamhouse and Niagara
historical interest expense................................................ ($26,194)
Post-Acquisition actual interest expense (November-December)................. 7,018
Adjustments to November and December actual interest expense to reflect
completion of the Transactions:
Draw-down of $200,000 of Notes on December 1, and retirement of
$100,000 of Old Notes resulting in incremental debt ($100,000)
and an interest rate differential (13% versus 11.5% on $100,000)...... 1,208
Interest rate differential (7.5%) resulting from repayment of 1%
Shareholder Installment Notes totaling $25,157 (a).................... 304
Interest on the Notes ($200,000 x 13% x 10/12)............................... 21,667
Interest on $3,900 of IRB debt assumed in Niagara Acquisition................ 205
Interest on $10,628 of existing IRB and other debt........................... 458
(Avg. 5.175%)
Interest on borrowings under Bank Credit Facility at
LIBOR (5.5%) plus:
Term A--$95,000 (8.25%)(a)............................................... 6,531
Term B--$65,000 (8.88%).................................................. 4,807
Term C--$45,000 (9.25%).................................................. 3,469
Term D--$40,000 (9.50%).................................................. 3,167
Interest on additional borrowings under the revolving line of credit of
$32,992 to partially fund the Niagara Acquisition at LIBOR (5.5%) plus
2.75%...................................................................... 2,722
Bank fees on existing IRB letters of credit at 3.00% on $8,049 of
outstanding debt........................................................... 201
Bank fees on IRB letters of credit for Niagara IRB debt assumed at 3% on
$3,900..................................................................... 117
Elimination of actual interest on unused Revolver commitment for
November and December...................................................... (38)
Interest on unused Revolver commitment at 0.50% after considering
additional borrowings to fund the Niagara Acquisition of $32,992........... 61
Interest on amount of debt repaid from proceeds of sale of the Personalizing
Division (estimated net proceeds of $46.8 million at a weighted average
interest rate of 8.81%) (The Company signed a definitive agreement to sell
the Personalizing Division on June 6, 1996 and is required pursuant to the
Bank Credit Agreement to use any proceeds from asset sales to pay down
debt)...................................................................... (4,122)
--------
Cash interest expense........................................................ 47,775
Amortization of Transactions debt issuance costs
($33,200) over an average 7.5 year amortization
period (effective interest method)......................................... 4,427
--------
Interest from Transactions debt requirements................................. 52,202
--------
Net increase................................................................. $ 26,008
========
</TABLE>
28
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
STATEMENT OF INCOME--(CONTINUED)
(DOLLARS IN THOUSANDS)
________________________
(a) Interest on Term A is calculated on the entire amount of Term A to be drawn
($95,000) after repayment of Shareholder Installment Notes of $25,157 in
January 1996.
The addition to pro forma interest expense for the three month period ended
March 31, 1996 is summarized below. The effect of the Transactions is
included in the Company's historical financial statements for the three
month period ended March 31, 1996. The adjustments set forth below adjust
historical interest expense to reflect the Niagara Acquisition and the
pending sale of the Personalizing Division.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH
31, 1996
------------
<S> <C>
Elimination of Niagara historical interest expense............................................. $ (147)
Interest on additional borrowings under the revolving line of credit of $32,992 to partially
fund the Niagara Acquisition at LIBOR (5.5%) plus 2.75%...................................... 680
Interest on $3,900 of IRB debt assumed in the Niagara Acquisition.............................. 51
Bank fees on IRB letters of credit for Niagara IRB debt assumed at 3% on $3,900................ 29
Elimination of actual interest on unused Revolver commitment at 0.50%.......................... (56)
Interest on unused Revolver commitment at 0.50% after considering additional borrowings
to fund the Niagara Acquisition of $32,992................................................... 15
Interest on amount of debt repaid from proceeds of sale of the Personalizing division
($46.8 million at a weighted average interest rate of 8.81%) (The Company signed a
definitive agreement to sell the Personalizing Division on June 6, 1996 and is required,
pursuant to the Bank Credit Agreement, to use any proceeds from asset sales to pay
down debt)................................................................................... (1,030)
-------
Net decrease................................................................................... $ (458)
=======
</TABLE>
(2(b)) In conjunction with entering into the Bank Credit Agreement, the Company
also entered into a $45,000 non-recourse, off-balance sheet Accounts
Receivable Facility. The interest rate on this facility is LIBOR
(5.50%) plus 0.563% (6.063%) per annum. In accordance with SFAS No. 77,
this discount rate on $45,000 equates to an annual charge of $2,728 to
selling, general and administrative expenses as a "loss on sale" on
receivables. The pro forma adjustment reflects the additional charge
above the historical fee paid by the Company ($423) net of $485
resulting from an $8,000 reduction in the Accounts Receivable Facility
resulting from the sale of the Personalizing Division.
(3) Reflects the annual goodwill amortization ($2,988) and annual tradenames
amortization ($1,200) resulting from the purchase of Williamhouse and
the annual goodwill amortization resulting from the Niagara Acquisition
($372). The Williamhouse acquisition resulted in an allocation of
$37,900 to trade names and goodwill of approximately $119,500. The
Niagara Acquisition is expected to result in additional goodwill of
$14,887. Trade names are being amortized over periods ranging from
fifteen to forty years. Goodwill is being amortized over a forty year
period. The pro forma adjustment for the year ended December 31, 1995
represents amortization expense for the ten-month period prior to the
Williamhouse acquisition plus the annual amortization expense from the
Niagara Acquisition. The adjustment for the three months ended March
31, 1996 represents goodwill amortization expense for the period
resulting from the Niagara Acquisition.
(4) Reflects the estimated recurring cost savings relating to manufacturing
operations from conforming health, welfare and other employee benefit
programs (assumed to be 50% allocated to cost of sales) related to the
Williamhouse acquisition. The Company capped the cost of the employee
benefit programs by increasing the use of managed care, obtaining a
contractually guaranteed premium and increasing employee contributions
to the plan.
(5) Reflects the estimated recurring cost savings relating to selling,
general and administrative "SG&A" activities from management's
consolidation plans as described below:
29
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
STATEMENT OF INCOME--(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995
-----------------------
<S> <C>
Elimination of Williamhouse's New York City headquarters facility, including
the facility's occupancy and maintenance costs as well as workforce
reductions, primarily executive, legal, accounting and tax functions and
associated direct overhead costs (net of increase in Ampad's Dallas, Texas
headquarters staff)............................................................... $4,912
Consolidation of regional data processing centers from three to one locations and
elimination of redundant regional administrative positions by consolidating
accounting, accounts payable, credit and collections functions in either
Willamhouse's regional headquarters or Ampad's Dallas headquarters................ 729
Consolidation of sales and marketing organizations, along with sales distribution
and promotional activity program changes (a)...................................... 1,013
Cost reductions arising from conforming health, welfare and other employee
benefit programs (assumed to be 50% allocated to SG&A) (See (4) above)............ 375
------
$7,029
======
</TABLE>
________________________
(a) The staff reductions in the sales and marketing organization
principally represent excess sales force. The Williamhouse sales force
had not been reduced in recognition of the continuing consolidation in
the industry. Management does not expect to experience any decline in
sales volumes or revenues as a result of these actions.
(6) Represents additional depreciation expense for the ten-month period prior
to the merger resulting from the write-up of property, plant and equipment
to fair market value for the Williamhouse acquisition as summarized below:
<TABLE>
<CAPTION>
ESTIMATED ADDITIONAL
USEFUL LIFE FAIR VALUE ANNUAL
IN YEARS WRITE-UP DEPRECIATION
----------- ---------- ------------
<S> <C> <C> <C>
Land -- $ 1,443 $ --
Buildings 40 1,664 42
Machinery and
Equipment 12 33,178 2,765
------- ------
$36,285 $2,807
======= ======
</TABLE>
The adjustment for the Niagara Acquisition represents the additional
depreciation on the write-up of Niagara's historical fixed assets and the
additional depreciation on assets Niagara will acquire from affiliated parties
prior to the closing of the acquisition as follows:
<TABLE>
<CAPTION>
ESTIMATED FAIR ADJUSTMENT TO
USEFUL VALUE ANNUAL
LIFE IN YEARS ADJUSTMENT DEPRECIATION
------------- ---------- -------------
<S> <C> <C> <C>
Historical Niagara assets:
Buildings.................... 40 $(2,204) $ (55)
Machinery and equipment...... 12 6,266 522
Furniture and fixtures....... 5 (170) (34)
Other........................ 3 (90) (30)
Affiliated party assets:
Land......................... -- 1,501 --
Buildings.................... 40 3,932 98
Machinery and equipment...... 12 7,269 607
------- ------
$16,504 $1,108
======= ======
</TABLE>
The adjustment for the year ended December 31, 1995 represents the additional
depreciation expense on the write-up of the Williamhouse assets for the ten
months prior to acquisition plus the annual additional depreciation expense
related to Niagara. The adjustment for the three month period ended March 31,
1996 represents one quarter of the additional annual depreciation expense
resulting from the Niagara Acquisition.
30
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
STATEMENT OF INCOME--(Continued)
(dollars in thousands)
(7) Reflects tax provision for pro forma adjustments to income before income
taxes using an estimated effective income tax rate of 40% which
approximates the Company's combined statutory rate (35% federal plus 5%
state). The amount is calculated as loss before income taxes of $618
multiplied by the combined statutory rate of 40%.
(8) Reflects the income tax adjustment required to result in a pro forma
provision (benefit) based on: (i) Ampad's, Williamhouse's and Niagara's
respective historical tax provisions (benefit) using historical amounts and
(ii) the direct tax effects of the pro forma adjustments described herein.
The primary reason for the difference between the historical rate and the
pro forma effective rate is that the goodwill resulting from the
Williamhouse acquisition and the Niagara Acquisition is not tax deductible
and, pursuant to SFAS No. 109, deferred taxes are not recognized on non-tax
deductible goodwill in purchase accounting.
(9) Represents the elimination of a portion of non-recurring stock option-
related compensation expense to certain members of the Company's management
directly related to the Williamhouse acquisition.
(10) Represents the additional annual management fee above the historical fee
paid by Ampad to equal an agreed upon prospective annual fee of $2,000 to
be charged by Bain Capital for consulting and financial services to be
provided to the Company.
(11) Represents the elimination of historical amortization of Williamhouse
deferred financing fees of $974 (which Williamhouse historically classified
in SG&A) and the elimination of the one-time charge of $1,828 to write-off
the remaining balance relating to refinanced debt.
(12) Represents the annual and one quarter amounts, respectively, of
amortization of the purchase price allocated to a one year management
services agreement resulting from the Niagara Acquisition. The Company
does not expect this charge to be recurring.
(13) Represents the elimination of historical rent expense related to property
and equipment leased by Niagara from affiliated parties. Such assets will
be acquired by Niagara contemporaneously with the Niagara Acquisition (see
note (6) above).
(14) Represents reductions to selling, general and administrative expenses
resulting from the elimination of certain Niagara executive compensation
and related benefits.
31
<PAGE>
UNAUDITED PRO FORMA AS ADJUSTED CONSOLIDATED BALANCE SHEET
(dollars in thousands)
<TABLE>
<CAPTION>
March 31, 1996
--------------------------------------------
Historical
------------------
The Transaction Company
Company Niagara Adjustments Pro forma
-------- ------- ----------- ---------
ASSETS
<S> <C> <C> <C> <C>
Current assets:
Cash..................................................... $ 20,108 $ 606 $(20,108)(1) $ 606
Restricted cash.......................................... 10,759 10,759
Accounts receivable, net................................. 18,407 11,202 29,609
Inventories.............................................. 93,166 11,028 2,668 (3) 106,862
Prepaid expenses and other current assets................ 2,026 372 2,398
Assets held for sale..................................... 43,572 43,572
Management services agreement............................ 5,000 (4) 5,000
Deferred income taxes, net............................... 14,744 216 14,960
------- ------ ------- -------
Total current assets.................................... 202,782 23,424 (12,440) 213,766
Property and equipment, net............................... 106,758 11,326 16,504 (5) 134,588
Intangible assets, net.................................... 37,392 316 37,708
Debt issuance costs, net.................................. 32,524 32,524
Goodwill, net............................................. 119,655 14,887 (2) 134,542
Other..................................................... 1,683 1,350 3,033
------- ------ ------- -------
Total................................................... $500,794 $36,416 $ 18,951 $556,161
======= ====== ======= =======
LIABILITIES AND STOCKHOLDER'S
EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt........................ $ 13,066 $ 650 $ (350)(6) $ 13,366
Accounts payable......................................... 36,689 6,782 43,471
Accrued expenses......................................... 43,271 2,638 6,000 (2) 51,909
Income taxes payable..................................... 518 953 1,471
------- ------ ------- -------
Total current liabilities............................... 93,544 11,023 5,650 110,217
Long-term debt........................................... 440,453 6,725 29,867 (6) 477,045
Deferred income taxes.................................... 29,911 439 188 (7) 30,538
Other.................................................... 3,179 1,475 4,654
------- ------ ------- -------
Total liabilities....................................... 567,087 19,662 35,705 622,454
------- ------ ------- -------
Commitments and contingencies.............................
Stockholder's equity (deficit):
Niagara stockholders' equity............................. 16,754 (16,754)(8)
Common stock, voting, $.01 par value, 1,000 shares
authorized, 100 shares issued and outstanding
Additional paid-in capital............................... 28,998 28,998
Accumulated (deficit).................................... (95,291) (95,291)
------- ------ ------- -------
Total stockholder's equity (deficit).................... (66,293) 16,754 (16,754) (66,293)
------- ------ ------- -------
Total liabilities and stockholder's equity (deficit).... $500,794 $36,416 $ 18,951 $556,161
======== ======= ======== ========
</TABLE>
See accompanying notes.
32
<PAGE>
NOTES TO UNAUDITED PRO FORMA AS ADJUSTED CONSOLIDATED BALANCE SHEET
(dollars in thousands)
The Unaudited Pro Forma Condensed Consolidated Balance Sheet gives effect
to the following unaudited pro forma adjustments:
(1) Represents Company's existing cash used in the Niagara Acquisition (see
notes (2) and (7) below).
(2) Reflects management's preliminary allocation of purchase price for the
Niagara Acquisition in accordance with the purchase method of accounting as
follows:
<TABLE>
<CAPTION>
<S> <C>
Purchase Price:
Cash portion of purchase price (including $5,000 payment for management services
agreement)................................................................................ $ 55,000
Estimated fees and expenses............................................................... 2,000
Less purchase price reduction for debt assumed:
Niagara historical debt................................................................ (7,375)
Incremental debt incurred to acquire assets of affiliated parties (see note (6)
below)................................................................................. (12,702)(a)
--------
Total................................................................................ $ 36,923
========
Allocated as follows:
Existing book value of Niagara............................................................ $ 16,754
Increase in inventory to estimated fair market value (see note (3) below)................. 2,668
Estimated increase in property and equipment to fair market value (see note (5)
below).................................................................................... 3,802
Acquisition of property and equipment from Niagara affiliated parties
contemporaneously with the acquisition (see note (5) below)............................... 12,702 (a)
Assumption of incremental debt issued by Niagara to acquire property and equipment from
affiliated parties contemporaneously with the acquisition (see note (6) below)............ (12,702)(a)
Management services agreement (see note (4) below)........................................ 5,000
Transaction related liabilities including severance and change in control benefits........ (6,000)
Increase in net deferred tax liabilities (see note (7) below)............................. (188)
Increase in goodwill...................................................................... 14,887
--------
Total................................................................................ $ 36,923
========
(a) Contemporaneously with the Niagara Acquisition, Niagara will acquire
certain assets currently used in operations that are leased from
affiliated parties. Niagara will incur debt, pre-closing, under its
existing credit facilities to acquire the assets.
</TABLE>
(3) Represents the estimated write-up of work-in-progress and finished goods
inventory in connection with the purchase price allocation. Since the
Company calculates inventory under the LIFO method, this write-up will not
result in a charge to cost of sales in any period following the Niagara
Acquisition unless base year inventory levels are reduced. In any event,
any resulting one-time charge would not be reflected in the accompanying
Unaudited Pro Forma Consolidated Statements of Income due to its unusual,
non-recurring nature.
(4) Represents the contractual payment at closing of $5,000 for a one-year
management services agreement in connection with the Niagra Acquisition.
(5) Represents the estimated write-up in value of property and equipment to
fair market value in connection with the purchase price allocation for the
Niagara Acquisition of $3,802. Also represents the value of property and
equipment to be acquired from affiliated parties of Niagara
contemporaneously with the Niagara Acquisition of $12,702.
(6) Represents the net increase in debt as a result of the Niagara Acquisition
as follows:
<TABLE>
<S> <C>
Borrowings under Niagara facilities, pre-closing, to fund purchase of
property and equipment $ 12,702 from affiliated parties...................................... $ 12,702
</TABLE>
33
<PAGE>
<TABLE>
<S> <C>
Borrowings under Revolver to partially fund the Niagara Acquisition.......................... 32,992
Less: Niagara debt not assumed (historical Niagara debt of $7,375 plus borrowings,
pre-closing, to fund purchase of affiliated party property and equipment of $12,702,
less IRB debt assumed of $3,900)............................................................. (16,177)
--------
Net increase in debt (including net decrease in current maturities of $350).................. $ 29,517
========
</TABLE>
(7) Represents the net amount of deferred tax liabilities resulting from the
allocation of purchase price for the Niagara Acquisition (see Note (2)
above).
(8) Represents elimination of Niagara's historical stockholders' equity
resulting from the application of purchase accounting in connection with
the Niagara Acquisition.
34
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
THE COMPANY
The selected historical consolidated financial data set forth below for the
years ended December 31, 1993, 1994 and 1995 have been derived from, and are
qualified by reference to the audited consolidated financial statements of the
Company, included elsewhere in this Prospectus. Although the Company was the
surviving corporation in the Merger, Ampad has been treated as the acquiring
corporation for accounting purposes. As a result, the income statement and other
data for the year ended December 31, 1995, reflect the historical operations of
Ampad and the results of the Company for the two-month period ended December 31,
1995. The historical consolidated financial data for the three months ended
March 31, 1995 and 1996 have been derived from the unaudited consolidated
financial statements of the Company which, in the opinion of the Company,
reflect all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation. Results for the three months ended March 31,
1996 are not necessarily indicative of results for the full year. Effective July
31, 1992, APP acquired Ampad (referred to below as the "Predecessor") from Mead.
As such, the selected historical consolidated financial data set forth below for
the period from January 1, 1992 through July 31, 1992 and the year ended
December 31, 1991 have been derived from the Predecessor's unaudited financial
statements, not included herein, and include all adjustments, consisting only of
normal recurring adjustments, which management considers necessary for a fair
presentation of the results of the Predecessor for such periods. The selected
historical consolidated financial data for the Predecessor are not comparable in
certain respects to the selected historical consolidated financial data of the
Company due to the effects of the acquisition of the assets of the Predecessor
described in the notes hereto. The selected historical consolidated financial
data set forth below should be read in conjunction with, and is qualified by
reference to, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the audited consolidated financial statements and
accompanying notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Predecessor Ampad/The Company
-----------------------------------------------------------------------------------------
Year Ended Period Period Year Ended Three Months Ended
December from from December 31, March 31,
31, 1/1/92- 8/1/92- --------------------------------- -------------------
1991 7/31/92 12/31/92 1993 1994 1995 1995 1996
--------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(1)(2)(3): (UNAUDITED)
Net sales............................. $107,964 $ 63,238 $ 43,526 $104,277 $120,443 $259,341 $ 47,691 $121,418
Cost of sales(4)...................... 96,959 55,737 37,610 88,491 113,394 211,814 42,394 97,889
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit.......................... 11,005 7,501 5,916 15,786 7,049(4) 47,527 5,297 23,529
Selling, general and administrative
expenses........................... 9,466 5,838 4,561 10,765 10,615 18,545 2,749 11,026
Nonrecurring compensation charge(5)... -- -- -- -- -- 27,632 -- --
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) from operations......... 1,539 1,663 1,355 5,021 (3,566) 1,350 2,548
Interest expense...................... 2,204 1,337 1,311 3,320 4,560 13,657 1,656 12,542
Other (income) expense................ (2,820) -- -- (167) (90) (735) (65) (269)
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes..... 2,155 326 44 1,868 (8,036) (11,572) 957 230
Provision for (benefit from) income
taxes.............................. 862 130 33 64 (488) (6,538) 366 102
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before extraordinary
item............................... 1,293 196 11 1,804 (7,548) (5,034) 591 128
Extraordinary loss from extinguishment
of debt, net of income
tax benefit........................ -- -- -- -- -- (9,652) -- --
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)..................... $ 1,293 $ 196 $ 11 $ 1,804 $ (7,548) $(14,686) $ 591 $ 128
======== ======== ======== ======== ======== ======== ======== ========
OTHER DATA:
Consolidated EBITDA, as defined(6).... $ 3,045 $ 3,394 $ 1,036 $ 4,575 $ 4,345 $ 38,760 $ 5,718 $ 14,142
Depreciation and amortization......... 3,385 1,936 79 159 942 4,248 528 3,020
Capital expenditures.................. 1,243 647 948 1,656 942 5,640 2,530 2,321
Ratio of earnings to fixed charges(7). 1.9x 1.2x 1.0x 1.5x --(8) --(8) 1.5x 1.0x
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Ampad/The Company
----------------------------------------------------------
Predecessor December 31,
----------- -------------------------------------------
December | March 31,
31, 1991 | 1992 1993 1994 1995 1996
----------- | --------- -------- --------- --------- --------
<S> <C> | <C> <C> <C> <C> <C>
Balance Sheet Data (at end of period): |
Working capital................................ $22,720 | $ 8,774 $ 8,248 $ 1,170 $108,924 $109,238
Total assets................................... 65,659 | 42,305 47,893 68,233 504,356 500,794
Long-term debt, less current maturities........ -- | 11,301 10,806 19,889 443,794 440,453
Stockholders' equity (deficit)(9).............. 54,769 | 3,011 4,815 (2,733) (66,421) (66,293)
</TABLE>
- ----------------------------
(1) Effective July 5, 1994, Ampad acquired the assets and assumed certain
liabilities of SCM Office Supplies, Inc. The acquisition has been accounted
for under the purchase method of accounting and, accordingly, the operating
results have been included with Ampad's results since the date of
acquisition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 3 of the Notes to
Consolidated Financial Statements of the Company included herein.
(2) Effective August 16, 1995, Ampad acquired the inventory and certain
equipment of the file folder and hanging file product lines of the Globe-
Weis office products division of Atapco. The acquisition has been accounted
for under the purchase method of accounting and, accordingly, the operating
results have been included in Ampad's results since the date of
acquisition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included herein and Note 3 of the
Notes to the Consolidated Financial Statements of the Company included
herein.
(3) Effective October 31, 1995, Ampad was deemed to have acquired Williamhouse
as a result of the Acquisition. The Acquisition has been accounted for
under the purchase method and, accordingly, the operating results of
Williamhouse except for the Personalizing Division, for the two month
period ended December 31, 1995 have been included in Ampad's results for
the year ended December 31, 1995. The Personalizing Division was held for
sale at December 31, 1995. As such, the operating results of the
Personalizing Division are excluded from the results of operations for the
two-month period ended December 31, 1995 (period subsequent to the
Acquisition). See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 3 of the Notes to
Consolidated Financial Statements of the Company included herein.
(4) Inventory cost is determined using the LIFO method of valuation. Gross
profit in the fourth quarter of 1994 was adversely impacted by a
significant increase in paper prices resulting in a $5.4 million charge for
LIFO in advance of Ampad's raising selling prices in the first quarter of
1995.
(5) Includes non-cash stock option compensation charges of $24.3 million
directly related to the Acquisition as well as other non-recurring cash and
non-cash changes aggregating $3.3 million. See Note 9 of "Notes to
Consolidated Financial Statements" of the Company included herein.
(6) "Consolidated EBITDA, as defined" is defined under the Indenture pursuant
to which the Notes were issued as income from operations, prior to
adjustment for the effect of the LIFO method of inventory valuation, plus
depreciation and amortization expense, non-recurring charges and other non-
cash expense items. See "Description of Exchange Notes - Certain
Covenants." Consolidated EBITDA, as defined should not be considered as an
alternative to net income as a measure of operating results or to cash
flows as a measure of liquidity in accordance with generally accepted
accounting principles.
(7) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest expense,
amortization of deferred financing fees and one-third of the rent expense
from operating leases, which management believes is a reasonable
approximation of an interest factor.
(8) Earnings were insufficient to cover fixed charges by approximately $8.0
million and $11.5 million during the year ended December 31, 1994 and
1995, respectively.
(9) Includes $70.6 million to redeem a portion of APP's Preferred Stock and
$4.5 million to pay the Class P Common Stock Dividend.
36
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is one of the largest manufacturers and marketers of nationally
branded and private label paper-based office products (excluding computer forms
and copy paper) in the $60 billion to $70 billion North American office products
industry. The Company offers a broad assortment of products including writing
pads, file folders, envelopes and other paper-based products. Through its Ampad
division, the Company is among the largest and most important suppliers of pads
and other paper-based writing products, filing supplies and envelopes to many of
the largest and fastest growing office products distributors. Through its
Williamhouse division, the Company is the leading supplier of mill branded,
specialty and commodity envelopes to paper merchants/distributors. The Company
believes that its future operating results will not be directly comparable to
its historical operating results because of its strategic acquisitions and the
expected cost savings from integration of the Acquisition. The Company's
business has not generally been seasonal in nature. Certain factors which have
affected, and may affect prospectively, the operating results of the Company are
discussed below.
Strategic Acquisitions. On October 31, 1995, APP acquired Williamhouse, a
leading supplier of envelopes to many of the largest and fastest growing
distributors, for an aggregate purchase price (including assumption of debt) of
approximately $300 million plus reimbursement of certain expenses to the
sellers. On July 5, 1994, Ampad acquired the assets and assumed certain
liabilities of SCM, one of the industry leaders in hanging files and writing
products. The aggregate acquisition consideration of $14.4 million, including
fees and expenses, was financed through the incurrence of bank debt. On August
16, 1995, Ampad acquired the file folder and hanging file product lines of
Atapco's Globe-Weis office products division. Atapco was one of the leading
providers of file folders and hanging files to office products superstores. The
aggregate acquisition consideration of $19.7 million, including fees and
expenses, was financed through the incurrence of bank debt and seller notes.
The SCM Acquisition and the Globe-Weis Acquisition further strengthened the
Company's position in the filing supplies and writing products categories.
On December 20, 1993, Williamhouse acquired the principal assets of
Kimberly-Clark Corporation's Karolton envelope business. The Karolton envelope
business manufactures high quality envelopes made from fine and specialty grades
of paper and Tyvek(R) (a high density polyurethane-based product made by
DuPont). The aggregate acquisition consideration of $9.6 million was financed
through the incurrence of bank debt. On July 29, 1994, Williamhouse acquired
the giant and X-ray envelope product lines from Huxley Envelope Corp. The
aggregate acquisition consideration of $4.2 million, including a seller note,
was principally financed through the incurrence of bank debt.
Purchase Accounting Effects. The Company's acquisitions have been
accounted for using the purchase accounting method. The Acquisition has
currently affected, and will prospectively affect, the Company's results of
operations in certain significant respects. The aggregate acquisition cost
(including assumption of debt) of approximately $300 million was allocated to
the net assets acquired based on the fair market value of such net assets. The
preliminary allocation of the purchase price resulted in an increase in the
historical book value of certain Williamhouse assets such as property, plant and
equipment and intangible assets, including goodwill, which results, on a pro
forma basis, in incremental annual depreciation and amortization expense of $7.0
million as of December 31, 1995.
Potential Operating Improvements. The Company has identified and is in the
process of implementing cost reductions in connection with the Acquisition that
are expected to result in approximately $7.4 million of annual cost savings
following the adoption of such measures. In addition, management plans to
implement further identified cost reductions which are expected to improve
operations beyond 1996. The most significant cost reduction actions involve
closing Williamhouse's New York City headquarters, contractual changes in
employee benefit and other insurance plans and the consolidation of sales and
marketing and other administrative functions to eliminate duplicative functions,
sales programs and sales personnel. However, because these improvements have
not yet been fully implemented and Williamhouse's selling, general and
administrative ("SG&A") expenses have historically been a higher percentage of
net sales than those of the Company prior to the Acquisition, the Company's
aggregate SG&A expenses may rise as a percentage of net sales in the near term.
Sale of Personalizing Division. The Company's management identified the
Personalizing Division of Williamhouse as a nonstrategic asset following the
Acquisition and has decided to pursue its sale. As a result, the financial
statements of the Company included elsewhere in this Prospectus reflect the
Personalizing Division as "Assets
37
<PAGE>
held for Sale" as of December 31, 1995 and March 31, 1996. On June 6, 1996, the
Company signed a definitive agreement with a potential buyer to sell the
Personalizing Division. Under the terms of such agreement, the Company will
receive gross proceeds of approximately $60 million (subject to certain closing
adjustments) from the sale of the Personalizing Division, which it expects to
complete by the end of June 1996. The sales agreement is subject to certain
conditions, some of which are outside the control of the Company. As a result,
no assurance can be given that the sale will be completed or, if completed, will
be on the terms set forth in the sales agreement.
SCM Work Stoppage. Prior to the consummation of the SCM Acquisition,
management was aware that work rules and associated costs at the SCM plant in
Indiana were less favorable than those at other plants of the Company. As a
result of management's efforts to bring the labor agreement at the Indiana plant
more in line with market labor agreements, a labor strike occurred on September
1, 1994. Consequently, the Company closed the Indiana plant on February 15,
1995, and moved the equipment to other facilities operated by the Company. By
July 1995, all machinery and equipment previously operated in Indiana was
available for production in other Company facilities. Accordingly, the Company
does not believe that such plant closure has had an ongoing material impact on
the Company's operations.
Paper Prices. Paper represents a majority of the Company's cost of goods
sold. While paper prices have increased by an average of less than 1% annually
since 1989, certain commodity grades have shown considerable price volatility
during that period. This volatility negatively impacted the Company's earnings
in 1994, particularly in the fourth quarter, as a result of the Company's
inability to implement price changes in many of its product lines without giving
its customers advance notification. Beginning in January 1995, the Company
adopted new pricing policies enabling it to set product prices consistent with
the Company's cost of paper at the time of shipment. The Company believes that
it is now able to price its products so as to minimize the impact of price
volatility on dollar margins. In addition, as a result of acquisitions and new
product introductions, the Company offers a broader and more diverse product mix
which is less susceptible to paper price fluctuations. See "Risk Factors -
Risks Associated with Fluctuations in Paper Costs."
RESULTS OF OPERATIONS
The following table summarizes Ampad's historical results of operations as
a percentage of net sales for the years ended December 31, 1993 and 1994 and the
three months ended March 31, 1995 and the Company's historical results of
operations as a percentage of net sales for the year ended December 31, 1995 and
the three months ended March 31, 1996. Although the Company was the surviving
corporation in the Merger, Ampad has been treated as the acquiring corporation
for accounting purposes. As such, the results of operations for the year ended
December 31, 1995 reflect the historical annual results of the Company and the
results of Williamhouse for the two-month period ended December 31, 1995:
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
---------------------------- ------------------
1993 1994 1995 1995 1996
---------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit....................................... 15.1 5.9 18.3 11.1 19.4
Selling, general and administrative expenses....... 10.3 8.9 7.2 5.8 9.1
Non-recurring compensation charge.................. -- -- 10.6 -- --
---------- -------- -------- --------- --------
Income (loss) from operations...................... 4.8 (3.0) 0.5 5.3 10.3
Interest expense, net.............................. 3.2 3.8 5.2 3.4 10.3
Other (income) expense............................. (0.2) (0.1) (0.2) (0.1) (0.2)
---------- -------- -------- --------- --------
Income (loss) before taxes......................... 1.8 (6.7) (4.5) 2.0 0.2
Provision for (benefit from) income taxes.......... 0.1 (0.4) (2.5) 0.8 --
---------- -------- -------- --------- --------
Income from continuing operations before
extraordinary item.............................. 1.7 (6.3) (2.0) 1.2 0.2
Extraordinary loss from extinguishment of debt,
net of income tax benefit....................... -- -- (3.7) -- --
---------- -------- -------- --------- --------
Net income (loss) from continuing operations....... 1.7% (6.3)% (5.7)% 1.2% 0.2%
========== ======== ======== ========= ========
</TABLE>
38
<PAGE>
THREE MONTHS ENDED MARCH 31, 1996 OF THE COMPANY COMPARED TO THREE MONTHS ENDED
MARCH 31, 1995 OF AMPAD
Net sales for the three months ended March 31, 1996 increased by $73.7
million, or 155%, to $121.4 million from $47.7 million for the three months
ended March 31, 1995. Of this net sales increase, $64.3 million is related to
the Acquisition and $15.9 million is related to the Globe-Weis Acquisition.
Ampad division net sales, exclusive of Globe-Weis, decreased by $6.5 million in
the first quarter of 1996 compared to the unusually strong first quarter of
1995. The strong 1995 first quarter was due to certain of the Company's
customers increasing inventory levels in anticipation of price increases and
supply shortages.
Gross profit for the three months ended March 31, 1996 increased by $18.2
million, or 343%, to $23.5 million from $5.3 million for the three months ended
March 31, 1995. Approximately $15.5 million of the increase in gross profit is
attributable to the Acquisition and $2.0 million is attributable to the Globe-
Weis Acquisition. The gross profit from the Ampad division, exclusive of Globe-
Weis, increased by $0.7 million, due to increased gross margins. Gross profit
margin increased to 19.4% for the three months ended March 31, 1996 from 11.1%
for the three months ended March 31, 1995. The increase in gross profit margin
is related to unfavorable inventory valuation of $2.6 million in the first
quarter of 1995 due to rising paper prices. In addition, the Company's ability
to maintain its current pricing policies in the first quarter of 1996 despite a
falling price environment led to higher margin percentages.
SG&A expenses for the three months ended March 31, 1996 increased $8.2
million, or 302%, to $11.0 from $2.8 million for the three months ended March
31, 1995. Approximately $7.3 million of the increase is attributable to the
Acquisition and includes $1.0 million of amortization of goodwill and
intangibles and $0.3 million of costs related to the off balance sheet financing
of receivables. The remaining $0.9 million of the increase is attributable to
the Ampad division, primarily related to shifting of corporate activities from
the Williamhouse division. As a percentage of net sales, SG&A expenses
increased to 9.1% for the first three months of 1996 from 5.8% in the comparable
period for the prior year as a result of higher SG&A expenses as a percentage of
net sales of the Williamhouse division (11.0% for the period) compared to the
Ampad division (5.8% for the period).
Interest expense for the three months ended March 31, 1996 increased $10.9
million to $12.5 million from $1.6 million for the three months ended March 31,
1995. The increase is attributable primarily to increased borrowings as a
result of the Offering of the Notes in December 1995, the Acquisition in October
1995 and the Globe-Weis Acquisition in August 1995.
The income tax provision for the three month period ended March 31, 1996
reflects an effective tax rate of 44.4%, versus an effective tax rate of 38.3%
for the three month period ended March 31, 1995. The increase is attributable
primarily to the nondeductible goodwill amortization resulting from the
Acquisition.
YEAR ENDED DECEMBER 31, 1995 OF THE COMPANY COMPARED TO YEAR ENDED DECEMBER 31,
1994 OF AMPAD
Net sales for the year ended December 31, 1995 increased by $138.9 million,
or 115%, to $259.3 million from $120.4 million for the year ended December 31,
1994. Of this net sales increase, $46.6 million, or 33%, is related to the
Acquisition and $29.4 million, or 21%, is related to the Globe-Weis Acquisition.
The remaining increase of $62.9 million, or 46%, is related to increased net
sales in the base business, primarily as a result of price increases and, to a
lesser extent, a change in product mix, partially offset by a decline in sales
through nonstrategic channels, particularly independent dealers. Net sales to
independent dealers declined to less than 2% of net sales in the year ended
December 31, 1995, compared to 8.5% in 1994. Net sales in the emerging channels
(national office products superstores, national contract stationers and mass
merchandisers) represented 52.0% of total net sales (63.4% of Ampad division
sales) in the year ended December 31, 1995 as compared to 45.7% of total net
sales (45.7% of Ampad division sales) in the year ended December 31, 1994.
Gross profit for the year ended December 31, 1995 increased by $40.5
million, or 575%, to $47.5 million, from $7.0 million for the year ended
December 31, 1994. Approximately $13.6 million of the increase in gross profit
is attributable to the Acquisition and an estimated $3.8 million increase is due
to the Globe-Weis Acquisition. The remainder of the increase in gross profit is
due to (i) higher variable margins associated with the gains in unit sales,
product mix and pricing; (ii) lower fixed manufacturing costs primarily as a
result of the SCM plant closure and (iii) lower rate of paper price increases in
1995 compared with 1994 and the timing of the Acquisition, resulting in lower
LIFO charges of approximately $2.5 million in 1995. Fixed manufacturing costs as
a percentage of net sales declined
39
<PAGE>
as a result of the successful integration of the Globe-Weis manufacturing
operations and the closing of the Indiana facility.
Gross profit margin increased in the year ended December 31, 1995 to 18.3%
from 5.9% in 1994. The increase is principally a result of higher variable
margins, lower fixed manufacturing costs and lower LIFO charges. Excluding
acquisitions, gross profit margin would have increased to 16.4% for the period
ended December 31, 1995.
SG&A expenses for the year ended December 31, 1995 increased by $7.9
million, or 74%, to $18.5 million, from $10.6 million for the year ended
December 31, 1994. Approximately $5.9 million of this increase related to the
Acquisition. The balance of such increase related to higher amortization costs
as a result of the Acquisition and costs associated with the Accounts Receivable
Facility. SG&A as a percentage of net sales for the year ended December 31, 1995
decreased to 7.2% from 8.9% in 1994, as a result of higher revenues and cost
efficiencies achieved from the successful integration of SCM and Globe-Weis
operations into the Company's existing sales and administrative structure,
combined with improved control of operating expenses.
The non-recurring compensation charge of $27.6 million for the year ended
December 31, 1995 was primarily the result of the issuance of options for
Preferred Stock granted to existing option holders in order to maintain such
holders' economic value in previously issued options for Common Stock as a
result of the Preferred Stock Dividend and the grant of additional options in
December 1995 at an exercise price below the fair market value at the date of
grant. See Note 9 of the Notes to Consolidated Financial Statements of the
Company included herein.
Income (loss) from operations for the year ended December 31, 1995
increased by $4.9 million to $1.3 million from ($3.6) million in 1994, for the
reasons stated above. Income (loss) from operations as a percentage of net sales
for the year ended December 31, 1995 increased to .5% from (3.0)% for the year
ended December 31, 1994.
Interest expense for the year ended December 31, 1995 increased $9.1
million, or 198%, to $13.7 million from $4.6 million for the year ended December
31, 1994. The increase is attributable primarily to increased borrowings as a
result of the Acquisition and the Globe-Weis Acquisition.
Income tax benefit for the year ended December 31, 1995 reflects an
effective tax rate of 46.9%, versus a 6.1% effective tax rate in 1994. The
difference between the effective rate and the statutory rate in 1995 is due to a
reduction in the SFAS No. 109 deferred tax valuation allowance resulting from
improved operating results.
Extraordinary item representing an after tax loss on extinguishment of debt
of $9.6 million ($16.1 million pretax) was recognized as a result of $10.8
million of redemption premiums and prepayment penalties associated with the
repurchase of the Old Debentures and the Company's bank debt and the write off
of $5.3 million of unamortized deferred financing costs in connection with the
redemption of the Old Debentures and the Company's debt refinancings.
Supplemental 1995 Williamhouse Data. Although only two months of
Williamhouse's post-Acquisition results are included in the Company's
consolidated financial statements for the year ended December 31, 1995, the
Company believes that the following combined twelve month unaudited comparative
information is useful in evaluating the expected future contribution of the
Williamhouse division to the Company's results of operations. Net sales for the
year ended December 31, 1995 increased 6.9% to $265.2 million from $248.0
million for the year ended December 31, 1994. The increased sales are a result
of both increased selling prices on commodity and mill branded envelopes and
increased sales volume of Christmas card product lines due to product expansion
and more aggressive sales efforts. Gross profit for the year ended December 31,
1995 increased by $7.5 million, or 10.1%, to $82.0 million from $74.5 million
for the year ended December 31, 1994 as a result of higher pricing offset
partially by higher costs. Gross profit margin for the year ended December 31,
1995 increased slightly to 30.9% from 30.0% for the year ended December 31,
1994, as a result of price increases on selected products, partially offset by
higher raw material costs for mill branded and commodity paper. SG&A expenses
for the year ended December 31, 1995 increased to $48.0 million as compared to
$45.2 million for the year ended December 31, 1994.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Net sales for the year ended December 31, 1994 increased by $16.2 million,
or 15.5%, to $120.4 million from $104.3 million for the year ended December 31,
1993. The net sales increase is related to the SCM Acquisition in July 1994,
which contributed $21.0 million through the end of 1994. Excluding the SCM
Acquisition, net sales decreased
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by $4.8 million as a result of the discontinuation of the copy paper brokerage
business ($10 million), partially offset by continued sales growth in the
emerging distribution channels, which contributed 45% of sales during 1994
compared to 30% in 1993. Net sales from SCM operations were negatively affected
as a result of the Indiana plant strike that occurred in the third quarter of
1994. As a result of the work stoppage at the Indiana plant, sales from that
plant were $10.4 million for the period between September 1, 1994 through
December 31, 1994 as compared to $22.8 million for the same period in 1993.
Gross profit for the year ended December 31, 1994 decreased by $8.8
million, or 55.7%, to $7.0 million from $15.8 million for the year ended
December 31, 1993. Gross profit margins decreased to 5.9% in 1994, from 15.1% in
1993. Gross profit margin decreased primarily as a result of a $7.0 million
increase, or 5.8%, in the LIFO reserve and delayed implementation of price
changes subsequent to increased raw material paper costs. Management believes
that pricing delays negatively impacted gross profit margin by approximately
2.1%. In addition, as the Company began shifting its customer base to the
emerging channels, it incurred certain non-recurring expenses. Such expenses
were related to removing competitive products from customers' inventory,
revising the Company's packaging and increasing the breadth of products offered
by the Company in those channels. Furthermore, as a result of the work stoppage
at the Indiana plant, gross profit at that plant decreased from $2.4 million for
the period between September 1, 1993 and December 31, 1993, to $(.5) million for
the same period in 1994.
SG&A expenses for the year ended December 31, 1994 decreased by $.2
million, or 1.4%, to $10.6 million from $10.8 million for the year ended
December 31, 1993. SG&A as a percentage of net sales in 1994 decreased to 8.9%
from 10.3% in 1993 as a result of management's efforts to successfully integrate
SCM's operations into the Company's existing sales and administrative structure.
Income (loss) from operations for the year ended December 31, 1994
decreased by $8.6 million to $(3.6) million from $5.0 million for the year ended
December 31, 1993. Income (Loss) from operations as a percentage of net sales
decreased to (3.0)% in 1994 from 4.8% in 1993 primarily as a result of the
factors discussed above.
Management believes that the Company's 1994 historical earnings are not
comparable to the ongoing level of operations of the business which now reflect
the full impact of the SCM, Globe-Weis and Williamhouse acquisitions. A
prolonged work stoppage at SCM's Indiana plant (see "--Overview--SCM Work
Stoppage") prevented the Company from operating the acquired assets at full
capacity until 1995. Furthermore, with respect to Globe-Weis, the previous
owner allocated to it corporate and other fixed overhead costs at levels higher
than those allocated to it by the Company. The Company has operated the Globe-
Weis assets profitably since their acquisition. Management believes Globe-Weis
can contribute to improved overall ongoing results as compared to 1994 levels of
business. Finally, the Company's former pricing policies delayed the aligning
of the price the Company charged for its products with the market price for
paper.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the three months ended March
31, 1996 was $7.6 million compared to a use of cash of $10.3 million for the
three months ended March 31, 1995. The $7.6 million provided in the first
quarter of 1996 was primarily due to an income tax refund of $3.6 million, a
decrease in accounts receivable of $7.5 million, partially offset by a decrease
in accounts payable ($.4 million) and accrued expenses ($1.5 million) and an
increase in prepaid expenses ($1.1 million). The use of cash of $10.3 million in
the first quarter of 1995 was primarily due to an increase in accounts
receivable ($5.0 million) and inventories ($5.7 million) and a decrease in
accrued expenses ($2.2 million), partially offset by an increase in accounts
payable ($1.7 million).
Net cash provided by operating activities for the year ended December 31,
1995 was $8.3 million compared to $1.9 million used by operations for the year
ended December 31, 1994. The net cash provided for the year ended December 31,
1995 resulted primarily from an increase of $5.0 million in accounts payable, an
increase in accrued expenses of $4.9 million, a decrease in inventories and
increased margins on sales. The increase was partially offset by an increase in
accounts receivable due to increased sales. Cash used by operations for the
years ended December 31, 1994 and 1993 was $1.9 million and $1.7 million,
respectively. The use of cash for the year ended December 31, 1994 was primarily
due to an increase in inventories offset by an increased LIFO charge due to
rising paper prices, and a decrease in accrued expenses, offset by an increase
in accounts payable. The use of cash for the year ended December 31, 1993
resulted from increased inventories offset by an increase in accounts payable.
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Cash used in investing activities for the three months ended March 31, 1996
and 1995 and the years ended December 31, 1995, 1994 and 1993, was $3.0 million,
$0.7 million, $131.2 million, $14.6 million and $0.5 million, respectively. The
use of cash for the three months ended March 31, 1996 and 1995 was primarily due
to purchases of property and equipment. The use of cash for the year ended
December 31, 1995, was due to the Acquisition ($122.7 million), the Globe-Weis
Acquisition ($7.0 million) and purchase of equipment ($3.9 million). The use of
cash for the year ended December 31, 1994, was due primarily to the SCM
Acquisition ($14.4 million). The use of cash for the year ended December 31,
1993, was due to purchases of equipment offset by proceeds from the sale of the
dated goods products line.
Cash provided by financing activities for the three months ended March 31,
1995 and the years ended December 31, 1995, 1994 and 1993, was $11.1 million,
$144.9 million, $16.5 million and $2.2 million, respectively, primarily due to
periodic financing incurred in connection with the various acquisitions. Cash
used in financing activities for the three months ended March 31, 1996 was $2.9
million due to repayments of debt, partially offset by proceeds from long-term
debt.
Capital expenditures, excluding acquisitions, in the three months ended
March 31, 1996 and 1995 and the years ended December 31, 1995, 1994 and 1993
were $2.3 million, $0.8 million, $3.9 million, $.9 million and $1.7 million,
respectively. The Company expects that combined capital expenditure requirements
will be approximately $13.6 million for 1996. The Company believes these capital
expenditure levels will be sufficient to maintain competitiveness and to provide
sufficient manufacturing capacity. The Company expects to fund capital
expenditures primarily from cash generated from operating activities.
As a result of the Transactions, the debt service costs associated with the
borrowings under the Bank Credit Agreement and the Notes significantly increased
the Company's liquidity requirements. The Company repurchased the Old Debentures
in connection with the Tender Offer and Consent Solicitation. The Tender Offer
and Consent Solicitation were effected in order to modify certain terms of the
indenture under which the Old Debentures were issued in order to afford the
Company greater operating flexibility following the Acquisition. As compared to
the Indenture, the indenture governing the Old Debentures (the "Old Debenture
Indenture") contained more restrictive covenants that would have not permitted,
among other things, the Company to redeem a portion of its Preferred Stock or
pay the Class P Common Stock Dividend. In any event, under the Old Debenture
Indenture the Company would have been required to offer to repurchase the Old
Debentures as a result of the Acquisition being a "change of control triggering
event." All borrowings under the Bank Credit Agreement will mature prior to the
Exchange Notes. Additional borrowings are available under the $45 million
revolving credit facility portion of the Bank Credit Agreement. As of March 31,
1996, the Company did not have any borrowings under the revolving credit
facility portion of the Bank Credit Agreement. The Bank Credit Agreement and the
Indenture impose certain restrictions on the Company, including restrictions on
its ability to incur indebtedness, pay dividends, make investments, grant liens,
sell its assets and engage in certain other activities. In addition, the
indebtedness of the Company under the Bank Credit Agreement is secured by
substantially all of the assets of the Company, including the Company's real and
personal property, inventory, accounts receivable, intellectual property and
other intangibles. See "Description of Certain Indebtedness--Bank Credit
Agreement." The Company expects that cash flows from operating activities
together with borrowings available under the Bank Credit Agreement or the New
Bank Credit Agreement, as the case may be, will be sufficient to fund working
capital needs, capital spending requirements, restructuring costs incurred in
connection with the Acquisition and debt service requirements of the Company's
capital structure for the foreseeable future. Concurrently with the Acquisition,
the Company entered into the $45 million Accounts Receivable Facility.
Management believes that based on current levels of operations and
anticipated internal growth, cash flow from operations, together with other
available sources of funds including borrowings under the Bank Credit Agreement
or the New Bank Credit Agreement, as the case may be, and available cash on hand
at March 31, 1996 of $20.1 million, will be adequate for the foreseeable future
to make required payments of principal and interest on the Company's
indebtedness, to fund anticipated capital expenditures and working capital
requirements, including the aforementioned restructuring costs, and to enable
the Company and its subsidiaries to comply with the terms of their debt
agreements. However, actual capital requirements may change, particularly as a
result of any acquisitions which the Company may make. The ability of the
Company to meet its debt service obligations and reduce its total debt will be
dependent, however, upon the future performance of the Company and its
subsidiaries which, in turn, will be subject to general economic conditions and
to financial, business and other factors, including factors beyond the Company's
control. A portion of the consolidated debt of the Company bears interest at
floating rates; therefore, its financial condition is and will continue to be
affected by changes in prevailing interest rates. The Company has entered into
an interest rate protection agreement to minimize the impact from a rise in
interest rates.
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On April 25, 1996, APP filed with the Commission a registration statement
relating to the initial public offering of up to 15,625,000 shares of Common
Stock. The net proceeds to APP from the Proposed Equity Offering are estimated
to be approximately $187 million. APP intends to use such proceeds to repay
approximately $107 million of the indebtedness incurred under the Bank Credit
Agreement, (ii) allow the Company to redeem approximately $70 million aggregate
principal amount of the Notes or Exchange Notes from the holders thereof on a
pro rata basis, (iii) allow the Company to pay approximately $8 million in
redemption premiums on the Notes or Exchange Notes and (iv) pay certain fees
associated with the Proposed Equity Offering. There can be no assurance that APP
will consummate the Proposed Equity Offering, or if it does, that it will use
the proceeds therefrom for the purposes set forth herein.
Contemporaneously with, and conditional upon, the Proposed Equity Offering,
the Company intends to refinance and retire all remaining indebtedness under the
Bank Credit Agreement with the proceeds of the loans under the New Bank Credit
Agreement. Although the Company has not finalized the terms of the definitive
New Bank Credit Agreement, Bankers Trust Company has, subject to certain
conditions, committed to provide the facility. Although there can be no
assurances that the Company will be successful in negotiating the New Bank
Credit Agreement, or if successful, the terms of such facility, the Company
anticipates that the New Bank Credit Agreement will provide a revolving credit
facility of $300 million subject to the following principal terms: Loans made
under the New Bank Credit Agreement will bear interest at a rate per annum equal
to, at the Company's option, (i) the Base Rate plus the Applicable Margin or
(ii) the Eurodollar Rate plus the Applicable Margin (as each term is defined in
the New Bank Credit Agreement). The Applicable Margin for Base Rate Loans will
vary from 0% to .75% and the Applicable Margin for Eurodollar Loans will vary
from 0% to 1.75%, each based on the Company's consolidated level of debt as
compared to consolidated EBITDA ("Leverage Ratio") and the type of loan.
Availability under the New Bank Credit Agreement will be subject to an unused
commitment fee which will be a percentage of the unutilized revolving loan
commitment. This percentage will vary from .3% to .5% based on the Company's
Leverage Ratio. Availability under the New Bank Credit Agreement will generally
be reduced to the extent of the net proceeds of a sale of assets by the Company,
the net proceeds of an issuance of debt by the Company or 50% of the net
proceeds of an issuance of equity by the Company. Availability will also be
reduced by $50 million in 1999 and $50 million in 2000. The New Bank Credit
Agreement is expected to terminate in 2001. The Company will be permitted to
make acquisitions under the New Bank Credit Agreement up to $25 million per
acquisition without consent of the Required Banks (as defined in the New Bank
Credit Agreement) and up to $50 million per acquisition if, on a pro forma basis
giving effect to such acquisition, the Company's Leverage Ratio is less than 3.0
to 1.0. If the New Bank Credit Agreement had been in place on March 31, 1995,
the initial interest rate would have been 7.5%. As a result of the New Bank
Credit Agreement, the Company's effective interest rate under its senior credit
facility is expected to be reduced by 156 basis points contemporaneously with
the Proposed Equity Offering.
On May 29, 1996, the Company signed a definitive agreement to acquire
Niagara for a purchase price of approximately $50 million. In addition, the
Company will enter into a one-year consulting services agreement with the former
chief executive officer of Niagara pursuant to which the Company will make a
$5.0 million payment at the closing of the Niagara Acquisition. The Company
expects the Niagara Acquisition to be completed by the middle of July 1996. The
Company expects to use existing cash balances as well as borrowings under the
New Bank Credit Agreement to fund the Niagara Acquisition. In the event the sale
of the Personalizing Division is completed prior to the Proposed Equity
Offering, the Company has obtained the consent of its lenders under the Bank
Credit Agreement to use the net proceeds from the sale to fund substantially all
of the Niagara Acquisition. Otherwise, the Company will use the proceeds from
the sale of the Personalizing Division to repay indebtedness.
INFLATION
The Company believes that inflation has not had a material impact on its
results of operations for the three years ended December 31, 1995.
CHANGES IN ACCOUNTING STANDARDS
The Company has elected not to early adopt the provisions of Statement of
Financial Accounting Standards No. 123 "Accounting for Stock Based
Compensation." The Company will adopt the reporting provisions of SFAS 123 in
1996. The Company expects the adoption to have no effect on its financial
condition or results of operations.
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INDUSTRY
OFFICE PRODUCTS
The North American office products industry, excluding contract office
furniture and business machines, generates approximately $60 billion to $70
billion in annual sales at retail prices. The Company believes that the market
has grown at an approximate average annual rate of 4% from 1992 to 1995. Office
products include paper, envelopes, writing products, writing instruments,
mailroom supplies, filing supplies, organizers, desktop accessories, business
forms, binders, tape, printed products, staples and fastening products and other
consumable items. The Company believes that the market for these products is
approximately $30 billion to $35 billion at wholesale prices.
The Company participates in the writing products, filing supplies and envelope
segments of the industry. The writing products segment includes writing pads,
notebooks, jotter pads, easels, flip charts, data pads, message pads, wire
notebooks, certain business forms, specialty computer forms, business machine
paper and other categories, including a wide range of stock keeping units
("SKUs") based on size, quality, finish, thickness, reusability/refillability
and various customized features. The key raw materials for writing products are
tablet and form grades of paper. The Company estimates that the writing
products segment at wholesale prices is approximately $2.87 billion in
size.
The filing supplies segment includes suspension (hanging) files, expandable
folders, manila folders, index cards, labels and related products. Estimated by
the Company at approximately $1.5 billion at wholesale prices, the filing
supplies segment is characterized by manufacturers with national brand coverage,
large-scale production capabilities, wide-area distribution systems and
standardized products. The key raw materials for filing supplies are
paperboard, bristols, metal and plastics, all of which are available from a
large number of suppliers.
The envelope segment includes both standard size and specialty envelopes such
as catalog mailing envelopes, envelopes closable by metal clasp or button-and-
string, and giant, X-ray, remittance and overnight delivery envelopes. Envelopes
are made from mill branded and commodity grades of paper or from Tyvek(R) (a
high density polyurethane-based product made by DuPont) and other non-woven
material. According to the Envelope Manufacturers Association of America, the
United States envelope market in 1995 was estimated to be approximately $2.8
billion dollars in net sales or 168.6 billion units at the manufacturers' level.
The historical growth rate for envelopes has shown high correlation with that of
Gross Domestic Product ("GDP").
The Company believes that demand for writing products, filing supplies and
envelopes has not been significantly affected by the growth in electronic office
tools such as e-mail and personal digital assistants and the Company does not
expect these tools to have a significant impact on such demand for the
foreseeable future.
DISTRIBUTION
Office products are distributed from the manufacturer to the end-user through
several different channels, including retail channels such as national office
product superstores, mass merchandisers and warehouse clubs; commercial channels
such as national contract stationers; paper merchants/distributors; and other
channels such as regional distributors, school campuses and direct mail. Office
products, including writing products, filing supplies and a relatively small
portion of envelopes, were traditionally distributed through contract
stationers, wholesalers and independent dealers. Envelopes have been
distributed primarily through paper merchants/distributors. Since the mid-
1980s, the office products industry has experienced significant changes in the
channels through which office products are distributed such as the emergence of
new channels, including national office product superstores, national contract
stationers and mass merchandisers, and consolidation within these and other
channels. As a result of these changes, approximately 6,800 office product
distributors existed in 1994 compared with approximately 13,300 in 1987.
Retail Channels. The Company estimates that total 1995 sales of office
products to end-users in North America through retail channels were
approximately $20 billion to $25 million. Office products retailers typically
serve small and medium-sized businesses, home offices and individuals. The
national office products superstores have experienced significant consolidation
in recent years, with today's three dominant operators (Office Depot, OfficeMax
and Staples) emerging from approximately 17 different superstore operators in
1986. Over the past five years, Office Depot, OfficeMax and Staples have each
experienced average annual growth rates in excess of 35%. In addition, mass
merchandisers (such as Wal-Mart) and warehouse clubs (such as Sam's Warehouse
Club) are significant and growing retailers of office products, although both
carry a smaller assortment than do the superstores. The three dominant
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national office superstores currently account for approximately 17% of total
retail office products sales and approximately 6% of total office products
sales. In addition to the growth experienced by these operators within the
retail channel, the retail channel as a whole has also captured significant
market share from other distribution channels.
Commercial Channels. The Company estimates that total 1995 sales of office
products to end-users in North America through commercial channels were
approximately $25 billion to $30 billion. Commercial distributors typically
serve large and medium-sized business customers through product catalogs and
direct sales forces. Generally, commercial distributors stock products in
distribution centers and deliver them to customers on a next-day basis against
orders received electronically, by telephone or fax, or taken by a salesperson
on the customer's premises. A growing segment within commercial channels is the
contract stationer channel. Major contract stationers purchase in large
quantities directly from manufacturers, rely upon wholesaler intermediaries to
only a limited extent for inventory backup and product breadth, and offer
significant volume-related discounts and a high level of service to their
customers. Most contract stationers operate in only one or very few major
metropolitan areas. There has been significant consolidation of contract
stationers into national companies in recent years, and the Company expects this
consolidation trend to continue. Major national participants include Boise
Cascade Office Products, BT Office Products, Corporate Express, U.S. Office
Products and the contract stationer divisions of Office Depot and Staples.
These national contract stationers now account for approximately 25% of
commercial office products sales and approximately 11% of total office products
sales. Given this consolidation and opportunity for growth, suppliers capable
of distributing a broad and deep product line nationwide, such as the Company,
are best positioned to serve major contract stationers.
Paper Merchants/Distributors Channel. According to industry sources, the paper
merchant/distributor channel has been experiencing 6% to 7% growth over the past
three years. Paper merchants/distributors sell a wide range of products
including stationery, envelopes, and invitations and announcements to printers,
thermographers, office products companies and large end-users. Total 1995 net
sales of envelopes by the paper merchant/distributor channel are estimated to
have been approximately $855 million. Envelopes, invitations and announcements
made from branded paper are purchased from manufacturers that have been
"designated" by paper mills to convert their proprietary paper into such
products. A paper mill generally "designates" two manufacturers for its mill
branded paper. A "designated" manufacturer has an advantage in purchasing
branded paper directly from the mills at more favorable prices than from paper
merchants/distributors and in accessing a dependable paper supply. Envelope
manufacturers which supply a complete product offering of mill branded,
specialty and commodity envelopes are best positioned to serve these paper
merchants/distributors. The paper merchant/distributor channel has also
experienced, and is continuing to experience, significant consolidation, with
ResourceNet, Unisource and Zellerbach emerging as the channel's leaders.
Other Channels. The Company estimates that total sales of office products to
end-users in North America through other channels, such as regional
distributors, school campuses and direct mail, are approximately $5 billion to
$10 billion.
The Company's strategy with respect to each of these distribution channels is
to focus on the most rapidly growing customers, particularly dominant industry
participants leading the trend towards consolidation such as Office Depot,
OfficeMax, Staples, Wal-Mart and Sam's Warehouse Club in the retail channel;
Boise Cascade Office Products, BT Office Products, Corporate Express, U.S.
Office Products and the contract stationer divisions of Office Depot and Staples
in the contract stationers channel; and ResourceNet, Unisource and Zellerbach in
the paper merchant/distributor channel. The Company also believes there is
significant opportunity to distribute envelope product lines through the rapidly
growing retail channel under the Ampad and private label names. Prior to the
Acquisition, Williamhouse sold envelopes primarily through the paper
merchant/distributor channel. See "Business--Growth Strategy."
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BUSINESS
The Company is one of the largest manufacturers and marketers of nationally
branded and private label paper-based office products (excluding computer forms
and copy paper) in the $60 billion to $70 billion North American office products
industry. The Company offers a broad product line including writing pads, file
folders, envelopes and other office products. Through its Ampad division, the
Company is among the largest and most important suppliers of pads and other
paper-based writing products, filing supplies and envelopes to many of the
largest and fastest growing office products distributors. Acquired in October
1995, the Company's Williamhouse division is the leading supplier of mill
branded, specialty and commodity envelopes to paper merchants/distributors. The
Company's strategy is to grow by focusing on the largest and fastest growing
office product distribution channels, making acquisitions, introducing new
product lines, broadening product distribution across its channels and
maintaining its position among the lowest-cost manufacturers in the industry.
As a result of this strategy, the Company's sales have grown at a compound
annual rate of approximately 34% from 1992 to 1995. For the year ended December
31, 1995, the Company had net sales of $617.2 million and income from operations
of $57.3 million on the pro forma basis described herein. See "Unaudited Pro
Forma Financial Data."
COMPETITIVE STRENGTHS
The combination of the Company's products and customers distinguishes it as
a leading manufacturer and marketer of paper-based office products (excluding
computer forms and copy paper) in North America. The Company attributes this
position and its continued opportunities for growth and profitability to the
following competitive strengths:
. Market Leader. The Company has achieved market leadership in core products
sold to customers in the largest and fastest growing office products channels
by offering one of the broadest assortments of high quality products in the
industry. Furthermore, the Company enjoys national brand awareness in many of
its product lines, including Ampad, Century, Embassy, Evidence, Gold Fibre,
Huxley, Karolton, Kent, Peel & Seel, SCM, Williamhouse and World Fibre.
. Well-Positioned and Diversified Customer Base. The Company has substantial
opportunities for growth within several distribution channels of the office
products industry. The Company has focused on the largest and fastest growing
office products channels. Several of the Company's largest customers, such as
Boise Cascade Office Products, BT Office Products, Corporate Express, Office
Depot, OfficeMax and Staples, are expected by industry analysts to experience
annual revenue growth of 15% to 35% over the next five years. The Company's
Williamhouse division maintains particularly strong relationships with the
largest and fastest growing paper merchants/distributors in the market,
including ResourceNet, Unisource and Zellerbach. The Company also maintains
strong customer relationships across all of the other office products
distribution channels, including mass merchandisers, warehouse clubs, office
products wholesalers and independent dealers.
. National Scale and Service Capability. The Company's extensive product line,
multiple brands and broad price point coverage provide significant advantages
and economies of scale in selling to and servicing its customers. The Company
has become an increasingly important strategic partner to its customers as
they seek higher value-added products, simplify their purchasing organizations
and consolidate their relationships among selected national suppliers. The
Company's national presence and network of 22 strategically located facilities
have enabled it to maintain rapid and efficient order fulfillment standards.
In addition, the Company's advanced EDI capabilities enable it to meet its
customers' EDI requirements, executing automated transactions rapidly,
efficiently and accurately.
. Innovation/New Products. The Company has introduced several innovative
products as part of its marketing strategy to differentiate itself from other
suppliers and enhance profitability. Recent examples include Gold Fibre
classic and designer notebooks, Papers with a Purpose, World Fibre ground-wood
writing pads and Peel & Seel envelopes. Products introduced since 1992
accounted for over $70 million of the Company's 1995 net sales. The Company's
brand recognition and presence with its national customers allows it to more
easily introduce new or acquired product lines to those customers.
. Low-Cost Manufacturer. The Company believes it is among the lowest-cost
manufacturers of paper-based office products in the industry. The Company
ensures its low-cost manufacturing position through its paper purchasing and
distribution advantages as well as its maintenance of modern and efficient
manufacturing
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technology and a high quality workforce. The Company has been successful in
reducing costs with each of its acquisitions in the last three years by
continually streamlining its manufacturing processes and overhead structure.
From 1992 to 1995, the Company reduced its fixed manufacturing costs from 7.4%
to 5.2% of net sales and its selling, general and administrative expenses from
10.5% to 7.2% of net sales. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Overview."
. Purchasing Advantages. The Company has strong relationships with most of the
country's largest paper mills, many of which have been conducting business
with the Company for more than 30 years. The Company is one of the largest
purchasers of the principal paper grades used in its manufacturing operations.
In addition, the Company has the largest number of designated mill
relationships which involve some of the largest and most recognized paper mill
brands such as Hammermill, Hopper, Neenah and Strathmore. These relationships
afford the Company certain paper purchasing advantages, including stable
supply and favorable pricing arrangements.
. Proven Management Team With Successful Track Record. The Company's senior
operating management team averages over 25 years each in the paper products
industry. Management has succeeded in increasing sales and operating
profitability by recognizing and acting on the transition to the fastest
growing distribution channels, introducing higher value-added products,
acquiring complementary product lines (Karolton in December 1993, SCM in July
1994 and certain product lines of Huxley and Globe-Weis in July 1994 and
August 1995, respectively), improving manufacturing processes and reducing
overhead and administrative costs.
GROWTH STRATEGY
The Company's strategy is to maintain and strengthen its leadership position
by focusing on the following.
. Focus on Rapidly Growing Customers. The Company serves many of the largest
and best positioned customers in the office products market segment including
national office product superstores, mass merchandisers and warehouse clubs,
national contract stationers and national paper merchants/distributors. For
1995 on a pro forma basis, approximately 15.3% of the Company's net sales were
to national office product superstores, 7.8% to mass merchandisers and
warehouse clubs, 9.1% to national contract stationers and 19.7% to the three
largest national paper merchants/distributors. Anticipating further
consolidation in the office products industry, the Company expects that its
national scope and broad product line will be increasingly important in
meeting the needs of its customers. The Company will continue to target those
customers driving consolidation in the office products industry.
. Continue to Introduce New Products. New, higher value-added products give the
Company a greater selection to offer its customers and improve product line
profitability for both the Company and its customers. The Company plans to
differentiate itself from other suppliers and improved profitability through
product innovation, differentiation and line extensions.
. Pursue Complementary Product Line and Strategic Acquisitions. The office
products industry is highly fragmented despite continuing consolidation among
its manufacturers. The Company is leading consolidation among manufacturers of
writing products, filing supplies and envelopes. The SCM and Williamhouse
acquisitions broadened the Company's product line to include filing products
and envelopes and enhanced its presence in the growing distribution channels.
The Globe-Weis acquisition and the Company's agreement to acquire Niagara
demonstrate its commitment to strengthening its competitive and strategic
position within its markets. The Company believes that there are significant
opportunities to acquire companies in both its existing and complementary
product lines. In addition, the Company intends to enter new office products
markets through acquisitions of established companies in those markets.
. Broaden Product Distribution. The Company's market presence and distribution
strengths uniquely position it to sell new or acquired product lines across
its distribution channels, including national office product superstores,
national contract stationers, office product wholesalers and mass
merchandisers. As an important part of its growth strategy, for example, the
Company has successfully introduced the envelope product lines acquired in the
Acquisition, previously distributed primarily through paper
merchants/distributors, to the Ampad division's distribution channels under
the Ampad and private label names. The Company estimates that this market
opportunity is approximately $350 million in annual net sales.
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. Continue to Reduce Costs. The Company has identified and is in the process of
implementing cost reductions in connection with the Acquisition that are
expected to result in approximately $7.4 million of annual cost savings
following the adoption of such measures. In addition, management plans to
implement further identified cost reductions beyond 1996.
RECENT ACQUISITION
On May 29, 1996, the Company executed a purchase agreement to acquire Niagara
for an aggregate purchase price of approximately $50 million, plus $5.0 million
to be paid under a one-year consulting services agreement. Niagara supplies
mill branded, specialty and commodity envelopes to paper merchants/distributors
through four manufacturing facilities located near Buffalo, Chicago, Dallas and
Denver. Niagara had 1995 net sales of approximately $106 million and operating
income of approximately $8.5 million. The Company expects the Niagara
Acquisition to be completed by the middle of July 1996. The Company believes
that the Niagara Acquisition will strengthen the Company's distribution
capabilities in the Midwest, provide additional manufacturing capacity and
provide opportunities to achieve operating improvements through the
consolidation of Niagara's operations with those of the Company. The completion
of the Niagara Acquisition is subject to certain conditions. Although the
Company regularly engages in discussion with companies regarding potential
acquisitions, it currently does not have any agreements or understandings
relating to acquisitions other than the Niagara Acquisition.
SALE OF PERSONALIZING DIVISION
The Company's management identified the Personalizing Division of Williamhouse
as a nonstrategic asset following the Acquisition and has decided to pursue a
sale of the Personalizing Division. As a result, the financial statements of
the Company included elsewhere in this Prospectus reflect the Personalizing
Division as "Assets held for Sale" as of December 31, 1995 and March 31, 1996.
On June 6, 1996, the Company signed a definitive agreement with a potential
buyer to sell the Personalizing Division. Under the terms of such agreement,
the Company will receive gross proceeds of approximately $60 million (subject to
certain closing adjustments) from the sale of the Personalizing Division, which
it expects to complete by the end of June 1996. The sales agreement is subject
to certain conditions, some of which are outside the control of the Company. As
a result, no assurance can be given that the sale will be completed or, if
completed, will be on the terms set forth in the sales agreement. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview."
PRODUCTS AND SERVICES
Pads and Other Paper-Based Writing Products. The Company is one of the
largest manufacturers and marketers of paper-based writing products (excluding
computer forms and copy paper) in North America, offering more than 2,200 SKUs
of writing pads, notebooks and specialty papers. Many of the Company's writing
products are available in multiple sizes, grades of paper (including recycled),
and colors and with glued, perforated tops or wire binding. All writing
products are offered under the Ampad brand name or a retailer's private label.
During the past three years, the Company has focused on the introduction of new
and innovative products such as Gold Fibre classic and designer notebooks,
Papers with a Purpose and World Fibre ground-wood writing pads. The Company has
also created innovative packaging, especially for sale through warehouse clubs
(bulk and crate packaging), superstores and mass merchandisers.
Filing Supplies. The Company is one of the three largest manufacturers of
filing supplies in North America. The product line includes more than 800 SKUs
of filing supplies including file folders, hanging files, index cards and
expandable folders under the SCM and Globe-Weis brand names. The Company has
been expanding its market share in filing supplies by focusing its sales efforts
on large retail customers and contract stationers, where its writing products
enjoy the leading market share position.
Envelopes. The Company is the largest manufacturer of envelopes serving the
paper merchant/distributor channel and sold over 10 billion envelopes in 1995.
The Company's broad envelope product line includes products manufactured from
mill branded paper, which is paper unique in color and texture to a particular
mill, typically with an identifying watermark. The Company is the designated
envelope manufacturer for 33 mill brands, which is approximately twice as many
as its nearest competitor. These brands include the Hammermill, Strathmore and
Beckett divisions of International Paper Company, the Hopper division of Georgia
Pacific Corporation, the Neenah division of Kimberly-Clark Corporation and the
Gilbert division of Mead.
48
<PAGE>
The Company also produces a wide variety of standard size and specialty
envelopes made from commodity paper and Tyvek(R) (a high density polyurethane
based product made by DuPont), including booklet and catalog mailing envelopes,
envelopes closable by metal clasp or button-and-string, Peel & Seel (pressure
sensitive adhesion) envelopes, and giant, X-ray and remittance envelopes. The
Company offers in excess of 30,000 SKUs of envelopes (which the Company believes
is more than any of its competitors), providing its customers with a wide choice
of paper grades, colors and sizes.
Invitations and Announcements. The Company is among the largest manufacturers
of invitations and announcements, Christmas and holiday cards, and presentation
folders. These products are sold principally to paper merchants/distributors,
personalizing businesses (including the Personalizing Division), and other
wholesale outlets throughout the United States. The Company offers a wide
variety of such products, primarily made from the same mill branded grades of
paper used in manufacturing envelopes.
49
<PAGE>
The following chart illustrates the Company's principal products and customers
and selected brands in its primary business segments:
-------------------------------------------------------------
| AMERICAN PAD & PAPER COMPANY |
| |
-------------------------------------------------------------
| |
| |
| |
--------------------- --------------------------
| AMPAD DIVISION | | WILLIAMHOUSE DIVISION |
--------------------- --------------------------
Products
-----------------------------------------------------------------
. Pads and Notebooks . Envelopes
. Filing Supplies . Invitations
. Envelopes . Announcements
. Christmas and Holiday Cards
Customers
-----------------------------------------------------------------
. Retailers . Paper Merchants/Distributors
. Contract Stationers . Jobbers
. Wholesalers . Personalizing Businesses
. Buying Groups
Selected Brands
-----------------------------------------------------------------
. Ampad(R) . Century/TM/
. Embassy(R) . Huxley/TM/
. Evidence(R) . Karolton(R)
. Globe-Weis(R) . Kent(R)
. Gold Fibre(R) . Peel & Seel(R)
. SCM/TM/ . Williamhouse/TM/
. World Fibre/TM/
SALES, DISTRIBUTION AND MARKETING
The Company markets its broad range of products to a wide variety of
customers. In 1995, only two customers accounted for more than ten percent of
the Company's net sales. The Company's aggregate net sales to Sam's Warehouse
Club/Wal-Mart and Office Depot accounted for approximately 14.8% and 12.7% of
the Company's net sales for 1995, respectively.
The Company markets its writing products and filing supplies through virtually
every channel of distribution for paper-based office products including the
largest mass merchant retailers, office product superstores, warehouse clubs,
major contract stationers, paper merchants/distributors and other traditional
outlets for office supplies such as office product wholesalers, independent
dealers, buying groups and mail order firms.
The Company sells its envelopes principally to paper merchants/distributors
and other wholesale outlets throughout the United States, primarily through an
in-house sales force. In addition, all branded products are sold directly to
personalizing businesses (including the Personalizing Division). The Company
currently employs sales representatives at 20 locations throughout the United
States and sells products to over 2,000 paper merchants/distributors in the
United
50
<PAGE>
States and Canada. As an important part of its growth strategy, the Company has
successfully introduced the envelope product lines acquired in the Acquisition,
previously distributed primarily through paper merchants, to its existing office
products distribution channels under the Ampad and private label names. The
Company estimates that this market opportunity is approximately $350 million in
net sales.
The following chart illustrates some of the Company's key customers:
<TABLE>
<CAPTION>
KEY CUSTOMERS
<S> <C> <C>
Office Products Superstores: Mass Merchandisers: Paper Merchants/Distributors:
Office Depot Wal-Mart ResourceNet
OfficeMax Unisource Zellerbach
Staples
Contract Stationers: Office Products Wholesalers: Warehouse Clubs:
Boise Cascade Office Products S.P. Richards Sam's Warehouse Club
BT Office Products United Stationers
Corporate Express
Office Depot*
Staples*
- -----------------
</TABLE>
*Contract stationers division
The Company has targeted and will continue to target those customers driving
consolidation in the office products industry and believes that it is uniquely
positioned to meet the special requirements of these customers in the growing
distribution channels of the office products industry. These customers seek
suppliers, such as the Company, who are able to offer broad product lines,
higher value-added innovative products, national distribution capabilities, low
costs and reliable service. Furthermore, as these customers continue to grow
and they consolidate their supplier bases, the Company's ability to meet their
special requirements will be an increasingly important competitive advantage.
Recognizing Ampad's potential for growth through the changing distribution
channels, Bain Capital and management purchased the Company from Mead in 1992.
Since that time, management has enhanced the Company's scale, broadened its
product line, expanded upon its national presence and strengthened its
distribution capabilities through acquisition and innovation while
simultaneously delivering higher customer service levels. As a result, the
Company's sales through the most rapidly growing retail and commercial channels
increased from $8.8 million in 1992 to $134.8 million ($164.5 million on a pro
forma basis) in 1995. For the same period, the Company's sales to the three
largest paper merchants/distributors increased from $75.6 million to $100.6
million.
COMPETITION
The markets for the Company's products are highly competitive. Competition is
based largely on a company's ability to offer a broad range of products on a
regional or national scale at competitive prices and to deliver these products
on a timely basis. The Company has many local and regional competitors. The
markets in which the Company operates have become increasingly characterized by
a limited number of large companies selling under recognized trade names. These
larger companies, including the Company, have the economies of scale, national
presence, management information systems and breadth of product line required by
the major customers. In addition to branded product lines, manufacturers also
produce private-label products, especially in the context of broader supply
relationships with office product superstores and contract stationers.
The writing products industry is fragmented, ranging from large national
manufacturers to localized jobbers and printers. A few manufacturers, including
the Company, have developed strong brand name recognition for a limited number
of product lines. Other national companies include Mead, the Tops division of
Wallace Computer Services, the Stuart Hall division of Newell Co. and Pen-Tab
Industries.
In the filing supplies segment, the Company's key domestic competitors include
Smead Manufacturing and Esselte A.B.
51
<PAGE>
Envelope manufacturers compete in three distinct channels. In the paper
merchant/distributor channel, where the Company competes, manufacturers sell a
wide variety of mill branded, specialty and commodity envelope products to paper
merchants/distributors. The Company's principal competitor in this channel is
New York/National Envelope Group of National Envelope Corporation, a private
company. Other competitors in this channel include Niagara (pending acquisition
by the Company) and Murray Envelope Corp. In the direct channel, manufacturers
sell customized envelopes directly to high volume corporate users and mass
mailers. Mail-Well is the leading company in this channel. In the office
products channel, manufacturers including Westvaco and Quality Park produce
commodity mailing envelopes for retail sale.
INTELLECTUAL PROPERTY
The Company registers some of its material trademarks, tradenames and
copyrights and has acquired patent protection for some of its proprietary
processes. In the opinion of management, the Company has current trademark
rights to conduct its business as now constituted. The Company has the right to
use the Globe-Weis name on a non-exclusive basis through August 1998, pursuant
to the Company's purchase of certain file folder and hanging file assets from
Atapco. The Company does not expect that the loss of the right to use the
Globe-Weis name will have a material adverse effect on its results of
operations.
EMPLOYEES
As of March 31, 1996, the Company employed a total of 3,198 full-time persons,
including 3,170 manufacturing, sales and administrative personnel and 28
corporate staff members. In addition, the Personalizing Division (currently
held as "Assets Held for Sale") had 1,832 employees at March 31, 1996. The
Company expects to add approximately 650 employees as a result of the Niagara
Acquisition (including 140 employees covered by a collective bargaining
agreement). All of the Company's operations are non-union except for the
operations at the facilities located in Fresno, California; Scottdale,
Pennsylvania; Miamisburg, Ohio; and Appleton, Wisconsin which have, in total,
approximately 900 union employees. The collective bargaining contracts covering
the Company's employees will expire as follows: the Miamisburg contract expires
December 31, 1996; the Appleton contract expires March 31, 1997; and the
Scottdale contract expires April 30, 1998. The Company is currently in the
process of closing its Fresno facility, at which approximately 74 unionized
members are employed. With the exception of a strike at the Company's Indiana
plant, as described below, there have been no work stoppages at any Company
facility during the last five years. The Company believes that its relations
with its employees and unions are satisfactory.
In July 1994, the Company acquired the writing products and filing supplies
assets of SCM. Work rules and associated costs at SCM's plant in Indiana were
less favorable than those at other plants of the Company. As a result of
management's effort to bring the labor agreement at the Indiana plant more in
line with market labor agreements, a labor strike occurred on September 1, 1994.
Consequently, the Company closed the Indiana on February 15, 1995 and moved the
equipment to other facilities operated by the Company. By July 1995, all
machinery and equipment previously operated in Indiana was available for
production in other facilities of the Company.
PROPERTIES AND FACILITIES
As of March 31, 1996, the Company operated manufacturing, distribution, office
and warehouse space in the United States with a total floor area of
approximately 3,499,716 square feet. Of this footage, 989,500 square feet are
leased and approximately 2,510,216 square feet are owned. The Personalizing
Division operates through 10 primary facilities with a total floor space of
approximately 736,500 square feet. As a result of the Niagara Acquisition, the
Company expects to acquire four manufacturing facilities and two warehouses with
a total floor area of approximately 470,000 square feet. The manufacturing
facilities are located near Buffalo, Chicago, Dallas and Denver and the
warehouses are located near Denver and Kent, Washington.
To provide a cost efficient supply of products to its customers, the Company
maintains centralized management of nationwide manufacturing and distribution
facilities. Since 1992, the Company has consolidated ten manufacturing and
distribution facilities into five facilities. The Company's management is
evaluating the potential closure of additional space acquired pursuant to the
Acquisition. All of the Company's owned facilities are pledged as collateral
under the Bank Credit Agreement and are expected to be similarly pledged under
the New Bank Credit Agreement.
52
<PAGE>
The Company believes that substantially all of its property and equipment are
in good condition and that it has sufficient capacity to meet its current and
projected manufacturing and distribution needs in the foreseeable future. The
following table describes the principal properties of the Company (other than
sales service centers, sales office space, temporary warehouse space and
facilities associated with the Personalizing Division) as of March 31, 1996:
<TABLE>
<CAPTION>
BUSINESS OWNED OR EXPIRATION OF SQUARE
LOCATION DIVISION(1) LEASED LEASE(2) FEET
- ------------------------ ----------- ------------- --------------------- -----------
<S> <C> <C> <C> <C>
CALIFORNIA
Fresno............... A Leased 1997(a) 42,900
Fresno............... A Leased 1997(a) 84,200
City of Industry..... W Owned 85,000
City of Industry..... W Leased 2008(b)(c) 105,000
West Sacramento...... W Leased 2000(c) 37,000
Rancho Cucamonga..... W Leased 1996(c) 12,800
COLORADO
Denver............... W Leased 1998(c) 21,100
GEORGIA
Moultrie............. W Owned 50,000
ILLINOIS
Mattoon.............. A Leased month-to month 29,200
Mattoon.............. A Owned 261,800
Mattoon.............. A Leased 3 month renewable term 25,200
Mattoon.............. A Leased 1996(c) 58,900
Chicago.............. W Leased 1996(c) 33,000
Chicago.............. W Owned (d) 200,000
MASSACHUSETTS
Westfield............ A Owned 128,000
Holyoke.............. A Owned (d) 572,416
Millbury............. W Leased 1996(c) 30,100
MISSISSIPPI
Kosciusko............ A Leased 1997(a)(c)(e) 70,600
NEW JERSEY
Bloomfield........... W Leased 2003 94,000
NEW YORK
New York City........ W Leased 2009 22,000
OHIO
Miamisburg........... W Leased 1998(c)(f) 177,000
PENNSYLVANIA
Scottdale............ W Owned 400,000
Mt. Pleasant......... W Leased 1999(c) 11,000
TENNESSEE
Morristown........... W Owned 140,000
TEXAS
Corporate
Dallas............... Headquarters Leased 1998 14,500
Corsicana............ W Owned 250,000
UTAH
North Salt Lake City. A Owned 110,000
North Salt Lake City. A Leased 2001(g) 97,000
WASHINGTON
Kent................. W Leased 1999 24,000
WISCONSIN
Appleton............. W Owned 313,000
</TABLE>
______________________
53
<PAGE>
(1) "A" indicates operations associated with the Company's Ampad division and
"W" indicates operations associated with the Company's Williamhouse
division.
(2) (a) Sublease.
(b) Lease contains option to purchase.
(c) Lease or sublease contains an extension or renewal option.
(d) Two properties owned at this location.
(e) Sublease contains option to assume prime lease.
(f) Lease contains a right of first refusal.
(g) Two leases at this location.
LEGAL PROCEEDINGS
The Company is a party to various litigation matters incidental to the conduct
of its business. Management does not believe that the outcome of any of the
matters in which it is currently involved will have a material adverse effect on
the financial condition or results of operations of the Company. See "--
Environmental, Health and Safety Matters."
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
The Company is subject to federal, state, and local environmental and
occupational health and safety laws and regulations. Such laws and regulations
impose limitations on the discharge of pollutants and establish standards for
management of waste. While there can be no assurance that the Company is at all
times in complete compliance with all such requirements, the Company has made
and will continue to make capital and other expenditures to comply with such
requirements. The Company spent approximately $7,200 in 1995 on environmental
capital projects. The Company estimates that its environmental capital
expenditures will be approximately $100,000 in each of 1996 and 1997. In 1996,
the Company expects to make capital expenditures to upgrade waste water
treatment equipment at one of its facilities. Thereafter, the Company expects to
incur moderate environmental capital expenditures, which will be higher than
historical levels as a result of the Company's increased size. As is the case
with manufacturers in general, if a release of hazardous substances occurs on or
from the Company's properties or any associated offsite disposal location, or if
contamination from prior activities is discovered at any of the Company's
properties, the Company may be held liable and the amount of such liability
could be material.
The City of Industry, California facility of the Company's Williamhouse
divisions is located within an area of regional groundwater contamination
designated as the San Gabriel Valley National Priority List Area. The Company
does not believe its operations have contributed to the contamination and to
date the Company has not received a notice of potential liability with respect
to that site.
The Company is aware that one of Niagara's facilities has been the subject of
certain soil and groundwater investigations and that the prior owner of such
facility has indemnified Niagara for certain environmental liabilities
associated with historical use of the property. The Company currently believes
that any environmental liabilities associated with such facility would not be
material.
The Company's Ampad division has been named a potentially responsible party
("PRP") under the federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), at five waste disposal sites. The
Company settled its liability at four of these sites as a de minimis party. At
the Spectron site in Elkton, Maryland, the Company paid approximately $1,300 in
1989 as a de minimis settlement for an initial removal action at the site. In
1995, the Company received a notice of a remedial action at the site, and based
upon its allocation in 1989, expects to be eligible for a de minimis or de
minimis settlement. The Company is aware that Niagara has been named a PRP at
the Envirotek II site in Tonawanda, New York with respect to which Niagara
expects to be eligible for a de minimis settlement. Although the Company
endeavors to manage its wastes carefully, because CERCLA liability is strict and
retroactive, it is possible that in the future the Company may be identified as
a PRP with respect to other waste disposal sites.
54
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Directors of the Company and the Subsidiary Guarantors are elected annually by
their respective stockholders to serve during the ensuing year or until a
successor is duly elected and qualified. Executive officers of the Company and
the Subsidiary Guarantors are duly elected by their respective Board of
Directors to serve until their respective successors are elected and qualified.
The following table sets forth certain information with respect to the directors
and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Charles G. Hanson, III............. 55 Chief Executive Officer and Director
Russell M. Gard.................... 48 Chief Operating Officer and Director
Gregory M. Benson.................. 41 Chief Administrative Officer, Executive Vice
President, Secretary and Director
Timothy E. Needham................. 47 Executive Vice President of APP
John J. Grymes..................... 38 President - Williamhouse Division
H. Craig Stoudt.................... 40 President - Ampad Division
Frank Ginolfi...................... 49 Vice President - Finance, Williamhouse Division
Robert C. Gay...................... 44 Director
Jonathan S. Lavine................. 30 Director
Marc B. Wolpow..................... 37 Director
</TABLE>
The following table set forth certain information with respect to the
directors and executive officers of the Subsidiary Guarantors.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Gregory M. Benson....................... 41 President, Secretary, Chief Financial Officer and
Director
Jonathan S. Lavine...................... 30 Director
Frank Ginolfi........................... 49 Vice President
</TABLE>
CHARLES G. HANSON, III serves as Chief Executive Officer and Director of the
Company and has served as Chief Executive Officer and Director of APP since
1992. From 1992 to 1995, Mr. Hanson served as Chairman of the Board, Chief
Executive Officer and Director of Ampad Corporation. Mr. Hanson was formerly the
President and Chief Operating Officer of Stuart Hall Co. Inc. and Group Vice
President of Pen-Tab Industries, Inc.
RUSSELL M. GARD serves as President, Chief Operating Officer and Director of
the Company and has served as President, Chief Operating Officer and Director of
APP since 1992. From 1992 to 1995, Mr. Gard served as President, Chief Operating
Officer and Director of Ampad Corporation. Mr. Gard has experience with several
paper converters, most recently with Pen-Tab Industries, Inc.
GREGORY M. BENSON serves as Chief Administrative Officer, Executive Vice
President, Secretary and Director of the Company and, in such capacities,
functions as the Company's chief financial officer. Mr. Benson has served as
Chief Financial Officer, Executive Vice President, Secretary and Director of APP
since 1992 and as Director of Strategic Planning and Acquisitions of APP since
May 1996. Mr. Benson also serves as the
55
<PAGE>
President, Secretary, Chief Financial Officer and Director of the Subsidiary
Guarantors. From 1992 to 1995, Mr. Benson served as Chief Financial Officer,
Chief Administrative Officer and Director of Ampad Corporation. Mr. Benson was
at GE Capital Corporation from 1977 to 1992.
TIMOTHY E. NEEDHAM serves as Executive Vice President of the Company. Mr.
Needham served as Chairman of the Board of Williamhouse in 1995 and as a
Director from 1993 to 1995. From 1987 to 1995, Mr. Needham served as President
of Williamhouse and from 1992 to 1995, as Chief Operating Officer of
Williamhouse.
JOHN J. GRYMES has served as President of the Company's Williamhouse
division since May 1996 and served as Vice President of Sales--Williamhouse from
November 1995 to May 1996. Mr. Grymes served as Vice President and National
Sales Manager of Williamhouse Sales prior to the Acquisition from 1991 to 1995.
From 1987 to 1991, Mr. Grymes served as Eastern Regional Sales Manager of
Williamhouse Sales.
H. CRAIG STOUDT has served as President of the Company's Ampad division
since May 1996 and served as Vice President, Sales and Marketing of the Company
since 1994. From 1990 to 1994, prior to the SCM Acquisition, Mr. Stoudt served
as Vice President, Sales of SCM Office Supplies, Inc. Mr. Stoudt served as
Director of Sales, Boorum Division of Esselte Pendaflex from 1989 to 1990.
FRANK GINOLFI serves as Vice President - Finance of the Williamhouse
division of the Company and, prior to the Acquisition, served as Chief Financial
Officer of Williamhouse. Mr. Ginolfi also serves as Vice President of the
Subsidiary Guarantors. Mr. Ginolfi served as Vice President--Finance and
Administration and Chief Financial Officer of Williamhouse from 1991 to 1995.
From 1985 to 1991, Mr. Ginolfi served as the Controller of Williamhouse.
ROBERT C. GAY serves as a Director of the Company and has served as a
Director of American Pad & Paper Company since 1992. Mr. Gay has been a
Managing Director of Bain Capital since 1993 and has been a General Partner of
Bain Venture Capital since 1989. From 1988 through 1989, Mr. Gay was a principal
of Bain Venture Capital. Mr. Gay is also Vice Chairman of the Board of Directors
of IHF Capital, Inc., parent of ICON Health & Fitness Inc. In addition, Mr. Gay
is a director of Alliance Entertainment Corp., GT Bicycles, Inc., GS Industries,
Inc. and its subsidiary GS Technologies Operating Co., Inc., and Physio-Control
International Corporation.
JONATHAN S. LAVINE serves as a Director of the Company and has served as a
Director of American Pad & Paper Company since 1995. Mr. Lavine also serves as
a Director of the Subsidiary Guarantors. Mr. Lavine has been a Principal at Bain
Capital since 1995 and was an associate at Bain Capital from 1993 to 1995. In
1992, Mr. Lavine was a consultant at McKinsey & Co. Mr. Lavine attended the
Harvard Business School from 1990 to 1992. Previously, Mr. Lavine worked in the
mergers and acquisitions department of Drexel Burnham Lambert, Incorporated.
Mr. Lavine is also a director of Clarity Telecom, Inc.
MARC B. WOLPOW serves as a Director of the Company and has served as a
Director of American Pad & Paper Company since 1992. Mr. Wolpow has been a
Managing Director of Bain Capital since 1993 and was a Principal of Bain Venture
Capital from 1990 through 1992. From 1988 to 1990, Mr. Wolpow was a Vice
President in the corporate finance department of Drexel Burnham Lambert,
Incorporated. Mr. Wolpow is also a director of Waters Corporation, The Holson
Business Group, Inc. and FTD, Inc.
There are no family relationships between any of the Directors or executive
officers of the Company or the Subsidiary Guarantors.
56
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation paid or
accrued for years ended December 31, 1993, 1994 and 1995 for the Chief Executive
Officer and each of the four other most highly compensated executive officers of
the Company as of the end of the last fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------- ----------------------
SECURITIES UNDERLYING ALL OTHER
OPTIONS (#) COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMMON/PREFERRED ($)(8)
--------------------------- ---- ---------- --------- ---------------------- ------------
<S> <C> <C> <C> <C> <C>
Charles G. Hanson, III (1)(2)........... 1995 $250,000 $809,859 2,749/275(5) $10,595
Chief Executive Officer
Russell M. Gard (1)..................... 1995 225,000 723,837 2,730/273(5) 7,553
Chief Operating Officer
Gregory M. Benson (1).................. 1995 175,000 400,000 2,630/263(5) 6,683
Chief Administrative Officer, Executive
Vice President and Secretary
Timothy E. Needham..................... 1995 300,000 75,000 -- 2,012
Executive Vice President of APP (3)(6) 1994 280,000 105,000 -- 1,912
1993 260,000 58,500 48(7) 2,169
Edward Norton (4)(6)................... 1995 300,000 75,000 -- 4,342
1994 192,500 39,375 -- 4,973
1993 175,000 40,000 90(7) 3,869
Martin R. Lewis (2)(6)................ 1995 487,113 137,500 -- 41,627
1994 510,000 191,250 -- 39,575
1993 474,000 106,650 248(7) 33,551
</TABLE>
___________________
(1) For the first ten months of fiscal year 1995 (i.e., before the
Acquisition), Ampad paid the compensation for Messrs. Hanson, Gard and
Benson. After the Acquisition, the Company paid such compensation. The
compensation stated in the table for these executive officers includes
amounts received from both Ampad and the Company for fiscal year 1995.
Bonus levels were established by the Board of Directors of APP based upon
APP substantially exceeding operating targets established at the beginning
of the year.
(2) Mr. Hanson became Chief Executive Officer of the Company in November 1995.
Before such time, Mr. Lewis was the Chief Executive Officer of the Company.
(3) Prior to November 1995, Mr. Needham was Chairman of the Board of the
Company and from November 1995 to May 1996, he served as Executive Vice
President of the Company. Mr. Needham is now the Executive Vice President
of APP.
(4) Prior to November 1995, Mr. Norton was President of the Company and from
November 1995 to May 1996 he served as the Executive Vice President of the
Company. Effective May 1996, Mr. Norton resigned his position with the
Company.
(5) Amounts shown represent options to purchase Common Stock and Preferred
Stock of APP. If APP consummates the Proposed Equity Offering and the
Recapitalization, all options will be converted into options to purchase
Common Stock. This will result the executives owning the following options:
Mr. Hanson - 55,801; Mr. Gard - 55,409; and Mr. Benson -53,386.
57
<PAGE>
(6) For the first ten months of fiscal year 1995 (i.e., before the
Acquisition), Williamhouse paid the compensation for Messrs. Needham and
Norton. After the Acquisition, the Company paid such compensation. The
compensation stated in the table for these executive officers includes
amounts received from both the Company and Williamhouse for fiscal year
1995. Prior to the Acquisition, Williamhouse filed periodic reports under
the Exchange Act and in connection therewith was previously required to
disclose the compensation of Messrs. Needham and Norton for 1994 and 1993.
As a result, such information is included herein.
(7) Options were for common stock of WR, the parent corporation of
Williamhouse.
(8) The amounts shown for "All Other Compensation" for 1995 for Messrs. Lewis
and Norton include $41,277 and $3,992, respectively, representing the
taxable portion of split dollar life insurance paid by the Company for such
individuals; the amount for Mr. Needham includes $1,662, representing the
taxable portion of group life insurance premiums paid by the Company for
Mr. Needham. All other amounts shown for Messrs. Lewis, Needham and Norton
represent a $350 contribution made by the Company on the behalf of each
such individuals to the Company's 401(k) Plan. The amounts shown for
Messrs. Hanson, Gard and Benson represent $4,595, $1,553 and $683,
respectively, representing life insurance premiums paid by the Company for
such individuals, and $6,000 representing a car allowance for each such
individual.
The amounts shown for "All Other Compensation" for 1994 for Messrs. Lewis
and Norton include $39,325 and $4,723, respectively, representing the
taxable portion of split dollar life insurance premiums paid by the Company
for such individuals; the amounts for Mr. Needham include $1,662,
representing the taxable portion of group term life insurance premiums paid
by the Company for Mr. Needham. All other amounts shown ($250 for each of
Messrs. Lewis, Needham and Norton) represent amounts contributed by the
Company on behalf of the named individuals to the Company's 401(k) Plan.
The amounts shown for "All Other Compensation" for 1993 for Messrs. Lewis
and Norton include $33,401 and $3,719, respectively, representing the
taxable portion of split dollar life insurance premiums paid by the Company
for such individuals; the amounts for Mr. Needham include $2,019
representing the taxable portion of group term life insurance premiums paid
by the Company for Mr. Needham. All other amounts shown ($150 for each of
Messrs. Lewis, Needham and Norton) represent amounts contributed by the
Company on behalf of the named individuals to the Company's 401(k) Plan.
58
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding stock options granted
by APP or WR, as the case may be, to Mr. Hanson and the other named executives
who received stock options during the last fiscal year. Mr. Lewis was not
granted any options during the last fiscal year. The Company and the Subsidiary
Guarantors granted no options during the last fiscal year.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(7)
- --------------------------------------------------------------------------------------------------- ------------------------------
% OF TOTAL
NUMBER OF OPTIONS MARKET
SECURITIES GRANTED TO PRICE ON
UNDERLYING EMPLOYEES EXERCISE OR DATE OF
OPTIONS IN BASE PRICE GRANT EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SH)(5) ($/SH)(5) DATE 0%($) 5%($) 10%($)
---- ----------- ------------ ----------- --------- ---------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Charles G. Hanson, III..... 2,749.0 (1)(2) 33.9% $0.06 $ 19.33 (6) $ 52,973 $80,476 $130,129
274.9 (2)(3) 33.9 3.60 1948.50 (6) 534,653 -- --
Russell M. Gard............ 2,730.0 (1)(2) 33.7 0.06 19.33 (6) 52,607 79,921 129,230
273.0 (2)(3) 33.7 3.60 1948.50 (6) 530,958 -- --
Gregory M. Benson.......... 2,630.0 (1)(2) 32.4 0.06 19.33 (6) 50,680 76,993 124,497
263.0 (2)(3) 32.4 3.60 1948.50 (6) 511,509 -- --
Timothy E. Needham......... 62.0 (3)(4) 11.2 1,312.50 2,625.00 2005 -- -- --
Edward Norton.............. 152.0 (3)(4) 27.4 1,312.50 2,625.00 2005 -- -- --
</TABLE>
- ----------------------------------
(1) Options for Common Stock of APP.
(2) Amounts shown represent options to purchase Common Stock and Preferred
Stock of APP. If APP consummates the Proposed Equity Offering and the
Recapitalization, all options will be converted into options to purchase
Common Stock. This will result the executives owning the following options:
Mr. Hanson - 55,801; Mr. Gard - 55,409; and Mr. Benson - 53,385.
(3) Options for Preferred Stock of APP.
(4) Options for common stock of WR, the former parent corporation of
Williamhouse.
(5) Market price was determined in good faith by the Company's Board of
Directors on the date of grant.
(6) Options will expire 15 months after the date of the termination of the
executive officer's employment with APP or any of its subsidiaries for any
reason.
(7) Amounts reflect certain assumed rates of appreciation set forth in the
SEC's executive compensation disclosure rules. Actual gains, if any, on
stock options exercises depend on future performance of the Company's stock
and overall market conditions. At an annual rate of appreciation of 5% per
year for the option term, the price of the common stock would be
approximately $31.49 for the common stock. At an annual rate of
appreciation of 10% per year for the option term, the price of the common
stock would be approximately $50.14 for the common stock. For purposes of
this calculation, the option terms were assumed to be ten years. See Note
(3). By its terms, the value of a share of Preferred Stock is limited to
its liquidation value. Accordingly, the Company has not set forth the
appreciated values for the Preferred Stock in the table. The appreciation
on options for common stock of WR held by Messrs. Needham and Norton were
not calculated. All such options were exercised immediately prior to the
Acquisition.
59
<PAGE>
FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning options exercised during
or held outstanding at the end of the last fiscal year by Mr. Hanson and the
other named executives. All outstanding options are currently exercisable and
are for securities of APP. The Company and the Subsidiary Guarantors do not have
options outstanding. There were no options exercised in the last fiscal year for
securities of APP. The options listed in the table under the heading "Shares
Acquired on Exercise" were sold to APP in connection with the Transactions and
the amounts received as a result of such sales are listed in the table under the
heading "Value Realized." See "Stock Options."
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING
UNEXERCISED OPTIONS
SHARES AT FY-END (#) VALUE OF UNEXERCISED IN-THE-
ACQUIRED -------------------- MONEY OPTIONS AT FY-END ($)
NAME ON EXERCISE (#) VALUE REALIZED ($) COMMON/PREFERRED COMMON/PREFERRED (6)
---- --------------- ------------------ ------------------- ----------------------------
<S> <C> <C> <C> <C>
Charles G. Hanson, III..... 1,780.25(1) $3,406,400 50,782/3,297.95(5) $951,950/$6,310,407
Russell M. Gard............ 1,690.95(2) 3,251,379 48,235/3,132.55(5) 911,742/6,023,323
Gregory M. Benson.......... 1,244.42(3) 2,401,584 35,497/2,305.29(5) 675,151/4,448,940
Timothy E. Needham......... 372.00(4) 1,737,238 -- --
Edward Norton.............. 302.00(4) 1,371,708 -- --
Martin R. Lewis............ 448.00(4) 2,045,895 -- --
</TABLE>
- --------------------
(1) Number includes options for (i) 1,683.8732 shares of Preferred Stock sold
pursuant to the Option Purchase Agreement and (ii) 96.38 shares of
Preferred Stock.
(2) Number includes options for (i) 1,595.2501 shares of Preferred Stock sold
pursuant to the Option Purchase Agreement and (ii) 95.6967 shares of
Preferred Stock.
(3) Number includes options for (i) 1,152.2049 shares of Preferred Stock sold
pursuant to the Option Purchase Agreement and (ii) 92.2100 shares of
Preferred Stock.
(4) Options were for common stock of WR Acquisition, Inc., the parent
corporation of Williamhouse. See "Certain Relationships and Related
Transactions - Acquisition Arrangements."
(5) Amounts shown represent options to purchase common stock and Preferred
Stock of APP. If APP consummates the Proposed Equity Offering and the
Recapitalization, all options will be converted into options to purchase
Common Stock. This will result the executives owning the following options:
Mr. Hanson - 813,937; Mr. Gard - 773,115; and Mr. Benson - 568,947.
(6) Assumes a fair market value of the common stock and Preferred Stock at
December 31, 1995 equal to $19.33 and $1,948.50 per share, respectively.
Amounts shown represent the value of options to purchase common stock and
Preferred Stock of APP. If APP consummates the Proposed Equity Offering and
the Recapitalization, all options will be converted into options to
purchase Common Stock. The value of the resulting options would be as
follows: Mr. Hanson - $7,245,267; Mr. Gard - $6,918,791; and Mr. Benson -
$5,112,134.
DIRECTOR COMPENSATION
Directors of the Company or Subsidiary Guarantors currently do not receive
a salary or an annual retainer for their services.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDE PARTICIPATION
There is currently no compensation committee of the Boards the Company or the
Subsidiary Guarantors. The principal decisions respecting compensation of
executive officers of the Company and Subsidiary Guarantors are made by the
Compensation Committee of the APP Board, of which Messrs. Gay and Walpow are
members. Messrs. Gay and Wolpow formerly served as officers of the Company and
are currently Managing Directors of Bain Capital, which is a party to the
Advisory Agreement (as defined) with the Company. See "Certain Relationships and
Related Transactions--Management Advisory Agreement."
60
<PAGE>
MANAGEMENT AGREEMENTS
Employment Agreements. In June 1996, APP and Mr. Hanson entered into an
employment agreement (the "Employment Agreement"), pursuant to which Mr. Hanson
agreed to serve as the Chief Executive Officer of APP for a period of three
years. Under the Employment Agreement, Mr. Hanson will receive (i) an annual
base salary equal to at least $450,000, (ii) an annual bonus up to 100% of his
annual base salary (upon APP achieving certain operating targets) and (iii)
certain fringe benefits. Mr. Hanson will be entitled to receive a payment of
$2.5 million upon a "change of control" of APP (defined to include a person or
group (other than Bain Capital) becoming an owner of more than 50% of the
outstanding Common Stock or nominating a majority of the Directors who are then
elected to the Board). If Mr. Hanson's employment is terminated for any reason
prior to the termination of such agreement other than for Cause (as defined
therein) or his resignation, he will be entitled to receive his base salary and
fringe benefits for 24 months following such termination in addition to 50% of
his bonus for the year in which his employment was terminated if the termination
is during the first six months of the year or 100% if such termination was
during the last six months of the year. Mr. Hanson has agreed not to compete
with APP for a period of two years following his termination of employment with
APP and not to disclose any confidential information at any time without the
prior written consent of APP.
Mr. Hanson will participate on a pro rata basis in the over-allotment option
granted to the U.S. underwriters in the Proposed Equity Offering. Except with
respect to the foregoing, Mr. Hanson has agreed under the Employment Agreement
not to participate in any secondary offering of Common Stock or exercise any
registration rights granted to him under the Registration Agreement (as defined)
for a period ending on the earlier of (i) one year following the Proposed Equity
Offering or (ii) upon completion of a secondary offering. During such period,
Mr. Hanson's estate may require APP to purchase certain of his shares of Common
Stock in the event Mr. Hanson dies during such period.
Mr. Gard has entered into an employment agreement with APP containing
substantially similar terms. Under such agreement, Mr. Gard has agreed to serve
as the Chief Operating Officer of APP for (i) an annual base salary equal to at
least $400,000, (ii) an annual bonus up to 100% of his annual base salary (upon
APP achieving certain operating targets) and (iii) certain fringe benefits. In
addition, Mr. Gard will likewise participate on a pro rata basis in the over-
allotment option granted to the U.S. underwriters in the Proposed Equity
Offering and has also agreed not to participate in any secondary offering of
Common Stock or exercise any registration rights granted to him under the
Registration Agreement.
1992 Management Agreements. APP, Mr. Hanson, and Tyler Capital Fund, L.P.,
Tyler Massachusetts, L.P., and Tyler International, L.P. II (collectively, the
"Tyler Entities") entered into a Management Agreement, dated as of December 31,
1992 (the "Management Agreement"), pursuant to which Mr. Hanson purchased from
the Tyler Entities (i) 1,800 shares of Class P Common Stock, (ii) 16,200 shares
of APP common stock and (iii) 15% subordinated Ampad promissory notes ("Ampad
Notes") in the aggregate principal amount of $46,034.53, for an aggregate
purchase price of $106,034.53. The Management Agreement also contained certain
provisions relating to the terms of Mr. Hanson's employment, which have been
superseded by the terms of the Employment Agreement. In connection with Mr.
Hanson's relocation from New York to Dallas, Mr. Hanson received a $117,000 loan
from the Company. At December 31, 1995, an aggregate of $112,000 remained
outstanding under the loan (the largest amount during the last fiscal year).
Interest on the loan accrues at an annual rate of 6.19%. In June 1996, the loan
was forgiven in lieu of a bonus payment Mr. Hanson was otherwise entitled to
receive.
Messrs. Gard and Benson entered into similar management agreements with APP
and the Tyler Entities. Pursuant to their agreements, Messrs. Gard and Benson
each purchased from the Tyler Entities (i) 1,800 shares of Class P Common Stock,
(ii) 16,200 shares of common stock, and (iii) Ampad Notes in the aggregate
principal amount of $40,000, for an aggregate purchase price of $100,000. Mr.
Gard's management agreement has been superseded by his employment agreement. Mr.
Benson's management agreement entitles him to receive an annual base salary of
at least $175,000, a bonus of up to 100% of his average base salary and a
severance payment if Mr. Benson's employment is terminated either without cause
or due to death or permanent disability. Mr. Benson has agreed to certain
restrictions on his ability to compete with the Company following his
termination of employment.
1992 IRA Note Purchases. APP, Mr. Hanson, the Tyler Entities and Mr. Hanson's
Individual Retirement Account ("IRA") entered into a Note Purchase Agreement
dated as of December 31, 1992 (the "IRA Note Purchase Agreement") pursuant to
which Mr. Hanson's IRA purchased on his behalf from the Tyler Entities Ampad
Notes in the
61
<PAGE>
aggregate principal amount of $13,965.47. Messrs. Gard and Benson entered into
similar IRA note purchase agreements with APP, the Tyler Entities and their
respective IRAs. Pursuant to Messrs. Gard's and Benson's agreements, the IRA of
each purchased on their behalf from Tyler Entities Ampad Notes in the aggregate
principal amount of $20,000.00.
Change in Control Agreements. Prior to the Acquisition, WR Acquisition
entered into change in control agreements (the "Change in Control Agreements")
with Timothy E. Needham, Edward Norton, Frank Ginolfi, and certain other
officers of Williamhouse, to provide income and benefit protection in the event
of a Change in Control (as defined therein) of WR Acquisition. The term of each
Change in Control Agreement will continue until the expiration of thirty-six
(36) months after the Acquisition. Generally, each officer or employee is
entitled to receive, upon termination of employment during the term of the
Change in Control Agreements (unless such termination is because of death or
disability, by the Company for "Cause" (as defined in the Change in Control
Agreements), or by the officer or employee other than for "Good Reason" (as
defined in the Change in Control Agreements)), (i) a lump sum severance payment
equal to thirty-six (36) months of his or her current annual base salary, as it
may subsequently be increased, (ii) all amounts accrued (but not paid) under any
compensation plan of the Company plus a lump sum payment equal to three times
the average annual amount accrued under any such plan for the three fiscal years
preceding such termination, (iii) continued coverage for three years under
Company's medical and disability plans and (iv) certain other specified
payments. To date, the Company has paid approximately $2.25 million under such
Change in Control Agreements and believes, based on current compensation levels,
that the maximum amount of the severance payments that could be paid under the
Change in Control Agreements will not exceed $11 million.
STOCK OPTIONS
1992 Key Employees Stock Option Plan. On July 31, 1992, the Board of
Directors of the APP ("APP Board") adopted the Ampad Holding Corporation 1992
Key Employees Stock Option Plan (the "1992 Stock Plan"), which authorizes grants
of stock options (including options that are intended to qualify as "incentive
stock options" within the meaning of Section 422 of the Internal Revenue Code)
and the sales of Common Stock to current or future employees, directors,
consultants or advisers of APP or its subsidiaries. The 1992 Stock Plan
authorizes the granting of stock options for up to an aggregate of 200,000
shares of Common Stock (without giving effect to the Recapitalization) subject
to adjustment upon the occurrence of certain events (including, but not limited
to, reorganizations, recapitalizations and stock dividends) to prevent any
dilution or expansion of the rights of participants that might otherwise result
form the occurrence of such events. Under the 1992 Stock Plan, APP Board is
authorized to grant options for, or sell any class or classes of common stock at
any time prior to the termination of the 1992 Stock Plan in such quantity, at
such price, on such terms and subject to such conditions as established by the
APP Board. To date, options to purchase an aggregate of 134,514 shares of common
stock have been granted to the executive officers of APP under the 1992 Stock
Plan (without giving effect to the Recapitalization). As a result of the anti-
dilution adjustments associated with the Preferred Stock Dividend, options for
an aggregate of 13,451 shares of Preferred Stock have also been granted under
the 1992 Stock Plan to the executive officers of the APP. APP has not sold any
shares of common stock under the 1992 Stock Plan.
Currently, all options granted pursuant to the 1992 Stock Plan are exercisable
and expire 15 months after the termination of the option holder's employment
with APP or any of its subsidiaries. Furthermore, pursuant to all existing
agreements under which options have been granted under the 1992 Stock Plan,
option holders are required to consent to a sale of all or substantially all of
the assets or outstanding capital stock of APP to any person or entity if such
sale is approved by the APP Board or the holders of a majority of the common
stock then outstanding. After giving effect to the Recapitalization, the
following options issued under the 1992 Stock Plan will be outstanding: Mr.
Hanson--options to purchase 813,937 shares of Common Stock at a weighted average
purchase price of $.20 per share; Mr. Gard--options to purchase 773,115 shares
of Common Stock at a weighted average purchase price of $.15 per share; and Mr.
Benson--options to purchase 568,947 shares of Common Stock at a weighted average
purchase price of $.11 per share. See "Fiscal Year-End Option Values."
At the time of the issuance of the Preferred Stock, the Company granted
options to purchase Preferred Stock to its existing option holders pursuant to
the anti-dilution provisions of the 1992 Stock Plan. In December 1995, the
Company repurchased certain of these options in connection with the Company's
redemption of a portion of its Preferred Stock. Messrs. Hanson, Gard and Benson
received approximately $3.4 million, $3.3 million and $2.4 million,
respectively, as a result of such repurchases. All outstanding options to
purchase Preferred Stock will be converted into options to purchase shares of
Common Stock in connection with the Recapitalization.
62
<PAGE>
1996 Stock Option Plan. Prior to the consummation of the Proposed Equity
Offering, APP plans to adopt the American Pad & Paper Company 1996 Key Employees
Stock Incentive Plan. The 1996 Stock Plan will provide for the granting to
employees and other key individuals who perform services for the Company the
following types of incentive awards: options to purchase Common Stock, stock
appreciation rights with respect to the Common Stock, restricted shares of
Common Stock, performance grants and other types of awards that the Compensation
Committee deems to be consistent with the purposes of the 1996 Stock Plan. The
1996 Stock Plan will afford APP flexibility in tailoring incentive compensation
to support corporate and business objectives, an to anticipate and respond to
changing business environments and competitive compensation practices.
An aggregate of 1,500,000 shares of Common Stock will be reserved for issuance
under the 1996 Stock Plan. Except for any other adjustments made by the APP
Board relating to a stock split or certain other changes in the number of shares
of Common Stock, or to reflect extraordinary corporate transactions, further
increases in the number of shares authorized for issuance under the 1996 Stock
Plan must be approved by the stockholders of APP.
Non-Employee Director Plan. Prior to the consummation of the Proposed Equity
Offering, APP plans to adopt the American Pad & Paper Company Non-Employee
Director Stock Option Plan. Pursuant to the Non-Employee Director Plan, each
Director (other than Directors who are employees of the Company) will receive a
one-time option grant to purchase 25,000 shares of Common Stock upon
effectiveness of the Non-Employee Director Plan or, for new Directors, upon
being elected to the Board. In addition, each Director will receive an annual
grant of options to purchase 2,000 shares of Common Stock beginning on such
Director's fourth anniversary of being elected to the Board. The initial one-
time grants will vest over three years with 50% vesting in the first year and
25% in the remaining two years. The annual grants will vest in three equal
installments. The exercise price for all options granted under the Non-Employee
Director Plan will be at fair market value as of the time of such grant. Options
granted under the Non-Employee Director Plan will generally terminate ten years
after the date of the grant. An aggregate of 350,000 shares of Common Stock will
be reserved for issuance under the Non-Employee Director Plan.
STOCK PURCHASE PLAN
Prior to the consummation of the Proposed Equity Offering, APP expects to
adopt the American Pad & Paper Company Management Stock Purchase Plan (the
"Purchase Plan"). The Purchase Plan is designed to provide equity incentives to
selected members of APP's management, including employee Directors and executive
officers. The eligible participants will be selected by APP's Compensation
Committee upon the recommendation of APP's Chief Executive Officer. It is
currently anticipated that approximately 35 management employees will initially
be eligible to participate in the Purchase Plan. Under the Purchase Plan,
eligible participants will be able to elect to purchase shares of Common Stock
in lieu of up to 25% of their annual incentive bonuses. The Common Stock will be
sold under the Purchase Plan at a 15% discount from the fair market value on the
date of purchase. The aggregate maximum number of shares of Common Stock that
will be reserved and available for issuance under the Purchase Plan will be
250,000 shares.
63
<PAGE>
PRINCIPAL STOCKHOLDERS
The Company is a wholly owned subsidiary of WR, which is a wholly owned
subsidiary of APP. APP's authorized capital stock currently consists of
2,000,000 shares of common stock and 150,000 shares of Preferred Stock. The
Preferred Stock has a liquidation value of $1,948.50 per share and, except as
required by law, is nonvoting. As of December 30, 1995, the Class P Common
Stock of APP previously outstanding was converted on a share-for-share basis
into common stock. APP currently has outstanding 900,000 shares of common
stock and 58,449 shares of Preferred Stock. The table below sets forth certain
information as of June 1, 1996 and after giving effect to the Proposed Equity
Offering (after completion of the related Recapitalization) regarding equity
ownership of APP by (i) each person or entity who beneficially owns five
percent or more of the Common Stock or Preferred Stock, (ii) each Director and
executive officer named in the Summary Compensation Table, and (iii) all
Directors and current executive officers of APP as a group. Beneficial
ownership of the securities listed in the table has been determined in
accordance with the applicable rules and regulations promulgated under the
Exchange Act.
<TABLE>
<CAPTION>
COMMON STOCK OWNED AFTER THE
EXISTING COMMON STOCK PREFERRED STOCK PROPOSED EQUITY OFFERING (1)
--------------------- -------------------- ----------------------------
PERCENTAGE PERCENTAGE NUMBER PERCENTAGE
NUMBER OF OF NUMBER OF OF OF OF
NAME AND ADDRESS SHARES SHARES SHARES SHARES SHARES SHARES
- -------------------------- --------- ---------- --------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
PRINCIPAL STOCKHOLDERS:
Bain Capital Funds (2)........ 820,499.91 91.2% 53,286.06 91.2% 10,120,233 37.6%
c/o Bain Venture Capital
Two Copley Place
Boston, Massachusetts 02116
DIRECTORS AND EXECUTIVE
OFFICERS:
Charles G. Hanson, III
(3)(4)....................... 68,782.00 7.2 4,466.93 7.2 1,102,442 4.0
Russell M. Gard (3)(5)........ 66,235.00 7.0 4,301.53 7.0 1,061,621 3.8
Gregory M. Benson (3)(6)...... 53,497.00 5.7 3,474.93 5.7 857,453 3.1
Robert C. Gay (7)(8).......... 820,499.91 91.2 53,286.06 91.2 10,120,233 37.6
Jonathan S. Lavine (7)(9)..... 61,536.24 6.8 3,996.37 6.8 759,003 2.8
Marc B. Wolpow (7)(10)........ 61,536.24 6.8 3,996.37 6.8 759,003 2.8
Timothy E. Needham............ -- -- -- -- -- --
Edward Norton................. -- -- -- -- -- --
Martin R. Lewis............... -- -- -- -- -- --
All directors and
executive officers as a
group (9 persons)(11)........ 1,009,013.91 97.5% 65,529.45 97.5% 13,141,748 45.2%
- ------------------
</TABLE>
(1) Gives effect to the Recapitalization and the Proposed Equity Offering and
assumes no exercise of the U.S. underwriter's over-allotment option. Does
not give effect to any purchases, if any, by such persons named in the
table in the Proposed Equity Offering. The U.S. Underwriters have been
granted an option to purchase up to an aggregate of 2,343,750 additional
shares to cover over-allotments, if any. In connection with the
Recapitalization, all outstanding shares of Preferred Stock will be
converted into shares of Common Stock and all outstanding options to
purchase shares of Preferred Stock will be converted into options to
purchase shares of Common Stock. See "Proposed Initial Public
Offering."
(2) Includes 600,043.907 shares of common stock and 38,968.8975 shares of
Preferred Stock held by Tyler Capital Fund, L.P.; 122,944.808 shares of
common stock and 7,984.4551 shares of Preferred Stock held by Tyler
Massachusetts, L.P.; 35,974.951 shares of common stock and 2,336.3360
shares of Preferred Stock held by Tyler International, L.P. -II; 51,213.451
shares of common stock and 3,325.9761 shares of Preferred Stock held by
BCIP Associates ("BCIP Associates"); and 10,322.792 shares of common stock
and 670.3973 shares of
64
<PAGE>
Preferred Stock held by BCIP Trust Associates, L.P. ("BCIP Trust" and,
collectively with BCIP Associates and the Tyler Entities, the "Bain Capital
Funds"). The Bain Capital Funds are offering an aggregate of 3,030,807
shares of Common Stock in the Proposed Equity Offering on a pro rata basis.
(3) The address of such person is c/o the Company, 17304 Preston Road, Dallas,
Texas 75252.
(4) Includes 50,782 shares of common stock and 3,297.95 shares of Preferred
Stock that can be acquired through currently exercisable options. Such
options will be converted into options to purchase 813,937 shares of Common
Stock in connection with the Proposed Equity Offering. See "Stock
Options."
(5) Includes 48,235 shares of common stock and 3,132.55 shares of Preferred
Stock that can be acquired through currently exercisable options. Such
options will be converted into options to purchase 773,115 shares of Common
Stock in connection with the Proposed Equity Offering. See "Stock
Options."
(6) Includes 35,497 shares of common stock and 2,305.95 shares of Preferred
Stock that can be acquired through currently exercisable options. Such
options will be converted into options to purchase 568,947 of Common Stock
in connection with the Proposed Equity Offering. See "Stock Options."
(7) The address of such person is c/o Bain Venture Capital, Two Copley Place,
Boston, Massachusetts 02116.
(8) Mr. Gay is a Director of APP. Mr. Gay is also a general partner of Bain
Venture Capital, the general partner of the Tyler Entities, and a general
partner of BCIP Associates and BCIP Trust. Accordingly, Mr. Gay may be
deemed to beneficially own shares owned by the Bain Capital Funds, although
Mr. Gay disclaims beneficial ownership of any such shares.
(9) Mr. Lavine is a Director of APP. Mr. Lavine is also a general partner of
BCIP Associates and BCIP Trust. Accordingly, Mr. Lavine may be deemed to
beneficially own shares owned by BCIP Associates and BCIP Trust, although
Mr. Lavine disclaims beneficial ownership of any such shares.
(10) Mr. Wolpow is a Director of APP. Mr. Wolpow is also a general partner of
BCIP Associates and BCIP Trust. Accordingly, Mr. Wolpow may be deemed to
beneficially own shares owned by BCIP Associates and BCIP Trust, although
Mr. Wolpow disclaims beneficial ownership of any such shares.
(11) Includes shares which may be deemed to be beneficially owned by Messrs.
Gay, Lavine and Wolpow and shares that Messrs. Hanson, Gard and Benson can
acquire through currently exercisable options.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ACQUISITION ARRANGEMENTS
In connection with the Acquisition, members of Williamhouse's management
received substantial payments for their equity interests in Williamhouse.
Messrs. Needham, Norton and Ginolfi, together with Mr. Lewis and his family,
received an aggregate of approximately $19.8 million at the Closing of the
Acquisition for their shares of Williamhouse and pursuant to other equity-based
arrangements. Bain Capital was paid a fee of $5 million by Ampad for, among
other things, its services in analyzing, negotiating and arranging the financing
for the Acquisition. Prior to the Acquisition, APP recapitalized its common
stock and Class P Common Stock into common stock, Class P Common Stock and
approximately $200 million aggregate liquidation value of Preferred Stock. In
connection with such recapitalization, APP declared a dividend on its Class P
Common Stock of one share of Preferred Stock for each ten shares of common stock
and Class P Common Stock. In December 1995, APP redeemed on a pro rata basis a
portion of such Preferred Stock with an aggregate liquidation value of
approximately $70.6 million from the proceeds of the Offering. At the same time,
APP declared a cash dividend of approximately $4.63 million on its Class P
Common Stock and, thereafter, converted all outstanding Class P Common Stock on
a share-for-share basis into common stock. The executive officers of the Company
(Messrs. Hanson, Gard and Benson) received an aggregate of 5,400 shares of
Preferred Stock as a result of the Preferred Stock Dividend and cash
consideration of approximately $267,819 as a result of their respective equity
ownership in APP. In addition, approximately $8,901,520 of the proceeds from the
Offering was used by the Company
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to repurchase from the executive officers of the Company options to acquire
Preferred Stock. See "1992 Key Employees Stock Option Plan."
MANAGEMENT ADVISORY AGREEMENT
In October 1995, APP entered into a ten-year Management Advisory Agreement
(the "Advisory Agreement") with Bain Capital to replace Bain Capital's prior
agreement with the Company. Pursuant to the Advisory Agreement, Bain Capital
provides management consulting, advisory services and support, negotiation and
analysis of financial alternatives, acquisitions and dispositions and other
services as agreed upon by the Company and Bain Capital. Under the Advisory
Agreement, the Company (i) paid Bain Capital in connection with the offering of
the Notes, in the aggregate, a cash financial advisory fee of $2.0 million, plus
its out-of-pocket expenses and (ii) agreed to pay Bain Capital an aggregate
annual fee of no less than $2.0 million, plus its out-of-pocket expenses. For
the years ended December 31, 1995, 1994 and 1993, the Company paid Bain Capital
$937,000, $684,000 and $431,000, respectively, in financial advisory fees
pursuant to the Advisory Agreement or the prior agreement. Prior to the
completion of the Proposed Equity Offering, the Company and Bain Capital expect
to amend and restate the Advisory Agreement to provide for an initial term of
four years, subject to automatic one-year extensions beyond the initial term
(not to exceed an aggregate of eight years) on each anniversary of the effective
date of such agreement so long as Bain Capital continues to own at least 5% of
the outstanding Common Stock. Under the amended Advisory Agreement, the Company
will pay Bain Capital (i) an annual cash advisory fee of $2 million, plus out-
of-pocket expenses, (ii) an aggregate fee of approximately $2.0 million, plus
its out-of-pocket expenses in connection with the Proposed Equity Offering and
(iii) a transaction fee in connection with the consummation of each acquisition,
divestiture or financing by the Company or its subsidiaries in an amount equal
to 1% of the aggregate value of such transaction. In connection therewith, the
Company expects to pay Bain Capital transaction fees of approximately $3.0
million, plus its out-of-pocket expenses, in connection with the entering into
of the New Bank Credit Agreement, approximately $300,000 for its services
rendered in connection with the sale of the Personalizing Division and $550,000
for its services rendered in connection with the Niagara Acquisition. The
Company believes that the fees received for the professional services rendered
are at least as favorable to the Company as those which could be negotiated with
a third party.
DESCRIPTION OF BANK CREDIT AGREEMENT
The Company and APP entered into a Bank Credit Agreement with Bankers Trust
Company, as agent (the "Agent"), providing for term loans of $245.0 million and
a revolving credit facility of $45.0 million. Loans under the Bank Credit
Agreement are comprised of a multi-tranche facility with principal payments
scheduled in years one through eight and one-half years from the closing date in
the form of (i) a term loan facility (the "Tranche A Term Loan Facility") in the
amount of $95 million ($25.2 million of which was borrowed in January 1996),
(ii) a second term loan facility (the "Tranche B Term Loan Facility") in the
amount of $65 million, (iii) a third term loan facility (the "Tranche C Term
Loan Facility") in the amount of $45 million, (iv) a fourth term loan facility
(the "Tranche D Term Loan Facility", and together with the Tranche A Term Loan
Facility, the Tranche B Term Loan Facility and the Tranche C Term Loan Facility,
the "Term Loan Facilities") in the amount of $40 million, (v) a revolving credit
facility (the "Revolving Credit Facility", and together with the Term Loan
Facilities, the "Senior Bank Financing") in the amount of $45 million which
includes a letter of credit sub-limit of $20 million and (vi) an IRB letter of
credit facility in the amount of $13.4 million. The Company used the Senior Bank
Financing to provide funding necessary to consummate the Acquisition, with the
Revolving Credit Facility being used for working capital needs. This information
relating to the Bank Credit Agreement is qualified in its entirety by reference
to the complete text of the documents entered into in connection therewith. The
following is a description of the material terms of the Bank Credit
Agreement.
Indebtedness under the Bank Credit Agreement is guaranteed by APP, WR, and all
current and future domestic subsidiaries of the Company except for the SPC (as
defined), a Receivables Entity as defined in the Indenture, and is secured by
(i) a perfected security interest in substantially all the assets and property
of the Company and its subsidiaries except for the SPC, and (ii) a first
priority perfected pledge of all capital stock of WR, the Company and its
current subsidiaries except for the SPC.
Indebtedness under the Bank Credit Agreement varies by tranche. The Tranche A
Term Loan Facility is a five-year facility with quarterly principal payments
scheduled in years one through five and bears interest at a rate (at the
Company's option) of (a) the Eurodollar Rate (as defined in the Bank Credit
Agreement) plus 275.0 basis points less an interest reduction discount of 25
basis points or 50 basis points if the Company meets certain targets for its
coverage and leverage ratios (the "Interest Reduction Discount") or (b) the
applicable base rate of Bankers Trust Company, which is the higher of 1/2 of 1%
in excess of the Adjusted Certificate of Deposit Rate (as defined in the Bank
Credit Agreement) an d the prime lending rate announced from time to time by
Bankers Trust Company (the "Base Rate") plus 175.0 basis
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points less the Interest Reduction Discount, if applicable. The Tranche B Term
Loan Facility is a seven-year facility with quarterly principal payments
scheduled in years six and seven, with nominal quarterly principal payments
prior to that time, and bears interest at a rate (at the Company's option) of
(a) the Eurodollar Rate plus 337.5 basis points or (b) the Base Rate plus 237.5
basis points. The Tranche C Term Loan Facility is an eight-year facility with
quarterly principal payments scheduled in year eight, with nominal quarterly
principal payments prior to that time, and bears interest at a rate (at the
Company's option) of (a) the Eurodollar Rate plus 375.0 basis points or (b) the
Base Rate plus 275.0 basis points. The Tranche D Term Loan Facility is an eight
and one-half year facility with quarterly principal payments scheduled in the
first two quarters of year nine, with nominal quarterly principal payments prior
to that time, and bears interest at a rate (at the Company's option) of (a) the
Eurodollar Rate plus 400.0 basis points or (b) Base Rate plus 300.0 basis
points. The Revolving Credit Facility is a five-year facility bearing interest
at a rate (at the Company's option) of (a) the Eurodollar Rate plus 275.0 basis
points less the Interest Reduction Discount, if applicable or (b) the Base Rate
plus 175.0 basis points less the Interest Reduction Discount, if applicable. In
addition, the Bank Credit Agreement provides for mandatory repayment, subject to
certain exceptions, of the Senior Bank Financing upon the occurrence of certain
events including, but not limited to, asset sales, certain equity and debt
issuances, insurance recovery events and the accumulation of excess cash flow
(with a requirement to pay 50% of Excess Cash Flow (as defined therein) for the
period ending on December 31, 1995 and 75% of Excess Cash Flow per annum
thereafter), each subject to certain exceptions.
The Revolving Credit Facility may be repaid and reborrowed. The Company is
required to pay the lenders under the Bank Credit Agreement in the aggregate a
commitment fee equal to 1/2 of 1% per annum, payable on a quarterly basis, on
the daily average unused portion of the Aggregate Unutilized Commitment (as
defined in the Bank Credit Agreement). The Company also is required to pay to
the lenders participating in the Revolving Credit Facility letter of credit fees
equal to the Applicable Eurodollar Margin (as defined in the Bank Credit
Agreement) in effect as of such time for loans under the Revolving Credit
Facility and to the lender issuing a letter of credit a facing fee of 0.25% on
the average daily stated amount of each outstanding letter of credit issued by
such lender and its customary administrative charges in connection with such
letters of credit.
The Bank Credit Agreement requires the Company to meet certain financial
tests, including (i) a minimum level of consolidated EBITDA (as defined therein)
of $15.5 million on March 31, 1996 and increasing thereafter on a quarterly
basis to $111.5 million on June 30, 2004; (ii) a minimum interests coverage
ratio of 1.2:1.0 on March 31, 1996 and increasing thereafter on a quarterly
basis to 3.6:1.0 on June 30, 2004 and (iii) a maximum leverage ratio for the
quarter ending December 31, 1996 of 6.0:1.0 and decreasing thereafter on a
quarterly basis to 2.2:1.0 for the quarter ended June 30, 2004. The Bank Credit
Agreement also contains covenants which, among other things, limit the
incurrence of additional indebtedness, payment of dividends, transactions with
affiliates, asset sales, acquisitions, mergers, prepayments of other
indebtedness, liens and encumbrances and other matters customarily restricted in
such agreements.
The Bank Credit Agreement contains customary events of default, including
payment defaults, breach of representations and warranties, covenant defaults,
cross-defaults to certain other indebtedness, certain events of bankruptcy and
insolvency, ERISA, judgment defaults, failure of any guaranty or security
agreement supporting the Bank Credit Agreement to be in full force and effect
and change of control of APP.
DESCRIPTION OF NEW BANK CREDIT AGREEMENT
Contemporaneously with, and conditioned upon, the Proposed Equity Offering,
the Company intends to refinance and retire all remaining indebtedness under the
Bank Credit Agreement with the proceeds of loans under the New Bank Credit
Agreement. The New Bank Credit Agreement will be a revolving credit facility
with a maximum availability of $300 million with the following material terms:
Loans will be made under the New Bank Credit Agreement directly to the Company
and will be guaranteed by APP and each of its subsidiaries (other than the SPC
(as defined below)). Loans made under the New Bank Credit Agreement will bear
interest at a rate per annum equal to, at the Company's option, (i) the Base
Rate plus the Applicable Margin or (ii) the Eurodollar Rate plus the Applicable
Margin (as each term is defined in the New Bank Credit Agreement). The
Applicable Margin for the Base Rate loans will vary from 0% to .75% and the
Applicable Margin for Eurodollar Loans will vary from .75% to 1.75%, each based
on the Company's leverage ratio and the type of loan. Availability under the New
Bank Credit Agreement will be subject to an unused commitment fee which will be
a percentage of the unutilized revolving loan commitment. This percentage will
vary from .3% to .5% based on the Company's Leverage Ratio.
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Availability under the New Bank Credit Agreement will generally be reduced to
the extent of the net proceeds of a sale of assets by the Company, the net
proceeds of an issuance of debt by the Company or 50% of the net proceeds of an
issuance of equity by the Company. Availability will also be reduced by $50
million in 1999 and $50 million in 2000. The New Bank Credit Agreement is
expected to terminate in 2001. The Company will be permitted to make
acquisitions under the New Bank Credit Agreement up to an aggregate of $25
million per acquisition without the consent of the Required Banks and up to $50
million per acquisition if, on a pro forma basis giving effect to such
acquisition, the Company's Leverage Ratio is less than 3.0 to 1.0. The New Bank
Credit Agreement will be secured to the same extent as the Bank Credit Agreement
and will contain similar restrictive covenants, financial tests and events of
default. The foregoing description of the material terms of the New Bank Credit
Agreement is qualified in its entirety by reference by the executed term sheet
relating to the New Bank Credit Agreement, which has been filed as an exhibit to
the registration statement to which this Prospectus is a part.
DESCRIPTION OF ACCOUNTS RECEIVABLE FACILITY
The Accounts Receivable Facility was established simultaneously with the
consummation of the Acquisition. The following summary of the material terms of
the Accounts Receivable Facility is qualified in its entirety by reference to
the complete agreement, which has been filed in an exhibit to the Registration
Statement, of which the Prospectus forms a part. Pursuant to the Accounts
Receivable Facility, the Company and its subsidiaries are deemed to have sold to
a wholly owned special purpose corporation of the Company (the "SPC") all of the
receivables generated by the Company and its subsidiaries upon the creation of
such receivable. The SPC then transfers the receivables purchased from the
Company and its subsidiaries each day to a master trust (the "Trust"). The SPC
is operated in a fashion intended to ensure that its assets and liabilities are
distinct from those of the Company and its other affiliates, and that its assets
are not available to satisfy claims of creditors of the Company and its
subsidiaries.
At the time of the Acquisition, the Company sold all of its receivables to the
SPC. The SPC, in turn, transferred the receivables to the Trust in exchange for
a "Variable Funding Certificate" and a "Transferor Certificate," each
representing an undivided interest in the securities and other assets of the
Trust. Immediately thereafter, the SPC sold the Variable Funding Certificate to
Bankers Trust Company.
The Trust has issued an aggregate principal amount of $60 million Class A
Variable Rate Trade Receivables Backed Certificates, Series 1996-1 (the "Class A
Certificates") and Class B Variable Rate Trade Receivables Backed Certificates,
Series 1996-1 (the "Class B Certificates"). The Class A Certificates are
"revolving" certificates, the principal amount of which may be increased or
decreased by the SPC, subject to certain standard conditions precedent. The
Class B Certificates have a fixed principal amount and are subordinated to the
Class A Certificates. The Class A Certificates and the Class B Certificates have
a term of approximately 4 1/2 years until their scheduled amortization dates.
The interest rate of the Class A Certificates is equal to a reserve-adjusted
Eurodollar rate or an alternate base rate plus a given spread. The interest rate
of the Class B Certificates is equal to a reserve-adjusted Eurodollar rate plus
a given spread. The Company expects that the Class A Certificates have been
rated AAA and that the Class B Certificates have been rated BBB by Standard &
Poor's Rating Group. The SPC used the proceeds of the issuance of the Class A
Certificates and Class B Certificates to repay the Variable Funding Certificate
described in the preceding paragraph.
DESCRIPTION OF EXCHANGE NOTES
The Exchange Notes offered hereby will be issued as a separate series of notes
pursuant to the Indenture, dated as of December 1, 1995, by and among the
Company, the Subsidiary Guarantors and IBJ Schroder Bank & Trust Company, as
Trustee (the "Trustee"). The following summary of the material provisions of the
Indenture does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, the Trust Indenture Act of 1939, as amended (the
"TIA"), and to all of the provisions of the Indenture, including the definitions
of certain terms therein and those terms made a part of the Indenture by
reference to the TIA as in effect on the date of the Indenture. A copy of the
Indenture has been filed an exhibit to the Registration Statement, of which this
Prospectus forms a part. The definitions of certain capitalized terms used in
the following summary are set forth below under "Certain Definitions." For
purposes of this section, references to the "Company" include only American Pad
& Paper Company of Delaware, Inc. and not its subsidiaries and the Notes and the
Exchange Notes shall be collectively referred to as the "Senior Notes."
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The Exchange Notes will be unsecured obligations of the Company, ranking
subordinate in right of payment to all Senior Debt of the Company.
The Exchange Notes will be issued in fully registered form only, without
coupons, in denominations of $1,000 and integral multiples thereof. Initially,
the Trustee will act as Paying Agent and Registrar for the Senior Notes. The
Senior Notes may be presented for registration or transfer and exchange at the
offices of the Registrar, which initially will be the Trustee's corporate trust
office. The Company may change any Paying Agent and Registrar without notice to
holders of the Senior Notes (the "Holders"). The Company will pay principal (and
premium, if any) on the Senior Notes at the Trustee's corporate office in New
York, New York. At the Company's option, interest may be paid at the Trustee's
corporate trust office or by check mailed to the registered address of Holders.
The form and terms of the Exchange Notes are the same as the form and terms of
the Notes (which they replace) except that (i) the Exchange Notes bear a Series
B designation, (ii) the Exchange Notes have been registered under the Securities
Act and, therefore, will not bear legends restricting the transfer thereof, and
(iii) the holders of Exchange Notes will not be entitled to certain rights under
the Registration Rights Agreement, including the provisions providing for an
increase in the interest rate on the Notes in certain circumstances relating to
the timing of the Exchange Offer, which rights will terminate when the Exchange
Offer is consummated. Any Notes that remain outstanding after the completion of
the Exchange Offer, together with the Exchange Notes issued in connection with
the Exchange Offer, will be treated as a single class of securities under the
Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Senior Notes are limited in aggregate principal amount to $200 million
and will mature on November 15, 2005. Interest on the Senior Notes will accrue
at the rate of 13% per annum and will be payable semi-annually in cash on each
May 15 and November 15 commencing on May 15, 1996, to the Persons who are
registered Holders at the close of business on the May 1 and November 1
immediately preceding the applicable interest payment date. Interest on the
Senior Notes will accrue from the most recent date to which interest has been
paid or, if no interest has been paid, from the date of issuance.
The Senior Notes will not be entitled to the benefit of any mandatory
sinking fund.
REDEMPTION
Optional Redemption. The Senior Notes are redeemable, at the Company's
option, in whole at any time or in part from time to time, on and after November
15, 2000, upon not less than 30 nor more than 60 days' notice, at the following
redemption prices (expressed as percentages of the principal amount thereof) if
redeemed during the twelve-month period commencing on November 15 of the year
set forth below, plus, in each case, accrued interest to the date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2000 ................ 106.500%
2001 ................ 104.333
2002 ................ 102.167
2003 and thereafter.. 100.000
</TABLE>
Optional Redemption Upon Public Equity Offerings. At any time, or
from time to time, on or prior to November 15, 1998, the Company may, at its
option, use the net cash proceeds of one or more Public Equity Offerings (as
defined below) to redeem up to 35% of the aggregate principal amount of Senior
Notes originally issued at the following redemption prices (expressed as
percentages of the principal amount thereof) if redeemed during the twelve-month
period commencing on November 15 of the year set forth below, plus, in each
case, accrued interest to the date of redemption:
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<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
1995 ............. 111.0%
1996 ............. 113.0
1997 ............. 113.0
</TABLE>
provided that at least $100 million aggregate principal amount of Senior Notes
remains outstanding immediately after any such redemption. In order to effect
the foregoing redemption with the proceeds of any Public Equity Offering, the
Company shall make such redemption not more than 120 days after the consummation
of any such Public Equity Offering.
As used in the preceding paragraph, "Public Equity Offering" means an
underwritten public offering of Qualified Capital Stock of APP, WR or the
Company pursuant to a registration statement filed with the Commission in
accordance with the Securities Act; provided that, in the event of a Public
Equity Offering by APP or WR, APP or WR, as the case may be, contributes to the
capital of the Company the portion of the net cash proceeds of such Public
Equity Offering necessary to pay the aggregate redemption price (plus accrued
interest to the redemption date) of the Senior Notes to be redeemed pursuant to
the preceding paragraph.
The net proceeds to APP from the Proposed Equity Offering are
currently estimated to be approximately $187 million. If the Proposed Equity
Offering is consummated, APP intends to use a portion of such proceeds to allow
the Company to redeem approximately $70 million aggregate principal amount of
the Senior Notes from the holders thereof on a pro rata basis and to pay
approximately $8 million in redemption premiums on the redeemed Senior Notes.
There can be no assurance that APP will consummate the Proposed Equity Offering,
or if it does, that it will use the proceeds therefrom to the redeem amounts
outstanding under the Senior Notes. See "Proposed Initial Public Offering."
SELECTION AND NOTICE OF REDEMPTION
In case of a partial redemption, selection of the Senior Notes or
portions thereof for redemption shall be made by the Trustee by lot, pro rata or
in such manner as it shall deem appropriate and fair and in such manner as
complies with any applicable legal requirements; provided, however, that if a
partial redemption is made with the proceeds of a Public Equity Offering,
selection of the Senior Notes or portion thereof for redemption shall be made by
the Trustee only on a pro rata basis, unless such method is otherwise
prohibited. Senior Notes may be redeemed in part in multiples of $1,000
principal amount only. Notice of redemption will be sent, by first class mail,
postage prepaid, at least 30 days and not more than 60 days prior to the date
fixed for redemption to each Holder whose Senior Notes are to be redeemed at the
last address for such Holder then shown on the registry books. If any Senior
Note is to be redeemed in part only, the notice of redemption that relates to
such Senior Note shall state the portion of the principal amount thereof to be
redeemed. A new Senior Note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original Senior Note. On and after any redemption date, interest will cease
to accrue on the Senior Notes or part thereof called for redemption as long as
the Company has deposited with the Paying Agent funds in satisfaction of the
redemption price pursuant to the Indenture.
SUBORDINATION
The payment of all Obligations on the Senior Notes is subordinated in
right of payment to the prior payment in full in cash or Cash Equivalents of all
Obligations on the Senior Debt. Upon any payment or distribution of assets of
the Company of any kind or character, whether in cash, property or securities,
to creditors upon any total or partial liquidation, dissolution, winding up,
reorganization, assignment for the benefit of creditors or marshaling of assets
of the Company or in a bankruptcy, reorganization, insolvency, receivership or
other similar proceeding relating to the Company or its property, whether
voluntary or involuntary, all Obligations due or to become due upon all Senior
Debt shall first be paid in full in cash or Cash Equivalents, or such payment
duly provided for to the satisfaction of the holders of Senior Debt, before any
payment or distribution of any kind or character is made on account of any
Obligations on the Senior Notes, or for the acquisition of any of the Senior
Notes for cash or property or otherwise. If any default occurs and is continuing
in the payment when due, whether at maturity, upon any redemption, by
declaration or otherwise, of any principal of, interest on, unpaid drawings for
letters of credit issued in respect of, or regularly accruing fees with respect
to, any Senior Debt, no payment of any kind or character shall be made by or on
behalf of the Company or any
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other Person on its or their behalf with respect to any Obligations on the
Senior Notes or to acquire any of the Senior Notes for cash or property or
otherwise.
In addition, if any other event of default occurs and is continuing
with respect to any Designated Senior Debt, as such event of default is defined
in the instrument creating or evidencing such Designated Senior Debt permitting
the holders of such Designated Senior Debt then outstanding to accelerate the
maturity thereof and if the Representative for the respective issue of
Designated Senior Debt gives written notice of the event of default to the
Trustee (a "Default Notice"), then, unless and until all events of default have
been cured or waived or have ceased to exist or the Trustee receives notice from
the Representative for the respective issue of Designated Senior Debt
terminating the Blockage Period (as defined below), during the 180 days after
the delivery of such Default Notice (the "Blockage Period"), neither the Company
nor any other Person on its behalf shall (x) make any payment of any kind or
character with respect to any Obligations on the Senior Notes or (y) acquire any
of the Senior Notes for cash or property or otherwise. Notwithstanding anything
herein to the contrary, in no event will a Blockage Period extend beyond 180
days from the date the payment on the Senior Notes was due and only one such
Blockage Period may be commenced within any 360 consecutive days. No event of
default which existed or was continuing on the date of the commencement of any
Blockage Period with respect to the Designated Senior Debt shall be, or be made,
the basis for commencement of a second Blockage Period by the Representative of
such Designated Senior Debt whether or not within a period of 360 consecutive
days, unless such event of default shall have been cured or waived for a period
of not less than 90 consecutive days (it being acknowledged that any subsequent
action, or any breach of any financial covenants for a period commencing after
the date of commencement of such Blockage Period that, in either case, would
give rise to an event of default pursuant to any provisions under which an event
of default previously existed or was continuing shall constitute a new event of
default for this purpose).
By reason of such subordination, in the event of the insolvency of the
Company, creditors of the Company who are not holders of Senior Debt, including
the Holders of the Senior Notes, may recover less, ratably, than holders of
Senior Debt.
As of March 31, 1996, the Company had approximately $253.5 million of
Senior Debt and the Subsidiary Guarantors had approximately $8.6 million of
Guarantor Senior Debt (excluding guarantees of Senior Debt). As of March 31,
1996, the Company had approximately $45.7 million available to be drawn under
the revolving credit portion and letter of credit facility of the Bank Credit
Agreement, which amounts would have been Senior Debt. Under the Indenture
(without giving effect to the restrictions in the Bank Credit Agreement), the
Company could have incurred approximately $74 million of additional
indebtedness, including indebtedness senior of right of payment to the Senior
Notes, as of March 31, 1996.
GUARANTEES
Each Subsidiary Guarantor has unconditionally guaranteed, on a senior
subordinated basis, jointly and severally, to each Holder and the Trustee, the
full and prompt performance of the Company's obligations under the Indenture and
the Senior Notes, including the payment of principal of and interest on the
Senior Notes. The Guarantees are subordinated to Guarantor Senior Debt on the
same basis as the Senior Notes are subordinated to Senior Debt. The obligations
of each Subsidiary Guarantor are limited to the maximum amount which, after
giving effect to all other contingent and fixed liabilities of such Subsidiary
Guarantor and after giving effect to any collections from or payments made by or
on behalf of any other Subsidiary Guarantor in respect of the obligations of
such other Subsidiary Guarantor under its Guarantee or pursuant to its
contribution obligations under the Indenture, will result in the obligations of
such Subsidiary Guarantor under the Guarantee not constituting a fraudulent
conveyance or fraudulent transfer under federal or state law. Each Subsidiary
Guarantor that makes a payment or distribution under a Guarantee shall be
entitled to a contribution from each other Subsidiary Guarantor in an amount pro
rata, based on the Adjusted Net Assets (as defined in the Indenture) of each
Subsidiary Guarantor.
Each Subsidiary Guarantor may consolidate with or merge into,
liquidate, dissolve or sell its assets to the Company or another Subsidiary
Guarantor that is a Wholly Owned Restricted Subsidiary of the Company without
limitation, or with other Persons upon the terms and conditions set forth in the
Indenture. See "Certain Covenants--Merger, Consolidation and Sale of Assets." In
the event that (i) either all of the Capital Stock of a Subsidiary Guarantor is
sold by the Company (whether by merger, stock purchase or otherwise) or all or
substantially all of the assets of a Subsidiary Guarantor are sold by such
Subsidiary Guarantor and such sale complies with the
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provisions set forth in "Certain Covenants--Limitation on Asset Sales" or (ii)
the lenders under the Bank Credit Agreement release a Subsidiary Guarantor of
all guarantees under the Bank Credit Agreement and release all Liens on the
property and assets of such Subsidiary Guarantor relating to such Indebtedness,
then in each case the Subsidiary Guarantor's Guarantee will be released. As
permitted under the Indenture, the Company expects to merge certain of the
Subsidiary Guarantors with and into itself following the sale of the
Personalizing Division.
CHANGE OF CONTROL
The Indenture provides that upon the occurrence of a Change of
Control, each Holder will have the right to require that the Company purchase
all or a portion of such Holder's Senior Notes pursuant to the offer described
below (the "Change of Control Offer"), at a purchase price equal to 101% of the
principal amount thereof plus accrued interest to the date of purchase.
The Indenture provides that, prior to the mailing of the notice
referred to below, but in any event within 30 days following any Change of
Control, the Company covenants to (i) repay in full and terminate all
commitments under Indebtedness under the Bank Credit Agreement and all other
Senior Debt the terms of which require repayment upon a Change of Control or
offer to repay in full and terminate all commitments under all Indebtedness
under the Bank Credit Agreement and all other such Senior Debt and to repay the
Indebtedness owed to each lender which has accepted such offer or (ii) obtain
the requisite consents under the Bank Credit Agreement and all such other Senior
Debt to permit the repurchase of the Senior Notes as provided below. The Company
shall first comply with the covenant in the immediately preceding sentence
before it shall be required to repurchase the Senior Notes pursuant to the
provisions described below. The Company's failure to comply with this covenant
shall constitute an Event of Default described in clause (iii) and not in clause
(ii) under "Events of Default" below.
Within 30 days following the date upon which the Change of Control
occurred, the Company must send, by first class mail, a notice to each Holder,
with a copy to the Trustee, which notice shall govern the terms of the Change of
Control Offer. Such notice shall state, among other things, the purchase date,
which must be no earlier than 30 days nor later than 45 days from the date such
notice is mailed, other than as may be required by law (the "Change of Control
Payment Date"). Holders electing to have a Senior Note purchased pursuant to a
Change of Control Offer will be required to surrender the Senior Note, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of the Senior
Note completed, to the Paying Agent at the address specified in the notice prior
to the close of business on the third business day prior to the Change of
Control Payment Date.
If a Change of Control Offer is made, there can be no assurance that
the Company will have available funds sufficient to pay the Change of Control
purchase price for all the Senior Notes that might be delivered by Holders
seeking to accept the Change of Control Offer. In the event the Company is
required to purchase outstanding Senior Notes pursuant to a Change of Control
Offer, the Company expects that it would seek third party financing to the
extent it does not have available funds to meet its purchase obligations.
However, there can be no assurance that the Company would be able to obtain such
financing.
Neither the Board of Directors of the Company nor the Trustee may
waive the covenant relating to a Holder's right to redemption upon a Change of
Control. Restrictions in the Indenture described herein on the ability of the
Company and its Restricted Subsidiaries to incur additional Indebtedness, to
grant Liens on its property, to make Restricted Payments and to make Asset Sales
may also make more difficult or discourage a takeover of the Company, whether
favored or opposed by the management of the Company. Consummation of any such
transaction in certain circumstances may require redemption or repurchase of the
Senior Notes, and there can be no assurance that the Company or the acquiring
party will have sufficient financial resources to effect such redemption or
repurchase. Such restrictions and the restrictions on transactions with
Affiliates may, in certain circumstances, make more difficult or discourage any
leveraged buyout of the Company or any of its Subsidiaries by the management of
the Company. While such restrictions cover a wide variety of arrangements which
have traditionally been used to effect highly leveraged transactions, the
Indenture may not afford the Holders of Senior Notes protection in all
circumstances from the adverse aspects of a highly leveraged transaction,
reorganization, restructuring, merger or similar transaction.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Senior Notes pursuant to a Change of Control Offer. To the extent
that the provisions of any securities laws or
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regulations conflict with the "Change of Control" provisions of the Indenture,
the Company shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under the "Change of
Control" provisions of the Indenture by virtue thereof.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Restricted Payments. The Company will not, and will
not cause or permit any of its Restricted Subsidiaries to, directly or
indirectly, (a) declare or pay any dividend or make any distribution (other than
dividends or distributions payable in Qualified Capital Stock of the Company) on
or in respect of shares of the Company's Capital Stock to holders of such
Capital Stock, (b) purchase, redeem or otherwise acquire or retire for value any
Capital Stock of the Company or any warrants, rights or options to purchase or
acquire shares of any class of such Capital Stock, other than the exchange of
such Capital Stock for Qualified Capital Stock, or (c) make any Investment
(other than Permitted Investments) (each of the foregoing actions set forth in
clauses (a), (b) and (c) being referred to as a "Restricted Payment"), if at the
time of such Restricted Payment or immediately after giving effect thereto, (i)
a Default or an Event of Default shall have occurred and be continuing, (ii) the
Company is not able to incur at least $1.00 of additional Indebtedness (other
than Permitted Indebtedness) in compliance with the "Limitation on Incurrence of
Additional Indebtedness" covenant, or (iii) the aggregate amount of Restricted
Payments made subsequent to the Issue Date shall exceed the sum of: (x) 50% of
the cumulative Consolidated Net Income (or if cumulative Consolidated Net Income
shall be a loss, minus 100% of such loss) of the Company earned subsequent to
the Issue Date and on or prior to the date the Restricted Payment occurs (the
"Reference Date") (treating such period as a single accounting period); plus (y)
100% of the aggregate net proceeds received by the Company (including the fair
market value of property other than cash) from any Person (other than a
Subsidiary of the Company) from the issuance and sale subsequent to the Issue
Date and on or prior to the Reference Date of Qualified Capital Stock of the
Company (including Capital Stock issued upon the conversion of convertible
Indebtedness or in exchange for outstanding Indebtedness); plus (z) without
duplication of any amounts included in clause (iii)(y) above, 100% of the
aggregate net proceeds (including the fair market value of property other than
cash) of any equity contribution received by the Company from a holder of the
Company's Capital Stock.
Notwithstanding the foregoing, the provisions set forth in the
immediately preceding paragraph do not prohibit: (1) the payment of any dividend
or the consummation of any irrevocable redemption within 60 days after the date
of declaration of such dividend or notice of such redemption if the dividend or
payment of the redemption price, as the case may be, would have been permitted
on the date of declaration or notice; (2) if no Event of Default shall have
occurred and be continuing as a consequence thereof, the acquisition of any
shares of Capital Stock of the Company, either (i) solely in exchange for shares
of Qualified Capital Stock, or (ii) through the application of net proceeds of a
substantially concurrent sale for cash (other than to a Subsidiary of the
Company) of shares of Qualified Capital Stock; (3) payments for the purpose of
and in an amount equal to the amount required to permit APP to redeem or
repurchase APP's common equity or options in respect thereof, in each case in
connection with the repurchase provisions under employee stock option or stock
purchase agreements or other agreements to compensate management employees;
provided that such redemptions or repurchases pursuant to this clause (3) shall
not exceed $6 million (which amount shall be increased by the amount of any
proceeds to the Company from (x) sales of Capital Stock of APP to management
employees subsequent to the Issue Date and (y) any "key-man" life insurance
policies which are used to make such redemptions or repurchases) in the
aggregate; (4) the making of distributions, loans or advances in an amount not
to exceed $3 million per annum sufficient to permit APP or WR to pay the
ordinary operating expenses of APP or WR (including, without limitation,
directors fees, indemnification obligations, professional fees and expenses)
related to APP's or WR's ownership of Capital Stock of the Company or APP's
ownership of Capital Stock of WR (other than to Bain Capital or a Bain Related
Party); (5) the payment of any amounts pursuant to the Tax Allocation Agreement;
(6) the payment of fees and compensation as permitted under clause (i) of
paragraph (b) of the "Transactions with Affiliates" covenant; (7) so long as no
Default or Event of Default shall have occurred and be continuing, payments not
to exceed $100,000 in the aggregate, to enable APP to make payments to holders
of its Capital Stock in lieu of issuance of fractional shares of its Capital
Stock; (8) payments with respect to the Old Debentures to the extent deemed to
be a payment on behalf of WR in its capacity as guarantor of the Old Debentures;
and (9) the payment of up to $75 million to WR and APP with
a portion of the net proceeds of the sale of the Notes in connection with the
Transactions. In determining the aggregate amount of Restricted Payments made
subsequent to the Issue Date in accordance with clause (iii) of the immediately
preceding paragraph, (a) amounts expended (to the extent such expenditure is in
the form of cash) pursuant to clauses (1), (2) and (3) shall be included in such
calculation; provided such expenditures pursuant to clause (3) shall not be
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included to the extent of cash proceeds received by the Company from any "key-
man" life insurance policies and (b) amounts expended pursuant to clauses (4),
(5), (6), (7), (8) or (9) shall be excluded from such calculation.
Limitation on Incurrence of Additional Indebtedness. The Company will
not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume, guarantee, acquire, become liable,
contingently or otherwise, with respect to, or otherwise become responsible for
payment of (collectively, "incur") any Indebtedness (other than Permitted
Indebtedness); provided, however, that if no Default or Event of Default shall
have occurred and be continuing at the time or as a consequence of the
incurrence of any such Indebtedness, the Company or any Subsidiary Guarantor may
incur Indebtedness if on the date of the incurrence of such Indebtedness, after
giving effect to the incurrence thereof, the Consolidated Fixed Charge Coverage
Ratio of the Company is greater than 2.0 to 1.0.
Limitations on Transactions with Affiliates.
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into or permit to exist any
transaction or series of related transactions (including, without limitation,
the purchase, sale, lease or exchange of any property or the rendering of any
service) with, or for the benefit of, any of its Affiliates (an "Affiliate
Transaction"), other than (x) Affiliate Transactions permitted under paragraph
(b) below and (y) Affiliate Transactions on terms that are no less favorable
than those that might reasonably have been obtained in a comparable transaction
at such time on an arm's-length basis from a Person that is not an Affiliate;
provided, however, that for a transaction or series of related transactions with
an aggregate value of $5 million or more, at the Company's option (i) such
determination shall be made in good faith by a majority of the disinterested
members of the Board of the Directors of the Company or (ii) the Board of
Directors of the Company or any such Restricted Subsidiary party to such
Affiliate Transaction shall have received an opinion from a nationally
recognized investment banking firm that such Affiliate Transaction is on terms
no less favorable than those that might reasonably have been obtained in a
comparable transaction at such time on an arm's-length basis from a Person that
is not an Affiliate; and provided, further, that for a transaction or series of
related transactions with an aggregate value of $10 million or more, the Board
of Directors of the Company shall have received an opinion from a nationally
recognized investment banking firm that such Affiliate Transaction is on terms
no less favorable than those that might reasonably have been obtained in a
comparable transaction at such time on an arm's-length basis from a Person that
is not an Affiliate.
(b) The foregoing restrictions shall not apply to (i) reasonable fees
and compensation paid to and indemnity provided on behalf of officers,
directors, employees or consultants of the Company or any Subsidiary as
determined in good faith by the Company's Board of Directors or senior
management; (ii) transactions exclusively between or among the Company and any
of its Wholly Owned Restricted Subsidiaries or exclusively between or among such
Wholly Owned Restricted Subsidiaries, provided such transactions are not
otherwise prohibited by the Indenture; (iii) transactions effected as part of a
Qualified Receivables Transaction; (iv) any agreement as in effect as of the
Issue Date or any amendment thereto or any transaction contemplated thereby
(including pursuant to any amendment thereto) in any replacement agreement
thereto so long as any such amendment or replacement agreement is not more
disadvantageous to the Holders in any material respect than the original
agreement as in effect on the Issue Date; and (v) Restricted Payments permitted
by the Indenture.
Limitation on Liens. The Company will not, and will not permit any
of its Restricted Subsidiaries to, create, incur, assume or suffer to exist any
Liens of any kind against or upon any of its property or assets, or any proceeds
therefrom, unless (i) in the case of Liens securing Indebtedness that is
expressly subordinate or junior in right of payment to the Senior Notes, the
Senior Notes are secured by a Lien on such property, assets or proceeds that is
senior in priority to such Liens and (ii) in all other cases, the Senior Notes
are equally and ratably secured, except for (A) Liens existing as of the Issue
Date and any extensions, renewals or replacements thereof; (B) Liens securing
Senior Debt and Guarantor Senior Debt; (C) Liens securing the Senior Notes and
the Guarantees; (D) Liens of the Company or a Wholly Owned Restricted Subsidiary
on assets of any Subsidiary of the Company; (E) Liens securing Indebtedness
which is incurred to refinance Indebtedness which has been secured by a Lien
permitted under the Indenture and which has been incurred in accordance with the
provisions of the Indenture; provided, however, that such Liens do not extend to
or cover any property or assets of the Company or any of its Restricted
Subsidiaries not securing the Indebtedness so refinanced; and (F) Permitted
Liens.
Prohibition on Incurrence of Senior Subordinated Debt. Neither the
Company nor any Subsidiary Guarantor will incur or suffer to exist Indebtedness
that is senior in right of payment to the Senior Notes or such Subsidiary
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Guarantor's Guarantee and subordinate in right of payment to any other
Indebtedness of the Company or such Subsidiary Guarantor, as the case may be.
Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or permit to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to (a) pay dividends or make any other distributions on or
in respect of its Capital Stock; (b) make loans or advances or to pay any
Indebtedness or other obligation owed to the Company or any other Restricted
Subsidiary of the Company; or (c) transfer any of its property or assets to the
Company or any other Restricted Subsidiary of the Company, except for such
encumbrances or restrictions existing under or by reason of: (1) applicable law;
(2) the Indenture; (3) non-assignment provisions of any contract or any lease
entered into in the ordinary course of business; (4) any instrument governing
Acquired Indebtedness, which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the Person or the
properties or assets of the Person so acquired; (5) agreements existing on the
Issue Date (including, without limitation, the Bank Credit Agreement and the
Indenture governing the Old Debentures); (6) restrictions on the transfer of
assets subject to any Lien permitted under the Indenture imposed by the holder
of such Lien; (7) restrictions imposed by any agreement to sell assets permitted
under the Indenture to any Person pending the closing of such sale; (8) any
agreement or instrument governing Capital Stock of any Person that is acquired;
(9) Indebtedness or other contractual requirements of a Receivables Entity in
connection with a Qualified Receivables Transaction; provided that such
restrictions apply only to such Receivables Entity; or (10) an agreement
effecting a refinancing, replacement or substitution of Indebtedness issued,
assumed or incurred pursuant to an agreement referred to in clause (2), (4) or
(5) above or any other agreement evidencing Indebtedness permitted under the
Indenture; provided, however, that the provisions relating to such encumbrance
or restriction contained in any such refinancing, replacement or substitution
agreement or any such other agreement are not less favorable to the Company in
any material respect as determined by the Board of Directors of the Company than
the provisions relating to such encumbrance or restriction contained in
agreements referred to in such clause (2), (4) or (5).
Limitation on Preferred Stock of Subsidiaries. The Company will not
permit any of its Restricted Subsidiaries to issue any Preferred Stock (other
than to the Company or to a Wholly Owned Restricted Subsidiary of the Company)
or permit any Person (other than the Company or a Wholly Owned Restricted
Subsidiary of the Company) to own any Preferred Stock of any Restricted
Subsidiary of the Company.
Merger, Consolidation and Sale of Assets. The Company will not, in a
single transaction or a series of related transactions, consolidate with or
merge with or into, or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of its assets to, another Person or Persons
or adopt a plan of liquidation unless (i) either (A) the Company shall be the
survivor of such merger or consolidation or (B) the surviving Person is a
corporation, partnership or trust organized and existing under the laws of the
United States, any state thereof or the District of Columbia and such surviving
Person shall expressly assume all the obligations of the Company under the
Senior Notes and the Indenture; (ii) immediately after giving effect to such
transaction (on a pro forma basis, including any Indebtedness incurred or
anticipated to be incurred in connection with such transaction), the Company or
the surviving Person is able to incur at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) in compliance with the "Limitation on
Incurrence of Additional Indebtedness" covenant; (iii) immediately before and
immediately after giving effect to such transaction (including any Indebtedness
incurred or anticipated to be incurred in connection with the transaction), no
Default or Event of Default shall have occurred and be continuing; (iv)
immediately after such transaction or series of related transactions the Company
or the surviving entity, as the case may be, shall have a Consolidated Net Worth
equal to or greater than the Consolidated Net Worth of the Company immediately
prior to such transaction or series of related transactions without giving
effect to (A) any non-cash charges relating to existing stock options as a
direct result of or related to such transaction or series of related
transactions or (B) any purchase accounting adjustments related to such
transaction or series of related transactions; (v) each Subsidiary Guarantor,
unless it is the other party to the transaction, shall have by supplemental
indenture confirmed that after consummation of such transaction its Guarantee
shall apply, as such Guarantee applied on the date it was granted under the
Indenture to the obligations of the Company under the Indenture and the Senior
Notes, to the obligations of the Company or such Person, as the case may be,
under the Indenture and the Senior Notes; and (vi) the Company has delivered to
the Trustee an Officers' Certificate and Opinion of Counsel, each stating that
such consolidation, merger or transfer complies with the Indenture, that the
surviving Person agrees to be bound thereby, and that all conditions precedent
in the Indenture relating to such transaction have been satisfied. For purposes
of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a
single transaction or series of transactions) of all or substantially all of the
properties and assets of one or more Subsidiaries of the Company,
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the Capital Stock of which constitutes all or substantially all of the
properties and assets of the Company, shall be deemed to be the transfer of all
or substantially all of the properties and assets of the Company.
The Indenture will provide that upon any consolidation, combination or
merger or any transfer of all or substantially all of the assets of the Company
in accordance with the foregoing, the surviving entity shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
the Indenture and the Senior Notes with the same effect as if such surviving
entity had been named as such; provided that solely for purposes of computing
amounts described in clause (iii) of the first paragraph of the covenant
"Limitation on Restricted Payments" above, any such surviving entity to the
Company shall only be deemed to have succeeded to and be substituted for the
Company with respect to periods subsequent to the effective time of such merger,
consolidation, combination or transfer of assets.
Each Subsidiary Guarantor (other than any Subsidiary Guarantor whose
Guarantee is to be released in accordance with the terms of its Guarantee and
the Indenture in connection with any transaction complying with the provisions
of "--Limitation on Asset Sales" or as otherwise provided in the Indenture) will
not, and the Company will not cause or permit any Subsidiary Guarantor to,
consolidate with or merge with or into any Person other than the Company or any
other Subsidiary Guarantor unless: (i) the entity formed by or surviving any
such consolidation or merger (if other than the Subsidiary Guarantor) or to
which such sale, lease, conveyance or other disposition shall have been made is
a corporation organized and existing under the laws of the United States or any
State thereof or the District of Columbia; (ii) such entity assumes by
supplemental indenture all of the obligations of the Subsidiary Guarantor on the
Guarantee; (iii) immediately after giving effect to such transaction, no Default
or Event of Default shall have occurred and be continuing; and (iv) immediately
after giving effect to such transaction and the use of any net proceeds
therefrom, on a pro forma basis, the Company could satisfy the provisions of
clause (ii) of the first paragraph of this covenant.
Limitation on Asset Sales. The Company will not, and will not permit
any of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company or the applicable Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value of the assets sold or otherwise disposed of (as determined in good faith
by the Company's Board of Directors), (ii) at least 75% of the consideration
received by the Company or the Restricted Subsidiary, as the case may be, from
such Asset Sale shall be cash or Cash Equivalents and is received at the time of
such disposition; and (iii) upon the consummation of an Asset Sale, the Company
shall apply, or cause such Restricted Subsidiary to apply, the Net Cash Proceeds
relating to such Asset Sale within 365 days of receipt thereof either (A) to
prepay any Senior Debt or Guarantor Senior Debt and, in the case of any Senior
Debt or Guarantor Senior Debt, as the case may be, under any revolving credit
facility, effect a permanent reduction in the availability under such revolving
credit facility, (B) to repurchase Old Debentures required to be repurchased
under the indenture governing the Old Debentures, (C) to reinvest in Productive
Assets or (D) a combination of prepayment, repurchase and investment permitted
by the foregoing clauses (iii)(A), (iii)(B) and (iii)(C). On the 366th day
after an Asset Sale or such earlier date, if any, as the Board of Directors of
the Company or of such Restricted Subsidiary determines not to apply the Net
Cash Proceeds relating to such Asset Sale as set forth in clauses (iii)(A),
(iii)(B), (iii)(C) or (iii)(D) of the next preceding sentence (each, a "Net
Proceeds Offer Trigger Date"), such aggregate amount of Net Cash Proceeds which
have not been applied on or before such Net Proceeds Offer Trigger Date as
permitted in clauses (iii)(A), (iii)(B), (iii)(C) and (iii)(D) of the next
preceding sentence (each a "Net Proceeds Offer Amount") shall be applied by the
Company or such Restricted Subsidiary to make an offer to purchase (the "Net
Proceeds Offer") on a date (the "Net Proceeds Offer Payment Date") not less than
30 nor more than 45 days following the applicable Net Proceeds Offer Trigger
Date, from all Holders on a pro rata basis that amount of Senior Notes equal to
the Net Proceeds Offer Amount at a price equal to 100% of the principal amount
of the Senior Notes to be purchased, plus accrued and unpaid interest thereon,
if any, to the date of purchase; provided, however, that if at any time any non-
cash consideration received by the Company or any Restricted Subsidiary of the
Company, as the case may be, in connection with any Asset Sale is converted into
or sold or otherwise disposed of for cash (other than interest received with
respect to any such non-cash consideration), then such conversion or disposition
shall be deemed to constitute an Asset Sale hereunder and the Net Cash Proceeds
thereof shall be applied in accordance with this covenant.
Notwithstanding the foregoing, if a Net Proceeds Offer Amount is less
than $10 million, the application of the Net Cash Proceeds constituting such Net
Proceeds Offer Amount to a Net Proceeds Offer may be deferred until such time as
such Net Proceeds Offer Amount plus the aggregate amount of all Net Proceeds
Offer Amounts arising subsequent to the Net Proceeds Offer Trigger Date relating
to such initial Net Proceeds Offer Amount from all Asset Sales by the Company
and its Restricted Subsidiaries aggregates at least $10 million, at which time
the Company or such
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Restricted Subsidiary shall apply all Net Cash Proceeds constituting all Net
Proceeds Offer Amounts that have been so deferred to make a Net Proceeds Offer
(the first date the aggregate of all such deferred Net Proceeds Offer Amounts is
equal to $10 million or more shall be deemed to be a "Net Proceeds Offer Trigger
Date").
Notwithstanding the two immediately preceding paragraphs, the Company
and its Restricted Subsidiaries will be permitted to consummate an Asset Sale
without complying with such paragraphs to the extent (i) at least 75% of the
consideration for such Asset Sale constitutes Productive Assets and (ii) such
Asset Sale is for fair market value (as determined in good faith by the
Company's Board of Directors); provided that any consideration not constituting
Productive Assets received by the Company or any of its Restricted Subsidiaries
in connection with any Asset Sale permitted to be consummated under this
paragraph shall constitute Net Cash Proceeds subject to the provisions of the
two preceding paragraphs.
Each Net Proceeds Offer will be mailed to the record Holders as shown
on the register of Holders within 25 days following the Net Proceeds Offer
Trigger Date, with a copy to the Trustee, and shall comply with the procedures
set forth in the Indenture. Upon receiving notice of the Net Proceeds Offer,
Holders may elect to tender their Senior Notes in whole or in part in integral
multiples of $1,000 in exchange for cash. To the extent Holders properly tender
Senior Notes in an amount exceeding the Net Proceeds Offer Amount, Senior Notes
of tendering Holders will be purchased on a pro rata basis (based on amounts
tendered). A Net Proceeds Offer shall remain open for a period of 20 business
days or such longer period as may be required by law.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Senior Notes pursuant to a Net Proceeds Offer. To the extent that
the provisions of any securities laws or regulations conflict with the "Asset
Sale" provisions of the Indenture, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the "Asset Sale" provisions of the Indenture by virtue
thereof.
Guarantees of Certain Indebtedness. The Company will not permit any
of its Restricted Subsidiaries, directly or indirectly, to incur, guarantee or
secure through the granting of Liens the payment of any Indebtedness under the
Bank Credit Agreement or any refunding or refinancing thereof, in each case
unless such Restricted Subsidiary, the Company and the Trustee execute and
deliver a supplemental indenture evidencing such Restricted Subsidiary's
Guarantee, such Guarantee to be a senior subordinated unsecured obligation of
such Restricted Subsidiary. Neither the Company nor any such Subsidiary
Guarantor shall be required to make a notation on the Senior Notes or the
Guarantees to reflect any such subsequent Guarantee. Nothing in this covenant
shall be construed to permit any Restricted Subsidiary of the Company to incur
Indebtedness otherwise prohibited by the "Limitation on Incurrence of Additional
Indebtedness" covenant. Thereafter, such Restricted Subsidiary shall be a
Subsidiary Guarantor for all purposes of the Indenture.
Conduct of Business. The Company and its Restricted Subsidiaries
will not engage in any businesses which are not the same, similar, related or
ancillary to the businesses in which the Company and its Restricted Subsidiaries
are engaged on the Issue Date.
Application of Proceeds of Initial Public Offering. The Company will
use 50% of the net cash proceeds from an Initial Public Offering to repay,
redeem, repurchase or otherwise retire up to $50 million of Indebtedness of the
Company (other than Indebtedness under a revolving credit facility unless there
is a permanent reduction in the availability under such revolving credit
facility) within 90 days of the consummation of an Initial Public Offering;
provided that (i) in the event that an Initial Public Offering is by APP or WR,
APP or WR, as the case may be, shall have contributed to the capital of the
Company the portion of the net cash proceeds of an Initial Public Offering
necessary to, and such net cash proceeds shall be used to, repay, redeem,
repurchase or otherwise retire such Indebtedness of the Company and (ii) the
foregoing shall not limit the Company's ability to repay, redeem, repurchase or
otherwise retire Indebtedness of the Company in excess of $50 million.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of
Default": (i) the failure to pay interest on any Senior Notes when the same
becomes due and payable and the default continues for a period of 30 days
(whether or not such payment shall be prohibited by the subordination provisions
of the Indenture); (ii) the failure to pay the principal on any Senior Notes,
when such principal becomes due and payable, at maturity, upon redemption or
otherwise
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(including the failure to make a payment to purchase Senior Notes
tendered pursuant to a Change of Control Offer or a Net Proceeds Offer) (whether
or not such payment shall be prohibited by the subordination provisions of the
Indenture); (iii) a default in the observance or performance of any other
covenant or agreement contained in the Indenture which default continues for a
period of 30 days after the Company receives written notice specifying the
default (and demanding that such default be remedied) from the Trustee or the
Holders of at least 25% of the outstanding principal amount of the Senior Notes;
(iv) the failure to pay at final maturity (giving effect to any extensions
thereof) the principal amount of any Indebtedness of the Company or any
Restricted Subsidiary (other than a Receivables Entity) of the Company and such
failure continues for a period of 20 days or more, or the acceleration of the
final stated maturity of any such Indebtedness (which acceleration is not
rescinded, annulled or otherwise cured within 20 days of receipt by the Company
or such Restricted Subsidiary of notice of any such acceleration) if the
aggregate principal amount of such Indebtedness, together with the principal
amount of any other such Indebtedness in default for failure to pay principal at
final maturity or which has been accelerated, in each case with respect to which
the 20-day period described above has passed, aggregates $10 million or more at
any time; (v) one or more judgments in an aggregate amount in excess of $10
million shall have been rendered against the Company or any of its Significant
Subsidiaries and such judgments remain undischarged, unpaid or unstayed for a
period of 60 days after such judgment or judgments become final and non-
appealable; (vi) certain events of bankruptcy affecting the Company or any of
its Significant Subsidiaries; and (vii) any of the Guarantees of the Subsidiary
Guarantors that are also Significant Subsidiaries of the Company ceases to be in
full force and effect or any of such Guarantees is declared to be null and void
and unenforceable or any of such Guarantees is found to be invalid or any of
such Subsidiary Guarantors denies its liability under its Guarantee (other than
by reason of release of such Subsidiary Guarantor in accordance with the terms
of the Indenture).
Upon the happening of any Event of Default specified in the Indenture,
the Trustee or the Holders of at least 25% in principal amount of outstanding
Senior Notes may declare the principal of and accrued interest on all the Senior
Notes to be due and payable by notice in writing to the Company and the Trustee
specifying the respective Event of Default and that it is a "notice of
acceleration" (the "Acceleration Notice"), and the same (i) shall become
immediately due and payable or (ii) if there are any amounts outstanding under
the Bank Credit Agreement, shall become immediately due and payable upon the
first to occur of an acceleration under the Bank Credit Agreement or 5 business
days after receipt by the Company and the Representative under the Bank Credit
Agreement of such Acceleration Notice but only if such Event of Default is then
continuing. If an Event of Default with respect to bankruptcy proceedings of the
Company occurs and is continuing, then such amount shall ipso facto become and
be immediately due and payable without any declaration or other act on the part
of the Trustee or any holder of Senior Notes.
The Indenture will provide that, at any time after a declaration of
acceleration with respect to the Senior Notes as described in the preceding
paragraph, the Holders of a majority in principal amount of the Senior Notes may
rescind and cancel such declaration and its consequences (i) if the rescission
would not conflict with any judgment or decree, (ii) if all existing Events of
Default have been cured or waived except nonpayment of principal or interest
that has become due solely because of the acceleration, (iii) to the extent the
payment of such interest is lawful, interest on overdue installments of interest
and overdue principal, which has become due otherwise than by such declaration
of acceleration, has been paid, (iv) if the Company has paid the Trustee its
reasonable compensation and reimbursed the Trustee for its expenses,
disbursements and advances and (v) in the event of the cure or waiver of an
Event of Default of the type described in clause (vi) or (vii) of the
description above of Events of Default, the Trustee shall have received an
Officers' Certificate and an Opinion of Counsel that such Event of Default has
been cured or waived. The holders of a majority in principal amount of the
Senior Notes may waive any existing Default or Event of Default under the
Indenture, and its consequences, except a default in the payment of the
principal of or interest on any Senior Notes.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations and the obligations of the Subsidiary Guarantors discharged with
respect to the outstanding Senior Notes ("Legal Defeasance"). Such Legal
Defeasance means that the Company shall be deemed to have paid and discharged
the entire indebtedness represented by the outstanding Senior Notes, except for
(i) the rights of holders of the Senior Notes to receive payments in respect of
the principal of, premium, if any, and interest on the Senior Notes when such
payments are due, (ii) the Company's obligations with respect to the Senior
Notes concerning issuing temporary Senior Notes, registration of Senior Notes,
mutilated, destroyed, lost or stolen Senior Notes and the maintenance of an
office or agency for payments, (iii) the rights, powers, trust, duties and
immunities of the Trustee and the Company's obligations in connection therewith
and (iv) the Legal Defeasance provisions of the Indenture. In addition, the
Company may, at its option and at any time, elect to have the obligations of the
Company released with respect to certain covenants that are described in the
Indenture ("Covenant
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Defeasance") and thereafter any omission to comply with such obligations shall
not constitute a Default or Event of Default with respect to the Senior Notes.
In the event Covenant Defeasance occurs, certain events (not including non-
payment, bankruptcy, receivership, reorganization and insolvency events)
described under "Events of Default" will no longer constitute an Event of
Default with respect to the Senior Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the holders of the Senior Notes cash in U.S. dollars, non-callable U.S.
government obligations, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest on the
Senior Notes on the stated date for payment thereof or on the applicable
redemption date, as the case may be; (ii) in the case of Legal Defeasance, the
Company shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such opinion of counsel shall confirm that, the holders of the Senior
Notes will not recognize income, gain or loss for federal income tax purposes as
a result of such Legal Defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have been
the case if such Legal Defeasance had not occurred; (iii) in the case of
Covenant Defeasance, the Company shall have delivered to the Trustee an opinion
of counsel in the United States reasonably acceptable to the Trustee confirming
that the holders of the Senior 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 times as would have been the case if such Covenant Defeasance had not
occurred; (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of Default
with respect to the Indenture resulting from the incurrence of Indebtedness, all
or a portion of which will be used to defease the Senior Notes concurrently with
such incurrence); (v) such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute a default under the Indenture
or any other material agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound; (vi) the Company shall have delivered to the Trustee an officers'
certificate stating that the deposit was not made by the Company with the intent
of preferring the holders of the Senior Notes over any other creditors of the
Company or with the intent of defeating, hindering, delaying or defrauding any
other creditors of the Company or others; (vii) the Company shall have delivered
to the Trustee an officers' certificate and an opinion of counsel, each stating
that all conditions precedent provided for or relating to the Legal Defeasance
or the Covenant Defeasance have been complied with; (viii) the Company shall
have delivered to the Trustee an opinion of counsel to the effect that (A) the
trust funds will not be subject to any rights of holders of Indebtedness of the
Company other than the Senior Notes and (B) assuming no intervening bankruptcy
of the Company between the date of deposit and the 91st day following the
deposit and that no Holder of the Senior Notes is an insider of the Company,
after the 91st day following the deposit, the trust funds will not be subject to
the effect of any applicable bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally; and (ix) certain other customary
conditions precedent are satisfied.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Senior Notes, as expressly provided for in the Indenture) as to all outstanding
Senior Notes when (i) either (a) all the Senior Notes theretofore authenticated
and delivered (except lost, stolen or destroyed Senior Notes which have been
replaced or paid and Senior Notes for whose payment money has theretofore been
deposited in trust or segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust) have been delivered to the
Trustee for cancellation or (b) all Senior Notes not theretofore delivered to
the Trustee for cancellation have become due and payable and the Company has
irrevocably deposited or caused to be deposited with the Trustee funds in an
amount sufficient to pay and discharge the entire Indebtedness on the Senior
Notes not theretofore delivered to the Trustee for cancellation, for principal
of, premium, if any, and interest on the Senior Notes to the date of deposit
together with irrevocable instructions from the Company directing the Trustee to
apply such funds to the payment thereof at maturity or redemption, as the case
may be; (ii) the Company has paid all other sums payable under the Indenture by
the Company; and (iii) the Company has delivered to the Trustee an officers'
certificate and an opinion of counsel stating that all conditions precedent
under the Indenture relating to the satisfaction and discharge of the Indenture
have been complied with.
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MODIFICATION OF THE INDENTURE
From time to time, the Company, the Subsidiary Guarantors and the Trustee,
without the consent of the Holders of the Senior Notes, may amend the Indenture
for certain specified purposes, including curing ambiguities, defects or
inconsistencies, so long as such change does not, in the opinion of the Trustee,
adversely affect the rights of any of the Holders in any material respect. In
formulating its opinion on such matters, the Trustee will be entitled to rely on
such evidence as it deems appropriate, including, without limitation, solely on
an Opinion of Counsel. Other modifications and amendments of the Indenture may
be made with the consent of the Holders of a majority in principal amount of the
then outstanding Senior Notes issued under the Indenture, except that, without
the consent of each holder of the Senior Notes affected thereby, no amendment
may: (i) reduce the amount of Senior Notes whose holders must consent to an
amendment; (ii) reduce the rate of or change or have the effect of changing the
time for payment of interest, including defaulted interest, on any Senior Notes;
(iii) reduce the principal of or change or have the effect of changing the fixed
maturity of any Senior Notes, or change the date on which any Senior Notes may
be subject to redemption or repurchase, or reduce the redemption or repurchase
price therefor; (iv) make any Senior Notes payable in money other than that
stated in the Senior Notes; (v) make any change in provisions of the Indenture
protecting the right of each holder of a Senior Note to receive payment of
principal of and interest on such Senior Note on or after the due date thereof
or to bring suit to enforce such payment, or permitting holders of a majority in
principal amount of Senior Notes to waive Defaults or Events of Default (other
than Defaults or Events of Default with respect to the payment of principal of
or interest on the Senior Notes); (vi) amend, change or modify in any material
respect the obligation of the Company to make and consummate a Change of Control
Offer in the event of a Change of Control or make and consummate a Net Proceeds
Offer with respect to any Asset Sale that has been consummated or modify any of
the provisions or definitions with respect thereto; (vii) modify the
subordination provisions of the Indenture to adversely affect the holders of
Senior Notes in any material respect; or (viii) release any Subsidiary Guarantor
that is a Significant Subsidiary of the Company from any of its obligations
under its Guarantee or the Indenture otherwise than in accordance with the terms
of the Indenture.
ADDITIONAL INFORMATION
The Indenture provides that the Company will deliver to the Trustee within 15
days after the filing of the same with the Commission, copies of the quarterly
and annual reports and of the information, documents and other reports, if any,
which the Company is required to file with the Commission pursuant to Section 13
or 15(d) of the Exchange Act. The Indenture further provides that,
notwithstanding that the Company may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Company will file
with the Commission, to the extent permitted, and provide the Trustee and
Holders with such annual reports and such information, documents and other
reports specified in Sections 13 and 15(d) of the Exchange Act. The Company and
the Subsidiary Guarantors will also comply with the other provisions of TIA
(S) 314(a).
CERTAIN DEFINITIONS
Set forth below is a summary of the material defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of
the Company or assumed in connection with the acquisition of assets from such
Person and not incurred by such Person in connection with, or in anticipation or
contemplation of, such Person becoming a Restricted Subsidiary of the Company or
such acquisition.
"Affiliate" means a Person who directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under common control with,
the Company. The term "control" means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise. Notwithstanding the foregoing, no Person (other than the Company or
any Subsidiary of the Company) in whom a Receivables Entity makes an Investment
in connection with a Qualified Receivables Transaction shall be deemed to be an
Affiliate of the Company or any of its Subsidiaries solely by reason of such
Investment.
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"all or substantially all" shall have the meaning given such phrase in the
Revised Model Business Corporation Act.
"Asset Acquisition" means (a) an Investment by the Company or any Restricted
Subsidiary of the Company in any other Person pursuant to which such Person
shall become a Restricted Subsidiary of the Company or any Restricted Subsidiary
of the Company, or shall be merged with or into the Company or any Restricted
Subsidiary of the Company, or (b) the acquisition by the Company or any
Restricted Subsidiary of the Company of the assets of any Person which
constitute all or substantially all of the assets of such Person, any division
or line of business of such Person or any other properties or assets of such
Person other than in the ordinary course of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other transfer for value by the Company or any of
its Restricted Subsidiaries (including any Sale and Leaseback Transaction) to
any Person other than the Company or a Wholly Owned Restricted Subsidiary of the
Company of (a) any Capital Stock of any Restricted Subsidiary of the Company; or
(b) any other property or assets of the Company or any Restricted Subsidiary of
the Company other than in the ordinary course of business; provided, however,
that Asset Sales shall not include (i) a transaction or series of related
transactions for which the Company or its Restricted Subsidiaries receive
aggregate consideration of less than $500,000, (ii) the sale, lease, conveyance,
disposition or other transfer of all or substantially all of the assets of the
Company as permitted under "Merger, Consolidation and Sale of Assets," (iii) the
sale or discount, in each case without recourse, of accounts receivable arising
in the ordinary course of business, but only in connection with the compromise
or collection thereof, (iv) the factoring of accounts receivable arising in the
ordinary course of business pursuant to arrangements customary in the region,
(v) the licensing of intellectual property, (vi) disposals or replacements of
obsolete equipment in the ordinary course of business, (vii) the sale, lease,
conveyance, disposition or other transfer by the Company or any Restricted
Subsidiary of assets or property to one or more Wholly Owned Restricted
Subsidiaries in connection with Investments permitted under the "Limitations on
Restricted Payments" covenant, (viii) sales of accounts receivable and related
assets of the type specified in the definition of "Qualified Receivables
Transaction" to a Receivables Entity for the fair market value thereof,
including cash in an amount at least equal to 75% of the book value thereof as
determined in accordance with GAAP, and (ix) transfers of accounts receivable
and related assets of the type specified in the definition of "Qualified
Receivables Transaction" (or a fractional undivided interest therein) by a
Receivables Entity in a Qualified Receivables Transaction. For the purposes of
clause (viii), Purchase Money Notes shall be deemed to be cash.
"Bain Related Party" means Bain Capital, Inc. and any Affiliate of Bain
Capital, Inc.
"Bank Credit Agreement" means the Credit Agreement dated as of October 31,
1995, among the Company, APP, WR, the lenders party thereto in their capacities
as lenders thereunder and Bankers Trust Company, as agent, together with the
related documents thereto (including, without limitation, any guarantee
agreements and security documents), in each case as such agreements may be
amended (including any amendment and restatement thereof), supplemented or
otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including,
without limitation, increasing the amount of available borrowings thereunder or
adding Subsidiaries of the Company as additional borrowers or guarantors
thereunder) all or any portion of the Indebtedness under such agreement or any
successor or replacement agreement and whether by the same or any other agent,
lender or group of lenders.
"Board of Directors" means, as to any Person, the board of directors of such
Person or any duly authorized committee thereof.
"Capitalized Lease Obligation" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"Capital Stock" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participation or other equivalents (however
designated) of corporate stock, including each class of common stock and
preferred stock of such Person and (ii) with respect to any Person that is not a
corporation, any and all partnership or other equity interests of such Person.
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"Cash Equivalents" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either S&P or Moody's; (iii) commercial paper maturing no more
than one year from the date of creation thereof and, at the time of acquisition,
having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv)
certificates of deposit or bankers' acceptances (or, with respect to foreign
banks, similar instruments) maturing within one year from the date of
acquisition thereof issued by any bank organized under the laws of the United
States of America or any state thereof or the District of Columbia or any U.S.
branch of a foreign bank having at the date of acquisition thereof combined
capital and surplus of not less than $200 million; provided that instruments
issued by banks not having one of the two highest ratings obtainable from either
S&P or Moody's shall not constitute "Cash Equivalents" for purposes of the
subordination provisions of the Indenture; (v) repurchase obligations with a
term of not more than seven days for underlying securities of the types
described in clause (i) above entered into with any bank meeting the
qualifications specified in clause (iv) above; and (vi) investments in money
market funds which invest substantially all their assets in securities of the
types described in clauses (i) through (v) above.
"Change of Control" means the occurrence of one or more of the following
events: (i) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets of the
Company, APP or WR to any Person or group of related Persons (other than Bain
Capital and Bain Related Parties) for purposes of Section 13(d) of the Exchange
Act (a "Group"), together with any Affiliates thereof (whether or not otherwise
in compliance with the provisions of the Indenture); (ii) the approval by the
holders of Capital Stock of the Company of any plan or proposal for the
liquidation or dissolution of the Company (whether or not otherwise in
compliance with the provisions of the Indenture); (iii) any Person or Group
(other than Bain Capital and Bain Related Parties) shall become the owner,
directly or indirectly, beneficially or of record, of shares representing more
than 50% of the aggregate ordinary voting power represented by the issued and
outstanding Capital Stock of the Company, APP or WR; or (iv) the replacement of
a majority of the Board of Directors of the Company, APP or WR over a two-year
period from the directors who constituted such Board of Directors at the
beginning of such period, and such replacement shall not have been approved by a
vote of at least a majority of such Board of Directors then still in office who
either were members of such Board of Directors at the beginning of such period
or whose election as a member of such Board of Directors was previously so
approved.
"Consolidated EBITDA" means, with respect to any Person, for any period, the
sum (without duplication) of (i) Consolidated Net Income and (ii) to the extent
Consolidated Net Income has been reduced thereby, (A) all income taxes of such
Person and its Restricted Subsidiaries paid or accrued in accordance with GAAP
for such period, (B) Consolidated Interest Expense and (C) Consolidated Non-cash
Charges.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any Person,
the ratio of Consolidated EBITDA of such Person during the four full fiscal
quarters (the "Four Quarter Period") ending on or prior to the date of the
transaction giving rise to the need to calculate the Consolidated Fixed Charge
Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of such
Person for the Four Quarter Period. In addition to and without limitation of the
foregoing, for purposes of this definition, "Consolidated EBITDA" and
"Consolidated Fixed Charges" shall be calculated after giving effect on a pro
forma basis for the period of such calculation to (i) the incurrence or
repayment of any Indebtedness of such Person or any of its Restricted
Subsidiaries (and the application of the proceeds thereof) giving rise to the
need to make such calculation and any incurrence or repayment of other
Indebtedness (and the application of the proceeds thereof) occurring during the
Four Quarter Period or at any time subsequent to the last day of the Four
Quarter Period and on or prior to the Transaction Date, as if such incurrence or
repayment, as the case may be (and the application of the proceeds thereof),
occurred on the first day of the Four Quarter Period and (ii) any Asset Sales or
Asset Acquisitions (including, without limitation, any Asset Acquisition giving
rise to the need to make such calculation as a result of such Person or one of
its Restricted Subsidiaries (including any Person who becomes a Restricted
Subsidiary as a result of the Asset Acquisition) incurring, assuming or
otherwise being liable for Acquired Indebtedness and also including any
Consolidated EBITDA (including any pro forma expense and cost reductions
calculated on a basis consistent with Regulation S-X under the Securities Act)
attributable to the assets which are the subject of the Asset Acquisition or
Asset Sale during the Four Quarter Period) occurring during the Four Quarter
Period or at any time subsequent to the last day of the Four Quarter Period and
on or prior to the Transaction Date, as if such Asset Sale or Asset Acquisition
(including the incurrence, assumption or liability for any such Indebtedness or
Acquired Indebtedness) occurred on the first day of the Four Quarter Period. If
such Person or any of its Restricted Subsidiaries
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directly or indirectly guarantees Indebtedness of a third Person, the preceding
sentence shall give effect to the incurrence of such guaranteed Indebtedness as
if such Person or any Restricted Subsidiary of such Person had directly incurred
or otherwise assumed such guaranteed Indebtedness. Furthermore, in calculating
"Consolidated Fixed Charges" for purposes of determining the denominator (but
not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1)
interest on outstanding Indebtedness determined on a fluctuating basis as of the
Transaction Date and which will continue to be so determined thereafter shall be
deemed to have accrued at a fixed rate per annum equal to the rate of interest
on such Indebtedness in effect on the Transaction Date; (2) if interest on any
Indebtedness actually incurred on the Transaction Date may optionally be
determined at an interest rate based upon a factor of a prime or similar rate, a
eurocurrency interbank offered rate, or other rates, then the interest rate in
effect on the Transaction Date will be deemed to have been in effect during the
Four Quarter Period; and (3) notwithstanding clause (1) above, interest on
Indebtedness determined on a fluctuating basis, to the extent such interest is
covered by agreements relating to Interest Swap Obligations, shall be deemed to
accrue at the rate per annum resulting after giving effect to the operation of
such agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any period,
the sum, without duplication, of (i) Consolidated Interest Expense (before
amortization or write-off of debt issuance costs), plus (ii) the product of (x)
the amount of all dividend payments on any series of Preferred Stock of such
Person (other than dividends paid in Qualified Capital Stock) times (y) a
fraction, the numerator of which is one and the denominator of which is one
minus the then current effective consolidated Federal, state and local tax rate
of such Person expressed as a decimal.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum of, without duplication, (i) the aggregate of all cash and non-
cash interest expense with respect to all outstanding Indebtedness of such
Person and its Restricted Subsidiaries, including the net costs associated with
Interest Swap Obligations, for such period determined on a consolidated basis in
conformity with GAAP, and (ii) the interest component of Capitalized Lease
Obligations paid, accrued and/or scheduled to be paid or accrued by such Person
and its Restricted Subsidiaries during such period as determined on a
consolidated basis in accordance with GAAP.
"Consolidated Net Income" of the Company means, for any period, the aggregate
net income (or loss) of the Company and its Subsidiaries for such period on a
consolidated basis, determined in accordance with GAAP; provided that there
shall be excluded therefrom (a) gains and losses from Asset Sales (without
regard to the $500,000 limitation set forth in the definition thereof) or
abandonments or reserves relating thereto and the related tax effects according
to GAAP, (b) gains and losses due solely to fluctuations in currency values and
the related tax effects according to GAAP, (c) items classified as
extraordinary, unusual or nonrecurring gains and losses, and the related tax
effects according to GAAP, including, without limitation, any compensation
expense incurred in connection with the Transactions, (d) the net income (or
loss) of any Person acquired in a pooling of interests transaction accrued prior
to the date it becomes a Subsidiary of the Company or is merged or consolidated
with the Company or any Subsidiary, (e) the net income of any Subsidiary to the
extent that the declaration of dividends or similar distributions by that
Subsidiary of that income is restricted by contract, operation of law or
otherwise, (f) the net loss of any Person, other than a Restricted Subsidiary of
the Company and (g) the net income of any Person, other than a Restricted
Subsidiary, except to the extent of cash dividends or distributions paid to the
Company or a Restricted Subsidiary of the Company by such Person.
"Consolidated Net Worth" means, with respect to any Person for any date of
determination, the sum of (i) stated capital with respect to Capital Stock of
such Person and additional paid-in-capital, and (ii) retained earnings (or minus
accumulated deficit) of such Person and its Subsidiaries (or, in the case of the
Company, the Restricted Subsidiaries), less, to the extent included in the
foregoing, amounts attributable to Disqualified Capital Stock, each item
determined on a consolidated basis in accordance with GAAP.
"Consolidated Non-cash Charges" means, with respect to any Person for any
period, the aggregate depreciation, amortization and other non-cash expenses
(including any last-in, first-out (LIFO) provisions) of such Person and its
Restricted Subsidiaries reducing Consolidated Net Income of such Person and its
Restricted Subsidiaries for such period, determined on a consolidated basis in
accordance with GAAP (excluding any such charges constituting an extraordinary
item or loss or any such charge which requires an accrual of or a reserve for
cash charges for any future period).
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary against fluctuations in currency values.
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"Default" means an event or condition the occurrence of which is, or
with the lapse of time or the giving of notice or both would be, an Event of
Default.
"Designated Senior Debt" means (i) Indebtedness under or in respect of
the Bank Credit Agreement and (ii) any other Indebtedness constituting Senior
Debt which, at the time of determination, has an aggregate principal amount of
at least $25 million and is specifically designated in the instrument evidencing
such Senior Debt as "Designated Senior Debt" by the Company.
"Disqualified Capital Stock" means that portion of any Capital Stock which, by
its terms (or by the terms of any security into which it is convertible or for
which it is exchangeable), or upon the happening of any event (other than an
event which would constitute a Change of Control), matures (excluding any
maturity as the result of an optional redemption by the issuer thereof) or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the sole option of the holder thereof (except, in each case,
upon the occurrence of a Change of Control) on or prior to the final maturity
date of the Senior Notes.
"fair market value" means, unless otherwise specified, with respect to
any asset or property, the price which could be negotiated in an arm's-length,
free market transaction, for cash, between a willing seller and a willing and
able buyer, neither of whom is under undue pressure or compulsion to complete
the transaction. Fair market value shall be determined by the Board of Directors
of the Company acting reasonably and in good faith and shall be evidenced by a
resolution of the Board of Directors of the Company delivered to the Trustee.
"GAAP" is defined to mean generally accepted accounting principles in
the United States of America as in effect as of the date of the Indenture,
including, without limitation, those 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
approved by a significant segment of the accounting profession. All ratios and
computations based on GAAP contained in the Indenture shall be computed in
conformity with GAAP applied on a consistent basis, except that calculations
made for purposes of determining compliance with the terms of the covenants and
with other provisions of the Indenture shall be made without giving effect to
(i) the deduction or amortization of any premiums, fees, and expenses incurred
in connection with the Transactions and (ii) except as otherwise provided, the
amortization of any amounts required or permitted by Accounting Principles Board
Opinion Nos. 16 (including non-cash write-ups and non-cash charges relating to
inventory, fixed assets and in-process research and development, in each case
arising in connection with the Acquisition) and 17 (including non-cash charges
relating to intangibles and goodwill arising in connection with the
Acquisition).
"Guarantor Senior Debt" means, with respect to any Subsidiary Guarantor, the
principal of, premium, if any, and interest (including any interest accruing
subsequent to the filing of a petition of bankruptcy at the rate provided for in
the documentation with respect thereto, whether or not such interest is an
allowed claim under applicable law) on any Indebtedness of such Subsidiary
Guarantor, whether outstanding on the Issue Date or thereafter created, incurred
or assumed, unless, in the case of any particular Indebtedness, the instrument
creating or evidencing the same or pursuant to which the same is outstanding
expressly provides that such Indebtedness shall not be senior in right of
payment to the Guarantee of such Subsidiary Guarantor. Without limiting the
generality of the foregoing, "Guarantor Senior Debt" shall also include the
principal of, premium, if any, interest (including any interest accruing
subsequent to the filing of a petition of bankruptcy at the rate provided for in
the documentation with respect thereto, whether or not such interest is an
allowed claim under applicable law) on, and all other amounts owing in respect
of, (x) all monetary obligations (including guarantees thereof) of every nature
of such Subsidiary Guarantor under the Bank Credit Agreement, including, without
limitation, obligations to pay principal and interest, reimbursement obligations
under letters of credit, fees, expenses and indemnities, (y) all Interest Swap
Obligations (including guarantees thereof) and (z) all obligations (including
guarantees thereof) under Currency Agreements, in each case whether outstanding
on the Issue Date or thereafter incurred. Notwithstanding the foregoing,
"Guarantor Senior Debt" shall not include (i) any Indebtedness, if the
instrument creating or evidencing the same or the assumption or guarantee
thereof expressly provides that such Indebtedness shall not be senior in right
of payment to the Guarantee of such Subsidiary Guarantor, (ii) any Indebtedness
of such Subsidiary Guarantor to a Subsidiary of such Subsidiary Guarantor or to
a Subsidiary of the Company, (iii) Indebtedness to, or guaranteed on behalf of,
any shareholder, director, officer or employee of such Subsidiary Guarantor or
any Subsidiary of such Subsidiary Guarantor (including, without limitation,
amounts owed for compensation), (iv) Indebtedness to trade creditors and other
amounts incurred in connection with obtaining goods, materials or services, (v)
Indebtedness represented by Disqualified Capital Stock, (vi) any liability for
federal, state, local or other taxes owed
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or owing by such Subsidiary Guarantor, (vii) that portion of any Indebtedness
incurred in violation of the Indenture provisions set forth under "Limitation on
Incurrence of Additional Indebtedness" (but, as to any such obligation, no such
violation shall be deemed to exist for purposes of this clause (vii) if the
holder(s) of such obligation or their representative and the Trustee shall have
received an Officers' Certificate of the Company to the effect that the
incurrence of such Indebtedness does not (or, in the case of revolving credit
Indebtedness, that the incurrence of the entire committed amount thereof at the
date on which the initial borrowing thereunder is made) would not violate such
provisions of the Indenture) and (viii) any Indebtedness which is, by its
express terms, subordinated in right of payment to any other Indebtedness of
such Subsidiary Guarantor.
"Indebtedness" means with respect to any Person, without duplication,
(i) all obligations of such Person for borrowed money, (ii) all obligations of
such Person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all Capitalized Lease Obligations of such Person, (iv) all obligations of
such Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations and all obligations under any title retention
agreement (but excluding trade accounts payable arising in the ordinary course
of business), (v) all obligations for the reimbursement of any obligor on any
letter of credit, banker's acceptance or similar credit transaction, (vi)
guarantees and other contingent obligations in respect of Indebtedness referred
to in clauses (i) through (v) above and clause (viii) below, (vii) all
obligations of any other Person of the type referred to in clauses (i) through
(vi) which are secured by any lien on any property or asset of such Person, the
amount of such obligation being deemed to be the lesser of the fair market value
of such property or asset or the amount of the obligation so secured, (viii) all
obligations under currency swap agreements and interest swap agreements of such
Person and (ix) all Disqualified Capital Stock issued by such Person with the
amount of Indebtedness represented by such Disqualified Capital Stock being
equal to the greater of its voluntary or involuntary liquidation preference and
its maximum fixed repurchase price, but excluding accrued dividends, if any. For
purposes hereof, (x) the "maximum fixed repurchase price" of any Disqualified
Capital Stock which does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Disqualified Capital Stock as if such
Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, and if such price
is based upon, or measured by, the fair market value of such Disqualified
Capital Stock, such fair market value shall be determined reasonably and in good
faith by the Board of Directors of the issuer of such Disqualified Capital Stock
and (y) any transfer of accounts receivable or other assets which constitute a
sale for purposes of GAAP shall not constitute Indebtedness hereunder.
"Initial Public Offering" means the first underwritten public offering
of Qualified Capital Stock by any of APP, WR or the Company pursuant to a
registration statement filed with the Commission in accordance with the
Securities Act.
"Interest Swap Obligations" means the obligations of any Person, pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated by
applying a fixed or a floating rate of interest on the same notional amount.
"Investment" means, with respect to any Person, any direct or indirect
loan or other extension of credit (including, without limitation, a guarantee)
or capital contribution to (by means of any transfer of cash or other property
to others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness issued
by, any Person. "Investment" shall exclude extensions of trade credit by the
Company and its Subsidiaries on commercially reasonable terms in accordance with
normal trade practices of the Company or such Subsidiary, as the case may be.
For the purposes of the "Limitation on Restricted Payments" covenant, (i)
"Investment" shall include and be valued at the fair market value of the net
assets of any Restricted Subsidiary at the time that such Restricted Subsidiary
is designated an Unrestricted Subsidiary and shall exclude the fair market value
of the net assets of any Unrestricted Subsidiary at the time that such
Unrestricted Subsidiary is designated a Restricted Subsidiary and (ii) the
amount of any Investment shall be the original cost of such Investment plus the
cost of all additional Investments by the Company or any of its Restricted
Subsidiaries, without any adjustments for increases or decreases in value, or
write-ups, write-downs or write-offs with respect to such Investment, reduced by
the payment of dividends or distributions (including tax sharing payments) in
connection with such Investment or any other amounts received in respect of such
Investment; provided that no such payment of dividends or distributions or
receipt of any such other amounts shall reduce the amount of any Investment if
such payment of dividends or distributions or receipt of any such amounts would
be included in Consolidated Net Income.
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"Issue Date" means the date of original issuance of the Notes.
"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or charge
other title retention agreement, any lease in the nature thereof and any
agreement to give any security interest).
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in the
form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents (other
than the portion of any such deferred payment constituting interest) received by
the Company or any of its Subsidiaries from such Asset Sale net of (a) out-of-
pocket expenses and fees relating to such Asset Sale (including, without
limitation, legal, accounting and investment banking fees and sales
commissions), (b) taxes paid or payable after taking into account any reduction
in consolidated tax liability due to available tax credits or deductions and any
tax sharing arrangements, (c) repayment of Indebtedness that is required to be
repaid in connection with such Asset Sale, (d) any portion of cash proceeds
which the Company determines in good faith should be reserved for post-closing
adjustments, it being understood and agreed that on the day that all such post-
closing adjustments have been determined, the amount (if any) by which the
reserved amount in respect of such Asset Sale exceeds the actual post-closing
adjustments payable by the Company or any of its Subsidiaries shall constitute
Net Cash Proceeds on such date.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness, without duplication.
"Permitted Indebtedness" means, without duplication (i) the Senior
Notes and the Guarantees, (ii) Indebtedness incurred pursuant to the Bank Credit
Agreement in an aggregate principal amount at any time outstanding not to exceed
$305 million (A) less the amount of all mandatory principal payments actually
made by the Company in respect of term loans thereunder (excluding any such
payments to the extent refinanced at the time of payment under a replaced Bank
Credit Agreement) and (B) reduced by any required permanent repayments (which
are accompanied by a corresponding permanent commitment reduction) thereunder,
(iii) other Indebtedness of the Company and its Subsidiaries outstanding on the
Issue Date reduced by the amount of any scheduled amortization payments or
mandatory prepayments when actually paid or permanent reductions thereon, (iv)
Interest Swap Obligations of the Company or any of its Subsidiaries covering
Indebtedness of the Company or any of its Subsidiaries; provided that any
Indebtedness to which any such Interest Swap Obligations correspond is otherwise
permitted to be incurred under the Indenture; provided, further, that such
Interest Swap Obligations are entered into, in the judgment of the Company, to
protect the Company from fluctuation in interest rates on their respective
outstanding Indebtedness, (v) Indebtedness under Currency Agreements, (vi)
intercompany Indebtedness owed by the Company to any Wholly Owned Restricted
Subsidiary of the Company or by any Restricted Subsidiary of the Company to the
Company or any Wholly Owned Restricted Subsidiary of the Company, (vii) Acquired
Indebtedness to the extent the Company could have incurred such Indebtedness in
accordance with the "Limitation on Incurrence of Additional Indebtedness"
covenant on the date such Indebtedness became Acquired Indebtedness, (viii)
guarantees by the Company and its Wholly Owned Restricted Subsidiaries of each
other's Indebtedness; provided that such Indebtedness is permitted to be
incurred under the Indenture; (ix) any refinancing, modification, replacement,
renewal, restatement, refunding, deferral, extension, substitution, supplement,
reissuance or resale of existing or future Indebtedness, including any
additional Indebtedness incurred to pay interest or premiums required by the
instruments governing such existing or future Indebtedness as in effect at the
time of issuance thereof ("Required Premiums") and fees in connection therewith;
provided that any such event shall not (1) result in an increase in the
aggregate principal amount of Permitted Indebtedness (except to the extent such
increase is a result of a simultaneous incurrence of additional Indebtedness (A)
to pay Required Premiums and related fees or (B) otherwise permitted to be
incurred under the Indenture) of the Company and its Subsidiaries and (2) create
Indebtedness with a Weighted Average Life to Maturity at the time such
Indebtedness is incurred that is less than the Weighted Average Life to Maturity
at such time of the Indebtedness being refinanced, modified, replaced, renewed,
restated, refunded, deferred, extended, substituted, supplemented, reissued or
resold (except that this subclause (2) will not apply in the event the
Indebtedness being refinanced, modified, replaced, renewed, restated, refunded,
deferred, extended, substituted, supplemented, reissued or resold was originally
incurred in reliance upon clauses (vii) or (xi) of this definition), (x) the
incurrence by a Receivables Entity of Indebtedness in a Qualified Receivables
Transaction that is not recourse to the Company or any Subsidiary of the Company
(except for Standard Securitization Undertakings), and (xi) additional
Indebtedness of the Company and its Restricted Subsidiaries in an aggregate
principal amount not to exceed $26 million
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at any one time outstanding (which amount may, but need not, be incurred in
whole or in part under the Bank Credit Agreement); provided that such amount
shall increase to $40 million in the event that the Company uses the proceeds
from an Initial Public Offering to repay, redeem, repurchase or otherwise retire
at least $50 million of Indebtedness of the Company (other than Indebtedness
under a revolving credit facility unless there is a permanent reduction in the
availability under such revolving credit facility).
"Permitted Investments" means (i) Investments by the Company or any
Restricted Subsidiary of the Company in any Wholly Owned Restricted Subsidiary
of the Company (whether existing on the Issue Date or created thereafter) and
Investments in the Company by any Restricted Subsidiary of the Company; (ii)
cash and Cash Equivalents; (iii) Investments existing on the Issue Date; (iv)
loans and advances to employees and officers of the Company and its Restricted
Subsidiaries not in excess of $5 million at any one time outstanding; (v)
accounts receivable created or acquired in the ordinary course of business; (vi)
Currency Agreements and Interest Swap Obligation entered into in the ordinary
course of the Company's or its Restricted Subsidiaries' businesses and otherwise
in compliance with the Indenture; (vii) Investments in securities of trade
creditors or customers received pursuant to any plan of reorganization or
similar arrangement upon the bankruptcy or insolvency of such trade creditors or
customers; (viii) guarantees by the Company or any of its Restricted
Subsidiaries of Indebtedness otherwise permitted to be incurred by the Company
or any of its Restricted Subsidiaries under the Indenture; (ix) additional
Investments in Persons not to exceed $12.5 million at any one time outstanding;
(x) any Investment by the Company or a Wholly Owned Subsidiary of the Company in
a Receivables Entity or any Investment by a Receivables Entity in any other
Person in connection with a Qualified Receivables Transaction; provided that any
Investment in a Receivables Entity is in the form of a Purchase Money Note or an
equity interest; and (xi) Investments received by the Company or its Restricted
Subsidiaries as consideration for asset sales, including Asset Sales; provided
in the case of an Asset Sale, such Asset Sale is effected in compliance with the
"Limitation on Asset Sales" covenant.
"Permitted Liens" means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or claims
either (a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or its Restricted Subsidiaries shall
have set aside on its books such reserves as may be required pursuant to GAAP;
(ii) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or being
contested in good faith, if such reserve or other appropriate provision, if any,
as shall be required by GAAP shall have been made in respect thereof;
(iii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance and
other types of social security, including any Lien securing letters of credit
issued in the ordinary course of business consistent with past practice in
connection therewith, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar obligations (exclusive
of obligations for the payment of borrowed money);
(iv) judgment Liens not giving rise to an Event of Default;
(v) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company or any
of its Restricted Subsidiaries;
(vi) any interest or title of a lessor under any Capitalized Lease
Obligation;
(vii) purchase money Liens to finance property or assets of the
Company or any Restricted Subsidiary of the Company acquired in the ordinary
course of business; provided, however, that (A) the related purchase money
Indebtedness shall not exceed the cost of such property or assets and shall not
be secured by any property or assets of the Company or any Restricted Subsidiary
of the Company other than the property and assets so acquired and (B) the Lien
securing such Indebtedness shall be created within 90 days of such acquisition;
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(viii) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to facilitate the
purchase, shipment, or storage of such inventory or other goods;
(ix) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof;
(x) Liens encumbering deposits made to secure obligations arising
from statutory, regulatory, contractual, or warranty requirements of the Company
or any of its Restricted Subsidiaries, including rights of offset and set-off;
(xi) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
Indenture;
(xii) Liens securing Indebtedness under Currency Agreements;
(xiii) Liens securing Acquired Indebtedness incurred in reliance on
clause (vii) of the definition of Permitted Indebtedness;
(xiv) Liens on assets transferred to a Receivables Entity or on
assets of a Receivables Entity, in either case incurred in connection with a
Qualified Receivables Transaction;
(xv) Leases or subleases granted to others that do not materially
interfere with the ordinary course of business of the Company and its Restricted
Subsidiaries;
(xvi) Liens arising from filing Uniform Commercial Code financing
statements regarding leases;
(xvii) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of custom duties in connection with the
importation of goods; and
(xviii) Liens existing on the Issue Date, together with any Liens
securing Indebtedness incurred in reliance on clause (ix) of the definition of
Permitted Indebtedness in order to refinance the Indebtedness secured by Liens
existing on the Issue Date; provided that the Liens securing the refinancing
Indebtedness shall not extend to property other than that pledged under the
Liens securing the Indebtedness being refinanced.
"Person" means an individual, partnership, corporation, unincorporated
organization, trust or joint venture, or a governmental agency or political
subdivision thereof.
"Preferred Stock" of any Person means any Capital Stock of such Person
that has preferential rights to any other Capital Stock of such Person with
respect to dividends or redemptions or upon liquidation.
"Productive Assets" means assets (including Capital Stock) of a kind
used or usable in the businesses of the Company and its Restricted Subsidiaries
as, or related to such business, conducted on the date of the relevant Asset
Sale.
"Purchase Money Note" means a promissory note of a Receivables Entity
evidencing a line of credit, which may be irrevocable, from the Company or any
Subsidiary of the Company in connection with a Qualified Receivables Transaction
to a Receivables Entity, which note shall be repaid from cash available to the
Receivables Entity, other than amounts required to be established as reserves
pursuant to agreements, amounts paid to investors in respect of interest,
principal and other amounts owing to such investors and amounts paid in
connection with the purchase of newly generated receivables.
"Qualified Capital Stock" means any stock that is not Disqualified Capital
Stock.
"Qualified Receivables Transaction" means any transaction or series of
transactions that may be entered into by the Company or any of its Subsidiaries
pursuant to which the Company or any or its Subsidiaries may sell, convey or
otherwise transfer to (a) a Receivables Entity (in the case of a transfer by the
Company or any of its Subsidiaries) and (b) any other Person (in the case of a
transfer by a Receivables Entity), or may grant a security interest in, any
accounts receivable (whether now existing or arising in the future) of the
Company or any of its Subsidiaries, and any assets
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related thereto including, without limitation, all collateral securing such
accounts receivable, all contracts and all guarantees or other obligations in
respect of such accounts receivable, proceeds of such accounts receivable and
other assets which are customarily transferred or in respect of which security
interests are customarily granted in connection with asset securitization
transactions involving accounts receivable.
"Receivables Entity" means a Wholly Owned Subsidiary of the Company
(or another Person in which the Company or any Subsidiary of the Company makes
an Investment and to which the Company or any Subsidiary of the Company
transfers accounts receivable and related assets) which engages in no activities
other than in connection with the financing of accounts receivable and which is
designated by the Board of Directors of the Company (as provided below) as a
Receivables Entity (a) no portion of the Indebtedness or any other Obligations
(contingent or otherwise) of which (i) is guaranteed by the Company or any
Subsidiary of the Company (excluding guarantees of Obligations (other than the
principal of, and interest on, Indebtedness)) pursuant to Standard
Securitization Undertakings, (ii) is recourse to or obligates the Company or any
Subsidiary of the Company in any way other than pursuant to Standard
Securitization Undertakings or (iii) subjects any property or asset of the
Company or any Subsidiary of the Company, directly or indirectly, contingently
or otherwise, to the satisfaction thereof, other than pursuant to Standard
Securitization Undertakings, (b) with which neither the Company nor any
Subsidiary of the Company has any material contract, agreement, arrangement or
understanding other than on terms no less favorable to the Company or such
Subsidiary than those that might be obtained at the time from Persons that are
not Affiliates of the Company, other than fees payable in the ordinary course of
business in connection with servicing accounts receivable, and (c) to which
neither the Company nor any Subsidiary of the Company has any obligation to
maintain or preserve such entity's financial condition or cause such entity to
achieve certain levels of operating results. Any such designation by the Board
of Directors of the Company shall be evidenced to the Trustee by filing with the
Trustee a certified copy of the resolution of the Board of Directors of the
Company giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions.
"Representative" means the indenture trustee or other trustee, agent
or representative in respect of any Designated Senior Debt; provided that if,
and for so long as, any Designated Senior Debt lacks such a representative, then
the Representative for such Designated Senior Debt shall at all times constitute
the holders of a majority in outstanding principal amount of such Designated
Senior Debt in respect of any Designated Senior Debt.
"Restricted Subsidiary" of any Person means any Subsidiary of such
Person which at the time of determination is not an Unrestricted Subsidiary.
"S&P" means Standard & Poor's Corporation and its successors.
"Sale and Leaseback Transaction" means any direct or indirect arrangement with
any Person or to which any such Person is a party, providing for the leasing to
the Company or a Restricted Subsidiary of any property, whether owned by the
Company or any Restricted Subsidiary at the Issue Date or later acquired, which
has been or is to be sold or transferred by the Company or such Restricted
Subsidiary to such Person or to any other Person from whom funds have been or
are to be advanced by such Person on the security of such Property.
"Senior Debt" means the principal of, premium, if any, and interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on any
Indebtedness of the Company, whether outstanding on the Issue Date or thereafter
created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Senior Notes. Without limiting the
generality of the foregoing, "Senior Debt" shall also include the principal of,
premium, if any, interest (including any interest accruing subsequent to the
filing of a petition of bankruptcy at the rate provided for in the documentation
with respect thereto, whether or not such interest is an allowed claim under
applicable law) on, and all other amounts owing in respect of, (x) all monetary
obligations (including guarantees thereof) of every nature of the Company under
the Bank Credit Agreement, including, without limitation, obligations to pay
principal and interest, reimbursement obligations under letters of credit, fees,
expenses and indemnities, (y) all Interest Swap Obligations (including
guarantees thereof) and (z) all obligations (including guarantees thereof) under
Currency Agreements, in each case whether outstanding on the Issue Date or
thereafter incurred. Notwithstanding the foregoing, Senior Debt shall not
include (i) any Indebtedness, if the instrument creating or evidencing the same
or the assumption or guarantee thereof expressly provides that such Indebtedness
shall not be senior in right of payment to the Senior Notes, (ii) any
Indebtedness of the Company to a Subsidiary of the
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Company, (iii) Indebtedness to, or guaranteed on behalf of, any shareholder,
director, officer or employee of the Company or any Subsidiary of the Company
(including, without limitation, amounts owed for compensation), (iv)
Indebtedness to trade creditors and other amounts incurred in connection with
obtaining goods, materials or services, (v) Indebtedness represented by
Disqualified Capital Stock, (vi) any liability for federal, state, local or
other taxes owed or owing by the Company, (vii) that portion of any Indebtedness
incurred in violation of the Indenture provisions set forth under "Limitation on
Incurrence of Additional Indebtedness" (but, as to any such obligation, no such
violation shall be deemed to exist for purposes of this clause (vii) if the
holder(s) of such obligation or their representative and the Trustee shall have
received an Officers' Certificate of the Company to the effect that the
incurrence of such Indebtedness does not (or, in the case of revolving credit
Indebtedness, that the incurrence of the entire committed amount thereof at the
date on which the initial borrowing thereunder is made) would not violate such
provisions of the Indenture) and (viii) any Indebtedness which is, by its
express terms, subordinated in right of payment to any other Indebtedness of the
Company.
"Significant Subsidiary" means, as of any date of determination, for
any Person, each Subsidiary of such Person which (i) for the most recent fiscal
year of such Person (on or prior to December 31, 1996, the fiscal period
beginning on the Issue Date and ending on the most recently completed fiscal
quarter of such Person) accounted for more than 10% of consolidated revenues or
consolidated net income of such Person or (ii) as at the end of such fiscal year
(on or prior to December 31, 1996, the fiscal period beginning on the Issue Date
and ending on the most recently completed fiscal quarter of such Person), was
the owner of more than 10% of the consolidated assets of such Person.
"Standard Securitization Undertakings" means representations, warranties,
covenants and indemnities entered into by the Company or any Subsidiary of the
Company which are reasonably customary in an accounts receivable transaction.
"Subsidiary", with respect to any Person, means (i) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (ii) any
other Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"Subsidiary Guarantors" means (i) each of the Company's Subsidiaries
existing on the Issue Date that guarantees the Indebtedness under the Bank
Credit Agreement and (ii) each of the Company's Subsidiaries that in the future
executes a supplemental indenture in which such Subsidiary agrees to be bound by
the terms of the Indenture as a Subsidiary Guarantor whether pursuant to the
provisions set forth under "--Certain Covenants--Guarantees of Certain
Indebtedness" or otherwise.
"Tax Allocation Agreement" means the tax allocation agreement between
the Company, American Pad & Paper Company and WR Acquisition, Inc. and certain
other Subsidiaries of the Company as in effect on the Issue Date.
"Unrestricted Subsidiary" of any Person means (i) any Subsidiary of
such Person that at the time of determination shall be or continue to be
designated an Unrestricted Subsidiary by the Board of Directors of such Person
in the manner provided below and (ii) any Subsidiary of an Unrestricted
Subsidiary. The Board of Directors may designate any Subsidiary (including any
newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary
unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on
any property of, the Company or any other Subsidiary of the Company that is not
a Subsidiary of the Subsidiary to be so designated; provided that (x) the
Company certifies to the Trustee that such designation complies with the
"Limitation on Restricted Payments" covenant and (y) each Subsidiary to be so
designated and each of its Subsidiaries have not at the time of designation, and
do not thereafter, create, incur, issue, assume, guarantee or otherwise become
directly or indirectly liable with respect to any Indebtedness pursuant to which
the lender has recourse to any of the assets of the Company or any of its
Restricted Subsidiaries. The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary only if (x) immediately after giving
effect to such designation, the Company is able to incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) in compliance with
the "Limitation on Incurrence of Additional Indebtedness" covenant and (y)
immediately before and immediately after giving effect to such designation, no
Default or Event of Default shall have occurred and be continuing. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
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"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the then
outstanding aggregate principal amount of such Indebtedness into (b) the sum of
the total of the products obtained by multiplying (i) the amount of each then
remaining installment, sinking fund, serial maturity or other required payment
of principal, including payment at final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" of any Person means any
Restricted Subsidiary of such Person of which all the outstanding voting
securities (other than directors' qualifying shares or an immaterial amount of
shares required to be owned by other Persons pursuant to applicable law) are
owned by such Person or any Wholly Owned Restricted Subsidiary of such Person.
BOOK-ENTRY; DELIVERY AND FORM
Except as described in the next paragraph, the Exchange Notes (and the
related guarantees) initially will be replaced by a single permanent global
certificate in definitive, fully registered form (the "Global Note"). The
Global Note will be deposited promptly after the Expiration Date with, or on
behalf of, the Depository and registered in the name of a nominee of the
Depository.
Exchange Notes (i) originally issued to or transferred to "foreign
purchasers" or to Accredited Investors (as defined in Regulation D under the
Securities Act) who are not "qualified institutional buyers" (as defined in Rule
144A) ("QIBs") or (ii) held by QIBs who elect to take physical delivery of their
certificates instead of holding their interest through the Global Note (and
which are thus ineligible to trade through the Depository) (collectively
referred to herein as the "Non-Global Purchasers") will be issued in registered
form (the "Certificated Security"). Upon the transfer to a QIB of any
Certificated Security initially issued to a Non-Global Purchaser, such
Certificated Security will, unless the transferee requests otherwise or the
Global Certificates have previously been exchanged in whole for Certificated
Securities, be exchanged for an interest in the Global Certificates.
The Global Note. The Company expects that pursuant to procedures
established by the Depository (i) upon issuance of the Global Note, the
Depository or its custodian will credit, on its internal system, the principal
amount of Exchange Notes of the individual beneficial interests represented by
such global securities to the respective accounts of persons who have accounts
with such depositary and (ii) ownership of beneficial interests in the Global
Note will be shown on, and the transfer of such ownership will be effected only
through, records maintained by the Depository or its nominee (with respect to
interests of participants) and the records of participants (with respect to
interests of persons other than participants). Ownership of beneficial
interests in the Global Note will be limited to persons who have accounts with
the Depository ("participants") or persons who hold interests through
participants. QIBs may hold their interests in the Global Note directly through
the Depository if they are participants in such system, or indirectly through
organizations which are participants in such system.
So long as the Depository, or its nominee, is the registered owner or
holder of the Exchange Notes, the Depository or such nominee, as the case may
be, will be considered the sole owner or holder of the Notes represented by such
Global Note for all purposes under the Indenture. No beneficial owner of an
interest in any of the Global Notes will be able to transfer that interest
except in accordance with the Depository's procedures, in addition to those
provided for under the Indenture with respect to the Exchange Notes.
Payments of the principal of, premium (if any) and interest (including
Additional Interest) on the Global Note will be made to the Depository or its
nominee, as the case may be, as the registered owner thereof. None of the
Company, the Trustee or any Paying Agent will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in the Global Note or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interest.
The Company expects that the Depository or its nominee, upon receipt
of any payment of principal, premium, if any, or interest (including Additional
Interest) in respect of the Global Note, will credit participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of the Global Note as shown on the records of the
Depository or its nominee. The Company also expects that payments by
participants to owners of beneficial interests in the Global Note held through
such participants will be governed by standing instructions
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and customary practice, as is now the case with securities held for the accounts
of customers registered in the names of nominees for such customers. Such
payments will be the responsibility of such participants.
Transfers between participants in the Depository will be effected in
the ordinary way in accordance with the Depository rules and will be settled in
clearinghouse funds. If a holder requires physical delivery of a Certified
Security for any reason, including to sell Exchange Notes to persons in states
which require physical delivery of the Exchange Notes, or to pledge such
securities, such holder must transfer its interest in the Global Note, in
accordance with the normal procedures of the Depository and with the procedures
set forth in the Indenture.
The Depository has advised the Company that it will take any action
permitted to be taken by a holder of Exchange Notes (including the presentation
of Exchange Notes for exchange as described below) only at the direction of one
or more participants to whose account the Depository interests in the Global
Note are credited and only in respect of such portion of the aggregate principal
amount of Notes as to which such participant or participants has or have given
such direction. However, if there is an Event of Default under the Indenture,
the Depository will exchange the Global Note for Certificated Securities.
The Depository has advised the Company as follows: the Depository is a
limited purpose trust company organized under the laws of the State of New York,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the Uniform Commercial Code and a "Clearing Agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. The Depository
was created to hold securities for its participants and facilitate the clearance
and settlement of securities transactions between participants through
electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical movement of certificates. Participants
include securities brokers and dealers, banks, trust companies and clearing
corporations and certain other organizations. Indirect access to the Depository
system is available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly ("indirect participants").
Although the Depository has agreed to the foregoing procedures in
order to facilitate transfers of interests in the Global Note among participants
of the Depository, it is under no obligation to perform such procedures, and
such procedures may be discontinued at any time. Neither the Company nor the
Trustee will have any responsibility for the performance by the Depository or
its participants or indirect participants of their respective obligations under
the rules and procedures governing their operations.
Certificated Securities. If the Depository is at any time unwilling
or unable to continue as a depositary for the Global Note and a successor
depositary is not appointed by the Company within 90 days, Certificated
Securities will be issued for the Global Note.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Notes were originally sold by the Company on December 1, 1995, to
the Initial Purchasers pursuant to the Purchase Agreement. The Initial
Purchasers subsequently resold the Notes to qualified institutional buyers and
accredited investors in reliance on Rule 144A under the Securities Act. As a
condition to the Purchase Agreement, the Company and the Subsidiary Guarantors
entered into the Registration Rights Agreement with the Initial Purchasers (the
"Registration Rights Agreement") pursuant to which the Company has agreed, for
the benefit of the holders of the Notes, at the Company's cost, to use its best
efforts to (i) file the Exchange Offer Registration Statement within 120 days
after the date of the original issue (the "Issue Date") of the Notes with the
Commission with respect to the Exchange Offer for the Exchange Notes, and (ii)
cause the Exchange Offer Registration Statement to be declared effective under
the Securities Act within 180 days after the Issue Date. Upon the Exchange
Offer Registration Statement being declared effective, the Company will offer
the Exchange Notes in exchange for surrender of the Notes. The Company will
keep the Exchange Offer open for not less than 20 business days (or longer if
required by applicable law) after the date on which notice of the Exchange Offer
is mailed to the holders of the Notes. For each Note surrendered to the Company
pursuant to the Exchange Offer, the holder of such Note will receive an Exchange
Note having a principal amount equal to that of the surrendered Note. Interest
on each Exchange Note will accrue from the last interest payment date on which
interest was paid on the Note surrendered in exchange therefor or, if no
interest has been paid on such Note, from the Issue Date.
Under existing interpretations of the staff of the Commission
contained in several no-action letters to third parties, the Exchange Notes (and
the related guarantees) would in general be freely tradeable after the Exchange
Offer without further registration under the Securities Act if the holder of the
Exchange Notes represents that it is acquiring the Exchange Notes in the
ordinary course of business, that it has no arrangement or understanding with
any person to participate in the distribution of the Exchange Notes and that it
is not an affiliate of the Company or the Subsidiary Guarantors, as such terms
are interpreted by the Commission; provided that Participating Broker-Dealers
receiving Exchange Notes in the Exchange Offer will have a prospectus delivery
requirement with respect to resales of such Exchange Notes. The Commission has
taken the position that the Participating Broker-Dealers may fulfill their
prospectus delivery requirements with respect to the Exchange Notes (other than
a resale of an unsold allotment from the original sale of the Notes) with the
prospectus contained in the Exchange Offer Registration Statement. The Company
and the Subsidiary Guarantors have agreed for a period of 180 days after
consummation of the Exchange Offer to make available a prospectus meeting
requirements of the Securities Act to Participating Broker-Dealers and other
persons, if any, with similar prospectus delivery requirements for use in
connection with any resale of such Exchange Notes. However, any purchaser of
Notes who is an "affiliate" of the Company or the Subsidiary Guarantors or who
intends to participate in the Exchange Offer for the purpose of distributing the
Exchange Notes (i) will not be able to rely on the interpretation of the staff
of the Commission, (ii) will not be able to tender its Notes in the Exchange
Offer and (iii) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale or transfer of
the Notes, unless such sale or transfer is made pursuant to any exemption from
such requirements. If the holder is not a broker-dealer, it will be required to
represent that it is not engaged in, and does not intend to engage in, the
distribution of the applicable Exchange Notes. If the holder is a broker-dealer
that will receive Exchange Notes for its own account in exchange for Notes that
were acquired as a result of market-making activities or other trading
activities, it will be required to acknowledge that it will deliver a prospectus
in connection with any resale of such Exchange Notes.
Each holder of the Notes who wishes to exchange the Notes for Exchange
Notes in the Exchange Offer will be required to represent in the Letter of
Transmittal that (i) it is not an affiliate of the Company or Subsidiary
Guarantors, (ii) the Exchange Notes to be received by it were acquired in the
ordinary course of its business and (iii) at the time of commencement of the
Exchange Offer, it has no arrangement with any person to participate in the
distribution (within the meaning of the Securities Act) of the Exchange Notes.
In the event that applicable interpretations of the staff of the
Commission do not permit the Company and the Subsidiary Guarantors to effect the
Exchange Offer, or if for any other reason the Exchange Offer is not consummated
within 225 days after the Issue Date, or, under certain circumstances, if the
Initial Purchasers shall so request, each of the Company and the Subsidiary
Guarantors, jointly and severally, will at their cost, (a) as promptly as
practicable, file a shelf registration statement covering resales of the Notes
(a "Shelf Registration Statement"), (b) use its best efforts to
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keep effective such Shelf Registration Statement until the earlier of three
years after the Issue Date and such time as all of the applicable Notes have
been sold thereunder. The Company will, in the event of the filing of a Shelf
Registration Statement, provide to each holder of the Notes copies of the
prospectus which is a part of such Shelf Registration Statement, notify each
such holder when such Shelf Registration Statement has become effective and take
certain other actions as are required to permit unrestricted resales of the
Notes. A holder that sells its Notes pursuant to a Shelf Registration Statement
generally will be required to be named as a selling securityholder in the
related prospectus and to deliver a prospectus to purchasers, will be subject to
certain of the civil liability provisions under the Securities Act in connection
with such sales and will be bound by the provisions of the Registration Rights
Agreement which are applicable to such holder (including certain indemnification
obligations).
If the Company and the Subsidiary Guarantors fail to comply with the above
provisions or if such registration statement fails to become effective, then, as
liquidated damages, additional interest (the "Additional Interest") shall become
payable with respect to the Notes as follows:
(i) if the Exchange Offer Registration Statement or Shelf Registration
Statement is not filed within 120 days following the Issue Date, Additional
Interest shall accrue on the Notes over and above the stated interest at a rate
of 0.50% per annum for the first 90 days commencing on the 121st day after the
Issue Date, such Additional Interest rate increasing by an additional 0.50% per
annum at the beginning of each subsequent 90-day period;
(ii) if the Exchange Offer Registration Statement or Shelf Registration
Statement is not declared effective within 180 days following the Issue Date,
Additional Interest shall accrue on the Notes over and above the stated interest
at a rate of 0.50% per annum for the first 90 days commencing on the 181st day
after the Issue Date, such Additional Interest rate increasing by an additional
0.50% per annum at the beginning of each subsequent 90-day period; or
(iii) If (A) the Company and the Subsidiary Guarantors have not exchanged all
Notes validly tendered in accordance with the terms of the Exchange Offer on or
prior to 225 days after the Issue Date or (B) the Exchange Offer Registration
Statement ceases to be effective at any time prior to the time that the Exchange
Offer is consummated or (C) if applicable, the Shelf Registration Statement has
been declared effective and such Shelf Registration Statement ceases to be
effective at any time prior to the third anniversary of the Issue Date (unless
all the Notes have been sold thereunder), then Additional Interest shall accrue
on the Notes over and above the stated interest at a rate of 0.50% per annum for
the first 90 days commencing on (x) the 226th day after the Issue Date with
respect to the Notes validly tendered and not exchanged by the Company, in the
case of (A) above, or (y) the day the Exchange Offer Registration Statement
ceases to be effective or usable for its intended purpose in the case of (B)
above, or (z) the day such Shelf Registration Statement ceases to be effective
in the case of (C) above, such Additional Interest rate increasing by an
additional 0.50% per annum at the beginning of each subsequent 90-day period;
provided, however, that the Additional Interest rate on the Notes may not exceed
in the aggregate 1.0% per annum; and provided further, that (1) upon the filing
of the Exchange Offer Registration Statement or Shelf Registration Statement (in
the case of clause (i) above), (2) upon the effectiveness of the Exchange Offer
Registration Statement or Shelf Registration Statement (in the case of (ii)
above), or (3) upon the exchange of Exchange Notes for all Notes tendered (in
the case of clause (iii)(A) above), or upon the effectiveness of the Exchange
Offer Registration Statement which had ceased to remain effective in the case of
clause (iii)(B) above, or upon the effectiveness of the Shelf Registration
Statement which had ceased to remain effective (in the case of clause (iii)(C)
above), Additional Interest on the Notes as a result of such clause (or the
relevant subclause thereof), as the case may be, shall cease to accrue.
Any amounts of Additional Interest due pursuant to clauses (i), (ii) or (iii)
above will be payable in cash, on the same original interest payment dates as
the Notes. The amount of Additional Interest will be determined by multiplying
the applicable Additional Interest rate by the principal amount of the Notes
multiplied by a fraction, the numerator of which is the number of days such
Additional Interest rate was applicable during such period (determined on the
basis of a 360-day year comprised of twelve 30-day months), and the denominator
of which is 360.
The summary herein of certain provisions of the Registration Rights Agreement
does not purport to be complete and is subject to, and is qualified in its
entirety by, all the provisions of the Registration Rights Agreement, a copy of
which will be available upon request to the Company.
Following the consummation of the Exchange Offer, holders of the Notes who
were eligible to participate in the Exchange Offer but who did not tender their
Notes will not have any further registration rights and such Notes will
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continue to be subject to certain restrictions on transfer. Accordingly, the
liquidity of the market for such Notes could be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus and
in the Letter of Transmittal, the Company will accept any and all Notes validly
tendered and not withdrawn prior to 5:00 p.m., New York City time, on the
Expiration Date. The Company will issue $1,000 principal amount of Exchange
Notes in exchange for each $1,000 principal amount of outstanding Notes accepted
in the Exchange Offer. Holders may tender some or all of their Notes pursuant to
the Exchange Offer. However, Notes may be tendered only in integral multiples of
$1,000.
The form and terms of the Exchange Notes are the same as the form and terms of
the Notes except (i) the Exchange Notes bear a Series B designation and a
different CUSIP Number from the Notes, (ii) the Exchange Notes have been
registered under the Securities Act and hence will not bear legends restricting
the transfer thereof, and (iii) the holders of the Exchange Notes will not be
entitled to certain rights under the Registration Rights Agreement, including
the provisions providing for an increase in the interest rate on the Notes in
certain circumstances relating to the timing of the Exchange Offer, all of which
rights will terminate when the Exchange Offer is terminated. The Exchange Notes
will evidence the same debt as the Notes and will be entitled to the benefits of
the Indenture.
As of the date of this Prospectus, $200 million aggregate principal amount of
Notes were outstanding. The Company has fixed the close of business on June 10,
1996 as the record date for the Exchange Offer for purposes of determining the
persons to whom this Prospectus and the Letter of Transmittal will be mailed
initially.
Holders of Notes do not have any appraisal or dissenters' rights under the
General Corporation Law of Delaware or the Indenture in connection with the
Exchange Offer. The Company intends to conduct the Exchange Offer in accordance
with the applicable requirements of the Exchange Act and the rules and
regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Notes when, as
and if the Company has given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering holders for the
purpose of receiving the Exchange Notes from the Company.
If any tendered Notes are not accepted for exchange because of an invalid
tender, the occurrence of certain other events set forth herein or otherwise,
the certificates for any such unaccepted Notes will be returned, without
expense, to the tendering holder thereof as promptly as practicable after the
Expiration Date.
Holders who tender Notes in the Exchange Offer will not be required to pay
brokerage commissions or fees or, subject to the instructions of the Letter of
Transmittal, transfer taxes with respect to the exchange of Notes pursuant to
the Exchange Offer. The Company will pay all charges and expenses, other than
the transfer taxes in certain circumstances, in connection with the Exchange
Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on July
22, 1996, unless the Company, in its sole discretion, extends the Exchange
Offer, in which case the term "Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the registered
holders an announcement thereof, each prior to 9:00 a..m., New York City time,
on the next business day after the previously scheduled expiration date.
The Company reserves the right, in its sole discretion, (i) to delay accepting
any Notes, to extend the Exchange Offer or to terminate the Exchange Offer if
any of the conditions set forth below under "--Conditions" shall not have been
satisfied, by giving oral or written notice of such delay, extension or
termination to the Exchange Agent or (ii) to amend the terms of the Exchange
Offer in any manner. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by oral or written notice
thereof to the registered holders.
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INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest from their date of issuance. Holders of
Notes that are accepted for exchange will receive, in cash, accrued interest
thereon to, but not including, the date of issuance of the Exchange Notes. Such
interest will be paid with the first interest payment on the Exchange Notes on
November 15, 1996. Interest on the Notes accepted for exchange will cease to
accrue upon issuance of the Exchange Notes.
Interest on the Exchange Notes is payable semi-annually on each May 15 and
November 15, commencing on November 15, 1996.
PROCEDURES FOR TENDERING
Only a holder of Notes may tender such Notes in the Exchange Offer. To tender
in the Exchange Offer, a holder must complete, sign and date the Letter of
Transmittal, or a facsimile thereof, have the signatures thereon guaranteed if
required by the Letter of Transmittal, and mail or otherwise deliver such Letter
of Transmittal or such facsimile, together with the Notes and any other required
documents, to the Exchange Agent prior to 5:00 p.m., New York City time, on the
Expiration Date. To be tendered effectively, the Notes, Letter of Transmittal
and other required documents must be completed and received by the Exchange
Agent at the address set forth below under "Exchange Agent" prior to 5:00 p.m.,
New York City time, on the Expiration Date. Delivery of the Notes may be made by
book-entry transfer in accordance with the procedures described below.
Confirmation of such book-entry transfer must be received by the Exchange Agent
prior to the Expiration Date.
By executing the Letter of Transmittal, each holder will make to the Company
the representations set forth above in the third paragraph under the heading
"--Purpose and Effect of the Exchange Offer."
The tender by a holder and the acceptance thereof by the Company will
constitute agreement between such holder and the Company in accordance with the
terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE RISK OF THE
HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO CONSIDER
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
should contact the registered holder promptly and instruct such registered
holder to tender on such beneficial owner's behalf. See "Instruction to
Registered Holder and/or Book-Entry Transfer Facility Participant from Owner"
included with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined below) unless
the Notes tendered pursuant thereto are tendered (i) by a registered holder who
has not completed the box entitled "Special Registration Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. In the event that signatures on a Letter of
Transmittal or a notice of withdrawal, as are required to be guaranteed, such
guarantee must be by a member firm of the Medallion System (an "Eligible
Institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of any Notes listed therein, such Notes must be endorsed or accompanied
by a properly completed bond power, signed by such registered holder as such
registered holder's name appears on such Notes with the signature thereon
guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, offices of
corporations or others acting in a fiduciary or representative capacity, such
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persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal.
The Company understands that the Exchange Agent will make a request promptly
after the date of this Prospectus to establish accounts with respect to the
Notes at the Depository (the "Book-Entry Transfer Facility"), for the purpose of
facilitating the Exchange Offer, and subject to the establishment thereof, any
financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of Notes by causing such Book-
Entry Transfer Facility to transfer such Notes into the Exchange Agent's account
with respect to the Notes in accordance with the Book-Entry Transfer Facility's
procedures for such transfer. Although delivery of the Notes may be effected
through book-entry transfer into the Exchange Agent's account at the Book-Entry
Transfer Facility, an appropriate Letter of Transmittal properly completed and
duly executed with any required signature guarantee and all other required
documents must in each case be transmitted to and received or confirmed by the
Exchange Agent at its address set forth below on or prior to the Expiration
Date, or, if the guaranteed delivery procedures described below are complied
with, within the time period provided under such procedures. Delivery of
documents to the Book-Entry Transfer Facility does not constitute delivery to
the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Notes and withdrawal of tendered Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and all
Notes not properly tendered or any Notes the Company's acceptance of which
would, in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right in its sole discretion to waive any defects, irregularities
or conditions of tender as to particular Notes. The Company's interpretation of
the terms and conditions of the Exchange Offer (including the instructions in
the Letter of Transmittal) will be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Notes must
be cured within such time as the Company shall determine. Although the Company
intends to notify holders of defects or irregularities with respect to tenders
of Notes, neither the Company, the Exchange Agent nor any other person shall
incur any liability for failure to give such notification. Tenders of Notes will
not be deemed to have been made until such defects or irregularities have been
cured or waived. Any Notes received by the Exchange Agent that are not Properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned by the Exchange Agent to the tendering holders, unless
otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Notes and (i) whose Notes are not immediately
available, (ii) who cannot deliver their Notes, the Letter of Transmittal or any
other required documents to the Exchange Agent or (iii) who cannot complete the
procedures for book-entry transfer, prior to the Expiration Date, may effect a
tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of Guaranteed
Delivery (by facsimile transmission, mail or hand delivery) setting forth the
name and address of the holder, the certificate number(s) of such Notes and the
principal amount of Notes tendered, stating that the tender is being made
thereby and guaranteeing that, within five New York Stock Exchange trading days
after the Expiration Date, the Letter of Transmittal (or facsimile thereof)
together with the certificate(s) representing the Notes (or a confirmation of
book-entry transfer of such Notes into the Exchange Agent's account at the Book-
Entry Transfer Facility), and any other documents required by the Letter of
Transmittal will be deposited by the Eligible Institution with the Exchange
Agent; and
(c) such properly completed and executed Letter of Transmittal (or facsimile
thereof), as well as the certificate(s) representing all tendered Notes in
proper form for transfer (or a confirmation of book-entry transfer of such Notes
into the Exchange Agent's account at the Book-Entry Transfer Facility), and all
other documents required by the Letter of Transmittal are received by the
Exchange Agent upon five New York Stock Exchange trading days after the
Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Notes according to the guaranteed
delivery procedures set forth above.
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WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Notes may be withdrawn at any
time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Notes in the Exchange Offer, a telegram, telex, letter
or facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having deposited the Notes to be withdrawn (the "Depositor"), (ii)
identify the Notes to be withdrawn (including the certificate number(s) and
principal amount of such Notes, or, in the case of Notes transferred by book-
entry transfer, the name and number of the account at the Book-Entry Transfer
Facility to be credited), (iii) be signed by the holder in the same manner as
the original signature on the Letter of Transmittal by which such Notes were
tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee with respect to the Notes
register the transfer of such Notes into the name of the person withdrawing the
tender and (iv) specify the name in which any such Notes are to be registered,
if different from that of the Depositor. All questions as to the validity, form
and eligibility (including time of receipt) of such notices will be determined
by the Company, whose determination shall be final and binding on all parties.
Any Notes so withdrawn will be deemed not to have been validly tendered for
purposes of the Exchange Offer and no Exchange Notes will be issued with respect
thereto unless the Notes so withdrawn are validly retendered. Any Notes which
have been tendered but which are not accepted for exchange will be returned to
the holder thereof without cost to such holder as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Notes may be retendered by following one of the procedures described
above under "--Procedures for Tendering" at any time prior to the Expiration
Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not be
required to accept for exchange, or Exchange Notes for, any Notes, and may
terminate or amend the Exchange Offer as provided herein before the acceptance
of such Notes, if:
(a) any action or proceeding is instituted or threatened in any court or by or
before any governmental agency with respect to the Exchange Offer which, in the
sole judgment of the Company, might materially impair the ability of the Company
to proceed with the Exchange Offer or any material adverse development has
occurred in any existing action or proceeding with respect to the Company or any
of its subsidiaries; or
(b) any law, statute, rule, regulation or interpretation by the staff of the
Commission is proposed, adopted or enacted, which, in the sole judgment of the
Company, might materially impair the ability of the Company to proceed with the
Exchange Offer or materially impair the contemplated benefits of the Exchange
Offer to the Company; or
(c) any governmental approval has not been obtained, which approval the
Company shall, in its sole discretion, deem necessary for the consummation of
the Exchange Offer as contemplated hereby.
If the Company determines in its sole discretion that any of the conditions
are not satisfied, the Company may (i) refuse to accept any Notes and return all
tendered Notes to the tendering holders, (ii) extend the Exchange Offer and
retain all Notes tendered prior to the expiration of the Exchange Offer,
subject, however, to the rights of holders to withdraw such Notes (see
"--Withdrawal of Tenders") or (iii) waive such unsatisfied conditions with
respect to the Exchange Offer and accept all properly tendered Notes which have
not been withdrawn.
EXCHANGE AGENT
IBJ Schroder Bank & Trust Company has been appointed as Exchange Agent for the
Exchange Offer. Questions and requests for assistance, requests for additional
copies of this Prospectus or of the Letter of Transmittal and requests for
Notice of Guaranteed Delivery should be directed to the Exchange Agent addressed
as follows:
98
<PAGE>
IBJ Schroder Bank & Trust Company
Attention: Reorganization Department
One State Street
New York, New York 10004
Telephone: (212) 858-2103
Facsimile: (212) 858-2611
Delivery to an address other than as set forth above, or transmission of
instructions via a facsimile number other than the one set forth above, will
not constitute a valid delivery.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Company however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer
will be paid by the Company. Such expenses include fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees and printing costs, among
others.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Notes, which is face value, as reflected in the Company's accounting records on
the date of exchange. Accordingly, no gain or loss for accounting purposes will
be recognized by the Company. The expenses of the Exchange Offer will be
expensed over the term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Notes may
be resold only (i) to the Company (upon redemption thereof or otherwise), (ii)
so long as the Notes are eligible for resale pursuant to Rule 144A, to a person
inside the United States whom the seller reasonable believes is a qualified
institutional buyer within the meaning of Rule 144A under the Securities Act in
a transaction meeting the requirements of Rule 144A, in accordance with Rule 144
under the Securities Act, or pursuant to another exemption from the registration
requirements of the Securities Act (and based upon an opinion of counsel
reasonably acceptable to the Company) , (iii) outside the United States to a
foreign person in a transaction meeting the requirements of Rule 904 under the
Securities Act, or (iv) pursuant to an effective registration statement under
the Securities Act, in each case in accordance with any applicable securities
laws of any state of the United States.
RESALE OF THE EXCHANGE NOTES
With respect to resales of Exchange Notes, based on interpretations by
the staff of the Commission set forth in no-action letters issued to third
parties, the Company believes that a holder or other person who receives
Exchange Notes, whether or not such person is the holder (other than a person
that is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) who receives Exchange Notes in exchange for Notes in the
ordinary course of business and who is not participating, does not intend to
participate, and has no arrangement or understanding with person to participate,
in the distribution of the Exchange Notes, will be allowed to resell the
Exchange Notes to the public without further registration under the Securities
Act and without delivering to the purchasers of the Exchange Notes a prospectus
that satisfies the requirements of Section 10 of the Securities Act. However,
if any holder acquires Exchange Notes in the Exchange Offer for the purpose of
distributing or participating in a distribution of the Exchange Notes, such
holder cannot rely on the position of the staff of the Commission enunciated in
such no-action letters or any
99
<PAGE>
similar interpretive letters, and must Comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction, unless an exemption from registration is otherwise
available. Further, each Participating Broker-Dealer that receives Exchange
Notes for its own account in exchange for Notes, where such Notes were acquired
by such Participating Broker-Dealer as a result of market-making activities or
other trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent to
the Company in the Letter of Transmittal that (i) the Exchange Notes are to be
acquired by the holder or the person receiving such Exchange Notes, whether or
not such person is the holder, in the ordinary course of business, (ii) the
holder or any such other person (other than a broker-dealer referred to in the
next sentence) is not engaging and does not intend to engage, in the
distribution of the Exchange Notes, (iii) the holder or any such other person
has no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes, (iv) neither the holder nor any such other
person is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act, and (v) the holder or any such other person acknowledges that if
such holder or other person participates in the Exchange Offer for the purpose
of distributing the Exchange Notes it must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale of the Exchange Notes and cannot rely on those no-action letters. As
indicated above, each Participating Broker-Dealer that receives an Exchange Note
for its own account in exchange for Notes must acknowledge that it will deliver
a prospectus in connection with any resale of such Exchange Notes. For a
description of the procedures for such resales by Participating Broker-Dealers,
see "Plan of Distribution."
CERTAIN MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material United States federal income tax
consequences of the exchange of the Notes for the Exchange Notes pursuant to the
Exchange Offer. The summary is based upon provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), applicable Treasury Department
Regulations, judicial authority and current administrative rulings and practice,
all of which are subject to change at any time by legislative, judicial or
administrative action. Any such changes may be applied retroactively in a manner
that could adversely affect a holder of the Exchange Notes. Further, there can
be no assurance that the Internal Revenue Service (the "IRS") will not take a
contrary view, and no rulings from the IRS have been or will be sought as to any
of the matters discussed below.
This summary is for general informational purposes only and generally
addresses only the Notes and the Exchange Notes that are held as capital assets.
This summary does not purport to discuss all of the tax consequences that may be
relevant to the particular circumstances of a holder or to holders subject to
special rules, such as financial institutions, broker-dealers, insurance
companies, or tax exempt organizations, and persons in special situations such
as those who hold the Exchange Notes as part of a straddle. In addition, this
summary does not address any aspect of state, local or foreign taxation.
HOLDERS OF THE NOTES ARE URGED TO CONSULT THEIR TAX ADVISORS CONCERNING THE
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO THEM OF EXCHANGING THEIR NOTES
FOR THE EXCHANGE NOTES, INCLUDING THE APPLICATION OF STATE, LOCAL AND FOREIGN
INCOME AND OTHER TAX LAWS.
THE EXCHANGE
Kirkland & Ellis, special counsel to the Company, has advised the Company
that, in its opinion, the exchange of the Notes for the Exchange Notes pursuant
to the Exchange Offer should not be a taxable event to the holder. As a result,
a holder of Notes should not recognize any taxable gain or loss as a result of
the exchange of the Notes for the Exchange Notes. A holder's adjusted tax basis
in the Exchange Notes will be the same as his adjusted tax basis in the Notes
exchanged therefor, and his holding period for the Notes will be included in his
holding period for the Exchange Notes.
100
<PAGE>
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Notes for its
own account pursuant to the Exchange Offer must acknowledge that it will deliver
a prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with resales of Exchange Notes
received in exchange for Notes where such Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that for a period of 180 days after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any Participating Broker-
Dealer for use in connection with any such resale. In addition, until
September 30, 1996, all dealers effecting transactions in the Exchange Notes may
be required to deliver a prospectus.
The Company and the Subsidiary Guarantors will not receive any proceeds from
any sales of the Exchange Notes by Participating Broker-Dealers. Exchange Notes
received by Participating Broker-Dealers for their own account pursuant to the
Exchange Offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the Exchange Notes or a combination of such methods of resale, at
market prices prevailing at the time of resale, at prices related to such
prevailing market prices or negotiated prices. Any such resale may be made
directly to the purchaser or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
Participating Broker-Dealer and/or the purchasers of any such Exchange Notes.
Any Participating Broker-Dealer that resells the Exchange Notes that were
received by it for its own account pursuant to the Exchange Offer and any broker
or dealer that participates in a distribution of such Exchange Notes may be
deemed to be an "underwriter" within the meaning of the Securities Act and any
profit on any such resale of Exchange Notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation under
the Securities Act. The Letter of Transmittal states that by acknowledging that
it will deliver and by delivering a prospectus, a Participating Broker-Dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any Participating Broker-Dealer that requests
such documents in the Letter of Transmittal.
EXPERTS
The Company's consolidated financial statements as of December 31,
1994 and 1995 and for each of the three years in the period ended December 31,
1995 included in the Prospectus have been so included in reliance on the report
of Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
The WR Acquisition, Inc. consolidated balance sheets as of October 31, 1995
and December 31, 1994, and the statements of operations, of cash flows and
of changes in stockholders' equity (deficiency) for the ten months ended October
31, 1995 and each of the two years ended December 31, 1993 and 1994 have been
included in this Prospectus in reliance on the report of KPMG Peat Marwick LLP,
independent accountants, appearing elsewhere herein, on the authority of said
firm as experts in auditing and accounting.
The Globe-Weis statements of net sales and cost of sales for the nine
months ended July 31, 1994 and the twelve months ended July 31, 1995 included in
this Prospectus have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
The consolidated financial statements of Niagara Envelope Company,
Inc. at December 31, 1995 and 1994, and for each of the three years in the
period ended December 31, 1995, 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 in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
101
<PAGE>
LEGAL MATTERS
The validity of the issuance of securities offered hereby will be
passed upon for the Company by Kirkland & Ellis, New York, New York (a
partnership which includes professional corporations). Karl E. Lutz, whose
professional corporation is a partner of Kirkland & Ellis, beneficially owns
7,500.011 shares of Common Stock, and 487.0763 shares of Preferred Stock of APP.
102
<PAGE>
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
AND SUBSIDIARIES
PAGE
----
<S> <C>
Report of Independent Accountants............................................................................. F-2
Consolidated Balance Sheets at December 31, 1994 and 1995..................................................... F-3
Consolidated Statements of Operations for the years ended December 31, 1993, 1994 and 1995................... F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995................... F-5
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the years ended December 31, 1993,
1994 and 1995................................................................................................ F-7
Notes to Consolidated Financial Statements.................................................................... F-8
WR ACQUISITION, INC. AND SUBSIDIARIES
PAGE
----
Independent Auditors' Report.................................................................................. F-35
Consolidated Balance Sheets at December 31, 1994 and October 31, 1995......................................... F-36
Consolidated Statements of Operations for the years ended December 31, 1994, 1993 and for the ten months
ended October 31, 1995........................................................................................ F-38
Consolidated Statements of Stockholders' Equity (Deficiency) for the years ended December 31, 1994, 1993 F-39
and for the ten months ended October 31, 1995.................................................................
Consolidated Statements of Cash Flows for the years ended December 31, 1994, and 1993 and for the ten months
ended October 31, 1995........................................................................................ F-40
Notes to Consolidated Financial Statements.................................................................... F-41
</TABLE>
<TABLE>
<CAPTION>
GLOBE-WEIS
PAGE
----
<S> <C>
Report of Independent Accountants......................................................................... F-59
Statements of Net Sales and Cost of Sales for the nine months ended July 31, 1994 and twelve months
ended July 31, 1995....................................................................................... F-60
Notes to Statements of Net Sales and Cost of Sales........................................................ F-61
NIAGARA ENVELOPE COMPANY, INC.
Report of Independent Auditors............................................................................ F-63
Consolidated Balance Sheets at December 31, 1994 and 1995................................................. F-64
Consolidated Statements of Income and Retained Earnings for the years ended December 31, 1993,
1994 and 1995............................................................................................. F-65
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995................ F-66
Notes to Consolidated Financial Statements................................................................ F-67
Consolidated Balance Sheets at March 31, 1995 and 1996 (unaudited)........................................ F-74
Consolidated Statements of Income and Retained Earnings for the three months ended March 31, 1995
and 1996 (unaudited)...................................................................................... F-75
Consolidated Statements of Cash Flows for the three months ended March 31, 1995 and 1996 (unaudited)...... F-76
Notes to Consolidated Financial Statements (unaudited).................................................... F-77
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
American Pad & Paper Company of Delaware, Inc.
(successor to Ampad Corporation)
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of cash flows, and of changes in
stockholder's equity (deficit) present fairly, in all material respects, the
financial position of American Pad & Paper Company of Delaware, Inc. (successor
to Ampad Corporation) and its subsidiaries at December 31, 1995 and 1994, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1995, in conformity with generally accepted
accounting principles. 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 of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
/s/ Price Waterhouse LLP
Dallas, Texas
March 19, 1996, except as to Note 16 which is as of June 6, 1996
F-2
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------------- ---------
ASSETS 1994 1995 1996
------ --------- --------- ---------
(unaudited)
<S> <C> <C> <C>
Current assets:
Cash................................................. $ 4 $ 18,341 $ 20,108
Restricted cash (Note 2)............................. 60 3,619 10,759
Accounts receivable, net (Note 4).................... 16,965 25,943 18,407
Refundable income taxes.............................. 3,657
Inventories (Note 5)................................. 32,974 93,061 93,166
Prepaid expenses and other current assets............ 831 927 2,026
Assets held for sale (Note 3)........................ 724 42,578 43,572
Deferred income taxes, net (Note 11)................. 15,009 14,744
------- -------- --------
Total current assets................................. 51,558 203,135 202,782
Property and equipment, net (Notes 3 and 6)............ 8,889 106,768 106,758
Intangible assets, net of accumulated amortization of
$200 in 1995 and $508 at March 31, 1996 (Note 3)...... 37,700 37,392
Deferred income taxes, net (Note 11)................... 4,312
Debt issuance costs, net of accumulated amortization
of $1,430, $846 and $2,054, respectively (Note 8)..... 958 32,929 32,524
Goodwill, net of accumulated amortization of $114,
$793 and $1,521, respectively (Note 3)................ 2,409 120,383 119,655
Other.................................................. 107 3,441 1,683
------- -------- --------
Total............................................... $68,233 $504,356 $500,794
======= ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
---------------------------------------------
Current liabilities:
Revolving line of credit (Note 8)..................... $22,767 $ $
Current portion of long-term debt (Note 8)............ 2,772 11,834 13,066
Accounts payable...................................... 15,240 37,048 36,689
Accrued expenses (Note 7)............................. 7,928 44,835 43,271
Income taxes payable.................................. 494 518
Deferred income taxes, net (Note 11).................. 1,681
------- -------- --------
Total current liabilities............................ 50,388 94,211 93,544
Long-term debt (Note 8)................................ 19,889 443,794 440,453
Deferred income taxes (Note 11)........................ 30,070 29,911
Other.................................................. 689 2,702 3,179
------- -------- --------
Total liabilities.................................... 70,966 570,777 567,087
------- -------- --------
Commitments and contingencies (Note 12)
Stockholder's equity (deficit) (Note 9)
Common stock, $.01 par value, 1,000 shares
authorized, 100 shares issued and outstanding........ - -
Additional paid-in capital............................ 3,000 28,998 28,998
Accumulated deficit................................... (5,733) (95,419) (95,291)
------- -------- --------
Total stockholder's equity (deficit)................ (2,733) (66,421) (66,293)
------- -------- --------
Total liabilities and stockholder's equity
(deficit)......................................... $68,233 $504,356 $500,794
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net sales........................................... $ 104,277 $ 120,443 $ 259,341 $ 47,691 $ 121,418
Cost of sales....................................... 88,491 113,394 211,814 42,394 97,889
--------- --------- --------- --------- ---------
Gross profit...................................... 15,786 7,049 47,527 5,297 23,529
Operating expenses:
Selling and marketing............................. 4,920 5,059 6,254 1,162 3,328
General and administrative........................ 5,845 5,556 12,291 1,587 7,698
Nonrecurring compensation charge
(Note 9)........................................ 27,632
--------- --------- --------- --------- ---------
Income (loss) from operations....................... 5,021 (3,566) 1,350 2,548 12,503
Other income (expense):
Interest.......................................... (3,320) (4,560) (13,657) (1,656) (12,542)
Other income, net................................. 167 90 735 65 269
--------- --------- --------- --------- ---------
Income (loss) before income taxes................... 1,868 (8,036) (11,572) 957 230
Provision (benefit) for income taxes................ 64 (488) (6,538) 366 102
--------- --------- --------- --------- ---------
Income (loss) before extraordinary item............. 1,804 (7,548) (5,034) 591 128
Extraordinary loss from extinguishment of
debt (net of income tax benefit of $6,434)........ (9,652)
--------- --------- --------- --------- ---------
Net income (loss)................................... $ 1,804 $ (7,548) $ (14,686) $ 591 $ 128
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------- --------------------------
1993 1994 1995 1995 1996
-------- --------- ---------- ----------- -------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................... $ 1,804 $ (7,548) $ (14,686) $ 591 $ 128
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation.......................................... 159 828 3,369 490 1,984
Amortization of goodwill and intangible
assets............................................... 114 879 38 1,036
Noncash portion of nonrecurring compen-
sation charge........................................ 25,998
Extraordinary loss on extinguishment
of debt.............................................. 9,652
Noncash interest expense and accretion
of discount.......................................... 584 135 32
Amortization of debt issuance costs................... 619 696 1,538 206 1,208
Gain on sale of assets................................ (159) (83) (140) (68) (16)
Changes in assets and liabilities, net of
effects of acquisitions:
Decrease (increase) in restricted cash.............. (48) (12) (3,559) (19) (7,140)
Decrease (increase) in accounts
receivable......................................... (944) 2,457 (18,466) (5,038) 7,536
Decrease in refundable income taxes................. 101 3,657
Decrease (increase) in inventories.................. (5,006) 1,655 2,256 (5,728) (105)
Decrease (increase) in prepaid expenses
and other.......................................... 1,173 (302) 905 (712) (1,099)
Decrease (increase) in deferred tax
asset, net......................................... 64 (488) (13,141) 347 106
Increase (decrease) in accounts
payable............................................ 2,565 3,433 4,979 1,747 (359)
Increase (decrease) in accrued
expenses........................................... (2,225) (2,782) 4,877 (2,174) (1,540)
Decrease (increase) in other assets................. (250) 154 1,756
Increase (decrease) in other liabilities............ (92) 11 (7) (26) 477
-------- --------- --------- ----------- -----------
Net cash provided by (used in)
operating activities............................. (1,756) (1,886) 4,709 (10,314) 7,629
-------- --------- --------- ----------- -----------
Cash flows from investing activities:
Purchase of the stock of Delaware, including
acquisition costs...................................... (122,655)
Purchases of property and equipment..................... (1,656) (942) (3,919) (809) (2,321)
Purchase of net assets, including acquisition
costs.................................................. (13,744) (7,046)
Proceeds from sale of assets............................ 1,166 83 140 68 16
Net cash generated from (used by) assets
held for sale........................................... 2,213 (646)
-------- --------- --------- ----------- -----------
Net cash used in investing activities................ (490) (14,603) (131,267) (741) (2,951)
-------- --------- --------- ----------- -----------
</TABLE>
F-5
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------- --------------------------
1993 1994 1995 1995 1996
-------- --------- ---------- ----------- -------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from financing activities:
Proceeds from sale of accounts receivable............ $ $ $ 45,000 $ $
Net borrowings (repayments) under line of
credit............................................. 3,937 7,057 (22,767) 11,813
Proceeds from long-term debt......................... 11,252 430,052 25,272
Repayment of long-term debt.......................... (1,725) (1,192) (186,546) (758) (27,380)
Redemption premiums and penalties
included in extraordinary loss..................... (10,812)
Debt issuance costs.................................. (628) (35,032) (803)
-------- --------- --------- ----------- -----------
Dividends paid....................................... (75,000)
Net cash provided by (used in) financing
activities........................................ 2,212 16,489 144,895 11,055 (2,911)
-------- --------- --------- ----------- -----------
Net increase (decrease) in cash................... (34) - 18,337 - 1,767
Cash, beginning of period.............................. 38 4 4 4 18,341
Cash, end of period.................................... $ 4 $ 4 $ 18,341 $ 4 $ 20,108
-------- --------- --------- ----------- -----------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest.............................................. $ 2,113 $ 3,575 $ 9,127 $ 203 $ 4,578
======== ========= ========= ======== ========
Income taxes.......................................... $ - $ 29 $ 99 $ 3 $ 23
======== ========= ========= ======== ========
Supplemental disclosure of noncash investing
and financing activities:
Payment-in-kind interest expense..................... $ 482 $ - $ - $ - $ -
======== ========= ========= ======== ========
Notes payable issued in consideration of
purchase price...................................... $ - $ - $ 36,115 $ - $ -
======== ========= ========= ======== ========
Notes payable issued in consideration for
equipment........................................... $ - $ 544 $ 1,721 $ 1,721 $ -
======== ========= ========= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIT)
(in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RETAINED
EARNINGS
COMMON PAID-IN (ACCUMULATED
STOCK CAPITAL DEFICIT) TOTAL
------ ------- ------------ ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1992.. $ - $ 3,000 $ 11 $ 3,011
Net income.................... 1,804 1,804
------ ------- -------- --------
Balance at December 31, 1993 - 3,000 1,815 4,815
Net loss (7,548) (7,548)
------ ------- -------- --------
Balance at December 31, 1994..... - 3,000 (5,733) (2,733)
Grant of parent company stock
options to management (Note 9).. 25,998 25,998
Dividends paid................... (75,000) (75,000)
Net loss......................... (14,686) (14,686)
------ ------- -------- --------
Balance at December 31, 1995 - 28,998 (95,419) (66,421)
Net income (unaudited) 128 128
------ ------- -------- --------
Balance at March 31, 1996
(unaudited) $ - $28,998 $(95,291) $(66,293)
====== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts
- --------------------------------------------------------------------------------
1. ORGANIZATION, BASIS OF PRESENTATION AND BUSINESS
ORGANIZATION AND BASIS OF PRESENTATION
American Pad & Paper Company (formerly Ampad Holding Corporation and referred to
hereafter as "APP") was incorporated on June 2, 1992 as a holding company to
acquire all of the outstanding stock of Ampad Corporation ("Ampad"), the
surviving entity from the merger between Ampad Acquisition Corporation and
Ampad. APP had no operations through July 31, 1992.
On October 3, 1995, APP agreed to acquire in a merger transaction all of the
outstanding stock of WR Acquisition, Inc. ("WR") (the "Acquisition"). In a
series of transactions, APP exchanged 100% of the stock of its wholly-owned
subsidiary, Ampad, for newly-issued shares of WR. WR then contributed Ampad to
its wholly-owned subsidiary, Williamhouse-Regency of Delaware, Inc., renamed
American Pad & Paper Company of Delaware, Inc. ( referred to hereafter on a pre-
October 31, 1995 basis as "Delaware" and on a post-October 31, 1995 basis as the
"Company") in exchange for a right to receive $140 million of merger
consideration, with Ampad becoming a division of the Company. The Company,
principally using bank borrowings aggregating $245 million, funded WR's right to
receive the merger consideration and WR in turn repurchased 100% of the WR
shares not owned by APP. The transaction was accounted for as a purchase of the
stock of WR by APP. Accordingly, Ampad's historical accounting basis survived;
however, the Company is considered to be the legal successor to Ampad. As a
result of the transactions, APP now owns 100% of WR which in turn owns 100% of
the Company.
The financial statements of the Company now present 100% of the historical
accounts and operations of Ampad and the newly-acquired accounts of Delaware and
its wholly-owned subsidiaries as of October 31, 1995, along with Delaware's
consolidated operating results for the post-October 31, 1995 period (Note 3).
Additionally, the consolidated financial statements include the accounts of
Notepad Funding Corporation, a special purpose corporation utilized in the
accounts receivable facility (Note 4). All significant intercompany balances
have been eliminated. Certain prior year amounts have been reclassified for
comparative purposes.
The Company's ultimate parent is APP. Bain Capital, Inc. (Bain Capital) and its
related investors, along with certain members of management, own all of the
voting capital stock and preferred stock of APP. APP is a holding company with
no operations other than its ownership of 100% of the common stock of WR, which
is also a holding company with no operations other than through its investment
in the Company.
The financial statements of APP and WR are not required to be included herein by
the rules and regulations of the Securities and Exchange Commission ("SEC") as
APP and WR have not issued a guarantee with respect to the repayment of the
Company's 13% Senior Subordinated Notes ("Senior Subordinated Notes"). The
Company is restricted by its existing Bank Credit Agreement and Senior
Subordinated Notes indenture from lending or dividending cash to WR or APP,
except under limited circumstances.
F-8
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
BUSINESS
The Company is one of the largest manufacturers and marketers of paper-based
office products (excluding computer forms) in North America. It offers a broad
assortment of products through two complementary businesses: Ampad (writing
pads, file folders and other paper-based office products) and Williamhouse
(envelopes). The Regency business (personalized stationery and invitations and
greeting cards) was identified by APP management as of the acquisition date as a
nonstrategic business to be sold and is consequently being held for sale as of
December 31, 1995 and March 31, 1996 (unaudited) (Note 3). The Company's
products are distributed through large mass merchant retailers, office product
superstores, warehouse clubs, major contract stationers, office products
wholesalers and independent dealers. Substantially all sales are to customers
within the United States.
INTERIM FINANCIAL INFORMATION
The financial statements for the three months ended March 31, 1996 and 1995 are
unaudited but include all adjustments (consisting of normal recurring
adjustments) that the Company considers necessary for a fair presentation.
Operating results for the three months ended March 31, 1996 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1996. Financial disclosures herein relating to matters subsequent to March 19,
1996 are unaudited.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies followed in the preparation of the consolidated
financial statements are as follows:
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
The Company considers all highly-liquid, interest-bearing instruments with an
original maturity of three months or less to be cash equivalents. Restricted
cash of $3,619 as of December 31, 1995 and $10,759 as of March 31, 1996
(unaudited) represents funds the Company, as servicer, has made available to the
trustee of the trust that purchased the Company's trade accounts receivable
(Note 4), in the event of nonperformance, defaults or other losses related to
such receivables.
F-9
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
REVENUE RECOGNITION
The Company recognizes revenue upon shipment of the product. All risks and
rewards of ownership pass to the customer upon shipment. Damaged or defective
products may be returned to the Company for replacement or credit. The Company
also offers sales rebates to customers based on level of sales activity. The
effects of returns and discounts are estimated and recorded at the time of
shipment. Volume rebates are estimated and recorded based on sales activity.
CONCENTRATION OF CREDIT RISK
The Company sells its products into various wholesale and retail channels,
primarily for the commercial office products marketplace. Management believes
its credit policies are prudent and reflect normal industry terms and business
risks. The Company performs credit evaluations of its customers and does not
require collateral. Historically, the Company has not experienced significant
losses related to individual customers or groups of customers in any particular
industry or geographic area. An allowance is maintained at a level which
management believes is sufficient to cover potential credit losses including
potential losses on receivables sold.
INVENTORIES
Inventories, which consist primarily of paper and converted paper products, are
stated at the lower of cost or market. Cost is determined by the last-in,
first-out (LIFO) method.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the individual assets.
Repairs and maintenance costs are expensed as incurred.
GOODWILL AND INTANGIBLE ASSETS
Goodwill represents cost in excess of fair value of the net assets of companies
acquired in purchase transactions. Goodwill is amortized using the straight-
line method over periods ranging from 20 to 40 years (Note 3). Intangible
assets represent trade names acquired in the WR acquisition (Note 3). Trade
names are amortized using the straight-line method. Trade names in the
aggregate gross amount of $31,700 are amortized over 40 years. Trade names in
the aggregate gross amount of $6,200 are amortized over 15 years. The Company
periodically reviews goodwill and other intangible assets to assess
recoverability. Impairment is measured based on the expected undiscounted cash
flows of the operations giving rise to the goodwill and other intangible assets
compared to the carrying cost of the related assets including goodwill and other
intangible assets. Based upon its most recent analysis, the Company believes
that no impairment of goodwill and intangible assets exists at December 31,
1995. Amortization expense was $114 in 1994, $879 in 1995 and $38 and $1,036
for the three months ended March 31, 1995 and 1996, respectively (unaudited).
There was no amortization expense in 1993.
F-10
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
DEBT ISSUANCE COSTS
Costs associated with debt issuances are capitalized and amortized to interest
expense using the effective interest method over the terms of the related debt
agreements (Note 8).
INCOME TAXES
The Company accounts for income taxes following the liability method, as set
forth in Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (FAS 109). FAS 109 prescribes an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
future tax consequences of events that have been recognized in the Company's
financial statements or tax returns. Deferred tax assets are recognized, net of
any valuation allowance, for deductible temporary differences and tax operating
loss and credit carryforwards. Deferred tax expense represents the change in
the deferred tax asset or liability balances.
EARNINGS PER SHARE
Earnings per share is not presented as the Company is essentially closely held
and therefore such information is not meaningful.
DERIVATIVES
Premiums paid for interest rate cap agreements are amortized as interest expense
over the term of the agreement. Amounts receivable under interest rate cap
agreements are recorded as a reduction of interest expense (Note 8).
FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying values of cash, accounts receivable, accounts payable and accrued
expenses approximate fair value due to the short-term maturities of these assets
and liabilities. The carrying value of senior bank debt bearing interest at
floating rates approximates fair value. The carrying value at December 31, 1995
of the 13% Senior Subordinated Notes approximates fair value as the notes were
issued in a private placement offering near the end of 1995.
3. ACQUISITIONS
WR ACQUISITION, INC./DELAWARE
APP acquired WR and its wholly-owned subsidiary Delaware through a merger
transaction effective October 31, 1995 (Note 1). The transaction was accounted
for under the purchase method of accounting. Accordingly, the aggregate
acquisition cost was allocated to the net assets acquired based on the fair
market value of such net assets in accordance with Accounting Principles Board
Opinion (APB) No. 16. The aggregate acquisition cost totaled $147,853 and
consisted of cash of $140,000 and direct acquisition costs of $7,853. The
acquisition was entirely financed through the Bank Credit Agreement (Note 8) and
an off-balance sheet accounts
F-11
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
receivable facility (Note 4), with Ampad, as APP's former direct wholly-owned
subsidiary, deemed to be the acquiror of Delaware for accounting purposes. The
aggregate acquisition cost has been preliminarily allocated to the assets
acquired and liabilities assumed as follows: accounts receivable of $39,174;
inventories of $49,496; prepaid expenses and other assets of $8,699; net assets
held for sale of $40,851; property and equipment of $88,688; identifiable
intangible assets of $37,900; deferred income tax liability of $27,644; accounts
payable of $17,518; accrued expenses of $36,482; noncurrent liabilities of
$2,019 and assumed debt of $152,905. The aggregate acquisition costs exceeded
fair market value of the net assets acquired by $119,613. Accordingly, goodwill
was recorded in accordance with APB No. 16. The goodwill is being amortized over
40 years. The operating results of Delaware have been included in the
accompanying consolidated financial statements since the date of acquisition.
The businesses acquired include the Williamhouse division, a manufacturer of a
wide range of mill branded, specialty and commodity envelopes; and the Regency
division, which provides custom imprinting services.
The Regency personalized stationery and invitations division (the Personalizing
Division) acquired in the Acquisition was held for sale at December 31, 1995 and
March 31, 1996 (unaudited). The purchase price allocated to the net assets
acquired includes the expected proceeds from sale plus the net cash flows
expected to be generated from the Personalizing Division from date of
acquisition through the expected date of sale (the holding period), offset by
interest expense incurred during the holding period on debt incurred to finance
the purchase of the Personalizing Division. During the period from acquisition
through December 31, 1995 and the three month period ended March 31, 1996
(unaudited), the Personalizing Division had an operating loss of $913 and
operating income of $2,011, respectively, and interest carrying costs of $556
and $942, respectively, which have been excluded from the statement of
operations and included as adjustments to the carrying amount of the net assets
held for sale in the consolidated balance sheets at December 31, 1995 and March
31, 1996 (unaudited).
Certain costs are expected to be incurred in connection with integrating and
consolidating certain plant, administrative and sales functions of Delaware with
Ampad, and the closure of Williamhouse-Regency's corporate headquarters and the
associated net reduction of approximately 200 employees. Such costs,
aggregating $17,500, include lease termination expenses, severance and
contractual change of control benefits, the liability for which was included in
the purchase price allocation within accrued expenses. Substantially all such
actions are expected to be completed prior to October 31, 1996.
GLOBE-WEIS
Effective August 16, 1995, the Company acquired the inventories and certain
equipment of the file folder and hanging file folder product lines of Globe-
Weis's ("Globe") office products division from Globe's parent. For financial
reporting purposes, this acquisition was accounted for under the purchase method
of accounting. Accordingly, the aggregate acquisition cost was allocated to the
net assets acquired based on the fair value of such net assets in accordance
with APB No. 16. The aggregate acquisition costs totaled $19,669 and consisted
of cash of $6,622,
F-12
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
notes issued to the seller of $10,958 and direct acquisition and financing costs
of $2,089. The company principally financed the acquisition through its
financing arrangement with a commercial lender as described in Note 8 and notes
issued to the seller. The allocation of the aggregate acquisition costs was as
follows: inventories of $12,848, equipment of $5,156, and debt issuance costs of
$1,665. The purchase agreement provides for a purchase price adjustment
mechanism pending receipt of final priced inventory listings from Globe. The
purchase price has not yet been finalized. The purchase price allocation was
based on management's estimate of the final purchase price. Management does not
believe the actual purchase price will vary significantly from their estimate.
The operating results of this acquisition have been included in the accompanying
consolidated financial statements since the date of acquisition.
SCM OFFICE SUPPLIES
Effective July 5, 1994, the Company acquired the assets and assumed certain
liabilities of SCM Office Supplies, Inc. For financial reporting purposes, this
acquisition was accounted for under the purchase method of accounting.
Accordingly, the aggregate acquisition cost was allocated among the net assets
acquired based on the fair market value of such net assets in accordance with
APB No. 16. The aggregate acquisition cost totaled $14,372 and consisted of
cash of $12,880 and direct acquisition and financing costs of $1,492. The
Company principally financed the acquisition through its financing arrangement
with a commercial lender as described in Note 8. The allocation of the
aggregate acquisition cost to the assets acquired and liabilities assumed was as
follows: accounts receivable of $7,922, inventories of $6,857, prepaid expenses
and other assets of $16, debt issuance costs of $628, property and equipment of
$5,441, net deferred income tax assets of $1,553, accounts payable of $4,235,
and accrued liabilities of $6,333. The aggregate acquisition cost exceeded fair
market value of the net assets acquired by approximately $2,523. Accordingly,
goodwill was recorded in accordance with APB No. 16. The goodwill is being
amortized over 20 years. The operating results of this acquisition have been
included in the accompanying consolidated financial statements since the date of
acquisition.
The following summary presents the results of operations for the years ended
December 31, 1994 and 1995, on an unaudited pro forma basis, as if the WR
Acquisition, Inc., Globe and SCM acquisitions had occurred as of January 1, 1994
(with appropriate adjustments for amortization of intangible assets, interest
expense, elimination of duplicate selling and administrative expenses and the
related income tax effects). The pro forma operating results are for
illustrative purposes only and do not purport to be indicative of the actual
results which would have occurred had the transactions been consummated as of
those earlier dates, nor are they indicative of results of operations which may
occur in the future.
F-13
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
YEARS ENDED
DECEMBER 31,
1994 1995
------------- ------------
(unaudited)
Net sales $ 454,667 $ 511,307
Income (loss) before income taxes and
extraordinary item $ (25,700) $ 4,108
=========== ===========
Net income (loss) before extraordinary
item $ (18,300) $ 3,428
=========== ===========
Net income (loss) from continuing
operations after extraordinary item $ (18,300) $ (6,224)
=========== ===========
4. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
DECEMBER 31, MARCH 31,
1994 1995 1996
------------ ----------- -----------
(unaudited)
Accounts receivable - trade............. $ 17,376 $ 25,539 $ 17,263
Accounts receivable - other............. 64 2,013 2,795
Less allowance for doubtful accounts and
reserves for customer deductions and
cash discounts........................ (475) (1,609) (1,651)
-------- -------- --------
$ 16,965 $ 25,943 $ 18,407
======== ======== ========
The Company sold an undivided ownership interest in a revolving pool of trade
accounts receivable for $45,000 in October 1995. The sold accounts receivable
are excluded from receivables in the accompanying balance sheets. The full
amount of the allowance for doubtful accounts has been retained because the
Company has retained substantially the same risk of credit loss as if the
receivables had not been sold through the recourse provision of the receivable
sale agreement. Under the agreement, the maximum amount of the purchasers
investment is subject to change based on the level of eligible receivables and
restrictions on concentrations of receivables.
The total cost of the program was $423 in 1995 and $323 for the three months
ended March 31, 1996 (unaudited) and is included in general and administrative
expenses in the consolidated statement of operations. The agreement expires in
2000.
Bad debt expense for 1993, 1994, 1995 and the three months ended March 31, 1995
and 1996 (unaudited) was immaterial.
F-14
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
5. INVENTORIES
Inventories consist of the following:
DECEMBER 31, MARCH 31,
1994 1995 1996
-------- -------- ----------
(unaudited)
Raw materials and semi-finished goods.. $ 15,784 $ 36,129 $ 33,368
Work in process........................ 2,689 7,114 9,203
Finished goods......................... 20,467 60,266 59,409
-------- -------- --------
38,940 103,509 101,980
LIFO reserve (5,966) (10,448) (8,814)
-------- -------- --------
$ 32,974 $ 93,061 $ 93,166
======== ======== ========
In connection with the Acquisition (Note 3), Delaware's total inventories for
financial accounting purposes were written up by $13,948 to fair market value at
October 31, 1995, including reversal of $6,695 related to Delaware's historical
LIFO reserves. Since the Company is on the LIFO method of accounting, such
write-up will form the historical base year cost for the acquired inventories
and will not impact the statement of operations unless a decrement of base
inventory quantities occurs. During the two months subsequent to October 31,
1995, certain acquired inventory quantities were liquidated and $453 of the fair
value write-up was charged to cost of sales.
Inventory quantities of Ampad were reduced during 1995 which resulted in
liquidation of LIFO inventory layers carried at lower costs which prevailed in
prior years. The effect of the liquidation of Ampad inventory in 1995 was to
decrease cost of sales $557 and to increase net income by $334. There were no
liquidations of LIFO inventories in 1994 or 1993.
F-15
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
6. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES DECEMBER 31, MARCH 31,
IN YEARS 1994 1995 1996
------------- ------------- ----------- ---------
(unaudited)
<S> <C> <C> <C> <C>
Land........................... $ 31 $ 4,949 $ 4,961
Buildings...................... 40 642 22,997 22,866
Machinery and equipment........ 10-12 6,274 71,094 70,302
Office furniture and fixtures.. 3-5 2,891 5,747 6,432
Construction in progress....... 261 6,560 8,760
------- -------- --------
10,099 111,347 113,321
Less accumulated depreciation
and amortization.............. (1,210) (4,579) (6,563)
------- -------- --------
$ 8,889 $106,768 $106,758
======= ======== ========
</TABLE>
In connection with the Acquisition (Note 3), acquired property, plant and
equipment was appraised at $36,285 in excess of historical book value as of
October 31, 1995, including $1,443, $1,664 and $33,178 allocated to land,
buildings and machinery and equipment, respectively.
Depreciation expense was $159 in 1993, $828 in 1994, $3,369 in 1995 and $490 and
$1,984 for the three months ended March 31, 1995 and 1996, respectively
(unaudited).
7. ACCRUED EXPENSES
Accrued expenses consist of the following:
DECEMBER 31, MARCH 31,
1994 1995 1996
------------ ------- -----------
(unaudited)
Acquisition integration costs.. $2,003 $17,567 $15,534
Sales volume discounts......... 2,436 11,414 5,211
Salaries and wages............. 1,148 6,682 5,395
Interest....................... 472 3,748 10,651
Other.......................... 1,869 5,424 6,480
------ ------- -------
$7,928 $44,835 $43,271
====== ======= =======
F-16
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
8. BORROWINGS
Long-term debt of the Company, which is subject to mandatory repayments under
certain conditions (as described below), consists of the following:
DECEMBER 31, MARCH 31,
1994 1995 1996
------------ ----------- -------
(unaudited)
Senior bank debt:
Term Loan A due 1996-2000.......... $ $ 69,843 $92,875
Term Loan B due 1996-2002.......... 65,000 65,000
Term Loan C due 1996-2003.......... 45,000 45,000
Term Loan D due 1996-2004.......... 40,000 40,000
13% Senior Subordinated Notes
due 2005............................ 200,000 200,000
WR seller notes payable due January
1996................................ 25,157
Industrial revenue bonds............. 8,049 8,049
Capitalized lease obligations........ 2,579 2,480
Floating rate bank debt.............. 16,458
15% subordinated notes payable to
stockholders and management......... 3,563
8.5% to 15% Ampad seller notes....... 2,485
Other................................ 155 115
------- -------- --------
22,661 455,628 453,519
Less: current portion................ (2,772) (11,834) (13,066)
------- -------- --------
$19,889 $443,794 $440,453
======= ======== ========
Future maturities of long-term debt at December 31, 1995 are as follows:
1996........ $ 11,834
1997........ 16,787
1998........ 21,179
1999........ 27,654
2000........ 31,162
Thereafter.. 347,012
--------
$455,628
========
SENIOR BANK DEBT
The Company entered into a bank credit agreement effective October 31, 1995
consisting of $245,000 of term loans in the form of a multitranche facility, a
$45,000 revolving credit facility and an IRB Letter of Credit Facility of
$13,400 (the "Bank Credit Agreement"). Interest rates
F-17
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
on the term loans are floating and based, at the Company's option, on either the
Eurodollar rate (as defined in the agreement) plus 275 to 400 basis points or
the bank base rate (as defined in the agreement) plus 175 to 300 basis points.
The basis point additions vary by tranche. Interest is payable quarterly under
the bank base rate option and on the last day of the selected interest period
under the Eurodollar rate option. If the interest period on Eurodollar loans
exceeds three months, then interest payments are due every three months (at
December 31, 1995, the Company selected the Eurodollar rate option). The
effective interest rates by tranche at December 31, 1995 and March 31, 1996
(unaudited) are as follows:
March 31, 1996
December 31, 1995 (unaudited)
Eurodollar Bank base Eurodollar Bank base
option rate option option rate option
----------- ------------ --------------- ------------
Term Loan A.. 8.66% 10.25% 8.22% 10.07%
Term Loan B.. 9.28% 10.88% 8.72% 10.75%
Term Loan C.. 9.66% 11.25% 9.10% 11.13%
Term Loan D.. 9.91% 11.75% 9.34% 11.38%
The revolving credit facility is a five-year facility bearing interest at a
floating rate based, at the Company's option, on either the Eurodollar rate plus
275 basis points or the bank base rate plus 175 basis points, or an effective
rate of 8.66% at December 31, 1995 and 8.13% at March 31, 1996 (unaudited) under
the Eurodollar rate option and 10.25% at December 31, 1995 and 10.00% at March
31, 1996 (unaudited) under the bank base rate option, respectively. A
commitment fee of 0.5% is payable quarterly on the unused portion of the
facility. The revolving credit facility includes a letter of credit sublimit of
$20,000. There were no borrowings outstanding under this facility at December
31, 1995 or March 31, 1996 (unaudited).
The Bank Credit Agreement requires the Company to meet certain financial tests,
including minimum levels of EBITDA (as defined in the agreement), minimum
interest coverage and maximum leverage ratio. The agreement also contains
covenants which, among other things, limit the incurrence of additional
indebtedness, dividends, transactions with affiliates, asset sales,
acquisitions, mergers, and other matters customarily restricted in such
agreements. The Bank Credit Agreement contains customary events of default,
including payment defaults, breach of representations and warranties, covenant
defaults, cross-defaults to certain other indebtedness, certain events of
bankruptcy and insolvency, ERISA, judgment defaults, failure of any guaranty or
security agreement supporting the bank credit agreement to be in full force and
effect and change of control.
The Bank Credit Agreement required the Company to purchase an interest rate cap
covering a portion of the outstanding balance under the agreement. In January
1996, the Company entered into a four-year agreement that entitles the Company
to receive from the counterparty on a quarterly basis the amount, if any, by
which LIBOR exceeds 6.5% for the first two years of the agreement and 7.5% for
the last two years on a notional principal amount of $100,000. The counterparty
to this agreement is a large financial institution.
F-18
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
The Bank Credit Agreement provides for mandatory prepayment, subject to certain
exceptions, upon the occurrence of certain events including, but not limited to,
asset sales (including the net assets held for sale as described in Note 3),
certain debt and equity issuances, insurance recovery events and the
accumulation of Excess Cash Flows, as defined (with a requirement to pay 50% of
Excess Cash Flow for the period ended December 31, 1995 and 75% of Excess Cash
Flow per annum thereafter).
The Bank Credit Agreement is guaranteed by APP and all subsidiaries of the
Company, except for Notepad Funding Corporation, and is secured by substantially
all assets of the Company and a pledge of all capital stock of the Company and
its subsidiaries.
SENIOR SUBORDINATED NOTES
The Company issued $200,000 of 13% Senior Subordinated Notes through a private
placement in December 1995. The notes are unsecured and subordinated to all
senior bank debt. Interest is payable semi-annually on May 15 and November 15.
The notes are redeemable after November 15, 2000, at the Company's option, at
redemption prices ranging from 106.5% of the face value of the notes in 2000 to
100% of the face value of the notes in 2003 or thereafter. Additionally, at any
time on or prior to November 15, 1998, the Company may, at its option, use the
proceeds of public equity offerings of the Company or APP to redeem up to 35% of
the notes at redemption prices ranging from 111% to 113% of the face value of
the notes.
The notes require the Company to file a registration statement with the
Securities Exchange Commission within 120 days of issuance to exchange the notes
for new notes (the Exchange Notes) of the Company having terms substantially
identical to the notes. The Company must use its best efforts to cause such
registration statement to be declared effective within 180 days after issuance
of the notes and consummate the exchange within 225 days after issuance of the
notes.
The notes are fully and unconditionally guaranteed by all subsidiaries of the
Company, except for Notepad Funding Corporation, on a joint and several and
senior subordinated basis (Note 14). The notes contain restrictive covenants
which, among other things, limit dividends, repurchase of capital stock and
investments, incurrence of additional indebtedness, transactions with affiliates
and other matters customarily restricted in such agreements.
OTHER
WR seller notes in the amount of $25,157 outstanding at December 31, 1995, were
repaid in January 1996 from the proceeds of the remaining borrowings issuable
under Term Loan A of the Bank Credit Agreement. The WR seller notes bore
interest at 1% and are classified as long-term in the consolidated balance sheet
at December 31, 1995 since such debt was refinanced with long-term debt.
At December 31, 1995, the Company had outstanding various industrial revenue
bonds in the aggregate amount of $8,049. The industrial revenue bonds bear
interest at rates ranging from 5.10% to 5.25%. Aggregate annual principal
payments ranging from $350 to $2,970 are due through 2010. Payment of principal
and interest on the industrial revenue bonds are guaranteed
F-19
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
by the Company or various wholly-owned subsidiaries. The industrial revenue
bonds are secured by letters of credit. At December 31, 1995 and March 31, 1996
(unaudited), letters of credit in the aggregate amount of $15,800 and $12,677,
respectively, were outstanding.
At December 31, 1994, the Company had outstanding notes payable to various
lenders in the aggregate amount of approximately $22,700 with effective interest
rates ranging from 8% to 15%. All of the notes payable outstanding at December
31, 1994, were either refinanced with the proceeds of the Bank Credit Agreement
or repaid in accordance with their terms.
At December 31, 1994, the Company had a revolving line of credit with a
commercial lender with an outstanding balance of $22,767. The revolving line of
credit carried an interest rate of 1.5% above the bank's prime rate (an
effective rate of 10% at December 31, 1994). The facility was repaid and
terminated in 1995 and replaced by the Bank Credit Agreement.
The proceeds from the Bank Credit Agreement were used to consummate the
Acquisition (Note 3), and refinance existing indebtedness of the Company.
On December 1, 1995, $200,000 of proceeds were received from the 13% Senior
Subordinated Notes which were used to repurchase $100,000 of publicly-held notes
of Delaware assumed in the Acquisition and pay a dividend to WR and APP to
redeem preferred stock and preferred stock equivalents of APP, as well as APP's
Class P common, in the aggregate amount of $75,000.
The Company incurred fees related to the transactions of approximately $33,200,
which have been deferred and are being amortized using the effective interest
method over the respective lives of the agreements.
An extraordinary after-tax loss on extinguishment of debt of $9,652 ($16,086
pretax) is reflected in the statement of operations for the year ended December
31, 1995 as a result of $10,812 of prepayment penalties associated with the
repurchase of Delaware's $100,000 of notes and Ampad's bank debt and the write-
off of $5,274 of unamortized deferred financing costs in connection with
Delaware's notes redemption and Ampad's debt refinancings.
9. STOCK OPTIONS AND NONRECURRING COMPENSATION CHARGE
At January 1, 1995, options for 126,405 shares of common stock of APP had been
issued to certain members of the Company's management under the 1992 Key
Employee Stock Option Plan (the "1992 Plan") in two separate tranches -- "Core"
stock options for 93,428 shares and "Performance" stock options for 32,977
shares. The exercise price of all options equaled or exceeded the fair market
value at date of grant and the vesting date for both "Core" and "Performance"
stock options is ten years from grant date, unless an Acceleration Event, as
defined, occurs. In connection with the Acquisition of WR effective October 31,
1995 (Note 3), the equity of APP was recapitalized via a stock dividend of one
share of preferred stock for every ten shares of APP common stock and Class P
common and options to purchase common stock. Concurrently, preferred stock
options were granted to holders of common stock options and the respective
exercise prices were adjusted to maintain option holders' pro rata economic
interests pursuant to antidilution provisions included in the existing stock
option plans.
F-20
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
The issuance of the preferred stock options was considered additional
consideration to restore the option holders' economic position as a result of
the recapitalization, which was directly related to the Acquisition. Receipt of
such consideration resulted in a nonrecurring, noncash compensation charge equal
to the excess of fair market value over the exercise price of the preferred
stock options of $24,265 with a corresponding credit to additional paid-in
capital. The adjustment to the underlying common stock option's prices did not
result in additional compensation expense in accordance with generally accepted
accounting principles.
Additionally, options for 8,109 shares of APP's common stock and 810.9 shares of
APP's preferred stock were granted to certain members of management in December
1995. The exercise prices of $0.06 per common share and $3.60 per preferred
share were below the fair market value of the respective classes of stock at
date of grant, resulting in a noncash compensation charge equal to the aggregate
excess of fair market value over the exercise price, or $1,733, with a
corresponding credit being recorded to additional paid-in capital.
The following table summarizes the option activity for the years ended December
31, 1993, 1994, 1995 and the three month period ended March 31, 1996
(unaudited):
APP APP
Common Stock Preferred Stock
Number of Exercise Number of Exercise
Shares Price Shares Price
--------- -------- --------- --------
Outstanding,
December 31, 1992
and 1993........... 111,236 $ 0.42
Granted in 1994...... 15,169 $25.00
-------
Outstanding,
December 31, 1994.. 126,405 $0.42-$25.00
Granted in 1995...... 8,109 $.06 13,451.4 $3.60-$214.29
Redeemed in 1995..... (4,715.4)
------- --------
Outstanding,
December 31, 1995
and March 31, 1996
(unaudited)........ 134,514 $.06-$3.57 8,736.0 $3.60-$214.29
======= =======
All options are exercisable at December 31, 1995 and March 31, 1996 (unaudited).
The Company has elected not to early adopt the provisions of Statement of
Financial Accounting Standards No. 123 ("SFAS 123") "Accounting for Stock Based
Compensation." The Company will adopt the reporting provisions of SFAS 123 in
1996. The Company expects the adoption to have no effect on its financial
condition or results of operations.
F-21
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
The Company awarded additional compensation to executives and nonexecutives of
$1,634 in 1995 in recognition of the significant transactions consummated during
the year. The Company does not expect this additional compensation to be
awarded in future years.
10. PENSION PLAN AND 401(K) PLAN
The Company is liable for a supplemental, nonqualified, noncontributory, defined
benefit pension plan covering certain former Ampad executives, which was assumed
in the initial acquisition of Ampad by APP in June 1992. Benefits are based on
a percentage of prior compensation less expected social security benefits. The
present value of the liability associated with this plan is $678, $636 and $611
at December 31, 1994, 1995 and at March 31, 1996 (unaudited), respectively, and
is included in other liabilities in the consolidated balance sheet.
The Company maintains a retirement plan (401(k) plan) for the benefit of all
employees who meet minimum age and service requirements. Company contributions
to the plan may be made at the discretion of the board of directors.
Contributions to the plan were approximately $515, $557, $568, $51 and $78 for
the years ended December 31, 1993, 1994, 1995, and the three months ended March
31, 1995 and 1996 (unaudited), respectively.
11. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
------------------------ ------------------
1993 1994 1995 1995 1996
------- ------- ------ -------- --------
(unaudited)
[S] [C] [C] [C] [C] [C]
Current:
Federal................ $ $ $ $ $ 21
State.................. 169 3
----- ----- ------- ----- -------
169 24
Deferred provision
(benefit) for income
taxes................... 64 (488) (13,141) 366 78
----- ----- ------- ----- -------
$ 64 $(488) $(12,972) $ 366 $ 102
===== ===== ======== ===== =======
F-22
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
A reconciliation between the statutory U.S. federal income tax rate and the
Company's effective tax rate is as follows:
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------- --------------------
1993 1994 1995 1995 1996
------ ------- ------- ------ -----------
(unaudited)
Federal income tax rate.. 35.0% (35.0)% (35.0)% 35.0% 35.0%
Adjustment to valuation
allowance............... (31.9)% 14.7% (6.4)%
Effect of acquisition.... 19.3%
Change in enacted rates.. (7.8)% .4%
Goodwill................. 2.8%
Meals and entertainment.. .2%
Life insurance........... .2%
Miscellaneous permanent
differences............. .9%
State taxes, net......... 6.2% (5.2)% (5.0)% 5.0% 5.0%
Other, net............... 1.9% (.3)% (1.4)% (1.7)% 1.2%
----- ----- ----- ---- ----
Effective tax rate 3.4% (6.1)% (46.9)% 38.3% 44.4%
===== ===== ===== ==== ====
Temporary tax differences affected and categorized by financial statement line
item are as follows:
DECEMBER 31, MARCH 31,
1994 1995 1996
----------- ---------- -----------
(unaudited)
CURRENT DEFERRED TAX ASSETS
(LIABILITIES):
Accrued expenses.................... $ 1,102 $10,523 $10,503
Accounts receivable and allowances.. 191 900 900
LIFO reserve........................ (2,478) (7,608) (7,608)
NOL/credits......................... (496) 11,194 10,949
------- ------- -------
Current deferred tax asset (liability),
net................................ $(1,681) $15,009 $14,744
======= ======= =======
F-23
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
DECEMBER 31, MARCH 31,
1994 1995 1996
------------- ---------- -----------
(unaudited)
NONCURRENT DEFERRED TAX ASSETS
(LIABILITIES):
Trademarks and intangibles............. $ $(15,009) $(15,009)
Property and equipment, net............ 2,709 (21,291) (21,291)
NOL carryforwards...................... 4,073
Noncash compensation expense credited
to paid-in-capital.................... 6,776 6,776
Other accrued liabilities.............. 235 254 254
Deferred financing costs............... (15)
Seller note discount................... (117)
State taxes effect and other, net...... (804) (800) (641)
----- -------- --------
Noncurrent deferred tax asset
(liability), net...................... 6,081 (30,070) (29,911)
Deferred tax asset valuation allowance. (1,769)
----- -------- --------
Noncurrent deferred tax asset (liability),
net................................... $ 4,312 $(30,070) $(29,911)
======= ======== ========
The valuation allowance represents the amount of the deferred tax assets which
may not be realized through taxable income from future operations. The
Company's provision for income taxes may be impacted by adjustments to the
valuation allowance which may be required if circumstances change regarding the
realizability of the deferred tax assets in future periods.
The effect on the income tax provision related to the valuation allowance was a
benefit of $1,769 for the year ended December 31, 1995. Deferred tax assets
valuation allowances recorded in prior years were reversed in 1995 as a result
of management's assessment of future realizability of deferred tax assets. For
the year ended December 31, 1994, the effect on the income tax provision related
to the valuation allowance was a charge of $1,180. The charge primarily related
to an increase in the NOL carryforwards for which no benefit was recognized
during 1994.
At December 31, 1995, the Company has net operating losses available to reduce
future taxable income of approximately $25,007. These net operating loss
carryforwards expire in the years 2007 through 2010. If certain substantial
changes in the Company's ownership should occur, there would be an annual
limitation on the amount of the carryforwards which can be utilized. In
addition, the Company has approximately $1,200 of alternative minimum tax credit
carryforwards. The acquisition of WR (See Note 3) resulted in a change in
control of Delaware, consequently the utilization of these credits in future
periods are subject to limitation.
F-24
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
12. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
The Company is obligated under noncancelable operating leases for office space
and machinery and equipment which expire at various times through 1997. Future
minimum lease commitments under these leases are as follows:
YEARS ENDING
DECEMBER 31,
- ------------
1996........................... $ 2,110
1997........................... 2,026
1998........................... 1,894
1999........................... 1,430
2000........................... 1,214
Thereafter..................... 6,503
-------
Total minimum lease payments.. $15,177
=======
Total rent expense under noncancelable operating leases was approximately $775,
$853, $1,888 and $148 and $1,122 for 1993, 1994, 1995 and the three month
periods ended March 31, 1995 and 1996 (unaudited), respectively.
In October 1995, the Company entered into a ten-year management services
agreement with Bain Capital pursuant to which the Company will pay Bain Capital
an aggregate annual fee of no less than $2.0 million.
LITIGATION
There are various outstanding claims against the Company arising in the normal
course of business. Management, on the advise of counsel, believes that the
claims are without merit and that any losses which might ultimately be sustained
by the Company would not be material to the financial position or results of
operations of the Company.
ENVIRONMENTAL MATTERS
The Company is subject to federal, state, and local environmental and
occupational health and safety laws and regulations. Such laws and regulations
impose limitations on the discharge of pollutants and establish standards for
management of waste. While there can be no assurance that the Company is at all
times in complete compliance with all such requirements, the Company has made
and will continue to make capital and other expenditures to comply with such
requirements.
F-25
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
The Company's Ampad division has been named a potentially responsible party
under the federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, at five waste disposal sites. The Company
settled its liability at four of these sites as a de minimis party. The Company
expects to be eligible for a de minimis settlement at the remaining site.
13. RELATED PARTY TRANSACTIONS
For the years ended December 31, 1993, 1994 and 1995, the Company paid $431,
$684, and $937, respectively, for management and directors' fees to the
principal shareholders of APP (Bain Capital). No fees were paid for the three
month periods ended March 31, 1995 and 1996 (unaudited). Unpaid fees of $128
and $500 are included in accrued expenses in the consolidated balance sheets at
December 31, 1994 and March 31, 1996 (unaudited). There were no unpaid fees at
December 31, 1995.
Included in other assets in the consolidated balance sheet at December 31, 1994
and 1995 and March 31, 1996 (unaudited) is a note receivable of $106, $112 and
$114, respectively, due from an officer and shareholder of the Company.
Interest expense is accrued monthly at an annual rate of 6.19% and the note is
due in 1998.
The Company paid $7,000 in 1995 to Bain Capital for services relating to the
Acquisition of WR and the related financing of the transaction. Of this amount,
$4,300 was included in deferred financing fees and $2,700 was a direct
acquisition expense allocated to the net assets acquired as discussed in Note 3.
The Company also paid $450 in 1995 to Bain Capital relating to the Globe-Weis
acquisition (Note 3) which was included in deferred financing fees and
subsequently included as a component of the extraordinary loss from
extinguishment of debt. The Company paid Bain Capital $225 in 1994 for services
related to the SCM acquisition and the related financing of the transaction.
14. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
OF GUARANTOR SUBSIDIARIES
The 13% Senior Subordinated Notes are guaranteed by substantially all of the
subsidiaries of the Company. The subsidiary guarantees are full, unconditional
and joint and several. Each of the guarantor subsidiaries are wholly-owned.
Separate financial statements of the guarantor subsidiaries are not presented
because management has determined that they would not be material to investors.
However, condensed consolidating financial information as of December 31, 1995
and for the year then ended, and as of March 31, 1996 and for the three months
then ended (unaudited), are presented. The condensed consolidating financial
information is as follows:
F-26
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATING BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR CONSOLIDATED
ASSETS COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
--------- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash............................... $ 18,295 $ 33 $ 13 $ $18,341
Restricted Cash.................... 3,619 3,619
Accounts receivable................ (13,490) (154) 39,587 25,943
Intercompany receivable
(payable)......................... 75,423 (72,255) (3,168) -
Refundable income taxes............ 3,657 3,657
Inventories........................ 74,112 18,949 93,061
Assets held for sale............... 864 41,714 42,578
Deferred income taxes.............. 17,395 (2,386) 15,009
Other current assets............... 879 48 927
-------- -------- -------- -------- --------
Total current assets............. 180,754 (14,051) 36,432 203,135
-------- -------- -------- -------- --------
Property and equipment............. 73,097 37,357 110,454
Less: accumulated
depreciation...................... (3,438) (248) (3,686)
-------- -------- -------- -------- --------
Net property and equipment....... 69,659 37,109 106,768
-------- -------- -------- -------- --------
Investment in subsidiaries......... 41,575 (41,575)
Intangible assets, net............. 34,196 3,504 37,700
Debt issuance costs, net........... 30,160 182 2,587 32,929
Goodwill, net...................... 107,076 13,307 120,383
Other.............................. 3,311 130 3,441
-------- -------- -------- -------- --------
Total assets..................... $466,731 $40,181 $39,019 $(41,575) $504,356
======== ======== ======== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt.. $10,652 $ 1,182 $ $ $11,834
Accounts payable and accrued
expenses.......................... 62,869 19,014 81,883
Income taxes payable............... 494 494
-------- -------- -------- -------- --------
Total current liabilities........ 74,015 20,196 94,211
-------- -------- -------- -------- --------
Long-term debt..................... 442,134 1,660 443,794
Other liabilities.................. 2,702 2,702
Deferred income taxes.............. 14,301 15,769 30,070
-------- -------- -------- -------- --------
Total liabilities................ 533,152 37,625 570,777
-------- -------- -------- -------- --------
Commitments and contingencies
Stockholder's equity:
Common stock....................... 1 10 (11)
Additional paid-in capital......... 28,998 37,370 (37,370) 28,998
Retained earnings.................. (95,419) 2,555 1,639 (4,194) (95,419)
-------- -------- -------- -------- --------
Total stockholder's equity....... (66,421) 2,556 39,019 (41,575) (66,421)
-------- -------- -------- -------- --------
Total liabilities and
stockholder's equity............ $466,731 $40,181 $39,019 $(41,575) $504,356
======== ======== ======== ======== ========
</TABLE>
F - 27
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATING BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, 1996 (UNAUDITED)
--------------------------
PARENT GUARANTOR NONGUARANTOR CONSOLIDATED
ASSETS COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash............................... $20,026 $ 69 $ 13 $ $20,108
Restricted Cash................... 10,759 10,759
Accounts receivable................ (8,862) (77) 27,346 18,407
Intercompany receivable
(payable)......................... 83,157 (79,132) (4,025)
Inventories........................ 75,731 17,435 93,166
Assets held for sale............... 764 42,808 43,572
Deferred income taxes.............. 17,302 (2,260) (298) 14,744
Other current assets............... 2,009 17 2,026
-------- -------- -------- -------- --------
Total current assets............. 200,886 (21,140) 23,036 202,782
-------- -------- -------- -------- --------
Property and equipment............. 75,061 38,260 113,321
Less: accumulated depreciation.... (5,892) (671) (6,563)
-------- -------- -------- -------- --------
Net property and equipment....... 69,169 37,589 106,758
-------- -------- -------- -------- --------
Investment in subsidiaries......... 29,447 (29,447)
Intangible assets, net............. 33,924 3,468 37,392
Debt issuance costs, net........... 29,911 160 2,453 32,524
Goodwill, net...................... 107,672 11,983 119,655
Other.............................. 1,556 127 1,683
-------- -------- -------- -------- --------
Total assets..................... $472,565 $32,187 $25,489 $(29,447) $500,794
======== ======== ======== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt.. $11,886 $ 1,180 $ $ $13,066
Accounts payable and accrued
expenses.......................... 75,036 4,924 79,960
Income taxes payable............... (1,841) 2,359 518
-------- -------- -------- -------- --------
Total current liabilities........ 85,081 8,463 93,544
-------- -------- -------- -------- --------
Long-term debt..................... 438,793 1,660 440,453
Other liabilities.................. 3,179 3,179
Deferred income taxes.............. 11,805 18,106 29,911
-------- -------- -------- -------- --------
Total liabilities................ 538,858 28,229 567,087
-------- -------- -------- -------- --------
Commitments and contingencies
Stockholder's equity:
Common stock....................... 1 10 (11)
Additional paid-in capital......... 28,998 23,392 (23,392) 28,998
Retained earnings.................. (95,291) 3,957 2,087 (6,044) (95,291)
-------- -------- -------- -------- --------
Total stockholder's equity....... (66,293) 3,958 25,489 (29,447) (66,293)
-------- -------- -------- -------- --------
Total liabilities and
stockholder's equity............. $472,565 $32,187 $25,489 $(29,477) $500,794
======== ======== ======== ======== ========
</TABLE>
F - 28
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATING STATMENT OF OPERATIONS
The following condensed consolidating statement of operations includes the
results of operations of the Company for the year ended December 31, 1995,
including the results of Delaware and Notepad Funding Corporation for the post-
October 31, 1995 period.
<TABLE>
<CAPTION>
PARENT GUARANTOR NONGUARANTOR CONSOLIDATED
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
-------- ------------ ---------- ------------ -----
<S> <C> <C> <C> <C> <C>
Net sales........................ $238,989 $20,352 $ $ $259,341
Cost of sales.................... 197,033 14,781 211,814
-------- -------- -------- -------- --------
Gross profit................... 41,956 5,571 47,527
-------- -------- -------- -------- --------
Operating expenses:
Selling and marketing........... 5,730 524 6,254
General and admini-
strative....................... 13,278 741 (1,728) 12,291
Nonrecurring compensa-
tion charge.................... 27,632 27,632
-------- -------- -------- -------- --------
Income (loss) from
operations..................... (4,684) 4,306 1,728 1,350
-------- -------- -------- -------- --------
Other income (expense):
Interest........................ (13,531) (37) (89) (13,657)
Other income, net............... 735 1,728 (1,728) 735
Income (loss) before
income taxes................... (17,480) 4,269 1,639 (11,572)
Provision (benefit) for
income taxes................... (8,252) 1,714 (6,538)
-------- -------- -------- -------- --------
Income (loss) before
equity in net earnings of
subsidiaries and extra-
ordinary item.................. (9,228) 2,555 1,639 (5,034)
Equity in net earnings of
subsidiaries................... 4,194 (4,194)
-------- -------- -------- -------- --------
Income (loss) before
extraordinary item............. (5,034) 2,555 1,639 (4,194) (5,034)
Extraordinary loss from
extinguishment of debt, net.... (9,652) (9,652)
-------- -------- -------- -------- --------
Net income (loss)............... $(14,686) $2,555 $1,639 $(4,194) $(14,686)
======== ======== ======== ======== ========
</TABLE>
F - 29
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATING STATMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31, 1996 (UNAUDITED)
--------------------------
PARENT GUARANTOR NONGUARANTOR CONSOLIDATED
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales........................ $87,586 $36,989 $ $(3,157) $121,418
Cost of sales.................... 72,009 29,037 (3,157) 97,889
-------- -------- -------- -------- --------
Gross profit................... 15,577 7,952 23,529
-------- -------- -------- -------- --------
Operating expenses:
Selling and marketing........ 2,488 840 3,328
General and admini-
strative..................... 7,412 1,130 8 (852) 7,698
-------- -------- -------- -------- --------
Income (loss) from
operations................... 5,677 5,982 (8) 852 12,503
-------- -------- -------- -------- --------
Other income (expense):
Interest..................... (12,388) (56) (98) (12,542)
Other income, net............ 653 (384) 852 (852) 269
-------- -------- -------- -------- --------
Income (loss) before
income taxes.................. (6,058) 5,542 746 230
Provision (benefit) for
income taxes.................. (4,335) 4,139 298 102
-------- -------- -------- -------- --------
Income (loss) before
equity in net earnings of
subsidiaries.................. (1,723) 1,403 448 128
Equity in net earnings of
subsidiaries.................. 1,851 (1,851)
-------- -------- -------- -------- --------
Net income (loss).............. $ 128 $ 1,403 $ 448 $(1,851) $ 128
======== ======== ======== ======== ========
</TABLE>
F - 30
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATING CASH FLOW INFORMATION
The following condensed consolidating cash flow information includes the cash
flows of the Company for the year ended December 31, 1995, including the results
of Delaware and Notepad Funding Corporation for the post-October 31, 1995
period.
<TABLE>
<CAPTION>
PARENT GUARANTOR NONGUARANTOR CONSOLIDATED
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by
(used in) operating
activities.................... $ 44,346 $ 2,674 $(42,311) $ $ 4,709
INVESTING ACTIVITIES
Purchase of the stock of
Delaware, including
acquisition costs............. (122,655) (122,655)
Purchase of net assets,
including acquisition
costs......................... (7,046) (7,046)
Other.......................... 1,075 (2,641) (1,566)
-------- -------- -------- -------- --------
Net cash used in investing
activities................... (128,626) (2,641) (131,267)
-------- -------- -------- -------- --------
FINANCING ACTIVITIES
Proceeds from sale of
accounts receivable........... 45,000 45,000
Net repayment under line
of credit..................... (22,767) (22,767)
Proceeds from issuance
of debt....................... 430,052 430,052
Repayment of long-term
debt.......................... (186,546) (186,546)
Redemption premiums
and penalties included
in extraordinary loss......... (10,812) (10,812)
Debt issuance costs............ (32,356) (2,676) (35,032)
Dividends paid................. (75,000) (75,000)
-------- -------- -------- -------- --------
Net cash provided by
financing activities........... 102,571 42,324 144,895
-------- -------- -------- -------- --------
Net increase in cash.......... 18,291 33 13 18,337
Cash at beginning of year..... 4 4
-------- -------- -------- -------- --------
Cash at end of year........... $18,295 $33 $13 $ $18,341
======== ======== ======== ======== ========
</TABLE>
F - 31
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATING CASH FLOW INFORMATION
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31, 1996 (UNAUDITED)
--------------------------
PARENT GUARANTOR NONGUARANTOR CONSOLIDATED
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by
(used in) operating
activities....................... $7,255 $374 $ $ $7,629
INVESTING ACTIVITIES
Other........................... (2,613) (338) (2,951)
-------- -------- -------- -------- --------
Net cash used in investing
activities....................... (2,613) (338) (2,951)
-------- -------- -------- -------- --------
FINANCING ACTIVITIES
Proceeds from issuance
of debt......................... 25,272 25,272
Repayment of long-term
debt............................ (27,380) (27,380)
Debt issuance costs.............. (803) (803)
Dividends paid............
-------- -------- -------- -------- --------
Net cash provided by
financing activities............. (2,911) (2,911)
-------- -------- -------- -------- --------
Net increase in cash............ 1,731 36 1,767
Cash at beginning of period..... 18,295 33 13 18,341
-------- -------- -------- -------- --------
Cash at end of period........... $20,026 $69 $ 13 $ $ 20,108
======== ======== ======== ======== ========
</TABLE>
F - 32
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
15. INDUSTRY SEGMENTS
The Company conducts its business operations in two industry segments: the
Ampad Division, which primarily manufactures and markets a broad line of office
supplies including writing products, filing supplies, and commodity and
speciality envelopes and the Williamhouse Division, which primarily designs and
manufactures a wide range of mill branded, specialty and commodity envelope
products, invitations and announcements and greeting cards. There were no
intersegment sales in 1995. For the three month period ended March 31, 1996
(unaudited), the Williamhouse division had sales of $644 to the Ampad division.
Prior to the acquisition of WR, the Company operated in one segment consisting
of the Ampad Division.
Substantially all of the Company's operations are conducted within the United
States.
Two customers accounted for 27%, and one customer accounted for 11% of the
Company's total net sales for the year ended December 31, 1995 and the three
month period ended March 31, 1996 (unaudited), respectively.
The following table represents industry segment information. Intersegment sales
are transferred at competitive prices. Operating profit by segment consists of
total sales less operating expenses, and exclude general corporate expenses, net
interest expense or income taxes. Corporate assets are principally cash, cash
equivalents, residual interests in a portfolio of accounts receivable sold, debt
issuance costs and net assets held for sale.
F - 33
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE
FOR THE THREE MONTHS
YEAR-ENDED ENDED
DECEMBER 31, MARCH 31,
1995 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
Net sales:
Unaffiliated customers
Ampad Division......................... $212,687 $57,023
Williamhouse Division.................. 46,654 64,395
-------- --------
Total net sales to unaffiliated
customers....................... $259,341 $121,418
======== ========
Operating profit:
Ampad Division......................... $21,997 $4,540
Williamhouse Division.................. 8,478 8,793
-------- --------
Total operating profit.......... 30,475 13,333
General corporate expense............... (29,125)(1) (830)
Interest expense........................ (13,657) (12,542)
Other income, net....................... 735 269
-------- --------
Income (loss) before income taxes....... $(11,572) $230
======== ========
Capital expenditures:
Ampad Division......................... $2,551 $538
Williamhouse Division.................. 3,089 1,783
-------- --------
Total capital expenditures...... $5,640 $2,321
======== ========
Depreciation and amortization of plant
and equipment:
Ampad Division......................... $2,333 $445
Williamhouse Division.................. 1,036 1,539
-------- --------
Total depreciation and
amortization of plant
and equipment.................. $3,369 $1,984
======== ========
<CAPTION>
AS OF AS OF
DECEMBER 31, MARCH 31,
1995 1996
------------ ---------
(UNAUDITED)
<S>..................................... <C> <C>
Identifiable assets:
Ampad Division......................... $ 76,928 $ 75,539
Williamhouse Division.................. 327,743 316,018
Corporate assets....................... 137,055 132,639
Eliminations........................... (37,370) (23,402)
-------- --------
Total assets.................... $504,356 $500,794
======== ========
</TABLE>
(1) Includes $27,632 nonrecurring compensation charge (Note 9).
16. SUBSEQUENT EVENT (unaudited)
On May 29, 1996, the Company signed a definitive agreement to acquire the
stock of the Niagara Envelope Company, Inc. The purchase price will
approximate $50 million plus a $5 million management services agreement
with the Seller to be paid at closing. The Company expects the acquisition
to be consummated by mid-July 1996.
The Company signed a definitive agreement to sell the Personalizing
Division on June 6, 1996 (Note 3). The sales price will be the net book
value of the assets sold as of March 29, 1996 plus $11,056 plus all direct
album and catalog costs incurred from December 31, 1995 through March 31,
1996 which are not included in the closing net book value. The Company
expects the sale to be consummated by the end of June 1996.
F - 34
<PAGE>
Independent Auditors' Report
----------------------------
The Board of Directors and Stockholder
WR Acquisition, Inc.:
We have audited the accompanying consolidated balance sheets of WR Acquisition,
Inc. and subsidiaries as of December 31, 1994 and October 31, 1995, and the
related consolidated statements of operations, stockholders' equity
(deficiency), and cash flows for each of the years in the two-year period ended
December 31, 1994 and the ten months ended October 31, 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of WR Acquisition, Inc.
and subsidiaries as of December 31, 1994 and October 31, 1995 and the results of
their operations and their cash flows for each of the years in the two-year
period ended December 31, 1994 and the ten months ended October 31, 1995, in
conformity with generally accepted accounting principles.
January 10, 1996 /s/ KPMG Peat Marwick LLP
F-35
<PAGE>
WR ACQUISITION, INC.
AND SUBSIDIARIES
----------------
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December October
31, 1994 31, 1995
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash................................................................... $ 170,000 $ -
Accounts receivable, less allowances of
$837,000 at December 31, 1994 and
$636,000 at October 31, 1995 ......................................... 30,772,000 39,174,000
Inventories............................................................ 34,141,000 35,548,000
Current assets of discontinued operations.............................. 23,581,000 14,603,000
Prepaid expenses....................................................... 511,000 1,054,000
----------- -----------
Total current assets............................................. 89,175,000 90,379,000
----------- -----------
DUE FROM AMPAD........................................................... - 54,306,000
----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Land and buildings..................................................... 23,070,000 30,258,000
Machinery, equipment, leasehold
improvements and construction in progress............................. 81,787,000 75,279,000
----------- -----------
104,857,000 105,537,000
Less accumulated depreciation and amortization......................... 54,225,000 53,134,000
----------- -----------
Net property, plant and equipment...................................... 50,632,000 52,403,000
----------- -----------
OTHER ASSETS:
Deferred financing costs, less accumulated
amortization.......................................................... 6,248,000 23,125,000
Funds held for construction............................................ - 2,633,000
Cash surrender value of officers' life insurance
policies, net of loans of $1,236,000 at December 31, 1994
and $1,769,000 at October 31, 1995.................................... 646,000 260,000
Intangibles, less accumulated amortization............................. 378,000 350,000
Other assets........................................................... 533,000 644,000
----------- -----------
Total other assets............................................... 7,805,000 27,012,000
----------- -----------
PURCHASE PRICE FOR THE COMMON STOCK OF WR
ACQUISITION, INC. AND CERTAIN RELATED COSTS............................. - 147,854,000
----------- -----------
NON CURRENT ASSETS OF DISCONTINUED
OPERATIONS............................................................. 29,145,000 27,439,000
----------- -----------
TOTAL ASSETS..................................................... $176,757,000 $399,393,000
=========== ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F - 36
<PAGE>
WR ACQUISITION, INC.
AND SUBSIDIARIES
----------------
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
December October
31, 1994 31, 1995
-------- --------
CURRENT LIABILITIES:
Accounts payable....... $ 16,499,000 $ 17,518,000
Accrued expenses 14,536,000 18,982,000
Taxes payable 354,000 -
Current installments of long-term debt 8,558,000 11,844,000
Current liabilities of discontinued
operations............ 9,380,000 9,100,000
------------ ------------
Total current liabilities 49,327,000 57,444,000
------------ ------------
Non-current liabilities.... 2,179,000 2,019,000
Deferred tax liabilities - net................. 3,610,000 3,740,000
Long-term debt (less current installments)..... 144,750,000 319,380,000
Notes payable to selling stockholders.......... - 25,157,000
Non-current liabilities of discontinued
operations... 8,375,000 5,689,000
STOCKHOLDERS' EQUITY (DEFICIENCY):
Class A common stock, par value $.01
per share, 11,619 shares authorized,
issued and outstanding....... 1,000 1,000
Common stock, par value $.01 per share,
50,000 shares authorized; 10,478 issued
at December 31, 1994 and 13,243 at
October 31, 1995; 10,405 outstanding
at December 31, 1994 and 13,243 at
October 31, 1995..................... 1,000 1,000
Additional paid-in capital............ 42,007,000 56,135,000
Retained earnings..................... 21,841,000 25,080,000
Distribution to stockholders of the
excess of purchase price over book
value of net assets of W.R. Holdings,
Inc. arising from the December 29, 1986
Recapitalization..................... (95,253,000) (95,253,000)
Common stock held in treasury, at
cost, 73 shares at
December 31, 1994.................... (81,000) -
------------ ------------
Total stockholders' equity (deficiency) (31,484,000) (14,036,000)
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIENCY)........................ $176,757,000 $399,393,000
============ ============
See accompanying Notes to Consolidated Financial Statements.
F - 37
<PAGE>
WR ACQUISITION, INC.
AND SUBSIDIARIES
----------------
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended Ten Months
-------------------------------- Ended
December December October
31, 1993 31, 1994 31, 1995
-------------- ------------- ---------------
<S> <C> <C> <C>
Net sales.................. $176,934,000 $ 248,008,000 $219,366,000
Cost of sales............. 118,626,000 173,536,000 152,781,000
------------ ------------ -----------
Gross profit............... 58,308,000 74,472,000 66,585,000
Selling, general and
administrative expenses. 39,765,000 44,906,000 39,866,000
Compensation expense relating
to stock options - 294,000 9,544,000
------------ ------------ -----------
Operating income........... 18,543,000 29,272,000 17,175,000
Interest expense.......... 13,621,000 11,750,000 11,615,000
Interest (626,000) (284,000) (124,000)
------------ ----------- ----------
Earnings from continuing
operations
before taxes on income.... 5,548,000 17,806,000 5,684,000
Provision for taxes on income 1,988,000 6,080,000 2,224,000
------------- ----------- ----------
Earnings from continuing
operations................ 3,560,000 11,726,000 3,460,000
Discontinued operations:
Loss from operations,
net of tax benefits of
$280,000, $380,000 and
$110,000 in 1993,
1994 and 1995, respectively (432,000) (1,328,000) (221,000)
------------ ----------- ----------
Net earnings............... $ 3,128,000 $ 10,398,000 $ 3,239,000
============ ============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-38
<PAGE>
WR ACQUISITION, INC.
AND SUBSIDIARIES
----------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994 AND
THE TEN MONTHS ENDED OCTOBER 31, 1995
<TABLE>
<CAPTION>
Class A Additional
Common Common Paid-in Retained
Stock Stock Capital Earnings
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1992....................... $ - $1,000 $10,477,000 $8,315,000
Net earnings....................................... - - - 3,128,000
Issuance of Class A common stock for cash.......... 100 - 1,999,900 -
Issuance of Class A common stock for
redemption of debt............................... 900 - 29,236,100 -
---------------------------------------------------------------------------
Balance at December 31, 1993....................... 1,000 1,000 41,713,000 11,443,000
Net earnings....................................... - - - 10,398,000
Compensation relating to stock options............. - - 294,000 -
---------------------------------------------------------------------------
Balance at December 31, 1994....................... 1,000 1,000 42,007,000 21,841,000
Net earnngs........................................ - - - 3,239,000
Proceeds and compensation relating to
exercise of stock options........................ - - 13,424,000 -
Reissuance of treasury stock....................... - - (81,000) -
Issuance of common stock for cash.................. - - 785,000 -
---------------------------------------------------------------------------
Balance at October 31, 1995........................ $1,000 $1,000 $56,135,000 $25,080,000
===========================================================================
<CAPTION>
Distribution Treasury
to Stock,
Stockholders at Cost Total
----------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1992....................... $(95,253,000) $(81,000) $(76,541,000)
Net earnings....................................... - - 3,128,000
Issuance of Class A common stock for cash.......... - - 2,000,000
Issuance of Class A common stock for
redemption of debt............................... - - 29,237,000
----------------------------------------------------------------
Balance at December 31, 1993....................... (95,253,000) (81,000) (42,176,000)
Net earnings....................................... - - 10,398,000
Compensation relating to stock options............. - - 294,000
----------------------------------------------------------------
Balance at December 31, 1994....................... (95,253,000) (81,000) (31,484,000)
Net earnngs........................................ - - 3,239,000
Proceeds and compensation relating to
exercise of stock options........................ - - 13,424,000
Reissuance of treasury stock....................... - 81,000 -
Issuance of common stock for cash.................. - - 785,000
----------------------------------------------------------------
Balance at October 31, 1995........................ $(95,253,000) $ - $(14,036,,000)
================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-39
<PAGE>
WR ACQUISITION, INC.
AND SUBSIDIARIES
----------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended Ten Months
------------------------------- Ended
December December October
31, 1993 31, 1994 31, 1995
------------------------------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings............................................. $ 3,128,000 $ 10,398,000 $ 3,239,000
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization....................... 7,237,000 8,860,000 5,598,000
Provision for (benefit from) losses on accounts
receivable...................................... 121,000 372,000 (132,000)
Compensation expense relating to stock options...... - 294,000 10,723,000
Deferred tax liabilities - net...................... 2,194,000 (158,000) 130,000
Writing-off of deferred financing costs............. 2,712,000 108,000 1,828,000
Change in assets and liabilities:
Increase in accounts receivable.................. (6,274,000) (7,624,000) (8,838,000)
Increase in inventories.......................... (1,951,000) (1,350,000) (1,407,000)
Decrease (increase) in prepaid expenses.......... 156,000 (188,000) (543,000)
Increase in accounts payable..................... 2,328,000 7,894,000 1,019,000
Increase in accrued expenses..................... 1,707,000 3,983,000 4,446,000
Increase (decrease) in taxes payable............. 1,404,000 (1,050,000) (354,000)
(Decrease) increase in other - net............... 1,424,000 196,000 152,000
Discontinued operations - net.................... (8,116,000) 366,000 7,718,000
----------- ---------- ----------
Cash provided by operating activities........ 3,222,000 22,101,000 23,579,000
----------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment - net........... (2,869,000) (4,348,000) (6,363,000)
Acquistions of inventory and machinery and equipment....... (9,728,000) (4,124,000) -
Funds held for construction................................ - - (2,633,000)
----------- ---------- ----------
Cash used for investing activities (12,597,000) (8,472,000) (8,996,000)
----------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt............................... (155,820,000) (34,961,000) (47,168,000)
Proceeds from Recapitalization............................. 152,500,000 - -
Proceeds from long-term debt............................... 9,597,000 17,600,000 5,200,000
Issuance of Class A common stock........................... 2,000,000 - -
Additions to deferred financing costs...................... (7,374,000) (442,000) (19,679,000)
Proceeds from exercise of stock options.................... - - 2,701,000
Proceeds from issuance of debt to effect Merger............ - - 219,843,000
Issuance of common stock................................... - - 785,000
Purchase price for the common stock of
WR Acquisition, Inc. and certain related costs......... - - (147,854,000)
Notes payable to selling stockholders...................... - - 25,157,000
Advances to Ampad.......................................... - - (54,306,000)
Investment in trust........................................ - - (34,518,000)
Proceeds from sale of accounts receivable.................. - - 35,086,000
----------- ---------- ----------
Cash provided by (used for) financing
activities................................ 903,000 (17,803,000) (14,753,000)
----------- ---------- ----------
DECREASE IN CASH AND CASH EQUIVALENTS........................ (8,472,000) (4,174,000) (170,000)
Cash and cash equivalents at beginning of period........... 12,816,000 4,344,000 170,000
----------- ---------- ----------
Cash and cash equivalents at end of period................. $ 4,344,000 $ 170,000 $ -
=========== ========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F - 40
<PAGE>
WR ACQUISITION, INC.
AND SUBSIDIARIES
------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Organization of the Company
---------------------------
WR Acquisition, Inc. ("Acquisition") was incorporated under Delaware law on
November 17, 1986 for the purpose of acquiring W.R. Holdings, Inc. ("Holdings")
and its wholly-owned subsidiary Williamhouse -Regency of Delaware, Inc. (the
"Company"). On December 29, 1986, Acquisition acquired all of the capital stock
of Holdings through a recapitalization. On May 13, 1993, Acquisition completed a
recapitalization (the "Recapitalization") and Holdings was merged into
Acquisition, whereupon the Company became a direct, wholly-owned subsidiary of
Acquisition. (See Notes 8 and 10.)
On October 31, 1995, all of Acquisition's outstanding capital stock was
acquired by American Pad & Paper Company ("Ampad") through a new wholly-owned
subsidiary, WHR Acquisition, Inc. The consolidated financial statements are
presented on a historical basis, prior to giving effect to a new basis of
accounting for the merger (the "Merger") described below. The financial
statements reflect the following transactions relating to Ampad's acquisition of
Acquisition's capital stock and the related financing executed by Williamhouse-
Regency of Delaware, Inc., a wholly-owned subsidiary of Acquisition, on October
31, 1995:
<TABLE>
<CAPTION>
<S> <C>
Borrowings under bank credit agreement $219,843,000
Sale of accounts receivable* 46,988,000
Purchase of shares from former shareholders of Acquisition:
Cash 117,544,000
Installment notes given to former
shareholders of Acquisition 25,157,000
Certain related costs of the selling shareholders 5,153,000
Repayment of debt* 41,525,000
Proceeds advanced to Ampad 54,306,000
Investment in trust 34,518,000
Costs of financing* 19,663,000
</TABLE>
* Includes components relating to both continuing and discontinued operations.
The purchase price for the common stock of WR Acquisition, Inc. and certain
related costs amounted to $147,854,000 and has been reflected as an asset on the
balance sheet prior to allocation. The $266,831,000 of borrowings were used to
purchase shares from the stockholders, pay expenses of the Merger, and repay
debt of both the Company and Ampad.
Pursuant to an agreement and plan of merger dated October 3, 1995, on October
31, 1995 Acquisition acquired Ampad Corporation, a wholly-owned subsidiary of
Ampad, in exchange for newly issued shares of Acquisition's common stock. Ampad
Corporation was then merged into the Company, a wholly-owned subsidiary of
Acquisition, and WHR Acquisition, Inc. was merged into Acquisition
simultaneously with Ampad's purchase of Acquisition. Consequently, Acquisition
became a wholly-owned subsidiary of Ampad and the Company became an indirect,
wholly-owned subsidiary of Ampad.
Acquisition does not have any properties and does not engage in any business,
other than through the operations of the Company and its wholly-owned
subsidiaries.
(2) Accounting Policies
-------------------
A summary of the significant accounting policies which affect the Company's
consolidated financial statements is listed below:
F - 41
<PAGE>
WR ACQUISITION, INC.
AND SUBSIDIARIES
-------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Principles of Consolidation and Basis of Presentation:
-----------------------------------------------------
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany balances and transactions are
eliminated in consolidation. Prior years figures have been restated to reflect
discontinued operations (See Note 16).
Inventories:
-----------
Inventories are stated at the lower of cost or market (net realizable value).
The Company values its inventories on the last-in, first-out (LIFO) method.
Depreciation and Amortization:
-----------------------------
Property, plant and equipment are stated at cost. These assets, including
assets recorded under capitalized leases, are depreciated on the straight-line
method at rates which vary based upon their estimated useful lives. Leasehold
improvements are amortized on the straight-line method over the shorter of the
terms of the related leases or their useful lives. Depreciation and
amortization of property, plant and equipment from continuing operations was
$6,374,000 and $7,683,000 for the years ended December 31, 1993 and 1994,
respectively and $4,592,000 for the ten months ended October 31, 1995.
Expenditures for maintenance and repairs are charged, as incurred, to
operations. The costs of acquisitions, additions and betterments are
capitalized. When property, plant and equipment is sold or otherwise disposed
of, the cost and the accumulated depreciation are eliminated from the accounts.
Deferred financing costs primarily relate to the issuance of debt to fund the
Merger (See Note 1). Deferred financing costs are amortized on the straight-line
method over the term of the related obligations. Amortization of deferred
financing costs from continuing operations was $838,000 and $1,138,000 for the
years ended December 31, 1993 and 1994, respectively and $974,000 for the ten
months ended October 31, 1995.
Intangibles:
------------
Intangibles are amortized, primarily on the straight-line method, over the
period of the expected benefits. Amortization of intangibles from continuing
operations was $18,000 for the year ended December 31, 1994 and $21,000 for the
ten months ended October 31, 1995.
(3) Acquisitions
------------
On December 20, 1993, KECA Corporation, a newly formed, wholly-owned
subsidiary of the Company, acquired the principal assets of Kimberly-Clark
Corporation's Karolton Envelope business for a purchase price of $9,597,000.
Karolton Envelope is a full-line envelope convertor based in Miamisburg, Ohio
and West Sacramento, California. The Company financed the transaction under its
senior secured financing facility. The acquisition has been accounted for under
the purchase method and, accordingly, the operating results of this acquisition
have been included in the accompanying financial statements since the date of
acquisition.
The following pro forma information has been prepared assuming the
acquisition of Karolton Envelope had occurred on January 1, 1993. This pro forma
information has been prepared for comparative purposes only and does not purport
to be indicative of what would have occurred had the acquisition been made at
the beginning of 1993, or of the results which may occur in the future.
Furthermore, no effect has been given in the pro forma information for operating
and synergistic benefits that are expected to be realized as a result
F - 42
<PAGE>
WR ACQUISITION, INC.
AND SUBSIDIARIES
-------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
of the acquisition because precise estimates of such benefits cannot be
quantified. Management implemented certain cost saving measures as of the date
of consummation of the acquisition. This pro forma information does not reflect
the impact of such measures.
1993
------------------
(Unaudited)
Net sales............................. $220,609,000
Earnings from continuing operations... $ 3,233,000
On July 29, 1994, two wholly-owned subsidiaries of the Company
acquired from Huxley Envelope Corporation its Giant, Filing and X-Ray envelope
business segments for a purchase price of $4,249,000. The Company financed the
transaction under its senior secured financing facility, a note payable to the
seller and cash. The acquisition has been accounted for under the purchase
method and, accordingly, the operating results of this acquisition have been
included in the accompanying financial statements since the date of acquisition.
This acquisition did not have a material impact on the financial position or
results of operations of the Company.
During the year ended December 31, 1993 and the ten months ended
October 31, 1995, the Company completed certain other acquisitions whose
aggregate purchase price did not have a material impact on the financial
position or results of operations of the Company.
(4) Accounts Receivable
-------------------
The Company entered into an agreement to sell, on a revolving basis,
an undivided interest in a designated pool of trade accounts receivable to a
trust on October 31, 1995. Accordingly, the Company transferred $46,988,000 and
Ampad transferred $33,412,000 of accounts receivable to the trust. The trust
sold investor certificates representing an interest in $45,000,000 of trust
assets for which the Company received cash of $45,000,000 and credited due from
Ampad for $33,044,000. The Company holds seller certificates representing an
interest in the remaining assets of the trust of $34,518,000 which is included
in accounts receivable in the Company's balance sheet at October 31, 1995. The
Company has retained substantially the same risks for all losses, credits or
other adjustments on receivables owned by the trust as if the receivables had
not been sold. Accordingly, the full amount of the allowance for doubtful
accounts has been retained.
(5) Inventories
-----------
The major components of inventories of continuing operations are as follows:
December 31, October 31,
1994 1995
------------ -----------
Finished goods and work in progress.......... $19,521,000 $20,902,000
Raw materials................................ 14,620,000 14,646,000
------------- -----------
Total inventories............................ $34,141,000 $35,548,000
============= ===========
F - 43
<PAGE>
WR ACQUISITION, INC.
AND SUBSIDIARIES
--------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company values its inventories on the LIFO method. Had the first-in,
first-out (FIFO) method been used, inventories would have been $1,869,000 and
$6,695,000 higher than reported at December 31, 1994 and October 31, 1995,
respectively.
(6) Income Taxes
------------
Acquisition, the Company and its subsidiaries file a consolidated federal
income tax return.
The provision for taxes on income from continuing operations is as
follows:
<TABLE>
<CAPTION>
Years Ended Ten Months
---------------------------- Ended
December 31, December 31, October 31,
1993 1994 1995
------------- ------------- -----------
<S> <C> <C> <C>
Current:
Federal income taxes $1,902,000 $5,317,000 $1,938,000
State and local income taxes. 301,000 786,000 156,000
Deferred:
Federal income taxes (148,000) 152,000 125,000
State and local income taxes (67,000) (175,000) 5,000
---------- ---------- ----------
Provision for taxes on income $1,988,000 $6,080,000 $2,224,000
========== ========== ==========
</TABLE>
The difference between the provision computed at the statutory rate and the
actual provision on consolidated earnings from continuing operations is as
follows:
<TABLE>
<CAPTION>
Years Ended Ten Months
---------------------------- Ended
December 31, December 31, October 31,
1993 1994 1995
------------- ------------- -----------
<S> <C> <C> <C>
Federal income taxes at statutory
rate............................ 35.0% 35.0% 35.0%
Tax on permanent differences, net of
federal jobs
tax credit..................... 6 (1.6) 0.1
State and local income taxes,
net of related federal
income tax benefit............ 2.8 .4 1.8
Other-net....................... (2.6) .3 2.2
---- ---- ----
Effective tax rate.............. 35.8% 34.1% 39.1%
==== ==== ====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities of continuing
operations are presented below:
December 31, October 31,
1994 1995
-------------- --------------
Deferred tax assets:
Allowance for doubtful accounts........ $ 378,000 $ 211,000
Inventory - uniform capitalization..... 495,000 364,000
Vacation pay accruals.................. 754,000 573,000
Other.................................. 850,000 560,000
--------- -----------
Total gross deferred tax assets........ 2,477,000 1,708,000
F - 44
<PAGE>
WR ACQUISITION, INC.
AND SUBSIDIARIES
--------------------
December 31, October 31,
1994 1995
------------ -----------
Deferred tax liabilities:
Depreciation.......................... 6,029,000 5,382,000
Other................................. 58,000 66,000
------------ -----------
Total gross deferred tax liabilities.. 6,087,000 5,448,000
------------ -----------
Net deferred tax liabilities.......... $3,610,000 $3,740,000
------------ -----------
The ultimate realization of deferred tax assets is dependant upon the
generation of future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled reversal of
deferred tax liabilities and projected future taxable income in making this
assessment. As of October 31, 1995, management considers all deferred tax assets
to be realizable.
The Company adopted, effective January 1, 1993, the Financial Accounting
Standards Board's ("FASB") Statement 109, "Accounting for Income Taxes." The
adoption of FASB 109 did not have a material impact on the Company's
consolidated financial position or results of operations for the year ended
December 31, 1993.
(7) Accrued Expenses
----------------
Accrued expenses consist of the following:
December 31, October 31,
1994 1995
------------ ------------
Salaries and wages................. $ 4,344,000 $ 4,438,000
Taxes, other than taxes on income.. 402,000 4,293,000
Interest........................... 1,014,000 4,455,000
Sales volume discounts............. 5,179,000 3,638,000
Other.............................. 3,597,000 2,158,000
----------- -----------
Total accrued expenses............. $14,536,000 $18,982,000
=========== ===========
F - 45
<PAGE>
WR ACQUISITION, INC.
AND SUBSIDIARIES
--------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) Debt Arrangements
-----------------
<TABLE>
<CAPTION>
Long-term debt is comprised of the following:
December 31, October 31,
1994 1995
--------------------------- -----------------------
<S> <C> <C> <C> <C>
Current Long-Term Current Long-Term
---------- ----------- ---------- -----------
Senior secured financing facility:
Senior bank financing term loans and revolving
credit facility due in varying amounts from 1996
through 2004..................................... $ - $ - $10,000,000 $209,843,000
Term loans due through 1998 payable to banks
with quarterly principal payments of $1,461,250
except for the final payment of $2,392,000........ 5,845,000 14,082,000 - -
Revolving credit line due 1998 payable to banks - 20,000,000 - -
Senior subordinated debentures due 2005 payable to
institutions with interest at 11 1/2%.......... - 100,000,000 - 100,000,000
Industrial revenue bond, interest at 7 3/4%; with
monthly principal payments varying from $11,000
to $16,300 due through 2000 (less unamortized
discount of $41,000 in 1994)................... 132,000 720,000 - -
Industrial revenue bonds, interest at 89.2% of prime;
with quarterly principal payments varying from
$85,000 to $57,000 due through 2002............ 341,000 2,102,000 - -
Industrial revenue bonds, interest at 3.99%; with
annual principal payments of $700,000 due
through 1998................................... 700,000 1,400,000 700,000 1,400,000
Industrial revenue bonds, interest ranging from
4.24% to 4.28% in 1994 and 4.28% in 1995;
with annual principal payments of $480,000 due
through 1998................................... 800,000 2,475,000 480,000 960,000
Industrial revenue bonds, interest at 5.11%; with quarterly
principal payments varying from $320,000 to $395,000
due through 2010............................... - - 320,000 4,880,000
Note payable, interest at prime plus 1.75%; with quarterly
principal payments of $62,500 due through 1998. 250,000 688,000 - -
Other, interest ranging from 2.0% to 3.0%;
due through 2004............................... 490,000 3,283,000 344,000 2,297,000
----------- --------------- ----------- ------------
Total long-term debt............................... $8,558,000 $144,750,000 $11,844,000 $319,380,000
=========== ============
</TABLE>
F - 46
<PAGE>
WR ACQUISITION, INC.
AND SUBSIDIARIES
------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In connection with the Recapitalization in 1993, $100,000,000 in aggregate
principal amount of senior subordinated debentures were issued in a private
placement. The senior subordinated debentures bore interest at the rate of 11
1/2% per annum, payable June 15 and December 15, and matured on June 15, 2005,
unless redeemed prior to such date. The senior subordinated debentures were
unsecured, general obligations of the Company, and were subordinated to all
senior debt of the Company and its subsidiaries, including the senior secured
financing facility. Payment of the principal and interest on the senior
subordinated debentures was guaranteed by Acquisition. On December 1, 1995,
$99,990,000 of the senior subordinated debentures were redeemed at a price of
109% of the aggregate principal amount, plus accrued interest, excluding $10,000
in principal amount which was not tendered in response to the offer. Payment of
this outstanding debenture was made on February 22, 1996.
In connection with the Recapitalization, the Company repaid, at par,
all $27,500,000 in aggregate principal amount of the senior variable rate notes;
repaid, at par, all $50,000,000 in aggregate principal amount of the 12 3/4%
senior notes; repaid, at par, all $45,000,000 in aggregate principal amount of
the 13 1/2% senior subordinated notes; and repaid, at par, $25,000,000 in
aggregate principal amount (of the $40,000,000 in aggregate principal amount
outstanding) of the 14% subordinated debentures. The remaining $15,000,000 in
aggregate principal amount of the 14% subordinated debentures were exchanged, at
par, for 5,715 shares of Acquisition's Class A common stock; and all $15,000,000
in aggregate principal amount of Acquisition's 14 1/2% junior subordinated
debentures were exchanged, at 90% of par, for 5,142 shares of Acquisition's
Class A common stock. (See Note 10.)
In connection with the Merger on October 31, 1995, new debt in the
amount of $219,843,000 was issued. The existing term and revolving credit loans,
in the amounts of $15,544,000 and $20,000,000, respectively, were redeemed. The
Company wrote-off unamortized deferred financing costs, in the amount of
$1,762,000, related to the redemption of these loans. In addition, the Company
retired, ahead of scheduled maturities, certain industrial revenue bonds and
other indebtedness totaling $5,981,000.
Ampad, Acquisition and the Company entered into a Bank Credit
Agreement with Bankers Trust Company as agent (the "Agent"), providing for term
loans of $245.0 million and a revolving credit facility of $45.0 million. Loans
under the Bank Credit Agreement are comprised of a multi-tranche facility with
principal payments scheduled from 1996 through 2004 in the form of (i) a term
loan facility (the "Tranche A Term Loan Facility") in the amount of $95.0
million ($25.2 million of which will be borrowed in January 1996), (ii) a second
term loan facility (the "Tranche B Term Loan Facility") in the amount of $65.0
million, (iii) a third term loan facility (the "Tranche C Term Loan Facility")
in the amount of $45 million, (iv) a fourth term loan facility (the "Tranche D
Term Loan Facility", and together with the Tranche A Term Loan Facility, the
Tranche B Term Loan Facility and the Tranche C Term Loan Facility, the "Term
Loan Facilities") in the amount of $40.0 million, (v) a revolving credit
facility (the "Revolving Credit Facility", and together with the Term Loan
Facilities, the "Senior Bank Financing") in the amount of $45 million which
includes a letter of credit sub-limit of $20.0 million and (vi) an IRB letter of
credit facility in the amount of $13.4 million. Ampad and the Company used the
Senior Bank Financing to provide funding necessary to consummate the acquisition
and merger described in Note 1, with the Revolving Credit Facility being used
for working capital needs.
Indebtedness under the Bank Credit Agreement is guaranteed by Ampad,
Acquisition and the Company and all current and future domestic subsidiaries of
the Company and is secured by (i) a perfected security interest in substantially
all the assets and property of the Company and its subsidiaries, and (ii) a
first priority perfected pledge of all capital stock of the Company and its
current subsidiaries.
Indebtedness under the Bank Credit Agreement varies by tranche. The
Tranche A Term Loan Facility is a five-year facility with quarterly principal
payments scheduled from 1996 through 2000 and bears interest at a rate (at the
Company's option) of (a) the Eurodollar Rate (as defined in the Bank Credit
Agreement) plus 275.0 basis points less an interest reduction discount of 25
basis or 50 basis points if the Company meets certain targets for its coverage
and leverage ratios (the "Interest Reduction Discount") or (b) the applicable
base rate of Bankers Trust Company, which is the higher of 1/2 of 1% in excess
of the Adjusted Certificate of Deposit Rate (as defined
F - 47
<PAGE>
WR ACQUISITION, INC.
AND SUBSIDIARIES
----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
in the Bank Credit Agreement) and the prime lending rate announced from time to
time by Bankers Trust Company (the "Base Rate") plus 175.0 basis points less the
Interest Reduction Discount, if applicable. The Tranche B Term Loan Facility is
a seven-year facility with quarterly principal payments scheduled in 2001 and
2002, with nominal quarterly payments prior to that time, and bears interest at
a rate (at the Company's option) of (a) the Eurodollar Rate plus 337.5 basis
points or (b) the Base Rate plus 237.5 basis points. The Tranche C Term Loan
Facility is an eight-year facility with quarterly principal payments scheduled
in 2003, with nominal annual principal payments prior to that time, and bears
interest at a rate (at the Company's option) of (a) the Eurodollar Rate plus
375.0 basis points or (b) the Base Rate plus 275.0 basis points. The Tranche D
Term Loan Facility is an eight and one-half year facility with quarterly
principal payments scheduled for 2004, with nominal annual principal payments
prior to that time and bears interest at a rate (at the Company's option) of (a)
the Eurodollar Rate plus 400.0 basis points or (b) the Base Rate plus 300.0
basis points. The Revolving Credit Facility is a five-year facility bearing
interest at a rate (at the Company's option) of (a) the Eurodollar Rate plus
275.0 basis points less the Interest Reduction Discount, if applicable. In
addition, the Bank Credit Agreement provides for mandatory repayment, subject to
certain expectations, of the Senior Bank Financing upon the occurrence of
certain events including, but not limited to, asset sales, certain equity and
debt issuances, insurance recovery events and the accumulation of excess cash
(with a requirement to pay 50% of Excess Cash Flow (as defined therein) for the
period ending on December 31, 1995 and 75% of Excess Cash Flow per annum
thereafter), each subject to certain exceptions.
The Revolving Credit Facility may be repaid and reborrowed. The
Company is required to pay the lenders under the Bank Credit Agreement in the
aggregate a commitment fee equal to 1/2 of 1% per annum, payable on a quarterly
basis, on the daily average unused portion of the Aggregate Unutilized
Commitment (as defined in the Bank Credit Agreement). The Company also is
required to pay to the lenders participating in the Revolving Credit Facility
letter of credit fees equal to the Applicable Eurodollar Margin (as defined in
the Bank Credit Agreement) in effect as of such time for loans under the
Revolving Credit Facility and to the lender issuing a letter of credit a facing
fee of 0.25% on the average daily stated amount of each outstanding letter of
credit issued by such lender and its customary administrative charges in
connection with such letters of credit.
The Bank Credit Agreement requires the Company to meet certain
financial tests, including minimum levels of consolidated EBITDA (as defined
therein), minimum interest coverage and maximum leverage ratio. The Bank Credit
Agreement also contains covenants which, among other things, limit the
incurrence of additional indebtedness, dividends, transactions with affiliates,
asset sales, acquisitions, mergers, prepayment of other indebtedness, liens and
encumbrances and other matters customarily restricted in such agreements.
The Bank Credit Agreement contains customary events of default,
including payment defaults, breach of representations and warranties, covenant
defaults, cross-defaults to certain other indebtedness, certain events of
bankruptcy and insolvency, ERISA, judgement defaults, failure of any guaranty or
security agreement supporting the Bank Credit Agreement to be in full force and
effect and change of control of Ampad.
The Company and certain of its subsidiaries had letters of credit
issued to guaranty the payment obligation due, as required, for industrial
revenue bond financings. At December 31, 1994 and October 31, 1995, the amounts
were $5,375,000 and $8,740,000, respectively. In addition, the Company had
letters of credit issued for other than industrial revenue bond financings. As
of December 31, 1994 and October 31, 1995, the amounts were $2,102,000 and
$2,602,000, respectively.
Certain manufacturing facilities of the Company were financed from the
proceeds of industrial revenue bonds. Lease purchase and other financing
arrangements, directly or indirectly, with the respective industrial development
authorities provide that the Company may purchase the manufacturing facilities
at any time during the lease or financing term. At December 31, 1994 and
October 31, 1995, the net book value of manufacturing facilities acquired
pursuant to these lease purchase and other financing arrangements was
approximately $16,122,000 and $12,162,000, respectively. Such assets are
included within property, plant and equipment.
F - 48
<PAGE>
WR ACQUISITION, INC.
AND SUBSIDIARIES
----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Payments of the principal and interest on the industrial revenue bonds are
guaranteed by one or more of the following: Acquisition, the Company or a
whollY-owned subsidiary.
The aggregate amount of long-term debt, including industrial revenue bonds,
maturing during each of the years in the five-year period subsequent to October
31, 1995 is as follows: 1996, $11,844,000; 1997, $16,785,000; 1998, $21,793,000;
1999, $27,697,000; 2000, $6,003,000 and $247,102,000 thereafter.
(9) Notes Payable to Selling Stockholders
-------------------------------------
On October 31, 1995, in conjunction with the Merger, Acquisition issued notes
payable, due January 3, 1996, bearing interest at 1%, to certain selling
stockholders who elected to defer payment, for an aggregate of 4,383 shares of
common stock, until 1996 rather than on the Merger date. Acquisition issued
letters of credit to guaranty the payment obligation due. Subsequent to October
31, 1995, the notes were refinanced on a long term basis; and therefore, the
notes have been reflected as a non-current liability on the October 31, 1995
financial statements.
(10) Stockholders' Equity (Deficiency)
---------------------------------
Class A Common Stock:
--------------------
In 1993, in connection with the Recapitalization, Acquisition's Certificate
of Incorporation was amended to authorize the issuance of 11,619 shares, par
value $.01 per share, of Acquisition's Class A common stock. The Class A common
stock is identical to Acquisition's common stock, except for a preference on
liquidation equal to $2,625 per share, the initial purchase price thereof, and
is convertible on a share-for-share basis into common stock.
On May 13, 1993, in connection with the Recapitalization, 762 shares were
issued to the Chief Executive Officer of Acquisition and the Company, for
$2,000,000; 5,715 shares were exchanged for $15,000,000 in aggregate principal
amount of the 14% subordinated debentures due 1998, at par; and 5,142 shares
were exchanged for $15,000,000 in aggregate principal amount of the 14 1/2%
junior subordinated debentures due 1998, at 90% of par. (See Note 8).
Common Stock:
------------
On December 29, 1986, in connection with the 1986 recapitalization, holders
of the common stock of Holdings received an aggregate of $100,000,000, or
$100,000 per share, resulting in an excess of cost over book value of the net
assets acquired in the amount of $95,253,000. This was treated as a distribution
to stockholders resulting in a reduction of stockholders' equity.
Stock Option Plan:
-----------------
In March, 1987, the Board of Directors adopted a Stock Option Plan which
provides for the granting of stock options for shares of Acquisition's common
stock to key employees of the Company and its subsidiaries who are responsible
for managing the operations of the Company and its subsidiaries. The Stock
Option Plan provided for an aggregate of 1,722 shares of common stock to be
available for stock grants. The exercise price for the options was $1,000 per
share, which was the fair value of the stock on the date of grant.
In May, 1993, in connection with the Recapitalization, the Stock Option
Plan was amended, making 1,243 shares of Acquisition's common stock available
for grant. Of these shares, 688 were granted to key employees of the Company and
its subsidiaries in 1993 and the remaining 555 shares were granted in 1995. The
exercise
F - 49
<PAGE>
WR ACQUISITION, INC.
AND SUBSIDIARIES
-------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
price of these options was $1,312.50 per share, which represented one half of
the negotiated per share price for the Class A common stock issued pursuant to
the Recapitalization. The aggregate compensation expense related to the 1,243
shares granted of $1,631,000 was being amortized over the period January, 1994
through May, 1998. As a result of the change in control of Acquisition resulting
from the Merger, the stock options, which were vesting over a period of five
years, became 100% vested. As a result, in accordance with the Emerging Issues
Task Force 85-45 "Business Combinations: Settlement of Stock Options and
Awards," Acquisition recorded compensation expense of $9,544,000 from
continuing operations for the ten month period ended October 31, 1995.
A summary of transactions under the plan is as follows:
December 31, October 31,
----------------
1993 1994 1995
------- ----- -----------
Outstanding and exercisable, January 1.. 1,317 2,283 2,283
Granted at $1,000 per share............. 278 - -
Granted at $1,312.50 per share.......... 688 - 555
Exercised at $1,000 per share........... - - (1,595)
Exercised at $1,312.50 per share........ - - (1,243)
----- ----- ------
Outstanding and exercisable............. 2,283 2,283 -
===== ===== ======
Available for grant..................... 555 555 -
===== ===== ======
(11) Commitments and Contingencies
-----------------------------
The Company is involved in various litigation incidental to the conduct of its
business, the outcome of which is not expected to be material to the Company's
financial position or results of operations.
Change in Control Severance Compensation Agreements:
----------------------------------------------------
Prior to the Merger, the Company entered into change in control severance
compensation agreements with certain of its executives. These agreements are
effective for thirty six months after the Merger and provide for income and
benefit protection upon termination of employment (as defined). The Company
believes that the maximum amount of the severance payments that could be paid
will not exceed $11 million based upon current compensation. This liability has
been assumed by Ampad.
Leases:
-------
Future minimum payments under operating leases, primarily for
buildings and equipment relating to continuing operations, consisted of the
following at October 31, 1995:
Amounts
-----------
1996 $ 2,001,000
1997 1,872,000
1998 1,711,000
1999 1,172,000
2000 956,000
Later years 6,474,000
-----------
Total minimum lease payments $14,186,000
===========
F - 50
<PAGE>
WR ACQUISITION, INC.
AND SUBSIDIARIES
------------------
Rent expense from continuing operations was $1,565,000 and $2,358,000 for
the years ended December 31, 1993 and 1994, respectively and $1,552,000 for the
ten months ended October 31, 1995.
(12) Employee Benefit Plans
----------------------
On March 11, 1992, the Board of Directors authorized the termination of the
Company's defined benefit plan covering certain salaried and non-union
employees. The termination was effective June 30, 1992, and all participants in
the plan became fully vested as of that date.
As of October 31, 1995, the initial payout for the account of each
participant, using current U.S. Government approved discount rates, has been
made. Excess assets are to be distributed based upon a formula adopted by the
plan and approved by the Internal Revenue Service. These payments will commence
in early 1996 and will consist of lump-sum payments. It is anticipated that this
distribution will be substantially completed by June 30, 1996.
The Company established a voluntary 401(k) savings plan covering certain
salaried and non-union employees effective July 1, 1992. The Company's matching
contribution, based on employee contributions, is vested after five years of
participation. The Company's matching contribution from continuing operations
amounted to $79,000 and $146,000 for the years ended December 31, 1993 and 1994,
respectively and $171,000 for the ten months ended October 31, 1995.
(13) Executive Incentive Compensation Plan
-------------------------------------
The Company's executive incentive compensation plan, which commenced in 1983,
provides for incentive awards to certain key executives of the Company and its
subsidiaries. The plan is administered by the Board of Directors. At the end
of each year during the life of the plan, the Board will make cash awards based
upon the attainment of annual predefined operating profit objectives.
Awards under the plan are charged to operations in the year earned. For the
ten months ended October 31, 1995, $600,000 was charged to continuing
operations. Attainment of the annual predefined objective will be based on
results of operations for the twelve months ended December 31, 1995. In 1993 and
1994, awards of $650,000 and $1,010,000 were charged to continuing operations,
respectively.
(14) Statements of Cash Flows
------------------------
Supplemental disclosure of cash flow information from continuing operations
is as follows:
Ten Months
Years Ended Ended
--------------------------
December 31, December 31, October 31,
1993 1994 1995
------------ ------------ ------------
Cash paid for:
Interest............... $18,883,000 $16,298,000 $10,372,000
Income taxes $ 2,332,000 $ 6,725,000 $ 5,906,000
The Consolidated Statement of Cash Flows for 1993 excludes the effect of
certain non-cash financing activities related to the Recapitalization. (See
Notes 8 and 10.) The following is a summary of the non-cash effects of this
transaction.
Decrease in long-term debt.......... $(30,000,000)
Increase in Class A common stock.... 1,000
Increase in additional paid-in capital 29,999,000
------------
$ -
============
F - 51
<PAGE>
WR ACQUISITION, INC.
AND SUBSIDIARIES
--------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Consolidated Statement of Cash Flows for 1995 excludes the effect of
certain non-cash financing activities related to the Merger. The following is a
summary of the non-cash effects of this transaction.
Increase in treasury stock............. $81,000
Decrease in additional paid-in capital. (81,000)
-------
$ -
=======
(15) Fair Value of Financial Instruments
-----------------------------------
Cash, Trade Accounts Receivable, Trade Accounts Payable:
The carrying amount of cash, trade accounts receivable and trade accounts
payable approximates fair value because of the short maturity of these
instruments. As is customary for the industry, the Company performs ongoing
credit evaluations of its customers' financial condition and generally requires
no collateral.
Long-term Debt:
The fair values of the Company's long-term debt instruments are based on
the amount of future cash flows associated with each instrument, discounted
using the Company's current borrowing rate for which it could replace its
existing long-term debt.
At October 31, 1995, the estimated fair value of the Company's term loans
was $219,843,000, which was the carrying amount of these long-term debt
instruments. The estimated fair value of the Company's term loans was based on
the quoted market prices for the same or similar issues or on the current rates
offered to the Company for debt of the same remaining maturities. The estimated
fair value of the Company's senior subordinated debentures was $109,000,000,
which was the redemption price, (See Note 8), while the carrying value of these
long-term debt instruments was $100,000,000.
It was not practical to estimate the fair value of the Company's industrial
revenue bonds which are not publicly traded, or considered comparable to any
financial instruments currently in the market. As of October 31, 1995, these
industrial revenue bonds have a carrying amount of $8,740,000, including
$1,500,000 which is currently due. The bonds have interest rates ranging from
3.99% to 5.11%. The bonds are due on varying dates through the year 2010.
Limitations:
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates are subjective in nature and involve uncertainties and matters
of significant judgement and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
(16) Discontinued Operations
-----------------------
In December, 1995, the management of Ampad made a decision to sell the
Personalizing segment of the business. The Company expects to sell the
discontinued operations at a gain within one year. Accordingly, the
consolidated financial statements have been restated to report separately the
net assets and operating results of this segment. The Company's prior years
operating results have been restated to reflect continuing operations.
The Company allocated interest to the discontinued operations in the
amounts of $5,837,000, $4,823,000 and $2,130,000 for the years ended December
31, 1993 and 1994 and the ten months ended October 31, 1995, respectively.
Consolidated interest that is not attributable to specific operations of the
Company was allocated based on the ratio of net assets of the discontinued
operations to the sum of total net assets of the consolidated company plus
consolidated debt that is not attributable to specific operations of the Company
or debt of the discontinued operations that will be assumed by a buyer.
F - 52
<PAGE>
WR ACQUISITION, INC.
AND SUBSIDIARIES
---------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(17) Guarantor Subsidiaries of 13% Senior Subordinated Notes Due November 15,
------------------------------------------------------------------------
2005
- ----
On December 1, 1995, the Company sold, at par, $200 million of 13% Senior
Subordinated Notes due November 15, 2005 (the "13% Notes"). The 13% Notes are
guaranteed by all of the Company's principal subsidiaries. The following
financial information presents condensed consolidating financial statements for
(i) the Company only ("Parent"); (ii) the guaranteeing subsidiaries on a
combined basis ("Guarantor Subsidiaries") and (iii) the Company on a
consolidated basis. The following statements do not include WR Acquisition,
Inc., which is not a party to the 13% Senior Subordinated Notes agreement.
The guarantor subsidiaries include the discontinued operations prior to
allocation of interest and elimination of management fee.
F - 53
<PAGE>
WR ACQUISITION, INC.
AND SUBSIDIARIES
----------------
Notes to Consolidated Financial Statements (Continued)
WILLIAMHOUSE-REGENCY OF DELAWARE, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
($000's Omitted)
<TABLE>
<CAPTION>
Williamhouse-
Regency of
Delaware, Inc. Guarantor Intercompany
(Parent) Subsidiaries Eliminations
December 31, 1994 ------------------- ------------------ ----------------
- -----------------
CURRENT ASSETS
<S> <C> <C> <C>
Cash $ 138 $ 887 $ -
Accounts receivable, net 15,639 27,582 -
Inventories 21,497 24,177 (1,716)
Prepaid expenses 478 493 -
------------- -------------- -------------
Total current assets 37,752 53,139 (1,716)
------------- -------------- -------------
PROPERTY, PLANT AND EQUIPMENT 55,467 110,018 -
Less accumulated depreciation and amortization 25,956 60,264 -
------------- -------------- -------------
Net property, plant and equipment 29,511 49,754 -
------------- -------------- -------------
ADVANCES TO AND RECEIVABLE FROM ACQUISITION 184,329 - -
ADVANCES TO AND INVESTMENT IN SUBSIDIARIES 16,533 - (16,533)
ADVANCES TO PARENT - 38,057 (38,057)
DEFERRED FINANCING COSTS,LESS ACCUMULATED
AMORTIZATION 5,978 604 -
OTHER ASSETS (876) 336 2,275
------------- -------------- -------------
TOTAL ASSETS $ 273,227 $ 141,890 $ (54,031)
============= ============== =============
CURRENT LIABILITIES
Accounts payable and other current liabilities $ 14,207 $ 24,867 $ (103)
Current installments of long-term debt 6,726 3,630 -
------------- -------------- -------------
Total current liabilities 20,933 28,497 (103)
------------- -------------- -------------
NON-CURRENT LIABILITIES 2,179 - -
DEFERRED TAX LIABILITIES - NET 3,202 1,942 (428)
LONG-TERM DEBT (LESS CURRENT
INSTALLMENTS) 139,120 12,899 -
ADVANCES FROM PARENT - 10,399 (10,399)
ADVANCES FROM SUBSIDIARIES 38,057 - (38,057)
STOCKHOLDERS' EQUITY(DEFICIENCY)
Common stock 845 659 (1,004)
Additional paid-in capital 67,931 56,523 (1,936)
Retained earnings 960 30,971 (2,104)
------------- -------------- -------------
Total stockholders' equity (deficiency) 69,736 88,153 (5,044)
------------- -------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIENCY) $ 273,227 $ 141,890 $ (54,031)
============= ============== =============
<CAPTION>
Williamhouse-
Regency of
Delaware, Inc.
Consolidated
December 31, 1994 --------------
- -----------------
CURRENT ASSETS
<S> <C>
Cash 1,025
Accounts receivable, net 43,221
Inventories 43,958
Prepaid expenses 971
------------
Total current assets 89,175
------------
PROPERTY, PLANT AND EQUIPMENT 165,485
Less accumulated depreciation and amortization 86,220
------------
Net property, plant and equipment 79,265
------------
ADVANCES TO AND RECEIVABLE FROM ACQUISITION 184,329
ADVANCES TO AND INVESTMENT IN SUBSIDIARIES -
ADVANCES TO PARENT -
DEFERRED FINANCING COSTS,LESS ACCUMULATED
AMORTIZATION 6,582
OTHER ASSETS 1,735
------------
TOTAL ASSETS 361,086
============
CURRENT LIABILITIES
Accounts payable and other current liabilities 38,971
Current installments of long-term debt 10,356
------------
Total current liabilities 49,327
------------
NON-CURRENT LIABILITIES 2,179
DEFERRED TAX LIABILITIES - NET 4,716
LONG-TERM DEBT (LESS CURRENT
INSTALLMENTS) 152,019
ADVANCES FROM PARENT -
ADVANCES FROM SUBSIDIARIES -
STOCKHOLDERS' EQUITY(DEFICIENCY)
Common stock 500
Additional paid-in capital 122,518
Retained earnings 29,827
------------
Total stockholders' equity (deficiency) 152,845
------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIENCY) 361,086
============
</TABLE>
F - 54
<PAGE>
WR ACQUISITION, INC.
AND SUBSIDIARIES
----------------
Notes to Consolidated Financial Statements (Continued)
WILLIAMHOUSE-REGENCY OF DELAWARE, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
($000's Omitted)
<TABLE>
<CAPTION>
Williamhouse-
Regency of
Delaware, Inc. Guarantor Intercompany
(Parent) Subsidiaries Eliminations
October 31, 1995 ---------------- ------------------ -----------------
- ----------------
CURRENT ASSETS
<S> <C> <C> <C>
Cash $ (719) $ 758 $ -
Accounts receivable, net 21,920 17,397 103
Inventories 23,755 24,218 (2,742)
Prepaid expenses 951 3,995 -
--------------------- ------------------- ------------
Total current assets 45,907 46,368 (2,639)
--------------------- ------------------- ------------
PROPERTY, PLANT AND EQUIPMENT 61,127 102,932 -
Less accumulated depreciation and amortization 28,871 55,880 -
--------------------- ------------------- ------------
Net property, plant and equipment 32,256 47,052 -
--------------------- ------------------- ------------
DUE FROM AMPAD 54,306 - -
ADVANCES TO AND RECEIVABLE FROM ACQUISITION 158,751 - -
ADVANCES TO AND INVESTMENT IN SUBSIDIARIES 16,050 - (16,050)
ADVANCES TO PARENT - 48,662 (48,662)
DEFERRED FINANCING COSTS,LESS ACCUMULATED
AMORTIZATION 22,928 445 -
OTHER ASSETS 1,475 423 2,275
PURCHASE PRICE FOR THE COMMON STOCK OF WR
ACQUISITION, INC. AND CERTAIN RELATED COSTS 147,854 - -
--------------------- ------------------- ------------
TOTAL ASSETS $ 479,527 $ 142,950 $ (65,076)
===================== =================== ============
CURRENT LIABILITIES
Accounts payable and other current liabilities $ 25,812 $ 17,463 $ -
Current installments of long-term debt 10,662 2,767 -
--------------------- ------------------- ------------
Total current liabilities 36,474 20,230 -
--------------------- ------------------- ------------
NON-CURRENT LIABILITIES 2,019 - -
DEFERRED TAX LIABILITIES - NET (2,444) 8,409 (786)
LONG-TERM DEBT (LESS CURRENT
INSTALLMENTS) 317,020 6,611 -
ADVANCES FROM PARENT - 3,416 (3,416)
ADVANCES FROM SUBSIDIARIES 48,662 - (48,662)
STOCKHOLDERS' EQUITY(DEFICIENCY)
Common stock 845 662 (1,007)
Additional paid-in capital 83,529 61,398 (8,434)
Retained earnings (6,578) 42,224 (2,771)
--------------------- ------------------- ------------
Total stockholders' equity (deficiency) 77,796 104,284 (12,212)
--------------------- ------------------- ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIENCY) $ 479,527 $ 142,950 $ (65,076)
===================== =================== ============
<CAPTION>
Williamhouse-
Regency of
Delaware, Inc.
Consolidated
October 31, 1995 ----------------
- ----------------
CURRENT ASSETS
<S> <C>
Cash 39
Accounts receivable, net 39,420
Inventories 45,231
Prepaid expenses 4,946
--------------
Total current assets 89,636
--------------
PROPERTY, PLANT AND EQUIPMENT 164,059
Less accumulated depreciation and amortization 84,751
--------------
Net property, plant and equipment 79,308
--------------
DUE FROM AMPAD 54,306
ADVANCES TO AND RECEIVABLE FROM ACQUISITION 158,751
ADVANCES TO AND INVESTMENT IN SUBSIDIARIES -
ADVANCES TO PARENT -
DEFERRED FINANCING COSTS,LESS ACCUMULATED
AMORTIZATION 23,373
OTHER ASSETS 4,173
PURCHASE PRICE FOR THE COMMON STOCK OF WR
ACQUISITION, INC. AND CERTAIN RELATED COSTS 147,854
--------------
TOTAL ASSETS 557,401
==============
CURRENT LIABILITIES
Accounts payable and other current liabilities 43,275
Current installments of long-term debt 13,429
--------------
Total current liabilities 56,704
--------------
NON-CURRENT LIABILITIES 2,019
DEFERRED TAX LIABILITIES - NET 5,179
LONG-TERM DEBT (LESS CURRENT
INSTALLMENTS) 323,631
ADVANCES FROM PARENT -
ADVANCES FROM SUBSIDIARIES -
STOCKHOLDERS' EQUITY(DEFICIENCY)
Common stock 500
Additional paid-in capital 136,493
Retained earnings 32,875
--------------
Total stockholders' equity (deficiency) 169,868
--------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIENCY) 557,401
==============
</TABLE>
F - 55
<PAGE>
WR ACQUISITION, INC.
AND SUBSIDIARIES
----------------
Notes to Consolidated Financial Statements (Continued)
WILLIAMHOUSE-REGENCY OF DELAWARE, INC.
AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF OPERATIONS
($000's Omitted)
<TABLE>
<CAPTION>
Williamhouse- Williamhouse-
Regency of Regency of
Delaware, Inc. Guarantor Intercompany Delaware, Inc.
(Parent) Subsidiaries Eliminations Consolidated
Year Ended December 31,1993 ----------------- --------------- -------------- -----------------
- ---------------------------
<S> <C> <C> <C> <C>
Net sales 79,301 215,048 - 294,349
--------------- ---------- --------- ----------
Cost of sales 50,114 140,095 144 190,353
--------------- ---------- --------- ----------
Gross profit 29,187 74,953 (144) 103,996
Selling, general and administrative expenses 24,553 53,241 - 77,794
--------------- ---------- --------- ----------
Operating income 4,634 21,712 (144) 26,202
Management fee charged by Parent (8,491) 8,491 - -
Interest expense 18,718 1,622 - 20,340
Interest income (319) (311) - (630)
--------------- ---------- --------- ----------
Earnings before taxes on income (5,274) 11,910 (144) 6,492
Provision for taxes on income (1,689) 3,910 50 2,271
--------------- ---------- --------- ----------
Net earnings (3,585) 8,000 (194) 4,221
=============== ========== ========= ==========
Year Ended December 31,1994
- ---------------------------
Net sales 135,073 232,979 - 368,052
--------------- ---------- --------- ----------
Cost of sales 94,372 154,079 154 248,605
--------------- ---------- --------- ----------
Gross profit 40,701 78,900 (154) 119,447
Selling, general and administrative expenses 29,229 56,893 - 86,122
--------------- ---------- --------- ----------
Operating income 11,472 22,007 (154) 33,325
Management fee charged by Parent (5,486) 5,486 - -
Interest expense 15,946 1,311 - 17,257
Interest income (253) (71) - (324)
--------------- ---------- --------- ----------
Earnings before taxes on income 1,265 15,281 (154) 16,392
Provision for taxes on income 103 5,754 (54) 5,803
--------------- ---------- --------- ----------
Net earnings 1,162 9,527 (100) 10,589
=============== ========== ========= ==========
Ten Months Ended October 31,1995
- --------------------------------
Net sales 109,849 201,986 - 311,835
Cost of sales 77,442 130,496 1,026 208,964
--------------- ---------- --------- ----------
Gross profit 32,407 71,490 (1,026) 102,871
Selling, general and administrative expenses 27,243 45,890 - 73,133
Compensation expense relating to stock option 8,837 1,886 - 10,723
--------------- ---------- --------- ----------
Operating income (3,673) 23,714 (1,026) 19,015
Management fee charged by Parent (4,444) 4,444 - -
Interest expense 13,360 720 - 14,080
Interest income (117) (8) - (125)
--------------- ---------- --------- ----------
Earnings before taxes on income (12,472) 18,558 (1,026) 5,060
Provision for taxes on income (3,868) 6,239 (359) 2,012
--------------- ---------- --------- ----------
Net earnings (8,604) 12,319 (667) 3,048
=============== ========== ========= ==========
</TABLE>
F-56
<PAGE>
WR ACQUISITION, INC.
AND SUBSIDIARIES
----------------
Notes to Consolidated Financial Statements (Continued)
WILLIAMHOUSE-REGENCY OF DELAWARE, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
($000's Omitted)
<TABLE>
<CAPTION>
Williamhouse- Williamhouse-
Regency of Regency of
Delaware, Inc. Guarantor Delaware, Inc.
DECEMBER 31, 1993 (Parent) Subsidiaries Consolidated
- ----------------- ---------------- ----------------- -------------------
<S> <C> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 1,062 $ 9,065 $ 10,127
----------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment - net (2,344) (2,377) (4,721)
Acquisitions of inventory and machinery and equipment (9,728) (693) (10,421)
----------- ---------- -----------
Cash used for investing activities (12,072) (3,070) (15,142)
----------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of long-term debt (169,666) (3,977) (173,643)
Proceeds from Recapitalization 152,500 - 152,500
Proceeds from long-term debt 9,597 - 9,597
Additions to deferred financing costs (7,374) - (7,374)
Advances from Parent 2,387 14,413 16,800
Advances from (to) Subsidiaries 15,131 (15,131) -
----------- ---------- -----------
Cash provided by (used for) financing activities 2,575 (4,695) (2,120)
----------- ---------- -----------
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (8,435) 1,300 (7,135)
Cash and cash equivalents at beginning of period 12,672 23 12,695
----------- ---------- -----------
Cash and cash equivalents at end of period $ 4,237 $ 1,323 $ 5,560
=========== ========== ===========
DECEMBER 31, 1994
- -----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 9,140 $ 16,829 $ 25,969
----------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment - net (3,404) (2,829) (6,233)
Acquisitions of inventory and machinery and equipment (1,293) (2,831) (4,124)
----------- ---------- -----------
Cash used for investing activities (4,697) (5,660) (10,357)
----------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of long-term debt (33,098) (3,953) (37,051)
Proceeds from long-term debt 16,600 1,000 17,600
Additions to deferred financing costs (177) (622) (799)
Advances from (to) Parent 7,701 (7,598) 103
Advances from (to) Subsidiaries 432 (432) -
----------- ---------- -----------
Cash used for financing activities (8,542) (11,605) (20,147)
----------- ---------- -----------
DECREASE IN CASH AND CASH EQUIVALENTS (4,099) (436) (4,535)
Cash and cash equivalents at beginning of period 4,237 1,323 5,560
----------- ---------- -----------
Cash and cash equivalents at end of period $ 138 $ 887 $ 1,025
=========== ========== ===========
</TABLE>
F-57
<PAGE>
WR ACQUISITION, INC.
AND SUBSIDIARIES
----------------
Notes to Consolidated Financial Statements (Continued)
WILLIAMHOUSE-REGENCY OF DELAWARE, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
($000's Omitted)
<TABLE>
<CAPTION>
Williamhouse- Williamhouse-
Regency of Regency of
Delaware, Inc. Guarantor Delaware, Inc.
OCTOBER 31, 1995 (Parent) Subsidiaries Consolidated
- ---------------- --------------- ---------------- ---------------
<S> <C> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 1,117 $ 15,532 $ 16,649
---------------- ---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment - net (5,735) (2,821) (8,556)
Funds held for construction (2,633) - (2,633)
---------------- ---------------- ----------------
Cash used for investing activities (8,368) (2,821) (11,189)
---------------- ---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of long-term debt (43,248) (7,151) (50,399)
Proceeds from long-term debt 5,200 - 5,200
Additions to deferred financing costs (19,679) - (19,679)
Proceeds from exercise of stock options 2,701 - 2,701
Proceeds from issuance of debt to effect Merger 219,843 - 219,843
Purchase price for the common stock of WR
Acquisition, Inc. and certain related expenses (147,854) - (147,854)
Advances to Ampad (54,306) - (54,306)
Investment in trust (34,518) - (34,518)
Proceeds from sale of accounts receivable 35,086 11,902 46,988
Advances from (to) Parent 36,183 (10,605) 25,578
Advances from (to) Subsidiaries 6,986 (6,986) -
---------------- ---------------- ----------------
Cash provided by (used for) financing activities 6,394 (12,840) (6,446)
---------------- ---------------- ----------------
DECREASE IN CASH AND CASH EQUIVALENTS (857) (129) (986)
Cash and cash equivalents at beginning of period 138 887 1,025
---------------- ---------------- ----------------
Cash and cash equivalents at end of period $ (719) $ 758 $ 39
================ ================ ================
</TABLE>
F-58
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
American Pad & Paper Company of Delaware, Inc.
(successor to Ampad Corporation)
We have audited the accompanying statements of net sales and cost of sales of
the Globe-Weis Office Products Group product lines purchased by American Pad &
Paper Company of Delaware, Inc. (successor to Ampad Corporation) from American
Trading and Production Corporation for the twelve months ended July 31, 1995 and
the nine months ended July 31, 1994. These statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
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 statements of net sales and cost of sales
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in these statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
these statements. We believe that our audits provide a reasonable basis for our
opinion.
The accompanying historical statements were prepared for the purposes of
complying with the rules and regulations of the Securities and Exchange
Commission (for inclusion in the registration statement on Form S-1 of American
Pad & Paper Company) as described in Note 3 and are not intended to be a
complete presentation of the results of operations of the product lines
purchased from American Trading and Production Corporation.
In our opinion, the historical statements referred to above present fairly, in
all material respects, the net sales and cost of sales of the product lines
acquired, as described in Note 2, for the twelve months ended July 31, 1995 and
the nine months ended July 31, 1994, in conformity with generally accepted
accounting principles.
PRICE WATERHOUSE LLP
/s/ Price Waterhouse LLP
Dallas, Texas
March 22, 1996
F-59
<PAGE>
GLOBE-WEIS
(Office Products Group Product Lines Acquired from American Trading and
Production Corporation)
STATEMENTS OF NET SALES AND COST OF SALES
- --------------------------------------------------------------------------------
NINE MONTHS TWELVE MONTHS
ENDED ENDED
JULY 31, 1994 JULY 31, 1995
------------- -------------
(IN THOUSANDS)
Net sales $43,762 $60,047
Cost of sales 37,754 54,706
------- -------
Gross profit $ 6,008 $ 5,341
The accompanying notes are an integral part of these statements.
F-60
<PAGE>
GLOBE-WEIS
(Office Products Group Product Lines Acquired from American Trading and
Production Corporation)
NOTES TO STATEMENTS OF NET SALES AND COST OF SALES
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS
Globe-Weis is one of five brand names marketed by the Office Products Group of
American Trading and Production Corporation (ATAPCO). The Globe-Weis brand
comprises file folders, hanging file folders, expandables, file guides, storage
cases and trays. The products are distributed through the large mass merchant
retailers, office products superstores, office products wholesalers and contract
stationers.
2. ACQUISITION
On August 16, 1995, the inventory and certain equipment of the file folder and
hanging file folder product lines of Globe-Weis were acquired by Ampad
Corporation ("Ampad") in a transaction accounted for as a purchase by Ampad.
Ampad is the predecessor to American Pad & Paper Company of Delaware, Inc.
(hereafter referred to as the "Company") as a result of Ampad's merger with and
into the Company effective October 31, 1995. The Company also entered into a
license agreement with ATAPCO for use of the Globe-Weis name and other trade
names. The acquired product lines are hereafter referred to as the Globe-Weis
assets. Sales of the acquired product lines represented approximately 59% of
the sales of the Globe-Weis brand. The Globe-Weis product lines not acquired
remain an ongoing business of ATAPCO.
3. BASIS OF PRESENTATION
The accompanying statements of net sales and cost of sales were prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission ( SEC) (for the inclusion in the registration statement on
Form S-1 of the Company).
The acquisition of the Globe-Weis assets constituted a significant acquisition
to the Company pursuant to regulations of the SEC. ATAPCO did not maintain
separate, complete accounting records for each of the product lines within the
Office Products Group, nor did ATAPCO allocate general and administrative
expenses or selling and marketing expenses to individual product lines.
Accordingly, complete financial statements of the acquired Globe-Weis assets are
not presented. However, in accordance with approval from the SEC staff, audited
net sales and cost of sales information is presented for the twelve months ended
July 31, 1995 (month-end closest to acquisition date) and the nine months ended
July 31, 1994. The statements of net sales and cost of sales include only those
net sales and cost of sales directly related to the production and distribution
of the acquired product lines.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Globe-Weis recognized revenue from the sale of products upon shipment to the
customer. Costs of sales are recorded when the related revenue is recognized.
F-61
<PAGE>
GLOBE-WEIS
(Office Products Group Product Lines Acquired from American Trading and
Production Corporation)
NOTES TO STATEMENTS OF NET SALES AND COST OF SALES
- --------------------------------------------------------------------------------
CONCENTRATION OF CUSTOMERS
During the twelve months ended July 31, 1995, three customers accounted for 79%
of net sales. Three customers accounted for 81% of net sales during the nine
months ended July 31, 1994.
COST OF SALES
Cost of sales were determined at standard cost, which approximates actual first-
in, first-out cost in accordance with generally accepted accounting principles.
Standard cost for raw material inventory includes material, freight, duties and
brokerage fees. Standard cost for work in process and finished goods
inventories include material, direct labor and overhead with costs allocated by
identifiable activity. Revaluations of standard costs were amortized to cost of
sales based on inventory turnover. Obsolescence and other variances to standard
cost were charged to cost of sales in the period incurred.
F-62
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Niagara Envelope Company, Inc.
We have audited the accompanying balance sheets of Niagara Envelope Company,
Inc. as of December 31, 1995 and 1994 and the related statements of income and
retained earnings, and cash flows for each of the three years in the period
ended December 31, 1995. 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 Niagara Envelope Company,
Inc. at December 31, 1995 and 1994 and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1995
in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Ernst & Young LLP
Buffalo, New York
February 16, 1996
F-63
<PAGE>
NIAGARA ENVELOPE COMPANY, INC.
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31
----------------
1994 1995
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash........................................................ $ 126 $ 50
Accounts receivable:
Trade..................................................... 10,676 10,936
Other..................................................... 84 48
------- -------
10,760 10,984
Inventory (Note 2).......................................... 11,519 10,710
Note receivable--shareholder (Note 3)....................... 120 131
Prepaid income taxes........................................ 32 75
Prepaid expenses and other assets........................... 150 132
Deferred taxes.............................................. 278 216
------- -------
Total current assets.................................... 22,985 22,298
Note receivable--shareholder (Note 3)........................ 441 312
Property, plant and equipment (Note 4):
Land........................................................ 34 34
Buildings................................................... 5,600 5,649
Leasehold improvements...................................... 1,078 1,052
Machinery and equipment..................................... 13,116 13,749
Office furniture and equipment.............................. 4,189 3,948
Construction in progress.................................... 15 490
------- -------
24,032 24,922
Less accumulated depreciation and amortization.............. 13,259 13,951
------- -------
Net property, plant and equipment............................ 10,773 10,971
Intangible pension asset..................................... 494 316
Restricted temporary cash investments (Note 7)............... 74 6
Investment in joint venture (Note 5)......................... 161 347
Other assets.............................................. 588 628
------- -------
Total assets............................................ $35,516 $34,878
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade..................................... $ 5,902 $ 6,093
Accrued expenses (Note 8)................................... 2,338 2,044
Accrued expenses for plant closure and relocation costs
(Note 14).................................................. 137 210
Current portion--long-term debt (Note 7).................... 410 618
------- -------
Total current liabilities................................. 8,787 8,965
Long-term debt (Note 7)...................................... 14,304 8,747
Accrued pension liability (Note 10).......................... 50 562
Deferred compensation........................................ 811 917
Deferred taxes............................................... 354 439
------- -------
Total liabilities....................................... 24,306 19,630
Shareholders' equity (Note 12):
Capital stock:
Preferred, no par value:
Class A, authorized 20,000 shares, issued and outstanding
500 shares.............................................. 500 500
Common, no par value:
Class A, voting, authorized 12,000 shares, issued and
outstanding 5,163 shares................................ 52 52
Class B, non-voting, authorized 12,000 shares, issued and
outstanding 5,780 shares................................ 58 58
Additional paid-in capital.................................. 361 361
Retained earnings........................................... 10,249 14,780
Accumulated pension adjustment.............................. (10) (503)
------- -------
Total shareholders' equity.............................. 11,210 15,248
------- -------
Total liabilities and shareholders' equity.............. $35,516 $34,878
======= =======
</TABLE>
See accompanying notes.
F-64
<PAGE>
NIAGARA ENVELOPE COMPANY, INC
STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1993 1994 1995
------- ------- --------
<S> <C> <C> <C>
Sales............................................... $82,901 $84,005 $105,859
Cost of goods sold.................................. 66,817 65,910 82,192
------- ------- --------
Gross profit........................................ 16,084 18,095 23,667
Distribution expenses............................... 5,975 6,055 6,001
Selling and marketing expenses...................... 4,084 3,614 3,934
General and administrative expenses................. 5,210 5,218 5,251
------- ------- --------
Income from operations.............................. 815 3,208 8,481
Other income (expense):
Interest income................................... 55 125 58
Interest expense.................................. (693) (953) (922)
Management fees................................... -- -- 80
(Loss) gain on sale of equipment.................. (1) (37) 164
Equity in earnings of joint venture............... -- 61 186
Plant closure and relocation costs................ (1,097) (682) (336)
Pension curtailment............................... -- -- (157)
Other............................................. (167) (373) (213)
------- ------- --------
(1,903) (1,859) (1,140)
------- ------- --------
Income before income taxes.......................... (1,088) 1,349 7,341
Income tax provision:
Current--Federal.................................. 17 154 2,287
-- State................................... 5 48 328
Deferred.......................................... (335) 343 147
------- ------- --------
(313) 545 2,762
------- ------- --------
Net (loss) income................................... (775) 804 4,579
Retained earnings at beginning of year.............. 10,316 9,493 10,249
------- ------- --------
9,541 10,297 14,828
Dividends declared on preferred stock
($95 per share).................................... 48 48 48
------- ------- --------
Retained earnings at end of year.................... $ 9,493 $10,249 $ 14,780
======= ======= ========
</TABLE>
See accompanying notes.
F-65
<PAGE>
NIAGARA ENVELOPE COMPANY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31
----------------------
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income........................................... $ (775) $ 804 $4,579
Adjustments to reconcile net income to net cash pro-
vided by operating activities:
Depreciation and amortization...................... 1,374 1,328 1,486
Deferred taxes..................................... (335) 343 147
(Gain) loss on sale of equipment................... 1 37 (164)
Equity in earnings of joint venture................ -- (61) (186)
Changes in:
Accounts receivable.............................. (164) (1,392) (223)
Inventory........................................ 801 (746) 809
Prepaid expenses and other assets................ 230 83 18
Other assets..................................... (13) (120) (40)
Prepaid income taxes............................. (446) 415 (44)
Accounts payable, trade.......................... 916 1,053 191
Accrued expenses................................. 392 107 (221)
Accrued pension liability net of non-cash
changes......................................... 22 (204) 197
Deferred compensation............................ (27) (46) 106
------ ------ ------
TOTAL ADJUSTMENTS...................................... 2,751 797 2,076
------ ------ ------
NOT CASH PROVIDED BY OPERATING ACTIVITIES.............. 1,976 1,601 6,655
INVENTING ACTIVITIES
(Purchase) sale of temporary cash investments........ (2,003) 1,929 68
Net proceeds from notes receivable--shareholder...... 86 118 119
Purchase of property and equipment................... (4,126) (2,979) (1,685)
Proceeds from sale of equipment...................... 2 8 164
Investment in joint venture.......................... -- (100) --
------ ------ ------
Net cash used in investing activities................ (6,041) (1,024) (1,334)
FINANCING ACTIVITIES
Proceeds from term loan agreements................... -- 3,000 --
Repayment under term loan agreements................. (95) (9,102) (109)
(Repayment) net proceeds from revolving credit facil-
ity................................................. -- 7,160 (4,940)
(Repayment) of demand note payable................... 156 (1,576) --
Proceeds from industrial revenue bond................ 4,500 -- --
Repayment under industrial revenue bond ............. -- (300) (300)
Bond issuance costs.................................. (295) -- --
Dividends............................................ (48) (48) (48)
------ ------ ------
Net cash provided by (used in) financing activities.. 4,218 (866) (5,397)
------ ------ ------
Net increase (decrease) in cash...................... 153 (289) (76)
Cash at beginning of year............................ 262 415 126
------ ------ ------
Cash at end of year.................................. $ 415 $ 126 $ 50
====== ====== ======
Cash paid (received) during the period for:
Income taxes....................................... $ 698 $ (213) $2,734
====== ====== ======
Interest........................................... $ 687 $ 886 $1,005
====== ====== ======
Non-cash activities:
(Decrease) increase in intangible pension asset.... $ (53) $ 22 $ (178)
====== ====== ======
Increase (decrease) in accumulated pension adjust-
ment.............................................. $ 73 $ (242) $ 493
====== ====== ======
</TABLE>
See accompanying notes.
F-66
<PAGE>
NIAGARA ENVELOPE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Niagara Envelope Company, Inc. (the Company) manufactures and distributes
envelopes. The Company sells its products primarily to paper wholesalers
located in the United States.
The Company has operating divisions in Buffalo, New York; Chicago, Illinois;
Dallas, Texas and Denver, Colorado, and a warehouse in Seattle, Washington.
The Company also has a joint venture located in Hattiesburg, Mississippi.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amount of revenues and expenses
during the year. Actual results could differ from those estimates.
Inventory
Inventory is stated at the lower of cost or market. Cost is determined using
the last-in, first-out (LIFO) method for paper raw material, work in process,
and finished goods inventory, and the first-in, first-out (FIFO) method for
non-paper raw material inventory which comprises 12% and 14% of inventory at
December 31, 1994 and 1995, respectively.
Property, Equipment and Depreciation
Property and equipment are stated at cost. Depreciation is provided on both
the straight-line and declining balance methods over the estimated useful
lives of the assets or the lease term for leasehold improvements as follows:
<TABLE>
<CAPTION>
YEARS
---------
<S> <C>
Buildings....................................................... 31.5 - 39
Leasehold improvements.......................................... 5 - 16
Automotive equipment............................................ 3 - 4
Machinery and equipment......................................... 5 - 12
Office furniture and equipment.................................. 5 - 10
</TABLE>
Maintenance and repairs are charged against income; significant renewals and
improvements are capitalized.
Financing Fees
Deferred financing fees, which are included in other assets, are being
amortized over the life of the related debt.
Revenue Recognition
The company recognizes revenue from the sale of products upon shipment to
the customer.
Statement of Cash Flows
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with an original maturity date of three months or
less to be cash equivalents.
F-67
<PAGE>
NIAGARA ENVELOPE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. INVENTORY
Inventory consisted of the following at December 31, 1994 and 1995:
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Raw material............................................ $ 5,854 $ 4,953
Work in process......................................... 212 696
Finished goods.......................................... 6,383 6,911
------- -------
12,449 12,560
Less: LIFO reserve.................................... (930) (1,850)
------- -------
$11,519 $10,710
======= =======
</TABLE>
3. NOTE RECEIVABLE--SHAREHOLDER
Note receivable--shareholder represents an amount due from a shareholder of
the Company with an interest rate of prime plus 1/4% (8.75% at December 31,
1994 and 1995) due in monthly installments of $14 including interest.
4. PROPERTY, PLANT AND EQUIPMENT
Buildings include $1,009 and $949 at December 31, 1994 and 1995,
respectively, which represents the net book value of building, building
additions, etc., located on land owned by an affiliate. The land is leased by
the Company under a long-term lease. The lease has two renewal options which,
if exercised, would enable the Company to lease the property through January
31, 2000.
5. INVESTMENT IN JOINT VENTURE
In March 1994, the Company acquired a 50% interest in the common stock of a
joint venture, Niagara-Murray Envelope Company, Inc., for $100. The joint
venture is a Mississippi manufacturer of paper envelopes with exclusive rights
to sell envelopes in a five-state area in the Southeastern section of the
United States. This investment is recorded on the equity method.
The following summarizes the related transactions:
<TABLE>
<CAPTION>
1993 1994 1995
---- ------ ------
<S> <C> <C> <C>
Purchase from................................................ $-- $ 107 $ 251
Sales to..................................................... -- 2,000 2,589
Payables to.................................................. -- 30 --
Receivable from.............................................. -- 170 353
</TABLE>
6. LETTERS OF CREDIT
At December 31, 1995, the Company had one letter of credit totaling $796
which accrued a fee of 1% per annum and supported the Company's workers
compensation reserves and one letter of credit in the amount of $4,108 which
accrued a fee of 1% per annum and supported the Industrial Development Revenue
Bonds.
F-68
<PAGE>
NIAGARA ENVELOPE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. LONG-TERM DEBT
Long-term debt at December 31, 1994 and 1995 consisted of the following:
<TABLE>
<CAPTION>
1994 1995
------- ------
<S> <C> <C>
Term not payable in monthly principal installments of $50, be-
ginning in September 1996 through August 2001, with interest at
prime plus 1/2% or LIBOR rate plus 2% (7.9375% (LIBOR option)
at December 31, 1995), secured by virtually all assets of the
Company, excluding those securing the Industrial Development
Revenue Bonds.................................................. $ 3,000 $3,000
Term note payable in yearly installments through 1997 of $136
including interest at 7%, secured by computer software and
hardware with a net book value of approximately $190 at Decem-
ber 31, 1995................................................... $ 354 $ 245
Revolving credit facility totaling $12,000, due August 3, 1997,
secured by virtually all assets of the Company excluding those
securing the Industrial Development Revenue Bonds. Interest
payable at prime or LIBOR rate plus 1 1/2% (7.4375% (LIBOR op-
tion) on first $1,600 and 8.5% (prime rate) on balance at De-
cember 31, 1994 and 1995)...................................... 7,160 2,220
Industrial Development Revenue Bonds secured by land, building,
and equipment with an original cost of approximately $5,136
payable in quarterly installments of $75 plus interest that
fluctuates with the weekly average yield on United States Trea-
sury obligations (5.25% at December 31, 1995), through 2008.... 4,200 3,900
------- ------
14,714 9,365
Less: current portion.......................................... 410 618
------- ------
Long-term debt................................................. $14,304 $8,747
======= ======
</TABLE>
Payments due for the five years subsequent to December 31, 1995 are as
follows:
<TABLE>
<S> <C>
1996.................................. $ 618
1997.................................. 3,247
1998.................................. 900
1999.................................. 900
2000.................................. 900
Thereafter............................ 2,800
</TABLE>
The restricted temporary cash investments represent unexpended bond proceeds
restricted to certain capital expenditures.
8. ACCRUED EXPENSES
Accrued expenses included the following:
<TABLE>
<CAPTION>
1994 1995
------ ------
<S> <C> <C>
Payroll.................................................... $ 649 $ 766
Workers' compensation and medical insurance................ 664 615
Dividend................................................... 12 12
Interest................................................... 140 56
Pension.................................................... 507 266
Other...................................................... 170 93
Property taxes............................................. 196 236
------ ------
$2,338 $2,044
====== ======
</TABLE>
F-69
<PAGE>
NIAGARA ENVELOPE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. DEFERRED COMPENSATION PLANS
The Company entered into a deferred compensation agreement with the former
Chairman of the Board who is now deceased. The agreement provides for annual
payments to his surviving spouse for her lifetime. The present value of
required future payment, determined using an 8.9% discount factor, is $811 and
$789 at December 31, 1994 and 1995, respectively.
10. RETIREMENT PLANS
Defined Benefit Plans
The Company has two pension plans covering substantially all employees. The
Company's funding policy has been to contribute annually at least the minimum
required by ERISA. The Plans provide monthly benefits under a flat benefit
formula.
The Company's pension plan expense for the years ended December 31, 1993,
1994 and 1995 is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Service cost--benefits earned during the year.... $ 261 $ 278 $ 147
Interest cost on projected benefit obligation.... 306 341 275
Actual return on assets.......................... (323) 80 (578)
Net amortization and deferral.................... 77 (359) 369
------ ------ ------
Net periodic pension cost........................ $ 321 $ 340 $ 213
====== ====== ======
The funded status of the plans, based on actuarial computations at September
30, 1994 and 1995 is presented below. Plan assets are stated at fair value and
composed of fixed rate securities and equity investments. The average assumed
discount rate is 7.25% and 6.25% in 1994 and 1995, respectively. The average
expected long-term rate of return of plan assets is 7.75% in 1994 and 1995.
<CAPTION>
1994 1995
------ ------
<S> <C> <C> <C>
Actuarial present value of benefit obligation:
Accumulated benefit obligation vested........... $3,454 $4,604
====== ======
Accumulated benefit obligation.................. $3,764 $4,920
====== ======
Projected benefit
obligation for service rendered to date......... $3,764 $4,920
Plan assets at fair value........................ 3,207 4,092
------ ------
Projected benefit obligation
in excess of plan assets........................ (557) (828)
Unrecognized transition amount................... 157 90
Unrecognized net loss............................ 2 503
Unrecognized prior service cost.................. 345 226
Adjustment required to
recognize minimum liability..................... (504) (819)
------ ------
Accrued pension liability........................ $ (557) $ (828)
====== ======
</TABLE>
F-70
<PAGE>
NIAGARA ENVELOPE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Such amount is included in the accompanying balance sheets under the
following captions:
<TABLE>
<CAPTION>
1994 1995
----- -----
<S> <C> <C>
Accrued expenses............................................ $(507) $(266)
Accrued pension liability................................... (50) (562)
----- -----
$(557) $(828)
===== =====
</TABLE>
Defined Contribution Plans
During 1995, the Company froze the benefits accrued under its defined
benefit pension plan for certain union employees and initiated a defined
contribution plan for the participants under Section 401(k) of the Internal
Revenue Code. As a result of freezing the defined benefit plan, the Company
has recognized a loss of $157 representing previously unrecognized prior
service cost associated with this plan. The 401(k) plan requires the Company
to contribute 2% of each participants compensation to the plan and also
permits participants to contribute up to 15% of their defined compensation.
The Company's contribution to the plan in 1995 was $99.
The Company also has a deferred compensation plan for non-union employees
under Section 401(k) of the Internal Revenue Code. Under terms of the plan,
participants may elect to contribute up to 15% of their defined compensation.
In addition, the Company will contribute 50% of each of the participant's
contribution up to a maximum of 4% of defined compensation. Total
contributions to the plans in 1993, 1994 and 1995 approximated $184, $193, and
$226, respectively.
11. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities at December 31, 1994 and
1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995
----- -----
<S> <C> <C>
Employee compensation....................................... $ 312 $ 348
Accrued expenses............................................ 128 107
Discontinued operations..................................... 47 71
Other....................................................... 78 19
----- -----
Total deferred tax assets................................. 565 545
Pension benefits............................................ $ (59) $ (77)
Property, plant and equipment............................... (573) (584)
Gain on joint venture....................................... -- (84)
Other....................................................... (9) (23)
----- -----
Total deferred tax liabilities............................ (641) (768)
----- -----
Net deferred tax liabilities................................ $ (76) $(223)
===== =====
</TABLE>
The deferred tax assets results primarily from worker's compensation
accruals, medical expense accruals, deferred compensation and the accrual for
closure and relocation of plants. Deferred liabilities resulted primarily from
depreciation differences.
F-71
<PAGE>
NIAGARA ENVELOPE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
A reconciliation of the expected tax expense to actual tax expense for the
years ended December 31, 1993, 1994 and 1995 is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
----- ---- ------
<S> <C> <C> <C>
Federal income tax (benefit) expense computed at
statutory rate.................................... $(370) $458 $2,496
State taxes--net of federal effect................. 3 32 217
Meals and entertainment expense.................... 14 34 36
Premiums on officers life insurance................ 50 43 29
Other.............................................. (10) (22) (16)
----- ---- ------
$(313) $545 $2,762
===== ==== ======
</TABLE>
12. CAPITAL STOCK
Holders of the Company's Class A preferred stock are entitled to cumulative
dividends at the annual rate of 9.5% of the stated value but only if, when and
as declared by the Board of Directors. Dividends are not permitted on any
common stock unless all dividends to which the holders of Class A preferred
stock are entitled, have been declared and paid or are to be paid.
Each share of Class A preferred stock is entitled to one vote with the
voting common stock, not as a separate class, on any proposal for the
corporation to merge or consolidate with another corporation or for the
corporation to liquidate. Whenever the total amount of unpaid dividends on the
outstanding Class A preferred stock is equal to or greater than 40% of the
stated value of such shares, each is entitled to one vote with the voting
common stock of the Company, not as a separate class, on all matters with
respect to which the voting common stock has a right to vote. When all
dividends are paid on Class A preferred stock, the special voting right
terminates; and other than the preceding, the Class A preferred stock has no
voting rights.
The Company has the right to redeem the preferred stock, in whole or in
part, at any time at $1,000 per share. In the event of any liquidation,
dissolution or winding up of the corporation and the distribution of its
assets, the holders of shares of the Class A preferred stock shall be entitled
to receive $1,000 per share before any amount is distributed to the holders of
any common stock.
13. OPERATING LEASES
Real Property Leases
The Company is obligated on noncancelable real property leases expiring on
various dates through 2000. Certain of the leases require additional rentals
based on real estate taxes and include options to renew at an increased
amount. Future minimum annual lease payments for the next five years are as
follows:
<TABLE>
<CAPTION>
AMOUNT
------
<S> <C>
Year Ending December 31,
1996................................ $844
1997................................ 778
1998................................ 603
1999................................ 165
2000................................ 11
</TABLE>
Approximately $490 of the 1996 future minimum lease payments is due to
related parties under agreements that expire at various dates from 1996
through 2000.
F-72
<PAGE>
NIAGARA ENVELOPE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Rental expense for real property amounted to $1,330, $1,008, and $873 in
1993, 1994 and 1995, respectively, including rental expense to related parties
of $627, $448 and $462 in 1993, 1994 and 1995, respectively.
EQUIPMENT LEASES
The Company is also a lessee under noncancelable equipment lease agreements.
Certain of the agreements are with related party lessors. Future minimum
annual lease payments are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 AMOUNT
---------------------- ------
<S> <C>
1996............................... $1,318
1997............................... 1,020
1998............................... 491
1999............................... 154
2000............................... 71
Thereafter......................... 5
</TABLE>
Approximately $604 of the 1996 future minimum lease payments is due to
related parties under agreements that expire at various dates through 1999.
Equipment rent expense amounted to $1,567, $1,642 and $1,601 in 1993, 1994
and 1995, respectively, including rent expense to related parties of $710,
$684 and $664 in 1993, 1994 and 1995, respectively.
14. PROVISION FOR PLANT CLOSURE AND RELOCATION COSTS
The provision for plant closure and relocation costs at December 31, 1995
represents the estimated additional costs associated with the closure of
Niagara Envelope's Jacksonville facility.
F-73
<PAGE>
NIAGARA ENVELOPE COMPANY, INC.
BALANCE SHEETS
MARCH 31, 1995 AND 1996
(UNAUDITED--IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash....................................................... $ 3 $ 606
Accounts receivable:
Trade.................................................... 12,926 11,067
Other.................................................... 58 --
Inventory.................................................. 11,807 11,028
Note receivable--shareholder............................... 120 135
Prepaid expenses and other current assets.................. 103 372
Deferred taxes............................................. 278 216
------- -------
Total current assets................................... 25,295 23,424
Note receivable--shareholder............................... 413 276
Property, plant and equipment, net......................... 10,830 11,326
Intangible pension asset................................... 494 316
Investment in joint venture................................ 193 397
Other assets............................................... 622 677
------- -------
$37,847 $36,416
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank overdraft............................................. $ 1,252 $ 1,711
Accounts payable........................................... 5,024 5,071
Accrued expenses........................................... 3,899 3,591
Current portion--long-term debt............................ 410 650
------- -------
Total current liabilities.................................... 10,585 11,023
Long-term debt............................................... 13,379 6,725
Deferred compensation........................................ 806 913
Deferred income taxes........................................ 354 439
Accrued pension.............................................. 50 562
------- -------
14,589 8,639
Total liabilities...................................... 25,174 19,662
======= =======
Shareholders' equity:
Capital stock:
Preferred, no par value:
Class A, authorized 20,000 shares, issued and outstand-
ing 500 shares......................................... 500 500
Common, no par value:
Class A, voting, authorized 12,000 shares, issued and
outstanding 5,163 shares................................ 52 52
Class B, non-voting, authorized 12,000 shares, issued and
outstanding 5,780 shares................................ 58 58
Additional paid-in capital................................. 361 361
Retained earnings.......................................... 11,712 16,286
Accumulated pension adjustment............................. (10) (503)
------- -------
Total shareholders' equity............................. 12,673 16,754
------- -------
$37,847 $36,416
======= =======
</TABLE>
See accompanying notes.
F-74
<PAGE>
NIAGARA ENVELOPE COMPANY, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
THREE MONTHS ENDED MARCH 31, 1995 AND 1996
(UNAUDITED--IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Net sales.................................................... $26,628 $28,317
Cost of goods sold........................................... 20,163 21,760
Distribution expenses........................................ 1,584 1,554
Selling and marketing expenses............................... 936 982
General and administrative expenses.......................... 1,320 1,441
------- -------
24,003 25,737
------- -------
Income from operations....................................... 2,625 2,580
Interest income.............................................. 13 11
Interest expense............................................. (253) (147)
Other expense................................................ (36) (15)
------- -------
(276) (151)
------- -------
Income before income taxes................................... 2,349 2,429
Provision for income taxes................................... 874 911
------- -------
Net income................................................... 1,475 1,518
Retained earnings at beginning of period..................... 10,249 14,780
------- -------
11,724 16,298
Dividends declared on preferred stock ($23.75 per share)..... (12) (12)
------- -------
Retained earnings at end of period........................... $11,712 $16,286
======= =======
</TABLE>
See accompanying notes.
F-75
<PAGE>
NIAGARA ENVELOPE COMPANY, INC.
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1995 AND 1996
(UNAUDITED--IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 1,475 $ 1,518
Adjustments to reconcile net income to cash provided by op-
erating activities:
Depreciation and amortization............................. 361 411
Changes in operating assets and liabilities:
Accounts receivable..................................... (2,224) (83)
Inventories............................................. (288) (318)
Prepaid expenses and other current assets............... 79 (165)
Bank overdraft.......................................... 1,252 1,711
Accounts payable........................................ (878) (1,022)
Accrued expenses........................................ 1,419 1,333
------- -------
Cash provided by operating activities....................... 1,196 3,385
INVESTING ACTIVITIES
Purchase of property and equipment.......................... (418) (766)
Investment in joint venture................................. (32) (50)
Increase in other assets.................................... 40 (43)
Proceeds from note receivable--shareholder.................. 28 32
------- -------
Cash used by investing activities........................... (382) (827)
FINANCING ACTIVITIES
Dividends paid.............................................. (12) (12)
Repayment of long-term borrowings........................... (925) (1,990)
------- -------
Cash used by financing activities........................... (937) (2,002)
------- -------
Net (decrease) increase in cash............................. (123) 556
Cash--beginning of period................................... 126 50
------- -------
Cash--end of period......................................... $ 3 $ 606
======= =======
</TABLE>
See accompanying notes.
F-76
<PAGE>
NIAGARA ENVELOPE COMPANY, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
MARCH 31, 1995 AND 1996
(UNAUDITED)
1. GENERAL
The unaudited financial information furnished herein reflects all
adjustments, which in the opinion of management are of a normal recurring
nature, to fairly state the Company's financial position and results from
operations for the periods presented. This information should be read in
conjunction with the Company's audited financial statements for the year ended
December 31, 1995.
The results of operations for the three months ended March 31, 1996 are not
necessarily indicative of the results to be expected for the entire year
ending December 31, 1996.
2. INVENTORY
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31
----------------
1995 1996
------- -------
<S> <C> <C>
Raw material.................................................. $ 4,922 $ 4,660
Work in-process............................................... 212 528
Finished goods................................................ 8,765 7,125
------- -------
13,899 12,313
Less: LIFO reserve.......................................... (2,092) (1,285)
------- -------
$11,807 $11,028
======= =======
</TABLE>
F-77
<PAGE>
==============================================================================
NO DEALER, SALES PERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR AMERICAN PAD & PAPER
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THOSE TO WHICH IT
RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN
OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR AMERICAN PAD &
PAPER COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION.................................................. i
PROSPECTUS SUMMARY..................................................... 1
RISK FACTORS........................................................... 16
THE TRANSACTIONS....................................................... 21
PROPOSED INITIAL PUBLIC OFFERING....................................... 21
USE OF PROCEEDS........................................................ 22
CAPITALIZATION......................................................... 23
UNAUDITED PRO FORMA FINANCIAL DATA..................................... 24
SELECTED HISTORICAL CONSOLIDATED
FINANCIAL DATA....................................................... 35
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS........................................................... 37
INDUSTRY............................................................... 44
BUSINESS............................................................... 46
MANAGEMENT............................................................. 55
PRINCIPAL STOCKHOLDERS................................................. 64
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS......................................................... 65
DESCRIPTION OF BANK CREDIT AGREEMENT................................... 66
DESCRIPTION OF NEW BANK CREDIT AGREEMENT............................... 67
DESCRIPTION OF ACCOUNTS RECEIVABLE FACILITY............................ 68
DESCRIPTION OF EXCHANGE NOTES.......................................... 68
THE EXCHANGE OFFER..................................................... 93
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS.............................. 100
PLAN OF DISTRIBUTION................................................... 101
EXPERTS................................................................ 101
LEGAL MATTERS.......................................................... 102
INDEX TO FINANCIAL STATEMENTS.......................................... F-1
==============================================================================
</TABLE>
==============================================================================
---------------------
PROSPECTUS
---------------------
$200,000,000
AMERICAN PAD & PAPER
COMPANY
OF DELAWARE, INC.
OFFER TO EXCHANGE ITS
13% SENIOR SUBORDINATED
NOTES DUE 2005, SERIES B
FOR ANY AND ALL ITS OUTSTANDING
13% SENIOR SUBORDINATED
NOTES DUE 2005
JUNE 21, 1996
==============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a statement of estimated expenses, to be paid solely by
the Company, of the issuance and distribution of the securities being
registered:
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission Registration Fee... $ 68,966
Printing Expenses..................................... 20,000
Accounting Fees and Expenses.......................... 200,000
Legal Fees and Expenses............................... 250,000
Exchange Agent Fee.................................... 3,000
Miscellaneous Expenses................................ 8,034
--------
Total............................................ $550,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is incorporated under the laws of the State of Delaware.
Section 145 of the General Corporation Law of the State of Delaware ("Section
145") provides that a Delaware corporation may indemnify any persons who are, or
are threatened to be made, parties to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation), by
reason of the fact that such person was an officer, director, employee or agent
of such corporation, or is or was serving at the request of such corporation as
a director, officer, employee or agent of another corporation or enterprise.
The indemnity may include expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding, provided such person acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the corporation's best interests and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that his conduct was illegal. A
Delaware corporation may indemnify any persons who are, or are threatened to be
made, a party to any threatened, pending or completed action or suit by or in
the right of the corporation by reason of the fact that such person was a
director, officer, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. The indemnity may include expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit, provided such
person acted in good faith and in a manner he reasonably believed to be in or
not opposed to the corporation's best interests except that no indemnification
is permitted without judicial approval if the officer or director is adjudged to
be liable to the corporation. Where an officer or director is successful on the
merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director has actually and reasonably incurred.
The Company's By-Laws and Certificate of Incorporation provide for the
indemnification of directors and officers of the Company to the fullest extent
permitted by Section 145.
In that regard, the By-Laws provide that the Company shall indemnify any
person whom it has the power to indemnify by Section 145 from or against any and
all of the expenses, liabilities or other matters referred to or covered in
Section 145, and such indemnification is not exclusive of other rights to which
such person shall be entitled under any
II-1
<PAGE>
By-Law, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in such person's official capacity for or in behalf of the
Company and/or any subsidiary of the Company and as to action in another
capacity while holding such office and shall continue as to such person who has
ceased to be a director, officer, employee, or agent of the Company and/or
subsidiary of the Company and shall inure to the benefit of the heirs,
executors, and administrators of such person.
The By-Laws of each Subsidiary Guarantor provides for the indemnification
of its directors and officers to the fullest extent permitted by applicable law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In connection with the Transactions, the Company offered and sold, on
December 1, 1995, $200,000,000 aggregate principal amount of its 13% Senior
Subordinated Notes due 2005. These Notes were initially sold to BT Securities
Corporation and Wasserstein Perella Securities, Inc. with an initial purchasers'
discount of 3% (or $6 million). The offer and sale of the Notes were deemed to
be exempt from registration under Section 4(2) of the Securities Act as an offer
and sale not involving a public offering and were made in accordance with Rule
144A and Regulation D promulgated under the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
<S> <C>
(a) Exhibits.
**2.1 Stock Purchase Agreement, dated May 29, 1996, by and among the
Company, Niagara Envelope Company, Inc. and the persons named
therein.+
*2.2 Asset Purchase Agreement, dated June 6, 1996, by and among
American Pad & Paper Company of Delaware, Inc. and the purchaser
named herein.+
*3.1(i) Certificate of Incorporation of the Company.
*3.1(ii) By-laws of the Company.
*3.2(i) Certificate of Incorporation of each Subsidiary Guarantor.
*3.2(ii) By-laws of each Subsidiary Guarantor.
**4.1 Indenture, dated as of December 1, 1995, among the Company, the
Subsidiary Guarantors and the Trustee (including Form of Exchange
Note).
**4.2 Form of Subsidiary Guarantee with respect to the 13% Senior
Subordinated Notes.
*4.3 Purchase Agreement, dated as of November 17, 1994, among the
Company, the Subsidiary Guarantors and the Initial Purchasers.
*4.4 Registration Rights Agreement, dated as of December 1, 1995,
among the Company, the Subsidiary Guarantors and the Initial
Purchasers.
*4.5 Credit Agreement, dated as of October 31, 1995, among American
Pad & Paper Company, WR Acquisition, Inc., the Company, various
Lending Institutions and Bankers Trust Company as Agent.+
*4.6 Security Agreement, dated as of October 31, 1995, among American
Pad & Paper Company, WR Acquisition, Inc., the Company, certain
other subsidiaries of American Pad & Paper Company and Bankers
Trust Company, as Collateral Agent.+
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
*4.7 Pledge Agreement, dated as of October 31, 1995, by the Company
and the Subsidiary Guarantors in favor of Bankers Trust Company,
as Collateral Agent.+
*4.8 Notepad Funding Receivables Master Trust Pooling and Servicing
Agreement, dated October 31, 1995, among the Company, Notepad
Funding Corporation and Manufacturers and Traders Trust Company
(the "Pooling and Service Agreement").
*4.9 Series 1995-1 Supplement to the Pooling and Service Agreement,
dated October 31, 1995.
*4.10 Revolving Certificate Purchase Agreement, dated October 31, 1995,
among the Company, Notepad Funding Corporation, Bankers Trust
Company and the Purchasers described therein.
*4.11 Receivables Purchase Agreement, dated October 31, 1995, among the
Company, Notepad Funding Corporation and certain subsidiaries.
*5.1 Opinion and consent of Kirkland & Ellis.
*8.1 Opinion of Kirkland & Ellis.
*10.1 Agreement and Plan of Merger, dated as of October 3, 1995, among
Ampad Holding Corporation, WHR Acquisition, Inc. and WR
Acquisition, Inc.+
*10.2 Amendment No. 1 to WHR Merger Agreement, dated as of October 31,
1995, among American Pad & Paper Company, WR Acquisition, Inc.
and WR Acquisition, Inc.
*10.3 Stock Purchase Agreement, dated as of October 30, 1995, among WR
Acquisition, Inc. and American Pad & Paper Company.
*10.4 Tax Sharing Agreement, dated as of October 30, 1995, among
American Pad & Paper Company and the Subsidiary Guarantors.
*10.5 Agreement and Plan of Merger, dated as of October 31, 1995, among
the Company and Ampad Corporation.
*10.6 Advisory Agreement, dated as of October 31, 1995, among the
Company and Bain Capital, Inc.
*10.7 Ampad Holding Corporation 1992 Key Employees Stock Option Plan.
*10.8 Amended and Restated Management Agreement between APP and
Charles G. Hanson, III.
*10.9 Amended and Restated Management Agreement between APP and
Russell M. Gard.
*10.10 Amended and Restated Management Agreement between APP and
Gregory M. Benson.
*10.11 Preferred Stock Redemption Agreement between APP and the
stockholders of APP.
**10.12 Asset Purchase Agreement, dated as of June 29, 1994, by and
between Huxley Envelope Corp., The Kent Paper Co., Inc. and
Williamhouse of California, Inc.+
*10.13 Lease Agreement for City of Industry, California.
*10.14 Lease Agreement for Dubuque, Iowa.
*10.15 Lease Agreement for Miamisburg, Ohio.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
*10.16 Lease Agreement for North Salt Lake City, Utah.
*10.17 Lease Agreement for Tacoma, Washington.
*10.18 Change of Control Agreement between WR Acquisition, Inc. and
certain officers of the Company.
**10.19 Registration Rights Agreement between APP and the stockholders of
APP.
*10.20 Form of 1996 Key Employee Stock Incentive Plan.
*10.21 Form of Non-Employee Director Stock Option Plan.
*10.22 Employment Agreement between APP and Charles Hanson, III.
*10.23 Employment Agreement between APP and Russel Gard.
*10.24 Form of Amended and Restated Advisory Agreement between the
Company and Bain Capital, Inc.
*10.25 Form of Management Stock Purchase Plan.
*12.1 Statement of Computation of Ratios.
21.1 Subsidiaries of the Company.
23.1 Consents of Price Waterhouse LLP.
23.2 Consent of KPMG Peat Marwick LLP.
*23.3 Consent of Kirkland & Ellis (included in Exhibit 5.1).
23.4 Consent of Ernst & Young LLP.
*24.1 Powers of Attorney (included in signature page).
*25.1 Statement of Eligibility of Trustee on Form T-1.
*27.1 Financial Data Schedule.
*99.1 Form of Letter of Transmittal.
*99.2 Form of Notice of Guaranteed Delivery.
*99.3 Form of Tender Instructions.
</TABLE>
- --------------------------------
* Previously filed.
** Previously filed in connection with a Registration Statement on Form S-1 of
American Pad & Paper Company (File No. 333-4000).
+ The Company agrees to furnish supplementally to the Commission a copy of
any omitted schedule or exhibit to such agreement upon request by
Commission.
II-4
<PAGE>
(b) Financial Statement Schedules.
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions, are inapplicable or not material, or the information
called for thereby is otherwise included in the financial statements and
therefore has been omitted.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1993;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no
more than 20 percent change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table
in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) For purposes of determining any liability under the Securities Act of
1933, 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 registrant 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.
(5) For purposes of determining any liability under the Securities Act of
1933, 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
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred
II-5
<PAGE>
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on June 21, 1996.
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
By: /s/ Gregory M. Benson
------------------------------------------
Gregory M. Benson
Chief Administrative Officer
* * * *
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
* Chairman, Chief Executive Officer June 21, 1996
- ----------------------- and Director (principal
Charles G. Hanson, III executive officer)
* Director June 21, 1996
- -----------------------
Russell M. Gard
/s/ Gregory M. Benson Director (principal financial and June 21, 1996
- ----------------------- accounting officer)
Gregory M. Benson
* Director June 21, 1996
- -----------------------
Jonathan S. Lavine
* Director June 21, 1996
- -----------------------
Marc B. Wolpow
* Director June 21, 1996
- -----------------------
Robert C. Gay
</TABLE>
- ------------------
* The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 3 to Registration Statement on behalf of the above named
officers and directors of the Company pursuant to the Power of Attorney
executed by such officers and directors and previously filed with the
Securities and Exchange Commission.
/s/ Gregory M. Benson
- -----------------------
Gregory M. Benson
Attorney-in-fact
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on June 21, 1996.
WILLIAMHOUSE OF CALIFORNIA, INC.
By: /s/ Gregory M. Benson
----------------------------------------
Gregory M. Benson
President, Secretary and
Chief Financial Officer
* * * *
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ Gregory M. Benson President, Secretary, Chief June 21, 1996
- ----------------------- Financial Officer and Director
Gregory M. Benson (principal executive and
financial officer)
* Director June 21, 1996
- -----------------------
Jonathan S. Lavine
</TABLE>
- ------------------
* The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 3 to Registration Statement on behalf of the above named
officers and directors of the Company pursuant to the Power of Attorney
executed by such officers and directors and previously filed with the
Securities and Exchange Commission.
/s/ Gregory M. Benson
- -----------------------
Gregory M. Benson
Attorney-in-fact
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on June 21, 1996.
THE PRECIOUS COLLECTION, INC.
By: /s/ Gregory M. Benson
----------------------------------------
Gregory M. Benson
President, Secretary and
Chief Financial Officer
* * * *
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ Gregory M. Benson President, Secretary, Chief June 21, 1996
- ----------------------- Financial Officer and Director
Gregory M. Benson (principal executive and
financial officer)
* Director June 21, 1996
- -----------------------
Jonathan S. Lavine
</TABLE>
- ------------------
* The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 3 to Registration Statement on behalf of the above named
officers and directors of the Company pursuant to the Power of Attorney
executed by such officers and directors and previously filed with the
Securities and Exchange Commission.
/s/ Gregory M. Benson
- -----------------------
Gregory M. Benson
Attorney-in-fact
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on June 21, 1996.
STATIONARY HOUSE INC. VIP DIVISION
By: /s/ Gregory M. Benson
----------------------------------------
Gregory M. Benson
President, Secretary and
Chief Financial Officer
* * * *
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ Gregory M. Benson President, Secretary, Chief June 21, 1996
- ----------------------- Financial Officer and Director
Gregory M. Benson (principal executive and
financial officer)
* Director June 21, 1996
- -----------------------
Jonathan S. Lavine
</TABLE>
- ------------------
* The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 3 to Registration Statement on behalf of the above named
officers and directors of the Company pursuant to the Power of Attorney
executed by such officers and directors and previously filed with the
Securities and Exchange Commission.
/s/ Gregory M. Benson
- -----------------------
Gregory M. Benson
Attorney-in-fact
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on June 21, 1996.
REGENCY SONNELL GREETINGS, INC.
By: /s/ Gregory M. Benson
----------------------------------------
Gregory M. Benson
President, Secretary and
Chief Financial Officer
* * * *
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ Gregory M. Benson President, Secretary, Chief June 21, 1996
- ----------------------- Financial Officer and Director
Gregory M. Benson (principal executive and
financial officer)
* Director June 21, 1996
- -----------------------
Jonathan S. Lavine
</TABLE>
- ------------------
* The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 3 to Registration Statement on behalf of the above named
officers and directors of the Company pursuant to the Power of Attorney
executed by such officers and directors and previously filed with the
Securities and Exchange Commission.
/s/ Gregory M. Benson
- -----------------------
Gregory M. Benson
Attorney-in-fact
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on June 21, 1996.
REGENCY THERMOGRAPHERS, INC.
By: /s/ Gregory M. Benson
----------------------------------------
Gregory M. Benson
President, Secretary and
Chief Financial Officer
* * * *
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ Gregory M. Benson President, Secretary, Chief June 21, 1996
- ----------------------- Financial Officer and Director
Gregory M. Benson (principal executive and
financial officer)
* Director June 21, 1996
- -----------------------
Jonathan S. Lavine
</TABLE>
- ------------------
* The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 3 to Registration Statement on behalf of the above named
officers and directors of the Company pursuant to the Power of Attorney
executed by such officers and directors and previously filed with the
Securities and Exchange Commission.
/s/ Gregory M. Benson
- -----------------------
Gregory M. Benson
Attorney-in-fact
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on June 21, 1996.
REGENCY THERMOGRAPHERS OF CALIFORNIA, INC.
By: /s/ Gregory M. Benson
----------------------------------------
Gregory M. Benson
President, Secretary and
Chief Financial Officer
* * * *
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ Gregory M. Benson President, Secretary, Chief June 21, 1996
- ----------------------- Financial Officer and Director
Gregory M. Benson (principal executive and
financial officer)
* Director June 21, 1996
- -----------------------
Jonathan S. Lavine
</TABLE>
- ------------------
* The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 3 to Registration Statement on behalf of the above named
officers and directors of the Company pursuant to the Power of Attorney
executed by such officers and directors and previously filed with the
Securities and Exchange Commission.
/s/ Gregory M. Benson
- -----------------------
Gregory M. Benson
Attorney-in-fact
II-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on June 21, 1996.
REGENCY THERMOGRAPHERS OF ILLINOIS, INC.
By: /s/ Gregory M. Benson
----------------------------------------
Gregory M. Benson
President, Secretary and
Chief Financial Officer
* * * *
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ Gregory M. Benson President, Secretary, Chief June 21, 1996
- ----------------------- Financial Officer and Director
Gregory M. Benson (principal executive and
financial officer)
* Director June 21, 1996
- -----------------------
Jonathan S. Lavine
</TABLE>
- ------------------
* The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 3 to Registration Statement on behalf of the above named
officers and directors of the Company pursuant to the Power of Attorney
executed by such officers and directors and previously filed with the
Securities and Exchange Commission.
/s/ Gregory M. Benson
- -----------------------
Gregory M. Benson
Attorney-in-fact
II-14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on June 21, 1996.
REGENCY THERMOGRAPHERS OF WASHINGTON, INC.
By: /s/ Gregory M. Benson
----------------------------------------
Gregory M. Benson
President, Secretary and
Chief Financial Officer
* * * *
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ Gregory M. Benson President, Secretary, Chief June 21, 1996
- ----------------------- Financial Officer and Director
Gregory M. Benson (principal executive and
financial officer)
* Director June 21, 1996
- -----------------------
Jonathan S. Lavine
</TABLE>
- ------------------
* The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 3 to Registration Statement on behalf of the above named
officers and directors of the Company pursuant to the Power of Attorney
executed by such officers and directors and previously filed with the
Securities and Exchange Commission.
/s/ Gregory M. Benson
- -----------------------
Gregory M. Benson
Attorney-in-fact
II-15
<PAGE>
Exhibit 21.1
Subsidiaries of the Registrant
<TABLE>
<CAPTION>
State or Other Jurisdiction Names Under Which
of Incorporation or Such Subsidiary Does
Name of Subsidiary Organization Business
- ----------------------------------------- ----------------------------------------- -----------------------------------------
<S> <C> <C>
Stationery House Inc. VIP Division Delaware (1)
Williamhouse of California, Inc. Colorado (1)
The Precious Collection, Inc. Texas (1)
Regency Sonnell Greetings, Inc. California (1)
Regency Thermographers, Inc. Delaware (1)
Regency Thermographers of California, Inc. California (1)
Regency Thermographers of Illinois, Inc. Illinois (1)
Regency Thermographers of Washington, Inc. Washington (1)
Notepad Funding Corporation Delaware (1)
American Office Products, Inc. Michigan (1)
</TABLE>
- -----------------------------------------
(1) In addition of their actual names, the subsidiaries may do business under
the following names: Ampad; Regency; Williamhouse and Williamhouse-Regency.
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated March 19, 1996, except as
to Note 16 which is as of June 6, 1996, relating to the consolidated financial
statements of American Pad & Paper Company of Delaware, Inc. and our report
dated March 22, 1996, relating to the statements of net sales and cost of sales
of Globe-Weis, which appear on page F-2 and page F-59, respectively, in such
Prospectus. We also consent to the references to us under the heading "Experts"
in such Prospectus.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Dallas, Texas
June 20, 1996
<PAGE>
Consent of Independent Auditors
The Board of Directors
WR Acquisition, Inc.
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
New York, New York
June 20, 1996
<PAGE>
Consent of Ernst & Young LLP
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 16, 1996, with respect to the financial
statements of Niagara Envelope Company, Inc. included in the Registration
Statement (Form S-1 No. 333-3006) and related Prospectus of American Pad and
Paper Company of Delaware, Inc. for the exchange of its 13% Senior Subordinated
Notes due 2005.
Buffalo, New York /s/ Ernst & Young LLP
June 21, 1996 ---------------------------
