<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 9, 1997
REGISTRATION NO. 333-34529
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
JORDAN INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
<S> <C> <C>
ILLINOIS 3678 36-3598114
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION NUMBER) IDENTIFICATION NUMBER)
</TABLE>
JORDAN INDUSTRIES, INC.
ARBORLAKE CENTRE, SUITE 550
1751 LAKE COOK ROAD
DEERFIELD, ILLINOIS 60015
847-945-5591
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
G. ROBERT FISHER, SECRETARY
JORDAN INDUSTRIES, INC.
ARBORLAKE CENTRE, SUITE 550
1751 LAKE COOK ROAD
DEERFIELD, ILLINOIS 60015
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
---------------
WITH A COPY TO:
PHILIP J. NIEHOFF
MAYER, BROWN & PLATT
190 SOUTH LASALLE STREET
CHICAGO, ILLINOIS 60603
(312) 701-7843
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
===============================================================================
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE(2)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10 3/8% Series B Senior Notes Due
2007.............................. $120,000,000 100% $120,000,000 $36,363.64
- -----------------------------------------------------------------------------------------------
11 3/4% Series B Senior
Subordinated Discount Debentures
Due 2009.......................... $214,036,493 56.52% $120,973,426 $36,658.61
===============================================================================================
</TABLE>
(1) Estimated solely for the purposes of calculating the registration fee.
(2) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
<PAGE>
PROSPECTUS
[JORDAN INDUSTRIES, INC. LOGO]
JORDAN INDUSTRIES, INC.
---------------
OFFER TO EXCHANGE ITS 10 3/8% SERIES B SENIOR NOTES DUE 2007 AND ITS 11 3/4%
SERIES B SENIOR SUBORDINATED DISCOUNT DEBENTURES DUE 2009, WHICH HAVE EACH
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, FOR ANY AND ALL OF ITS
OUTSTANDING 10 3/8% SERIES A SENIOR NOTES DUE 2007 AND ITS 11 3/4%
SERIES A SENIOR SUBORDINATED DISCOUNT DEBENTURES DUE 2009
Jordan Industries, Inc., an Illinois corporation ("Jordan" or the
"Company"), hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal (the
"Letter of Transmittal") (which together constitute the "Exchange Offer"), to
exchange up to $120 million aggregate principal amount of 10 3/8% Series B
Senior Notes due 2007 (the "New Senior Notes") and $214,036,493 aggregate
principal amount of 11 3/4% Series B Senior Subordinated Discount Debentures
due 2009 (the "New Discount Debentures") of the Company for a like principal
amount of the Company's issued and outstanding 10 3/8% Series A Senior Notes
due 2007 (the "Old Senior Notes" and, together with the New Senior Notes, the
"Senior Notes") and its issued and outstanding 11 3/4% Series A Senior
Subordinated Discount Debentures due 2009 (the "Old Discount Debentures" and,
together with the New Discount Debentures, the "Discount Debentures") with the
holders (each holder of Old Senior Notes and Old Discount Debentures, a
"Holder") thereof. The New Senior Notes and New Discount Debentures are
sometimes referred to as the "New Securities" and the Old Senior Notes and Old
Discount Debentures are sometimes referred to as the "Old Securities." The New
Securities and the Old Securities are sometimes referred to as the "Exchange
Securities." The terms of the New Senior Notes and New Discount Debentures are
substantially identical to the terms of the Old Senior Notes and Old Discount
Debentures that are to be exchanged therefor. See "Description of the Exchange
Securities." Upon the occurrence of a Change of Control, the Company will be
required, subject to certain conditions, to make an offer to purchase the
Senior Notes and Discount Debentures at a price equal to 101% of the principal
amount or the accreted value thereof, as applicable, plus accrued and unpaid
interest to the date of purchase. In the event of a Change of Control, there
can be no assurance that the Company will have, or will have access to,
sufficient funds to repurchase the Exchange Securities or to pay the holders
of the Exchange Securities. See "Risk Factors--Change of Control Provisions;
Limitations on Rights of Repayment" and "Description of Exchange
Securities--Certain Covenants," "--Certain Definitions" and "--Mandatory
Offers to Purchase Exchange Securities--Change of Control."
Prior to the Exchange Offer, there has been no established trading market
for the Old Securities or the New Securities. The Company does not intend to
apply for listing or quotation of the New Securities on any securities
exchange or stock market. Therefore, there can be no assurance as to the
existence or liquidity of any trading market for the New Securities or that an
active public market for the New Securities will develop. Any Old Securities
not tendered and accepted in the Exchange Offer will remain outstanding. To
the extent that Old Securities are tendered and accepted in the Exchange
Offer, a Holder's ability to sell untendered, or tendered but unaccepted, Old
Securities could be adversely affected. Following the consummation of the
Exchange Offer, the Holders of Old Securities will continue to be subject to
the existing restrictions on transfer thereof and the Company will have no
further obligations to such Holders to provide for the registration of the Old
Securities under the Securities Act. See "Exchange Offer--Consequences of Not
Exchanging Old Securities."
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON SEPTEMBER 29, 1997, UNLESS EXTENDED.
(Cover continued on following page)
---------------
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS
OF OLD SECURITIES WHO TENDER THEIR OLD SECURITIES IN THE EXCHANGE OFFER, SEE
"RISK FACTORS" ON PAGE 12 OF THIS PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is September 9, 1997
---------------
<PAGE>
The New Senior Notes will be senior unsecured obligations of the Company,
will rank pari passu in right of payment with all existing and future senior
indebtedness of the Company, subordinated in right of payment to all existing
and future senior indebtedness of the Company, including indebtedness under
the New Credit Agreement, to the extent of the assets securing such
indebtedness and to all indebtedness and claims of creditors of the Company's
subsidiaries, and senior in right of payment of any future subordinated
indebtedness of the Company. The Discount Debentures will be general unsecured
senior subordinated obligations of the Company, will rank junior in right of
payment with all existing and future senior indebtedness of the Company,
including the Senior Notes, indebtedness under the New Credit Agreement and to
all indebtedness and claims of creditors of the Company's subsidiaries, will
rank pari passu in right of payment with all existing and future senior
subordinated indebtedness of the Company and will rank senior in right of
payment to all existing and future subordinated indebtedness of the Company.
At July 31, 1997, on a pro forma basis, the aggregate amount of indebtedness
of the Company's Restricted Subsidiaries would have been approximately $16.9
million. At July 31, 1997, on a pro forma basis, the aggregate amount of
indebtedness of the Company's Non-Restricted Subsidiaries would have been
approximately $510.1 million. The Exchange Indentures (as defined herein) will
permit the Company and its subsidiaries to incur additional indebtedness,
subject to certain limitations. See "Description of Exchange Securities."
The Company will accept for exchange any and all Old Securities that are
validly tendered and not withdrawn on or prior to 5:00 p.m., New York City
time, on September 29, 1997, or such later time and date to which the Exchange
Offer is extended (the "Expiration Date"). Tenders of Old Securities may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date. The Exchange Offer is not conditioned upon any minimum
principal amount of Old Securities being tendered for exchange. However, the
Exchange Offer is subject to certain customary conditions which may be waived
by the Company. The Company has agreed to pay the expenses of the Exchange
Offer. There will be no cash proceeds to the Company from the Exchange Offer.
See "Use of Proceeds."
The Old Senior Notes were issued and sold on July 25, 1997 (the "Old Senior
Notes Offering") and the Old Discount Debentures were issued and exchanged for
the Company's 11 3/4% Senior Subordinated Discount Debentures due 2005 on
April 2, 1997 (the "Old Discount Debentures Offering" and, together with the
Old Senior Notes Offering, the "Old Offerings"), in transactions that were not
registered under the Securities Act of 1933, as amended (the "Securities
Act"), in reliance upon the exemption provided in Section 4(2) of the
Securities Act. Accordingly, the Old Securities may not be reoffered, resold
or otherwise pledged, hypothecated or transferred in the United States unless
so registered or unless an applicable exemption from the registration
requirements of the Securities Act is available. The New Securities are being
offered for exchange in order to satisfy certain obligations of the Company
under Registration Rights Agreements (as defined herein) between the Company
and the Initial Purchasers (as defined herein) and the Holders of the Old
Discount Debentures. The New Senior Notes and New Discount Debentures will be
obligations of the Company evidencing the same indebtedness and equity
interests as the Old Senior Notes and Old Discount Debentures, respectively,
and will be entitled to the benefits of the same Indentures which govern both
the Old Securities and the New Securities. The form and terms (including
principal amount, interest rate, dividend payment, maturity and ranking) of
the New Senior Notes and New Discount Debentures are the same as the form and
terms of the Old Senior Notes and Old Discount Debentures, except that the New
Senior Notes and New Discount Debentures (i) have been registered under the
Securities Act and therefore are not subject to certain restrictions on
transfer applicable to the Old Senior Notes and Old Discount Debentures; (ii)
will not be entitled to registration rights; and (iii) will not provide for
any Liquidated Damages (as defined herein). See "The Exchange
Offer--Registration Rights; Liquidated Damages."
The Company is making the Exchange Offer pursuant to the registration
statement of which this Prospectus is a part in reliance upon the position of
the staff of the Securities and Exchange Commission (the "Commission") set
forth in certain no-action letters addressed to other parties in other
transactions. However, the Company has not sought its own no-action letter and
there can be no assurance that the staff of the Commission would make a
similar determination with respect to the Exchange Offer. Based on these
interpretations by the staff of the Commission, the Company believes that the
New Securities issued
i
<PAGE>
pursuant to the Exchange Offer may be offered for resale, resold and otherwise
transferred by holders thereof (other than (i) any such holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act; (ii) an Initial Purchaser or Holder of Old Discount Debentures who
acquired the Old Securities directly from the Company solely in order to
resell pursuant to Rule 144A of the Securities Act or any other available
exemption under the Securities Act; or (iii) a broker-dealer who acquired the
Old Securities as a result of market making or other trading activities)
without further compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such New Securities are
acquired in the ordinary course of such holder's business and such holder is
not participating and has no arrangement or understanding with any person to
participate in a distribution (within the meaning of the Securities Act) of
such New Securities. Each broker-dealer that receives New Securities for its
own account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such New Securities. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Securities received in
exchange for Old Securities where such Old Securities were acquired by such
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 broker-dealer
for use in connection with any such resale.
See "Plan of Distribution."
AVAILABLE INFORMATION
The Company has filed with the Commission the Registration Statement
pursuant to the Securities Act, and the rules and regulations promulgated
thereunder, covering the New Securities being offered hereby. This Prospectus
does not contain all the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and the New Securities, reference is hereby made to the Registration
Statement. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to in the Registration
Statement are not necessarily complete. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference. The Company is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the Securities
and Exchange Commission (the "Commission"). Such reports and other information
concerning the Company may 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 and at the Commission's Regional Offices at Room 1028,
Seven World Trade Center, New York, New York 10048 and at Citicorp Center, 500
West Madison Street, Chicago, Illinois 60661. The Commission maintains a web
site (http://www.sec.gov.) that contains reports, proxy statements and other
information regarding registrants that file electronically with the
Commission. Copies of such material can also be obtained upon written request
addressed to the Commission, Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
ii
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
Prospective investors are urged to read this Prospectus in its entirety.
References herein to the Company's business and pro forma information give
effect to the Plan (as defined) and certain other transactions described in
the Unaudited Pro Forma Financial Information and the notes thereto, unless
the context indicates otherwise. Unless otherwise indicated or the context
otherwise requires, references in this Prospectus to the "Company" are to
Jordan Industries, Inc. and its subsidiaries, including their respective
predecessors.
THE COMPANY
The Company was organized to acquire and operate a diverse group of
businesses on a decentralized basis, with a corporate staff providing
strategic direction and support. The Company is currently comprised of 25
businesses which are divided into four strategic business units: (i) the
Specialty Printing and Labeling group ("Specialty Printing and Labeling"),
(ii) the Consumer and Industrial Products group ("Consumer and Industrial
Products"), (iii) the Motors and Gears group ("Motors and Gears") and (iv) the
Jordan Telecommunication Products group ("Jordan Telecommunication Products").
The Company believes that its businesses are characterized by leading
positions in niche industries, high operating margins, strong management,
minimal working capital and capital expenditure requirements, and low
sensitivity to technological change and economic cycles.
The Company's business strategy is to enhance the growth and profitability
of each business unit and to build upon the strengths of those units through
product line and other strategic acquisitions. Key elements of this strategy
have been the consolidation and reorganization of acquired businesses,
increased focus on international markets, facilities expansion and the
acquisition of complementary product lines. When, through such activities, the
Company believes that critical mass is attained in a particular industry
segment, the related companies are organized as a discreet business unit. For
example, the Company acquired the Imperial Electric Company ("Imperial") in
1983 and made a series of complementary acquisitions, which resulted in the
formation of Motors & Gears, Inc. ("Motors and Gears, Inc."), a leading
domestic manufacturer of electric motors and gears. Similarly, the Company
acquired Dura-Line Corporation ("Dura-Line") in 1985 and expanded its presence
in the telecommunications industry through nine complementary acquisitions.
The organization of these companies as Jordan Telecommunication Products
created a leading global supplier of products and equipment serving the
telecommunications industry. The Company is currently evaluating various
alternatives to expand its automotive aftermarket products business and its
specialty plastics business, and is utilizing its subsidiaries DACCO
Incorporated ("DACCO") and Beemak Plastics, Inc. ("Beemak"), respectively, as
the foundation for these efforts.
Through the implementation of this strategy, the Company has demonstrated
significant and consistent growth in net sales and EBITDA (as defined). The
Company generated combined pro forma net sales and EBITDA of $649.8 million
and $114.1 million, respectively, for the year ended December 31, 1996, as
compared to historical net sales and EBITDA of $327.3 million and $45.8
million, respectively, for the year ended December 31, 1992, representing a
pro forma compounded annual growth rate ("CAGR") of 18.7% and 25.6%,
respectively. For the years ended December 31, 1995 and 1996, and the six
months ended June 30, 1997, the Company recorded a net loss of $(7.5) million,
$(55.7) million and $(12.5) million, respectively, and at June 30, 1997 the
Company had a net capital deficiency of $(146.1) million. Also, upon the
fifith anniversary of the issuance of the JTP Junior Preferred Stock and the
M&G Junior Preferred Stock, or upon its earlier redemption, the Company will
no longer continue to consolidate the Jordan Telecommunication Products
subsidiaries and the Motors and Gears subsidiaries for financial reporting
purposes as subsidiaries of the Company.
---------------
Jordan Industries, Inc. was incorporated in Illinois in 1988, and its
principal executive offices are located at Arborlake Centre, 1751 Lake Cook
Road, Deerfield, Illinois 60015, and its telephone number is (847) 945-5591.
1
<PAGE>
The following chart depicts the operating subsidiaries which comprise the
Company's four strategic business units, together with the pro forma net sales
for each of the four groups for the year ended December 31, 1996. Pro forma
net sales and EBITDA, as set forth below, give effect to each of the elements
of the Plan and certain other transactions described in the Unaudited Pro
Forma Financial Information and the notes thereto.
JORDAN INDUSTRIES, INC.
$649.8 Million of Net Sales
$114.1 Million of EBITDA
<TABLE>
<CAPTION>
<S> <C> <C> <C>
JORDAN
SPECIALTY PRINTING CONSUMER AND TELECOMMUNICATION MOTORS AND
AND LABELING INDUSTRIAL PRODUCTS PRODUCTS (1) GEARS(1)
$118.1 MILLION $157.6 MILLION $213.2 MILLION $160.9 MILLION
OF NET SALES OF NET SALES OF NET SALES OF NET SALES
o SALES o DACCO o BEEMAK o DURA-LINE o VIEWSONICS o IMPERIAL
PROMOTION o SATE-LITE o RIVERSIDE o AIM o VITELEC o SCOTT
ASSOCIATES o CAPE o PARSONS o CAMBRIDGE o BOND o GEAR
o PAMCO CRAFTSMEN o JOHNSON o NORTHERN o MERKLE-KORFF
o VALMARK o DIVERSIFIED o LODAN o FIR
o SEABOARD
</TABLE>
(1) The subsidiaries comprising Jordan Telecommunication Products and
Motors and Gears are Non-Restricted Subsidiaries (as defined in the
Exchange Indentures), the common stock of which is owned by
stockholders and affiliates of the Company and management of the
respective companies. The Company's ownership in these subsidiaries
is solely in the form of JTP Junior Preferred Stock and M&G Junior
Preferred Stock (each as defined). See "Management's Discussion and
Analysis of Results of Operations and Financial Condition--General."
2
<PAGE>
RECAPITALIZATION AND REPOSITIONING PLAN
The Company has implemented its Recapitalization and Repositioning Plan
(the "Plan") to recapitalize and reposition its subsidiaries in order to
establish them as more independent, stand-alone, industry-focused companies,
to provide the Company with additional financial and operational flexibility
and to allow the Company's stockholders to invest directly in Jordan
Telecommunication Products and Motors and Gears.
The principal elements of the Plan include the following, all of which were
completed prior to July 31, 1997:
(i) The Old Senior Notes Offering.
(ii) The formation of a subsidiary, Jordan Telecommunication Products,
Inc. ("JTP"), which acquired all of the Jordan Telecommunication
Products subsidiaries from the Company in a series of transactions
for aggregate consideration of $294.0 million (the "JTP
Recapitalization"), consisting of $284.0 million of cash proceeds
and $10.0 million of assumed obligations. As part of the JTP
Recapitalization, the Company purchased $20.0 million of aggregate
initial liquidation preference of JTP Junior Preferred Stock,
resulting in net cash proceeds to the Company of $264.0 million.
(iii) The refinancing of the indebtedness of the Company's affiliate,
Archibald Candy Corporation ("Fannie May"), which resulted in
approximately $17.4 million of net cash proceeds to the Company
(the "Fannie May Refinancing").
(iv) The establishment of a new $75.0 million credit facility (the "New
Credit Agreement"), which was effected by an amendment of the
Company's prior credit facility, by a wholly-owned subsidiary of
the Company, which was undrawn as of July 31, 1997.
(v) The reclassification of the Specialty Printing and Labeling
subsidiaries as Restricted Subsidiaries for purposes of the
Company's Indentures (as defined).
The net proceeds from the foregoing were used as follows:
(i) To repay in full approximately $73.8 million aggregate principal
amount of indebtedness under prior credit facilities of the Company
and certain of its subsidiaries (the "Old Credit Agreements").
(ii) To repurchase substantially all of the $275.0 million principal
amount of the Company's 10 3/8% Senior Notes due 2003 pursuant to a
cash tender offer (the "Tender Offer"), and to pay certain expenses
in connection with the concurrent solicitation of consents to
certain amendments to the Company's existing indentures (the "Old
Indentures").
(iii) For general corporate purposes.
In addition, as part of the Company's strategy to make complementary
acquisitions and to divest non-core businesses, the Company has executed the
following transactions as additional elements of the Plan:
(i) The recapitalization of the Company's Non-Restricted Subsidiary,
Motors and Gears Holdings, Inc. ("M&G") in May 1997 (the "M&G
Recapitalization").
(ii) The acquisition by Jordan Telecommunication Products of the assets
of LoDan West, Inc. ("LoDan") for approximately $17.0 million in
May 1997, and the acquisition by Motors and Gears of the stock of
FIR Electromeccanica SpA ("FIR") for approximately $51.3 million in
June 1997.
(iii) The sale of Hudson Lock, Inc. ("Hudson"), in May 1997 for net cash
proceeds of approximately $35.0 million, and the sale of Paw Print
Mailing List Services, Inc. ("Paw Print"), in July 1997 to an
affiliate for approximately $10.0 million in net cash proceeds and
approximately $2.5 million of assumed debt.
3
<PAGE>
THE EXCHANGE OFFER
Securities Offered ............ $120,000,000 principal amount of 10 3/8%
Series B Senior Notes due 2007 and
$214,036,493 principal amount of 11 3/4%
Series B Senior Subordinated Discount
Debentures due 2009. The terms of the New
Senior Notes and New Discount Debentures are
identical in all material respects to those
of the Old Senior Notes and Old Discount
Debentures except for certain transfer
restrictions and registration rights
relating to the Old Securities and except
for certain Liquidated Damages provisions
relating to the Old Securities described
below under "--Summary Description of the
New Securities."
Issuance of Old Senior Notes
and Old Discount Debentures;
Registration Rights ........ The Old Senior Notes were issued on July 25,
1997 to Jefferies & Company, Inc.
("Jefferies") and Donaldson, Lufkin &
Jenrette Securities Corporation
(collectively, the "Initial Purchasers"),
which placed the Old Senior Notes with
"qualified institutional buyers" (as such
term is defined in Rule 144A promulgated
under the Securities Act) and "institutional
accredited investors" (as such term is
defined in Rule 501(A)(1), (2), (3) or (7)
under the Securities Act). In connection
therewith, the Company executed and
delivered for the benefit of the holders of
Old Senior Notes a certain registration
rights agreement (the "Senior Notes
Registration Rights Agreement"), pursuant to
which the Company agreed (i) to file a
registration statement on or prior to
September 23, 1997 with respect to the
Exchange Offer and (ii) to use its best
efforts to cause such registration statement
to be declared effective by the Commission
on or prior to November 22, 1997. The Old
Discount Debentures were issued on April 2,
1997 to certain holders of the Company's 11
3/4% Senior Subordinated Discount Debentures
due 2005, each of which was a "qualified
institutional buyer" (as such term is
defined in Rule 144A promulgated under the
Securities Act) or an "institutional
accredited investor" (as such term is
defined in Rule 501(A)(1), (2), (3) or (7)
under the Securities Act), in a series of
private transactions. In connection
therewith, the Company executed and
delivered certain registration rights
agreements (the "Discount Debentures
Registration Rights Agreements" and,
together with the Senior Notes Registration
Rights Agreement, the "Registration Rights
Agreements"), pursuant to which the Company
agreed (i) to file a registration statement
on or prior to June 16, 1997 and (ii) to use
its best efforts to cause such registration
statement to be declared effective by the
Commission on or prior to July 16, 1997. In
certain circumstances, the Company will be
required to provide a shelf registration
statement (the "Shelf Registration
Statement") to cover resales of the Old
Senior Notes and Old Discount Debentures by
the holders thereof. If the Company does not
comply with its obligations under the
Registration Rights Agreements, it will be
required to
4
<PAGE>
pay Liquidated Damages to holders of the Old
Senior Notes and Old Discount Debentures
under certain circumstances. As of September
9, 1997, $128,182 of Liquidated Damages had
accrued to the Holders of Old Discount
Debentures. See "The Exchange
Offer--Registration Rights; Liquidated
Damages." Holders of Old Securities do not
have any appraisal rights in connection with
the Exchange Offer.
The Exchange Offer ............ The New Senior Notes are being offered in
exchange for a like principal amount of Old
Senior Notes and the New Discount Debentures
are being offered in exchange for a like
principal amount of Old Discount Debentures.
The issuance of the New Securities is
intended to satisfy the obligations of the
Company contained in the Registration Rights
Agreements. Based upon the position of the
staff of the Commission set forth in
no-action letters issued to third parties in
other transactions substantially similar to
the Exchange Offer, the Company believes
that the New Securities issued pursuant to
the Exchange Offer may be offered for
resale, resold and otherwise transferred by
holders thereof (other than (i) any such
holder that is an "affiliate" of the Company
within the meaning of Rule 405 under the
Securities Act, (ii) an Initial Purchaser or
a holder of Old Discount Debentures who
acquired the Old Securities directly from
the Company solely in order to resell
pursuant to Rule 144A of the Securities Act
or any other available exemption under the
Securities Act, or (iii) a broker-dealer who
acquired the Old Securities as a result of
market making or other trading activities)
without further compliance with the
registration and prospectus delivery
requirements of the Securities Act, provided
that such New Securities are acquired in the
ordinary course of such holder's business
and such holder is not participating and has
no arrangement with any person to
participate in a distribution (within the
meaning of the Securities Act) of such New
Securities. Each broker-dealer that receives
New Securities for its own account pursuant
to the Exchange Offer must acknowledge that
it will deliver a prospectus in connection
with any resale for such New Securities.
Although there has been no indication of any
change in the staff's position, there can be
no assurance that the staff of the
Commission would make a similar
determination with respect to the resale of
the New Securities. See "Risk Factors."
Procedures for Tendering ...... Tendering holders of Old Securities must
complete and sign the Letter of Transmittal
in accordance with the instructions
contained therein and forward the same by
mail, facsimile or hand delivery, together
with any other required documents, to the
Exchange Agent, either with the Old Senior
Notes or Old Discount Debentures to be
tendered or in compliance with the specified
procedures for guaranteed delivery of Old
Senior Notes or Old Discount Debentures.
Holders of the Old Securities desiring to
tender such Old Securities in exchange for
New Securities should allow sufficient time
to ensure timely delivery.
5
<PAGE>
Certain brokers, dealers, commercial banks,
trust companies and other nominees may also
effect tenders by book-entry transfer.
Holders of Old Securities registered in the
name of a broker, dealer, commercial bank,
trust company or other nominee are urged to
contact such person promptly if they wish to
tender Old Securities pursuant to the
Exchange Offer. Letters of Transmittal and
certificates representing Old Securities
should not be sent to the Company. Such
documents should only be sent to the Exchange
Agent. Questions regarding how to tender and
requests for information should be directed
to the Exchange Agent. See "The Exchange
Offer--Procedures for Tendering Old
Securities."
Tenders, Expiration Date;
Withdrawal .................. The Exchange Offer will expire on 5:00 p.m.,
New York City time, on September 29, 1997,
or such later date and time to which the
Exchange Offer is extended. The tender of
Old Securities pursuant to the Exchange
Offer may be withdrawn at any time prior to
the Expiration Date. Any Old Security not
accepted for exchange for any reason will be
returned without expense to the tendering
Holder thereof as prompty as practicable
after the expiration or termination of the
Exchange Offer. See "The Exchange
Offer--Terms of the Exchange Offer; Period
for Tendering Old Securities" and
"--Withdrawal Rights."
Certain Conditions to the
Exchange Offer .............. The Exchange Offer is subject to certain
customary conditions, all of which may be
waived by the Company, including the absence
of (i) threatened or pending proceedings
seeking to restrain the Exchange Offer or
resulting in a material delay to the
Exchange Offer; (ii) a general suspension of
trading on any national securities exchange
or in the over-the-counter market; (iii) a
banking moratorium; (iv) a commencement of
war, armed hostilities or other similar
international calamity directly or
indirectly involving the United States; and
(v) change or threatened change in the
business, properties, assets, liabilities,
financial condition, operations, results of
operations or prospects of the Company and
its subsidiaries taken as a whole that, in
the sole judgment of the Company, is or may
be adverse to the Company. The Company shall
not be required to accept for exchange, or
to issue New Securities in exchange for, any
Old Securities, if at any time before the
acceptance of such Old Securities for
exchange or the exchange of the New
Securities for such Old Securities, any of
the foregoing events occurs which, in the
sole judgment of the Company, make it
inadvisable to proceed with the Exchange
Offer and/or with such acceptance for
exchange or with such exchange. If the
Company fails to consummate the Exchange
Offer because the Exchange Offer is not
permitted by applicable law or Commission
policy, it will file with the Commission a
Shelf Registration Statement to cover
resales of the Transfer Restricted
Securities (as defined herein) by the
holders thereof who satisfy certain
conditions. If
6
<PAGE>
the Company fails to consummate the Exchange
Offer or file a Shelf Registration Statement
in accordance with the Reigstration Rights
Agreements, the Company will pay Liquidated
Damages to each holder of Transfer Restricted
Securities until the cure of all defaults.
The Exchange Offer is not conditioned upon
any minimum aggregate principal amount of Old
Securities being tendered for exchange. See
"The Exchange Offer--Registration Rights;
Liquidated Damages" and "--Certain Conditions
to the Exchange Offer."
Federal Income Tax
Consequences; Original Issue
Discount ...................... For Federal income tax purposes, the
exchange pursuant to the Exchange Offer will
not result in any income, gain or loss to
the Holders or the Company. For Federal
income tax purposes, the New Discount
Debentures will be treated as having been
issued with "original issue discount." Each
holder of a New Discount Debenture will be
required to include amounts in gross income
for federal income tax purposes in advance
of the receipt of cash payments to which the
income is attributable. See "Certain Federal
Income Tax Considerations."
Use of Proceeds ............... There will be no proceeds to the Company
from the exchange pursuant to the Exchange
Offer.
Appraisal Rights .............. Holders of Old Securities will not have
dissenters' rights or appraisal rights in
connection with the Exchange Offer.
Exchange Agent ................ First Trust National Association is serving
as Exchange Agent in connection with the
Exchange Offer.
CONSEQUENCES OF NOT EXCHANGING THE OLD SECURITIES
Holders of Old Securities who do not exchange their Old Securities for New
Securities pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Old Securities as set forth in the legend
thereon as a consequence of the issuance of the Old Securities 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 Old Securities may not be offered or sold, unless registered
under the Securities Act, except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable state securities
laws. The Company does not currently anticipate that it will register the Old
Securities under the Securities Act. See "Risk Factors--Consequences of
Exchange and Failure to Exchange" and "The Exchange Offer--Consequences of
Exchanging Old Securities."
7
<PAGE>
THE NEW SENIOR NOTES AND NEW DISCOUNT DEBENTURES
Securities Offered ............ $120,000,000 aggregate principal amount of
10 3/8% Series B Senior Notes due 2007 to be
issued by the Company.
$214,036,493 aggregate principal amount of
11 3/4% Series B Senior Subordinated
Discount Debentures due 2009 to be issued by
the Company.
Maturity ...................... August 1, 2007 for the New Senior Notes and
April 1, 2009 for the New Discount
Debentures.
Interest Rate and Payment
Dates ....................... The New Senior Notes will bear interest at a
rate of 10 3/8% per annum from July 25, 1997.
Interest on the New Senior Notes will be
payable semi-annually in cash on February 1
and August 1 of each year, commencing
February 1, 1998.
The New Discount Debentures will not bear
interest prior to April 1, 2002. Thereafter,
interest on the New Discount Debentures will
accrue at 11 3/4% per annum and will be
payable semiannually in cash on April 1 and
October 1 of each year, commencing October 1,
2002.
Ranking ....................... The New Senior Notes will be senior
unsecured obligations of the Company, will
rank pari passu with all existing and future
senior indebtedness of the Company and will
rank senior to all existing and future
subordinated indebtedness of the Company.
The New Senior Notes will be effectively
subordinated to any secured senior
indebtedness of the Company to the extent of
the assets that secure such indebtedness.
The New Discount Debentures will be senior
subordinated unsecured obligations of the
Company, will rank junior to all existing
and future senior indebtedness of the
Company (including the Senior Notes), will
rank pari passu with all other existing and
future senior subordinated indebtedness of
the Company and will rank senior to all
subordinated indebtedness of the Company. In
addition, the New Securities will be
structurally subordinated to, and therefore
will effectively rank junior to, all
indebtedness and claims of creditors of the
Company's subsidiaries, including
indebtedness under the New Credit Agreement.
Optional Redemption ........... The New Senior Notes will be redeemable at
the option of the Company in whole or, from
time to time, in part, on or after August 1,
2002, and the New Discount Debentures will
be redeemable at the option of the Company
in whole or, from time to time, in part, on
or after April 1, 2002, each at the
redemption prices set forth herein, plus
accrued and unpaid interest to the date of
redemption. See "Description of Exchange
Securities--Redemption of Exchange
Securities."
Certain Covenants ............. The Exchange Indentures contain certain
covenants that, among other things, limit
the ability of the Company to pay dividends
or make certain other restricted payments,
and will limit the
8
<PAGE>
ability of the Company and its Restricted
Subsidiaries to incur additional
indebtedness, to encumber or sell assets, to
enter into transactions with affiliates, to
make certain investments, to merge or
consolidate with any other entity and to
transfer or lease all or substantially all
of their assets. See "Description of
Exchange Securities--Certain Covenants."
Change of Control ............. Upon the occurrence of a Change of Control,
the Company will be required to offer to
purchase all outstanding New Securities at
101% of the principal amount thereof,
together with accrued and unpaid interest,
if any, to the date of repurchase. Certain
transactions with affiliates of the Company
may not be deemed to be a Change of Control.
See "Description of Exchange
Securities--Mandatory Offers to Purchase
Exchange Securities."
For a more detailed discussion of the terms of the Exchange Securities,
see "Description of New Securities."
SUMMARY DESCRIPTION OF THE OLD SECURITIES
The terms of the New Securities and the Old Securities are identical in all
material respects, except for certain transfer restrictions and registration
rights relating to the Old Securities and except that (i) if the Exchange
Offer is not consummated by December 22, 1997, subject to certain exceptions,
with respect to the first 90-day period immediately following thereafter, the
Company will be obligated to pay Liquidated Damages to each Holder of Old
Senior Notes in an amount equal to $.05 per week for each $1,000 principal
amount of Old Senior Notes held by such Holder and (ii) because the
Registration Statement was not filed on or prior to June 16, 1997, the Company
is obligated to pay Liquidated Damages to each Holder of Old Discount
Debentures in an amount equal to $.05 per week for the first 90-day period
after June 16, 1997 for each $1,000 principal amount of Old Discount
Debentures held by such Holder. The amount of the Liquidated Damages will
thereafter increase to $.10 per week for each $1,000 principal amount of Old
Securities until the Exchange Offer is consummated.
RECENT DEVELOPMENTS
On September 2, 1997, JTP acquired the assets and business of Engineered
Endeavors, Inc. for $40 million. Engineered Endeavors, Inc. operates out of
Mentor, Ohio and fabricates metal used in antenna structures for
communications towers.
RISK FACTORS
Holders of the Old Securities should consider carefully all of the
information set forth in this Prospectus and, in particular, should evaluate
the factors set forth under "Risk Factors."
9
<PAGE>
SUMMARY FINANCIAL DATA
The following table presents summary (i) historical financial data of the
Company for the years ended December 31, 1994, 1995 and 1996, and for the six
months ended June 30, 1996 and 1997 and (ii) pro forma financial data of the
Company and the Restricted Subsidiaries for the year ended December 31, 1996
and the six months ended June 30, 1997. The historical financial data of the
Company for the years ended December 31, 1994, 1995 and 1996 were derived from
the audited consolidated financial statements of the Company. The historical
financial data of the Company for the six months ended June 30, 1996 and 1997
were derived from the unaudited consolidated financial statements of the
Company. The results of operations for the six months ended June 30, 1997 are
not necessarily indicative of the results of operations to be expected for the
full year. The pro forma data is unaudited, and the pro forma statement of
operations and other data give effect to the Plan and certain other
transactions as set forth in the Unaudited Pro Forma Financial Information and
the notes thereto included elsewhere in this Prospectus as if such
transactions had occurred at the beginning of the relevant period. Pro forma
balance sheet data give effect to such transactions at the date indicated. The
unaudited summary pro forma consolidated financial data do not purport to
represent what the consolidated results of operations of the Company would
have been had the Plan actually occurred on such dates and do not purport to
project the consolidated financial position or the consolidated results of
operations of the Company for the current year or any future period. The
financial data set forth below should be read in conjunction with the
historical consolidated financial statements of the Company and the related
notes thereto, "Selected Financial Data," "Management's Discussion and
Analysis of Results of Operations and Financial Condition" and "Unaudited Pro
Forma Financial Information," all contained elsewhere in this Offering
Circular.
<TABLE>
<CAPTION>
HISTORICAL (1)
--------------------------------------------------
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------------ -----------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA: (3)
Net sales...................... $424,391 $507,311 $601,567 $267,220 $324,889
Gross profit, excluding
depreciation.................. 161,661 186,658 225,822 103,167 121,830
Net income (loss).............. 23,741 (7,470) (55,690) (5,584) (12,475)
OTHER DATA: (3)
EBITDA (7)..................... 55,812 66,158 80,507 42,364 54,951
Depreciation and amortization . 19,099 21,684 30,438 13,816 15,933
Adjusted operating income (6) 35,868 42,425 29,367 27,119 22,284
Capital expenditures........... 12,112 15,276 17,395 9,612 5,758
Adjusted Interest expense (8) 39,482 45,231 60,339 27,965 35,911
Cash interest expense ......... 29,938 34,539 48,352 22,143 29,145
EBITDA to cash interest
expense ...................... 1.9x 1.9x 1.7x 1.9x 1.9x
EBITDA to total interest
expense ...................... 1.4x 1.5x 1.3x 1.5x 1.5x
Ratio of earnings to fixed
charges (9)................... 1.7x -- -- -- 1.2x
</TABLE>
<TABLE>
<CAPTION>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
PRO FORMA(2)
----------------------------------------------------
YEAR ENDED SIX MONTHS
DECEMBER 31, 1996 ENDED JUNE 30, 1997
------------------------- -------------------------
RESTRICTED RESTRICTED
COMPANY(4) SUBSIDIARIES(5) COMPANY(4) SUBSIDIARIES(5)
---------- --------------- ---------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA: (3)
Net sales...................... $649,801 $275,742 $333,396 $133,223
Gross profit, excluding
depreciation.................. 240,087 102,613 123,243 51,211
Net income (loss).............. (30,011) (12,319) (11,462) (6,500)
OTHER DATA: (3)
EBITDA (7)..................... 114,122 34,685 57,353 16,600
Depreciation and amortization . 32,609 11,957 16,750 5,726
Adjusted operating income (6) 69,575 13,810 38,157 10,103
Capital expenditures........... 17,973 8,021 6,354 3,190
Adjusted Interest expense (8) 79,309 26,340 41,251 14,092
Cash interest expense ......... 57,036 14,353 29,489 7,326
EBITDA to cash interest
expense ...................... 2.0x 2.4x 1.9x 2.3x
EBITDA to total interest
expense ...................... 1.4x 1.3x 1.4x 1.2x
Ratio of earnings to fixed
charges (9)................... -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
RESTRICTED
THE COMPANY SUBSIDIARIES
AT JUNE 30, 1997 AT JUNE 30, 1997(5)
---------------- -----------------
HISTORICAL PRO FORMA (2) PRO FORMA(2)
------------ ---------------- -----------------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA: (3)
<S> <C> <C> <C>
Cash and cash equivalents..................... $ 30,887 $ 71,249 $ 30,798
Working capital............................... 145,477 201,528 79,791
Total assets.................................. 731,932 752,556 327,026
Total debt.................................... 752,995 787,216 264,918
Preferred stock (10) ......................... 1,515 1,515 --
Stockholders' equity (net capital
deficiency).................................. (146,064) (170,583) 16,860
</TABLE>
10
<PAGE>
- ------------
(1) The Company has acquired a diverse group of operating companies over
the periods presented, which significantly affects the comparability of
the following information.
(2) The pro forma data reflect consummation of each of the elements of the
Plan, the reallocation of certain expenses, the deconsolidation of the
Company's majority-owned subsidiary, Welcome Home Inc. ("Welcome
Home"), and the elimination of certain non-recurring items. See
"Unaudited Pro Forma Financial Information."
(3) The Company consolidates the results of the subsidiaries comprising
Jordan Telecommunication Products and Motors and Gears, all of which
are Non-Restricted Subsidiaries, the common stock of which is owned by
stockholders and affiliates of the Company and management of the
respective companies. The Company's investment in these subsidiaries is
in the form of JTP Junior Preferred Stock and M&G Junior Preferred
Stock. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition -- General."
(4) Pro forma results of operations for FIR for the year ended December 31,
1996 and the six months ended June 30, 1997 reflect its results of
operations for the twelve months ended October 31, 1996 and the six
months ended April 30, 1997, respectively.
(5) The Company's Restricted Subsidiaries will consist of the subsidiaries
of Specialty Printing and Labeling and Consumer and Industrial
Products. The statement of operations and other data for the Restricted
Subsidiaries gives effect to the allocation of corporate overhead as
described under "Certain Transactions--Services Agreements."
(6) Adjusted operating income represents operating income excluding the
results of Welcome Home, which is no longer consolidated with the
Company. See the Company's historical consolidated financial
statements.
(7) EBITDA for any relevant period represents adjusted operating income
plus depreciation, amortization of goodwill and other intangibles,
plant closing costs, management and advisory fees, SAR expense, the
loss on the purchase of an affiliated company and certain other
non-recurring items, restructuring costs, fees and other expenses. See
"Selected Financial Data" and "Unaudited Pro Forma Financial
Information." EBITDA is not included herein as operating data and
should not be construed as an alternative to operating income
(determined in accordance with generally accepted accounting
principles) as an indicator of the Company's operating performance. The
Company has included EBITDA because the Company understands that it is
one measure used by certain investors to determine the Company's
operating cash flow and historical ability to service its indebtedness.
(8) Does not include amortization of deferred financing fees, original
issue discount, and amortization of the premium paid by the Company for
the Old Discount Debentures Offering of $1.4 million, $1.7 million,
$3.0 million, $1.0 million and $1.9 million for the years ended 1994,
1995, 1996 and for the six months ended June 30, 1996 and 1997,
respectively, on an historical basis and $3.5 million and $1.8 million
for the year ended 1996 and the six months ended June 30, 1997,
respectively, for the Company on a pro forma basis, and $1.5 million
and $0.7 million for the year ended 1996 and the six months ended June
30, 1997, respectively, for the Restricted Subsidiaries on a pro forma
basis.
(9) On an historical basis, earnings were insufficient to cover fixed
charges by $11.8 million and $47.4 million for the years ended December
31, 1995 and 1996, respectively, and $5.4 million for the six months
ended June 30, 1996. On a pro forma basis earnings were insufficient to
cover fixed charges by $8.0 million and $10.0 million for the year
ended December 31, 1996 for the Company and the Restricted
Subsidiaries, respectively, and $5.2 million and $4.3 million for the
six months ended June 30, 1997 for the Company and the Restricted
Subsidiaries, respectively. Earnings were sufficient to cover fixed
charges in 1994 and the six months ended June 30, 1997 due to the
recognition of a gain on the sale of a partial interest in the
Company's currently deconsolidated subsidiary, Welcome Home in 1994,
and the recognition of a gain on the sale of a former subsidiary,
Hudson, in 1997.
(10) Includes $25.0 million liquidation preference of the JTP Senior
Preferred Stock (as defined), and $1.5 million senior, non-voting 8%
cumulative preferred stock of Motors and Gears Holdings Inc., which are
owned in each case by persons other than the Company. See "Description
of Capital Stock--Subsidiary Securities."
11
<PAGE>
RISK FACTORS
Holders of the Old Securities should consider carefully the following risk
factors, in addition to the other information set forth in this Prospectus,
before tendering their Old Securities in the Exchange Offer. This Prospectus
contains certain forward-looking statements, including statements containing
the words "believes," "anticipates," "expects" and words of similar import.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors which may cause the actual results, performance or
achievements of the Company, or industry results, to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
following: adverse changes in national or local economic conditions, increased
competition, changes in availability, cost and terms of financing, changes in
operating expenses and other factors referenced in this Prospectus. Certain of
these factors are discussed in more detail elsewhere in this Prospectus,
including without limitation, under the captions "Management's Discussion and
Analysis of Results of Operations and Financial Condition," and "Business."
Given these uncertainties, Holders of the Old Securities are cautioned not to
place undue reliance on such forward-looking statements. The Company disclaims
any obligation to update any such factors or to publicly announce the results
of any revisions to any of the forward-looking statements contained in this
Prospectus to reflect future events or developments.
The risk factors set forth below (other than "Consequences of Exchange and
Failure to Exchange") are generally applicable to the Old Securities as well
as the New Securities.
CONSEQUENCES OF EXCHANGE AND FAILURE TO EXCHANGE
Issuance of the New Securities in exchange for the Old Securities pursuant
to the Exchange Offer will be made only after timely receipt by the Exchange
Agent of such Old Securities, a properly completed and duly executed Letter of
Transmittal and all other required documents. Therefore, holders of the Old
Securities desiring to tender such Old Securities in exchange for New
Securities should allow sufficient time to ensure timely delivery. The Company
is under no duty to give notification of defects or irregularities with
respect to tenders of Old Securities for exchange. Holders of Old Securities
who do not exchange their Old Securities for New Securities pursuant to the
Exchange Offer will continue to be subject to the restrictions on transfer of
such Old Securities as set forth in the legend thereon. In general, the Old
Securities may not be offered or sold, unless registered under the Securities
Act, except pursuant to an exemption from, or in a transaction not subject to,
the Securities Act and applicable state securities laws. The Company does not
currently anticipate that it will register the Old Securities under the
Securities Act. In addition, upon the consummation of the Exchange Offer
holders of Old Securities which remain outstanding will not be entitled to any
rights to have such Old Securities registered under the Securities Act or to
any rights under the Registration Rights Agreements. To the extent that Old
Securities are tendered and accepted in the Exchange Offer, a Holder's ability
to sell untendered, or tendered but unaccepted, Old Securities could be
adversely affected. See "The Exchange Offer--Consequences of Not Exchanging
Old Notes and Old Senior Preferred Stock."
Based on interpretations by the staff of the Commission, the Company
believes that the New Securities issued pursuant to the Exchange Offer in
exchange for Old Securities may be offered for resale, resold and otherwise
transferred by a holder thereof (other than (i) an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act, (ii) an Initial
Purchaser or Holder of Old Discount Debentures who acquired the Old Securities
directly from the Company solely in order to resell pursuant to Rule 144A of
the Securities Act or any other available exemption under the Securities Act,
or (iii) a broker-dealer who acquired the Old Securities as a result of market
making or other trading activities) without further compliance with the
registration and prospectus delivery requirements of the Securities Act,
provided that such New Securities are acquired in the ordinary course of such
holder's business and that such holder is not participating and has no
arrangement or understanding with any person to participate, in a distribution
(within the meaning of the Securities Act) of such New Securities. The Company
has not, however, sought its own no-action letter from the staff of the
Commission. Although there has been no indication of any change in the staff's
position, there can be no assurance that the staff of the Commission would
make a similar determination with respect to the resale of the New Securities.
Any holder that cannot rely upon such prior staff interpretations must comply
with the registration and
12
<PAGE>
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction, unless such sale is made pursuant to an
exemption from such requirements. See "The Exchange Offer--Purpose of the
Exchange Offer."
LEVERAGE AND COVERAGE; NET LOSSES AND NET CAPITAL DEFICIENCY
The Company has substantial indebtedness and debt service obligations. At
June 30, 1997, the Company's total consolidated indebtedness was $753.0
million, its consolidated total assets were $731.9 million, and its net
capital deficiency was $(146.1) million. On a pro forma basis, on June 30,
1997 the Company's total consolidated indebtedness would have been $787.2
million, its consolidated total assets would have been $752.6 million and its
net capital deficiency would have been $(170.6) million. In addition, subject
to the restrictions under the New Credit Agreement, the Exchange Indentures
and indentures with respect to the Company's other debt securities
(collectively, the "Indentures"), the Company and its subsidiaries may incur
additional indebtedness (including additional secured indebtedness) from time
to time. See "Use of Proceeds," "Capitalization" and "Description of the New
Senior Notes--Certain Covenants."
On a pro forma basis for the year ended December 31, 1996 and the six
months ended June 30, 1997, giving effect to the consummation of the Plan and
certain other transactions described in the Unaudited Pro Forma Financial
Information, as if such transactions had occurred at the beginning of the
period, earnings before fixed charges would have been inadequate to cover
fixed charges by approximately $8.0 million and $5.2 million, respectively.
However, earnings before fixed charges on a pro forma basis include non-cash
charges for depreciation and amortization of $32.6 million and $16.8 million,
respectively.
The level of the Company's indebtedness could have important consequences
to holders of the Old Securities and the New Securities, 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, research and development or
acquisitions may be limited; and (iii) the Company's level of indebtedness
could limit its flexibility to react to changes in its operating environment
and in economic conditions generally.
To the extent that cash flow from operations is insufficient to cover the
Company's fixed charges and fund the Company's capital expenditure
requirements, the Company, in order to pay such expenses, may obtain funds
from additional borrowings, if permitted, and may seek to sell a portion of
its business or other assets, engage in sale/leaseback transactions, raise
additional equity capital and/or acquire other businesses that would provide
additional positive cash flow. No assurance can be given as to the
availability or accessibility of these or other similar transactions, or that
these or other similar transactions could be accomplished on terms favorable
to the Company.
The ability of the Company to pay principal and interest on the Senior
Notes and Discount Debentures and to meet its other debt service obligations
will depend on the future operating performance and financial results of the
Company, which will be subject in part to factors beyond the control of the
Company, such as prevailing economic conditions and financial, business, and
other factors including, possibly, the availability of revolving credit
borrowings under the New Credit Agreement. For the years ended December 31,
1995 and 1996 and for the six months ended June 30, 1997, the Company recorded
a net loss of $(7.5) million, $(55.7) million and $(12.5) million,
respectively. The Indentures and the New Credit Agreement contain certain
restrictive covenants. The highly leveraged position of the Company and the
restrictive covenants contained in the New Credit Agreement and the Indentures
could significantly limit its ability to withstand competitive pressures or
adverse economic conditions, make acquisitions, or take advantage of business
opportunities that may arise.
RANKING OF THE NEW SECURITIES
The New Securities will be effectively subordinated to all secured senior
indebtedness of the Company, to the extent of the assets which secure such
indebtedness, and all indebtedness of the Company's subsidiaries, including
borrowings under the New Credit Agreement. The New Discount
13
<PAGE>
Debentures will also be subordinated to all senior indebtedness of the
Company, including the Senior Notes. At July 31, 1997, on a pro forma basis,
the aggregate amount of indebtedness of the Company's Restricted Subsidiaries
would have been approximately $16.9 million. At July 31, 1997, on a pro forma
basis, the aggregate amount of indebtedness of the Company's Non-Restricted
Subsidiaries would have been approximately $510.1 million. The Exchange
Indentures will permit the Company and its Restricted Subsidiaries to incur
additional indebtedness, including secured indebtedness and indebtedness of
its Restricted Subsidiaries, subject to certain limitations, and will not
restrict the incurrence of indebtedness by the Company's Non-Restricted
Subsidiaries. See "Description of the New Senior Notes -- Certain Covenants."
ORIGINAL ISSUE DISCOUNT CONSEQUENCES OF THE DISCOUNT DEBENTURES
The Discount Debentures were issued at a substantial discount from their
principal amount. Consequently, the holders of the Discount Debentures
generally will be required to include amounts in gross income for federal
income tax purposes in advance of receipt of the cash payments to which the
income is attributable. See "Certain Federal Income Tax Considerations" for a
more detailed discussion of the federal income tax consequences to the holders
of the Discount Debentures of the purchase, ownership and disposition of the
Discount Debentures. If a bankruptcy case is commenced by or against the
Company under the United States Bankruptcy Code after the issuance of the
Discount Debentures, the claim of a holder of Discount Debentures may be
limited to an amount equal to the sum of (i) the price paid by the holder for
the Discount Debentures (which price may be deemed to be the closing price of
the Discount Debentures on their first day of trading); and (ii) that portion
of the original issue discount which is not deemed to constitute "unmatured
interest" for purposes of the United States Bankruptcy Code. Any original
issue discount that was not amortized as of any such bankruptcy filing would
constitute "unmatured interest." The amortization of OID (as defined herein)
for purposes of a claim in bankruptcy may be calculated differently than the
amortization of such OID for tax purposes.
HOLDING COMPANY STRUCTURE; DEPENDENCE ON SUBSIDIARIES; LIMITATIONS ON ACCESS
TO CASH FLOW OF THE SUBSIDIARIES
The Company is structured as a holding company which owns all of the stock
of JII, Inc. ("JII"), which in turn holds the stock of most of the Company's
operating subsidiaries. The Company's current operations are conducted
exclusively through its subsidiaries, and the Company's only significant
assets are the capital stock of the subsidiaries. As a holding company, the
Company is dependent on dividends or other intercompany transfers of funds
from its subsidiaries to meet the Company's debt service and other
obligations. The New Securities will be obligations exclusively of the Company
and will not be guaranteed by any of the Company's subsidiaries. Each
subsidiary's management is given broad discretion in conducting the day-to-day
operations of such subsidiary, and the performance of the subsidiaries is
largely dependent upon their individual efforts. Consequently, the Company's
cash flow and ability to service its debt, including the New Securities, are
dependent upon the earnings of the subsidiaries and the distribution of those
earnings to the Company, or upon loans, advances or other payments made by the
subsidiaries to the Company. Furthermore, the terms of the permitted
indebtedness and other agreements of the Company and its Restricted
Subsidiaries may have the effect of limiting the ability of subsidiaries of
the Company to pay dividends to the Company. See "Description of the New
Senior Notes -- Certain Covenants."
The indebtedness of JII, the Company's wholly-owned subsidiary and a
borrower under the New Credit Agreement, is secured by a pledge of certain
assets of the Company and/or certain assets of the Company's Restricted
Subsidiaries, consisting of their inventories and receivables, and possibly
their machinery, equipment, real estate, stock of subsidiaries and other
assets, and is guaranteed by the Restricted Subsidiaries and the Company.
CONSEQUENCES OF SUBSIDIARY DECONSOLIDATION
The Company's investment in Jordan Telecommunication Products and Motors
and Gears is represented solely by the JTP Junior Preferred Stock (the "JTP
Junior Preferred Stock") and the M&G
14
<PAGE>
Cumulative Preferred Stock (the "M&G Junior Preferred Stock"), respectively,
but not by common stock of either JTP or M&G, which is held by stockholders
and affiliates of the Company and management of the respective companies. So
long as the Company holds the JTP Junior Preferred Stock and the M&G Junior
Preferred Stock, the Company expects to continue to consolidate the Jordan
Telecommunication Products subsidiaries and the Motors and Gears subsidiaries
for financial reporting purposes as subsidiaries of the Company. However, each
issue of such Junior Preferred Stock discontinues its participation in the
applicable company's earnings on the fifth anniversary of issuance. In
addition, this financial consolidation and any continuing Company investment
in Jordan Telecommunication Products and Motors and Gears will be discontinued
upon the redemption of the JTP Junior Preferred Stock or the M&G Junior
Preferred Stock, as the case may be, or at such time as the JTP Junior
Preferred Stock and M&G Junior Preferred Stock ceases to represent at least a
majority of the voting power and a majority share in the earnings of the
relevant company. As long as the Junior Preferred Stock is outstanding, the
Company expects the vote test to be satisfied. Until the fifth anniversary of
the issuance of the Junior Preferred Stock, when it discontinues its
participation in the earnings of the companies, so long as the Junior
Preferred Stock is outstanding, the Company expects the earnings test to be
satisfied. The JTP Junior Preferred Stock and the M&G Junior Preferred Stock
are each mandatorily redeemable upon certain events and are redeemable at the
option of JTP and M&G, respectively, in whole or in part, at any time.
The Company also expects to include the Jordan Telecommunication Products
subsidiaries and the Motors and Gears subsidiaries in its consolidated group
for Federal income tax purposes. This consolidation would be discontinued,
however, upon the redemption of the JTP Junior Preferred Stock or the M&G
Junior Preferred Stock, as the case may be, which could result in recognition
by the Company of substantial income tax liabilities arising out of the JTP
Recapitalization and the M&G Recapitalization. If such deconsolidation had
occurred at June 30, 1997, the Company believes that the amount of taxable
income to the Company attributable to Jordan Telecommunication Products would
have been approximately $125.0 million (or approximately $50.0 million of tax
liabilities, assuming a 40% combined Federal, state and local income tax rate)
and the amount of taxable income to the Company attributable to Motors and
Gears would have been approximately $58.0 million (or approximately $23.2
million of tax liabilities, assuming a 40% combined Federal, state and local
income tax rate). The Company currently expects to offset these tax
liabilities arising from deconsolidation by using net loss carry-forwards
(approximately $27.3 million at June 30, 1997), and to pay any remaining
liability with redemption proceeds from the JTP Junior Preferred Stock and the
M&G Junior Preferred Stock, respectively. Deconsolidation would also occur
with respect to JTP and M&G, respectively, if the JTP Junior Preferred Stock
and the M&G Junior Preferred Stock, respectively, ceased to represent at least
80% of the voting power and 80% of the stock value of the outstanding Junior
Preferred Stock and common stock combined of the relevant company. As long as
the Junior Preferred Stock is outstanding, the Company expects the vote test
to be satisfied. The value test depends on the relative values of the Junior
Preferred Stock and common stock. It is likely that by the fifth anniversary
of their issuances, the Junior Preferred Stock would cease to represent 80% of
the relevant total combined stock value. It is entirely possible, however,
that the 80% value test could fail well prior to the fifth anniversary after
issuance. In the event that deconsolidation occurs without a redemption of the
Junior Preferred Stock, the tax liabilities discussed above would be incurred
without the Company receiving the proceeds of a redemption. The Company
believes that its available cash balances in addition to existing credit
facilities would provide sufficient resources to pay any tax liabilities that
would arise if the Company did not receive the proceeds of a redemption. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition--General," "Certain Transactions" and "Description of Capital
Stock--Subsidiary Securities."
RESTRICTIVE COVENANTS LIMITING THE COMPANY'S ABILITY TO REPAY THE NEW
SECURITIES
The New Credit Agreement contains restrictive covenants and prohibits the
Company and its subsidiaries from prepaying other indebtedness, including the
New Securities. The New Credit Agreement will also require 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 ratios and tests. A
15
<PAGE>
breach of any of these covenants could result in a default under the New
Credit Agreement, and/or the Indentures. Upon the occurrence of an event of
default under the New Credit Agreement, the lenders thereunder could elect to
declare all amounts outstanding under the New Credit Agreement, together with
accrued interest, to be immediately due and payable. If the Company were
unable to repay those amounts, such lenders could proceed against the
collateral granted to them to secure that indebtedness. If the indebtedness
under the New Credit Agreement were to be accelerated, there can be no
assurance that the assets of the Company would be sufficient to repay in full
all of its indebtedness, including the New Securities. Substantially all of
the assets of the Company's subsidiaries are pledged as security under the New
Credit Agreement. See "Description of Certain Indebtedness--New Credit
Agreement" and "Description of the Exchange Securities."
FRAUDULENT TRANSFER CONSIDERATIONS
Under fraudulent transfer law, if a court were to find, in a lawsuit by an
unpaid creditor or representative of creditors of the Company, that the
Company received less than fair consideration or reasonable equivalent value
for incurring the indebtedness represented by the New Securities, and, at the
time of such incurrence, the Company (i) was insolvent or was rendered
insolvent by reason of such incurrence, (ii) was engaged or about to engage in
a business or transaction for which its remaining property constituted
unreasonably small capital or (iii) intended to incur, or believed it would
incur, debts beyond its ability to pay as such debts mature, such court could,
among other things, (a) void all or a portion of the Company's obligations to
the holders of the New Securities and/or (b) subordinate the Company's
obligations to the holders of the New Securities to other existing and future
indebtedness of the Company, the effect of which would be to entitle such
other creditors to be paid in full before any payment could be made on the New
Securities. 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 of its liabilities were greater than
the value of all of its property at a fair valuation, or if the present fair
salable value of the debtor's assets were less than the amount required to
repay its probable liability on its debts as they become absolute and mature.
There can be no assurance as to what standard a court would apply in order to
determine solvency.
On the basis of its historical financial information, its recent operating
history as discussed in "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and other factors, the Company believes
that, at the time the New Senior Notes will be issued and after giving effect
to the Plan, the Company will be solvent, and will have sufficient capital for
the business in which it is engaged and did not and will not have incurred
debts beyond its ability to pay such debts as they mature. There can be no
assurance, however, that a court would agree with these conclusions.
CHANGE OF CONTROL; LIMITATIONS ON RIGHTS OF REPAYMENT
The Change of Control provisions of the Exchange Indentures will not afford
any protection in a highly leveraged transaction, including such a transaction
initiated by the Company, management of the Company or an affiliate of the
Company, if such transaction does not result in a Change of Control. In
addition, existing or future secured indebtedness of the Company or
obligations of the Company's subsidiaries may prohibit the Company from
repurchasing or redeeming any of the New Securities upon a Change of Control.
Moreover, the ability of the Company to repurchase or redeem the New
Securities will be limited by the Company's then-available resources.
Accordingly, the Change of Control provisions are likely to be of limited
usefulness in such situations. Prepayment of the New Securities pursuant to a
Change of Control would constitute a default under the New Credit Agreement.
In the event that a Change in Control occurs, the Company will likely be
required to refinance the indebtedness outstanding under the New Credit
Agreement and the New Securities. There can be no assurance that the Company
would be able to refinance such indebtedness or, if such refinancing were to
occur, that such refinancing would be on terms favorable to the Company. See
"Description of the New Securities--Mandatory Offers to Repurchase Exchange
Securities."
16
<PAGE>
The Change of Control purchase feature of the New Securities may in certain
circumstances discourage or make more difficult a sale or takeover of the
Company and, thus, the removal of incumbent management.
DEPENDENCE ON MANAGEMENT
The Company's success depends, in part, upon the continued services of
Thomas H. Quinn, President and Chief Operating Officer of the Company, and
certain other key personnel. Although incentives exist for these individuals
to remain with the Company, the loss of the services of any one of them could
have a material adverse effect on the business of the Company. The Company
maintains a $5.0 million "key man" insurance policy on Mr. Quinn under which
the Company is the beneficiary. The Company is also dependent upon John W.
Jordan II, Chairman and Chief Executive Officer and a principal stockholder of
the Company, and certain of his affiliates for strategic planning and advice,
the loss of which could have a material adverse effect on the business of the
Company. See "Management."
PRIVATE OWNERSHIP; AFFILIATED TRANSACTIONS
The principals, partners, officers, employees and affiliates of The Jordan
Company and their respective family members (collectively, the "Jordan Group")
own substantially all of the common stock of the Company. Although the
Company's Articles of Incorporation provide for cumulative voting of common
stock in the election of directors, these stockholders collectively have
sufficient votes to elect all of the directors of the Company and control its
management policy and financing decisions. The Company has paid and will
continue to pay advisory fees to TJC Management Corporation ("TJC Management
Corp."), an affiliate of The Jordan Company and the Company, and pay
investment banking fees to TJC Management Corp., including investment banking
fees in connection with the Exchange Offer. The Jordan Company is not
obligated to provide the Company with any acquisition opportunities, and
conflicts of interest in allocating various investment or acquisition
opportunities among The Jordan Company, the Jordan Group and the Company may
arise. Further, certain of the Company's subsidiaries have entered into a
number of affiliate transactions with the Company and The Jordan Company,
including the New TJC Management Consulting Agreement, the New Subsidiary
Advisory Agreements, the New Subsidiary Consulting Agreements, the JI
Properties Services Agreement and the Tax Sharing Agreement (each as defined)
and certain other agreements and transactions. See "Certain Transactions."
ABSENCE OF PUBLIC MARKET FOR THE NEW SECURITIES; RESTRICTIONS ON TRANSFERS
The New Securities are being offered to Holders of the Old Securities. The
Old Securities were issued to a small number of institutional investors and
the Old Senior Notes are eligible for trading in the Private Offering, Resale
and Trading through Automated Linkages (PORTAL) Market, the National
Association of Securities Dealers' screenbased, automated market for trading
of securities eligible for resale under Rule 144A. The New Securities are new
securities for which there currently is no market. Although the Initial
Purchasers have advised the Company that they currently intend to make a
market in the New Senior Notes, they are not obligated to do so and may
discontinue such market making at any time without notice. The Company does
not intend to list the New Securities on any national securities exchange or
to seek the admission thereof to trading in the National Association of
Securities Dealers Automated Quotation System. Accordingly, no assurance can
be given that an active market will develop for any of the New Securities or
as to the liquidity of the trading market for any of the New Securities. If a
trading market does not develop or is not maintained, holders of the New
Securities may experience difficulty in reselling such New Securities or may
be unable to sell them at all. If a market for the New Securities develops,
any such market may be discontinued at any time. If a trading market develops
for the New Securities, future trading prices of such New 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 New Securities may trade at a discount from their principal
amount.
17
<PAGE>
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
The Company's subsidiaries manufacture and assemble products at numerous
facilities, some of which are outside of the United States. Although the
Company has not experienced significant problems conducting operations in
these areas, changes in local economic or political conditions could impact
the Company's manufacturing, assembly and distribution capabilities and have a
material adverse effect on the Company's business, financial condition and
results of operations. Additional risks inherent in the Company's
international business activities generally include unexpected changes in
regulatory requirements, tariffs and other trade barriers, changes in local
economic or political conditions, longer accounts receivable payment cycles,
difficulties in managing international operations, potentially adverse tax
consequences, restrictions on repatriation of earnings and the burdens of
complying with a wide variety of foreign laws. In fiscal 1996, the Company
derived approximately 14% of its pro forma net sales from customers outside of
the United States. The Company intends to continue to expand its operations
outside the United States and to enter additional international markets.
Most of the Company's international sales are currently denominated in
foreign currencies. Decreases in the value of foreign currencies relative to
the U.S. dollar could result in losses from foreign currency translations. The
Company does not currently hedge its foreign exchange exposure. With respect
to the Company's sales that are U.S. dollar-denominated, decreases in the
value of foreign currencies relative to the U.S. dollar could make the
Company's products less price competitive.
COMPETITION
Generally, the Company's subsidiaries are subject to competition from a
substantial number of national, international and regional competitors, many
of which have greater financial, manufacturing, engineering and other
resources than the Company's subsidiaries. Many such competitors can be
expected to continue to improve the design and performance of their products
and to introduce new products with competitive price and performance
characteristics. Although the Company believes that its subsidiaries have
certain advantages over its competitors, realizing and maintaining such
advantages will require continued investment by the Company in manufacturing,
research and development, quality standards, marketing and customer service
and support. There can be no assurance that the Company's subsidiaries will
have sufficient resources to continue to make such investments or that they
will be successful in maintaining such advantages. Failure to make such
investments or to maintain such advantages could have a material adverse
effect on the Company's business, financial condition and results of
operations. Except for SILICORE polymer pipe products, certain of its CATV
components and its fiber optic connector technology, the Company's
subsidiaries' products are generally not protected by virtue of any
proprietary rights such as patents.
PRICE FLUCTUATIONS OF RAW MATERIALS
The Company's subsidiaries purchase most of the raw materials for their
products on the open market, and the Company's subsidiaries' sales may be
affected by changes in the market price of such raw materials. The Company
does not generally engage in commodity hedging transactions for raw materials.
Although the Company's subsidiaries have generally been able to pass on
increases in the price of raw materials to their customers, there have been
delays in the subsidiaries' ability to pass on such increases in the past and
there can be no assurance that they will be able to do so in the future, on a
timely basis or at all. The results of operations for the Company's
subsidiary, Dura-Line, have in the past been affected by fluctuations in the
price of its primary raw material, HDPE. Additionally, significant increases
in the price of the Company's subsidiaries' products due to increases in the
cost of raw materials could have a negative effect on demand for their
respective products and a material adverse effect on the Company's business,
financial condition and results of operations.
18
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds in connection with the Exchange
Offer. The Company also did not receive any proceeds in connection with the
Old Subordinated Indentures Offering. The net proceeds received by the Company
from the Old Senior Notes Offering (after the deduction of discounts and
commissions, fees and other expenses in connection with the Old Senior Notes
Offering) were approximately $113.0 million. The net proceeds from the Old
Senior Notes Offering, together with the proceeds from certain other
transactions which were elements of the Plan, were used (i) to repurchase
substantially all of the Company's 10 3/8% Senior Notes due 2003 pursuant to
the Tender Offer and (ii) to repay outstanding indebtedness under the Old
Credit Agreements. To the extent the net proceeds to the Company exceeded the
amount necessary for such purposes, the remaining proceeds were used for
general corporate purposes. See "Recapitalization and Repositioning Plan."
The following table sets forth the sources of funds received by the Company
and application of funds by the Company in connection with the Plan, as
consummated on July 25, 1997.
<TABLE>
<CAPTION>
AMOUNT
---------------------
(DOLLARS IN MILLIONS)
<S> <C>
SOURCES OF FUNDS:
The Old Senior Notes Offering .................... $120.0
JTP Recapitalization (1).......................... 264.0
Fannie May Refinancing............................ 17.4
------
Total Sources.................................... $401.4
======
USES OF FUNDS:
Repurchase of Old Senior Notes (2)................ $300.9
Repayment of Old Credit Agreements borrowings
(3).............................................. 73.8
Excess cash proceeds ............................. 19.7
Fees and expenses (4)............................. 7.0
------
Total Uses....................................... $401.4
======
</TABLE>
- ------------
(1) Consists of the cash proceeds to the Company from the JTP
Recapitalization. See "Recapitalization and Repositioning Plan."
(2) Includes accrued interest in connection with the Tender Offer and
consent solicitation with respect to the 10 3/8% Senior Notes due 2003.
See "Description of Certain Indebtedness."
(3) The Old Credit Agreements borrowings consisted of (i) $26.7 million of
revolving credit loans, and accrued interest thereon, under the
existing credit agreement with JII (the "JII Credit Agreement") that
would have matured on June 29, 1999, which at June 30, 1997, had a
weighted average interest rate of 9.0% and (ii) $47.1 million of
borrowings, and accrued interest thereon, under the SPL Credit
Agreement (as defined) that would have matured in part on December 31,
2001, which at June 30, 1997 had a weighted average interest rate of
8.85%. As of July 31, 1997, the New Credit Agreement was undrawn.
(4) Includes fees to the Initial Purchasers in connection with the Old
Senior Notes Offering, fees and expenses in connection with the
negotiation of the New Credit Agreement, consent fees with respect to
the Old Discount Debentures, fees payable to TJC Management Corp. (net
of financial advisory fees being paid to the Company by JTP), and
rating, legal, accounting, printing and other transaction expenses in
connection with the Plan. See "Certain Transactions."
19
<PAGE>
CAPITALIZATION
The following table sets forth the (i) historical consolidated
capitalization of the Company as of June 30, 1997 and (ii) (a) the pro forma
consolidated capitalization of the Company as of June 30, 1997 and (b) the pro
forma consolidated capitalization of the Company's Restricted Subsidiaries as
of June 30, 1997, both after giving effect to the Offering and the
consummation of each of the other elements of the Plan and certain other
transactions as set forth in the Unaudited Pro Forma Financial Information and
the notes thereto. The pro forma capitalization reflects the repurchase of
substantially all of the outstanding 10 3/8% Senior Notes due 2003 pursuant to
the Tender Offer and related consent solicitation. The table should be read in
conjunction with the historical consolidated financial statements of the
Company and related notes and the Unaudited Pro Forma Financial Information of
the Company and related notes included elsewhere in this Offering Circular.
See "Use of Proceeds," "Selected Financial Data," "Recapitalization and
Repositioning Plan," "Description of Certain Indebtedness" and "Unaudited Pro
Forma Financial Information."
<TABLE>
<CAPTION>
AT JUNE 30, 1997
------------------------------
PRO FORMA
------------
RESTRICTED
ACTUAL COMPANY SUBSIDIARIES
------ ------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Cash and cash equivalents....................... $ 30.9 $ 71.2 $ 30.8
======= ======= ======
Current portion of long-term obligations ....... $ 8.5 $ 4.3 $ 2.4
======= ======= ======
Long-term obligations (less current portion):
Credit Agreements (1)
Old Credit Agreements......................... $ 81.0 $ -- $ --
New Credit Agreement (2)...................... -- -- --
M&G Credit Agreement (3)...................... 50.0 50.0 --
JTP Credit Agreement (4) ..................... -- -- --
Debt Securities (5)
10 3/8% Senior Notes due 2005 (6)............. 275.0 3.4 3.4
Senior Notes ................................. -- 120.0 120.0
Discount Debentures .......................... 124.5 124.5 124.5
JTP Senior Notes ............................. -- 188.5 --
JTP Discount Debentures....................... -- 85.0 --
M&G Senior Notes.............................. 170.0 170.0 --
Seller Promissory Notes (7).................... 20.0 17.5 9.5
Capital Leases and other debt (8) ............. 24.0 24.0 5.1
------- ------- ------
Total long-term debt (less current portion) ... $ 744.5 $ 782.9 $262.5
======= ======= ======
Redeemable preferred stock (9)
JTP Senior Preferred Stock..................... $ -- $ 25.0 $ --
M&G Preferred Stock............................ 1.5 1.5 --
------- ------- ------
Total redeemable preferred stock............. 1.5 26.5 --
Total shareholders' equity (net capital
deficiency)..................................... (146.1) (170.6) 14.9
------- ------- ------
Total capitalization........................ $ 608.4 $ 643.1 $279.8
======= ======= ======
</TABLE>
- ------------
(1) For additional information, see "Description of Certain
Indebtedness--Credit Agreements."
(2) The New Credit Agreement, which consists of a $75.0 million revolving
credit facility, was undrawn as of July 31, 1997. For additional
information, see "Description of Certain Indebtedness--Credit
Agreements."
(3) In June 1997, Motors and Gears acquired FIR for approximately $51.3
million, which was financed by borrowings under the M&G Credit
Agreement. See "Description of Certain Indebtedness--Credit
Agreements--Other Credit Facilities."
(4) The JTP Credit Agreement, which consists of a $110.0 million revolving
credit facility, is undrawn as of July 31, 1997.
(5) For additional information, see "Recapitalization and Repositioning
Plan" and "Description of Certain Indebtedness."
(6) Approximately $3.4 million of the Company's 10 3/8% Senior Notes due
2005 were not tendered pursuant to the Tender Offer.
(7) For additional information, see "Description of Certain
Indebtedness--Seller Promissory Notes."
(8) For additional information, see "Description of Certain
Indebtedness--Capital Leases."
(9) For additional information, see "Description of Capital
Stock--Subsidiary Securities."
20
<PAGE>
SELECTED FINANCIAL DATA
The following table presents selected historical operating, balance sheet
and other data of the Company and its subsidiaries (i) as of and for the years
ended December 31, 1992 through 1996, and (ii) as of and for the six months
ended June 30, 1996 and 1997. The financial data of the Company and its
subsidiaries as of and for the years ended December 31, 1992 through 1996 were
derived from the audited consolidated financial statements of the Company and
its subsidiaries. The financial data of the Company as of and for the six
months ended June 30, 1996 and 1997 were derived from the unaudited
consolidated financial statements of the Company which, in the opinion of the
Company, reflect all adjustments, which are of a normal and recurring nature,
necessary for a fair presentation of the results for the unaudited periods.
The results of operations for the six months ended June 30, 1997 are not
necessarily indicative of the results of operations to be expected for the
full year. Results of operations of the Company's subsidiaries are reflected
in Statement of Operations Data, Other Data and financial ratios from their
date of acquisition by the Company. The financial data set forth below should
be read in conjunction with "Management's Discussion and Analysis of Results
of Operations and Financial Condition" and the historical financial statements
of the Company and the related notes thereto contained elsewhere in this
Offering Circular.
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------------------ ---------------------
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
STATEMENT OF OPERATIONS DATA: (1)
Net sales.............................. $327,321 $358,611 $424,391 $507,311 $601,567 $267,220 $324,889
Cost of sales, excluding depreciation . 202,215 221,518 262,730 320,653 375,745 164,053 203,059
Gross profit, excluding depreciation .. 125,106 137,093 161,661 186,658 225,822 103,167 121,830
Selling, general and administrative
expenses, excluding depreciation ..... 75,060 80,496 97,428 121,371 150,951 64,743 67,802
Depreciation and amortization.......... 19,062 17,802 19,099 21,684 30,438 13,816 15,933
Operating income....................... 22,762 36,387 42,944 32,360 13,392 22,205 21,177
Interest expense....................... 37,024 41,049 40,887 46,974 63,340 28,975 37,775
Interest (income)...................... (963) (1,845) (1,471) (2,841) (2,538) (1,344) (1,606)
(Loss) income before income taxes,
minority interest, extraordinary
items and equity in investee.......... (13,299) (2,817) 27,689 (11,773) (47,410) (5,426) 3,020
(Loss) income before extraordinary
items................................. (14,412) (3,483) 23,741 (7,470) (51,884) (5,584) (3,112)
OTHER DATA: (1)
Adjusted operating income (2).......... $ 18,961 $ 29,806 $ 35,868 $ 42,425 $ 29,367 $ 27,119 $ 22,284
EBITDA (3)............................. 45,793 49,076 55,812 66,158 80,507 42,364 54,951
Capital expenditures................... 6,975 13,640 12,112 15,276 17,395 9,612 5,758
Ratio of earnings to fixed charges(4) . -- -- 1.7x -- -- -- 1.2x
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AT JUNE 30,
------------------------------------------------------- -------------------------
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------- ------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA: (1)
Cash and cash equivalents......... $ 8,886 $ 68,273 $ 56,386 $ 41,253 $ 32,797 $ 12,445 $ 30,887
Working capital................... 65,694 121,490 123,395 115,387 123,479 91,869 145,477
Total assets...................... 268,674 338,509 399,445 532,384 681,885 611,497 731,932
Total debt........................ 272,329 358,883 382,862 525,921 697,544 600,348 752,995
Preferred stock .................. 1,875 1,875 1,875 1,875 1,875 1,875 1,515
Shareholders' equity (net capital
deficiency)...................... (60,873) (90,669) (66,867) (74,479) (128,406) (78,130) (146,064)
(footnotes on next page)
</TABLE>
21
<PAGE>
- ------------
(1) The Company has acquired a diversified group of operating companies
over the periods presented, which significantly affects the
comparability of the following information.
(2) Adjusted operating income represents operating income excluding the
results of Welcome Home, which is no longer consolidated with the
Company. See the Company's historical consolidated financial
statements.
(3) EBITDA for any relevant period represents (i) adjusted operating
income, plus (ii) depreciation, amortization of goodwill and other
intangibles, plus (iii) certain other non-recurring expenses as set
forth below:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Adjusted operating
income.................. $18,961 $29,806 $35,868 $42,425 $29,367 $27,119 22,284
Depreciation and
amortization(a)......... 18,610 16,862 17,775 19,563 28,342 12,862 15,814
SAR expense(b)........... -- -- -- 400 9,822 300 15,418
Loss on purchase of
affiliated company(b) . -- -- -- -- 4,488 -- --
Advisory fees and other,
net(c).................. 1,920 2,408 2,169 3,914 4,352 2,083 1,435
Write off of note
receivable from an
affiliate(b)............ 6,302 -- -- -- -- -- --
Other non-recurring
items(b)................ -- -- -- (144) 4,136 -- --
--------- --------- --------- --------- --------- --------- ---------
EBITDA................... $45,793 $49,076 $55,812 $66,158 $80,507 $42,364 $54,951
========= ========= ========= ========= ========= ========= =========
</TABLE>
- ------------
(a) Reflects historical depreciation and amortization less the portion of
depreciation and amortization recorded at Welcome Home for the period.
(b) For additional information, see "Unaudited Pro Forma Financial
Information" and the notes thereto.
(c) Reflects historical advisory fees and other expenses, less the portion
of such expenses attributable to Welcome Home for the period.
The Company has included EBITDA because it understands that it is one
measure used by certain investors to determine the Company's operating
cash flow and historical ability to service its indebtedness.
(4) Earnings were insufficient to cover fixed charges by $13.3 million,
$2.8 million, $11.8 million and $47.4 million for the years ended
December 31, 1992, 1993, 1995 and 1996, respectively, and by $5.4
million for the six months ended June 30, 1996. However, this
deficiency reflects non-cash charges for depreciation and amortization
of goodwill and other intangibles, and amortization of financing costs
and debt discount of $21.1 million, $19.3 million, $23.4 million, $33.4
million, and $14.8 million for the respective fiscal years and interim
period discussed above. Earnings were sufficient to cover fixed charges
in 1994 and the six months ended June 30, 1997 due to the recognition
of a gain on the sale of a partial interest in the Company's currently
deconsolidated subsidiary, Welcome Home, in 1994, and the recognition
of a gain on the sale of a former subsidiary, Hudson, in 1997. See
"Management's Discussion and Analysis of Results of Operations and
Financial Condition--Liquidity and Capital Resources."
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
GENERAL
The Company was organized to acquire and operate a diverse group of
businesses on a decentralized basis, with a corporate staff providing
strategic direction and support. The Company is currently comprised of 25
businesses which are divided into four strategic business units: (i) Specialty
Printing and Labeling, (ii) Consumer and Industrial Products, (iii) Motors and
Gears and (iv) Jordan Telecommunication Products. The Company believes that
its businesses are characterized by leading positions in niche industries,
high operating margins, strong management, minimal working capital and capital
expenditure requirements and low sensitivity to technological change and
economic cycles. For the year ended December 31, 1996, the Company generated
combined pro forma net sales and EBITDA of $649.8 million and $114.1 million,
respectively.
A principal component of the Company's business strategy is to continually
seek to make strategic acquisitions. As a result, the Company's historical
financial information is not necessarily comparable from period to period. In
1994, Specialty Printing and Labeling acquired Valmark and Pamco; in 1995,
Motors and Gears acquired Merkle-Korff; and in 1996, Specialty Printing and
Labeling acquired Seaboard, Consumer and Industrial Products acquired Cape
Craftsmen and Paw Print, Motors and Gears acquired Barber-Colman, and Jordan
Telecommunication Products acquired Viewsonics, Vitelec, Diversified, Bond,
Northern and Johnson.
The Company's subsidiaries are operated and managed on a decentralized
basis. As a result, the Company's net sales and gross profit generally equal
the sum of the financial results generated by its subsidiaries. The Company's
general and administrative expense equals the administrative expense generated
at each of the Company's subsidiaries plus corporate overhead. The purpose of
the corporate administrative staff is to provide strategic, financial and
business support, which has enhanced the ability of the Company's subsidiaries
to grow beyond their historical means.
The results of each of the Company's strategic business units is
consolidated into the Company's financial results. The subsidiaries comprising
the Jordan Telecommunication Products group and the Motor and Gears group are
Non-Restricted Subsidiaries, the common stock of which will be owned by
stockholders and affiliates of the Company and management of the respective
companies. The Company's ownership in these subsidiaries will be in the form
of JTP Junior Preferred Stock and M&G Junior Preferred Stock. See "Risk
Factors--Consequences of Subsidiary Deconsolidation," "Certain Transactions"
and "Description of Capital Stock--Subsidiary Securities."
23
<PAGE>
RESULTS OF OPERATIONS
Summarized below are the historical net sales, operating income and
operating margin (as described below) for each of the Company's business units
for the fiscal years ended December 31, 1994, 1995 and 1996 and the six months
ended June 30, 1996 and 1997. This discussion should be read in conjunction
with the historical consolidated financial statements and the related notes
thereto contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------- -----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
NET SALES:
Specialty Printing and Labeling .. $ 82,828 $ 96,514 $109,587 $ 45,679 $ 54,521
Consumer and Industrial Products . 156,927 164,636 159,555 79,155 93,592
Motors and Gears.................. 36,854 54,218 117,571 59,578 66,518
Jordan Telecommunication
Products......................... 66,128 98,777 132,999 51,589 107,802
Welcome Home ..................... 81,654 93,166 81,855 31,219 2,456 (2)
---------- ---------- ---------- ---------- ------------
Total........................... $424,391 $507,311 $601,567 $267,220 $324,889
========== ========== ========== ========== ============
OPERATING INCOME (LOSS)(1):
Specialty Printing and Labeling .. $ 5,522 $ 8,067 $ 7,078 $ 2,048 $ 3,810
Consumer and Industrial Products . 22,440 21,987 18,446 10,422 12,913
Motors and Gears.................. 9,484 12,236 26,164 13,811 15,256
Jordan Telecommunication
Products......................... 11,996 17,774 12,985 9,947 86
---------- ---------- ---------- ---------- ------------
Adjusted Operating Income......... 49,442 60,064 64,673 36,228 32,065
Welcome Home...................... 7,076 (10,066) (15,975) (4,914) (1,107) (2)
---------- ---------- ---------- ---------- ------------
Total........................... $ 56,518 $ 49,998 $ 48,698 $ 31,314 $ 30,958
========== ========== ========== ========== ============
OPERATING MARGIN (DEFICIT):
Specialty Printing and Labeling .. 6.7% 8.4% 6.5% 4.5% 7.0%
Consumer and Industrial Products . 14.3 13.4 11.6 13.2 13.8
Motors and Gears.................. 25.7 22.6 22.3 23.2 22.9
Jordan Telecommunication
Products......................... 18.1 18.0 9.8 19.3 --
Welcome Home...................... 8.7 (10.8) (19.5) (15.7) (45.1) (2)
Combined ......................... 13.3 9.9 8.1 11.7 9.5
</TABLE>
- ------------
(1) Operating income does not include corporate operating income (loss) of
$(13.6) million and $(17.6) million for the years ended December 31,
1994 and 1995, respectively. For the year ended December 31, 1996
operating income does not include corporate operating income (loss) of
$(26.9) million, the write-off of $ 4.5 million in notes receivable
resulting from the Cape Craftsmen acquisition, and a charge of $3.9
million for a compensation agreement. Jordan Telecommunication
Products' operating income includes the SAR expenses for AIM and
Cambridge of $0.4 million for the year ended December 31, 1995, and
$5.4 million for the year ended December 31, 1996. See "Certain
Transactions--SAR Payments." Operating income does not include
corporate operating income (loss) of ($9.1) million and ($9.8) million
for the six months ended June 30, 1996 and 1997, respectively.
(2) Includes the results of Welcome Home for the period from January 1,
1997 to January 21, 1997, the date of its Chapter 11 filing. See the
Company's historical consolidated financial statements.
24
<PAGE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Consolidated Results. For the second quarter and first six months of 1997,
consolidated net sales increased $26.9 million or 18.3% and $57.7 million or
21.6%, respectively, over the same periods last year. The increase for both
periods was primarily due to the acquisition of Seaboard in the Specialty
Printing and Labeling group, Cape, Paw Print, and Arnon-Caine in the Consumer
and Industrial Products group, Colman Motors Products in the Motors and Gears
group, and Diversified, Viewsonics, Vitelec, Bond, Northern, and LoDan in the
Telecommunications Products group, increased sales of ad specialty products at
SPAI, increased sales of gears and gear boxes at Gear, increased domestic and
international sales of Innerduct at Dura-Line, and higher sales of aircraft
parts to Boeing at Parsons. Partially offsetting the above sales increases
were lower sales of shrouds to Apple at Valmark, lower calendar and school
annual sales at SPAI, decreased sales of fractional and integral motors at
Imperial and Scott, and lower sales at Welcome Home stemming from the
company's deconsolidation effective January 21, 1997.
For the second quarter and first six months of 1997, consolidated operating
income decreased $5.9 million or 44.9% and $1.0 million or 4.6%, respectively
over the same periods last year. The decrease in operating income for both
periods is primarily due to SAR expense at Dura-Line, which increased $15.3
million and $15.1 million for the second quarter and first six months of 1997,
respectively, over the same periods last year. Excluding the SAR expense,
operating income would have increased $9.4 million or 71.1% and $14.1 million
or 62.6%, respectively. These increases are primarily attributed to the
above-mentioned acquisitions, higher operating income at SPAI, increased
operating income at both Parsons and Beemak, and a lower operating loss at
Welcome due to the company's deconsolidation effective January 21, 1997.
Partially offsetting these increases in operating income were decreased
operating income at Pamco, lower operating income at Aim and Johnson, and
decreased operating income at Dacco. Excluding SAR expense, consolidated
operating margins improved to 13.0% and 11.2% for the second quarter and first
six months of 1997, respectively, from 9.0% and 8.4% for the same periods last
year, respectively.
Interest expense increased $4.2 million or 28.1% and $8.8 million or 30.4%
for the second quarter and first six months of 1997, respectively, over the
same periods last year. The increase is due to higher revolver borrowings at
JII, Inc. and outstanding senior debt at Motors and Gears, Inc., which was
issued in the fourth quarter of 1996. Interest income increased $.2 million or
35.5% and $.3 million or 19.5% for the second quarter and first six months of
1997, respectively, over the same periods last year.
Specialty Printing and Labeling. As of June 30, 1997, the Specialty
Printing and Labeling group consisted of Sales Promotion Associates, Inc.
("SPAI"), Valmark, Pamco, and Seaboard.
For the second quarter and first six months of 1997, net sales increased
$2.6 million or 8.9% and $8.8 million or 19.4%, respectively, over the same
periods last year. The second quarter increase is due to the acquisition of
Seaboard (May 31, 1996), $1.5 million, increased sales of screen print,
rollstock, and membrance switches at Valmark, $.1 million each, respectively,
increased label sales at Pamco, $.2 million, and higher sales of ad specialty
products at SPAI, $.8 million. Partially offsetting these increases were lower
sales of calendars and school annuals at SPAI, $.3 million. The increase in
net sales for the first six months of 1997 is due to the acquisition of
Seaboard, $8.3 million, higher sales of screen print, $.4 million, rollstock,
$.4 million, and membrane switches, $.3 million, higher label sales at Pamco,
$.1 million, and increased sales of ad specialty products at SPAI, $.7
million. Partially offsetting these six month increases were lower sales of
shrouds to Apple at Valmark, $.8 million, and decreased sales of calendars and
school annuals at SPAI, $.5 million. The sales gains for both periods at
Valmark reflect management's success in expanding the company's customer base,
while the gains at SPAI reflect growth in the corporate programs segment of
the ad specialty business.
For the second quarter and first six months of 1997, operating income
increased $.6 million or 22.7% and $1.8 million or 86.0%, respectively, over
the same periods last year. The second quarter increase is due to the
acquisition of Seaboard, $.3 million, and higher operating income at SPAI, $.4
million. Partially offsetting these increases was decreased operating income
at Pamco, $.3 million. The six month increase in operating income is due to
the acquisition of Seaboard, $1.5 million, and higher operating income at
SPAI, $.6 million. Partially offsetting these increases was lower operating
income at Pamco, $.5 million. For both periods, the improved operating income
at SPAI is attributed to higher sales and lower operating costs, primarily
medical insurance and commissions. The decreased operating income at Pamco is
due to an increase in plant overhead stemming from the Company's facility
expansion in December 1996.
25
<PAGE>
For the second quarter and first six months of 1997, the operating margin
increased to 11.0% and 7.0%, respectively, from 9.7% and 4.5% for the same
periods last year, respectively. The improvement is due to the acquisition of
Seaboard, which contributes a significant portion of the group's operating
income and operates at an inherently higher margin than the other companies in
the group.
Consumer and Industrial Products. As of June 30, 1997, the Consumer and
Industrial Products consisted of DACCO, Sate-Lite, Riverside, Parsons,
Beemak, Cape Craftsmen, and Paw Print.
For the second quarter and first six months of 1997, net sales increased
$6.3 million or 15.6% and $14.4 million or 18.2%, respectively, over the same
periods last year. The second quarter increase is due to the acquisitions of
Cape and Paw Print in the second half of 1996 and Arnon-Caine (by Beemak) in
January 1997. These companies contributed $2.5 million, $3.9 million, and $.9
million to net sales, respectively, in the second quarter. Further
contributing to the rise in second quarter net sales were increased sales of
aircraft parts at Parsons, $2.3 million, of which $1.5 million is attributed
to Boeing. Partically offsetting these increases in second quarter net sales
were decreased sales of rebuilt converters at DACCO, $.4 million, lower sales
at Hudson of $1.4 million due primarily to the sale of the company on May 15,
1997, and lower sales of religious books and bibles at Riverside, $1.6
million. The increase in net sales for the first six months of 1997 is driven
by the acquisitions of Cape, $3.3 million, Paw Print, $8.2 million, and
Arnon-Caine, $1.8 million, respectively, plus higher sales of aircraft parts
at Parsons, $4.3 million, of which $3.7 million is attributed to Boeing.
Partially offsetting the above six month sales increases were lower sales of
rebuilt converters and other hard parts at DACCO, $1.0 million, decreased
sales of truck and auto emergency warning triangles at Sate-Lite, $.3 million,
lower sales of bibles and religious books at Riverside, $1.3 million, and
lower sales at Hudson of $.6 million due to the sale of the company. The
decrease in net sales for the second quarter and first six months at Riverside
stems from a decrease in the lower margin contract distribution business, as
management is focusing on the company's higher margin publishing and
distribution lines.
For the second quarter and first six months of 1997, operating income
increased $1.8 million or 35.8% and $2.5 million or 23.9%, respectively, over
the same periods last year. The second quarter increase is due to the
acquisitions of Paw Print and Arnon-Caine, which contributed $.6 million and
$.3 million to operating income, respectively, higher operating income at
Parsons of $1.1 million, and increased operating income at Beemak (excluding
Arnon-Caine), $.4 million. Partially offsetting these increases were lower
operating income at DACCO and Riverside, $.3 million and $.2 million,
respectively, and decreased operating income of $.4 million at Hudson
primarily due to the sale of the company. The increase in operating income for
the first six months of 1997 is driven by the acquisitions of Paw Print and
Arnon-Caine, which contributed $1.1 million and $.6 million to operating
income, respectively, increased operating income at Parsons of $1.7 million,
and increased operating income at Beemak (excluding Arnon-Caine), $.4 million.
Further, Hudson added an additional $.1 million to operating income as a
higher gross margin and lower depreciation expense more than compensated for
the decrease in sales due to the divestiture of the company. Partially
offsetting the above six month increases in operating income were lower
operating results at DACCO, $1.1 million, Sate-Lite, $.3 million, and
Riverside, $.2 million. For both the second quarter and first six months,
operating income improved at Parsons due to higher sales and an improved gross
margin and operating income improved at Beemak due to lower inventory
write-downs. The decreases for the second quarter and first six months
experienced at DACCO were due to lower sales, higher material prices, and
higher selling costs, while the decrease for the first six months experienced
by Sate-Lite was due primarily to higher compensation costs. The decrease in
operating income for the second quarter and first six months at Riverside was
due to higher amortization of software installation costs. Riverside picked up
$.1 million in gross profit in the first six months as a result of
management's concentration on higher margin business.
For the second quarter and first six months of 1997, the consolidated
operating margin increased to 14.9% and 13.8%, respectively, from 12.7% and
13.2%, respectively, in the same periods last year. The improved margin in the
second quarter of 1997 is due to a better gross margin, flat depreciation
expense on increased sales, and lower inventory write-offs. The same holds
true for the first six months of 1997, but higher amortization expense at
Riverside and additional amortization expense due to the acquisitions led to a
lesser improvement.
26
<PAGE>
Motors and Gears. As of June 30, 1997, Motors and Gears consisted of
Imperial, Scott, Gear, Merkle-Korff and FIR. Effective January 1997, Colman
Motor Products became a fully integrated division of Merkle-Korff.
For the second quarter and first half of 1997, net sales increased $3.5
million or 11.1% and $6.9 million or 11.7%, respectively, as compared with the
same periods last year. Net sales of sub-fractional motors for the second
quarter and first half of 1997 increased 20% and 28%, respectively. The strong
growth in sub-fractional motors is primarily attributed to the acquisition of
Colman Motor Products on March 8, 1996, as well as continued strength in the
vending and appliance markets. Gears and gear box sales for the second quarter
and first half increased 21% and 17%, respectively, primarily as a result of
strong sales of planetary gears in the floor care market. These increases were
partially offset by reduced sales in fractional/integral motors, 10% and 20%
for the second quarter and first half, respectively. These decreases reflect
the stronger than normal sales in the first and second quarters of 1996,
principally due to a substantial reduction in the backlog of orders for floor
care motors that existed as the end of 1995.
Operating income increased $1.1 million or 16.0% and $1.4 million or 10.5%
for the second quarter and first half, respectively, as compared with the same
periods last year. The increase in operating income is primarily due to
increased sales for the second quarter and first half over the same periods in
1996.
Operating margins increased from 22.3% to 23.3% for the second quarter
1997, while margins decreased slightly for the first six months of 1997, from
23.2% to 22.9%.
Jordan Telecommunication Products. As of June 30, 1997, the Jordan
Telecommunication Products group consisted of Dura-Line, AIM, Cambridge,
Johnson, Diversified, Viewsonics, Vitelec, Bond, Northern and LoDan.
For the second quarter and first six months of 1997, net sales increased
$33.2 million or 122.4% and $56.2 million or 109.0%, respectively, over the
same periods last year. The second quarter sales increase is due to the
acquisitions of Viewsonics, Vitelec, Bond, Northern, and LoDan, all of which
were acquired after the second quarter of 1996, and Diversified which was
acquired near the end of June 1996. Combined, these acquisitions accounted for
approximately $22.8 million or 68.7% of the increase in sales. The remainder
of the sales increase is due to higher domestic and international sales of
Dura-Line's Innerduct products, $4.9 million and $6.2 million, respectively.
For the six months ended June 30, 1997, acquisitions accounted for $43.2
million or 76.9% of the increase in sales. The remainder of the sales increase
is due to higher domestic and international sales of Dura-Line's Innerduct
products, $5.4 million and $7.9 million, respectively.
For the second quarter and first six months of 1997, operating income
decreased $11.3 million or 230.0% and $9.9 million or 99.1%, respectively,
over the same period last year. This decrease was primarily due to an increase
in SAR expense of $15.3 million and $15.1 million for the second quarter and
first six months of 1997, respectively. The increase in SAR expense is due to
a $15.4 million charge in April 1997 relating to the Company's acquisition of
Dura-Line in 1988. Excluding the increase in SAR expense, operating income
would have increased $4.0 million or 82.8% and $5.2 million or 52.7% for the
second quarter and first six months of 1997, respectively. For the quarter,
the increase in operating income (excluding SAR expense) was primarily due to
the acquisitions, which added $3.0 million, and increased operating income at
Dura-Line of $1.5 million, both of which were partially offset by decreases at
AIM and Johnson of $.5 million and $.1 million, respectively. For the six
months ended June 30, 1997, the increase in operating income (excluding SAR
expense) was primarily due to the acquisitions, which contributed $5.8
million. Partially offsetting the increase were decreases at AIM and Johnson
of $.6 million and $.1 million, respectively. Excluding the SAR expense,
operating margins would have decreased from 18.6% to 14.8% and from 19.9% to
14.1% for the second quarter and first six months of 1997, respectively. These
declines are due to international expansion costs at Dura-Line, primarily
under-absorbed overhead related to the start-ups of China and Mexico and
international market development costs for new facilities in China, Mexico,
Malaysia, India and Spain, none of which were incurred in 1996. This decline
is also a function of the lower inherent operating margins of the acquired
businesses, which averaged 12.1% and 12.3% for the second quarter and first
six months of 1997.
27
<PAGE>
Welcome Home. For the second quarter and first six months of 1997, net
sales decreased $18.7 million or 100% and $28.8 million or 92.1%,
respectively, over the same periods last year. For the second quarter ended
June 30, 1997, the operating loss decreased $1.9 million or 100%, and for the
first six months of 1997, the operating loss decreased $3.8 million or 77.5%.
These fluctuations are the direct result of Welcome Home's Chapter 11
bankruptcy filing on January 21, 1997. As a result of the filing, the Company
no longer has the ability to control the operations and financial affairs of
the company. Accordingly, the results of operations of Welcome Home from
January 21, 1997 to June 30, 1997, are not included in the consolidated
results of the Company. For the period ended January 21, 1997, the Company
recorded a net loss of $1.2 million related to Welcome Home. Receivables from
Welcome Home owed to the Company or its subsidiaries were $4.7 million as of
June 30, 1997.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Consolidated Operating Results. Consolidated net sales for fiscal 1996
increased by $94.3 million, or 18.6%, to $601.6 million from $507.3 million
for fiscal 1995. The increase was primarily due to the 1996 acquisition of
Seaboard by Specialty Printing and Labeling; Johnson, Diversified, Viewsonics,
Vitelec, and Bond by Jordan Telecommunication Products; Colman Motors by
Motors and Gears; and Cape Craftsmen and Paw Print by Consumer and Industrial
Products. Sales also increased from the benefit of a full year of sales at
Merkle-Korff, increased sales of rebuilt converters and other hard parts at
DACCO, and increased sales of titanium parts to Boeing at Parsons. Partially
offsetting the sales increases were lower sales at Welcome Home, decreased
sales of shielding devices to Apple at Valmark, lower sales of Innerduct at
Dura-Line, and lower sales of connectors at AIM and Cambridge.
Operating income for fiscal 1996 decreased by $19.0 million, or 58.8%, to
$13.4 million from $32.4 million for fiscal 1995. The decrease was primarily
due to (i) increased corporate expenses, (ii) the $4.5 million loss on the
purchase of Cape Craftsmen, (iii) a $9.4 million increase in compensation
expense related to compensation agreements and stock appreciation rights plans
at Imperial, AIM and Cambridge, and Hudson, (iv) lower sales and increased
global expansion costs at Dura-Line, (v) lower sales at Valmark, (vi) lower
sales due to store closings and increased restructuring charges at Welcome
Home, (vii) lower sales and higher operating costs at Riverside, and (viii)
certain non-recurring charges at Beemak and Sate-Lite. Partially offsetting
these decreases were the 1996 acquisitions, a full year of operations at
Merkle-Korff, increased operating income at DACCO due to higher sales, and
higher operating income at Parsons due to higher sales to Boeing. Consolidated
operating margin for fiscal 1996 decreased to 2.2% from 6.4% the prior fiscal
year due to the previously discussed factors. However, operating income would
have increased by $4.9 million, or 15.1%, if the above analysis excluded (i)
the lower income at Welcome Home, which decreased by $5.9 million, (ii) the
$9.4 million increase in compensation expense related to compensation and
stock appreciation right ("SAR") agreements, (iii) the $4.5 million loss on
the purchase of Cape Craftsmen, and (iv) other non-recurring charges of $4.1
million.
Interest expense for fiscal 1996 increased by $16.4 million, or 34.8%, to
$63.3 million from $46.9 million for fiscal 1995, primarily due to increased
revolver borrowings at the corporate level and at Welcome Home, and the
inclusion of a full year of interest on Merkle-Korff debt and interest on the
M&G Senior Notes issued in 1996.
Interest income for fiscal 1996 decreased by $0.3 million, or 10.6%, to
$2.5 million from $2.8 million for fiscal 1995, due to lower average cash
balances that stemmed primarily from 1996 acquisition activity.
Specialty Printing and Labeling. As of December 31, 1996, Specialty
Printing and Labeling consisted of SPAI, Valmark, Pamco, and Seaboard.
Net sales for fiscal 1996 increased by $13.1 million, or 13.6%, to $109.6
million from $96.5 million for fiscal 1995. Sales increased due to the 1996
acquisition of Seaboard, which contributed $17.8 million in sales. The
Seaboard acquisition was offset by lower sales at Valmark and Pamco, which
decreased by $4.5 and $0.3 million, respectively. The sales decline at Valmark
was primarily due to lower sales of shielding devices to Apple.
Operating income for fiscal 1996 decreased by $1.0 million or 12.2%, to
$7.1 million from $8.1 million for fiscal 1995. The decrease in operating
income was due to decreases at SPAI, Valmark, and Pamco, of $0.6 million, $1.9
million and $0.8 million, respectively. These decreases were partially offset
by the
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<PAGE>
acquisition of Seaboard, which contributed $2.3 million in operating income
during fiscal 1996. The decrease in operating income at SPAI was due to higher
selling, general and administrative expenses, which should contribute to
future sales, and the decrease at Valmark was due to lower sales. The decrease
at Pamco resulted from lower sales and a lower gross margin due to price
pressures coupled with higher operating costs. Operating margin for fiscal
1996 decreased from 8.4% for the prior fiscal year to 6.5% due to the
previously discussed lower gross margins and increased selling, general and
administrative expense.
Consumer and Industrial Products. As of December 31, 1996, the Consumer and
Industrial Products group consisted of DACCO, Sate-Lite, Riverside, Parsons,
Hudson, Beemak, Cape Craftsmen, and Paw Print.
Net sales for fiscal 1996 decreased by $5.1 million or 3.1%, to $159.5
million from $164.6 million for fiscal 1995. Of the decrease in net sales,
$1.5 million was from lower sales at Sate-Lite of emergency warning triangles,
mag wheels to bicycle manufacturers and colorants to the thermoplastics
industry, $8.9 million was from decreased sales of Bibles and religious books
and contract distribution sales at Riverside, $0.7 million was from decreased
lock sales at Hudson, and $2.5 million was from lower POG sales at Beemak.
Partially offsetting the decrease in net sales were the acquisitions of Cape
Craftsmen and Paw Print, which contributed sales of $1.3 million and $1.6
million during 1996, respectively, higher sales of rebuilt converters and
other hard parts at DACCO, which increased by $4.8 million and $1.2 million,
respectively, and higher sales of titanium parts at Parsons, which increased
by $1.1 million.
Factors that contributed to the sales decreases were (i) industry buying
trends, uncertainty surrounding safety regulations, and price competition from
competitors at Sate-Lite, (ii) increased competition coupled with a downturn
in the religious market at Riverside, and (iii) a new IBM product line in
1995, coupled with lower 1996 sales to Kryptonite, at Hudson. Sales of POGs at
Beemak during 1995 were isolated to that year because Beemak took advantage of
the short-lived interest in POGs. Sales increases at DACCO were due primarily
to the company's strong market presence and generally good market conditions,
while sales increases at Parsons were due to strong activity at Boeing, a
major customer.
Operating income for fiscal 1996 decreased by $3.6 million, or 16.1%, to
$18.4 million from $22.0 million for fiscal 1995. The decrease in operating
income was due to lower operating income at Sate-Lite, Riverside, Hudson and
Beemak, which decreased by $0.8 million, $2.5 million, $1.3 million and $1.0
million, respectively. These decreases were partially offset by increased
operating income at DACCO, and Parsons, which increased by $2.0 million and
$0.8 million, respectively. Lower sales and certain non-recurring charges at
Sate-Lite and Beemak collectively contributed $1.0 million to the decrease in
operating income. Other components of the decrease included higher operating
costs at Riverside and an additional $0.5 million in compensation expense
related to a stock appreciation rights plan at Hudson. Increased operating
income at DACCO was due to higher sales and steady margins, while operating
income at Parsons increased as a result of higher sales and a higher gross
margin. Overall, the decrease in the operating margin for fiscal 1996 was
driven by lower sales and the charges discussed above.
Motors and Gears. As of December 31, 1996, Motors and Gears consisted of
Imperial, Scott, Gear, Merkle-Korff, and Colman Motors.
Net sales for fiscal 1996 increased by $63.4 million, or 116.8%, to $117.6
million from $54.2 million for fiscal 1995, and operating income for fiscal
1996 increased by $14.0 million, or 113.8%, to $26.2 million from $12.2
million for fiscal 1995. The increase in net sales was partially due to the
March 1996 acquisition of Colman Motors, which reported sales of $17.6 million
from its acquisition date through the end of the year. The group also
benefitted from a full year of the results of Merkle-Korff, which was
purchased in September 1995 (Merkle-Korff had sales of $59.6 million for the
full year of 1996, as compared to $14.1 million for the period from its
acquisition date to the end of 1995.) This accounted for $45.4 million of the
1996 increase. Scott's sales increased $0.4 million due to higher motor sales.
The increase in operating income for fiscal 1996 was partially attributable
to the acquisition of Colman Motors, which contributed $1.7 million of
operating income to the current year's results. Also, operating income for the
entire year at Merkle-Korff was $15.2 million, as compared to $2.6 million for
the period from its acquisition date to the end of 1995.
This accounted for $12.6 million of the 1996
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<PAGE>
increase. Partially offsetting these increases were declines in operating
income at Imperial and Gear which decreased by $0.2 million and $0.3 million,
respectively. Operating margin for fiscal 1996 decreased from 22.6% for the
prior fiscal year to 22.3% due to the addition of Colman Motors, which
inherently operates at a lower operating margin compared to other companies in
the group.
Jordan Telecommunication Products. As of December 31, 1996, the Jordan
Telecommunication Products group consisted of Dura-Line, AIM, Cambridge,
Johnson, Diversified, Viewsonics, Vitelec, Bond, and Northern.
Net sales for fiscal 1996 increased $34.2 million, or 34.6%, to $133.0
million from $98.8 million for fiscal 1995. The increase in sales primarily
resulted from the 1996 acquisitions of Johnson, Diversified, Viewsonics,
Vitelec, and Bond, whereby each respectively contributed $16.9 million, $13.9
million, $5.1 million, $2.4 million, and $3.6 million. Partially offsetting
the sales increase were lower sales of Innerduct at Dura-Line, which decreased
by $5.9 million, and lower sales of connectors at AIM and Cambridge, which
decreased by $0.2 million and $0.8 million, respectively. The decrease in
Innerduct sales at Dura-Line was due to a general market slowdown in the U.S.
and U.K. which was mainly caused by uncertainty surrounding the anticipated
effects of the Telecommunications Act of 1996 (the "Telecom Act"). However,
the decreased Innerduct sales in the U.S. and U.K. were partially offset by
increased sales of $10.7 million, which represented a 90% increase over the
prior fiscal year, in the Czech Republic, where the Czech subsidiary has
approximately an 80% share of the Czech market, and the opening of the Mexico
and China operations in 1996, which contributed $1.1 million and $0.3 million
to net sales, respectively.
Operating income for fiscal 1996 decreased by $4.8 million, or 27.0%, to
$13.0 million from $17.8 million for fiscal 1995. Of the overall decrease in
operating income, $5.0 million was from Dura-Line and $4.4 million was from
AIM. Partially offsetting the decrease in operating income were the 1996
acquisitions of Johnson, Diversified, Vitelec and Bond, whereby each
contributed $2.9 million, $0.7 million, $0.4 million and $0.2 million to
operating income, respectively. Cambridge also helped to partially offset the
decrease with a $0.3 million increase in operating income. The decrease at AIM
was due to increased compensation expense of $5.0 million related to a SAR
agreement. The decrease in operating income at Dura-Line was due to lower
sales coupled with increased operating costs related to Dura-Line's global
expansion. Excluding AIM's SAR expense, operating income for the group would
have increased $0.3 million, or 1.7%, to $18.1 million.
In addition to the effect of AIM's SAR expense, the decline in the group's
operating margin was partially attributable to (i) the acquisition of
Diversified, which inherently operates at a lower margin as compared to other
companies in the group, and (ii) a lower margin at Dura-Line due to higher
operating costs primarily associated with international expansion.
Welcome Home. Sales for fiscal 1996 decreased by $11.3 million, or 12.1%,
to $81.9 million from $93.2 million for fiscal 1995. The decrease in sales was
due to a downturn in outlet mall traffic and, related to the company's
reorganization efforts, the closing of twenty-six stores in 1996. Operating
loss for fiscal 1996 increased by $5.9 million, or 58.7%, to $(16.0) million
from $(10.1) million for fiscal 1995, due to lower sales, higher operating
costs, and non-recurring restructuring charges. The increase in the operating
loss caused by the above factors was partially offset by an improvement in the
gross margin to 40.5% from 38.3% for the prior fiscal year as a result of
fewer markdowns in 1996. The operating margin for fiscal 1996 decreased from
(10.8%) for the prior fiscal year to (19.5%).
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Consolidated Operating Results. Net sales for fiscal 1995 increased by
$82.9 million, or 19.5%, to $507.3 million from $424.4 for fiscal 1994, and
operating income for fiscal 1995 decreased by $10.6 million, or 24.6%, to
$32.4 million from $43.0 for fiscal 1994. The sales increase was primarily due
to the increased number of stores at Welcome Home, increased sales of
Innerduct at Dura-Line, increased sales of shielding devices, labels and
membrane switches at Valmark, and the acquisition of Merkle-Korff in
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<PAGE>
September 1995. The decrease in operating income was partially due to the
restructuring and other non-recurring charges at Welcome Home, while
management and other fees increased $2.1 million due to higher management fees
and the write-down of a note receivable.
Interest expense for fiscal 1995 increased by $6.1 million, or 14.9%, to
$47.0 million from $40.9 million for fiscal 1994, due to higher outstanding
debt balances from additional capital leases and new third-party debt held at
Welcome Home, Merkle-Korff and SPL Holdings, Inc.
Interest income for fiscal 1995 increased by $1.8 million to $2.8 million
from $1.0 million for fiscal 1994, due to higher average cash balances.
Specialty Printing and Labeling. Net sales for fiscal 1995 increased by
$13.7 million or 16.5% to $96.5 million from $82.8 million for fiscal 1994.
Operating income for fiscal 1995 increased by $2.5 million, or 46.1%, to $8.1
million from $5.5 million for fiscal 1994. The increase in sales was due to
higher sales of all product lines at Valmark, which increased by $8.0 million,
coupled with an increase of $6.7 million that resulted from twelve months of
sales at Pamco (Pamco was acquired in May of 1994). A $1.0 million decrease in
ad-specialty sales at SPAI partially offset the previously discussed sales
increases. The operating margin for fiscal 1995 increased to 8.4% from 6.7%
for the prior fiscal year, due primarily to increased sales.
Consumer and Industrial Products. Net sales for fiscal 1995 increased by
$7.7 million, or 4.9%, to $164.6 million from $156.9 million for fiscal 1994.
Operating income for fiscal 1995 decreased by $0.5 million, or 2.2%, to $22.0
million from $22.4 million for fiscal 1994. The sales increase was due to (i)
higher sales of rebuilt converters and other parts at DACCO which increased by
$1.0 million and $1.6 million, respectively, (ii) a $0.2 million increase in
foreign bicycle sales at Sate-Lite, (iii) higher sales of books, audio tapes
and music, and contract distribution at Riverside, which increased by $0.l
million, $0.4 million and $2.4 million, respectively; and (iv) higher sales of
POGs and fabricated products at Beemak, which increased by $2.0 million and
$0.5 million, respectively. These increases were partially offset by a $3.1
million decrease in domestic bicycle sales at Sate-Lite. Operating margin for
fiscal 1995 decreased to 13.4% from 14.3% for the prior fiscal year, primarily
due to higher operating costs at Riverside and lower margins on POG sales at
Beemak.
Motors and Gears. Net sales for fiscal 1995 increased by $17.4 million or
47.1%, to $54.2 million from $36.9 million for fiscal 1994. Operating income
for fiscal 1995 increased by $2.8 million, or 29.0%, to $12.2 million from
$9.5 million for fiscal 1994. The increase in sales was partially due to the
acquisition of Merkle-Korff in September 1995, which added $14.1 million to
the segment's net sales. In addition, sales of permanent magnet motors at
Imperial increased by $3.2 million. Operating margin for fiscal 1995 decreased
to 22.6% from 25.7% for the prior fiscal year due to increased material costs
at Imperial and the amortization of goodwill at Merkle-Korff.
Jordan Telecommunication Products. Net sales for fiscal 1995 increased by
$32.7 million, or 49.4%, to $98.8 million from $66.1 million for fiscal 1994.
Operating income for fiscal 1995 increased by $5.8 million, or 48.2%, to $17.8
million from $12.0 million for fiscal 1994. The sales increase was due to
higher sales of Innerduct at Dura-Line, which increased by $31.2 million,
primarily due to a full year of operations at the Company's facility in the
Czech Republic, and higher connector sales at AIM, which increased by $1.5
million. Increased sales at Dura-Line were the primary component of the
increase in operating income. The operating margin for fiscal 1995 remained
consistent at 18.0%.
Welcome Home. Net sales for fiscal 1995 increased by $11.5 million, or
14.1%, to $93.2 million from $81.7 million for fiscal 1994. Operating income
for fiscal 1995 decreased by $17.1 million to $(10.1) million from $7.1
million for fiscal 1994. The increase in net sales was due to twenty-six net
additional stores in 1995. The decrease in operating income was due to
restructuring and other non-recurring charges of $6.9 million, an 8.1%
decrease in same store sales, increased markdowns that led to lower gross
profits and higher corporate expenses. The above items also negatively
impacted operating margin, which declined to (10.8%) in fiscal 1995 from 8.7%
for the prior fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
The Company had $145.5 million in working capital at June 30, 1997,
compared to $123.5 million at the end of 1996. This represents an increase of
$22.0 million or 17.8%. The increase is due to higher net
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<PAGE>
trade receivables, increased inventory, increased prepaids/other, lower
short-term debt and current portion of long-term debt, and lower accrued
liabilities. These increases were partially offset by higher accounts payable,
higher advance deposits, and a lower cash balance.
The Company's net cash provided by operating activities decreased $13.1
million for the six months ended June 30, 1997, versus the same period in
1996. The decrease is due to a higher net loss, $6.9 million, a higher
increase in current assets, $9.6 million, a higher decrease in current
liabilities, $.4 million, a higher increase in non-current assets, $.9
million, and a gain on the sale of a subsidiary exclusive to 1997, $18.5
million. Partially offsetting the above decreases are increased depreciation
and amortization, $2.0 million, increased provision for deferred income taxes,
$1.3 million, higher amortization of deferred financing fees, $.3 million,
increased minority interest, $1.9 million, increased non-cash interest, $.9
million, equity in investee and extraordinary items exclusive to 1997, $4.2
million and $9.2 million, respectively, and a higher increase in non-current
liabilities, $3.2 million.
The Company's net cash used in investing activities decreased $53.3 million
for the six months ended June 30, 1997, versus the same period in 1996. The
decrease is due to net proceeds received from the sale of a subsidiary in
1997, $35.2 million, lower capital expenditures, $3.8 million, lower advances
to affiliates, $3.9 million, lower acquisition of subsidiaries, $11.5 million,
and lower acquisitions of minority interests, $.1 million. These decreases are
partially offset by lower cash acquired in the purchase of subsidiaries, $.9
million, and lower other, $.5 million.
The Company's net cash provided by financing activities decreased $13.3
million for the six months ended June 30, 1997, versus the same period in
1996. The decrease is due to lower proceeds from debt issuance, $33.0 million,
which is partially offset by proceeds received from the issuance of common
stock in 1997, $1.1 million, lower repayment of long-term debt, $.7 million,
and higher revolver borrowings, $17.9 million.
On July 25, 1997, JII, a subsidiary of the Company, entered into the New
Credit Agreement under which JII is able to borrow, on behalf of the Company,
to fund acquisitions, provide working capital and for other general corporate
purposes. The New Credit Agreement provides a revolving line of credit of
$75.0 million over a term of five years.
Management believes that the Company's cash on hand and anticipated funds
from operations will be sufficient to cover its working capital, capital
expenditures, debt service requirements and other fixed charge obligations for
at least the next 12 months. At July 25, 1997, the Company has available under
revolving credit agreements $75 million at JII, Inc., $110 million at JTP
Industries, Inc., and $25 million at Motors and Gears Industries, Inc.
None of the Company's subsidiaries require significant amounts of capital
spending to sustain current operations or to achieve projected growth.
In connection with its acquisitions, the Company causes its acquired
subsidiaries to enter into intercompany notes, and intercompany management
and tax sharing agreements, which permit the subsidiaries, including
majority-owned subsidiaries, substantial flexibility in moving funds to the
Company. See "Certain Transactions."
Management expects continued growth in net sales and increased operating
income in 1997. Capital spending levels in 1997 are anticipated to be
consistent with 1996 levels and, along with working capital requirements, will
be financed internally out of operating cash flow. Operating margins and
operating cash flow are expected to be favorably impacted by ongoing cost
reduction programs, improved efficiencies and sales growth. Management
believes that the Company's cash on hand and anticipated funds from operations
will be sufficient to cover its working capital, capital expenditures, debt
service requirements and other fixed charges obligations for the next twelve
months.
IMPACT OF INFLATION
During the last three fiscal years, general inflation has had only a minor
effect on the operations of the Company and its internal and external sources
for liquidity and working capital, as the Company has been able to increase
prices to reflect cost increases, and expects to be able to do so in the
future.
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<PAGE>
BUSINESS
The Company was organized to acquire and operate a diverse group of
businesses on a decentralized basis, with a corporate staff providing
strategic direction and support. The Company is currently comprised of 25
businesses which are divided into four strategic business units: (i) Specialty
Printing and Labeling, (ii) Consumer and Industrial Products, (iii) Motors and
Gears and (iv) Jordan Telecommunication Products. The Company believes that
its businesses are characterized by leading positions in niche industries,
high operating margins, strong management, minimal working capital and capital
expenditure requirements and low sensitivity to technological change and
economic cycles.
The Company's business strategy is to enhance the growth and profitability
of each business unit, and to build upon the strengths of those units through
product line and other strategic acquisitions. Key elements of this strategy
have been the consolidation and reorganization of acquired businesses,
increased focus on international markets, facilities expansion and the
acquisition of complementary product lines. When, through such activities, the
Company believes that critical mass is attained in a particular industry
segment, the related companies are organized as a discreet business unit. For
example, the Company acquired Imperial in 1983 and made a series of
complementary acquisitions, which resulted in the formation of Motors and
Gears, Inc., a leading domestic manufacturer of electric motors and gears.
Similarly, the Company acquired Dura-Line in 1985, and expanded its presence
in the telecommunications industry through nine complementary acquisitions.
The organization of these companies as Jordan Telecommunication Products
created a leading global supplier of products and equipment serving the
telecommunications industry. The Company is currently evaluating various
alternatives to expand its automotive aftermarket products business and its
specialty plastics business, and is utilizing its subsidiaries, DACCO and
Beemak, respectively, as the foundation for these efforts.
Through the implementation of this strategy, the Company has demonstrated
significant and consistent growth in net sales and EBITDA. The Company
generated combined pro forma net sales and EBITDA of $649.8 million and $114.1
million, respectively, for the year ended December 31, 1996 as compared to
historical net sales and EBITDA of $327.3 million and $45.8 million,
respectively, for the year ended December 31, 1992, representing a pro forma
CAGR of 18.7% and 25.6%, respectively.
The following chart depicts the operating subsidiaries which comprise the
Company's four strategic business units, together with the pro forma net sales
for each of the four groups for the year ended December 31, 1996. Pro forma
net sales and EBITDA, as set forth below, give effect to each of the elements
of the Plan and certain other transactions as described in the Unaudited Pro
Forma Financial Information and the notes thereto.
33
<PAGE>
JORDAN INDUSTRIES, INC.
$649.8 Million of Net Sales
$114.1 Million of EBITDA
<TABLE>
<CAPTION>
<S> <C> <C> <C>
JORDAN
SPECIALTY PRINTING CONSUMER AND TELECOMMUNICATION MOTORS AND
AND LABELING INDUSTRIAL PRODUCTS PRODUCTS (1) GEARS(1)
$118.1 MILLION $157.6 MILLION $213.2 MILLION $160.9 MILLION
OF NET SALES OF NET SALES OF NET SALES OF NET SALES
o SALES o DACCO o BEEMAK o DURA-LINE o VIEWSONICS o IMPERIAL
PROMOTION o SATE-LITE o RIVERSIDE o AIM o VITELEC o SCOTT
ASSOCIATES o CAPE o PARSONS o CAMBRIDGE o BOND o GEAR
o PAMCO CRAFTSMEN o JOHNSON o NORTHERN o MERKLE-KORFF
o VALMARK o DIVERSIFIED o LODAN o FIR
o SEABOARD
<FN>
- -----------
(1) The subsidiaries comprising Jordan Telecommunication Products and |B5 NORTHERN
Motors and Gears are Non-Restricted Subsidiaries (as defined in the |B5 LODAN
Exchange Indentures), the common stock of which is owned by
stockholders and affiliates of the Company and management of the
respective companies. The Company's ownership in these subsidiaries is
solely in the form of JTP Junior Preferred Stock and M&G Junior
Preferred Stock. See "Management's Discussion and Analysis of Results
of Operations and Financial Condition--General."
</TABLE>
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<PAGE>
The Company's operations were conducted through the following business
units as of June 30, 1997:
SPECIALTY PRINTING AND LABELING
The Specialty Printing and Labeling group manufactures and markets (i)
promotional and specialty advertising products for corporate buyers, (ii)
labels, tapes and printed graphic panel overlays for electronics and other
manufacturing companies and (iii) printed folding cartons and boxes and other
shipping materials. The companies that are part of Specialty Printing and
Labeling have provided its customers with products and services for an average
of over 40 years. For the fiscal year ended December 31, 1996, the Specialty
Printing and Labeling group generated pro forma net sales and EBITDA of $118.1
million and $13.7 million, respectively. Each of the Specialty Printing and
Labeling subsidiaries is discussed below:
SPAI. The Company's former subsidiaries, The Thos. D. Murphy Co.
("Murphy"), which was founded in 1889, and Shaw-Barton, Inc. ("Shaw-Barton"),
which was founded in 1940, merged to form JII/SPAI in March 1989. One hundred
percent of JII/SPAI's assets were sold on terms equivalent to those that
would have been obtained in an arm's length transaction to Specialty Printing
and Labeling in August 1995 and the company was renamed Sales Promotion
Associates, Inc. ("SPAI"). SPAI is a producer and distributor of calendars
for corporate buyers and is a distributor of corporate recognition, promotion
and specialty advertising products.
SPAI's net sales for fiscal 1996 were $58.8 million. Approximately 56.7% of
SPAI's 1996 net sales were derived from distributing a broad variety of
corporate recognition products, promotion and specialty advertising products.
These products include apparel, watches, crystal, luggage, writing
instruments, glassware, caps, cases, labels and other items that are printed
and identified with a particular corporate logo and/or corporate advertising
campaign. Approximately 31.4% of SPAI's 1996 net sales were derived from the
sale of a broad variety of calendars, including hanging, desktop and pocket
calendars that are used internally by corporate customers and distributed by
them to their clients and customers. High-quality artistic calendars are also
distributed. SPAI also manufactures and distributes softcover school yearbooks
for kindergarten through eighth grade.
SPAI assembles and finishes calendars that are printed both in-house as
well as by a number of outside printers. Facilities for in-house manufacturing
include a composing room, a camera room, a calendar finishing department and a
full press room. Print stock, binding material, packaging and other materials
are supplied by a number of independent companies. Specialty advertising
products are purchased from more than 900 suppliers. Calendars and specialty
advertising products are sold through a 1,350-person sales force, most of whom
are independent contractors.
Management believes that SPAI has one of the largest domestic sales forces
in the industry. With this large sales force and a broad range of calendars
and corporate recognition products available, management believes that SPAI is
a strong competitor in its market. This market is very fragmented and most of
the competition comes from smaller-scale producers and distributors.
Valmark. Valmark, which was founded in 1976 and purchased by the Company in
1994, is a specialty printer and manufacturer of pressure sensitive label
products for the electronics Original Equipment Manufacturer ("OEM") market.
Valmark's products include adhesive-backed labels, graphic panel overlays,
multi-color membrane switches and radio frequency interference ("RFI")
shielding devices. Approximately 60% of Valmark's 1996 net sales of $17.3
million were derived from the sale of graphic panel overlays and membrane
switches, 23% from labels and 17% from shielding devices.
The specialty screen products sold in the electronics industry continue to
operate relatively free of foreign competition due to the high level of
communication and short time frame usually required to produce orders.
Currently, the majority of Valmark's customer base of approximately 850 is
located in the Northern California area.
Valmark sells to four primary markets: personal computers; general
electronics; turn-key services; and medical instrumentation. Sales to the
personal computer industry have experienced the most growth over recent years
due to Valmark's RFI shield protection capabilities. Sales to Apple of RFI
devices represented approximately 18% of net sales in 1996.
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<PAGE>
Valmark is able to provide OEMs with a broader range of products than many
of its competitors. Valmark's markets are very competitive in terms of price
and accordingly Valmark's advantage over its competitors is derived from its
diverse product line and excellent quality ratings.
Pamco. Pamco, which was founded in 1953 and purchased by the Company in
1994, is a manufacturer and distributor of a wide variety of printed tapes and
labels. Pamco offers a range of products from simple one and two-color labels,
such as basic bar codes and address labels, to seven-color, varnish-finished
labels for products such as video games and food packaging. One hundred
percent of Pamco's products are made to customers' specifications and 92% of
all sales are manufactured in-house. The remaining 8% of net sales are
purchased printed products and include business cards and stationery.
Pamco's products are marketed by a team of eighteen sales representatives
who focus on procuring new accounts. Existing accounts are serviced by nine
customer service representatives and five internal salespeople. Pamco's
customers represent several different industries with the five largest
accounting for approximately 21% of 1996 net sales of $15.7 million.
Pamco competes in a highly fragmented industry. Pamco emphasizes its
impressive 24-hour turnaround and its ability to accommodate rush orders that
other printers cannot handle. As a result of these competitive advantages,
Pamco has posted significant growth over recent years.
Seaboard. Seaboard, which was founded in 1954 and purchased by the Company
in 1996, is a manufacturer of printed folding cartons and boxes, insert
packaging and blister pack cards.
Seaboard sells directly to a broad customer base, located primarily east of
the Mississippi River, operating in a variety of industries including
hardware, personal hygiene, toys, automotive supplies, food and drugs.
Seaboard's top 10 customers accounted for approximately 36.1% of Seaboard's
1996 pro forma net sales of $26.2 million.
Seaboard has exhibited consistent sales growth and high profit margins and
has gained a reputation for exceeding industry standards, and excellent
operating capabilities. Seaboard has historically been highly successful in
buying and profitably integrating smaller acquisitions.
Seaboard's markets are very competitive in terms of price and accordingly
Seaboard's advantage over its competitors is derived from its high quality
product and excellent service.
CONSUMER AND INDUSTRIAL PRODUCTS
Consumer and Industrial Products serves many product segments. It is the
leading supplier of remanufactured torque converters to the aftermarket parts
industry and is the leading integrated manufacturer of specialty "take-one"
point of purchase displays. In addition, Consumer and Industrial Products
manufactures and markets reflectors for bicycles; publishes and markets
Bibles, religious books and audio materials; manufactures hot-formed titanium
materials for the aerospace and other industries; and manufactures and imports
gift items. The Company is currently evaluating various alternatives to expand
its automotive aftermarket products business and its specialty plastics
business, utilizing DACCO and Beemak, respectively, as the foundation for such
efforts. The companies which are part of Consumer and Industrial Products have
provided their customers with products and services for an average of over 34
years. For the year ended December 31, 1996, the Consumer and Industrial
Products subsidiaries generated combined pro forma net sales and EBITDA of
$157.6 million and $21.0 million, respectively. Each of the Consumer and
Industrial Products subsidiaries is discussed below:
DACCO. DACCO is a producer of remanufactured torque converters, as well as
transmission sub-systems and other related products used by transmission
repair shops. DACCO was founded in 1965 and acquired by the Company in 1988.
Approximately 78% of DACCO's products are classified as "hard" products,
which primarily consist of torque converters and hydraulic pumps that have
been rebuilt or remanufactured by DACCO. The torque converter, which replaces
a clutch in an automatic transmission, transfers power from the engine to the
drive shaft. The hydraulic pump supplies oil to all the systems in the
transmission.
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DACCO's primary supply of used torque converters is its customers. As a
part of each sale, DACCO recovers the used torque converter which is being
replaced with its remanufactured converter. DACCO also purchases used torque
converters from automobile salvage companies. Other hard parts, such as clutch
plates and fly wheels, are purchased from outside suppliers.
Approximately 22% of DACCO's products are classified as "soft" products,
such as sealing rings, bushings, washers, filter kits and rubber components.
Approximately 11,000 soft products are purchased from a number of vendors and
are re-sold in a broad variety of packages, configurations and kits.
DACCO's customers are automotive transmission parts distributors and
transmission repair shops and mechanics. DACCO has fifty-one independent sales
representatives who accounted for approximately 70% of DACCO's net sales of
$62.1 million in 1996. These sales representatives sell nationwide to
independent warehouse distributors and to transmission repair shops. DACCO
also owns and operates thirty-one distribution centers which sell directly to
transmission shops. DACCO distribution centers average 4,000 square feet,
cover a 50 to 100-mile selling radius and sell approximately 42% hard products
and 58% soft products. In 1996 no single customer accounted for more than 2%
of DACCO's net sales.
The domestic market for DACCO's hard products is fragmented and DACCO's
competitors primarily consist of a number of small regional and local
rebuilders. DACCO believes that it competes strongly against these rebuilders
by offering a broader product line, quality products, and lower prices, all of
which are made possible by DACCO's size and economies of operation. However,
the market for soft products is highly competitive and several of the
competitors such as TranStar Industries and Aftermarket Technology Corporation
are larger than DACCO. DACCO competes in the soft products market on the basis
of its low prices due to volume buying, its growing distribution network and
its ability to offer one-step procurement of a broad variety of both hard and
soft products.
Sate-Lite. Sate-Lite manufactures safety reflectors for bicycle and
commercial truck manufacturers, as well as plastic parts for bicycle
manufacturers and colorants for the thermoplastics industry. Sate-Lite was
founded in 1968 and acquired by the Company in 1988. Bicycle reflectors and
plastic bicycle parts accounted for approximately 38% of Sate-Lite's net sales
of $13.2 million in 1996. Sales of triangular flares and specialty reflectors
and lenses to commercial truck customers accounted for approximately 38% of
1996 net sales. The remainder of Sate-Lite's net sales was derived primarily
from the sale of colorants to the thermoplastics industry.
Sate-Lite's bicycle products are sold directly to a number of OEMs. The two
largest OEM customers for bicycle products are the Huffy Corporation and
Murray/Ohio Manufacturing Company, which accounted for approximately 21% of
Sate-Lite's fiscal 1996 net sales. The triangular flares and other truck
reflector products are also sold to a broad range of OEM customers. Colorants
are sold primarily to mid-western custom molded plastic parts manufacturers.
In 1996, Sate-Lite's ten largest customers accounted for approximately 56% of
net sales.
Sate-Lite's products are marketed on a nationwide basis by its management.
Sales to foreign customers are handled directly by management and by
independent trading companies on a commission basis. In 1996, Sate-Lite's
export net sales accounted for approximately 10% of its total net sales.
Export sales were principally to China and Canada. The principal raw materials
used in manufacturing Sate-Lite's products are plastic resins, adhesives,
metal fasteners and color pigments. Sate-Lite obtains these materials from
several independent suppliers.
The markets for bicycle parts and thermoplastic colorants are highly
competitive. Sate-Lite competes in these markets by offering innovative
products and by relying on its established reputation for producing
high-quality plastic components and colorants. Sate-Lite's principal
competitors in the reflector market consist of foreign manufacturers.
Sate-Lite competes with regional companies in the colorants market.
Riverside. Riverside is a publisher of Bibles and a distributor of Bibles,
religious books and music recordings. Riverside was founded in 1943 and
acquired by the Company in 1988. Approximately 69% of Riverside's business
consists of products published by other companies. Riverside sells world-wide
to more than 12,000 wholesale, religious and trade book store customers,
utilizing an in-house telemarketing
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system, four independent sales representative groups and printed sales media.
In addition, Riverside sells a small percentage of its products through direct
mail and to retail customers. No single customer accounted for more than 5% of
Riverside's 1996 net sales of $51.5 million.
Riverside also provides Bible indexing, warehousing, inventory and shipping
services for domestic book publishers and music producers. Riverside competes
with larger firms, including the Zondervan Corporation, The Thomas Nelson
Company, Spring Arbor Distributors and Ingram Book Company, on the basis of
price, product line and customer service.
Parsons. Parsons is a diversified supplier of hot formed titanium parts,
precision machined parts and fabricated components for the U.S. aerospace
industry. Parsons was founded in 1959 and acquired by the Company in 1988.
Approximately 55% of Parsons' 1996 net sales of $7.4 million came from sales
to The Boeing Company. Parsons employs precision machining, welding/
fabrication and sheet metal forming processes to manufacture its products at
its facilities in Parsons, Kansas. Parsons continues to invest in its titanium
hot forming operation, which permits Parsons to participate in the aerospace
market for precision titanium components.
Parsons uses metals, including stainless steel, aluminum and titanium, to
fabricate its products. These materials are either supplied by Parsons'
customers or obtained from a number of outside sources.
Parsons sells its products directly to a broad base of aerospace and
military customers, relying on longstanding associations and Parsons'
reputation for high quality and service. The titanium hot forming market is
not very competitive at this time, however Parsons is striving to bring its
costs down to keep competition out.
Beemak. Beemak, which was founded in 1951 and acquired by the Company in
July 1989, is an integrated manufacturer of specialty "take-one"
point-of-purchase brochure, folder and application display holders. Beemak
sells these proprietary products to approximately 20,000 customers around the
world. In addition, Beemak produces a small amount of custom injection-molded
plastic parts for outside customers on a contract manufacturing basis.
Beemak's pro forma net sales for 1996 were $10.7 million.
Beemak's products are both injection molded and custom fabricated. Beemak
has molds made by outside suppliers. The manufacturing process consists
primarily of the injection molding of polystyrene plastic and the fabrication
of plastic sheets. Beemak also provides silk screening of decals and logos
onto the final product.
Beemak has no sales force. All sales originate from Beemak's extensive
on-going advertising campaign and reputation. Beemak sells to distributors,
major companies and competitors which resell the product under a different
name. Beemak has been very successful in providing excellent service on orders
of all sizes, especially small orders. Beemak's average order size was
approximately $400 in 1996.
The display holder industry is very fragmented, consisting of a few other
known holder and display firms and regionally based sheet fabrication shops.
Beemak has benefitted from the growth in "direct" advertising budgets at major
companies. Significant advertising dollars are spent each year on direct-mail
campaigns, point-of-purchase displays and other forms of non-media
advertising.
In January 1997, Beemak purchased the net assets of Arnon-Caine, Inc.
("Arnon-Caine"), a designer and distributor of modular storage systems
primarily for sale to wholesale home centers and hardware stores. Arnon-Caine
currently subcontracts its production to third-party injection molders located
primarily in southern California, which use materials and equipment similar to
that used by Beemak. By early 1998, Beemak will serve as Arnon-Caine's primary
supplier. The integration of Arnon-Caine into Beemak's operations should
provide for future manufacturing cost savings as well as coordinated marketing
efforts.
Cape Craftsmen. Founded in 1991 and purchased by the Company in 1996, Cape
Craftsmen is a manufacturer and importer of gifts, wooden furniture, framed
art and other accessories. Cape Craftsmen manufactures in North Carolina and
imports from Mexico and the Far East. Cape Craftsmen sells its products
through one in-house salesperson and forty independent sales representatives.
Approximately
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77% of Cape Craftsmen's pro forma net sales of $12.6 million in 1996 were to
Welcome Home, an affiliated entity. Cape Craftsmen competes in a highly
fragmented industry and has therefore found it most effective to compete on
the basis of price with most wood manufacturers and importers. Cape Craftsmen
also strives to deliver better quality and service than most of its
competitors.
MOTORS AND GEARS
Motors and Gears is a leading domestic manufacturer of specialty purpose
electric motors and gears, serving a diverse customer base. Its products are
used in a broad range of applications, including vending machines,
refrigerator ice dispensers, commercial floor care equipment, elevators and
photocopy machines. The Motors and Gears subsidiaries have sold their brand
name products to their customers for over 70 years. For the year ended
December 31, 1996, Motors and Gears' subsidiaries generated combined pro forma
net sales and EBITDA of $160.9 million and $37.8 million, respectively. Each
of Motors and Gears' subsidiaries is discussed below.
Merkle-Korff. Merkle-Korff was founded in 1911 and was purchased, along
with its wholly owned subsidiaries, Elmco Industries, Inc. and Mercury
Industries, Inc., by the Company in September 1995. Merkle-Korff is a custom
manufacturer of Alternating Current ("AC") and Direct Current ("DC") motors
and gear motors. Merkle-Korff's products are used in a wide range of products
including refrigerators, freezers, dishwashers, vending machines, business
machines, pumps and compressors. Approximately 60% of Merkle-Korff's 1996 net
sales of $81.9 million, which include Colman Motors' 1996 pro forma net sales
of $22.4 million, were derived from the home appliance and vending machine
market. Merkle-Korff's prominent customers include General Electric Company,
Whirlpool Corporation and Dixie-Narco, Inc. In fiscal 1996, the Company's top
10 customers represented approximately 61% of total sales.
Barber-Colman, founded in 1894, was purchased by Merkle-Korff in 1996 and
renamed Colman Motor Products ("Colman Motors") in January 1997. Colman Motors
is a vertically integrated manufacturer of both AC and DC subfractional
horsepower motors and gear motors. Colman Motors' products serve a wide
variety of applications, and they are used as components in such products as
vending machines, copiers, printers, ATM machines, currency changers, X-ray
machines, peristaltic pumps, HVAC activators, medical equipment and others.
The majority of Colman Motors' products are sold directly to OEMs; however,
management has initiated an effort to direct small orders to three
distributors. Each of these distributors is fully stocked with Colman Motors'
standardized parts and equipment using a computerized catalog system which
facilitates the efficient selection of products and components at the
distributor level.
Merkle-Korff experiences limited competition across its product lines
including Colman Motor Products. Competitors are generally much smaller in
terms of revenues but also produce a much more limited product line. Examples
would include Molon Motors and ECM.
Imperial. Imperial manufactures elevator motors, floor care equipment
motors and automatic hose reel motors. Imperial was founded in 1889 and
acquired by the Company in 1988. All of Imperial's assets were sold on arm's
length terms to Motors and Gears Industries, Inc. in November 1996.
Imperial designs, manufactures and distributes specialty electric motors
for industrial and commercial use. Its products, AC and DC motors, generators
and permanent magnet motors are sold principally in the U.S. and Canada and to
a limited extent in Europe and Australia. Approximately 29% of Imperial's 1996
net sales of $29.5 million were derived from elevator motors, ranging from 5
to 100 horsepower, sold to major domestic elevator manufacturers.
Approximately 69% of Imperial's 1996 net sales were derived from permanent
magnet motors sold primarily to domestic manufacturers of floor care
equipment. The remaining 2% of Imperial's 1996 net sales came from sales of
miscellaneous parts.
Otis Elevator Company, Westinghouse Corporation and other leading elevator
manufacturers have in recent years discontinued internal manufacturing of
motors and have turned to Imperial and other
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independent manufacturers. In 1996, Clark Industries, Inc. accounted for
approximately 11% of Imperial's net sales, and Imperial's top ten customers
accounted for 55% of total net sales. Imperial's products are marketed
domestically by its management and three independent sales representatives
and internationally by management.
Imperial manufactures specialty motors with steel, magnets, copper wire,
castings and other components supplied by a variety of firms. In the elevator
motor market, Imperial competes with several firms of varying size. The other
markets in which Imperial competes are also highly competitive. However, the
Company's management believes that Imperial is able to effectively compete
with these firms on the basis of product reliability, price and customer
service.
Scott. Scott was founded in 1982 and acquired by Imperial in August 1988.
Scott's net sales in 1996 were $ 4.7 million. All of Scott's assets were sold
on arm's-length terms to Motors and Gears Industries, Inc. in November 1996.
Scott manufactures and sells floor care machine motors; silicone controlled
rectifier motors, which are variable speed motors used in conveyers, machine
tools, treadmills, mixers and metering pumps; and low voltage DC motors.
Scott offers a number of standard motors designed for a variety of
applications. Scott also custom designs motors for special applications. Scott
manufactures many of the sub-assemblies, components and molds for its products
from raw materials, which gives it the ability to manufacture these special
application motors. Scott obtains these raw materials from a number of
independent sources.
Scott markets its products through an internal sales force. Scott serves
OEM's requiring custom designed products. Numerous competitors exist and tend
to be of similar size and scope.
Gear. Gear manufactures precision gears and gear boxes for OEMs requiring
high-precision commercial gears. Gear was founded in 1952 and acquired by
Imperial in November 1988. All of Gear's assets were sold on arm's-length
terms to Motors and Gears Industries, Inc. in November 1996. Gear manufactures
precision gears for both AC and DC electric motors in a variety of sizes. The
gears are sold primarily to the food, floor care machine and aerospace
industries and to other manufacturers of machines and hydraulic pumps. Gear's
products are nationally advertised in trade journals and are sold by one
internal salesman and one independent sales representative. Gear precision
machines its products from steel forgings and castings. Net sales for Gear in
1996 were $9.5 million.
The gear industry is very fragmented and competitive. Gear competes
primarily on the basis of quality. In addition, the ability of Imperial, Scott
and Gear to offer both electric motors and gear boxes as a package, and to
custom design these items for customers, may allow all three subsidiaries to
gain greater market penetration.
FIR. Founded in 1925 and acquired by the Company in June 1997, FIR is a
leading European manufacturer of AC and DC motors and pumps for special-end
applications such as pumps for commercial dishwashers, motors for industrial
sewing machines, motors for industrial fans and ventilators, explosion-proof
motors for gasoline pumps and the oil industry, and asynchronous and brushless
motors for lift doors. With the exception of motors for industrial sewing
machines, FIR produces custom products only after receiving specific customer
orders. Motors for industrial sewing machines, which comprised approximately
17.5% of FIR's pro forma 1996 net sales of $37.0 million, are fairly
standardized and are manufactured and stocked based on internal forecasts.
FIR sells both directly to customers and through two non-exclusive
independent sales representatives located in France and Germany. The Company
enjoys long-term relationships with its customers, some of which have been
customers for over 20 years. The successful development of long-term customer
relationships is a direct result of FIR's reputation for high-quality products
and on-time delivery. Within FIR's 450-plus customer base, no single customer
accounts for more than 6% of sales. FIR's top 10 customers in 1996 accounted
for approximately 28% of total sales.
FIR has many competitors across a very fragmented European motor market.
However, FIR has distinguished itself by providing highly engineered custom
products for small markets.
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FIR provides Motors and Gears with a strong foundation upon which to expand
its overseas market. Through FIR, Motors and Gears will have access to
established European markets, including Italy, Germany, France, Spain and
Great Britain, as well as emerging Eastern European markets such as Poland the
Czech Republic, and Russia. Through its European market presence and
established brand name, the Company believes FIR will enable Motors and Gears
to further develop leadership positions within market niches and expand
globally.
JORDAN TELECOMMUNICATION PRODUCTS
Jordan Telecommunication Products is a leading supplier of infrastructure
products and equipment, electronic connectors and custom cable assemblies to
the telecommunications industry. It has provided its customers with products
and services for an average of over 20 years. For the fiscal year ended
December 31, 1996, Jordan Telecommunication Products generated combined pro
forma net sales and EBITDA of $213.2 million and $40.4 million, respectively.
JTP, a Non-Restricted Subsidiary of the Company, acquired all of the Jordan
Telecommunication Products subsidiaries from the Company concurrent with the
consummation of the Old Senior Notes Offering for aggregate consideration of
$294.0 million, consisting of $284.0 million of cash proceeds and $10.0
million of assumed obligations. As part of the JTP Recapitalization, the
Company purchased $20.0 million aggregate initial liquidation preference of
JTP Junior Preferred Stock, resulting in net cash proceeds to the Company of
$264.0 million. See "Certain Transactions." Each of the Jordan
Telecommunication Products subsidiaries is discussed below.
Dura-Line. Dura-Line is a manufacturer and supplier of "Innerduct" pipe
through which fiber optic cable is installed and housed. Dura-Line sells this
product to major telecommunications companies throughout the world. Dura-Line
also manufactures flexible polyethylene water and natural gas pipe. Dura-Line
was founded in 1971, and acquired by the Company in 1988.
In 1996, approximately 98% of Dura-Line's pro forma net sales (pro forma
for Dura-Line's divested Retube product line) of $68.7 million came from sales
of its Innerduct product. Dura-Line sells to major telecommunications
companies, such as SPT Telecom, GTE, Bell South and Pacific Telesis, each of
which accounted for less than 10% of Dura-Line's Innerduct net sales.
Innerduct is marketed worldwide by Dura-Line's management, ten manufacturing
representatives and forty in-house sales representatives. Dura-Line negotiates
long-term contracts with major telecommunications companies for its Innerduct
product line. The cable conduit market is highly competitive. In the United
States, Dura-Line faces competition from a wide range of companies including
national, international and regional suppliers of cable conduit. In addition
to other independent manufacturers of cable conduit outside of the United
States, Dura-Line's competitors include manufacturers that produce pipe and
tubing for other uses, such as gas and water transportation. Competition
within the industry is based primarily on quality, price, production capacity,
field support, technical capabilities, service and reputation.
In addition, approximately 2% of Dura-Line's 1996 net sales came from the
sale of polyethylene water and natural gas pipe to a variety of hardware
stores, contractors, plumbing supply firms and distributors. Dura-Line markets
its water and natural gas pipe products through sixty manufacturing
representatives in the Southern and Eastern U.S. The water and natural gas
pipe market is very competitive. Dura-Line competes on the basis of quality
and price with a number of regional and local firms.
Dura-Line's products are manufactured through the plastic extrusion
process. Dura-Line procures raw plastic for extrusion from a number of
independent suppliers. In March 1989, Dura-Line opened a new manufacturing
facility in the United Kingdom to manufacture products for sale to British
Telecom and other foreign customers. Approximately 47% of Dura-Line's net
sales are foreign sales. In late 1990, Dura-Line purchased a facility in Reno,
Nevada. This facility opened in early 1991 and has increased Dura-Line's
annual capacity by approximately 50%. In 1993, Dura-Line entered into joint
venture agreements in the Czech Republic and Israel to service Eastern Europe
and the Middle East more effectively. In early and late 1995, Dura-Line opened
subsidiaries in Mexico and China to manufacture and supply HDPE plastic
conduit systems to Central and South American markets as well as China and
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other Asian markets. Dura-Line owns 100% of the equity in both subsidiaries.
In August 1996, Dura-Line incorporated a subsidiary in India under a joint
venture agreement in which Dura-Line has the controlling interest. The
subsidiary, which has not yet commenced operations, was established to
manufacture and supply HDPE plastic conduit systems to India and neighboring
countries.
AIM. AIM, which was founded in 1981 and acquired by the Company in May
1989, is an importer and manufacturer of electronic connectors, adapters,
switches, tools and other electronic hardware products for the commercial and
consumer electronics markets. Electronic connectors are AIM's main product,
representing more than 46% of AIM's 1996 net sales of $15.7 million.
AIM's products are manufactured to its specifications overseas, primarily
in the Far East, and carry the "AIM" logo. Producers are under the supervision
of an AIM agent. The products are sold worldwide to electronics, electrical,
general line and industrial distributors. AIM has warehousing and order
processing systems that enable AIM to provide delivery on a 24-hour basis to
most customers.
AIM sells nationwide to approximately 2,000 distributors in the U.S. and
Central and South America. AIM uses a combination of fifteen manufacturers,
representative organizations and six factory direct salesmen to service
existing accounts and to locate new distributors. The customer base is very
broad, with the largest customer accounting for about 4% of sales. AIM also
mails product catalogs and other marketing pieces to current customers and
potential new accounts.
The two largest companies in the $13.0 billion domestic connector and
interconnect supply industry are AMP and Amphenol. AMP and Amphenol specialize
strictly in electronic device production. Small and mid-sized companies such
as AIM have captured significant market share during the past 10 years by
offering distributors better service on orders compared to the industry
leaders.
In 1994, AIM began to market manufactured cable and harness assemblies made
at its facility in Florida. Sales of cable and harness assemblies are
estimated to be approximately 12% of AIM's 1996 net sales.
Cambridge. Cambridge, which was founded in 1972 and acquired by the Company
in September 1989, is a domestic provider of high-quality electronic
connectors, plugs, adapters and other accessories. Cambridge is primarily a
designer and marketer of approximately 300 types of specialty radio frequency
("RF") coaxial electronic connectors used in radio, mobile communications,
television and computer equipment. RF coaxial connectors are used to integrate
separate systems by connecting input-output power and signal transmission
sources. The systems in which RF connectors are used may be complex, but RF
connectors themselves serve a mechanical purpose which is technologically
straightforward. Cambridge is essentially an assembly operation. The primary
components of Cambridge's connector products are screw machine and diecast
parts which are purchased from approximately twenty suppliers. The production
process is highly automated, with direct labor accounting for only 6% of 1996
net sales of $6.7 million. Equipment consists of semi-automatic parts assembly
and packaging equipment which has been designed and manufactured by Cambridge.
Approximately 13% of Cambridge's connectors are manufactured according to a
design that allows users to affix the connector to the cable faster and easier
without the need for complicated tools and time-consuming soldering.
Cambridge sells its products nationwide to 450 distributors, 100 OEMs, and
approximately 150 other various end-users. Cambridge uses a combination of six
manufacturers' representative organizations and five factory direct salesmen
located throughout North America. Cambridge's two largest customers (excluding
AIM) account for approximately 26% of 1996 net sales. Cambridge also mails a
large number of catalogs to current customers and potential new accounts.
Cambridge strongly emphasizes that it is an "American" producer of
high-quality electronic connectors.
Cambridge competes in the same market as AIM. Cambridge does not offer the
product selection of its large competitors; however, it competes effectively
by targeting distributors and manufacturers which require fast service and
prefer an American-made product.
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Johnson. Purchased by the Company in 1996, Johnson was the components
division of E.F. Johnson Company, Inc., which was founded in 1953. Johnson is
a high-quality, fully integrated manufacturer of RF coaxial connectors (60%)
and electronic hardware (40%). Johnson specializes in manufacturing miniature
and sub-miniature RF connectors used primarily in telecommunication, computer
and other OEM applications which require high frequency ranges. The miniature
and sub-miniature connector area is experiencing excellent growth as the size
of electronic card products continues to shrink.
Johnson sells directly to OEMs (35%) in large orders while smaller
quantities are sold through over 80 distributors (65%) primarily in the United
States and Canada. Johnson's National Sales Manager coordinates the selling
efforts of three company employed Regional Sales Managers and 21 independent
representative organizations. In 1996, Johnson generated pro forma net sales
of $17.6 million.
Vitelec. Vitelec was founded in 1987 and purchased by the Company in 1996.
Vitelec is an importer, packager and master distributor of over 700 different
connectors, plugs, jacks, sockets, adapters and terminators, cabling
convertors, cable assemblies and other accessories for data communications and
telecommunications networks sold to the commercial and consumer electronics
markets. Vitelec's RF products are subcontract manufactured for them in
Taiwan. Vitelec, through its Vidata subsidiary, also distributes LAN and WAN
cabling, connectors and converters and the accessories for data communication
networks.
Vitelec sells its products via five company-employed salespeople, four
in-house and one located in Paris, France. Vitelec has customers in 42
countries. The largest customer accounted for 10% of pro forma net sales in
1996 of $6.5 million, with the rest of the customer base being very fragmented
and no one customer accounting for more than 1% of net sales.
Aim, Cambridge, Johnson and Vitelec all supply the electronic connector
industry which is highly fragmented with more than 1,500 connector
manufacturers competing worldwide. As a result, the companies generally
compete with different suppliers in each of the various categories of the
overall market in which the companies operate, as well as with certain large
national suppliers. The companies compete within this market primarily on the
basis of quality, reliability, reputation, customer service, delivery time and
price.
Diversified. Diversified was founded in 1988 and purchased by the Company
in 1996. Diversified is a broad-line provider and value-added reseller of
wire, cable, connectors and custom cable assemblies. Diversified's product
offering is used in local area networks ("LANs"), custom cable assemblies,
cable for electrical applications, cable for sound and security, cable for OEM
applications and other miscellaneous cable applications. In 1996, Diversified
generated pro forma net sales of $26.0 million.
Diversified sells its products through a skilled direct sales force. The
sales staff consists of 20 inside and 5 outside salespeople, all of whom are
product and market specialists. Diversified markets and advertises its
products through various trade journals dependent on the marketplace.
Specialty wire and cable distribution is highly fragmented. Diversified
competes in this market by focusing on service, quality, price, value added
capabilities and reputation.
Viewsonics. Viewsonics was founded in 1974 and purchased by the Company in
1996. Viewsonics designs, manufactures and markets branded cable television
("CATV"), electronic network components, and electronic security components
mainly for the "drop" or home connection portion of the CATV infrastructure.
Viewsonics develops, warehouses and sells its products out of its Florida
facility. Viewsonics sources the majority of its products from China, 60% of
which is manufactured in Viewsonics' Shanghai facility, and the remaining 40%
is manufactured by subcontractors. Viewsonics has also developed manufacturing
capabilities in St. Petersburg, Russia. This overseas procurement has allowed
Viewsonics to lower production costs and it has also positioned Viewsonics to
exploit the overseas CATV component markets as they develop.
Viewsonics sells 50% of its products to multisystem operations including
companies such as Time/Warner, Cencast, Continental Cablevision, and TCI.
Viewsonics also sells to a network of distributors, six of whom account for
the majority of the other 50% of sales. In 1996, Viewsonics generated pro
forma net sales of $13.1 million. Competition in the industry is focused on
quality service, engineering support and price.
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Bond. Bond was founded in 1988 and the Company acquired 80% of the
outstanding shares of Bond in 1996. Bond designs, engineers and manufacturers
high-quality custom electronic cables and connector sub-assemblies for
computer-related and telecommunications customers. All of Bond's products are
custom-made and are specifically designed to meet a customer's needs. Bond has
three fully integrated, independent manufacturing facilities. Bond has rapidly
become an industry leader due to its commitment to high quality, competitively
priced products offered in conjunction with outstanding and dependable
service.
Bond has established two separate, very profitable sales agencies in
Northern and Southern California to represent them. Bond is continuing to
actively solicit strategic new customers located throughout the United States
via an independent sales representative network. In 1996, Bond's
single-largest customer accounted for approximately 20% of its pro forma net
sales of $12.9 million.
LoDan. LoDan, founded in 1967 and acquired by the Company in May 1997,
designs, engineers, manufactures, and distributes high-quality, custom
electronic cable assemblies, sub assemblies, and electro-mechanical assemblies
to OEMs in the data and telecommunications segments of the electronics
industry. LoDan manufactures approximately 80% of the products it sells
in-house at an ISO-9001 certified manufacturing facility, with the remaining
20% being distributed products. For fiscal 1996, LoDan's pro forma net sales
were $21.1 million.
The acquisition of LoDan will bolster the presence of Jordan
Telecommunication Products in the custom cable assembly business. LoDan's
customer base, which compliments that of Bond, was built based on providing
innovative solutions to customers' needs. The Company's largest customer,
Cisco Systems, is the world's pre-eminent networking company and provides
LoDan with access to international markets. LoDan's products are sold through
internal and external sales forces.
Bond and LoDan supply the custom cable assembly market which encounters
competition from a broad range of companies, several of which are much larger
and have greater financial resources than either Bond or Lo Dan. In addition
to other independent manufacturers of cable assemblies, offshore manufacturers
compete in this market, primarily on the basis of price. Competition within
the industry is based on quality, production, capacity, breath of product
line, engineering support capability, price, local support capability, systems
support and financial strength.
Northern. Northern was founded in 1985 and was purchased by the Company in
1996. Northern designs, manufactures and markets power conditioning and power
protection equipment for primarily telecommunication applications, such as
cellular and Personal Communication System (PCS) networks. Northern also
offers a variety of products including voltage regulators, uninterruptible
power supplies, isolation transformers, and grounding devices to protect any
power-critical application.
Northern sells on a direct basis through its own highly technical in-house
sales force of 23 employees, who are supported by seven application engineers
and four product development engineers. Northern sells to such large telecom
OEMs as Sprint, Motorola, Lucent, Erickson and Nokia. Northern's largest
customer accounted for 53.4% of pro forma net sales in 1996 of $26.3 million
and its 10 largest customers accounted for 78.0% of pro forma net sales in
1996.
BACKLOG
As of December 31, 1996, the Company had a backlog of approximately $75.0
million, compared with $53.0 million as of December 31, 1995. The current
backlog is primarily due to motor sales at Merkle-Korff and Boeing sales at
Parsons. Management believes that the backlog may not be indicative of future
sales.
SEASONALITY
The Company's aggregate business has a certain degree of seasonality.
SPAI's and Riverside's sales are somewhat stronger toward year-end due to the
nature of their products. Calendars at SPAI have an annual cycle while Bibles
and religious books at Riverside are popular as holiday gifts.
44
<PAGE>
RESEARCH AND DEVELOPMENT
As a general matter, the Company operates businesses that do not require
substantial capital or research and development expenditures. However,
development efforts are targeted at certain subsidiaries as market
opportunities are identified. None of these subsidiary development efforts
require substantial resources from the Company.
PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES
The Company relies on a combination of patent, copyright, trademark and
trade secret laws and contractual agreements to protect its proprietary
technology and know-how. For example, Dura-Line has a U.S. patent for
producing a form of Innerduct sold under the trademark SILICORE which is
lubricated to permit easier installation of fiber optic cable.
The Company owns and uses trademarks and brandnames to identify itself as a
source of certain goods and services, including the DURA-LINE and SILICORE
trademarks, both of which are registered in the United States and various
foreign countries, and the VIEWSONICS brandname, in which the Company has
common law rights. There can be no assurance that the Company will be granted
additional patents or that the Company's patents either will be upheld as
valid if ever challenged or will prevent the development of competitive
products. The U.S. patent with respect to the SILICORE lubricant lining
expires in 2007. The Company has not sought foreign patents for most of its
technologies, including technologies which have been patented in the United
States, which may adversely affect the Company's ability to protect its
technologies and products in foreign countries. The Company also owns and
licenses other patents, trademarks and copyrights. The Company protects its
confidential, proprietary information as trade secrets.
Except for the SILICORE polymer pipe products, certain of its CATV
components and its fiber optic connector technology, the Company's products
are generally not protected by virtue of any proprietary rights such as
patents. There can be no assurance that the steps taken by the Company to
protect its proprietary rights will be adequate to prevent misappropriation of
its technology and know-how or that the Company's competitors will not
independently develop technologies that are substantially equivalent to or
superior to the Company's technology. In addition, the laws of some foreign
countries do not protect the Company's proprietary rights to the same extent
as do the laws of the United States. In the Company's opinion, the loss of any
intellectual property asset, other than the DURA-LINE or SILICORE trademarks,
or the patent or manufacturing trade secret covering the solid co-extruded
polymer lubricant lining used in connection with the SILICORE technology,
would not have a material adverse effect on the conduct of the Company's
business.
The Company is also subject to the risk of adverse claims and litigation
alleging infringement of the proprietary rights of others. From time to time,
the Company has received notice of infringement claims from other parties.
Although the Company does not believe it infringes the valid proprietary
rights of others, there can be no assurance against future infringement claims
by third parties with respect to the Company's current or future products. The
resolution of any such infringement claims may require the Company to enter
into license arrangements or result in protracted and costly litigation,
regardless of the merits of such claims.
EMPLOYEES
As of December 31, 1996, the Company and its subsidiaries employed
approximately 6,200 people. Approximately 760 of these employees were members
of labor unions at Sate-Lite, Gear, Imperial, SPAI, Seaboard, Merkle-Korff,
and Dura-Line. The above subsidiaries have not experienced any work stoppages
in the past five years as a result of labor disruptions. The Company believes
that its subsidiaries' relations with their respective employees are good.
ENVIRONMENTAL REGULATIONS
The Company is subject to certain federal, state and local environmental
laws and regulations. DACCO is a potentially responsible party ("PRP") at the
John P. Saad & Sons site in Nashville, Tennessee (the "Saad Site").
45
<PAGE>
DACCO and a number of other PRPs have entered into a consent agreement with
the U.S. Environmental Protection Agency (the "EPA"), dated April 18, 1990,
relating to the clean-up of the Saad Site (the "Consent Agreement"). All work
under this Consent Agreement has been completed. DACCO's interim allocation of
expenses relating to the clean-up is currently 1.48%. Total expenses incurred
by the PRP group through January 1997 are approximately $4.1 million. These
expenses include removal costs, engineering and attorney fees, but do not
include administrative oversight costs incurred by the EPA or the State of
Tennessee. The EPA has incurred administrative oversight costs through January
1997 of approximately $0.9 million. DACCO is not responsible for any costs
incurred by the State of Tennessee.
Additional work under the Consent Agreement proceeded under a Unilateral
Administrative Order for Removal Response Activities dated July 28, 1995. This
work has been completed and DACCO has paid in full its share of total expenses
related to the clean-up efforts. DACCO believes it is not likely that the EPA
will make any further removal requirements.
PROPERTIES
The Company leases approximately 18,950 square feet of office space for its
headquarters in Illinois. The principal properties of each subsidiary of the
Company at June 30, 1997, and the location, the primary use, the capacity, and
ownership status thereof, are set forth in the table below:
<TABLE>
<CAPTION>
SQUARE
COMPANY LOCATION USE FEET OWNED/LEASED
- --------------- ------------------------ ----------------------------------------- --------- --------------
<S> <C> <C> <C> <C>
AIM ............Sunrise, FL Manufacturing/Administration/Distribution 28,000 Leased
Beemak..........Gardena, CA Manufacturing (2 buildings) 34,500 Leased
Warehouse 12,000 Leased
Bond............Anaheim, CA Manufacturing/Administration 16,000 Leased
Fremont, CA Manufacturing/Administration 17,000 Leased
Austin, TX Manufacturing/Administration 12,000 Leased
Cambridge.......Windsor, CT Manufacturing 9,000 Leased
Cape Craftsmen..Elizabethtown, NC Manufacturing 230,200 Leased
Wilmington, NC Administration 8,500 Leased
DACCO...........Cookeville, TN Administration/Manufacturing 140,000 Owned
Huntland, TN Manufacturing 65,000 Owned
Rancho Cucamonga, CA Manufacturing 40,000 Owned
Diversified.....Troy, MI Manufacturing/Administration/Distribution 45,000 Leased
Nashville, TN Distribution/Sales Office 7,100 Leased
Dura-Line.......Middlesboro, KY Manufacturing/Administration 80,000 Owned
Grimbsby, United Kingdom Manufacturing/Administration 35,000 Owned
Sparks, NV Manufacturing 35,000 Owned
Zlin, Czech Republic Manufacturing/Administration 40,000 Owned
Knoxville, TN Administration 10,000 Leased
Tel Aviv, Israel Manufacturing/Administration 10,000 Leased
Queretaro, Mexico Manufacturing/Administration 43,000 Leased
Mexico City, Mexico Sales Office/Administration 2,000 Leased
Shanghai, China Manufacturing/Administration 50,000 Owned
Shanghai, China Sales Office/Administration 1,000 Leased
Goa, India Manufacturing/Administration 48,000 Owned
New Delhi, India Administration/Sales Office 2,000 Leased
FIR.............Cremona, Italy Manufacturing/Administration 105,700 Owned
Parma, Italy Manufacturing/Administration 316,000 Owned
Parma, Italy Manufacturing/Administration 80,000 Leased
Genoa, Italy Manufacturing/Administration 357,500 Leased
Gear............Grand Rapids, MI Manufacturing/Administration/
Storage 38,000 Owned
Imperial........Akron, OH Manufacturing/Administration 43,000 Owned
Middleport, OH Manufacturing 85,000 Owned
Northampton, OH Manufacturing 60,000 Leased
Johnson ........Waseca, MN Manufacturing/Administration 70,000 Subleased
LoDan...........San Carlos, CA Manufacturing/Administration 22,500 Leased
46
<PAGE>
SQUARE
COMPANY LOCATION USE FEET OWNED/LEASED
- --------------- ------------------------ ----------------------------------------- --------- --------------
San Carlos, CA Manufacturing 13,500 Leased
Merkle-Korff ...Des Plaines, IL Manufacturing/Administration 35,000 Leased
Des Plaines, IL Manufacturing/Administration 45,000 Leased
Richland Center, WI Manufacturing/Administration 45,000 Leased
Crystal Lake, IL Manufacturing 47,000 Leased
Darlington, WI Manufacturing 68,000 Leased
Belvidere, IL Administration 12,500 Leased
Northern .......Liberty Lake, WA Manufacturing/Administration 22,600 Leased
Pamco ..........Des Plaines, IL Manufacturing/Administration 24,500 Owned
Parsons ........Parsons, KS Manufacturing/Administration 97,500 Owned
Riverside.......Iowa Falls, IA Distribution/Administration 65,900 Leased
Sparks, NV Distribution 35,000 Leased
Sate-Lite ......Niles, IL Manufacturing/Administration 120,000 Leased
Scott...........Alamogordo, NM Manufacturing/Administration/
Storage 15,000 Leased
Seaboard........Fitchburg, MA Administration/Manufacturing 260,000 Owned
Miami, FL Manufacturing 90,000 Owned
Brentwood, NY Manufacturing 35,000 Leased
Brooklyn, NY Manufacturing 35,000 Leased
Bohemia, NY Manufacturing 20,000 Leased
SPAI ...........Red Oak, IA Manufacturing/Administration
(four buildings) 136,500 Owned
Coshocton, OH Manufacturing/Administration 240,000 Leased
Valmark.........Fremont, CA Manufacturing/Administration 46,000 Leased
Fremont, CA Manufacturing/Administration 15,000 Leased
Viewsonics......Boca Raton, FL Administration/Distribution/Research
and Development 14,500 Leased
Shanghai, China Manufacturing/Administration 25,000 Leased
St. Petersburg, Russia Manufacturing/Administration 10,000 Leased
Vitelec.........Bordon, United Kingdom Distribution/Administration/Assembly 16,500 Owned
Paris, France Sales Office 1,000 Leased
</TABLE>
DACCO also owns or leases thirty-one distribution centers, which average
4,000 square feet in size. DACCO maintains four distribution centers in
Florida, California, and Tennessee, two distribution centers in each of
Illinois, Arizona, Michigan, and Alabama, and the remaining distribution
centers are located in Colorado, Indiana, Minnesota, Missouri, Nebraska, New
Jersey, West Virginia, Ohio, Oklahoma, South Carolina, and Texas.
AIM's Sunrise, Florida, facility is leased from the former vice president
of AIM, and Merkle-Korff's facilities are leased from the chairman of
Merkle-Korff. Northern's Liberty Lake, Washington, facility is leased from a
general partnership consisting of the former owners. The Company believes that
the terms of these leases are comparable to those which would have been
obtained by the Company had these leases been entered into with an
unaffiliated third party.
None of the Company's significant existing leases are scheduled to expire
in 1997. The Company believes that its existing leased facilities are adequate
for the operations of the Company and its subsidiaries.
LEGAL PROCEEDINGS
On January 21, 1997, Welcome Home filed for Chapter 11 bankruptcy
protection. As a result of the Chapter 11 filing, the results of Welcome Home
are not consolidated with the Company's results for periods subsequent to
January 21, 1997. As of June 30, 1997, the Company's aggregate investment in
Welcome Home was approximately $4.7 million.
The Company's subsidiaries are parties to various other legal actions
arising in the normal course of their business. The Company believes that the
disposition of such actions individually or in the aggregate will not have a
material adverse effect on the consolidated financial position of the Company.
47
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following sets forth the names and ages of each of the Company's
directors and executive officers and the positions they hold at the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- -------------------- ----- -----------------------------------------------------
<S> <C> <C>
John W. Jordan II .. 49 Chairman of the Board of Directors and Chief
Executive
Officer.
Thomas H. Quinn .... 50 Director, President and Chief Operating Officer.
Joseph S. Steinberg 53 Director.
David Z. Zalaznick . 42 Director.
Jonathan F. Boucher 40 Director and Vice President.
G. Robert Fisher ... 57 Director, General Counsel and Secretary.
</TABLE>
Each of the directors and executive officers of the Company will serve
until the next annual meeting of the stockholders or until their death,
resignation or removal, whichever is earlier. Directors are elected annually
and executive officers hold office for such terms as may be determined by the
Company's board of directors (the "Board of Directors").
Set forth below is a brief description of the business experience of each
director and executive officers of the Company.
MR. JORDAN has served as Chairman of the Board of Directors and Chief
Executive Officer of the Company since 1988. Mr. Jordan is a managing partner
of The Jordan Company, a private merchant banking firm which he founded in
1982. Mr. Jordan is also a director of American Safety Razor Company,
AmeriKing, Inc., Carmike Cinemas, Inc., Welcome Home and Apparel Ventures,
Inc., as well as other privately held companies. In January 1997, Welcome Home
filed a voluntary petition for bankruptcy.
MR. QUINN has served as a director, President and Chief Operating Officer
of the Company since 1988. From November 1985 to December 1987, Mr. Quinn was
Group Vice President and a corporate officer of Baxter International
("Baxter"). From September 1970 to November 1985, Mr. Quinn was employed by
American Hospital Supply Corporation ("American Hospital"), where he was a
Group Vice President and a corporate officer when American Hospital was
acquired by Baxter. Mr. Quinn is also the Chairman of the Board and Chief
Executive Officer of American Safety Razor Company and AmeriKing, Inc., as
well as a director of Welcome Home and other privately held companies. In
January 1997, Welcome Home filed a voluntary petition for bankruptcy.
MR. STEINBERG has served as a director of the Company since 1988. Since
1979, Mr. Steinberg has been the President and a director of Leucadia
National Corporation, a bank holding company. He is also a Trustee of New
York University.
MR. ZALAZNICK has served as a director of the Company since June 1997.
Since 1982, Mr. Zalaznick has been a managing partner of The Jordan Company.
Mr. Zalaznick is also a director of Carmike Cinemas, Inc., AmeriKing, Inc.,
American Safety Razor Company, Marisa Christina, Inc. and Apparel Ventures,
Inc., as well as other privately held companies.
MR. BOUCHER has served as a Vice President and a director of the Company
since 1988. Since 1983, Mr. Boucher has been a partner of The Jordan Company.
Mr. Boucher is also a director of American Safety Razor Company, as well as
other privately held companies. In December 1996, Mr. Boucher resigned as a
director and officer of Welcome Home. In January 1997, Welcome Home filed a
voluntary petition for bankruptcy.
MR. FISHER has served as a director, General Counsel and Secretary since
1988. Since June 1995, Mr. Fisher has been a member of the law firm of Bryan
Cave LLP, a firm that represents the Company in various legal matters. For the
prior 27 years, Mr. Fisher was a member of the law firm of Smith, Gill, Fisher
& Butts, P.C., which combined with Bryan Cave LLP in June 1995.
48
<PAGE>
EXECUTIVE COMPENSATION
The following table shows the cash compensation paid by the Company, for
the three years ended December 31, 1996, for services in all capacities to the
President and Chief Operating Officer of the Company.
SUMMARY COMPENSATION TABLE (1)
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------------------
NAME AND PRINCIPAL OTHER ANNUAL
POSITION YEAR SALARY BONUS COMPENSATION
- -------------------- ------ ---------- ------------ --------------
<S> <C> <C> <C> <C>
John W. Jordan II, 1996 -- -- --
Chief Executive 1995 -- -- --
Officer (2) 1994 -- -- --
Thomas H. Quinn, 1996 $500,000 $1,850,750 --
President and Chief 1995 500,000 1,557,650 --
Operating Officer 1994 500,000 979,137 201,480
</TABLE>
- ------------
(1) The aggregate number of shares of restricted Common Stock held by the
Company's executive officers and directors at December 31, 1996 was
5,000 shares, consisting of 4,000 shares held by Mr. Quinn and 1,000
shares held by Mr. Boucher. The value of the restricted shares is not
able to be calculated because there is no market price for shares of
the Company's unrestricted Common Stock. Dividends will be paid on the
restricted shares to the same extent paid on unrestricted shares. See
"Management--Restricted Stock Agreements."
(2) Mr. Jordan derived his compensation from the Jordan Company and JZCC
for his services to the Company and its subsidiaries. He received no
compensation from the Company or its subsidiaries for his services as
Chief Executive Officer.
Employment Agreement. Mr. Quinn has an employment agreement with the
Company which provides for his employment as President and Chief Operating
Officer of the Company. The employment agreement can be terminated at any time
by the Company. His base salary is $500,000 per year, and he is provided with
a guaranteed bonus of $100,000 per year, which amounts are inclusive of any
compensation, fees, salary, bonuses or other payments to Mr. Quinn by any of
the subsidiaries or affiliates of the Company or affiliates of The Jordan
Company. Under the employment agreement, if Mr. Quinn's employment is
terminated for reasons other than voluntary termination, cause, disability or
death, he will be paid a severance payment equal to the greater of $350,000 or
the sum of his most recent base annual salary plus $100,000. If employment is
terminated for reasons of cause or voluntary termination, no severance payment
is made. The Company maintains a $5.0 million "key man" life insurance policy
on Mr. Quinn under which the Company is the beneficiary.
Restricted Stock Agreements. The Company is a party to restricted stock
agreements, dated as of February 25, 1988, with each of Messrs. Quinn and
Boucher, pursuant to which they were issued shares of Common Stock which, for
purposes of such restricted stock agreements, were classified as "Group 1
Shares" or "Group 2 Shares." Messrs. Quinn and Boucher were issued 3,500 and
1,870.7676 Group 1 shares, respectively, and 4,000 and 1,000 Group 2 Shares,
respectively at $4.00 per share. The Group 1 Shares are not subject to
repurchase or contractual restrictions on transfer pursuant to the Restricted
Stock Agreements. The Group 2 Shares are subject to repurchase at cost, in the
event that Messrs. Quinn or Boucher ceases to be employed (as a partner,
officer or employee) by the Company, The Jordan Company, Jordan/Zalaznick
Capital Company ("JZCC"), or any reconstitution thereof conducting similar
business activities in which they are a partner, officer or employee. If such
person ceases to be so employed prior to January 1, 2003, the Group 2 Shares
can also be repurchased at cost, unless such person releases and terminates
such repurchase option by making a payment of $300.00 per share to the
Company. Certain adjustments to the foregoing occur in the event of the death
or disability of any of the partners of The Jordan Company or JZCC, the death
or disability of such person, or the sale of the
49
<PAGE>
Company. On January 1, 1992, the Company issued Messrs. Quinn and Boucher 600
and 533.8386 shares, respectively, at $107.00 per share, pursuant to similar
Restricted Stock Agreements, dated as of January 1, 1992, under which such
shares were effectively treated as "Group 1 Shares." On December 31, 1992, the
Company issued an additional 400 shares to Mr. Quinn for $107.00 per share
pursuant to similar Restricted Stock Agreements, under which such shares were
effectively treated as "Group 1 Shares." The purchase price per share was
based upon an independent appraiser's valuation of the shares of Common Stock
at the time of their issuance. In June 1997, the Company issued an additional
1,500 shares to Mr. Quinn for approximately $86.67 per share pursuant to a
similar Restricted Stock Agreement, under which such shares were effectively
treated as "Group 1 Shares." These shares were issued by the Company to
provide a long-term incentive to the recipients to advance the Company's
business and financial interest.
Director's Compensation. The Company compensates its directors quarterly,
at the rate of $20,000 per year in for each director. The Indentures permit
director fees of up to $250,000 per year in the aggregate. In addition, the
Company reimburses directors for their travel and other expenses incurred in
connection with attending Board meetings (and committees thereof) and
otherwise performing their duties as directors of the Company.
Phantom Share Plan. The Board of Directors has adopted a Phantom Share Plan
(the "Share Plan") which is administered by the Compensation Committee of the
Board of Directors which determines awards to be made under the Share Plan to
the Company's management and highly compensated employees. Awards under the
Share Plan vest ratably over a five-year period beginning at the end of the
employee's sixth year of employment with the Company with an employee being
fully vested at the end of 10 years of employment with the Company. An
employee also becomes fully vested upon the sale of substantially all of the
Company's capital stock or assets to any person or group of persons other than
to John W. Jordan II or any entity in which he owns, directly or indirectly,
10% or more of the beneficial interest, but not including a sale pursuant to a
registered public offering (a "Share Plan Change of Control"). After (i) an
employee becomes fully vested or (ii) an employee's employment relationship
with the Company is terminated (other than for cause) (the "Settlement Date"),
the Company will pay to such employee in five equal installments beginning 90
days after the Settlement Date and continuing on each of the next four
anniversaries of the Settlement Date an aggregate amount equal to the product
of the number of units awarded to such employee in which the employee has
become vested and the Unit Value (as defined herein) plus interest. Unit Value
is defined as 2.5% of (i) the average Stockholder Value (based on a multiple
of EBITDA less indebtedness for the Company) for the last three fiscal years
ending on or before such date (or the fair market value of the Common Stock in
the event of a Share Plan Change of Control), divided by (ii) 1,000,000
(subject to adjustment to reflect changes in the Company's capitalization).
The Unit Value was effectively $0 as of July 31, 1997. The Share Plan consists
of 1,000,000 units, of which 180,000 have been granted. The Company believes
that the Share Plan provides the Company with a means of attracting, retaining
and motivating executive personnel by offering them performance-related
incentives which coincide with the interest of the stockholders. Although the
Company has not historically experienced any material difficulties in
attracting, retaining or motivating its executive personnel, there can be no
assurances that the Company will not experience any such difficulties in the
future.
50
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table furnishes information, as of June 30, 1997, as to the
beneficial ownership of the Company's Common Stock by (i) each person known by
the Company to beneficially own more than 5% of the outstanding shares of
Common Stock, (ii) each director and executive officer of the Company, and
(iii) all officers and directors of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT OF BENEFICIAL
OWNERSHIP
--------------------------
NUMBER OF PERCENTAGE
SHARES OWNED(1)
------------- ------------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS:
John W. Jordan II (2)(3)(4) .......................... 41,820.9087 42.5%
David W. Zalaznick (3)(5)(6) ......................... 19,965.0000 20.3%
Thomas H. Quinn (7) .................................. 10,000.0000 10.2%
Leucadia Investors, Inc. (3) ......................... 9,969.9999 10.1%
Jonathan F. Boucher (8) .............................. 5,533.8386 5.6%
G. Robert Fisher (4)(9) .............................. 624.3496 0.6%
Joseph S. Steinberg (10) ............................. 0.0000 0.0%
All directors and officers as a group (5 persons)(3) 87,914.0968 89.3%
</TABLE>
- ------------
(1) Calculated pursuant to Rule 13d-3(d) under the Exchange Act. Under
Rule 13d-3(d), shares not outstanding which are subject to options,
warrants, rights or conversion privileges exercisable within 60 days
are deemed outstanding for the purpose of calculating the number and
percentage owned by such person, but not deemed outstanding for the
purpose of calculating the percentage owned by each other person
listed. As of June 30, 1997, there were 98,501.0004 shares of Common
Stock issued and outstanding.
(2) Includes 1 share held personally and 41,819.9087 shares held by John
W. Jordan II Revocable Trust. Does not include 309.2933 shares held by
Daly Jordan O'Brien, the sister of Mr. Jordan, 309.2933 shares held by
Elizabeth O'Brien Jordan, the mother of Mr. Jordan, or 309.2933 shares
held by George Cook Jordan, Jr., the brother of Mr.
Jordan.
(3) Does not include 100 shares held by The Jordan Zalaznick Capital
Company ("JZCC") or 3,500 shares of Common Stock held by Mezzanine
Capital & Income Trust 2001 PLC ("MCIT"), a publicly traded U.K.
investment trust advised by an Affiliate of The Jordan Company
(controlled by Messrs. Jordan and Zalaznick). Mr. Jordan, Mr.
Zalaznick and Leucadia, Inc. are the sole partners of JZCC. Mr.
Jordan and Mr. Zalaznick own and manage the advisor to MCIT.
(4) Does not include 3,248.3332 shares held by The Jordan Family Trust,
of which John W. Jordan II, George Cook Jordan, Jr. and G. Robert
Fisher are the trustees.
(5) Does not include 82.1697 shares held by Bruce Zalaznick, the brother
of Mr. Zalaznick.
(6) Excludes 2,541.4237 shares that are held by John W. Jordan II
Revocable Trust, but which may be purchased by Mr. Zalaznick, and must
be purchased by Mr. Zalaznick, under certain circumstances, pursuant
to an agreement, dated as of October 27, 1988, between Mr.
Jordan and Mr. Zalaznick.
(7) Includes 4,000 shares which are treated as "Group 2 Shares" pursuant
to the terms of a Restricted Stock Agreement between Mr. Quinn and
the Company. See "Management--Restricted Stock Agreements."
(8) Includes 1,000 shares which are treated as "Group 2 Shares" pursuant
to the terms of a Restricted Stock Agreement between Mr. Boucher and
the Company. See "Management--Restricted Stock Agreements."
(9) Includes 624.3496 shares held by G. Robert Fisher, as Trustee of the
G. Robert Fisher Irrevocable Gift Trust, U.T.I., dated December 26,
1990.
(10) Excludes 9,969.9999 shares held by Leucadia Investors, Inc., of which
Joseph S. Steinberg is President and a director.
51
<PAGE>
The following table furnished information, as of July 31, 1997, as to the
beneficial ownership of the common stock of JTP and M&G by (i) each person
known by the company to beneficially own more than 5% of the outstanding
Common Stock of the Company, (ii) each director and executive officer of the
Company, and (iii) all officers and directors of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT OF BENEFICIAL OWNERSHIP
----------------------------------------------------
JTP M&G
--------------------------- ------------------------
NUMBER OF PERCENTAGE NUMBER OF PERCENTAGE
SHARES OWNED(1) SHARES OWNED(1)
-------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS:
John W. Jordan II (2)(3)(4) .......... 379,349.1691 38.0 118.78125 1.2
David W. Zalaznick (3)(5)(6) ......... 183,073.2676 18.3 118.78125 1.2
Thomas W. Quinn ...................... 89,804.6030 9.0 75.00000 0.7
Leucadia Investors, Inc. (3) ......... 95,566.3378 9.6 0.00000 *
Jonathan F. Boucher .................. 52,935.1436 5.3 101.81250 1.0
G. Robert Fisher (4)(6) .............. 5,606.9406 * 0.00000 *
Joseph S. Steinberg (7) .............. 0.000 * 0.00000 *
All directors and officers as a group
(5 persons)(3) ...................... 705,162.0832 70.6 414.37500 4.1
</TABLE>
- ------------
* Represents less than 1% of the outstanding shares of common stock.
(1) Calculated pursuant to Rule 13d-3(d) under the Exchange Act. Under Rule
13d-3(d), shares not outstanding, which are subject to options,
warrants, rights or conversion privileges exercisable within 60 days
are deemed outstanding for the purpose of calculating the number and
percentage owned by such person, but not deemed outstanding for the
purpose of calculating the percentage owned by each other person
listed. As of July 31, 1997, JTP and M&G had 999,500 and 9,850,
respectively, shares of common stock issued and outstanding.
(2) Includes 8.9820 shares of JTP held personally and 379,340.1871 shares
of JTP held by the John W. Jordan II Revocable Trust. Does not include
2,777.5927 shares of JTP held by Daly Jordan O'Brien, the sister of Mr.
Jordan, 2,777.5927 shares of JTP held by Elizabeth O'Brien Jordan, the
mother of Mr. Jordan, or 2,777.5927 shares of JTP held by George Cook
Jordan, Jr., the brother of Mr. Jordan.
(3) Does not include 898.0451 shares of JTP held by JZCC or 31,431.5758
shares of JTP held by MCIT.
(4) Does not include 29,171.4943 shares of JTP held by The Jordan Family
Trust.
(5) Does not include 737.8205 shares of JTP held by Bruce Zalaznick, the
brother of Mr. Zalaznick.
(6) Includes 5,606.9406 shares of JTP held by G. Robert Fisher, as the
Trustee of the G. Robert Fisher Irrevocable Gift Trust, U.T.I., dated
December 26, 1990.
(7) Does not include 95,566.3378 shares of JTP held by Leucadia Investors,
Inc., of which Joseph S. Steinberg is President and a director.
Stockholder Agreement. Each holder of outstanding shares of Common Stock of
the Company is a party to a Stockholder Agreement, dated as of June 1, 1988
(the "Stockholder Agreement"), by and among the Company and such stockholders.
The Stockholder Agreement subjects the transfer of shares of Common Stock by
such stockholders to a right of first refusal in favor of the Company and
"co-sale" rights in favor of the other stockholders, subject to certain
restrictions. Under certain circumstances, stockholders holding 60% or more of
the outstanding shares of Common Stock, on a fully diluted basis, have certain
rights to require the other stockholders to sell their shares of Common Stock.
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CERTAIN TRANSACTIONS
Recapitalization and Repositioning Plan. As elements of the Plan, the
Company has recapitalized its investment in Motors and Gears and Jordan
Telecommunication Products. The Company will continue its investment in Motors
and Gears and Jordan Telecommunication Products through the M&G Junior
Preferred Stock and the JTP Junior Preferred Stock, respectively. In
connection with the M&G Recapitalization, M&G issued 16,250 shares of M&G
common stock (representing approximately 82.5% of the outstanding shares of
M&G common stock) to the Jordan Group and M&G management for total
consideration of $2.2 million (of which $1.1 million was paid in cash and $1.1
million was paid through the delivery of 8% zero coupon notes due 2007). In
connection with the JTP Recapitalization, JTP issued 965,000 shares of JTP
common stock (representing 96.5% of the JTP common stock after consummation of
the Plan) to the Jordan Group and JTP management for total cash consideration
of $2.0 million (of which $1.0 million will be loaned to them by the Company
pursuant to 8% zero coupon notes due 2007). As a result of the M&G and JTP
Recapitalizations, the Jordan Group and such management owns substantially all
of the M&G common stock and the JTP common stock, respectively, and the
Company's investment in Motors and Gears and Jordan Telecommunication Products
is evidenced only by the M&G Junior Preferred Stock and JTP Junior Preferred
Stock, respectively, but not by the common stock of either M&G or JTP, which
is held primarily by the Jordan Group stockholders and affiliates of the
Company, and management of the respective companies. As a matter of corporate
law, the directors and majority stockholders of M&G and JTP will owe fiduciary
and other duties to M&G and JTP common stockholders, which may conflict with
the interests of the Company. The Company has obtained an independent opinion,
as to the fairness, from a financial point of view, to the Company and its
public bondholders of M&G and JTP Recapitalizations.
In connection with the M&G Recapitalization, Messrs. Quinn, Jordan,
Zalaznick and Boucher purchased 1,649.7294, 6,899.3184 (which includes
6,899.1534 shares purchased by the John W. Jordan II Revocable Trust and does
not include 51.0250 shares purchased by Daly Jordan O'Brien, the sister of Mr.
Jordan, 51.0250 shares purchased by Elizabeth Jordan O'Brien, the mother of
Mr. Jordan, 51.0250 shares purchased by George C. Jordan, Jr., the brother of
Mr. Jordan, 16.4973 shares purchased by The Jordan Zalaznick Capital Company
and 535.8871 shares purchased by The Jordan Family Trust, of which Mr. Jordan
is a trustee), 3,293.6848 (which does not include 13.5558 shares purchased by
Bruce Zalaznick, the brother of Mr. Zalaznick, 16.4973 shares purchased by The
Jordan Zalaznick Capital Company and 6,899.1534 shares purchased by the John
W. Jordan II Revocable Trust) and 912.9337 shares of M&G common stock,
respectively, from the Company for a purchase price of $138.38 per share.
In connection with the JTP Recapitalization, Messrs. Quinn, Jordan,
Zalaznick and Boucher purchased 89,804.50, 379,349.17 (which includes
379,340.19 shares purchased by the John W. Jordan II Revocable Trust and does
not include 2,777.59 shares purchased by Daly Jordan O'Brien, the sister of
Mr. Jordan, 2,777.59 shares purchased by Elizabeth Jordan O'Brien, the mother
of Mr. Jordan, 2,777.59 shares purchased by George C. Jordan, Jr., the brother
of Mr. Jordan, 898.05 shares purchased by The Jordan Zalaznick Capital
Company, 29,171.49 shares purchased by The Jordan Family Trust, of which Mr.
Jordan is a trustee, 40,208.33 shares purchased by JII Partners and 31,431.58
shares purchased by MCIT), 183,073.27 (which does not include 737.92 shares
purchased by Bruce Zalaznick, the brother of Mr. Zalaznick, 898.05 shares
purchased by The Jordan Zalaznick Capital Company, 379,340.10 shares purchased
by the John W. Jordan II Revocable Trust, 40,208.33 shares purchased by JII
Partners and 31,431.58 shares purchased by MCIT) and 52,935.14 shares of JTP
common stock, respectively, from the Company for a purchase price of $2.07 per
share.
The M&G and JTP Recapitalizations permit the Jordan Group, the Company's
stockholders and management of M&G and JTP, to invest directly in Motors and
Gears and Jordan Telecommunication Products, respectively, and will subject
the Company to substantial income tax liabilities resulting from the
deconsolidation from the Company's consolidated group of the Motors and Gears
subsidiaries and the Jordan Telecommunication Products subsidiaries for
Federal income tax purposes. If, in the future, the M&G Junior Preferred Stock
or the JTP Junior Preferred Stock is redeemed, as well as under certain other
circumstances, the Company could be required to pay substantial income tax
liabilities resulting from the deconsolidation of these subsidiaries from the
Company's consolidated group for Federal income tax purposes. See "Risk
Factors--Consequences of Subsidiary Deconsolidation" and "Recapitalization and
Repositioning Plan."
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Services Agreements. Prior to the completion of the Old Senior Notes
Offering, the Company and TJC Management Corp. (an affiliate of The Jordan
Company) were parties to a Management Consulting Agreement (the "Old
Consulting Agreement"). The Old Consulting Agreement provided for payment by
the Company to The Jordan Company of (i) annual consulting fees, payable
quarterly, equal to 3.0% of the Company's cash flow (which were $2.0 million,
$2.7 million, $2.5 million and $1.5 million, respectively, for the years ended
December 31, 1994, 1995 and 1996 and for the six months ended June 30, 1997,
respectively); (ii) investment banking and sponsorship fees of up to 2.0% of
the purchase price of acquisitions or sales involving the Company or any of
its subsidiaries or their respective businesses or properties and financial
advisory fees of up to 1.0% of any debt, equity or other financing, in each
case, arranged with the assistance of The Jordan Company (which were $1.8
million, $2.1 million, $2.6 million and $1.5 million, respectively, for the
years ended December 31, 1994, 1995 and 1996 and for the six months ended June
30, 1997, respectively); and (iii) reimbursement for The Jordan Company's
out-of-pocket costs incurred and indemnities in connection with providing such
services.
Since December 31, 1996, the Company has not made any payments, in respect
of such investment banking, sponsorship and consulting fees and out-of-pocket
costs in connection with the Northern, FIR and LoDan acquisitions and the
Hudson disposition pursuant to the Old Consulting Agreement. The Company
anticipates paying approximately $2.1 million in respect of these acquisitions
and the disposition following the consummation of the Offering. Messrs.
Jordan, Zalaznick and Boucher, directors and officers of the Company, are
partners of The Jordan Company.
Concurrently with the consummation of the Old Senior Notes Offering, the
Old Consulting Agreement was terminated and all other management, consulting,
investment banking, sponsorship, financial advisory fee agreements and similar
arrangements between the Company and its subsidiaries (including M&G and JTP),
on the one hand, and the Company, TJC Management Corp. or The Jordan Company,
on the other hand, were terminated. In their place on July 25, 1997, the
Company entered into six new types of agreements and arrangements.
First, each of the Company's subsidiaries (both Restricted and
Non-Restricted Subsidiaries) (other than certain of the subsidiaries of Bond
and Dura-Line) entered into new advisory agreements with the Company (and not
TJC Management Corp. or The Jordan Company) (the "New Subsidiary Advisory
Agreements"), pursuant to which such subsidiaries will pay to the Company (and
not TJC Management Corp. or The Jordan Company) (i) investment banking and
sponsorship fees of up to 2.0% of the purchase price of acquisitions, joint
ventures, minority investments or sales involving such subsidiaries or their
respective businesses or properties; (ii) financial advisory fees of up to
1.0% of any debt, equity or other financing or refinancing involving such
subsidiary, in each case, arranged with the assistance of the Company or its
affiliates; and (iii) reimbursement for the Company's out-of-pocket costs in
connection with providing such services. The New Subsidiary Advisory
Agreements contain customary indemnities in favor of the Company, The Jordan
Company and TJC Management Corp. in connection with such services. Pursuant to
the New TJC Management Consulting Agreement, the Company, in turn, will also
pay to TJC Management Corp. one-half of such investment banking, sponsorship
and financial advisory fees and its portion of such cost reimbursements,
unless otherwise determined by the Board of Directors of the Company. The New
Subsidiary Advisory Agreements will expire in December 2007, but are
automatically renewed after such date for successive one-year terms, unless
any party provides written notice of termination 60 days prior to the
scheduled renewal date.
Second, the Company entered into a new consulting services agreement with
TJC Management Corp. (the "New TJC Management Consulting Agreement"), pursuant
to which the Company will pay to TJC Management Corp. (i) annual consulting
fees of $3.0 million, payable quarterly; (ii) one-half of the investment
banking sponsorship and financing advisory fees paid to the Company pursuant
to the New Subsidiary Advisory Agreements, unless otherwise determined by the
Board of Directors of the Company; (iii) (A) investment banking and
sponsorship fees of up to 2.0% of the purchase price of acquisitions, joint
ventures and minority investments or sales involving the Company or its
subsidiaries (other than JTP, M&G and other subsidiaries that are a party to
any of the New Subsidiary Advisory Agreements) and (B) financial advisory fees
of up to 1.0% of any debt, equity or other financing or refinancing involving
the Company or such subsidiaries, in each case, arranged with the assistance
of TJC
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Management Corp. or its affiliates, unless otherwise determined by the Board
of Directors of TJC Management Corp.; and (iv) reimbursement for TJC
Management Corp.'s and The Jordan Company's out-of-pocket costs incurred in
connection with providing such services. The New TJC Management Consulting
Agreement also contains customary indemnities in favor of TJC Management Corp.
and The Jordan Company in connection with such services. In consideration for
these fees, the services of Mr. Jordan and the investment banking, sponsorship
and advisory services of The Jordan Company will be provided to the Company.
The New TJC Management Consulting Agreement will expire in December 2007, but
is automatically renewed after such date for successive one-year terms, unless
either party provides written notice of termination 60 days prior to the
scheduled renewal date. Pursuant to this Agreement in connection with the Old
Senior Notes Offering and the JTP Recapitalization, the Company, on behalf of
the Company and its subsidiaries (including M&G and JTP), will pay to TJC
Management Corp. and The Jordan Company fees and cost reimbursements of
approximately $4.0 million.
Third, each of the Company's subsidiaries (both Restricted and
Non-Restricted Subsidiaries) (other than certain of the subsidiaries of Bond
and Dura-Line) entered into consulting agreements with the Company (the "New
Subsidiary Consulting Agreements"), pursuant to which they will pay to the
Company annual consulting fees of 1.0% of such subsidiary's net sales for such
services, payable quarterly, and will reimburse the Company for its
out-of-pocket costs related to its services. In the New Subsidiary Consulting
Agreements relating to M&G and JTP, the Company (but not the Company's
affiliates, including The Jordan Company) are obligated to present all
acquisition, business and investment opportunities that relate to
manufacturing, assembly, distribution or marketing of products and services in
the motors and gears and telecommunications and data communications industries
to M&G and JTP, respectively, and the Company is not permitted to pursue such
opportunities or present them to third parties unless either M&G or JTP, as
applicable, determine not to pursue such opportunities or M&G or JTP, as
applicable, consent thereto. The New Consulting Agreement does not prohibit
affiliates of the Company from pursuing such opportunities or offering them to
third parties without M&G's or JTP's consent, as the case may be. The New
Subsidiary Consulting Agreements expire in December 2007, but are
automatically renewed for successive one year terms, unless either party to
the agreement provides written notice of termination 60 days prior to the
scheduled renewal date.
Fourth, the Company's Non-Restricted Subsidiary, JI Properties, Inc. ("JI
Properties"), entered into a services agreement (the "JI Properties Services
Agreement") with the Company and each of its other subsidiaries (both
Restricted and Non-Restricted Subsidiaries) (other than certain subsidiaries
of Bond and Dura-Line), pursuant to which JI Properties will provide certain
real estate, other assets, transportation and related services to the Company
and such subsidiaries. JI Properties' current capital leases are guaranteed by
the Company. Pursuant to the JI Properties Services Agreement, the Company's
subsidiaries will be charged their allocable portion of such services and
related costs based upon their usage of such services and their relative
revenues as compared with other subsidiaries. The JI Properties Services
Agreement will expire in December 2007, but is automatically renewed for
successive one year terms, unless either party provides written notice of
termination 60 days prior to the scheduled renewal date.
Fifth, in connection with the Plan, the Company refined the allocation of
overhead, general and administrative charges and expenses among the Company
and its subsidiaries in order to more closely match these overhead charges
with the respective revenues and usage of corporate overhead by the Company
and its subsidiaries. In the years ended December 31, 1994, 1995 and 1996, and
the six months ended June 30, 1997, corporate and overhead charges borne by
the Company (prior to charges under the Old Consulting Agreement, the JI
Properties Services Agreement, subsidiary management and consulting fees and
the Tax Sharing Agreement) were $8.6 million, $10.3 million, $12.7 million and
$6.4 million, respectively. On a pro forma basis giving consideration to the
JI Properties Services Agreement for such periods (prior to charges under the
New TJC Management Consulting Agreement, the New Subsidiary Advisory
Agreement, and the Tax Sharing Agreement), overhead charges borne by the
Company for such periods would have been $5.4 million, $6.7 million, $8.2
million, and $3.7 million, respectively, and are expected to be about $9.6
million for fiscal 1997.
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Sixth, on July 25, 1997, the Company entered into transition agreements
(together, the "Transition Agreement") with M&G and JTP, pursuant to which the
Company will provide office space and certain administrative and accounting
services to M&G and JTP to facilitate the transition of these subsidiaries to
stand-alone companies. The subsidiaries will reimburse the Company for
services provided pursuant to the Transition Agreement on an allocated cost
basis. The Transition Agreement will expire on December 31, 1997, but is
automatically renewed for successive one year periods (unless either party
provides prior written notice of non-renewal) and may be terminated by the
subsidiaries on 90 days' written notice.
Tax Sharing Agreement. The Company and each of its subsidiaries are parties
to a tax sharing agreement (the "Tax Sharing Agreement"). Pursuant to the Tax
Sharing Agreement, each of the consolidated subsidiaries of the Company pays
to the Company, on an annual basis, an amount determined by reference to the
separate return tax liability of the subsidiary as defined in Treasury
Regulation Section 1.1552-1(a)(2)(ii). The Company received payments of $1.8
million, $3.7 million, $1.8 million, and $2.4 million, respectively, from the
Company's subsidiaries pursuant to the Tax Sharing Agreement in the years
ended December 31, 1994, 1995, 1996, and the six months ended June 30, 1997,
respectively. These income tax payments reflected a Federal income tax rate of
approximately 34% of each subsidiary's pre-tax income.
Upon redemption of the M&G Junior Preferred Stock or JTP Junior Preferred
Stock or other circumstances that cause M&G or JTP and their respective
subsidiaries to cease to be tax-consolidated subsidiaries of the Company, M&G
or JTP, as the case may be, and their respective subsidiaries will be released
from making any further payments under the Tax Sharing Agreement. While the
release will discharge M&G or JTP and their respective subsidiaries from
making future income tax payments to the Company, M&G or JTP and their
respective subsidiaries, as the case may be, will remain contingently liable
to the Company under the Tax Sharing Agreement in respect of any increases in
their separate return tax liability for periods prior to such
deconsolidations.
Employment Agreements; Stock Transactions. On February 25, 1988, the
Company entered into an employment agreement with Thomas H. Quinn, pursuant
to which Mr. Quinn became the President and Chief Operating Officer of the
Company, effective January 1, 1988. See "Management--Employment Agreement."
In November 1996, the Company issued Mr. Quinn 1,500 shares of Common
Stock for $146,000 cash and a promissory note of $1,314,000. In June 1997,
the Company and Mr. Quinn reversed the November 1996 transaction such that
the Company canceled all debt owed and returned all consideration paid by Mr.
Quinn and Mr. Quinn returned the Common Stock to the Company. In June of
1997, the Company issued an additional 1,500 shares to Mr. Quinn for
approximately $86.67 per shares. See "Management--Restricted Stock
Agreements."
Fannie May. On May 15, 1995, the Company purchased from Fannie May $7.5
million aggregate principal amount of Subordinated Notes and 75.6133 shares of
Junior Class A PIK Preferred Stock of Fannie May at face value for $9.1
million. Also in 1995, the Company acquired 151.28 shares of common stock of
Fannie May (representing 15.1% of the outstanding common stock of Fannie May
on a fully-diluted basis) for $151,000. These shares of common stock were
purchased from the John W. Jordan II Revocable Trust, which purchased them in
July 1995 for $151,000. On June 28, 1995, the Company purchased from The First
National Bank of Chicago $7.0 million aggregate principal amount of
participations in term loans of a wholly-owned subsidiary of Fannie May for
$7.0 million, and agreed to purchase up to an additional $3.0 million
aggregate principal amount of such participations, depending upon the
financial performance of Fannie May. The additional $3.0 million obligation is
secured by a pledge from the Company of a $3.0 million certificate of deposit
purchased by the Company. On July 29, 1996, Mr. Jordan purchased $2.0 million
of Fannie May Subordinated Notes from the Company at face value plus accrued
interest. Fannie May's Chief Executive Officer is Mr. Quinn, and its
stockholders include Messrs. Jordan, Quinn, Zalaznick and Boucher, who are
directors and stockholders of the Company, as well as other partners,
principals and associates of The Jordan Company who are also stockholders of
the Company. Fannie May, which is also known as "Fannie May Candies," is a
manufacturer and marketer of kitchen-fresh, high-end boxed chocolates through
its 337 company-owned retail stores and through third party retail and
non-retail sales channels. Its products are marketed under both the "Fannie
May" and "Fanny Farmer" brand names.
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On July 2, 1997, the Company received from Fannie May, $14.3 million in
exchange for the above investments held by the Company. The amount received
also included $1.6 million of accrued interest and premium on the above
Subordinated Notes and term loans. On July 7, 1997, the Company received $3.0
million as a return of the certificate of deposit held by the Company as
security for an obligation to purchase additional participation in the
above-mentioned term loans.
Cape Craftsmen. On July 29, 1996, the Company acquired the stock of Cape
Craftsmen, Inc. ("Cape Craftsmen") from the Jordan Company and JZCC in
exchange for $12.1 million of notes receivable from Cape Craftsmen. Since the
Company and Cape Craftsmen have common ownership, the net assets of Cape
Craftsmen were recorded at the historical basis, $7.6 million, and resulted in
a non-cash loss of $4.5 million.
Legal Counsel. Mr. G. Robert Fisher, a director of, and the general
counsel and secretary to, the Company, is also a partner of Bryan Cave, a
limited liability partnership, and was a partner in a predecessor firm,
Smith, Gill, Fisher & Butts. Mr. Fisher and his law firm have represented the
Company and The Jordan Company in the past, and expect to continue
representing them in the future. In 1996, Bryan Cave LLP was paid
approximately $1.5 million in fees and expenses by the Company.
SAR Payments. In connection with acquiring the Company's subsidiaries, the
sellers of the subsidiaries, who usually included the subsidiary's management,
often receive seller notes, stock, stock appreciation rights ("SARs") and
special bonus plans in respect of those subsidiaries. In April 1997, the
Company paid and purchased SARs and related interests at three companies. At
Dura-Line, the Company paid $9.4 million to purchase Dura-Line SARs from the
president and chief financial officer of Dura-Line, and agreed to redeem $1.9
million of Dura-Line preferred stock held by the president and chief financial
officer of Dura-Line in April 1998. At AIM and Cambridge, the Company paid
$3.1 million to purchase AIM and Cambridge SARs (based upon 20% of AIM's and
Cambridge's appreciation from 1989 to 1996) from the estate of the former
president of AIM and Cambridge. Each of these payments and purchases in
respect of the SARs was expensed for financial reporting purposes.
Sale of Paw Print. As part of the Plan, the Company sold the stock of Paw
Print on July 31, 1997 for approximately $10.0 million of net cash proceeds
(and the assumption by the purchaser of approximately $2.5 million of
indebtedness) to a newly-formed company, which is organized and owned by the
Jordan Group, but is not a subsidiary of the Company. The Company purchased
Paw Print on November 8, 1996, for a purchase price of $9.25 million and a
$2.5 million subordinated seller note. See "Recapitalization and Repositioning
Plan."
Directors and Officers Indemnification. The Company has entered into
indemnification agreements with each member of the Board of Directors whereby
the Company has agreed, subject to certain exceptions, to indemnify and hold
harmless each director from liabilities incurred as a result of such person's
status as a director of the Company. See "Management--Directors and Executive
Officers of the Company."
Future Arrangements. The Company has adopted a policy that future
transactions between the Company and its officers, directors and other
affiliates (including the Motors and Gears and the Jordan Telecommunication
Products subsidiaries) must (i) be approved by a majority of the members of
the Board of Directors and by a majority of the disinterested members of the
Board of Directors and (ii) be on terms no less favorable to the Company than
could be obtained from unaffiliated third parties.
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RECAPITALIZATION AND REPOSITIONING PLAN
The Company has implemented the Plan to recapitalize and reposition its
subsidiaries in order to establish them as more independent, stand-alone,
industry-focused companies, to provide the Company with additional financial
and operational flexibility and to allow the Company's stockholders and
management of JTP and M&G to invest directly in Jordan Telecommunication
Products and Motors and Gears.
The principal elements of the Plan include the following:
The Old Senior Notes Offering. The issuance and sale of the Old Senior
Notes for net proceeds of approximately $113 million, which was completed on
July 25, 1997.
JTP Recapitalization. The formation of JTP, which acquired all of the
Jordan Telecommunication Products subsidiaries from the Company in a series of
transactions for aggregate consideration of $294.0 million, consisting of
$284.0 million of cash proceeds and $10.0 million of assumed obligations. As
part of the JTP Recapitalization, the Company purchased $20.0 million of
aggregate initial liquidation preference of JTP Junior Preferred Stock,
resulting in net cash proceeds to the Company of $264.0 million. See "Risk
Factors--Consequences of Subsidiary Deconsolidation," "Certain
Transactions--Recapitalization and Repositioning Plan" and "Description of
Capital Stock--Subsidiary Securities--JTP Junior Preferred Stock."
JTP Offering. The issuance and sale by JTP of $190.0 million of Senior
Notes, $85.0 million of initial accreted value of Senior Discount Notes and
units consisting of Senior Preferred Stock with an aggregate liquidation
preference of $25.0 million and shares of common stock concurrent with the Old
Senior Notes Offering.
Fannie May Refinancing. The refinancing of Fannie May , including the
refinancing of notes held by the Company in an aggregate principal amount
(together with accrued interest) of $14.4 million at June 30, 1997. The
Company received net cash proceeds of approximately $17.4 million from the
Fannie May Refinancing. See "Certain Transactions--Fannie May."
New Credit Agreement. The establishment of the New Credit Agreement by
JII, a subsidiary of the Company, by amending and restating the JII Credit
Agreement. The New Credit Agreement provides the Company and certain of its
subsidiaries with a revolving credit and letter of credit facility of up to
$75.0 million, which was undrawn as of July 31, 1997. See "Description of
Certain Indebtedness--Credit Agreements."
Reclassification of Subsidiaries. The reclassification or designation of
the Specialty Printing and Labeling subsidiaries as Restricted Subsidiaries
for purposes of the Company's Indentures, which will have the effect of
subjecting Specialty Printing and Labeling subsidiaries to the restrictive
covenants of the Indentures and the reclassification or designation of JI
Properties as a Non-Restricted Subsidiary for the purposes of the Indentures.
Following this reclassification, the Company will continue to guaranty JI
Properties' current capital leases.
The net proceeds from the foregoing were used as follows:
Repayment of the Old Credit Agreements. The repayment in full of
approximately $78.0 million aggregate principal amount of indebtedness under
the Old Credit Agreements. See "Description of Certain Indebtedness--Credit
Agreements--Old Credit Agreements."
Tender Offer and Consent Solicitation for the Old Senior Notes. The
completion of a Tender Offer for substantially all of the Company's 10 3/8%
Senior Notes due 2003 and an accompanying consent solicitation to amend the
related Indenture and the payment of certain fees and expenses in connection
with the Tender Offer and the consent solicitation for the Company's 10 3/8%
Senior Notes due 2003. See "Description of Certain Indebtedness--10 3/8%
Senior Notes due 2003 and Discount Debentures--Tender Offer" and "--10 3/8%
Senior Notes due 2003 Consent Solicitation and Amendments."
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Consent Solicitation for the Discount Debentures. The completion of a
consent solicitation for the Old Discount Debentures which includes (i) the
adoption of certain amendments to the Old Discount Debentures Indenture and
(ii) the payment of certain fees and expenses relating to the consent
solicitation for the Old Discount Debentures. See "Description of Certain
Indebtedness--10 3/8% Senior Notes due 2003 and Discount Debentures--Old
Discount Debentures Consent Solicitation and Amendments."
In addition, as part of the Company's strategy to make complementary
acquisitions and to divest non-core businesses, the Company has executed the
following transactions as additional elements of the Plan:
M&G Recapitalization. The recapitalization, in May 1997, of the Company's
investment in Motors and Gears through the amendment and restatement of the
Company's preferred stock investment in M&G involving, among other things, the
increase to $42.0 million of the initial aggregate liquidation preference of
the M&G Junior Preferred Stock. In connection with the M&G Recapitalization,
M&G issued 16,250 shares of M&G common stock (representing approximately 82.5%
of the outstanding shares of M&G common stock) to the Jordan Group and M&G
management for total consideration of $2.2 million (of which $1.1 million was
paid in cash and $1.1 million was paid through the delivery of 8% zero coupon
notes due 2007). See "Risk Factors--Consequences of Subsidiary
Deconsolidation," "Certain Transactions" and "Description of Capital
Stock--Subsidiary Securities--M&G Junior Preferred Stock."
Acquisitions. The acquisition by Jordan Telecommunication Products of the
assets of LoDan for approximately $17.0 million in May 1997, and the
acquisition by Motors and Gears of the stock of FIR for approximately $51.3
million in June 1997.
Dispositions. The sale of Hudson in May 1997 for approximately $35.0
million, and the sale of Paw Print to an affiliate in July 1997 for
approximately $10.0 million in net cash proceeds and approximately $2.5
million of assumed debt. See "Certain Transactions--Sale of Paw Print."
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The following is a summary of certain terms of certain indebtedness of the
Company.
CREDIT AGREEMENTS
New Credit Agreement. On July 25, 1997, JII entered into the New Credit
Agreement under which JII is able to borrow, on behalf of the Company, to fund
acquisitions, provide working capital and for other general corporate
purposes. The New Credit Agreement provides for a revolving line of credit of
$75.0 million over a term of five years and the agreement is secured by a
security interest in substantially all of the assets of the Company's
Restricted Subsidiaries, including a pledge of all of the stock of the
Company's Restricted Subsidiaries, and guaranteed by the Company's Restricted
Subsidiaries. At July 31, 1997, no amounts were outstanding under the New
Credit Agreement. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
Other Credit Facilities. Motors and Gears has available a line of credit
from Bankers Trust Company in the amount of $75.0 million (the "M&G Credit
Agreement"). The line of credit matures in November 2001. At July 31, 1997,
$38.0 million was outstanding on the M&G Credit Agreement. Outstanding
borrowings under the M&G Credit Agreement carry a floating rate of LIBOR plus
2.5% or base rate plus 1.5% at the option of M&G. The M&G Credit Agreement is
secured by substantially all of the assets of the operating subsidiaries of
the Motors and Gears group and is guaranteed by those subsidiaries.
Dura-Line has available a line of credit from ABN Amro Bank N.V. of Prague,
Czech Republic in the amount of $0.8 million. The line of credit matures on
April 15, 1998, if not renewed. At July 31, 1997, no amounts were outstanding
under this line of credit. Outstanding borrowings under the line of credit
carry an interest rate of 1.25% above PRIBOR (Prague Inter-Bank Offered Rate).
The applicable rate at June 30, 1997 was 12.18%. The facility is secured by
the assets of Dura-Line's majority owned subsidiary, Dura-Line CT s.r.o.,
which is located in the Czech Republic. The facility is also guaranteed with a
standby letter of credit issued by Dura-Line.
On July 25, 1997, JTP Industries, Inc., a subsidiary of JTP, entered into a
credit agreement (the "JTP Credit Agreement"), under which Jordan
Telecommunication Products, through JTP Industries, Inc., is able to fund
acquisitions, provide working capital and for other general corporate
purposes. The JTP Credit Agreement provides for a revolving line of credit of
$110.0 million over a term of five years and the agreement is secured by a
first priority security interest in substantially all of the assets of the
operating subsidiaries of the Jordan Telecommunication Products Group,
including a pledge of all the stock of the subsidiaries. Payments of principal
and interest on amounts borrowed under the JTP Credit Agreement is guaranteed
by JTP's operating subsidiaries.
Dura-Line Notes Payable. Dura-Line maintains $1.1 million in notes payable
due in monthly installments through 1999 bearing interest at rates ranging
from 5.7% to 8.3%. The notes are secured by an interest in certain of
Dura-Line's equipment.
Diversified Notes Payable. Diversified maintains $0.1 million in notes
payable due in monthly installments through 2001 bearing interest at rates
ranging from 7.7% to 9.9%. The notes are secured by an interest in certain of
Diversified's equipment.
CAPITAL LEASES
Interest rates on capital leases range from 8.3% to 14.5% and mature in
installments through 2001.
The future minimum lease payments as of December 31, 1996 under capital
leases (certain of which are capital leases of Non-Restricted Subsidiaries
guaranteed by the Company) consist of the following:
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<TABLE>
<CAPTION>
<S> <C>
1997........................................... $ 6,525,000
1998 .......................................... 10,734,000
1999 .......................................... 3,913,000
2000 .......................................... 11,545,000
2001 .......................................... 302,000
Thereafter .................................... --
------------
Total ....................................... 33,019,000
Less amount representing interest ............. 5,525,000
------------
Present value of future minimum lease
payments...................................... $27,494,000
============
</TABLE>
The present value of the future minimum lease payments approximates the
book value of property, plant and equipment under capital leases at December
31, 1996.
SELLER PROMISSORY NOTES
In connection with the acquisition of Valmark, a Specialty Printing and
Labeling subsidiary, Valmark issued to the seller a $4.0 million, 8.0% note
(the "Valmark Seller Note"). The Valmark Seller Note is a general unsecured
obligation of Valmark, subordinated to borrowings under the SPL Credit
Agreement and, the Company expects, subordinated to borrowings under the New
Credit Agreement. Interest under the Valmark Seller Note is payable annually
in arrears and Valmark is required to pay installments of principal on the
Valmark Seller Note as follows: (i) $2.0 million in 1999 and (ii) $2.0 million
in 2000. Subject to the terms and conditions of the New Credit Agreement,
Valmark may prepay the principal amount of the Valmark Seller Note in whole or
in part at any time without payment of any premium or penalty.
In connection with the acquisition of Pamco, a Specialty Printing and
Labeling subsidiary, Pamco issued to the seller a $4.0 million, 8.0% note (the
"Pamco Seller Note"). The Pamco Seller Note is a general unsecured obligation
of Pamco, subordinated to borrowings under the SPL Credit Agreement and, the
Company expects, will be subordinated to borrowings under the New Credit
Agreement. Interest under the Pamco Seller Note is payable annually in arrears
and Pamco is required to pay installments of principal on the Pamco Seller
Note as follows: (i) $2.0 million in 2000 and (ii) $2.0 million in 2001.
Subject to the terms and conditions of the New Credit Agreement, Pamco may
prepay the principal amount of the Pamco Seller Note in whole or in part at
any time without payment of any premium or penalty.
In connection with the acquisition of Merkle-Korff, a Motors and Gears
subsidiary, Merkle-Korff issued to the seller a $5.0 million, 9% seller note
(the "Merkle-Korff Seller Note") due December 31, 2003. The Merkle-Korff
Seller Note is a general unsecured obligation of Merkle-Korff, subordinated to
borrowings under the M&G Credit Agreement and, the Company expects,
subordinated to borrowings under the New Credit Agreement. Interest under the
Merkle-Korff Seller Note is payable annually in arrears and Merkle-Korff is
required to pay installments of principal on the Merkle-Korff Seller Note as
follows: (i) $1.0 million on December 31, 2000; (ii) $1.25 million on December
31, 2001; (iii) $1.25 million on December 31, 2002; and (iv) the entire then
outstanding principal amount on December 31, 2003. Subject to the terms and
conditions of the M&G Credit Agreement, Merkle-Korff may prepay the principal
amount of the Merkle-Korff Seller Note in whole or in part at any time without
payment of any premium or penalty.
In connection with the acquisition of Diversified, a Jordan
Telecommunication Products subsidiary, Diversified issued to the sellers an
aggregate of $1.5 million of 8.0% subordinated promissory notes (the
"Diversified Seller Notes"). The Diversified Seller Notes mature in 2004.
One-half of the aggregate principal amount of the Diversified Seller Notes is
due in 2003 and the remaining one-half is due in 2004. Diversified has the
right to prepay the Diversified Seller Notes. The aggregate principal amount
of the Diversified Seller Notes is guaranteed by the Company.
In connection with the acquisition of LoDan, a Jordan Telecommunication
Products subsidiary, LoDan issued to the Seller a $1.5 million 8.0%
subordinated promissory note (the "LoDan Seller Note"). The LoDan Seller Note
matures in 1999. One-half of the principal amount of the LoDan Seller Note is
due in 1998 and the remaining one-half is due in 1999.
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In connection with the acquisition of Seaboard, a Specialty Printing and
Labeling subsidiary, Seaboard issued to the seller a $1.5 million 8.0%
subordinated promissory note due in 2001.
In connection with the acquisition of Parsons, a Consumer and Industrial
Products subsidiary, Parsons issued to the seller a $0.6 million 9.0%
subordinated promissory note (the "Parsons Seller Note"). The Parsons Seller
Note matured in 1991. As of June 30, 1997, no payments have been made and no
interest has been accrued by the Company in respect of the Parsons Seller
Note.
SAR AGREEMENTS
Dura-Line Preferred Stock and SARs Redemption Agreement. Dura-Line has
outstanding 187.5 shares of its 7% cumulative preferred stock (the "Dura-Line
Preferred Stock") with an aggregate liquidation preference of $1.9 million
issued to certain former stockholders of Dura-Line. The former stockholders
were also granted SARs exercisable upon the occurrence of certain
extraordinary corporate transactions. On April 10, 1997, Dura-Line entered
into an agreement (the "Redemption Agreement"), pursuant to which Dura-Line
paid the former stockholders $9.4 million in cash and gave the former
stockholders a promissory note for $4.7 million in consideration for the
former stockholders' SARs. The promissory note bears interest at the rate of
8%, is payable in annual installments and matures on April 10, 2001. Dura-Line
is required by the Redemption Agreement to redeem the remaining shares of
Dura-Line Preferred Stock on April 10, 1998 for $1.9 million. The holders of
the Dura-Line Preferred Stock agreed to forego the payment of accumulated and
unpaid dividends of $0.7 million. If, prior to April 30, 1998, the Company
receives offering proceeds from an initial public offering of Dura-Line common
stock, the Company is required to pay the former stockholders of Dura-Line an
additional $2.3 million. If the Company does not receive proceeds from an
initial public offering of Dura-Line common stock prior to April 30, 1998, the
former stockholders will receive 25% of Dura-Line's 1997 gross profit (as
defined in the Redemption Agreement) in excess of $30.0 million. As
consideration for signing the Redemption Agreement, the former stockholders
will receive total non-compete payments of $0.4 million over the 13-month
period beginning April 10, 1997.
AIM and Cambridge SARs. In April 1997, the Company paid $3.1 million to
purchase AIM and Cambridge SARs (based upon 20% of AIM and Cambridge
appreciation from 1989 to 1996) from the estate of the former president of AIM
and Cambridge.
Each of these payments and purchases in respect of the SARs was expensed
for financial reporting purposes.
SUBSIDIARY EARN-OUT AGREEMENTS
Pursuant to earn-out agreements entered into in connection with the
acquisition of certain of the subsidiaries of Jordan Telecommunication
Products, the management of the subsidiaries has the opportunity to earn
bonuses based on the EBIT (as defined in the agreements) growth of their
respective subsidiaries for up to four fiscal years. The cumulative maximum
payout pursuant to these earn-out agreements is approximately $8.2 million.
M&G NEW SENIOR NOTES
In November 1996, M&G, a majority-owned subsidiary of the Company, through
its wholly-owned subsidiary, Motors and Gears, Inc., issued $170.0 million in
aggregate principal amount of 10 3/4% Senior Notes (the "M&G New Senior
Notes"). Interest on the M&G New Senior Notes is payable in arrears on May 15
and November 15 of each year commencing May 15, 1997. The M&G New Senior Notes
are redeemable at the option of Motors and Gears, Inc., in whole or in part,
at any time on or after November 15, 2001. Motors and Gears, Inc. may also
redeem up to 35% of the original aggregate principal amount of the M&G New
Senior Notes prior to November 15, 1999, under certain circumstances. The fair
value of the M&G New Senior Notes at June 30, 1997, was $168.3 million. The
fair value was calculated using the M&G New Senior Notes' June 30, 1997 market
price multiplied by the face amount. The M&G New Senior Notes are not secured
by the assets of Motor and Gears, Inc., M&G or the Company.
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The indenture relating to the M&G New Senior Notes contains certain
covenants which restrict (i) the payment of dividends; (ii) the repurchase of
stock and the making of certain other restricted payments; (iii) certain
mergers or consolidations; and (iv) the assumption of certain levels of
additional indebtedness. The Company is expected to continue to be in
compliance with the provisions of this indenture.
10 3/8% SENIOR NOTES DUE 2003 AND DISCOUNT DEBENTURES
In July 1993, the Company issued $275.0 million in aggregate principal
amount of 10 3/8% Senior Notes due 2003. These notes bear interest at a rate
of 10 3/8% per annum, payable semi-annually in cash on February 1 and August 1
of each year. The 10 3/8% Senior Notes are redeemable for 105.18750% of their
principal amount from August 1, 1998 to July 31, 1999. The fair value of the
10 3/8% Senior Notes was $272.3 million at June 30, 1997. The fair value was
calculated using the 10 3/8% Senior Notes' June 30, 1997 market price
multiplied by the face amount. The 10 3/8% Senior Notes are not secured by the
assets of the Company.
In July 1993, the Company issued $133.1 million aggregate principal amount
of 11 3/4% Senior Subordinated Discount Debentures due 2005. The 11 3/4%
Discount Debentures due 2005 were issued at a substantial discount from their
principal amount. The 11 3/4% Discount Debentures due 2005 bore interest at a
rate of 11 3/4% per annum, payable in cash semi-annually on February 1 and
August 1 of each year beginning in 1999.
In April 1997, the Company privately placed approximately $214.0 million
aggregate principal amount of 11 3/4% Series A Senior Subordinated Discount
Debentures due 2009, at 56.52% of such principal amount. The Old Discount
Debentures are eligible for resale under Rule 144A of the Securities Act. The
Company placed the Old Discount Debentures to refinance substantially all of
the $133.1 million aggregate principal amount of its 11 3/4% Discount
Debentures due 2005. As of June 30, 1997, approximately $0.2 million of the 11
3/4% Discount Debentures due 2005 were outstanding.
Tender Offer
As part of the Plan, the Company concluded the Tender Offer for
substantially all of the aggregate principal amount of its outstanding 10 3/8%
Senior Notes due 2003 (at a premium to principal amount), plus accrued and
unpaid interest to the date of repurchase. The Company may, after the Tender
Offer, seek to repurchase 10 3/8% Senior Notes due 2003 pursuant to open
market or privately negotiated purchases or otherwise on terms that may or may
not differ from the terms of the Tender Offer and the terms of the redemption
of 10 3/8% Senior Notes due 2003 pursuant to the relevant Indenture.
The pro forma financial information included in this Prospectus reflects
that substantially all of the outstanding 10 3/8% Senior Notes due 2003 were
tendered pursuant to the Tender Offer. To the extent that 10 3/8% Senior Notes
due 2003 remained outstanding after the consummation of the Tender Offer, the
Company will continue to be subject to interest and other payment obligations
in respect of such 10 3/8% Senior Notes due 2003 which remained outstanding
following the consummation of the Tender Offer.
10 3/8% Senior Notes due 2003 Consent Solicitation and Amendments
Also as part of the Plan, the Company concluded a consent solicitation to
effect amendments to the 10 3/8% Senior Notes due 2003 Indenture.
Old Discount Debentures Consent Solicitation and Amendments.
Concurrently with the consent solicitation with respect to the 10 3/8%
Senior Notes due 2003, and as part of the Plan, the Company concluded a
consent solicitation to effect amendments to the Old Discount Debentures
Indenture. The amendments modify the covenants in the Old Discount Debentures
Indenture to conform generally to the covenants (and related definitions) in
the Old Senior Notes Indenture. See "Description of the Exchange
Securities--Certain Covenants."
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<PAGE>
JTP SENIOR NOTES AND DISCOUNT DEBENTURES
In connection with the JTP Recapitalization, JTP issued $190.0 million in
aggregate principal amount of 9 7/8% Senior Notes due 2007 (the "JTP Senior
Notes"). The JTP Senior Notes are redeemable at the option of JTP, in whole or
in part, at any time on or after August 1, 2002.
In connection with the JTP Recapitalization, JTP issued Senior Discount
Notes due 2007 (the "JTP Discount Notes") for gross proceeds of $85.0 million.
The JTP Discount Notes were issued at a substantial discount from their
principal amount. The JTP Discount Notes are redeemable at the option of JTP
in whole or in part, at any time on or after August 1, 2002.
The indentures relating to the JTP Senior Notes and the JTP Senior Discount
Notes restrict the ability of JTP to incur additional indebtedness at its
restricted subsidiaries, which are Non-Restricted Securities for the purposes
of the Company's Indentures.
CERTAIN OTHER INDEBTEDNESS
Dura-Line has available a $2.7 million term loan from Heller Financial,
Inc., which is guaranteed by the Company. The Company has also guaranteed
certain equipment leases of Dura-Line of approximately $1.1 million in the
aggregate.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following summarizes certain provisions of the Articles of
Incorporation of the Company and its subsidiaries.
GENERAL
The authorized capital stock of the Company consists solely of 100,000
shares of common stock, par value $0.01 per share (the "Common Stock"). As of
June 30, 1997, 98,501.0004 shares were issued and outstanding.
Common Stock. Each holder of shares of Common Stock is entitled to one vote
per share on all matters to be voted on by stockholders. The holders of Common
Stock are entitled to dividends and other distributions if, as and when
declared by the Board of Directors out of assets legally available therefor,
subject to the restrictions, if any, imposed by other indebtedness outstanding
from time to time. Upon the liquidation, dissolution or winding up of the
Company, the holders of shares of Common Stock would be entitled to share
ratably in the distribution of all of the Company's assets. The holders of
Common Stock have certain preemptive and other subscription rights to purchase
shares of capital stock of the Company. See "Principal
Stockholders--Stockholder Agreement." As of June 30, 1997, there were 19
beneficial owners of Common Stock.
SUBSIDIARY SECURITIES
Pursuant to the Plan, the Company purchased shares of the capital stock of
JTP and M&G. In addition, the Company's stockholders, their affiliates and
third parties hold capital stock of certain of the Company's subsidiaries, the
terms of which may have a significant impact on the Company's operations. A
description of the terms of such capital stock is set forth below.
M&G Junior Preferred Stock. In connection with the M&G Recapitalization,
the Company amended and restated its preferred stock investment in M&G
resulting in the M&G Junior Preferred Stock which initially has an increased
liquidation preference of $42.0 million plus or minus 80% of M&G's net income
or losses through the fifth anniversary of the date of issuance. Following the
fifth anniversary of the date of issuance or the failure by M&G to redeem the
M&G Junior Preferred Stock following the sale of M&G or a public equity
offering by M&G, dividends will accrue on any outstanding M&G Junior Preferred
Stock at a rate of 10% per annum of the Initial M&G Junior Preferred
Liquidation Value. Absent such an event, the Company does not anticipate
receiving any cash distributions in respect of the M&G Junior Preferred Stock
prior to the fifth anniversary of the date of issuance. The M&G Junior
Preferred Stock will have voting rights equal to 82.5% of the total combined
voting power of the M&G Junior Preferred Stock and the M&G common stock.
The M&G Junior Preferred Stock will be mandatorily redeemable on the
eleventh anniversary of the date of issuance and, if and to the extent
permitted by the covenants of M&G's then outstanding indebtedness, on the
earliest to occur of (x) the fifth anniversary of the date of issuance, (y)
the sale of M&G or (z) a public equity offering by M&G. In the event the M&G
Junior Preferred Stock is redeemed prior to the fifth anniversary of the date
of issuance, the redemption price will be equal to (i) $42.0 million, plus or
minus (ii) 80% of M&G's net income or losses through the redemption date
(collectively, the "Initial M&G Junior Preferred Liquidation Value"), plus or
minus (iii) the present value of the projected net income or losses of M&G
from the redemption date through the fifth anniversary of the date of
issuance. In the event the M&G Junior Preferred Stock is redeemed on or after
the fifth anniversary of the date of issuance, the redemption price will be
equal to the Initial M&G Junior Preferred Liquidation Value plus accrued and
unpaid dividends through the Redemption Date.
The redemption of the M&G Junior Preferred Stock could result in the
recognition by the Company of substantial income tax liabilities arising out
of the M&G Recapitalization. See "Risk Factors--Consequences of Subsidiary
Deconsolidation."
JTP Junior Preferred Stock. In connection with the JTP Recapitalization,
the Company purchased JTP Junior Preferred Stock which initially has a
liquidation preference of $20.0 million plus or minus 95%
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of JTP's net income or losses through the fifth anniversary of the date of
issuance. Following the fifth anniversary of the date of issuance, or the
failure by JTP to redeem the JTP Junior Preferred Stock following the sale of
JTP or a public equity offering by JTP, dividends will accrue on any
outstanding JTP Junior Preferred Stock at a rate of 10% per annum of the
Initial JTP Junior Preferred Liquidation Value. Absent such an event, the
Company does not anticipate receiving any cash distributions in respect of the
JTP Junior Preferred Stock prior to the fifth anniversary of the date of
issuance. The JTP Junior Preferred Stock has voting rights equal to 95% of the
total combined voting power of the JTP Junior Preferred Stock and the JTP
common stock.
The JTP Junior Preferred Stock is mandatorily redeemable on the thirteenth
anniversary of the date of issuance and, if and to the extent permitted by the
covenants of JTP's then outstanding indebtedness, on the earliest to occur of
(x) the fifth anniversary of the date of issuance, (y) the sale of JTP or (z)
a public equity offering by JTP. In the event the JTP Junior Preferred Stock
is redeemed prior to the fifth anniversary of the date of issuance, the
redemption price will be equal to (i) $20.0 million, plus or minus (ii) 95% of
JTP's net income or losses through the redemption date (collectively, the
"Initial JTP Junior Preferred Liquidation Value"), plus or minus (iii) the
present value of the projected net income or losses of JTP from the redemption
date through the fifth anniversary of the date of issuance. In the event the
JTP Junior Preferred Stock is redeemed on or after the fifth anniversary of
the date of issuance, the redemption price will be equal to the Initial JTP
Junior Preferred Liquidation Value plus accrued and unpaid dividends through
the Redemption Date.
The redemption of the JTP Junior Preferred Stock could result in the
recognition by the Company of substantial income tax liabilities arising out
of the JTP Recapitalization. See "Risk Factors--Consequences of Subsidiary
Deconsolidation."
JTP Senior Preferred Stock. As part of the JTP Recapitalization, JTP issued
units consisting of Senior Exchangeable Preferred Stock due 2009 (the "JTP
Senior Preferred Stock") and common stock of JTP to qualified institutional
buyers for net cash proceeds to JTP of approximately $25.0 million. The JTP
Senior Preferred Stock ranks senior, with respect to dividend distributions
and distributions upon the liquidation, winding-up and dissolution of JTP, to
the JTP Junior Preferred Stock which is held by the Company. Accordingly, upon
a sale of JTP, which would otherwise require the mandatory redemption of the
JTP Junior Preferred Stock, the proceeds of such sale would be applied first
to pay the liquidation preference and accrued dividends with respect to the
JTP Senior Preferred Stock. The JTP Senior Preferred Stock is mandatorily
redeemable on the twelfth anniversary of the date of issuance. The holders of
the JTP Senior Preferred Stock do not have voting rights, except under limited
circumstances.
Other Subsidiary Preferred Stock. Dura-Line has outstanding 187.5 shares
of its 7% cumulative preferred stock with a liquidation preference of $1.9
million. See "Description of Certain Indebtedness--SAR Agreements--Dura-Line
Preferred Stock and SARs Redemption Agreements."
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Exchange Offer is being made by the Company to satisfy its obligations
pursuant to the Registration Rights Agreements, which require the Company to
use its best efforts to effect the Exchange Offer. See "--Registration
Rights."
The Company is making the Exchange Offer in reliance upon the position of
the staff of the Commission set forth in certain no-action letters addressed
to other parties in other transactions. However, the Company has not sought
its own no-action letter and there can be no assurance that the staff of the
Commission would make a similar determination with respect to the Exchange
Offer as in such other circumstances. Based on these interpretations by the
staff of the Commission, the New Securities issued pursuant to the Exchange
Offer may be offered for resale, resold and otherwise transferred by holders
thereof (other than (i) any such holder that is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act, (ii) an Initial
Purchaser or Holder of Old Discount Debentures who acquired the Old Securities
directly from the Company solely in order to resell pursuant to Rule 144A of
the Securities Act or any other available exemption under the Securities Act,
or (iii) a broker-dealer who acquired the Old Securities as a result of market
making or other trading activities) without compliance with the registration
and prospectus delivery requirements of the Securities Act, provided that such
New Securities are acquired in the ordinary course of such holder's business
and such holder is not participating and has no arrangement or understanding
with any person to participate in a distribution (within the meaning of the
Securities Act) of such New Securities. Any Holder who tenders Old Securities
in the Exchange Offer for the purpose of participating in a distribution of
the New Securities could not rely on such interpretations by the staff of the
Commission and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction, unless such sale is made pursuant to an exemption from such
requirements.
Holders of Old Securities not tendered will not have any further
registration rights and the Old Securities not exchanged will continue to be
subject to certain restrictions on transfer. Accordingly, the liquidity of the
markets for the Old Securities could be adversely affected.
NEITHER THE BOARD OF DIRECTORS OF THE COMPANY NOR THE COMPANY MAKES ANY
RECOMMENDATION TO HOLDERS OF OLD SECURITIES AS TO WHETHER TO TENDER OR REFRAIN
FROM TENDERING ALL OR ANY PORTION OF THEIR OLD SECURITIES PURSUANT TO THE
EXCHANGE OFFER. IN ADDITION, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH
RECOMMENDATION. HOLDERS OF OLD SECURITIES MUST MAKE THEIR OWN DECISION WHETHER
TO TENDER PURSUANT TO THE EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF
OLD SECURITIES TO TENDER AFTER READING THIS PROSPECTUS AND THE LETTER OF
TRANSMITTAL AND CONSULTING THEIR ADVISERS, IF ANY, BASED ON THEIR OWN
FINANCIAL POSITION AND REQUIREMENTS.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
In connection with the issuance of the Old Securities, the Company entered
into Registration Rights Agreements.
Holders of New Securities (other than as set forth below) are not entitled
to any registration rights with respect to the New Securities. Pursuant to the
Registration Rights Agreements, Holders of Old Securities are entitled to
certain registration rights. Under the Registration Rights Agreements, the
Company has agreed, for the benefit of the Holders of the Old Securities, that
it will, at its cost, (i) within 60 days after the date of the original issue
of the Old Senior Notes with respect to the Old Senior Notes, and within 75
days after April 2, 1997 with respect to the Old Discount Debentures, file the
Registration Statement with the Commission and (ii) within 120 days after the
date of original issuance of the Old Senior Notes with respect to the Old
Senior Notes, and within 105 days of April 2, 1997 with respect to the Old
Discount Debentures, use its best efforts to cause such Registration Statement
to be declared
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effective under the Securities Act. The Registration Statement of which this
prospectus is a part constitutes the Registration Statement. If (i) the
Company is not permitted to consummate the Exchange Offer because the Exchange
Offer is not permitted by applicable law or Commission policy or (ii) any
Holder of Transfer Restricted Securities (as defined herein) notifies the
Company within the specified time period that (A) due to a change in law or
policy it is not entitled to participate in the Exchange Offer, (B) due to a
change in law or policy it may not resell the New Securities acquired by it in
the Exchange Offer to the public without delivering a prospectus and the
prospectus contained in the Registration Statement is not appropriate or
available for such resales by such holder or (C) it is a broker-dealer and
acquired the Senior Notes or Discount Debentures directly from the Company or
an affiliate of the Company, the Company will file with the Commission a Shelf
Registration Statement to cover resales of the Transfer Restricted Securities
by the Holders thereof who satisfy certain conditions relating to the
provision of information in connection with the Shelf Registration Statement.
The Company will use its best efforts to cause the applicable registration
statement to be declared effective as promptly as possible by the Commission.
For purposes of the foregoing. "Transfer Restricted Securities" means each
Senior Note or Discount Debenture, until (i) the date of which such Transfer
Restricted Security has been exchanged by a person other than a broker-dealer
for a New Security in the Exchange Offer, (ii) following the exchange by a
broker-dealer in the Exchange Offer of a Transfer Restricted Security for a
New Security, the date on which such New Security is sold to a purchaser who
receives from such broker-dealer on or prior to the date of such sale a copy
of the prospectus contained in the Registration Statement, (iii) the date on
which such security has been effectively registered under the Securities Act
and disposed of in accordance with the Shelf Registration Statement or (iv)
the date on which such security is distributed pursuant to Rule 144 under the
Act.
The Registration Rights Agreements also provide that, (i) unless the
Exchange Offer would not be permitted by applicable law or Commission policy,
the Company will commence the Exchange Offer and use its best efforts to issue
on or prior to 30 business days after the date on which the Registration
Statement was declared effective by the Commission, New Securities in exchange
for all Transfer Restricted Securities tendered prior thereto in the Exchange
Offer and (ii) if obligated to file the Shelf Registration Statement, the
Company will file the Shelf Registration Statement with the Commission on or
prior to 60 days after such filing obligation arises and use its best efforts
to cause the Shelf Registration to be declared effective by the Commission on
or prior to 120 days after such obligation arises. The Company shall use its
best efforts to keep such Shelf Registration Statement continuously effective,
supplemented and amended until the third anniversary of the Closing Date or
such shorter period that will terminate when all the Senior Notes or Discount
Debentures covered by the Shelf Registration Statement have been sold pursuant
to the Shelf Registration Statement. If (a) the Company fails to file any of
the registration statements required by the Registration Rights Agreements on
or before the date specified for such filing, (b) any of such registration
statements are not declared effective by the Commission on or prior to the
date specified for such effectiveness (the "Effectiveness Target Date"), (c)
the Company fails to consummate the Exchange Offer within 30 business days of
the Effectiveness Target Date with respect to the Registration Statement, or
(d) the Shelf Registration Statement or the Registration Statement is declared
effective but thereafter, subject to certain exceptions, ceases to be
effective or usable in connection with resales of Transfer Restricted
Securities during the periods specified in the Registration Rights Agreements
(each such event referred to in clauses (a) through (d) above a "Registration
Default"), then the Company will pay Liquidated Damages to each Holder of
Transfer Restricted Securities, with respect to the first 90-day period
immediately following the occurrence of such Registration Default in an amount
equal to $.05 per week for each $1,000 principal amount of Notes or each
$1,000 liquidation preference of Senior Preferred Stock held by such Holder.
The amount of the Liquidated Damages will increase to $.10 per week for each
$1,000 principal amount of Senior Notes or Discount Debentures, as applicable
until all Registration Defaults have been cured. Following the cure of all
Registration Defaults, the accrual of Liquidated Damages will cease.
Holders of Transfer Restricted Securities will be required to deliver
information to be used in connection with the Shelf Registration Statement and
to provide comments on the Shelf Registration Statement within the time
periods set forth in the Registration Rights Agreements in order to have their
Transfer Restricted Securities included in the Shelf Registration Statement
and benefit from the provisions regarding Liquidated Damages set forth above.
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The summary herein of certain provisions of the Registration Rights
Agreements does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all the provisions of the Registration Rights
Agreements, copies of which are filed as exhibits to the Registration
Statement of which this Prospectus constitutes a part.
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD SECURITIES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept for exchange Old Securities which are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m.,
New York time, on September 29, 1997; provided, however, that if the Company,
in its sole discretion, has extended the period of time for which the Exchange
Offer is open, the term "Expiration Date" means the latest time and date to
which the Exchange Offer is extended. The Company may extend the Exchange
Offer at any time and from time to time by giving oral or written notice to
the Exchange Agent and by timely public announcement. Without limiting the
manner in which the Company may choose to make any public announcement and
subject to applicable law, the Company shall have no obligation to publish,
advertise or otherwise communicate any such public announcement other than by
issuing a release to an appropriate news agency. During any extension of the
Exchange Offer, all Old Securities previously tendered pursuant to the
Exchange Offer will remain subject to 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 thereunder.
As of the date of this Prospectus, $120,000,000 aggregate principal amount
of the Old Senior Notes and $214,036,493 aggregate principal amount of Old
Discount Debentures is outstanding. This Prospectus, together with the Letter
of Transmittal, is first being sent on or about September 9, 1997, to all
Holders of Old Securities known to the Company. The Company's obligation to
accept Old Securities for exchange pursuant to the Exchange Offer is subject
to certain conditions as set forth under "--Certain Conditions to the Exchange
Offer" below.
The terms of the New Senior Notes and the Old Senior Notes and the New
Discount Debentures and the Old Discount Debentures, respectively, are
identical in all material respects, except for certain transfer restrictions
and registration rights relating to the Old Securities and rights to receive
Liquidated Damages. See "--Registration Rights; Liquidated Damages." The Old
Securities were, and the New Securities will be, issued under the Exchange
Indentures and all such Exchange Securities are entitled to the benefits of
the Exchange Indentures.
Old Senior Notes tendered in the Exchange Offer must be in denominations of
principal amount of $1,000 and any integral multiple thereof. Any Old
Securities not accepted for exchange for any reason will be returned without
expense to the tendering Holder thereof as promptly as practicable after the
expiration or termination of the Exchange Offer.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Securities not theretofore
accepted for exchange, upon the occurrence of any of the conditions of the
Exchange Offer specified below under "--Certain Conditions to the Exchange
Offer." The Company will give oral or written notice of any amendment,
nonacceptance or termination to the Holders of the Old Securities as promptly
as practicable. Any amendment to the Exchange Offer will not limit the right
of Holders to withdraw tendered Old Securities prior to the Expiration Date.
See "--Withdrawal Rights."
PROCEDURES FOR TENDERING OLD SECURITIES
The tender to the Company of Old Securities by a Holder thereof as set
forth below and the acceptance thereof by the Company will constitute a
binding agreement between the tendering Holder and the Company upon the terms
and subject to the conditions set forth in this Prospectus and in the
accompanying Letter of Transmittal. Except as set forth below, a Holder who
wishes to tender Old Securities for exchange pursuant to the Exchange Offer
must transmit a properly completed and duly
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executed Letter of Transmittal, including all other documents required by such
Letter of Transmittal, to First Trust National Association (the "Exchange
Agent") at one of the addresses set forth below under "Exchange Agent" on or
prior to the Expiration Date. In addition, either (i) certificates for such
Old Securities must be received by the Exchange Agent along with the Letter of
Transmittal, or (ii) a timely confirmation of a book-entry transfer (a
"Book-Entry Confirmation") of such Old Securities, if such procedure is
available, into the Exchange Agent's account at The Depository Trust Company
(the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date, or (iii) the Holder must comply with the guaranteed delivery
procedures described below. THE METHOD OF DELIVERY OF OLD SECURITIES, LETTERS
OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF
THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED
MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF
TRANSMITTAL OR OLD SECURITIES SHOULD BE SENT TO THE COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Securities surrendered for
exchange pursuant thereto are tendered (i) by a registered Holder of the Old
Securities who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal
or (ii) for the account of an Eligible Institution (as defined below). In the
event that signatures on a Letter of Transmittal or a notice of withdrawal, as
the case may be, are required to be guaranteed, such guarantees must be by a
firm which is a member of a registered national securities exchange or a
member of the National Association of Securities Dealers, Inc. or by a
commercial bank or trust company having an office or correspondent in the
United States (collectively, "Eligible Institutions"). If Old Securities are
registered in the name of a person other than the signer of the Letter of
Transmittal, the Old Securities surrendered for exchange must be endorsed by,
or be accompanied by a written instrument or instruments of transfer or
exchange, in satisfactory form as determined by the Company in its sole
discretion, duly executed by the registered Holder with the signature thereon
guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Securities tendered for exchange will be
determined by the Company in its sole discretion, which determination shall be
final and binding. The Company reserves the absolute right to reject any and
all tenders of any particular Old Securities not properly tendered or to not
accept any particular Old Securities which acceptance might, in the judgment
of the Company or its counsel, be unlawful. The Company also reserves the
absolute right to waive any defects or irregularities or conditions of the
Exchange Offer as to any particular Old Securities either before or after the
Expiration Date (including the right to waive the ineligibility of any Holder
who seeks to tender Old Securities in the Exchange Offer). The interpretation
of the terms and conditions of the Exchange Offer as to any particular Old
Securities either before or after the Expiration Date (including the Letter of
Transmittal and the instructions thereto) by the Company shall be final and
binding on all parties. Unless waived, all defects or irregularities in
connection with tenders of Old Securities for exchange must be cured within
such reasonable period of time as the Company shall determine. Neither the
Company, the Exchange Agent nor any other person shall be under any duty to
give notification of any defect or irregularity with respect to any tender of
Old Securities for exchange, nor shall any of them incur any liability for
failure to give such notification. The Exchange Agent intends to use
reasonable efforts to give notification of such defects and irregularities.
If the Letter of Transmittal is signed by a person or persons other than
the registered Holder or Holders of Old Securities, such Old Securities must
be endorsed or accompanied by appropriate powers of attorney, in either case
signed exactly as the name or names of the registered Holder or Holders that
appear on the Old Securities.
If the Letter of Transmittal or any Old Securities or powers of attorney
are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of a corporation or others acting in a fiduciary
or representatives capacity, such persons should so indicate when signing,
and, unless waived by the Company, proper evidence satisfactory to the Company
of their authority to so act must be submitted.
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By tendering, each Holder will represent to the Company that, among other
things, the New Securities acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the person receiving such New
Securities, whether or not such person is the Holder and such person has no
arrangement with any person to participate in the distribution of the New
Securities. If any Holder or any such other person is an "affiliate," as
defined under Rule 405 of the Securities Act, of the Company, is engaged in or
intends to engage in or has an arrangement or understanding with any person to
participate in a distribution of such New Securities to be acquired pursuant
to the Exchange Offer, or acquired the Old Securities as a result of market
making or other trading activities, such Holder or any such other person (i)
could not rely on the applicable interpretations of the staff of the
Commission and (ii) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives New Securities for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Securities. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
ACCEPTANCE OF OLD SECURITIES FOR EXCHANGE; DELIVERY OF NEW SECURITIES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Old
Securities properly tendered and will issue the New Securities promptly after
acceptance of the Old Securities. See "--Certain Conditions to the Exchange
Offer." For purposes of the Exchange Offer, the Company shall be deemed to
have accepted properly tendered Old Securities for exchange when, as and if
the Company has given oral or written notice thereof to the Exchange Agent,
with written confirmation of any oral notice to be given promptly thereafter.
For each Old Security accepted for exchange, the Holder of such Old
Security will receive a New Security having a principal amount equal to that
of the surrendered Old Security. Accordingly, registered Holders of New
Securities on the relevant record date for the first interest payment date or
dividend payment date following the consummation of the Exchange Offer will
receive interest accruing from the most recent date to which interest has been
paid on the Old Securities, or, if no interest has been paid on the Old
Securities, from July 25, 1997 with respect to the Senior Notes, and from
April 1, 2002 with respect to the Discount Debentures. Old Securities accepted
for exchange will cease to accrue interest or dividends from and after the
date of consummation of the Exchange Offer. Holders of Old Securities whose
Old Securities are accepted for exchange will not receive any payment in
respect of accrued interest or dividends on such Old Securities otherwise
payable on any interest payment date the record date for which occurs on or
after consummation of the Exchange Offer.
In all cases, issuance of New Securities for Old Securities that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of (i) certificates for such Old
Securities or a timely Book-Entry Confirmation of such Old Securities into the
Exchange Agent's account at the Book-Entry Transfer Facility, (ii) a properly
completed and duly executed Letter of Transmittal and (iii) all other required
documents. If any tendered Old Securities are not accepted for any reason set
forth in the terms and conditions of the Exchange Offer, or if Old Securities
are submitted for a greater amount than the Holder desires to exchange, such
unaccepted or nonexchanged Old Securities will be returned without expense to
the tendering Holder thereof (or, in the case of Old Securities tendered by
book-entry transfer into the Exchange Agent's account at the Book-Entry
Transfer Facility pursuant to the book-entry procedures described below, such
nonexchanged Old Securities will be credited to an account maintained with
such Book-Entry Transfer Facility) designated by the tendering Holder as
promptly as practicable after the expiration or termination of the Exchange
Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Securities at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Securities by causing
the Book-Entry Transfer
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Facility to transfer such Old Securities into the Exchange Agent's account at
the Book-Entry Transfer Facility in accordance with such Book-Entry Transfer
Facility's procedures for transfer. However, although delivery of Old
Securities may be effected through book-entry transfer at the Book-Entry
Transfer Facility, the Letter of Transmittal or facsimile thereof, with any
required signature guarantees and any other required documents, must, in any
case, be transmitted to and received by the Exchange Agent at one of the
addresses set forth below under "--Exchange Agent" on or prior to the
Expiration Date or the guaranteed delivery procedures described below must be
complied with.
GUARANTEED DELIVERY PROCEDURES
If a registered Holder of the Old Securities desires to tender such Old
Securities and the Old Securities are not immediately available, or time will
not permit such Holder's Old Securities or other required documents to reach
the Exchange Agent before the Expiration Date, or the procedure for book-entry
transfer cannot be completed on a timely basis, a tender may be effected if
(i) the tender is made through an Eligible Institution, (ii) prior to the
Expiration Date, the Exchange Agent has received from such Eligible
Institution a properly completed and duly executed Letter of Transmittal (or a
facsimile thereof) and Notice of Guaranteed Delivery, substantially in the
form of the corresponding exhibit to the Registration Statement of which this
Prospectus constitutes a part (by telegram, telex, facsimile transmission,
mail or hand delivery), setting forth the name and address of the Holder of
Old Securities and the amount of Old Securities tendered, stating that the
tender is being made thereby and guaranteeing that within three New York Stock
Exchange ("NYSE") trading days after the date of execution of the Notice of
Guaranteed Delivery, the certificates for all physically tendered Old
Securities, in proper form for transfer, or a Book-Entry Confirmation, as the
case may be, and any other documents required by the Letter of Transmittal
will be deposited by the Eligible Institution with the Exchange Agent, and
(iii) the certificates for all physically tendered Old Securities, in proper
form for transfer, or a Book-Entry Confirmation, as the case may be, and all
other documents required by the Letter of Transmittal, are received by the
Exchange Agent within three NYSE trading days after the date of execution of
the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Securities may be withdrawn at any time prior to the
Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at one of the addresses set forth below under
"Exchange Agent." Any such notice of withdrawal must specify the name of the
person having tendered the Old Securities to be withdrawn, identify the Old
Securities to be withdrawn (including the amount of such Old Securities), and
(where certificates for Old Securities have been transmitted) specify the name
in which such Old Securities are registered, if different from that of the
withdrawing Holder. If certificates for Old Securities have been delivered or
otherwise identified to the Exchange Agent, then, prior to the release of such
certificates the withdrawing Holder must also submit the serial numbers of the
particular certificates to be withdrawn and a signed notice of withdrawal with
signatures guaranteed by an Eligible Institution unless such Holder is an
Eligible Institution. If Old Securities have been tendered pursuant to the
procedure for book-entry transfer described above, any notice of withdrawal
must specify the name and number of the account at the Book-Entry Transfer
Facility to be credited with the withdrawn Old Securities and otherwise comply
with the procedures of such facility. 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 Old Securities so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the Exchange Offer. Any Old Securities
which have been tendered for exchange but which are not exchanged for any
reason will be returned to the Holder thereof without cost to such Holder (or,
in the case of Old Securities tendered by book-entry transfer into the
Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry transfer procedures described above, such Old Securities will be
credited to an account with such Book-Entry Transfer Facility
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specified by the Holder) as soon as practicable after withdrawal, rejection of
tender or termination of the Exchange Offer. Properly withdrawn Old Securities
may be retendered by following one of the procedures described under
"--Procedures for Tendering Old Securities" above at any time on or prior to
the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company
shall not be required to accept for exchange, or to issue New Securities in
exchange for, any Old Securities and may terminate or amend the Exchange
Offer, if at any time before the acceptance of such Old Securities for
exchange or the exchange of the New Securities for such Old Securities, any of
the following events shall occur:
(a) there shall be threatened, instituted or pending any action or
proceeding before, or any injunction, order or decree shall have been
issued by, any court or governmental agency or other governmental
regulatory or administrative agency or commission, (i) seeking to restrain
or prohibit the making or consummation of the Exchange Offer or any other
transaction contemplated by the Exchange Offer, or assessing or seeking
any damages as a result thereof, or (ii) resulting in a material delay in
the ability of the Company to accept for exchange or exchange some or all
of the Old Securities pursuant to the Exchange Offer; or any statue, rule,
regulation, order or injunction shall be sought, proposed, introduced,
enacted, promulgated or deemed applicable to the Exchange Offer or any of
the transactions contemplated by the Exchange Offer by any government or
governmental authority, domestic or foreign, or any action shall have been
taken, proposed or threatened, by any government, governmental authority,
agency or court, domestic or foreign, that in the sole judgment of the
Company might directly or indirectly result in any of the consequences
referred to in clauses (i) or (ii) above or, in the sole judgment of the
Company, might result in the holders of New Securities having obligations
with respect to resales and transfers of New Securities which are greater
than those described in the interpretation of the Commission referred to
on the cover page of this Prospectus, or would otherwise make it
inadvisable to proceed with the Exchange Offer; or
(b) there shall have occurred (i) any general suspension of or general
limitation on prices for, or trading in, securities on any national
securities exchange or in the over-the-counter market, (ii) any limitation
by any governmental agency or authority which may adversely affect the
ability of the Company to complete the transactions contemplated by the
Exchange Offer, (iii) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States or any
limitation by any governmental agency or authority which adversely affects
the extension of credit or (iv) a commencement of a war, armed hostilities
or other similar international calamity directly or indirectly involving
the United States, or, in the case of any of the foregoing existing at the
time of the commencement of the Exchange Offer, a material acceleration or
worsening thereof; or
(c) any change (or any development involving a prospective change) shall
have occurred or be threatened in the business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects of the Company and its subsidiaries taken as a whole that, in
the sole judgment of the Company, is or may be adverse to the Company, or
the Company shall have become aware of facts that, in the sole judgment of
the Company, have or may have an adverse effect on the value of the Old
Securities or the New Securities.
Holders of Old Securities will have registration rights and the right to
Liquidated Damages as described under "--Registration Rights; Liquidated
Damages" if the Company fails to consummate the Exchange Offer.
To the Company's knowledge as of the date of this Prospectus, none of the
above events has occurred.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any
such condition or may be waived by the Company in whole or in part at any time
and from time to time in its sole discretion. The failure by the Company at
any time to exercise any of the foregoing rights shall not be deemed a waiver
of any such right and each such right shall be deemed an ongoing right which
may be asserted at any time and from time to time.
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In addition, the Company will not accept for exchange any Old Securities
tendered, and no New Securities will be issued in exchange for any such Old
Securities, if at such time any stop order shall be threatened or in effect
with respect to the Registration Statement of which this Prospectus
constitutes a part of the qualification of the Indentures under the Trust
Indenture Act of 1939.
EXCHANGE AGENT
First Trust National Association has been appointed as the Exchange Agent
for the Exchange Offer. All executed Letters for Transmittal and Notices of
Guaranteed Delivery should be directed to the Exchange Agent at the addresses
set forth below. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notices of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
Deliver to: First Trust National Association, Exchange Agent:
By Mail, Overnight Courier or Hand:
First Trust National Association
180 East Fifth Street
St. Paul, Minnesota 55101
Attn: David Haugen
Specialized Finance Corporate Trust Department
Fourth Floor
Telephone Number:
(612) 244-8162
By Facsimile:
(612) 244-1537
DELIVERY OF A LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
FEES AND EXPENSES
The Company will not make any payment to brokers, dealers or others
soliciting acceptances of the Exchange Offer.
The Company will, however, pay the Exchange Agent reasonable and customary
fees for its services and will reimburse it for reasonable out-of-pocket
expenses in connection therewith. The Company will also pay brokerage houses
and other custodians, nominees and fiduciaries the reasonable out-of-pocket
expenses incurred by them in forwarding copies of this Prospectus and related
documents to the beneficial owners of Old Securities, and in handling tenders
for their customers. The expenses to be incurred in connection with the
Exchange Offer, including the fees and expenses of the Exchange Agent and
printing, accounting, registration, and legal fees, will be paid by the
Company and are estimated to be approximately $60,000.
TRANSFER TAXES
Holders who tender their Old Securities for exchange will not be obligated
to pay any transfer taxes in connection therewith, except that holders who
instruct the Company to register New Securities in the name of, or request
that Old Securities not tendered or not accepted in the Exchange Offer be
returned to, a person other than the registered tendering holder will be
responsible for the payment of any applicable transfer tax thereon.
APPRAISAL RIGHTS
HOLDERS OF OLD SECURITIES WILL NOT HAVE DISSENTERS' RIGHTS OR APPRAISAL
RIGHTS IN CONNECTION WITH THE EXCHANGE OFFER.
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CONSEQUENCES OF NOT EXCHANGING OLD SECURITIES
Holders of Old Securities who do not exchange their Old Securities for New
Securities pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Old Securities as set forth in the legend
thereon as a consequence of the issuance of the Old Securities 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 Old Securities may not be offered or sold, unless registered
under the Securities Act, except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable state securities
laws. The Company does not currently anticipate that it will register the Old
Securities under the Securities Act. Based upon no-action letters issued by
the staff of the Commission to third parties, the Company believes the New
Securities issued pursuant to the Exchange Offer in exchange for the Old
Securities may be offered for resale, resold or otherwise transferred by a
Holder thereof (other than any (i) Holder which is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act), (ii) an
Initial Purchaser or Holder of Old Discount Debentures who acquired the Old
Securities directly from the Company solely in order to resell pursuant to
Rule 144A of the Securities Act or any other available exemption under the
Securities Act, or (iii) a broker-dealer who acquired the Old Securities as a
result of market making or other trading activities) without compliance with
the registration and prospectus delivery requirements of the Securities Act,
provided that such New Securities are acquired in the ordinary course of such
holder's business and such holder is not participating and has no arrangement
or understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such New Securities. However, the Company
has not sought its own no-action letter and there can be no assurance that the
staff of the Commission would make a similar determination with respect to the
Exchange Offer as in such other circumstances. Each Holder, other than a
broker-dealer, must acknowledge that it is not engaged in, and does not intend
to engage in, a distribution of New Securities, and has no arrangement or
understanding to participate in a distribution of New Securities. If any
Holder is an affiliate of the Company, is engaged in or intends to engage in
or has any arrangement or understanding with respect to the distribution of
the New Securities to be acquired pursuant to the Exchange Offer, or acquired
the Old Securities as a result of market or other trading activities, such
Holder (i) could not rely on the relevant determinations of the staff of the
Commission and (ii) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any secondary resale
transaction. Each broker-dealer that receives New Securities for its own
account in exchange for Old Securities must acknowledge that such Old
Securities were acquired by such broker-dealer as a result of market-making
activities or other trading activities and that it will deliver a prospectus
in connection with any resale of such New Securities. See "Plan of
Distribution." In addition, to comply with the securities laws of certain
jurisdications, if applicable, the New Securities may not be offered or sold
unless they have been registered or qualified for sale in such jurisdiction or
an exemption from registration or qualification is available and is complied
with. The Company has agreed to register or qualify the sale of the New
Securities in such jurisdictions only in limited circumstances and subject to
certain conditions.
ACCOUNTING TREATMENT
The exchange of the New Securities for the Old Securities will have no
impact on the Company's accounting records on the date of the exchange.
Accordingly, no gain or loss for accounting purposes will be recognized.
Expenses of the Exchange Offer and expenses related to the Old Securities will
be amortized, pro rata, over the term of the New Securities.
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DESCRIPTION OF THE NEW SECURITIES
The Old Senior Notes were and the New Senior Notes will be issued pursuant
to an indenture (the "Senior Notes Indenture"), dated as of July 25, 1997,
between the Company and First Trust National Association, as trustee (the
"Senior Notes Trustee") The Old Discount Debentures were and the New Discount
Debentures will be issued pursuant to an indenture (the "Discount Debentures
Indenture" and together with the Senior Notes Indenture, the "Exchange
Indentures"), dated as of April 2, 1997, between the Company and First Trust
National Association, as trustee (the "Discount Debentures Trustee" and
together with the Senior Notes Trustee, the "Trustee"). The terms of the
Exchange Securities include those stated in the Exchange Indentures and those
made part of the Exchange Indentures by reference to the Trust Indenture Act
of 1939, as amended (the "Trust Indenture Act"), as in effect on the date of
original issuance of the Senior Notes and the Discount Debentures,
respectively. The Exchange Securities are subject to all such terms, and
holders of the Exchange Securities are referred to the Exchange Indentures and
the Trust Indenture Act for a statement thereof. A copy of the form of each
Exchange Indenture and the form of the Exchange Securities have been filed as
Exhibits to the Registration Statement of which this Prospectus is a part. The
following summary of certain provisions of the Exchange Indentures does not
purport to be complete and is qualified in its entirety by reference to the
Exchange Indentures, including the definitions used therein of certain terms
used below.
GENERAL
Principal of, premium, if any, interest and Liquidated Damages on, the
Exchange Securities will be payable, and the Exchange Securities may be
presented for registration of transfer or exchange, at the respective offices
of the Paying Agent and Registrar in New York, New York. Holders of Exchange
Securities must surrender their Exchange Securities to the Paying Agent to
collect principal payments, and the Company may pay principal and interest by
check and may mail interest checks to a holder's registered address; provided
that all payments with respect to Global Securities and Certificated
Securities, the holders of whom have given wire transfer instructions to the
Company, will be required to be made by wire transfer of immediately available
funds to the accounts specified by the holders thereof. The Registrar may
require payment of a sum sufficient to cover any transfer tax or similar
governmental charge payable in connection with certain transfers or exchanges.
See "Transfer and Exchange." The Trustee will initially act as Paying Agent
and Registrar. The Company may change the Paying Agent or Registrar without
prior notice to holders of Exchange Securities, and, subject to certain
exceptions, the Company or any of its subsidiaries may act as Paying Agent or
Registrar under either or both Exchange Indentures.
The Company's operations are conducted exclusively through its
subsidiaries. As a consequence, the Company's ability to service its
Indebtedness (including the Exchange Securities) is dependent upon the
Company's receipt of funds from its subsidiaries. See "Risk Factors--Holding
Company Structure; Dependence on Subsidiaries; Limitation on Access to Cash
Flow of Subsidiaries."
TERMS OF THE SENIOR NOTES
The Old Senior Notes are and the New Senior Notes will be general unsecured
senior obligations of the Company, will rank senior in right of payment to all
subordinated Indebtedness of the Company (including the Discount Debentures
and the 11 3/4% Discount Debentures due 2005), and will rank pari passu in
right of payment with all senior Indebtedness of the Company (including the 10
3/8% Senior Notes due 2003). The Senior Notes will effectively rank junior to
any secured senior Indebtedness of the Company to the extent of the assets
securing such Indebtedness and to any Indebtedness of the Company's
subsidiaries, including borrowings under the New Credit Agreement. The Senior
Notes will be limited to $120,000,000 in aggregate principal amount. The
Senior Notes will bear interest at the rate set forth on the front cover of
this Prospectus. Interest on each of the Senior Notes is payable semi-annually
in cash on February 1 and August 1 of each year to holders of record of Senior
Notes at the close of business on the January 15 and July 15 next preceding
the interest payment date. Interest will initially accrue from the date of
issuance and the first interest payment date will be February 1, 1998.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months. The Senior Notes will mature on August 1, 2007 and will be issued in
denominations of $1,000 and integral multiples thereof.
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<PAGE>
TERMS OF THE DISCOUNT DEBENTURES
The Old Discount Debentures are and the New Discount Debentures will be
general unsecured senior subordinated obligations of the Company, will rank
junior to all senior Indebtedness of the Company (including the Senior Notes
and the 10 3/8% Senior Notes due 2003), will rank pari passu with all other
senior subordinated Indebtedness of the Company (including the 11 3/4% Senior
Subordinated Discount Debentures due 2005) and will rank senior to all
subordinated Indebtedness of the Company. The Discount Debentures will
effectively rank junior to any Indebtedness of the Company's subsidiaries,
including borrowings under the New Credit Agreement. The Discount Debentures
will be limited to $214,036,493 in aggregate principal amount at maturity
($120,973,426 initial Accreted Value of the Old Discount Debentures that will
fully accrete to face amount on April 1, 2002). The price to the public for
the Discount Debentures represents a yield to maturity of 11 3/4%, computed on
the basis of semiannual compounding. Although for U.S. federal income tax
purposes a significant amount of original issue discount, taxable as ordinary
income, will be recognized by a holder of Discount Debentures as such discount
is amortized from the date of issuance of the Discount Debentures, no cash
interest will be payable with respect to the Discount Debentures prior to
October 1, 2002, except upon redemption or purchase of the Discount Debentures
by the Company. Commencing April 1, 2002, the Discount Debentures will bear
interest at the rate set forth on the cover page of this Prospectus.
Thereafter, interest on the Discount Debentures will be payable semi-annually
in cash on October 1 and April 1 of each year to holders of record of Discount
Debentures at the close of business on the September 15 or March 15 next
preceding the interest payment date. Interest will initially accrue from April
1, 2002 and the first interest payment date will be October 1, 2002. Interest
will be computed on the basis of a 360-day year of twelve 30-day months. The
Discount Debentures will mature on April 1, 2009 and will be issued in
denominations of $1,000 and integral multiples thereof.
REDEMPTION OF EXCHANGE SECURITIES
Optional Redemption. The Senior Notes may not be redeemed at the option of
the Company prior to August 1, 2002. During the 12-month period beginning
August 1 of the years indicated below, the Senior Notes will be redeemable, at
the option of the Company, in whole or in part, on at least 30 but not more
than 60 days' notice to each holder of Senior Notes to be redeemed, at the
redemption prices (expressed as percentages of the principal amount) set forth
below, plus any accrued and unpaid interest to the redemption date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ------------------- ------------
<S> <C>
2002 ............... 105.188%
2003................ 102.594%
2004 and
thereafter......... 100.000%
</TABLE>
The Discount Debentures may not be redeemed at the option of the Company
prior to April 1, 2002. During the 12-month period beginning April 1 of the
years indicated below, the Discount Debentures will be redeemable, at the
option of the Company, in whole or in part, on at least 30 but not more than
60 days' notice to each holder of Discount Debentures to be redeemed, at the
redemption prices (expressed as percentage of the Accreted Value) set forth
below, plus any accrued and unpaid interest and Liquidated Damages to the date
of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ------------------- ------------
<S> <C>
2002................ 105.875%
2003................ 102.937%
2004 and
thereafter......... 100.000%
</TABLE>
The restrictions on optional redemptions contained in the Exchange
Indentures do not limit the Company's right to separately make open market,
privately negotiated or other purchases of Exchange Securities from time to
time.
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Mandatory Redemption. Except as set forth below under "Mandatory Offers to
Purchase Exchange Securities--Change of Control" and "--Asset Sales," the
Company is not required to make any mandatory redemption, purchase or sinking
fund payments with respect to the Exchange Securities.
MANDATORY OFFERS TO PURCHASE EXCHANGE SECURITIES
Change of Control. Upon the occurrence of a Change of Control (such date
being the "Change of Control Trigger Date"), each holder of Exchange
Securities shall have the right to require the Company to purchase all or any
part (equal to $1,000 or an integral multiple thereof) of such holder's
Exchange Securities pursuant to an Offer (as defined herein) at a purchase
price equal to 101% of the aggregate principal amount of the Senior Notes,
plus accrued and unpaid interest, if any, to the date of purchase, and 101% of
the Accreted Value of the Discount Debentures at the date of purchase, plus
any accrued and unpaid interest and Liquidated Damages from April 1, 2002 to
the purchase date if such date occurs after April 1, 2002. Prepayment of the
Exchange Securities pursuant to a Change of Control would constitute a default
under the New Credit Agreement. In the event a Change of Control occurs, the
Company will likely be required to refinance the Indebtedness outstanding
under the New Credit Agreement and the Exchange Securities.
The Discount Debenture Indenture provides that the Change of Control
Trigger Date for the Discount Debentures shall be delayed until all senior
Indebtedness that is required or entitled pursuant to its terms to be redeemed
or purchased upon a Change of Control has been redeemed or purchased. Both
Exchange Indentures provide that the Company shall not be required or
permitted to offer to purchase any Discount Debentures as a result of a Change
of Control until it shall have first redeemed or purchased all senior
Indebtedness that the Company is required by the terms of such senior
Indebtedness to redeem or purchase as a result of a Change of Control. If
there is a Change of Control, Indebtedness under the New Credit Agreement
could be accelerated. Moreover, there can be no assurance that sufficient
funds will be available at the time of any Change of Control to make any
required repurchases of the Exchange Securities.
Asset Sales. Each Exchange Indenture provides that the Company may not, and
may not permit any Restricted Subsidiary to, directly or indirectly,
consummate an Asset Sale (including the sale of any of the Capital Stock of
any Restricted Subsidiary) providing for Net Proceeds in excess of $2,500,000
unless at least 75% of the Net Proceeds from such Asset Sale are applied to
one or more of the following in such combination as the Company shall elect:
(a) an investment in another asset or business in the same line of business
as, or a line of business similar to that of, the line of business of the
Company and its Restricted Subsidiaries at that time; provided, that such
investment occurs on or prior to the 365th day following the date of such
Asset Sale (the "Asset Sale Disposition Date"), (b) the purchase, redemption
or other prepayment or repayment of outstanding senior Indebtedness on or
prior to the Asset Sale Disposition Date or (c) an Offer expiring on or prior
to the Purchase Date (as defined herein). Each Exchange Indenture also
provides that the Company may not, and may not permit any Restricted
Subsidiary to, directly or indirectly consummate an Asset Sale unless at least
50% of the consideration thereof received by the Company or such Restricted
Subsidiary is in the form of cash, cash equivalents or marketable securities.
Any Net Proceeds from any Asset Sale that are not applied or invested as
provided in clauses (a) or (b) shall constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $10,000,000 under an
Exchange Indenture (such date being an "Asset Sale Trigger Date"), the Company
shall make an Offer to purchase the maximum principal amount of the Exchange
Securities then outstanding under such Exchange Indenture that may be
purchased out of Excess Proceeds, at an offer price in cash in an amount equal
to, in the case of Senior Notes, 100% of principal amount thereof plus any
accrued and unpaid interest, if any, to the Purchase Date and, in the case of
Discount Debentures, 100% of the Accreted Value thereof, plus any accrued and
unpaid interest and Liquidated Damages from April 1, 2002 to the purchase date
if such date occurs after April 1, 2002, in accordance with the procedures set
forth in such Exchange Indenture. Pursuant to the Discount Debentures
Indenture, Excess Proceeds under the Senior Notes Indenture will not
constitute Excess Proceeds under the Discount Debentures Indenture except to
the extent that Excess Proceeds under the Senior Notes Indenture are not used
to redeem Senior Notes pursuant to an Offer.
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Notwithstanding the foregoing, to the extent that any or all of the Net
Proceeds of an Asset Sale is prohibited or delayed by applicable local law
from being repatriated to the United States, the portion of such proceeds so
affected will not be required to be applied as described in this or the
preceding paragraph, but may be retained for so long, but only for so long, as
the applicable local law prohibits repatriation to the United States.
To the extent that any Excess Proceeds remain after completion of an Offer,
the Company may use such remaining amount for general corporate purposes.
Procedures for Offers. Within 30 days following any Change of Control or
Asset Sale Trigger Date, the Company shall mail to each holder of Exchange
Securities at such holder's registered address a notice stating: (a) that an
offer ("Offer") is being made pursuant to a Change of Control or an Asset
Sale, as the case may be, the length of time the Offer shall remain open and
the Change of Control Offer amount or the Asset Sale Offer amount, as the case
may be, and the maximum principal amount of Exchange Securities that will be
accepted for payment pursuant to such Offer, (b) the purchase price, the
amount of accrued and unpaid interest as of the Purchase Date, and the
purchase date (which shall be no earlier than 30 days or later than 60 days
from the date such notice is mailed (the "Purchase Date")), and (c) such other
information required by the Exchange Indentures and applicable law and
regulations.
On the Purchase Date for any Offer, the Company will, to the extent lawful
and required by each Exchange Indenture and such Offer, (1) in the case of an
Offer resulting from a Change of Control, accept for payment all Exchange
Securities or portions thereof tendered pursuant to such Offer and, in the
case of an Offer resulting from an Asset Sale, accept for payment the maximum
principal amount of Exchange Securities or portions thereof tendered pursuant
to such Offer that can be purchased out of Excess Proceeds from such Asset
Sale, (2) deposit with the Paying Agent the aggregate purchase price of all
Exchange Securities or portions thereof accepted for payment and any accrued
and unpaid interest, if any, on such Exchange Securities as of the Purchase
Date, and (3) deliver or cause to be delivered to the Trustee the Exchange
Securities so accepted pursuant to the Offer. The Paying Agent shall promptly
mail to each holder of Exchange Securities so accepted, payment in an amount
equal to the purchase price for such Exchange Securities and any accrued and
unpaid interest, if any, on such Exchange Securities as of the purchase date,
and the Trustee shall promptly authenticate and mail (or cause to be
transferred by book-entry) to such holder replacement Exchange Securities
equal in principal amount to any unpurchased portion of the Exchange
Securities surrendered; provided that each such replacement Exchange
Securities shall be in a principal amount of $1,000 or integral multiples
thereof. The Company will publicly announce the results of the Offer on or as
soon as practicable after the purchase date.
The Company will comply with Rule 14e-1 under the Exchange Act and any
other securities laws and regulations to the extent such laws and regulations
are applicable to any Offer. To the extent that the provisions of the
securities laws or regulations conflict with provisions of either Exchange
Indentures, the Company shall comply with any such securities laws and
regulations and shall not be deemed to have breached its obligations under
such Exchange Indenture by virtue thereof.
Selection and Notice. In the event of a redemption or purchase of less than
all of the Exchange Securities, the Exchange Securities to be redeemed or
purchased will be chosen by the Trustee pro rata, by lot or any other method
that the Trustee considers fair and appropriate and, if the Exchange
Securities are listed on any securities exchange, by a method that complies
with the requirements of such exchange, provided that, if less than all of a
holder's Exchange Security is to be redeemed or accepted for payment, only
principal amounts of $1,000 or multiples thereof may be selected for
redemption or accepted for payment. If the Company is not able to purchase all
of the Exchange Securities tendered pursuant to an Offer resulting form a
Change of Control, it will first purchase up to all of the Senior Notes
tendered, then up to all of the Discount Debentures tendered. Notice of any
redemption or offer to purchase will be mailed at least 30 days but not more
than 60 days before the redemption or purchase date to each holder of Exchange
Securities to be redeemed or purchased at such holder's registered address.
RANKING
Senior Notes. The Senior Notes will rank senior in right of payment to all
senior subordinated Indebtedness of the Company (including the Discount
Debentures and the 11 3/4% Senior Subordinated
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<PAGE>
Discount Debentures due 2005) and all subordinated Indebtedness of the
Company. The New Senior Notes will rank pari passu with all senior
Indebtedness of the Company (including the 10 3/8% Senior Notes due 2003).
Discount Debentures. The Discount Debentures are subordinated as set forth
in the Discount Debentures Indenture, to the prior payment when due of the
principal of, premium, if any, and interest on, all existing and future senior
Indebtedness (including the Senior Notes and the 10 3/8% Senior Notes due
2003). The Discount Debentures will rank pari passu with all senior
subordinated Indebtedness of the Company (including the 11 3/4 Senior
Subordinated Discount Debentures due 2005) and senior to all subordinated
Indebtedness of the Company.
The Discount Debentures Indenture will provide that, upon any payment or
distribution of the Company's assets of any kind or character, whether in
cash, property or securities, to creditors in any Insolvency or Liquidation
Proceeding, all amounts due or to become due under or with respect to all
senior Indebtedness (including any post-petition interest) will first to be
paid in full in cash before any payment is made on account of the Discount
Debentures. Except as set forth in the Discount Debentures Indenture, upon an
Insolvency or Liquidation Proceeding, any payment or distribution of the
Company's assets of any character, whether in cash, property or securities, to
which the holders of the Discount Debentures or the Discount Debenture Trustee
would be entitled to receive will be paid by the Company or by any receiver,
trustee in bankruptcy, liquidating trustee, agent or other person making such
payment or distribution, or by the holders of the Discount Debentures or by
the Discount Debenture Trustee under the Discount Debentures Indenture if
received by them, directly to the holders of senior Indebtedness or their
representative, as their interests may appear, for application to the payment
of senior Indebtedness remaining unpaid until all such senior Indebtedness has
been paid in full in cash, after giving effect to any concurrent payment,
distribution or provision therefor to or for the holders of senior
Indebtedness.
The Discount Debentures Indenture will further provide that (a) upon and
during the continuation of any default in the payment of principal of, or
premium, if any, or interest on, any senior Indebtedness, or any Obligation
owing under or in respect of senior Indebtedness, or of any event of default
(other than a payment default) with respect to any senior Indebtedness shall
have occurred and be continuing and shall have resulted in such senior
Indebtedness becoming or being declared due and payable prior to the date on
which it would otherwise have become due and payable, or (b) if any event of
default other than as described in clause (a) with respect to any designated
senior Indebtedness will have occurred and be continuing permitting the
holders of such designated senior Indebtedness to declare such designated
senior Indebtedness due and payable prior to the date on which it would
otherwise have become due and payable, then no payment will be made by or on
behalf of the Company on account of the Discount Debentures (x) in case of any
payment or nonpayment event of default specified in clause (a) unless and
until such event of default will have been cured or waived in writing in
accordance with the instruments governing such senior Indebtedness or such
acceleration will have been rescinded or annulled, or (y) in case of any
nonpayment event of default specified in clause (b), during the period (a
"Payment Blockage Period") commencing on the date that the Company and the
Discount Debenture Trustee receive written notice (a "Payment Notice") of such
event of default (which notice will be binding on the Discount Debenture
Trustee and the holders of Discount Debentures as to the occurrence of such an
event of default) from holders of designated senior Indebtedness (or their
representative) and ending on the earliest of: (A) 179 days after such date,
(B) the date, if any, on which such designated senior Indebtedness to which
such default relates is paid in full or such default is cured or waived in
writing in accordance with the instruments governing such designated senior
Indebtedness by the holders of such designated senior Indebtedness, and (C)
the date on which the Discount Debenture Trustee receives from the holders of
designated senior Indebtedness (or their representative) that commenced the
Payment Blockage Period written notice that the Payment Blockage Period has
been terminated. During any consecutive 360-day period, the aggregate of all
Payment Blockage Periods shall not exceed 179 days and there shall be a period
of at least 181 consecutive days in each consecutive 360-day period when no
Payment Blockage Period is in effect. No event of default that existed or was
continuing with respect to the senior Indebtedness for which notice commencing
a Payment Blockage Period was given on the date such Payment Blockage Period
commenced shall be, or be made, the basis for the commencement of any
subsequent Payment Blockage Period unless such event of default is cured or
waived for a period of not less than 90 consecutive days.
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By reason of the subordination provisions described above, in the event of
an Insolvency or Liquidation Proceeding, funds and or any other property that
would otherwise be payable to holders of the Discount Debentures will be paid
to the holders of senior Indebtedness to the extent necessary to pay holders
of senior Indebtedness in full in cash, and the Company may be unable to meet
fully its obligations with respect to the Discount Debentures. Except as set
forth in the Discount Debentures Indenture, the subordination provisions
described above will cease to be applicable to the Discount Debentures upon
any defeasance of the Discount Debentures as described under "Description of
Securities--and Discharge of the Indentures."
CERTAIN COVENANTS
The Exchange Indentures contain, among other things, the following
covenants:
Limitation on Restricted Payments. Each Exchange Indenture provides that
the Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, (i) declare or pay any dividend or make any
distribution on account of the Company's or such Restricted Subsidiary's
Capital Stock or other Equity Interests (other than dividends or distributions
payable in Equity Interests (other than Disqualified Stock) of the Company or
a Restricted Subsidiary and other than dividends or distributions payable by a
Restricted Subsidiary to another Restricted Subsidiary or to the Company),
(ii) purchase, redeem or otherwise acquire or retire for value any Equity
Interests of the Company or any of its Restricted Subsidiaries (other than any
such Equity Interest purchased from the Company or any Restricted Subsidiary),
(iii) voluntarily prepay Indebtedness that is subordinated to the Exchange
Securities issued under such Exchange Indenture, whether any such subordinated
Indebtedness is outstanding on, or issued after, the date of original issuance
of the Exchange Securities, or (iv) make any Restricted Investment (all such
dividends, distributions, purchases, redemptions or other acquisitions,
retirements, prepayments and Restricted Investments being collectively
referred to as "Restricted Payments"), if, at the time of such Restricted
Payment:
(a) a Default or Event of Default shall have occurred and be continuing
or shall occur as a consequence thereof; or
(b) immediately after such Restricted Payment and after giving effect
thereto on a Pro Forma Basis, the Company shall not be able to issue $1.00
of additional Indebtedness pursuant to the first sentence of the
"Limitation on Incurrence of Indebtedness" covenant; or
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made after the Issue Date, exceeds the sum, without
duplication, of (1) 50% of the aggregate Consolidated Net Income
(including, for this purpose, gains from Asset Sales and, to the extent
not included in Consolidated Net Income, any gain from a Restricted
Investment) of the Company (or, in case such aggregate is a loss, 100% of
such loss) for the period (taken as one accounting period) from the
beginning of the first fiscal quarter commencing immediately after the
Issue Date and ended as of the Company's most recently ended fiscal
quarter at the time of such Restricted Payment, plus (2) 100% of the
aggregate net cash proceeds and the fair market value of any property or
securities (as determined by the Board of Directors in good faith)
received by the Company from the issue or sale of Equity Interests or
warrants, options or rights to acquire Equity Interests of the Company or
any Restricted Subsidiary subsequent to the Issue Date (other than Equity
Interests issued or sold to a Restricted Subsidiary and other than
Disqualified Stock), plus (3) $5,000,000, plus (4) the amount by which the
principal amount of and any accrued interest on either (a) senior
Indebtedness, in the case of Senior Notes, or any senior Indebtedness or
senior subordinated Indebtedness, in the case of the Discount Debentures,
of the Company or (b) any Indebtedness of the Restricted Subsidiaries (not
held by the Company or any Restricted Subsidiary) is reduced on the
Company's consolidated balance sheet upon the conversion or exchange
subsequent to the Issue Date of such Indebtedness for Equity Interests
(other than Disqualified Stock) of the Company or any Restricted
Subsidiaries (less the amount of any cash, or the fair market value of any
other property or securities (as determined by the Board of Directors in
good faith), distributed by the Company or any Restricted Subsidiary (to
persons other than the Company or any other Restricted Subsidiary) upon
such conversion or exchange), plus (5) if any Non-Restricted Subsidiary is
redesignated as a Restricted
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Subsidiary, the fair market value (as determined by the Board of Directors
in good faith) of such Non-Restricted Subsidiary as of the date it is
redesignated; provided, however, that for purposes of this clause (5), the
fair market value of any redesignated Non-Restricted Subsidiary shall be
reduced by the amount that any such redesignation replenishes or increases
the amount of Restricted Investments permitted to be made pursuant to
clause (iii) of the next sentence.
Notwithstanding the foregoing, each of the Exchange Indentures shall not
prohibit as Restricted Payments:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would
comply with all covenants of such Exchange Indenture (including, but not
limited to, the "Limitation on Restricted Payment" covenant);
(ii) the retirement of any of the Company's Capital Stock or subordinated
indebtedness in exchange for, or out of the net proceeds of the
substantially concurrent sale (other than to a Restricted Subsidiary) of,
other Capital Stock (other than Disqualified Stock) and neither such
retirement nor the proceeds of any such sale or exchange shall be included
in any computation made pursuant to the preceding sentence;
(iii) making Restricted Investments at any time, and from time to time,
in an aggregate outstanding amount of $40,000,000 after the Issue Date (it
being understood that if any Restricted Investment acquired with a
Restricted Payment after the Issue Date pursuant to this clause (iii) is
sold, transferred or otherwise conveyed to any person other than the
Company or a Restricted Subsidiary, the portion of the net cash proceeds
or fair market value of securities or properties paid or transferred to
the Company and its Restricted Subsidiaries in connection with such sale,
transfer or conveyance that relates or corresponds to the repayment or
return of the original cost of such a Restricted Investment will replenish
or increase the amount of Restricted Investments permitted to be made
pursuant to this clause (iii), so that up to $40,000,000 of Restricted
Investments may be outstanding under this clause (iii) at any given time);
(iv) the repurchase or redemption of the Company's Common Stock upon the
death of Thomas H. Quinn, pursuant to the terms of an Employment
Agreement, dated as of February 25, 1988, between the Company and Thomas
H. Quinn; provided, however, that the funds necessary to satisfy the
Company's obligation to repurchase or redeem such Common Stock shall be
fully reimbursed by insurance;
(v) the repurchase or redemption of the Company's Common Stock pursuant
to the terms of the several Restricted Stock Agreements, each dated as of
February 25, 1988, between the Company and each of Thomas H. Quinn,
Jonathan F. Boucher and John R. Lowden, the Restricted Stock Agreement,
dated as of January 1, 1992, between the Company and Thomas Quinn, the
Restricted Stock Agreements, each dated as of January 1, 1992, between the
Company and each of Jonathan F. Boucher, Adam Max and Thomas Quinn, and
the Restricted Stock Agreement, dated as of May 16, 1997, between the
Company and Thomas Quinn, in each case as amended or supplemented, up to
an aggregate amount not to exceed $7,500,000;
(vi) any loans, advances, distributions or payments from the Company to
its Restricted Subsidiaries, or any loans, advances, distributions or
payments by a Restricted Subsidiary to the Company or to another
Restricted Subsidiary, pursuant to intercompany Indebtedness, intercompany
management agreements, intercompany tax sharing agreements, and other
intercompany agreements and obligations;
(vii) the payment of directors' fees in an annual aggregate amount not to
exceed $250,000;
(viii) to the extent constituting Restricted Payments, if no Default or
Event of Default shall have occurred and be continuing or shall occur as a
consequence thereof, the payment of consulting, financial and investment
banking fees (but not limiting the payment of indemnities, expenses and
other amounts) under the New TJC Management Consulting Agreement,
provided, that the obligation of the Company to pay such fees under the
New TJC Management Consulting Agreement shall be subordinated expressly to
the Company's Obligations on the Exchange Securities;
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(ix) the purchase, redemption, retirement or other acquisition of the
Discount Debentures or, in the case of Discount Debentures, senior
Indebtedness in each case, required by their terms to be purchased,
redeemed, retired or acquired with the net proceeds from asset sales (as
defined in the instrument evidencing such subordinated indebtedness) or
upon a change of control (as defined in the instrument evidencing such
subordinated indebtedness);
(x) the exchanging, refinancing or refunding of subordinated Indebtedness
through the issuance of subordinated Indebtedness so long as the
subordinated indebtedness to be issued is Refinancing Indebtedness
permitted under the "Limitation on Incurrence of Indebtedness" covenant;
(xi) to the extent constituting Restricted Payments, any payments made in
connection with the the Plan as described in the Offering Circular;
(xii) Restricted Investments received as consideration for the sale,
transfer or disposition of any business, properties or assets of the
Company or any Restricted Subsidiary, provided, that the Company complies
with the "Asset Sale" covenant;
(xiii) any Restricted Investment constituting securities or instruments
of a person issued in exchange for trade or other claims against such
person in connection with a financial reorganization or restructuring of
such person;
(xiv) any Restricted Investment constituting an equity investment in a
Receivables Subsidiary; provided, that the aggregate amount of such equity
investments does not exceed $1,000,000; and
(xv) guarantees by the Company of capital lease obligations of
Non-Restricted Subsidiaries in an aggregate principal or face amount not
exceeding the aggregate principal or face amount of capital leases of the
Non-Restricted Subsidiaries guaranteed by the Company on the Issue Date.
Limitation on Incurrence of Indebtedness. The Exchange Indentures provide
that the Company will not, and will not permit any Restricted Subsidiary to,
issue any Indebtedness (other than the Indebtedness represented by the Senior
Notes, the 10 3/8% Senior Notes due 2003 and the Discount Debentures) unless
the Company's Cash Flow Coverage Ratio for its four full fiscal quarters next
preceding the date such additional Indebtedness is issued would have been at
least: (a) 1.7 to 1, if such date is between the Issue Date and June 30, 1999,
(b) 1.85 to 1, from July 1, 1999 through June 30, 2001, or (c) 2.0 to 1, from
July 1, 2001 and thereafter, in each case determined on a Pro Forma Basis as
if such additional Indebtedness and any other Indebtedness issued since the
end of such four-quarter period had been issued at the beginning of such
four-quarter period.
The foregoing limitations will not apply to the issuance of:
(i) Indebtedness of the Company and/or its Restricted Subsidiaries up to
the greater of (A) $75.0 million in aggregate principal amount pursuant to
the New Credit Agreement, and (B) an aggregate principal amount up to the
sum of: (x) 85% of the book value of the Company and its Restricted
Subsidiaries' Receivables on a consolidated basis, and (y) 65% of the book
value of the Company and its Restricted Subsidiaries' inventories on a
consolidated basis;
(ii) Indebtedness of the Company and its Restricted Subsidiaries pursuant
to any Receivables Financing;
(iii) Indebtedness of the Company and its Restricted Subsidiaries in
connection with capital leases, sale and leaseback transactions, purchase
money obligations, capital expenditures or similar financing transactions
relating to: (A) their properties, assets and rights as of the Issue Date
up to $20,000,000 in aggregate principal amount, or (B) their properties,
assets and rights acquired after the Issue Date, provided that such
Indebtedness under this clause (iii)(B) does not exceed 100% of the cost
of such properties, assets and rights;
(iv) additional Indebtedness of the Company and its Restricted
Subsidiaries in an aggregate principal amount up to $25,000,000 (all or
any portion of which may be issued as additional Indebtedness under the
New Credit Agreement); and
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(v) Other Permitted Indebtedness.
Limitation on Liens. The Exchange Indentures provide that the Company shall
not, and shall not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume or suffer to exist any Lien (other than
Permitted Liens) upon any asset now owned or hereafter acquired by them, or
any income or profits therefrom or assign or convey any right to receive
income therefrom; provided, however, that in addition to creating Permitted
Liens on its properties or assets, the Company and any of its Restricted
Subsidiaries may create any Lien upon any of their properties or assets
(including, but not limited to, any Capital Stock of its Subsidiaries) if the
Exchange Securities are equally and ratably secured.
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Exchange Indentures provide that the Company will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
create or otherwise cause or suffer 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 its Capital Stock or any
other interest or participation in, or measured by, its profits, owned by the
Company or any Restricted Subsidiary, or pay any Indebtedness owed to, the
Company or any Restricted Subsidiary, (b) make loans or advances to the
Company, or (c) transfer any of its properties or assets to the Company,
except for such encumbrances or restrictions existing under or by reason of:
(i) applicable law, (ii) Indebtedness permitted (A) under the first sentence
of the "Limitation on Incurrence of Indebtedness" covenant, (B) under clauses
(i), (ii) and (iv) of the second sentence of the "Limitation on Incurrence of
Indebtedness" covenant and clauses (i), (vii) and (ix) of the definition of
Other Permitted Indebtedness, or (C) Restricted Payments and agreements or
instruments evidencing Restricted Payments permitted under the "Limitation on
Restricted Payments" covenant, (iii) customary provisions restricting
subletting or assignment of any lease or license of the Company or any
Restricted Subsidiary, (iv) customary provisions of any franchise,
distribution or similar agreement, (v) any instrument governing Indebtedness
or any other encumbrance or restriction of a person acquired by the Company or
any Restricted Subsidiary at the time of such acquisition, which encumbrance
or restriction is not applicable to any person, or the properties or assets of
any person, other than the person, or the property or assets of the person, so
acquired, (vi) Indebtedness or other agreements existing on the Issue Date,
(vii) any Refinancing Indebtedness of Indebtedness described in clauses (i),
(ii), (iii), and (iv) of the second sentence of the "Limitation on Incurrence
of Indebtedness" covenant and clauses (i), (vi), and (ix) of the definition of
Other Permitted Indebtedness; provided that the encumbrances and restrictions
created in connection with such Refinancing Indebtedness are no more
restrictive in any material respect with regard to the interests of the
holders of Exchange Securities than the encumbrances and restrictions in the
refinanced Indebtedness, (viii) any restrictions, with respect to a Restricted
Subsidiary, imposed pursuant to an agreement that has been entered into for
the sale or disposition of the stock, business, assets or properties of such
Restricted Subsidiary, (ix) the terms of any Indebtedness of the Company
incurred in connection with the "Limitation on Incurrence of Indebtedness"
covenant, provided that the terms of such Indebtedness constitute no greater
encumbrance or restriction on the ability of any Restricted Subsidiary to pay
dividends or make distributions, make loans or advances or transfer properties
or assets than is permitted by this covenant, and (x) the terms of purchase
money obligations, but only to the extent such purchase money obligations
restrict or prohibit the transfer of the property so acquired.
Nothing contained in this covenant shall prevent the Company from entering
into any agreement or instrument providing for the incurrence of Permitted
Liens or restricting the sale or other disposition of property or assets of
the Company or any of its Restricted Subsidiaries that are subject to
Permitted Liens.
Senior Subordinated Indebtedness. The Discount Debentures Indenture
provides that the Company shall not issue or otherwise become liable for any
Indebtedness that is subordinate or junior in right of payment to any senior
Indebtedness and senior in any respect in right of payment to the Discount
Debentures.
Limitation on Transactions With Affiliates. Each Exchange Indenture
provides, except as otherwise set forth in such Exchange Indenture, that
neither the Company nor any of its Restricted Subsidiaries may make any loan,
advance, guarantee or capital contribution to, or for the benefit of, or sell,
lease, transfer
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or dispose of any properties or assets to, or for the benefit of, or purchase
or lease any property or assets from, or enter into any or amend any contract,
agreement or understanding with, or for the benefit of, an Affiliate (each
such transaction or series of related transactions that are part of a common
plan an "Affiliate Transaction"), except in good faith and on terms that are
no less favorable to the Company or the relevant Restricted Subsidiary than
those that would have been obtained in a comparable transaction on an
arm's-length basis from an unrelated person.
Each Exchange Indenture further provides that neither the Company nor any
of its Restricted Subsidiaries may engage in any Affiliate Transaction
involving aggregate payments or other transfers by the Company and its
Restricted Subsidiaries in excess of $5.0 million (including cash and non-cash
payments and benefits valued at their fair market value by the Board of
Directors in good faith) unless the Company delivers to the Trustee (i) a
resolution of the Board of Directors stating that the Board of Directors
(including a majority of the disinterested directors, if any) has, in good
faith, determined that such Affiliate Transaction complies with the provisions
of such Exchange Indenture, and (ii) an opinion as to the fairness of such
Affiliate Transaction to the Company or such Restricted Subsidiary and the
holders of Exchange Securities, in each case, from a financial point of view
by an investment banking firm of national prominence that is not an Affiliate
of the Company.
Notwithstanding the foregoing, this covenant will not apply to: (i)
transactions between the Company and any Restricted Subsidiary or between
Restricted Subsidiaries, (ii) any Restricted Payments permitted pursuant to
the "Limitation on Restricted Payments" covenant, (iii) payments of fees and
other amounts due under any SAR agreements, the New Subsidiary Advisory
Agreements, the New Subsidiary Consulting Agreements, the Tax Sharing
Agreement, the JI Properties Services Agreement, the Transition Agreement and
the New TJC Management Consulting Agreement, provided, that any amendments,
supplements, modifications, substitutions, renewals or replacements of the
foregoing agreements are approved by a majority of the Board of Directors
(including a majority of the disinterested directors, if any) as fair to the
Company and the holders of the Exchange Securities, (iv) the payment of
reasonable and customary directors' fees to directors of the Company and its
Restricted Subsidiaries, (v) transactions in connection with a Receivables
Financing or (vi) payments and transactions in connection with the Plan as
described in this Prospectus.
Limitation on Guarantees of Company Indebtedness by Restricted
Subsidiaries. The Company will not permit any Restricted Subsidiary, directly
or indirectly, to guarantee any Indebtedness (the "Other Indebtedness") of the
Company other than the Exchange Securities unless (A) such Restricted
Subsidiary contemporaneously executes and delivers a supplemental indenture to
each indenture providing for a guarantee of payment of the Exchange Securities
then outstanding by such Restricted Subsidiary to the same extent as the
guarantee (the "Other Indebtedness Guarantee") of the Other Indebtedness
(including waiver of subrogation, if any) and (B) if the Other Indebtedness
guaranteed by such Restricted Subsidiary is (i) senior Indebtedness, the
guarantee for (1) the Senior Notes shall be pari passu in right of payment
with the Other Indebtedness Guarantee and (2) the Discount Debentures shall be
subordinated in right of payment to the Other Indebtedness Guaranty, (ii)
senior subordinated Indebtedness, the guarantee for (1) the Senior Notes shall
be senior in right of payment to the Other Indebtedness Guaranty, and (2) the
Discount Debentures shall be pari passu in right of payment with the Other
Indebtedness Guaranty, and (iii) subordinated Indebtedness, the guarantee for
the Exchange Securities shall be senior in right of payment to the Other
Indebtedness Guarantee, provided that the foregoing will not limit or restrict
guarantees issued by Restricted Subsidiaries in respect of Indebtedness of
other Restricted Subsidiaries.
Each guarantee of the Exchange Securities created by a Restricted
Subsidiary pursuant to the provisions described in the foregoing paragraph
shall be in form and substance satisfactory to the Trustee and shall provide
among other things, by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or
transfer permitted by the Exchange Securities Indentures to any person not an
Affiliate of the Company of (a) all of the Company's Capital Stock in such
Restricted Subsidiary, or (b) the sale of all or substantially all of the
assets of the Restricted Subsidiary and upon the application of the Net
Proceeds from such sale in accordance with the requirements of the
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"Asset Sales" provisions described herein, or (ii) the release or discharge of
the Other Indebtedness Guarantee that resulted in the creation of such
guarantee of the Exchange Securities, except a discharge or release by or as a
result of payment under such Other Indebtedness Guarantee.
MERGER OR CONSOLIDATION
Each Exchange Indenture provides that the Company shall not consolidate or
merge with or into, or sell, lease, convey or otherwise dispose of all or
substantially all of its assets to, any person (any such consolidation, merger
or sale being a "Disposition") unless: (a) the successor entity of such
Disposition or the person to which such Disposition shall have been made is a
corporation organized or existing under the laws of the United States, any
state thereof or the District of Columbia; (b) the successor corporation of
such Disposition or the corporation to which such Disposition shall have been
made expressly assumes the Obligations of the Company, pursuant to a
supplemental indenture in a form reasonably satisfactory to the Trustee, under
such Exchange Indenture and the related Exchange Securities; (c) immediately
after such Disposition, no Default or Event of Default shall exist; and (d)
the corporation formed by or surviving any such Disposition, or the
corporation to which such Disposition shall have been made, shall (i) have
Consolidated Net Worth (immediately after the Disposition but prior to any
purchase accounting adjustments resulting from the Disposition) equal to or
greater than the Consolidated Net Worth of the Company immediately preceding
the Disposition, (ii) be permitted immediately after the Disposition by the
terms of such Indenture to issue at least $1.00 of additional Indebtedness
determined on a Pro Forma Basis pursuant to the first sentence under
"Limitation on Incurrence of Indebtedness," and (iii) have a Cash Flow
Coverage Ratio, for the four fiscal quarters immediately preceding the
applicable Disposition, determined on a Pro Forma Basis, equal to or greater
than the actual Cash Flow Coverage Ratio of the Company for such four quarter
period. The limitations in each Exchange Indenture on the Company's ability to
make a Disposition described in this paragraph do not restrict the Company's
ability to sell less than all or substantially all of its assets, such sales
being governed by the "Asset Sales" provisions of each Exchange Indenture as
described herein.
Prior to the consummation of any proposed Disposition, the Company shall
deliver to the Trustee an officers' certificate to the foregoing effect and an
opinion of counsel stating that the proposed Disposition and such supplemental
indenture comply with the Exchange Indentures.
PROVISION OF FINANCIAL INFORMATION TO HOLDERS OF EXCHANGE SECURITIES
So long as the Exchange Securities are outstanding, whether or not the
Company is subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act, the Company shall submit for filing with the Commission the
annual reports, quarterly reports and other documents that the Company would
have been required to file with the Commission pursuant to Section 13 or 15(d)
if the Company were subject to such reporting requirements. The Company will
also provide to all holders of Exchange Securities and file with the Trustee
copies of such annual reports, quarterly reports and other documents required
to be furnished to stockholders generally under the Exchange Act. In addition,
the Company has agreed that, for so long as any Exchange Securities remain
outstanding, they will furnish to the holders and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
Each Exchange Indenture will provide that an Event of Default is: (a) a
default for 30 days in payment of interest on the Exchange Securities; (b) a
default in payment when due of principal or premium, if any; (c) the failure
of the Company to comply with any of its other agreements or covenants in, or
provisions of, such Exchange Indenture or the Exchange Securities outstanding
under such Exchange Indenture and the Default continues for the period, if
applicable, and after the notice specified in the next paragraph; (d) a
default by the Company or any Restricted Subsidiary under any mortgage,
indenture or instrument under which there may be issued or by which there may
be secured or evidenced any Indebtedness for money borrowed by the Company or
any Restricted Subsidiary (or the payment of which is guaranteed by the
Company or any Restricted Subsidiary), whether such Indebtedness or
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guarantee now exists or shall be created hereafter, if (1) either (A) such
default results from the failure to pay principal of or interest on any such
Indebtedness and such default continues for 30 days beyond any applicable
grace period, or (B) as a result of such default the maturity of such
Indebtedness has been accelerated prior to its expressed maturity, and (2) the
principal amount of such Indebtedness, together with the principal amount of
any other such Indebtedness in default for failure to pay principal or
interest thereon, or the maturity of which has been accelerated, aggregates in
excess of $15,000,000; (e) a failure by the Company or any Restricted
Subsidiary to pay final judgments (not covered by insurance) aggregating in
excess of $7,500,000 which judgments a court of competent jurisdiction does
not rescind, annul or stay within 45 days after their entry and the Default
continues for the period and after the notice specified in the next paragraph;
and (f) certain events of bankruptcy or insolvency involving the Company or
any Significant Subsidiary.
A Default under clause (c) (other than an Event of Default arising under
the "Merger or Consolidation," "Asset Sales" or "Change of Control" provisions
described herein or the covenants described under "Certain Covenants," any of
which shall be an Event of Default with the notice but without the passage of
time specified in this paragraph) or clause (e) is not an Event of Default
under either Exchange Indenture until the Trustee or the holders of at least
25% in principal amount of the Exchange Securities outstanding under such
Exchange Indenture then outstanding notify the Company of the Default and the
Company does not cure the Default within 30 days after receipt of the notice.
Upon the occurrence of an Event of Default, the Senior Notes Trustee or the
holders of at least 25% in aggregate principal amount of the then outstanding
Senior Notes may declare all Senior Notes to be due and payable immediately
and, upon such declaration, the principal of, premium, if any, and any accrued
and unpaid interest on, all Senior Notes shall be due and payable immediately.
Upon the occurrence of an Event of Default, the Discount Debentures Trustee or
the holders of at least 25% in aggregate principal amount of the then
outstanding Discount Debentures may declare all Discount Debentures to be due
and payable immediately and, upon such declaration, the Accreted Value of the
Discount Debentures, plus any accrued and unpaid interest from April 1, 2002
to the date of any such declaration, if such declaration occurs after April 1,
2002, shall be due and payable immediately; provided, however, that if any
Indebtedness is outstanding under the New Credit Agreement, upon a declaration
of acceleration of the Discount Debentures, the Accreted Value of, and any
accrued and unpaid interest on, the Discount Debentures, shall not be payable
until the earlier of (1) the day that is five business days after notice of
acceleration is given to the Company and the credit agent for the New Credit
Agreement, or (2) the date of acceleration of the Indebtedness under the New
Credit Agreement. In the event of an Event of Default arising from certain
events of bankruptcy or insolvency, the principal of, and any accrued and
unpaid interest on, all Senior Notes, the Accreted Value and any such accrued
and unpaid interest on the Discount Debentures, plus any additional accrued
and unpaid interest to the date of any such event if such event occurs, shall
ipso facto become and be immediately due and payable without any declaration
or other act on the part of the Trustee or any holders of Exchange Securities.
The holders of a majority in aggregate principal amount of the Exchange
Securities then outstanding under an Exchange Indenture by notice to the
Trustee for such Exchange Indenture, may rescind any declaration of
acceleration of such Exchange Securities and its consequences (if the
rescission would not conflict with any judgment or decree) if all existing
Events of Default (other than the nonpayment of principal of or interest on
such Exchange Securities that shall have become due by such declaration) shall
have been cured or waived. In the event of a declaration of acceleration of
the Discount Debentures because of an Event of Default in clause (d) in the
first paragraph of "Events of Default and Remedies" has occurred and is
continuing, such declaration of acceleration shall be automatically annulled
if the holders of the Indebtedness described in such clause (d) have rescinded
the declaration of acceleration in respect of such Indebtedness within 30
business days thereof and if (i) the annulment of such acceleration would not
conflict with any judgement or decree of a court of competent jurisdiction,
(ii) all existing Events of Default, except non-payment of principal or
interest that shall have become due solely because of the acceleration, have
been cured or waived, and (iii) the Company has delivered an officer's
certificate to the Discount Debentures Trustee to the effect of clauses (i)
and (ii). Subject to certain limitations, holders of a majority in principal
amount of the Exchange Securities then outstanding under an Exchange Indenture
may direct the Trustee for such Exchange Indenture in its exercise of any
trust or power. Holders of the Exchange Securities may not
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enforce the Exchange Indentures, except as provided therein. The Trustee may
withhold from holders of Exchange Securities notice of any continuing Default
or Event of Default (except a Default or an Event of Default in payment of
principal, premium, if any, or interest) if the Trustee determines that
withholding notice is in their interest.
The holders of a majority in aggregate principal amount of the Exchange
Securities then outstanding under an Exchange Indenture may on behalf of all
holders of such Exchange Securities waive any existing Default or Event of
Default under such Exchange Indenture and its consequences, except a
continuing Default in the payment of the principal of, or premium, if any, or
interest on, such Exchange Securities, which may only be waived with the
consent of each holder of the Exchange Securities affected.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Exchange Indentures and, upon an officer of the
Company becoming aware of any Default or Event of Default, a statement
specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF OFFICERS, DIRECTORS, EMPLOYEES AND STOCKHOLDERS
No officer, employee, director or stockholder of the Company shall have any
liability for any Obligations of the Company under the Exchange Securities or
the Exchange Indentures, or for any claim based on, in respect of, or by
reason of, such Obligations or the creation of any such Obligation. Each
holder of the Exchange Securities by accepting an Exchange Security waives and
releases all such liability, and such waiver and release are part of the
consideration for issuance of the Exchange Securities. The foregoing waiver
may not be effective to waive liabilities under the Federal securities laws,
and the Commission is of the view that such a waiver is against public policy.
SATISFACTION AND DISCHARGE OF THE EXCHANGE INDENTURES
The Company at any time may terminate all its obligations under the
Exchange Securities and the Exchange Indentures ("legal defeasance option"),
except for certain obligations (including those with respect to the defeasance
trust (as defined herein) and obligations to register the transfer or exchange
of the Exchange Securities, to replace mutilated, destroyed, lost or stolen
Exchange Securities and to maintain a registrar and paying agent in respect of
the Exchange Securities). The Company at any time may terminate (1) its
obligations under the "Change of Control" and "Asset Sales" provisions
described herein and the covenants described under "Certain Covenants," and
certain other covenants in the Exchange Indentures, (2) the operation of
clauses (c), (d), (e), and (f) contained in the first paragraph of the "Events
of Default and Remedies" provisions described herein and (3) the limitations
contained in clauses (c) and (d) under the "Merger or Consolidation"
provisions described herein (collectively, a "covenant defeasance option").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Exchange Securities may not be
accelerated because of an Event of Default with respect thereto. If the
Company exercises its covenant defeasance option, payment of the Exchange
Securities shall not be accelerated because of an Event of Default specified
in clauses (c), (d), (e) or (f) in the first paragraph under the "Events of
Default and Remedies" provisions described herein or because of the Company's
failure to comply with clauses (c) and (d) under the "Merger or Consolidation"
provisions described herein.
To exercise either the legal or covenant defeasance option with respect to
the Exchange Securities outstanding under an Exchange Indenture, the Company
must irrevocably deposit in trust (the "defeasance trust") with the Trustee
for such Exchange Indenture money or U.S. government obligations for the
payment of principal of, and premium, if any, and interest on, such Exchange
Securities to redemption or maturity, as the case may be, and must comply with
certain other conditions, including the passage of 91 days and delivering to
such Trustee an opinion of counsel to the effect that holders of such Exchange
Securities will not recognize income, gain or loss for federal income tax
purposes as a result of such deposit and defeasance and will be subject to
federal income tax on the same amount and in the same manner and at the same
times as would have been in the case if such deposit and defeasance had not
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occurred (and, in the case of legal defeasance only, such opinion of counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable federal income tax law).
TRANSFER AND EXCHANGE
Holders of Exchange Securities may transfer or exchange their Exchange
Securities in accordance with the Exchange Indentures, but the Registrar may
require a holder, among other things, to furnish appropriate endorsements and
transfer documents, and to pay any taxes and fees required by law or permitted
by the Exchange Indentures, in connection with any such transfer or exchange.
The Registrar is not required to issue, register the transfer or exchange (i)
any Exchange Security selected for redemption or purchase, or (ii) any
Exchange Security for a period of 15 days before a selection of such Exchange
Security to be redeemed or purchased or between a record date and the next
succeeding interest payment date.
The registered holder of an Exchange Security will be treated as its owner
for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Subject to certain exceptions, each Exchange Indenture may be amended or
supplemented with the consent of the holders of at least a majority in
aggregate principal amount of the Exchange Securities then outstanding under
such Exchange Indenture and any existing Default or Event of Default or
compliance with any provision may be waived with the consent of the holders of
a majority in aggregate principal amount of the Exchange Securities then
outstanding under such Exchange Indenture. Without the consent of any holder
of Exchange Securities, the Company and the Trustee may amend or supplement
each Exchange Indenture or the Exchange Securities to cure any ambiguity,
defect or inconsistency, to provide for uncertificated securities in addition
to or in place of certificated securities, to provide for the assumption of
the Company's obligations in the case of a Disposition, to comply with the
Trust Indenture Act, or to make any change that does not materially adversely
affect the rights of any holder of Exchange Securities.
Without the consent of each holder of Exchange Securities affected, the
Company may not (i) reduce the principal amount of Exchange Securities whose
consent is necessary to effect the amendment to or waiver under an Exchange
Indenture; (ii) reduce the rate of or change the interest payment time of such
Exchange Securities, or alter the redemption provisions with respect thereto
(other than the provisions relating to the covenants described above under the
caption " --Mandatory Offers to Purchase Exchange Securities--Change of
Control Triggering Event" and " -- Asset Sales") or the price at which the
Company is required to offer to purchase such Exchange Securities; (iii)
reduce the principal of or change the fixed maturity of such Exchange
Securities; (iv) make such Exchange Securities payable in money other than
stated in such Exchange Securities; (v) make any change in the provisions
concerning waiver of Defaults or Events of Default by holders of such Exchange
Securities, or rights of holders of such Exchange Securities to receive
payment of principal or interest; (vi) waive any default in the payment of
principal of, premium, if any, or interest on such Exchange Securities; or
(vii) with respect to the Discount Debentures, make any change in the
subordination provisions in the Discount Debentures Indenture that adversely
affects such holder.
In addition, certain amendments to the Discount Debentures Indenture will
require the consent of holders of the Senior Notes and may require the consent
of holders of any other senior Indebtedness.
CONCERNING THE TRUSTEE
Each Exchange Indenture contains certain limitations on the rights of the
Trustee, if it becomes a creditor of the Company, to obtain payment of claims
in certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage
in other transactions; however, if it acquires any conflicting interest (as
defined in the Trust Indenture Act) it must eliminate such conflict or resign.
The holders of a majority in principal amount of the Exchange Securities
then outstanding under an Exchange Indenture will have the right to direct the
time, method and place of conducting any proceeding
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for exercising any remedy available to the Trustee, subject to certain
exceptions. Each Exchange Indenture provides that if an Event of Default
occurs (and has not been cured), the Trustee will be required, in the exercise
of its power, to use the degree of care of a prudent person in similar
circumstances in the conduct of its own affairs. Subject to the provisions of
the Exchange Indentures, the Trustee will be under no obligation to exercise
any of its rights or powers under an Exchange Indenture at the request of any
of the holders of the Exchange Securities issued under such Exchange
Indenture, unless such holders shall have offered to the Trustee security and
indemnity satisfactory to it.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, the New Securities will
initially be issued in the form of one or more registered Global Securities
(the "Global Securities"), each of which will be deposited on the Expiration
Date with, or on behalf of, the Depository and registered in the name of the
Global Holder. The following are summaries of certain rules and operating
procedures of the Depository which affect the Global Securities.
The New Securities that are (i) originally issued to or transferred to
"institutional accredited investors" (as such term is defined under "Notice to
Investors" elsewhere herein) who are not QIBs or to any other persons who are
not QIBs (the "Non-Global Purchasers"); or (ii) issued as described under
"Certificated Securities," will be issued in registered form (the
"Certificated Securities"). Upon the transfer to a QIB of Certificated
Securities initially issued to a Non-Global Purchaser, such Certificated
Securities will, unless the Global Note has previously been exchanged for
Certificated Securities, be exchanged for an interest in the Global Note
representing the principal amount of New Securities being transferred. For a
description of the restrictions on the transfer of Certificated Securities,
see "Notice to Investors."
The Depository has advised the Company that a limited-purchase trust
company was created to hold securities for its participating organizations
(collectively, the "Participants" or the "Depository's Participants") and to
facilitate the clearance and settlement of transactions in such securities
between Participants through electronic book-entry changes in accounts of its
Participants. The Depository's Participants include securities brokers and
dealers, banks and trust companies, clearing corporations and certain other
organizations. Access to the Depository's system is also available to the
other entities such as banks, brokers, dealers and trust companies
(collectively, the "Indirect Participants" or the "Depository's Indirect
Participants") that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly. Persons who are not Participants
may beneficially own securities held by or on behalf of the Depository only
through the Depository's Participants or the Depository's Indirect
Participants.
The Company expects that pursuant to procedures established by the
Depository (i) upon deposit of the Global Securities, the Depository will
credit the accounts of Participants with portions of the Global Securities;
and (ii) ownership of the New Securities will be shown on, and the transfer of
ownership thereof will be effected only through, records maintained by the
Depository (with respect to the interests of the Depository's Participants),
the Depository's Participants and the Depository's Indirect Participants. The
laws of some states require that certain persons take physical delivery in
definitive form of securities that they own. Consequently, the ability to
transfer New Securities will be limited to such extent. For certain other
restrictions on the transferability of the New Securities, see "Notice to
Investors."
So long as the Global Holder is the registered owner of any New Securities,
the Global Holder will be considered the sole owner of such New Securities
outstanding under the Exchange Indentures. Except as provided below, owners of
beneficial interests in a Global Security will not be entitled to have New
Securities represented by such Global Securities registered in their names,
will not receive or be entitled to receive physical delivery of Certificated
Securities, and will not be considered the owners or Holders thereof under the
Exchange Indentures for any purpose. As a result, the ability of a person
having a beneficial interest in New Securities represented by a Global
Security to pledge such interest to persons or entities that do not
participate in the Depository's system or to otherwise take actions in respect
of such interest, may be affected by the lack of a physical certificate
evidencing such interest. Accordingly, each QIB owning a beneficial interest
in a Global Security must rely on the procedures of the Depository and,
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if such QIB is not a Participant or an Indirect Participant, on the procedures
of the Participant through which such QIB owns its interest, to exercise any
rights of a holder under such Global Security or the Exchange Indentures.
Neither the Company nor the Trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on
account of New Securities by the Depository, or for maintaining, supervising
or reviewing any records of the Depository relating to such New Securities.
Payments in respect of the principal of, premium, if any, and interest on
any New Securities registered in the name of a Global Holder on the applicable
record date will be payable by the Trustee to or at the direction of such
Global Holder in its capacity as the registered holder under the Exchange
Indentures. Under the terms of the Exchange Indentures, the Company and the
Trustee may treat the persons in whose names the New Securities, including the
Global Securities, are registered as the owners thereof for the purpose of
receiving such payments and for any and all other purposes whatsoever.
Consequently, neither the Company nor the Trustee has or will have any
responsibility or liability for the payment of such amounts to beneficial
owners of New Securities (including principal, premium, if any, and interest),
or to immediately credit the accounts of the relevant Participants with such
payment, in amounts proportionate to their respective interests in the Global
Securities in principal amount of beneficial interests in the relevant
security as shown on the records of the Depository. Payments by the
Depository's Participants and the Depository's Indirect Participants to the
beneficial owners of New Securities will be governed by standing instructions
and customary practice and will be the responsibility of the Depository's
Participants or the Depository's Indirect Participants.
CERTIFICATED SECURITIES
If (i) the Company notifies the Trustee in writing that the Depository is
no longer willing or able to act as a depository and the Company is unable to
locate a qualified successor within 90 days or (ii) the Company, at its
option, notifies the Trustee in writing that it elects to cause the issuance
of the Exchange Securities in definitive form under an Exchange Indenture,
then, upon surrender by the relevant Global Holder of its Global Security,
Exchange Securities in such form will be issued to each person that such
Global Holder and the Depository identifies as the beneficial owner of the
related Exchange Securities. In addition, subject to certain conditions, any
person having a beneficial interest in the Global Security may, upon request
to the Trustee, exchange such beneficial interest for Certificated Securities.
Upon any such issuance, the Trustee is required to register such Exchange
Securities in the name of, and cause the same to be delivered to, such person
or persons (or the nominee of any thereof). Such Exchange Securities would be
issued in fully registered form.
SAME-DAY SETTLEMENT AND PAYMENT
With respect to certificated securities, the Company will make all payments
of principal, premium and interest by wire transfer of immediately available
funds to the accounts specified by the holders thereof or, if no such account
is specified, by mailing a check to each such holders registered address.
CERTAIN DEFINITIONS
Set forth below are certain of the defined terms used in the Exchange
Indentures. Reference is made to the Exchange Indentures for the definition of
all other terms.
"Accreted Value" means with respect to any Discount Debenture (i) as of any
date prior to April 1, 2002, the sum of (a) the initial offering price of the
Discount Debentures, and (b) the portion of the original issue discount on
such Discount Debenture (which for this purpose shall be deemed to be the
excess of the principal amount over the initial offering price) that has been
amortized with respect to such Discount Debenture through such date, such
original issued discount to be amortized at the rate of 11 3/4% per annum
(such percentage being expressed as a percentage of the sum of the initial
offering price plus previously amortized original issue discount) using
semi-annual compounding of such rate on each April 1 and October 1, commencing
April 1, 1997, from the date of original issuance of the Discount Debentures
through such date, and (ii) on and after April 1, 2002, the principal amount
of such Discount Debenture.
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"Affiliate" means any of the following: (i) any person directly or
indirectly controlling or controlled by or under direct or indirect common
control with the Company, (ii) any spouse, immediate family member or other
relative who has the same principal residence as any person described in
clause (i) above, (iii) any trust in which any such persons described in
clause (i) or (ii) above has a beneficial interest, and (iv) any corporation
or other organization of which any such persons described above collectively
own 50% or more of the equity of such entity.
"Asset Sale" means the sale, lease, conveyance or other disposition by the
Company or a Restricted Subsidiary of assets or property (other than (i) the
sale or disposition of any Restricted Investment, (ii) the sale or lease of
inventory, equipment, receivables or other assets in the ordinary course of
business, (iii) Receivables Financings, (iv) any sale or transfer of
properties or assets by the Company or a Restricted Subsidiary to the Company
or any other Restricted Subsidiary, (v) the sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Company as
permitted under "Merger or Consolidation," or (vi) Restricted Payments
permitted by the "Limitations on Restricted Payments" covenant).
"Board of Directors" means the Company's board of directors or any
authorized committee of such board of directors.
"Capital Stock" means any and all shares, interests, participations or
other equivalents (however designated) of corporate stock, including any
preferred stock.
"Cash Flow" means, for any given period and person, the sum of, without
duplication, Consolidated Net Income, plus (a) the portion of Net Income
attributable to the minority interests in its Subsidiaries, to the extent not
included in calculating Consolidated Net Income, plus (b) provision for taxes
based on income or profits to the extent such income or profits were included
in computing Consolidated Net Income, plus (c) Consolidated Interest Expense,
to the extent deducted in computing Consolidated Net Income, plus (d) the
amortization of all intangible assets, to the extent such amortization was
deducted in computing Consolidated Net Income (including, but not limited to,
inventory write-ups, goodwill, debt and financing costs, and Incentive
Arrangements), plus (e) non-capitalized transaction costs incurred in
connection with financings, acquisitions or dispositions (including, but not
limited to, financing and refinancing fees, to the extent deducted in
computing Consolidated Net Income), plus (f) all depreciation and all other
non-cash charges (including without limitation, those charges relating to
purchase accounting adjustments to the extent deducted in computing
Consolidated Net Income), plus (g) interest income, to the extent such income
was not included in computing Consolidated Net Income, plus (h) all dividend
payments on preferred stock (whether or not paid in cash) to the extent
deducted in computing Consolidated Net Income, plus (i) any extraordinary or
non-recurring charge or expense arising out of the implementation of SFAS 106
or SFAS 109 to the extent deducted in computing Consolidated Net Income,
provided, however, that if any such calculation includes any period during
which an acquisition or sale of a person or the incurrence or repayment of
Indebtedness occurred, then such calculation for such period shall be made on
a Pro Forma Basis.
"Cash Flow Coverage Ratio" means, for any given period and person, the
ratio of: (i) Cash Flow, divided by (ii) the sum of Consolidated Interest
Expense and the amount of all dividend payments on any series of preferred
stock of such person (except for dividends paid or payable in additional
shares of Capital Stock (other than Disqualified Stock)), in each case,
without duplication; provided, however, that if any such calculation includes
any period during which an acquisition or sale of a person or the incurrence
or repayment of Indebtedness occurred, then such calculation for such period
shall be made on a Pro Forma Basis.
"Change of Control" means the occurrence of any of the following: (i) the
Jordan Stockholders shall fail to be the beneficial owners, directly or
indirectly, of at least 22% of the outstanding shares of Common Stock of the
Company on a fully-diluted basis; (provided, that the issuance of any shares
of the Company's Common Stock pursuant to a primary public offering shall not
be considered to have diluted such percentage ownership); or (ii) the Company
is merged or consolidated with another corporation, or all or substantially
all of the assets of the Company are sold, leased or conveyed to another
person, and the Jordan Stockholders are not the beneficial owners, directly or
indirectly, immediately following such
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transaction, of at least 22% of the Equity Interests (which are entitled to
vote in the election of directors or other governing body) of the corporation
surviving any such consolidation or merger, or the person to which such sale,
lease or conveyance shall have been made; or (iii) the Company is liquidated
or dissolved.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the Company's assets. Although there is a developing body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
holder of Exchange Securities to require the Company to repurchase such
Exchange Securities as a result of a sale, lease, transfer, conveyance or
other disposition of less than all of the assets of the Company and its
Subsidiaries to another person may be uncertain. Furthermore, an acquisition
of the Company by the Jordan Stockholders would not constitute a Change of
Control.
"Commission" means the Securities and Exchange Commission.
"Consolidated Interest Expense" means, for any given period and person, the
aggregate of the interest expense in respect of all Indebtedness of such
person and its Subsidiaries for such period, on a consolidated basis,
determined in accordance with GAAP (including amortization of original issue
discount on any such Indebtedness, all non-cash interest payments, the
interest portion of any deferred payment obligation and the interest component
of capital lease obligations, but excluding amortization of deferred financing
fees if such amortization would otherwise be included in interest expense);
provided, however, that for the purpose of the Cash Flow Coverage Ratio (with
respect to the covenants limiting the incurrence of additional Indebtedness,
mergers, consolidations and sales of assets), Consolidated Interest Expense
shall be calculated on a Pro Forma Basis; provided further, any premiums, fees
and expenses (including the amortization thereof) payable in connection with
the Plan and the Offerings and the application of the net proceeds therefrom
or any other refinancing of Indebtedness will be excluded.
"Consolidated Net Income" means, for any given period and person, the
aggregate of the Net Income of such person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided,
however, that: (i) the Net Income of any person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition
shall be excluded, and (ii) Consolidated Net Income of any person will not
include, without duplication, any deduction for: (A) increased amortization or
depreciation resulting from the write-up of assets pursuant to Accounting
Principles Board Opinion Nos. 16 and 17, as amended or supplemented from time
to time, (B) the amortization of all intangible assets (including amortization
attributable to inventory write-ups, goodwill, debt and financing costs, and
Incentive Arrangements), (C) non-capitalized transaction costs incurred in
connection with financings, acquisitions or divestitures (including, but not
limited to, financing and refinancing fees), (D) any extraordinary or
nonrecurring charges relating to any premium or penalty paid, write-off or
deferred financing costs or other financial recapitalization charges in
connection with redeeming or retiring any Indebtedness prior to its stated
maturity, and (E) any non-recurring charge arising out of the restructuring or
consolidation of the operations of any person(s) or business either alone or
together with the Company or any Restricted Subsidiary, incurred within 18
months following the acquisition of such person(s) or business by the Company
or any Restricted Subsidiary; provided, however, that for purposes of
determining the Cash Flow Coverage Ratio (with respect to the covenants and
provisions in the Exchange Indentures limiting the incurrence of additional
Indebtedness, mergers or consolidations, and sales of assets), Consolidated
Net Income shall be calculated on a Pro Forma Basis.
"Consolidated Net Worth" with respect to any person means, as of any date,
the consolidated equity of the common stockholders of such person (excluding
the cumulated foreign currency translation adjustment), all determined on a
consolidated basis in accordance with GAAP, but without any reduction in
respect of the payment of dividends on any series of such person's preferred
stock if such dividends are paid in additional shares of Capital Stock (other
than Disqualified Stock); provided, however, that Consolidated Net Worth shall
also include, without duplication: (a) the amortization of all write-ups of
inventory, (b) the amortization of all intangible assets (including
amortization of goodwill, debt and financing costs, and Incentive
Arrangements), (c) non-capitalized transaction costs incurred in connection
with financings, acquisitions or divestitures (including, but not limited to,
financing and refinancing fees),
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(d) increased amortization or depreciation resulting from the write-up of
assets pursuant to Accounting Principles Board Opinion Nos. 16 and 17, as
amended and supplemented from time to time, (e) any extraordinary or
nonrecurring charges or expenses relating to any premium or penalty paid,
write-off or deferred financing costs or other financial recapitalization
charges incurred in connection with redeeming or retiring any Indebtedness
prior to its stated maturity, (f) any non-recurring charge arising out of the
restructuring or consolidation of the operations of any person(s) or business
either alone or together with the Company or any Restricted Subsidiary,
incurred within 18 months following the acquisition of such person(s) or
business by the Company or any Restricted Subsidiary, and (g) any
extraordinary or non-recurring charge arising out of the implementation of
SFAS 106 or SFAS 109; provided, however, that for purposes of determining
Consolidated Net Worth (with respect to the covenants and provisions in the
New Senior Notes Indenture limiting the incurrence of additional Indebtedness,
mergers or consolidations, and sales of assets) Consolidated Net Worth shall
be calculated on a Pro Forma Basis.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock" means any Capital Stock that by its terms (or by the
terms of any security into which its is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is
redeemable at the option of the holder thereof, in whole or in part on, or
prior to, the maturity date of (i) the Senior Notes in the case of the Senior
Notes Indenture, and (ii) the Discount Debentures in the case of the Discount
Debentures Indenture.
"Equity Interests" means Capital Stock or partnership interests or
warrants, options or other rights to acquire Capital Stock or partnership
interests (but excluding (i) any debt security that is convertible into, or
exchangeable for, Capital Stock or partnership interests, and (ii) any other
Indebtedness or Obligation); provided, however, that Equity Interests will not
include any Incentive Arrangements or obligations or payments thereunder.
"GAAP" means generally accepted accounting principles, consistently
applied, as of the Issue Date. All financial and accounting determinations and
calculations under the Exchange Indentures will be made in accordance with
GAAP.
"Hedging Obligations" means, with respect to any person, the Obligations of
such persons under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements, (ii) foreign exchange
contracts, currency swap agreements or similar agreements, and (iii) other
agreements or arrangements designed to protect such person against
fluctuations in, or otherwise to establish financial hedges in respect of,
exchange rates, currency rates or interest rates.
"Incentive Arrangements" means any earn-out agreements, stock appreciation
rights, "phantom" stock plans, employment agreements, non-competition
agreements, subscription and stockholders agreements and other incentive and
bonus plans and similar arrangements made in connection with acquisitions of
persons or businesses by the Company or the Restricted Subsidiaries or the
retention of executives, officers or employees by the Company or the
Restricted Subsidiaries.
"Indebtedness" means, with respect to any person, any indebtedness, whether
or not contingent, in respect of borrowed money or evidenced by bonds, notes,
debentures or similar instruments or letters of credit (or reimbursement
agreements in respect thereof) or representing the deferred and unpaid balance
of the purchase price of any property (including pursuant to capital leases),
except any such balance that constitutes an accrued expense or a trade
payable, and any Hedging Obligations, if and to the extent such indebtedness
(other than a Hedging Obligation) would appear as a liability upon a balance
sheet of such person prepared on a consolidated basis in accordance with GAAP,
and also includes, to the extent not otherwise included, the guarantee of
items that would be included within this definition; provided, however, that
"Indebtedness" will not include any Incentive Arrangements or obligations or
payments thereunder.
"Insolvency or Liquidation Proceeding" means (i) any insolvency or
bankruptcy or similar case or proceeding, or any reorganization, receivership,
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, or (ii) any assignment for the benefit of creditors or any other
marshalling of assets and liabilities of the Company.
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"issue" means create, issue, assume, guarantee, incur or otherwise become
directly or indirectly liable for any Indebtedness or Capital Stock, as
applicable; provided, however, that any Indebtedness or Capital Stock of a
person existing at the time such person becomes a Restricted Subsidiary
(whether by merger, consolidation, acquisition or otherwise) shall be deemed
to be issued by such Restricted Subsidiary at the time it becomes a Restricted
Subsidiary. For this definition, the terms "issuing," "issuer," "issuance and
"issued" have meanings correlative to the foregoing.
"Issue Date" means July 25, 1997, the date on which Old Senior Notes were
first issued and the Supplemental Indenture for the Discount Debentures
Indenture was executed and delivered.
"Jordan Stockholders" means John W. Jordan, II, and/or his heirs, executors
and administrators, and/or The John W. Jordan, II Revocable Trust, The Jordan
Family Trust and/or any other trust established by John W. Jordan, II whose
beneficiaries are John W. Jordan, II and/or his lineal descendants or other
relatives.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease
in the nature thereof, any option or other agreement to sell and any filing of
or agreement to give any financing statement under the Uniform Commercial Code
(or equivalent statutes) of any jurisdiction).
"Net Income" means, with respect to any person, the net income (loss) of
such person, determined in accordance with GAAP, excluding, however, any gain
or loss, together with any related provision for taxes, realized in connection
with any Asset Sale (including, without limitation, dispositions pursuant to
sale and leaseback transactions).
"Net Proceeds" means, with respect to any Asset Sale, the aggregate amount
of cash proceeds (including any cash received by way of deferred payment
pursuant to a note receivable issued in connection with such Asset Sale, other
than the portion of such deferred payment constituting interest, and including
any amounts received as disbursements or withdrawals from any escrow or
similar account established in connection with any such Asset Sale, but, in
either such case, only as and when so received) received by the Company or any
of its Restricted Subsidiaries in respect of such Asset Sale, net of: (i) the
cash expenses of such Asset Sale (including, without limitation, the payment
of principal, premium, if any, and interest on Indebtedness required to be
paid as a result of such Asset Sale (other than the Exchange Securities) and
legal, accounting, management, advisory and investment banking fees and sales
commissions), (ii) taxes paid or payable as a result thereof, (iii) any
portion of cash proceeds that 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 Restricted Subsidiaries shall constitute Net Proceeds on such date, (iv)
any relocation expenses and pension, severance and shutdown costs incurred as
a result thereof and (v) any deduction or appropriate amounts to be provided
by the Company or any of its Restricted Subsidiaries as a reserve in
accordance with GAAP against any liabilities associated with the asset
disposed of in such transaction and retained by the Company or such Restricted
Subsidiary after such sale or other disposition thereof, including, without
limitation, pension and other post-employment benefit liabilities and
liabilities related to environmental matters or against any indemnification
obligations associated with such transaction.
"New Credit Agreement" means the credit agreement, dated July 25, 1997,
entered into by certain of the Company's Restricted Subsidiaries and certain
Subsidiaries and the lenders party thereto in their capacities as lenders
thereunder and Bank Boston, N.A., as agent, together with all loan documents
and instruments thereunder (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,
and all Obligations with respect thereto, in each case, to the
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extent permitted by the "Limitation on Incurrence of Indebtedness" covenant,
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.
"Non-Restricted Subsidiary" means Motors and Gears Holdings, Inc. and its
Subsidiaries, Jordan Telecommunication Products, Inc. and its Subsidiaries,
JI Properties, Inc. and its Subsidiaries, and any other Subsidiary of the
Company other than a Restricted Subsidiary.
The covenants in the Exchange Indentures do not generally restrict the
Non-Restricted Subsidiaries, including their incurrence of Indebtedness.
"Obligations" means, with respect to any Indebtedness, all principal,
interest, premium, penalties, fees, indemnities, expenses (including legal
fees and expenses), reimbursement obligations and other liabilities payable to
the holder of such Indebtedness under the documentation governing such
Indebtedness, and any other claims of such holder arising in respect of such
Indebtedness.
"Offering Circular" means the Offering Circular, dated July 21, 1997,
relating to the Company's offering and placement of the Old Senior Notes.
"Other Permitted Indebtedness" means:
(i) Indebtedness of the Company and its Restricted Subsidiaries existing
as of the Issue Date and all related Obligations as in effect on such date
(including Senior Notes, 10 3/8% Senior Notes due 2003, Discount
Debentures and 11 3/4% Senior Subordinated Discount Debentures due 2005);
(ii) Indebtedness of the Company and its Restricted Subsidiaries in
respect of bankers acceptances and letters of credit (including, without
limitation, letters of credit in respect of workers' compensation claims)
issued in the ordinary course of business, or other Indebtedness in
respect of reimbursement-type obligations regarding workers' compensation
claims;
(iii) Refinancing Indebtedness, provided that: (A) the principal amount
of such Refinancing Indebtedness shall not exceed the outstanding
principal amount of Indebtedness (including unused commitments) so
extended, refinanced, renewed, replaced, substituted or refunded plus any
amounts incurred to pay premiums, fees and expenses in connection
therewith, (B) the Refinancing Indebtedness shall have a Weighted Average
Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of the Indebtedness being extended, refinanced, renewed,
replaced, substituted or refunded, and (C) in the case of Refinancing
Indebtedness for subordinated Indebtedness, such Refinancing Indebtedness
shall be subordinated to the New Senior Notes at least to the same extent
as the Indebtedness being extended, refinanced, renewed, replaced,
substituted or refunded;
(iv) intercompany Indebtedness of and among the Company and its
Restricted Subsidiaries (excluding guarantees by Restricted Subsidiaries
of Indebtedness of the Company not issued in compliance with "Limitation
on Guarantees of Company Indebtedness by Restricted Subsidiaries"
covenant);
(v) Indebtedness of the Company and its Restricted Subsidiaries incurred
in making permitted Restricted Payments under clauses (iv) or (v) of the
second sentence of the "Limitation on Restricted Payments" covenant and
guarantees by the Company of capital leases of the Company's
Non-Restricted Subsidiaries up to the aggregate amount permitted by clause
(xv) of the second sentence of the "Limitation and Restricted Payments"
covenant;
(vi) Indebtedness of any Non-Restricted Subsidiary; provided that such
Indebtedness is nonrecourse to the Company and its Restricted Subsidiaries
and the Company and its Restricted Subsidiaries have no Obligations with
respect to such Indebtedness;
(vii) Indebtedness of the Company and its Restricted Subsidiaries under
Hedging Obligations;
(viii) Indebtedness of the Company and its Restricted Subsidiaries
arising from the honoring by a bank or other financial institution of a
check, draft or similar instrument inadvertently (except in the case of
daylight overdrafts, which will not be, and will not be deemed to be,
inadvertent) drawn against insufficient funds in the ordinary course of
business;
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(ix) Indebtedness of any person at the time it is acquired as a
Restricted Subsidiary; provided that such Indebtedness was not issued by
such person in connection with or in anticipation of such acquisition and
that such Indebtedness is nonrecourse to the Company and any other
Restricted Subsidiary and the Company and such other Restricted
Subsidiaries have no Obligations with respect to such Indebtedness;
(x) guarantees by Restricted Subsidiaries of Indebtedness of any
Restricted Subsidiary if the Indebtedness so guaranteed is permitted under
the Exchange Indentures;
(xi) guarantees by a Restricted Subsidiary of Indebtedness of the Company
if the Indebtedness so guaranteed is permitted under the Exchange
Indentures and the Exchange Securities are guaranteed by such Restricted
Subsidiary to the extent required by the "Limitation on Guaranties of
Company Indebtedness by Restricted Subsidiaries" covenant;
(xii) guarantees by the Company of Indebtedness of any Restricted
Subsidiary if the Indebtedness so guaranteed is permitted under the
Exchange Indentures;
(xiii) Indebtedness of the Company and its Restricted Subsidiaries in
connection with performance, surety, statutory, appeal or similar bonds in
the ordinary course of business; and
(xiv) Indebtedness of the Company and its Restricted Subsidiaries in
connection with agreements providing for indemnification, purchase price
adjustments and similar obligations in connection with the sale or
disposition of any of their business, properties or assets.
"Permitted Liens" means: (a) with respect to the Company and the Restricted
Subsidiaries, (1) Liens for taxes, assessments, governmental charges or claims
which are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted and if a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have
been made therefor; (2) statutory Liens of landlords and carriers',
warehousemen's, mechanics', suppliers', materialmen's, repairmen's or other
like Liens arising in the ordinary course of business and with respect to
amounts not yet delinquent or being contested in good faith by appropriate
proceedings, if a reserve or other appropriate provision, if any as shall be
required in conformity with GAAP shall have been made therefor; (3) Liens
incurred on deposits made in the ordinary course of business in connection
with workers' compensation, unemployment insurance and other types of social
security; (4) Liens incurred on deposits made to secure the performance of
tenders, bids, leases, statutory obligations, surety and appeal bonds,
government contracts, performance and return of money bonds and other
obligations of a like nature incurred in the ordinary course of business
(exclusive of obligations for the payment of borrowed money); (5) easements,
rights-of-way, zoning or other restrictions, minor defects or irregularities
in title and other similar charges or encumbrances not interfering in any
material respect with the business of the Company or any of its Restricted
Subsidiaries incurred in the ordinary course of business; (6) Liens (including
extensions, renewals and replacements thereof) upon property acquired (the
"Acquired Property") after the Issue Date, provided that: (A) any such Lien is
created solely for the purpose of securing Indebtedness representing, or
issued to finance, refinance or refund, the cost (including the cost of
construction) of the Acquired Property, (B) the principal amount of the
Indebtedness secured by such Lien does not exceed 100% of the cost of the
Acquired Property, (C) such Lien does not extend to or cover any property
other than the Acquired Property and any improvements on such Acquired
Property, and (D) the issuance of the Indebtedness to purchase the Acquired
Property is permitted by the "Limitation on Incurrence of Indebtedness"
covenant; (7) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods; (8) judgment and attachment Liens not giving rise to an
Event of Default; (9) leases or subleases granted to others not interfering in
any material respect with the business of the Company or any of its Restricted
Subsidiaries; (10) Liens encumbering customary initial deposits and margin
deposits, and other Liens incurred in the ordinary course of business and that
are within the general parameters customary in the industry, in each case
securing Indebtedness under Hedging Obligations; (11) Liens encumbering
deposits made to secure obligations arising from statutory, regulatory,
contractual or warranty requirements of the Company or its Restricted
Subsidiaries; (12) Liens arising out of consignment or similar arrangements
for the sale of goods entered into by the Company or its Restricted
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Subsidiaries in the ordinary course of business; (13) any interest or title of
a lessor in property subject to any Capital Lease Obligation or operating
lease; (14) Liens arising from filing Uniform Commercial Code financing
statements regarding leases; (15) Liens existing on the Issue Date and any
extensions, renewals or replacements thereof; and (16) any Lien granted to the
Trustee under the Exchange Indentures and any substantially equivalent Lien
granted to any trustee or similar institution under any indenture for senior
Indebtedness permitted by the terms of the Exchange Indentures;
(b) with respect to the Restricted Subsidiaries, (1) Liens securing
Restricted Subsidiaries' reimbursement Obligations with respect to letters
of credit that encumber documents and other property relating to such
letters of credit and the products and proceeds thereof; (2) Liens
securing Indebtedness issued by Restricted Subsidiaries if such
Indebtedness is permitted by (A) the first sentence of the "Limitation on
Incurrence of Indebtedness" covenant, (B) clauses (i), (ii), (iii) or (iv)
of the second sentence of the "Limitation on Incurrence of Indebtedness"
covenant, or (C) clauses (i), (iii) (to the extent the Indebtedness
subject to such Refinancing Indebtedness was subject to Liens) (vii), (ix)
or (x) of the definition of Other Permitted Indebtedness; (3) Liens
securing intercompany Indebtedness issued by any Restricted Subsidiary to
the Company or another Restricted Subsidiary; (4) additional Liens at any
one time outstanding with respect to assets of the Restricted Subsidiaries
the aggregate fair market value of which does not exceed $10,000,000 (the
fair market value of any such asset is to be determined on the date such
Lien is granted on such asset); and (5) Liens securing guarantees by
Restricted Subsidiaries of Indebtedness issued by the Company if such
guarantees are permitted by clause (xi) (but only in respect of the
property, rights and assets of the Restricted Subsidiaries Issuing such
guarantees) of the definition of Other Permitted Indebtedness; and
(c) with respect to the Company, (1) Liens securing Indebtedness issued
by the Company under the New Credit Agreement if such Indebtedness is
permitted by the "Limitation on Incurrence of Indebtedness" covenant
(including, but not limited to, Indebtedness issued by the Company under
the New Credit Agreement pursuant to clause (i) and/or clause (iv) of the
second sentence of "Limitation on Incurrence of Indebtedness" covenant),
(2) Liens securing Indebtedness of the Company if such Indebtedness is
permitted by clauses (i), (iii) (to the extent the Indebtedness subject to
such Refinancing Indebtedness was subject to Liens) or (vii) of the
definition of Other Permitted Indebtedness, and (3) Liens securing
guarantees by the Company of Indebtedness issued by Restricted
Subsidiaries if such Indebtedness is permitted by the "Limitation on
Incurrence of Indebtedness" covenant (including, but not limited to,
Indebtedness issued by Restricted Subsidiaries under the New Credit
Agreement pursuant to clause (i) and/or clause (v) of the second sentence
of the "Limitation on Incurrence of Indebtedness" covenant) and if such
guarantees are permitted by clause (xii) (but only in respect of
Indebtedness issued by the Restricted Subsidiaries under the New Credit
Agreement pursuant to "Limitation on Incurrence of Indebtedness" covenant)
of the definition of Other Permitted Indebtedness;
provided, however, that, notwithstanding any of the foregoing, the
Permitted Liens referred to in clause (c) of this definition shall not
include any Lien on Capital Stock of Restricted Subsidiaries held by the
Company (as distinguished from Liens on Capital Stock of Restricted
Subsidiaries held by other Restricted Subsidiaries) other than Liens
securing (A) Indebtedness of the Company issued under the New Credit
Agreement pursuant to the "Limitation on Incurrence of Indebtedness"
covenant and any permitted Refinancing Indebtedness of such Indebtedness,
and (B) guarantees by the Company of Indebtedness issued by Restricted
Subsidiaries under the New Credit Agreement pursuant to the "Limitation on
Incurrence of Indebtedness" covenant and any permitted Refinancing
Indebtedness of such Indebtedness.
"Plan" means the Company's Recapitalization and Repositioning Plan
referenced in this Prospectus and all agreements, instruments and transactions
pursuant thereto.
"Pro Forma Basis" means, for purposes of determining Consolidated Net
Income, Cash Flow, and Consolidated Interest Expense in connection with the
Cash Flow Coverage Ratio (including in connection with the "Limitation on
Restricted Payments" covenant, the incurrence of Indebtedness pursuant to the
first sentence of the "Limitation on Incurrence of Indebtedness" covenant and
Consolidated Net Worth
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for purposes of the "Merger or Consolidation" covenant), giving pro forma
effect to (x) any acquisition or sale of a person, business or asset, related
incurrence, repayment or refinancing of Indebtedness or other related
transactions, including any related restructuring charges in respect of
restructurings, consolidations, compensation or headcount reductions or other
cost savings which would otherwise be accounted for as an adjustment permitted
by Regulation S-X under the Securities Act or on a pro forma basis under GAAP,
or (y) any incurrence, repayment or refinancing of any Indebtedness and the
application of the proceeds therefrom, in each case, as if such acquisition or
sale and related transactions, restructurings, consolidations, cost savings,
reductions, incurrence, repayment or refinancing were realized on the first
day of the relevant period permitted by Regulation S-X under the Securities
Act or on a pro forma basis under GAAP. Furthermore, in calculating the Cash
Flow Coverage Ratio, (1) interest on outstanding Indebtedness determined on a
fluctuating basis as of the determination 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
determination date; (2) if interest on any Indebtedness actually incurred on
the determination 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 determination
date will be deemed to have been in effect during the relevant 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 rate swaps or similar interest rate protection Hedging
Obligations, shall be deemed to accrue at the rate per annum resulting after
giving effect to the operation of such agreements.
"Receivables" means, with respect to any person, all of the following
property and interests in property of such person, whether now existing or
existing in the future or hereafter acquired or arising: (i) accounts, (ii)
accounts receivable (including, without limitation, all rights to payment
created by or arising from sales of goods, leases of goods or leased or the
rendition of services rendered no matter how evidenced, whether or not earned
by performance), (iii) all unpaid seller's or lessor's rights including
without limitation, recession, replevin, reclamation and stoppage in transit,
relating to any of the foregoing or arising therefrom, (iv) all rights to any
goods or merchandise represented by any of the foregoing (including, without
limitation, returned or repossessed goods), (v) all reserves and credit
balances with respect to any such accounts receivable or account debtors, (vi)
all letters of credit, security or guarantees of any of the foregoing, (vii)
all insurance policies or reports relating to any of the foregoing, (viii) all
collection or deposit accounts relating to any of the foregoing, (ix) all
proceeds of any of the foregoing, and (x) all books and records relating to
any of the foregoing.
"Receivables Financing" means (i) the sale or other disposition of
Receivables that arise in the ordinary course of business, or (ii) the sale or
other disposition of Receivables arising in the ordinary course of business to
a Receivables Subsidiary followed by a financing transaction in connection
with such sale or disposition of such Receivables.
"Receivables Subsidiary" means a Subsidiary of the Company that is
exclusively engaged in Receivables Financings and activities reasonably
related thereto.
"Refinancing Indebtedness" means (i) Indebtedness of the Company and its
Restricted Subsidiaries issued or given in exchange for, or the proceeds of
which are used to, extend, refinance, renew, replace, substitute or refund any
Indebtedness permitted under the Exchange Indentures or any Indebtedness
issued to so extend, refinance, renew, replace, substitute or refund such
Indebtedness, (ii) any refinancings of Indebtedness issued under the New
Credit Agreement, and (iii) any additional Indebtedness issued to pay premiums
and fees in connection with clauses (i) and (ii).
"Restricted Investment" means any capital contribution to, or other debt or
equity investment in (other than certain investments in marketable securities
and other negotiable instruments permitted by the Exchange Indentures) any
Non-Restricted Subsidiary or any person other than a Restricted Subsidiary or
the Company; provided, that Restricted Investments will not include Incentive
Arrangements. The amount of any Restricted Investment shall be the amount of
cash and the fair market value at the time of transfer of all other property
(as determined by the Board of Directors in good faith) included in the
original Restricted Investment, plus all additions thereto, without any
adjustments for
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increases or decreases in value or write-ups, write-downs or write-offs with
respect to such Restricted Investment. Notwithstanding the foregoing, the
assignment by the Company and the assumption by a Non-Restricted Subsidiary of
all or any portion of an operating lease of the Company shall not be deemed a
Restricted Investment, so long as the obligations of the Company under any
such lease are not increased by the terms of such assignment or assumption.
"Restricted Subsidiary" means: (i) any Subsidiary of the Company existing
on the Issue Date other than a Non-Restricted Subsidiary, and (ii) any other
Subsidiary of the Company formed, acquired or existing after the Issue Date
that is designated as a "Restricted Subsidiary" by the Company pursuant to a
resolution approved by a majority of the Board of Directors, provided that any
Restricted Subsidiary that is organized under the laws of a foreign
jurisdiction and whose stock or ownership interests are sold or transferred to
a Non-Restricted Subsidiary may, by resolution approved by a majority of the
Board of Directors, be thereafter designated and considered as a
Non-Restricted Subsidiary.
"Restructuring Charges" means any charges or expenses in respect of
restructuring or consolidating any business, operations or facilities, any
compensation or headcount reduction, or any other cost savings, of any persons
or businesses either alone or together with the Company or any Restricted
Subsidiary, as permitted by GAAP or Regulation S-X under the Securities Act.
"SFAS 106" means Statement of Financial Accounting Standards No. 106.
"SFAS 109" means Statement of Financial Accounting Standards No. 109.
"Significant Subsidiary" means (i) any Restricted Subsidiary of the Company
that would be a "significant subsidiary" as defined in clause (2) of the
definition of such term in Rule 1-02 of Regulation S-X under the Securities
Act and the Exchange Act, and (ii) any other Restricted Subsidiary of the
Company that is material to the business, earnings, prospects, assets or
condition, financial or otherwise, of the Company and its Restricted
Subsidiaries taken as a whole.
"Stated Maturity" means with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any such interest or principal prior to the
date originally scheduled for the payment thereof.
"Subsidiary" of any person means any entity of which the Equity Interests
entitled to cast at least a majority of the votes that may be cast by all
Equity Interests having ordinary voting power for the election of directors or
other governing body of such entity are owned by such person (regardless of
whether such Equity Interests are owned directly by such person or through one
or more Subsidiaries).
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the then outstanding
principal amount of such Indebtedness into (ii) the sum of the product(s)
obtained by multiplying (a) the amount of each then remaining installment,
sinking fund, serial maturity or other requirement payment of principal,
including payment at final maturity, in respect thereof, by (b) the number of
years (calculated to the nearest one-twelfth) which will elapse between such
date and the making of such payment.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives New Securities for its own account as a
result of market-making activities or other trading activities in connection
with the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Securities. This Prospectus, as it may
be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of New Securities received in exchange for Old
Securities where such Old Securities were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that for a period of 120 days after the Expiration Date, it will make
available a prospectus meeting the requirements of the Securities Act to any
broker-dealer for use in connection with any such resale. In addition, until
December 11, 1997, all dealers effecting transactions in the New Securities
may be required to deliver a prospectus.
The Company will receive no proceeds in connection with the Exchange Offer.
New Securities received by broker-dealers for their own account pursuant to
the Exchange Offer may be sold from time to time in one or more transactions
in the over-the-counter market, in negotiated transactions, through the
writing of options on the New Securities or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related
to such prevailing market prices or negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such New Securities. Any broker-dealer
that resells New Securities 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 New Securities may be deemed to be an "underwriter"
within the meaning of the Securities Act and any profit on any such resale of
New Securities and any commissions or concessions received by any such persons
may be deemed to be underwriting compensation under the Securities Act. The
Letter of Transmittal states that by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
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CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain U.S. federal income tax
considerations relevant to the purchase, ownership and disposition of the New
Securities by the holders thereof. This summary does not purport to be a
complete analysis of all the potential federal income tax effects relating to
the purchase, ownership and disposition of the New Securities. There can be no
assurance that the Internal Revenue Service (the "IRS") will take a similar
view of such consequences. Further the discussion does not address all aspects
of taxation that may be relevant to particular purchasers in light of their
individual circumstances (including dealers in securities, insurance
companies, financial institutions, tax-exempt entities, taxpayers who acquired
New Senior Notes for an amount less than or greater than the "issue price" of
the New Senior Notes, and other taxpayers who are subject to special treatment
under U.S. federal income tax laws, including taxpayers who hold the New
Securities as part of a "straddle," "hedge" or "conversion transaction"). The
discussion below assumes that the New Securities are held as capital assets
and only addresses holders who are initial purchasers of the New Securities.
The discussion of the U.S. federal income tax consequences set forth below
is based upon currently existing provisions of the Internal Revenue Code of
1986, as amended (the "Code"), Treasury Regulations promulgated thereunder and
judicial and administrative interpretations, all of which are subject to
change, possibly with retroactive effect. Because individual circumstances may
differ, each holder of the Exchange Securities is strongly urged to consult
its own tax advisor with respect to its particular tax situation and the
particular tax effects of any state, local, non-U.S., or other tax laws and
possible changes in the tax law.
As used herein, the term, "U.S. Holder" means a beneficial owner of New
Securities who or which is for U.S. federal income tax purposes (i) a citizen
or resident of the United States, (ii) a corporation, partnership or other
entity created or organized in or under the laws of the United States or of
any political subdivision thereof, (iii) an estate the income of which is
subject to U.S. federal income taxation regardless of its source, or (iv) a
"U.S. Trust." A U.S. Trust is (a) for taxable years beginning after December
31, 1996, or if the trustee of a trust elects to apply the following
definition to an earlier taxable year ending after August 20, 1996, any trust
if, and only if, (i) a court within the United States is able to exercise
primary supervision over the administration of the trust and (ii) one or more
U.S. persons have the authority to control all substantial decisions of the
trust and (b) for all other taxable years, any trust whose income is
includible in gross income for U.S. federal income tax purposes regardless of
its source. The term U.S. Holder also includes certain former U.S. citizens
whose income and gain on the New Securities will be subject to U.S. taxation.
As used herein, the term "Non-U.S. Holder" means a beneficial owner of a New
Senior Note that is not a U.S. Holder.
CONSEQUENCES OF EXCHANGE OFFER TO EXCHANGING AND NONEXCHANGING HOLDERS
The exchange of an Old Security for a New Security pursuant to the Exchange
Offer will not be taxable to the exchanging Holders for Federal income tax
purposes. As a result (i) an exchanging Holder will not recognize any gain or
loss on the exchange, (ii) the holding period for the New Security will
include the holding period for the Old Security, (iii) the basis of the New
Security will be the same as the basis for the Old Security and (iv) original
issue discount on the New Discount Debentures will be the same as on the Old
Discount Debentures.
The Exchange Offer will result in no Federal income tax consequences to a
nonexchanging Holder.
The treatment of interest and original issue discount described below with
respect to the Senior Notes and Discount Debentures is based in part upon the
assumption that as of the date of issuance of the Old Securities, the
possibility that liquidated damages would be paid to holders of such Old
Securities pursuant to a Registration Default was remote. The Service may take
a different position, which could affect the timing and character of interst
income by holders of such Exchange Securities.
SENIOR NOTES
Interest paid on a New Senior Note will generally be taxable to a U.S.
Holder as ordinary interest income at the time it accrues or is received in
accordance with the U.S. Holder's method of accounting for federal income tax
purposes.
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DISCOUNT DEBENTURES
Original Issue Discount. Because the Discount Debentures have been issued
at a discount from their "stated redemption price at maturity," the Discount
Debentures have original issue discount ("OID") for federal income tax
purposes. For federal income tax purposes, OID on a Discount Debenture is the
excess of the stated redemption price at maturity of the Discount Debenture
over its issue price. The issue price of each Discount Debenture was its
"stated principal amount" on April 2, 1997, which was 56.52% of the amount
payable on maturity of such Discount Debenture (other than any accrued and
unpaid interest). The stated redemption price at maturity of a Discount
Debenture will be the sum of all payments to be made on such Discount
Debenture other than "qualified stated interest" payments. Qualified stated
interest is stated interest that is unconditionally payable at least annually
at a single fixed rate that appropriately takes into account the length of the
interval between payments. The interest payments on the Discount Debentures
will not constitute qualified stated interest, and thus will be included along
with principal in the stated redemption price at maturity of the Discount
Debentures. As a result, each Discount Debenture will bear OID in an amount
equal to the excess of (i) the sum of its principal amount and all stated
interest payments over (ii) its issue price.
A holder will be required to include OID in income periodically over the
term of a Discount Debenture before receipt of the cash or other payment
attributable to such income. In general, a holder must include in gross income
for federal income tax purposes the sum of the daily portions of OID with
respect to the Discount Debentures for each day during the taxable year or
portion of a taxable year on which such holder holds the Discount Debentures
("Accrued OID"). The daily portion is determined by allocating to each day of
any accrual period within a taxable year a pro rata portion of an amount equal
to the adjusted issue price of the Discount Debenture at the beginning of the
accrual period multiplied by the yield to maturity of the Discount Debenture.
For purposes of computing OID, the Company will use six-month accrual periods
which end on the days in the calendar year corresponding to the maturity date
of the Discount Debentures and the date six months prior to such maturity
date, with the exception of an initial short accrual period. The adjusted
issue price of a Discount Debenture at the beginning of any accrual period is
the issue price of the Discount Debenture increased by the Accrued OID for all
prior accrual periods (less any cash payments on the Discount Debentures other
than qualified stated interest). Under these rules, holders will have to
include in gross income increasingly greater amounts of OID in each successive
accrual period. Each payment made under a Discount Debenture (except for
payments of qualified stated interest) will be treated first as a payment of
OID to the extent of OID that has accrued as of the date of payment and has
not been allocated to prior payments and second as a payment of principal.
Optional Redemption. The Company's option to redeem the Discount Debentures
at any time after April 1, 2002 should be treated as a "call option" within
the meaning of the applicable Treasury Regulations (the "OID Regulations").
See "Description of the New Securities--Redemption of Exchange
Securities--Optional Redemption." As a result, the Company would be presumed
under the OID Regulations to exercise its option to redeem the Discount
Debentures if by utilizing the date of exercise of a call option as the
maturity date and the amount for which the Discount Debentures would be
redeemed in accordance with the terms of the redemption feature (that is, the
principal amount plus redemption premium, if any, plus accrued interest) as
the stated redemption price at maturity the yield on the Discount Debentures
would be lower than such yield would be if the option was not exercised.
Because the exercise by the Company of its call option at any time after April
1, 2002 and before April 1, 2004 would result in higher yield than if such
call option were not exercised, such call option should be presumed to not be
exercised under the OID Regulations.
In addition to the option redemption described above, a holder will have
the right to tender Discount Debentures to the Company for redemption should
the Company experience a Change of Control. See "Description of The New
Securities--Mandatory Offers to Purchase Exchange Securities." Such additional
redemption rights should not affect, and will be treated by the Company as not
affecting, the determination of the yield or maturity of the Discount
Debentures.
TAXABLE DISPOSITION OF NEW SECURITIES
Generally, any sale or redemption of New Securities will result in taxable
gain or loss equal to the difference between the amount of cash or other
property received (except to the extent the consideration
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received is attributable to qualified stated interest not previously taken
into account, which consideration is treated as interest received) and the
holder's adjusted tax basis in the New Securities. A holder's adjusted tax
basis for determining gain or loss on the sale or other taxable disposition of
New Securities will initially equal the cost of such New Securities to such
holder and will be increased by any Accrued OID with respect to any Discount
Debentures includable in such holder's gross income and decreased by the
amount of any cash payments received with such holder regardless of whether
such payments are denominated as interest (other than payments of qualified
stated interest). Any gain or loss upon a sale or disposition of New
Securities by an original holder will generally be capital gain or loss. The
recently enacted Taxpayer Relief Act of 1997 made certain changes to the Code
with respect to taxation of capital gains of taxpayers other than
corporations. In general, the maximum tax rate for non-corporate taxpayers on
long term capital gains has been lowered to 20% from the previous 28% rate for
most capital assets (including the New Securities) held for more than 18
months. For taxpayers in the 15% regular tax bracket, the maximum tax rate on
long term capital gains is now 10%. These rate reductions are effective
retroactively to any sale made after May 6, 1997. Capital assets sold after
July 28, 1997 must be held for more than 18 months, rather than for more than
one year, in order for gain on the sale of such assets to qualify as long term
capital gain. Capital assets sold after May 6 but before July 29, 1997 qualify
for the new 20% rate so long as they were held for more than a year. Capital
gain on assets sold on or after July 29, 1997, having a holding period of more
than one year but not more than 18 months will be taxed as "mid-term gain" at
a 28% rate.
NON-U.S. HOLDERS
On April 15, 1996, proposed Treasury Regulations (the "1996 Proposed
Regulations") were issued which, if adopted in final form, could affect the
U.S. taxation of Non-U.S. Holders. The 1996 Proposed Regulations are generally
proposed to be effective for payments after December 31, 1997, regardless of
the issue date of the New Securities with respect to which such payments are
made, subject to certain transition rules. It cannot be predicted at this time
whether the 1996 Proposed Regulations will become effective as proposed or
what, if any, modifications may be made to them. The discussion under this
heading and under "-Backup Withholding and Information Reporting" below, is
not intended to be a complete discussion of the provisions of the 1996
Proposed Regulations, and prospective Non-U.S. Holders of New Securities are
urged to consult their tax advisors with respect to the effect the 1996
Proposed Regulations may have if adopted.
Payments of interest on the New Securities by the Company or any paying
agent to a beneficial owner of New Securities that is a Non-U.S. Holder will
not be subject to U.S. federal withholding tax, provided that, (i) such holder
does not own, actually or constructively, 10 percent or more of the total
combined voting power of all classes of stock of the Company entitled to vote,
(ii) such holder is not, for U.S. federal income tax purposes, a controlled
foreign corporation related, directly or indirectly, to the Company through
stock ownership, (iii) such holder is not a bank receiving interest described
in Section 881(c)(3)(A) of the Code, and (iv) certain certification
requirements (summarized below) are met. If a Non-U.S. Holder of New
Securities is engaged in a trade or business in the United States, and if
interest on the New Securities is effectively connected with the conduct of
such trade or business (and, if certain tax treaties apply, is attributable to
a U.S. permanent establishment maintained by the Non-U.S. Holder) the Non-U.S.
Holder, although exempt from U.S. withholding tax, will generally be subject
to regular U.S. income tax on such interest in the same manner as if it were a
U.S. Holder. In addition, if such Non-U.S. Holder is a foreign corporation, it
may be subject to a branch profits tax equal to 30% (or such lower rate
provided by an applicable treaty) of its effectively connected earnings and
profits for the taxable year, subject to certain adjustments. For purposes of
the branch profits tax, interest on New Securities will be included in the
earnings and profits of such Non-U.S. Holder if such interest is effectively
connected with the conduct by the Non-U.S. Holder of a trade or business in
the United States.
Under current Treasury Regulations, in order to obtain the exemption from
withholding tax described in the first sentence of the preceding paragraph,
either (i) the beneficial owner of New Securities must certify on IRS Form W-8
or a substitute form that is substantially similar to Form W-8, under
penalties of perjury, to the Company or paying agent, as the case may be, that
such owner is a Non-U.S. Holder and must provide such owner's name and address
or (ii) a securities clearing organization, bank
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or other financial institution that holds customers' securities in the
ordinary course of its trade or business (a "Financial Institution") and holds
the New Securities on behalf of the beneficial owner thereof must certify,
under penalties of perjury, to the Company or paying agent, as the case may
be, that such certificate has been received from the beneficial owner by it or
by a Financial Institution between it and the beneficial owner and must
furnish the payor with a copy thereof. A certificate described in this
paragraph is effective only with respect to payments of interest made to the
certifying Non-U.S. Holder after delivery of the certificate in the calendar
year of its delivery and the two immediately succeeding calendar years. In
lieu of the certificate described in this paragraph, a Non-U.S. Holder engaged
in a trade or business in the United States (with which interest payments on
the New Senior Note are effectively connected) must provide to the Company a
properly executed IRS Form 4224 in order to claim an exemption from
withholding tax.
The 1996 Proposed Regulations provide optional documentation procedures
designed to simplify compliance by withholding agents. The 1996 Proposed
Regulations also add "intermediary certification" options for certain
qualifying withholding agents. Under one such option, a withholding agent
would be allowed to rely on IRS Form W-8 furnished by a financial institution
or other intermediary on behalf of one or more beneficial owners (or other
intermediaries) without having to obtain the beneficial owner certificate
described in the preceding paragraph, provided that the financial institution
or intermediary has entered into a withholding agreement with the IRS and thus
is a "qualified intermediary." Under another option, an authorized foreign
agent of a U.S. withholding agent would be permitted to act on behalf of the
U.S. withholding agent, provided certain conditions are met.
The 1996 Proposed Regulations, if adopted, would also provide certain
presumptions with respect to withholding for holders not providing the
required certifications to qualify for the withholding exemption described
above. In addition, the 1996 Proposed Regulations would replace a number of
current tax certification forms (including IRS Form W-8 and IRS Form 4224)
with a single, restated form (IRS Form W-8) and standardize the period of time
for which withholding agents could rely on such certifications.
Under current law, a Non-U.S. Holder of New Securities generally will not
be subject to U.S. federal income tax on any gain recognized on the sale,
exchange or other disposition of such New Securities, unless (i) the gain is
effectively connected with the conduct of a trade or business in the United
States of the non-U.S. holder (and, if certain tax treaties apply, is
attributable to a U.S. permanent establishment maintained by the Non-U.S.
Holder) or (ii) the Non-U.S. Holder is an individual who holds the New
Securities as a capital asset and is present in the United States for 183 days
or more in the taxable year of the disposition and either (a) such individual
has a U.S. "tax home" (as defined for U.S. federal income tax purposes) or (b)
the gain is attributable to an office or other fixed place of business
maintained in the United States by such individual. In the case of a Non-U.S.
Holder that is described under clause (i) above, its gain will be subject to
the U.S. federal income tax on net income that applies to U.S. persons and, in
addition, if such Non-U.S. Holder is a foreign corporation, it may be subject
to the branch profits tax. An individual Non-U.S. Holder that is described
under clause (ii) above will be subject to a flat 30% on any tax gain derived
from the sale, which may be offset by U.S. capital losses (notwithstanding the
fact that he or she is not considered a U.S. resident). Thus, individual
Non-U.S. Holders who have spent 183 days or more in the United States in the
taxable year in which they contemplate a sale of New Securities are urged to
consult their tax advisers as to the tax consequences of such sale.
New Securities held by an individual who is not a citizen or resident (as
specially defined for U.S. federal estate tax purposes) of the United States
at the date of his death will not be subject to U.S. federal estate tax as a
result of such individual's death; provided, that at the time of such
individual's death, the individual does not own, actually or constructively,
10 percent or more of the total combined voting power of all classes of stock
of the Company entitled to vote and payments with respect to such New
Securities would not have been effectively connected with the conduct by such
individual of a trade or business in the United States.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Under current U.S. federal income tax law, information reporting
requirements apply to interest and principal payments made to, and to the
proceeds of sales before maturity by, certain non-corporate U.S.
105
<PAGE>
Holders. In addition, a 31% backup withholding tax requirement applies to
certain payments of interest on, and the proceeds of a sale, exchange or
redemption of, the New Securities.
Backup withholding will generally not apply with respect to payments made
to certain exempt recipients such as corporations or other tax-exempt
entities. In the case of a non-corporate U.S. Holder, backup withholding will
apply only if such holder (i) fails to furnish its taxpayer identification
number ("TIN") which for an individual would be his Social Security number,
(ii) furnishes an incorrect TIN, (iii) is notified by the IRS that it has
failed to properly report payments of interest and dividends or (iv) under
certain circumstances, fails to certify, under penalties of perjury, that it
has furnished a correct TIN and has not been notified by the IRS that it is
subject to backup withholding for failure to report interest and dividend
payments.
In the case of a Non-U.S. Holder, under current Treasury Regulations,
backup withholding and information reporting will not apply to payments made
by the Company or any paying agent thereof on New Securities if such holder
has provided the required certification under penalties of perjury that it is
not a U.S. Holder or has otherwise established an exemption, provided in each
case that the Company or such paying agent, as the case may be, does not have
actual knowledge that the payee is a U.S. Holder.
Under current Treasury Regulations, if payments on New Securities are made
to or through a foreign office of a custodian, nominee or other agent acting
on behalf of a beneficial owner of New Securities, such custodian, nominee or
other agent will not be required to apply backup withholding to such payments
made to such beneficial owner. However, under the 1996 Proposed Regulations,
backup withholding may apply if such custodian, nominee or other agent has
actual knowledge that the payee is a U.S. Holder. In the case of payments made
to or through the foreign office of a custodian, nominee or other agent that
is (i) a U.S. Person, (ii) a controlled foreign corporation for U.S. tax
purposes or (iii) a foreign person 50% or more of the gross income of which
for the three-year period ending with the close of its taxable year preceding
the year of payment is effectively connected with the conduct of a trade or
business within the United States, information reporting (but not backup
withholding) is required unless the custodian, nominee or other agent has
documentary evidence in its files that the payee is not a U.S. person and
certain other conditions are met, or the payee otherwise establishes an
exemption.
Under current Treasury Regulations, payments on the sale, exchange or other
disposition of New Securities made to or through a foreign office of a broker
generally will not be subject to backup withholding. However, under the 1996
Proposed Regulations, backup withholding may apply if such broker has actual
knowledge that the payee is a U.S. Holder. In the case of proceeds from a sale
of New Securities by a Non-U.S. Holder paid to or through the foreign office
of a U.S. broker or a foreign office of a foreign broker that is (i) a
controlled foreign corporation for U.S. tax purposes or (ii) a person 50% or
more of whose gross income for the three-year period ending with the close of
the taxable year preceding the year of payment (or for the part of that period
that the broker has been in existence) is effectively connected with the
conduct of a trade or business within the United States, information reporting
(but not backup withholding) is required unless the broker has documentary
evidence in its files that the payee is not a U.S. person and certain other
conditions are met, or the payee otherwise establishes an exemption. Payments
to or through the U.S. office of a broker will be subject to backup
withholding and information reporting unless the holder certifies, under
penalties of perjury, that it is not a U.S. Holder and that certain other
conditions are met or otherwise establishes an exemption.
The 1996 Proposed Regulations would, if adopted, alter the foregoing rules
as described above and in other certain respects. In particular, the 1996
Proposed Regulations would provide certain presumptions under which Non-U.S.
Holders may be subject to backup withholding in the absence of required
certifications.
Holders of New Securities should consult their tax advisors regarding the
application of backup withholding in their particular situations, the
availability of an exemption therefrom, and the procedure for obtaining such
an exemption, if available. Any amounts withheld from payment under the backup
withholding rules will be allowed as a credit against a holder's U.S. Federal
income tax liability and may entitle such holder to a refund, provided that
the required information is furnished to the IRS.
106
<PAGE>
The Company is required to furnish certain information to the Service and
will furnish annually to record holders of the Senior Notes and the Discount
Debentures information with respect to interest paid on the Senior Notes and
OID accruing on the Discount Debentures during the calendar year. The
information regarding the accrual of OID on the Discount Debentures will be
based on the adjusted issue price of the Discount Debentures and will be
applicable if the holder is an original holder of the Discount Debentures
purchasing at the issue price. Subsequent holders who purchase Discount
Debentures for an amount other than the adjusted issue price and/or on a date
other than the last day of an accrual period will be required to determine for
themselves the amount of OID, if any, they are required to include in gross
income for federal income tax purposes.
SUBSEQUENT PURCHASERS
The foregoing does not discuss special rules which may affect the treatment
of purchasers that acquire the New Securities other than through purchasing
the related Old Securities at the time of original issuance at the issue
price, including those provisions of the Code relating to the treatment of
"market discount" and "acquisition premium." For example, the market discount
provisions of the Code may require a subsequent purchaser of New Securities at
a market discount to treat all or a portion of any gain recognized upon sale
or other disposition of such New Securities as ordinary income and to defer a
portion of any interest expense that would otherwise be deductible on any
indebtedness incurred or maintained to purchase or carry such New Securities
until the holder disposes of such New Securities in a taxable transaction.
THE FOREGOING DISCUSSION IS FOR GENERAL INFORMATION AND IS NOT TAX ADVICE.
ACCORDINGLY, EACH PROSPECTIVE HOLDER OF NEW SECURITIES SHOULD CONSULT ITS OWN
TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO THE PROSPECTIVE HOLDER OF
THE NEW SECURITIES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE,
LOCAL, OR NON-U.S. INCOME TAX LAWS AND ANY RECENT OR PROSPECTIVE CHANGES IN
APPLICABLE TAX LAWS.
107
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the New Securities will be passed
upon for the Company by Mayer, Brown & Platt, Chicago, Illinois.
INDEPENDENT AUDITORS
The Consolidated Financial Statements of Jordan Industries, Inc., as of
December 31, 1995 and 1996, and for each of the three years in the period
ended December 31, 1996, appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing in this Prospectus and Registration
Statement which, as to 1996, are based in part on the reports of Blackman
Kallick Bartelstein, LLP, independent auditors, and Mellen, Smith & Pivoz,
P.C., independent auditors. The financial statements and report referred to
above are included in reliance upon such reports given upon the authority of
such firms as experts in accounting and auditing.
The financial statements of E.F. Johnson Company Components Division as of
December 31, 1994, November 26, 1995 and January 23, 1996 and for the year
ended December 31, 1994, the period from January 1, 1995 to November 26, 1995
and the period from November 27, 1995 to January 23, 1996, included in this
Prospectus and Registration Statement have been audited by Price Waterhouse,
LLP, independent auditors as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The combined financial statements of Viewsonics, Inc. and Shanghai
Viewsonics Electronic Co., Ltd. as of December 31, 1995, and for the year then
ended, included 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 report given upon the authority of such firm as experts in accounting and
auditing.
The combined financial statements of Seaboard Folding Box Corp. and
Affiliates as of December 31, 1994 and 1995, and for each of the two years in
the period ended December 31, 1995, included in this Prospectus and
Registration Statement have been audited by Canby, Maloney & Co., Inc.,
independent auditors as set forth in their report thereon appearing elsewhere
herein, and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
108
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND INFORMATION
<TABLE>
<CAPTION>
PAGE
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<S> <C>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
Unaudited Pro Forma Balance Sheet as of June 30, 1997........................................ P-2
Unaudited Pro Forma Statement of Operations for the year ended December 31, 1996 ............ P-3
Notes to Unaudited Pro Forma Statement of Operations for the year ended
December 31, 1996 .......................................................................... P-4
Unaudited Pro Forma Statement of Operations for the six months ended June 30, 1997 ......... P-6
Notes to Unaudited Pro Forma Statement of Operations for the six months ended
June 30, 1997 .............................................................................. P-7
JORDAN INDUSTRIES, INC.
Report of Independent Auditors .............................................................. F-1
DIVERSIFIED WIRE & CABLE, INC.
Independent Auditors' Report ............................................................. F-2
PAW PRINT MAILING LIST SERVICES, INC.
Independent Auditor's Report ............................................................. F-3
Consolidated Balance Sheets as of December 31, 1995 and 1996................................. F-4
Consolidated Statements of Operations for the three years in the period ended December 31,
1996........................................................................................ F-5
Consolidated Statements of Changes in Shareholders' Equity (Net Capital Deficiency)
for the three years in the period ended December 31, 1996................................... F-6
Consolidated Statements of Cash Flows for the three years in the period ended December 31,
1996........................................................................................ F-7
Notes to Consolidated Financial Statements................................................... F-9
Condensed Consolidated Balance Sheet as of June 30, 1997 (unaudited)......................... F-29
Condensed Consolidated Statements of Operations for the six months ended
June 30, 1996 and 1997 (unaudited).......................................................... F-30
Condensed Consolidated Statements of Cash Flows for the six months ended
June 30, 1996 and 1997 (unaudited).......................................................... F-31
Notes to Condensed Consolidated Financial Statements (unaudited)............................. F-32
E.F. JOHNSON COMPANY--COMPONENTS DIVISION (A DIVISION OF E. F. JOHNSON COMPANY)
Report of Independent Accountants............................................................ F-35
Balance Sheets as of December 31, 1994, November 26, 1995 and January 23, 1996 .............. F-36
Statements of Operations for the year ended December 31, 1994, the eleven months
ended November 26, 1995, and the two months ended January 23, 1996.......................... F-37
Statements of Cash Flows for the year ended December 31, 1994, the eleven months
ended November 26, 1995, and the two months ended January 23, 1996.......................... F-38
Notes to Financial Statements................................................................ F-39
VIEWSONICS, INC. AND SHANGHAI VIEWSONICS ELECTRONIC CO., LTD.
Report of Independent Auditors............................................................... F-43
Combined Balance Sheets as of December 31, 1995 and (unaudited) as of July 31, 1996 ......... F-44
Combined Statements of Income for the year ended December 31, 1995 and
(unaudited) for the seven months ended July 31, 1996........................................ F-45
Combined Statements of Stockholder's Equity for the year ended December 31, 1995
and (unaudited) for the seven months ended July 31, 1996.................................... F-46
Combined Statements of Cash Flows for the year ended December 31, 1995 and
(unaudited) for the seven months ended July 31, 1996........................................ F-47
Notes to Combined Financial Statements....................................................... F-48
I-1
<PAGE>
PAGE
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SEABOARD FOLDING BOX CORP. AND AFFILIATES
Independent Auditors' Report ................................................................ F-52
Combined Balance Sheets as of December 31, 1994 and 1995..................................... F-53
Combined Statements of Income for the years ended December 31, 1994 and 1995 ................ F-54
Combined Statements of Stockholder's Equity for the years ended December 31, 1994
and 1995.................................................................................... F-55
Combined Statements of Cash Flows for the years ended December 31, 1994 and 1995 ............ F-56
Notes to Combined Financial Statements....................................................... F-58
Combined Balance Sheet as of May 1, 1996 (unaudited)......................................... F-61
Combined Statement of Income for the period from January 1, 1996
to May 1, 1996 (unaudited).................................................................. F-62
Combined Statement of Stockholder's Equity for the period from January 1, 1996
to May 1, 1996 (unaudited).................................................................. F-63
Combined Statement of Cash Flows for the period from January 1, 1996
to May 1, 1996 (unaudited).................................................................. F-64
Notes to Combined Financial Statements (unaudited)........................................... F-66
</TABLE>
I-2
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information (the "Unaudited Pro
Forma Financial Information") has been derived from the application of pro
forma adjustments to the Company's historical consolidated financial
statements included elsewhere herein. The Unaudited Pro Forma Financial
Information gives effect to (i) each element of the Plan, including the
disposition of Hudson and Paw Print (the "Dispositions"); (ii) the full year
impact of acquisitions of LoDan, FIR, Arnon Caine, Seaboard, Cape Craftsmen,
Colman Motors, Viewsonics, Vitelec, Diversified, Bond, Northern and Johnson
(the "Acquisitions"); and (iii) the deconsolidation of Welcome Home, as if
such events had occurred on June 30, 1997 for purposes of the unaudited pro
forma balance sheet and at the beginning of the relevant period for purposes
of the unaudited pro forma statements of operations for the year ended
December 31, 1996, and the six months ended June 30, 1997, respectively. The
pro forma results for FIR for the year ended December 31, 1996 reflect FIR's
results of operations for the twelve months ended October 31, 1996 and the pro
forma results for FIR for the six months ended June 30, 1997 reflect FIR's
results of operations for the six months ended April 30, 1997. The pro forma
adjustments are described in the accompanying notes. The Unaudited Pro Forma
Financial Information is presented for informational purposes only and does
not purport to represent what the Company's financial position or results of
operations would actually have been if the aforementioned events had occurred
on the dates specified or to project the Company's financial position or
results of operations at any future date or for any future periods. The
Unaudited Pro Forma Financial Information should be read in conjunction with
the Company's historical consolidated financial statements, and the notes
thereto, included elsewhere herein.
P-1
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET
<TABLE>
<CAPTION>
AT JUNE 30, 1997
------------------------------------------------------------------------------------
-
JTP JII DISPOSITIONS PRO
HISTORICAL OFFERING (1) OFFERING (9) OTHER FORMA
------------ ------------ --------------- -------------- -------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................... $ 30,887 $286,045 $(270,368)(2) $ (1,019) $ 25,704 (10) $ 71,249
Trade and other receivables-net .............. 107,122 0 0 (1,123) (1,482)(11) 104,517
Inventories .................................. 111,372 0 0 0 0 111,372
Prepaid expenses and other current assets ... 13,876 0 0 124 0 14,000
------------ ------------ --------------- -------------- -------------- ---------
Total current assets ....................... 263,257 286,045 (270,368) (2,018) 24,222 301,138
Property and equipment, net .................. 100,079 0 0 (597) 0 99,482
Other assets ................................. 368,596 9,000 (1,379)(3) (10,059) (14,222)(12) 351,936
------------ ------------ --------------- -------------- -------------- ---------
Total assets ............................... $ 731,932 $295,045 $(271,747) $(12,674) $ 10,000 $752,556
============ ============ =============== ============== ============== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities ........................... $ 109,250 0 $ (12,964)(4) $ (1,018) 0 $ 95,268
Current portion of long-term obligations ..... 8,530 0 (4,188)(5) 0 0 4,342
Long-term obligations:
Old Credit Agreements ........................ 131,041 -- (81,041)(5) 0 0 50,000
Old Senior Notes ............................. 275,000 -- (271,595)(6) -- -- 3,405
M&G Senior Notes ............................. 170,000 -- -- -- -- 170,000
Old Discount Debentures....................... 124,507 -- -- -- -- 124,507
New Credit Agreements ........................ 0 0 0 0 0 0
New Senior Notes ............................. 0 -- 120,000 (7) -- -- 120,000
New JTP Senior Notes ......................... -- 188,511 -- -- -- 188,511
New JTP Discount Debentures................... 0 85,034 -- -- -- 85,034
Other debt ................................... 43,917 0 0 (2,500) 0 41,417
------------ ------------ --------------- -------------- -------------- ---------
Total long-term obligations................... 744,465 273,545 (232,636) (2,500) 0 782,874
Other non-current liabilities and deferred
income taxes.................................. 14,236 0 0 (96) 0 14,140
JTP Senior Preferred Stock .................... 0 25,000 25,000
M&G Preferred Stock ........................... 1,515 -- -- -- -- 1,515
Stockholders' equity (net capital deficiency) (146,064) (3,500) (21,959)(8) (9,060) 10,000 (13) (170,583)
------------ ------------ --------------- -------------- -------------- ----------
Total liabilities and stockholders' equity . $ 731,932 $295,045 $(271,747) $(12,674) $ 10,000 $ 752,556
============ ============ =============== ============== ============== ==========
</TABLE>
- ------------
(1) Reflects the effects of the JTP Offering including the recording of
the proceeds from the JTP Offering, the capitalization of fees
associated with the JTP Offering, the issuance of the New JTP Senior
Notes, the New JTP Debentures and the New JTP Senior Preferred Stock.
Total fees of $14.5 million related to the JTP Offering have been
allocated to other assets, $9.0 million, and net capital deficiency
$5.5 million. The net capital deficiency related to the JTP Offering
of ($3.5 million) represents the difference between the $5.5 million
of fees allocated to net capital deficiency and $2.0 million of cash
proceeds from the sale of an aggregate of 999,500 shares of JTP
common stock to the Jordan Group, management of JTP, the purchasers
of the JTP Preferred Stock Units and Jefferies.
(2) Reflects the repayment of the Old Credit Agreements, $85.2 million,
the repurchase of the Old Senior Notes including accrued interest,
$284.6 million, the payment of the tender premium, $13.6 million, the
payment of fees incurred in connection with the Offering, $7.0 million
offset by the proceeds from the Offering $120.0 million.
(3) Reflects the recording of fees paid in connection with the Offering
$7.0 million offset by the write off of deferred financing fees in
connection with the repayment of the Old Credit Agreements, $8.4
million.
(4) Reflects the payment of accrued interest on the Old Credit Agreements
and the Old Senior Notes.
(5) Reflects the repayment of the current and long term principal of the
Old Credit Agreements.
(6) Reflects the repayment of the principal portion of the Old Senior
Notes.
(7) Reflects the proceeds from the Offering.
(8) Reflects the payment of the tender premium, $13.6 million, and the
write off of deferred financing fees in connection with the repayment
of the Old Credit Agreement, $8.4 million.
(9) Reflects the disposition of Paw Print which was sold to an affiliate
on July 31, 1997.
(10) Reflects the proceeds from the sale of Paw Print, $10.0 million and
the proceeds from the sale of a portion of the Company's investment in
Fannie May, $15.7 million. In July 1997, Fannie May repurchased from
the Company it's Subordinated Notes and term loans including all
accrued interest.
(11) Reflects the receipt of interest receivable recorded in connection
with the Company's investment in Fannie May.
(12) Reflects the reduction of the Company's investment in Fannie May in
connection with the Fannie May Refinancing.
(13) Reflects the proceeds from the sale of Paw Print.
P-2
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
----------------------------------------------------------------------
PRO FORMA PRO
HISTORICAL ACQUISITIONS(1) DISPOSITIONS(2) ADJUSTMENTS FORMA
------------ --------------- --------------- ------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.............................. $601,567 $142,905 $(98,969) $ 4,298 (3) $649,801
Cost of sales, excluding depreciation . 375,745 91,566 (58,885) 1,288 (4) 409,714
Selling, general and administrative
expenses, excluding depreciation ..... 150,951 23,305 (40,568) (6,596)(5) 127,092
Depreciation and amortization.......... 30,438 5,219 (3,048) 0 32,609
SAR expenses........................... 9,822 0 0 (9,822)(6) 0
Restructuring charges.................. 8,106 0 (8,106) 0 0
Other non-recurring charges............ 4,136 0 0 2,684 (7) 6,820
Advisory fees and other, net........... 4,489 73 (711) 140 (8) 3,991
Other (income) and expense ............ 4,488 0 0 (4,488)(9) 0
------------ --------------- --------------- ------------- -----------
Operating income....................... 13,392 22,742 12,349 21,092 69,575
Interest expense, net ................. 60,802 4,585 (1,794) 18,710 (10) 82,303
Other (income) expense ................ 0 770 (3,277) 2,989 482
------------ --------------- --------------- ------------- -----------
Income (loss) before income taxes
minortiy interest and equity in
investee ............................. (47,410) 17,387 17,420 (607) (13,210)
Income taxes (credits) ................ 4,415 884 (2,272) (70)(11) 2,957
Minority interest...................... 59 372 0 (11)(12) 420
Equity in investee..................... 0 0 0 13,424 (13) 13,424
------------ --------------- --------------- ------------- -----------
Net income (loss) before extraordinary
items................................. (51,884) 16,131 19,692 (13,950) (30,011)
Extraordinary items.................... 3,806 0 0 (3,806)(14) 0
------------ --------------- --------------- ------------- -----------
Net income (loss)...................... $(55,690) $ 16,131 $ 19,692 $(10,144) $(30,011)
============ =============== =============== ============= ===========
OTHER DATA:
Adjusted operating income(15).......... $ 29,367 $ 22,742 $ (3,626) $ 21,092 $ 69,575
EBITDA................................. 80,507 (16) 28,034 484 5,097 114,122
Capital expenditures................... 17,395 2,325 (1,747) 0 17,973
Cash interest expense(17).............. 48,352 4,611 (1,800) 5,873 57,036
Senior Preferred Stock dividends(18) . -- -- -- 3,481 3,481
</TABLE>
- ------------
(footnotes on following page)
P-3
<PAGE>
(1) Represents the results of operations of Bond, Diversified, Johnson,
LoDan, Northern, Viewsonics, Vitelec, Seaboard, Cape, Arnon Caine and
FIR prior to their acquisition by JII or its Subsidiary. The results
of operations also include purchase accounting adjustments for
additional depreciation and amortization related to the write up of
property and equipment and the excess of purchase price over the
value of the net assets acquired (goodwill).
(2) Reflects the disposition of Hudson and Paw Print which were sold in
May 1997 and July 1997 respectively, and the deconsolidation of
Welcome Home.
(3) Includes the recognition of previously eliminated sales between Cape
and Welcome Home, $5.7 million, offset by the elimination of sales
relating to Dura-Line's divested Retube product line, $1.4 million.
Due to the deconsolidation of Welcome Home, sales between Cape and
Welcome Home, which were initially treated as intercompany, and
eliminated in consolidation, are now treated as third party sales.
(4) Reflects the recognition of costs associated with sales between Cape
and Welcome Home, $4.9 million, offset by the elimination of
nonrecurring purchase accounting adjustments to the inventories of
Seaboard, $0.9 million and Viewsonics, $1.9 million, and the
elimination of the costs relating to Dura-Line's divested Retube
product line, $0.8 million.
(5) Adjustments to "Selling, general and administrative expenses"
include: (i) the reclassification to "Advisory fees and other"
expenses relating to start-up of new facilities in Mexico, India,
China, Malaysia and Spain of $1.6 million, (ii) the elimination of
expenses relating to Dura-Line's divested Retube product line of $0.8
million, (iii) the reduction in expenses of $0.4 million as a result
of completed headcount reductions and administrative savings
recognized in connection with the Company's acquisition of
Barber-Colman, (iv) the reclassification to "Other non-recurring
charges," of $3.3 million related to certain transaction-based
bonuses and other nonrecurring charges and expense and (v) the
elimination of $0.5 million related to the closing of a facility.
(6) Reflects the elimination of nonrecurring SAR and other compensation
payments to the management and prior owners of certain subsidiaries.
(7) Reflects the reclassification of certain transaction-based bonuses and
nonrecurring charges and expenses from "Selling, general and
administrative expenses" in the amount of $3.3 million, offset by the
elimination of certain corporate charges consisting of $0.7 million
related to nonrecurring legal and accounting charges.
(8) Reflects the reclassification from "Selling, general and
administrative expenses" of $1.6 million relating to the startup of
new facilities in Mexico, India, China, Malaysia and Spain,
additional expense related to non competition payments paid to the
partners of Dura-Line's Czech Republic joint venture of $0.4 million,
and the implementation of directors fees of $0.1 million for the
directors of JTP, partially offset by the elimination of nonrecurring
legal fees related to Welcome Home of $0.6 million, the recording of
$1.0 million for consulting services rendered in connection with the
sale of Hudson and the elimination of $0.3 million of non-recurring
compensation expense related to AIM Electronics.
(9) Reflects the elimination of the Company's loss on the purchase of Cape
Craftsmen.
(10) Reflects (i) additional interest expense of $9.2 million related to
the M&G Senior Notes offering, (ii) incremental interest expense of
$7.5 million related to the Plan and (iii) the elimination of $1.8
million of interest income earned by the Company on its investment in
Fannie May.
(11) Reflects adjustment for state and local income taxes. No provision for
federal income taxes has been recorded due to the fact that the
Company anticipates that it will be recording a pre-tax loss for the
periods presented, and, if the Company's results generate pre-tax
income, it will have sufficient net operating loss carry-forwards to
offset any federal tax liability.
(12) Reflects adjustment to accurately reflect the Company's minority
interest in relation to certain Acquisitions.
(13) Reflects the Company's equity in the earnings of its majority-owned
subsidiary, Welcome Home. As a result of Welcome Home's bankruptcy
filing, the Company no longer has the ability to control the
P-4
<PAGE>
operations and financial affairs of Welcome Home. Accordingly, the
Company records the results of Welcome Home under the equity method of
accounting for its consolidated financial statements. The "Equity in
Investee" represents the Company's ownership percentage multiplied by
Welcome Home's net loss for the period presented.
(14) Represents the write-off of deferred financing fees as a result of the
M&G Senior Notes offering.
(15) Adjusted operating income reflects operating income excluding the
results of Welcome Home, which is no longer consolidated with the
Company.
(16) EBITDA reflects adjusted operating income plus (i) historical
depreciation and amortization net of the portion attributed to
Welcome Home of $28.3 million, (ii) SAR expense of $9.8 million,
(iii) loss on purchase of affiliated company of $4.5 million, (iv)
advisory fees and other expenses net of the portion attributable to
Welcome Home of $4.4 million, and (v) other non-recurring items of
$4.1 million consisting of $1.9 million relating to the international
expansion of Dura-line, $0.7 million of certain unusual corporate,
legal and accounting charges and $1.5 million of certain non-cash
charges.
(17) Historical cash interest expense reflects total interest expense less
$12.0 million of non-cash interest expense relating to the Company's
Discount Debentures and $3.0 million of amortization of deferred
financing fees. Pro forma cash interest expense reflects total
interest expense less $22.3 million of non-cash interest expense
relating to the Company's Discount Debentures and the JTP Discount
Notes, $2.6 million of amortization of deferred financing fees, $0.1
million of amortization of the original issue discount recorded in
connection with the JTP Offering and $0.8 million of amortization of
the premium paid by the Company for the Old Discount Debentures
Offering.
(18) Reflects paid-in-kind ("PIK") dividends on the JTP Senior Preferred
Stock assuming a PIK Dividend rate of 13.25%.
P-5
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1997
----------------------------------------------------------------------
PRO FORMA PRO
HISTORICAL ACQUISITIONS(1) DISPOSITIONS(2) ADJUSTMENTS FORMA
------------ --------------- --------------- ------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATION DATA:
Net sales............................. $324,889 $27,452 $(17,346) $ (1,599)(3) $333,396
Cost of sales, excluding
depreciation......................... 203,059 19,759 (11,477) (1,188)(4) 210,153
Selling, general and administrative
expenses, excluding depreciation .... 67,802 3,293 (2,943) (1,817)(5) 66,335
Depreciation and amortization......... 15,933 1,692 (875) 0 16,750
SAR expenses.......................... 15,418 0 0 (15,418)(6) 0
Restructuring charges................. 0 0 0 0 0
Other non-recurring charges........... 0 0 0 0 0
Advisory fees and other............... 1,500 (3) (65) 569 (7) 2,001
Other (income) and expense............ 0 0 0 0 0
------------ --------------- --------------- ------------- -----------
Operating income...................... 21,177 2,711 (1,986) 16,255 38,157
Interest expense, net................. 36,169 2,250 (136) 4,049 (8) 42,332
Other (income) and expense............ (18,012) 422 (1,028) 19,658 (9) 1,040
------------ --------------- --------------- ------------- -----------
Income (loss) before income taxes
minority interest and equity in
investee............................. 3,020 39 (822) (7,452) (5,215)
Income taxes (credits)................ 1,200 302 (195) (107) (10) 1,200
Minority interest..................... 764 0 0 115 (11) 879
Equity in investee.................... 4,168 0 0 0 4,168
------------ --------------- --------------- ------------- -----------
Net income (loss) before
extraordinary items.................. (3,112) (263) (627) (7,460) (11,462)
Extraordinary items................... 9,363 0 0 (9,363) (12) 0
------------ --------------- --------------- ------------- -----------
Net income (loss) .................... $(12,475) $ (263) $ (627) $ 1,903 $(11,462)
============ =============== =============== ============= ===========
OTHER DATA:
Adjusted operating income (13) ....... $ 22,284 $ 2,711 $ (1,986) $ 15,148 $ 38,157
EBITDA................................ 54,951 (14) 4,400 (2,926) 928 57,353
Capital expenditures.................. 5,758 596 0 0 6,354
Cash interest expense (15)............ 29,145 2,250 (156) (1,750) 29,489
Senior Preferred Stock dividend (16) . -- -- -- 1,684 1,684
</TABLE>
- ------------
(footnotes on following page)
P-6
<PAGE>
(1) Reflects the results of operations for LoDan and FIR prior to their
acquisitions by JII or its subsidiary. The results of operations also
include purchase accounting adjustments for additional depreciation
and amortization related to the write up of property and equipment and
the excess of purchase price over the value of the net assets acquired
(goodwill).
(2) Reflects the disposition of Hudson and Paw Print which were sold in
May 1997 and July 1997 respectively, and the deconsolidation of
Welcome Home's operating results for the period ended January 21,
1997.
(3) Reflects the elimination of sales relating to Dura-Line's divested
Retube product line.
(4) Reflects the elimination of cost relating to Dura-Line's divested
Retube product line, $1.0 million and the elimination of non recurring
purchase accounting adjustments to the inventories of Viewsonics, $0.2
million.
(5) Reflects the elimination of costs relating to Dura-Line's divested
Retube product line of $0.7 million, and the reclassification to
"Advisory fees and other" operating expenses relating to the start up
of new facilities in Mexico, India, China, Malaysia and Spain of $0.7
million and non compete payments paid to the partners of Dura-Line's
Czech Republic joint venture of $0.4 million.
(6) Reflects the elimination of non-recurring SAR and other compensation
payments made to the management and prior owners of certain
subsidiaries.
(7) Reflects the reclassification from "Selling, general and
administrative expenses," cost relating to the start up of new
facilities in Mexico, India, China, Malaysia and Spain of $0.7
million, additional expenses related to the implementation of
directors fees at JTP of $0.1 million, and non competition payments
paid to the partners of Dura-Line's Czech Republic joint venture of
$0.4 million, partially offset by the recording of $0.5 million for
consulting services rendered in connection with the sale of Hudson.
(8) Reflects additional interest expense related to the Plan of $3.1
million and the elimination of $0.8 million of interest earned by the
Company on its investment in Fannie May.
(9) Reflects the elimination of the $18.5 million gain recorded on the
sale of Hudson and the elimination of $1.2 million of intercompany
interest income recorded in connection with the dispositions.
(10) Reflects adjustment for state and local income taxes. No provision for
federal income taxes has been recorded due to the fact that the
Company anticipates that it will be recording a pre-tax loss for the
periods presented, and, if the Company's results generate pre-tax
income, it will have sufficient net operating loss carry-forwards to
offset any federal tax liability.
(11) Reflects the Company's minority interest recorded in relation to
certain of the Acquisitions.
(12) Reflects the write off of deferred financing fees related to the 11
3/4 Senior Subordinated Discount Debentures due 2005, $2.2 million,
the payment of the premium incurred by the Company for the Old
Discount Debentures Offering, $6.6 million, and the expenses related
to a flood at Dura-Line's Reno, NV facility, $0.5 million.
(13) Adjusted operating income reflects operating income excluding the
results of Welcome Home, which is no longer consolidated with the
Company.
(14) EBITDA reflects adjusted operating income plus (i) historical
depreciation and amortization net of the portion attributed to Welcome
Home of $15.8 million, (ii) SAR expense of $15.5 million, and (iii)
advisory fees and other expenses net of the portion attributable to
Welcome Home of $1.4 million.
(15) Historical cash interest expense reflects total interest expense less
$6.8 million of non-cash interest expense relating to the Company's
Discount Debentures and $1.9 million of amortization of deferred
financing fees. Pro forma cash interest expense reflects total
interest expense less $11.8 million of non-cash interest expense
relating to the Company's Discount Debentures and the JTP Discount
Notes, $1.3 million of amortization of deferred financing fees, $0.1
million of amortization of the original issue discount recorded in
connection with the JTP Offering and $0.4 million of amortization of
the premium paid by the Company for the Old Discount Debentures
Offering.
(16) Reflects paid-in-kind ("PIK") dividends on the JTP Senior Preferred
Stock assuming a PIK dividend rate of 13.25%.
P-7
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Jordan Industries, Inc.
We have audited the accompanying consolidated balance sheets of Jordan
Industries, Inc. as of December 31, 1995 and 1996, and the related
consolidated statements of operations, shareholders' equity (net capital
deficiency), and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of certain subsidiaries whose statements reflect total assets
constituting 5% in 1996, and net sales constituting 3% in 1996 of the related
consolidated totals. Those statements were audited by other auditors whose
reports have been furnished to us, and our opinion, insofar as it relates to
data included for these subsidiaries, is based solely on the reports of the
other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the reports of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Jordan Industries, Inc. at
December 31, 1995 and 1996, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Chicago, Illinois
March 27, 1997
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Diversified Wire & Cable, Inc.
Troy, Michigan
We have audited the accompanying balance sheet of Diversified Wire & Cable,
Inc. as of December 31, 1996 and the related statement of operations, changes
in stockholders' equity and cash flows for the period June 25, 1996
(Commencement of Operations) through December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides 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 Diversified Wire & Cable,
Inc. as of December 31, 1996, and the results of its operations, the changes
in stockholders' equity and its cash flows for the period June 25, 1996
through December 31, 1996 in conformity with generally accepted accounting
principles.
Bingham Farms, Michigan
February 13, 1997
/s/ Mellen, Smith & Pivoz, P.C.
F-2
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Paw Print Mailing List Services, Inc.
Elk Grove Village, Illinois
We have audited the accompanying balance sheet of PAW PRINT MAILING LIST
SERVICES, INC. as of December 31, 1996 and the related statements of loss and
accumulated deficit and cash flows for the period from November 9, 1996
(inception) through December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides 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 PAW PRINT MAILING LIST
SERVICES, INC. as of December 31, 1996, and the results of its operations and
its cash flows for the period from November 9, 1996 (inception) through
December 31, 1996 in conformity with generally accepted accounting principles.
Chicago, Illinois
February 11, 1997, except for Note 11,
as to which the date is June 6, 1997
/s/ Blackman, Kallick
Bartelstein, LLP
F-3
<PAGE>
JORDAN INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1996
---------- -----------
(DOLLARS IN THOUSANDS
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
ASSETS
------------
Current assets:
Cash and cash equivalents ........................................ $ 41,253 $ 32,797
Accounts receivable, net of allowance of $1,306 and $2,683
in 1995 and 1996, respectively .................................. 72,324 89,301
Inventories ...................................................... 84,259 108,132
Prepaid expenses and other current assets ........................ 7,566 9,703
---------- -----------
Total current assets ............................................ 205,402 239,933
Property, plant and equipment, net ................................ 91,422 111,040
Investments in and advances to affiliates ......................... 23,087 14,222
Goodwill, net ..................................................... 183,441 266,436
Other assets....................................................... 29,032 50,254
---------- -----------
Total assets..................................................... $532,384 $ 681,885
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
(NET CAPITAL DEFICIENCY)
------------------------------------
Current liabilities:
Notes payable and lines of credit ................................ $ 526 $ 856
Accounts payable ................................................. 49,086 47,036
Accrued liabilities .............................................. 26,867 57,910
Advance deposits ................................................. 1,830 1,900
Current portion of long-term debt ................................ 11,705 8,752
---------- -----------
Total current liabilities ....................................... 90,015 116,454
Long-term debt .................................................... 513,690 687,936
Other noncurrent liabilities ...................................... 2,402 3,572
Deferred income taxes ............................................. -- 1,444
Minority interest.................................................. 757 885
Shareholders' equity (net capital deficiency):
7% cumulative preferred stock at liquidation value of $10,000
per share: issued and outstanding--187.5 shares.................. 1,875 1,875
Common stock $.01 par value: authorized--100,000 shares
issued and outstanding--93,501shares in 1995 and 95,001
shares in 1996 ................................................... 1 1
Additional paid-in capital ........................................ 1,097 2,557
Note receivable from officer ...................................... -- (1,460)
Retained earnings (accumulated deficit) ........................... (77,452) (131,379)
---------- -----------
Total shareholders' equity (net capital deficiency) ............. (74,479) (128,406)
---------- -----------
Total liabilities and shareholders' equity (net capital
deficiency)..................................................... $532,384 $ 681,885
========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE>
JORDAN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales ............................................ $424,391 $507,311 $601,567
Cost of sales, excluding depreciation ................ 262,730 320,653 375,745
Selling, general and administrative expense ......... 97,428 121,371 150,951
Depreciation ......................................... 10,568 12,891 18,939
Amortization of goodwill and other intangibles ...... 8,531 8,793 11,499
Stock appreciation right and compensation agreements -- 400 9,822
Loss on purchase of an affiliated company ............ -- -- 4,488
Management fees and other ............................ 2,190 3,914 4,489
Restructuring charges ................................ -- 5,913 8,106
Other non-recurring charges .......................... -- 1,016 4,136
---------- ---------- ----------
Operating income...................................... 42,944 32,360 13,392
Other (income) and expenses:
Interest expense .................................... 40,877 46,974 63,340
Interest income ..................................... (1,042) (2,841) (2,538)
Interest income from affiliate ...................... (429) -- --
Gain on sale of a partial interest in a subsidiary . (24,161) -- --
---------- ---------- ----------
Total other expenses................................ 15,255 44,133 60,802
---------- ---------- ----------
Income (loss) before income taxes, minority interest
and extraordinary item ............................. 27,689 (11,773) (47,410)
Provision (benefit) for income taxes................. 1,332 (2,446) 4,415
---------- ---------- ----------
Income (loss) before minority interest and
extraordinary item ................................. 26,357 (9,327) (51,825)
Minority interest ................................... 2,616 (1,857) 59
---------- ---------- ----------
Income (loss) before extraordinary item ............. 23,741 (7,470) (51,884)
Extraordinary loss .................................. -- -- 3,806
---------- ---------- ----------
Net income (loss) .................................. $ 23,741 $ (7,470) $(55,690)
========== ========== ==========
</TABLE>
See accompanying notes.
F-5
<PAGE>
JORDAN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(NET CAPITAL DEFICIENCY)
(Dollars in Thousands)
<TABLE>
<CAPTION>
7% CUMULATIVE TOTAL SHARE-
PREFERRED STOCK COMMON STOCK RETAINED HOLDERS'
----------------- -------------- NOTE EARNINGS EQUITY
NUMBER NUMBER ADDITIONAL RECEIVABLE (ACCUM- (NET
OF OF PAID-IN FROM ULATED CAPITAL
SHARES AMOUNT SHARES AMOUN CAPITAL OFFICER DEFICIT) DEFICIENCY)
-------- -------- -------- -------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 .. 187.5 $1,875 93,501 $ 1 $1,097 $ -- $ (93,642) $ (90,669)
Net income .................. -- -- -- -- -- -- 23,741 23,741
Cumulative translation
adjustment ................ -- -- -- -- -- -- 201 201
Dividends declared on
preferred stock of
subsidiary ................ -- -- -- -- -- -- (140) (140)
-------- -------- -------- -------- ------------ ------------ ------------ --------------
Balance at December 31, 1994 187.5 1,875 93,501 1 1,097 -- (69,840) (66,867)
Net loss .................... -- -- -- -- -- -- (7,470) (7,470)
Cumulative translation
adjustment ................. -- -- -- -- -- -- (97) (97)
Dividends declared on
preferred stock of
subsidiary.................. -- -- -- -- -- -- (45) (45)
-------- -------- -------- -------- ------------ ------------ ------------ --------------
Balance at December 31, 1995 187.5 1,875 93,501 1 1,097 -- (77,452) (74,479)
Net loss .................... -- -- -- -- -- -- (55,690) (55,690)
Cumulative translation
adjustment ................ -- -- -- -- -- -- 1,763 1,763
Common stock issuance ..... -- -- 1,500 -- 1,460 (1,460) -- --
-------- -------- -------- -------- ------------ ------------ ------------ --------------
Balance at December 31, 1996 187.5 $1,875 95,001 $ 1 $2,557 $(1,460) $(131,379) $(128,406)
======== ======== ======== ======== ============ ============ ============ ==============
</TABLE>
See accompanying notes.
F-6
<PAGE>
JORDAN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
---------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ................................... $ 23,741 $ (7,470) $ (55,690)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Gain on sale of a partial interest in a subsidiary (24,161) -- --
Restructuring charges ............................. -- 5,913 8,106
Other non-recurring charges ....................... -- 1,016 --
Amortization of deferred financing costs ......... 1,405 1,743 3,001
Depreciation and amortization ..................... 19,099 21,684 30,438
Provision for (benefit from) deferred income taxes (962) (4,247) 2,184
Loss on acquisition of affiliated company ........ -- -- 4,488
Minority interest ................................. 2,616 (1,857) 59
Extraordinary loss ................................ -- -- 3,806
Non-cash interest.................................. 9,544 10,694 11,987
Changes in operating assets and liabilities (net of acquisitions):
Accounts receivable ............................... (6,362) (8,084) 13,894
Inventories ....................................... (13,394) (5,430) 796
Prepaid expenses and other current assets ........ (1,317) (170) (851)
Non-current assets................................. (2,495) (2,020) (1,071)
Accounts payable, accrued liabilities, and other
current liabilities .............................. 9,247 3,856 2,560
Advance deposits .................................. 303 169 69
Non-current liabilities ........................... -- 679 (526)
Other ............................................. (82) (266) (146)
---------- ----------- -----------
Net cash provided by operating activities .......... 17,182 16,210 23,104
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ............................... (12,112) (15,276) (17,395)
Notes receivable from affiliates ................... (2,254) (13,424) (5,263)
Acquisitions of subsidiaries ....................... (35,872) (102,125) (150,360)
Cash acquired in purchase of subsidiaries .......... 953 696 5,869
Net proceeds from sale of a partial interest in a
subsidiary ........................................ 26,544 -- --
Acquisitions of minority interests and other ...... (2,143) (6,117) (81)
Investment in Fannie May Holdings .................. -- (1,722) --
Proceeds from asset sale ........................... -- 732 --
---------- ----------- -----------
Net cash used in investing activities .............. (24,884) (137,236) (167,230)
</TABLE>
(Continued on Following Page)
See accompanying notes.
F-7
<PAGE>
JORDAN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of debt issuance--SPL Holdings, Inc. ..... $ -- $ 33,000 $ 13,000
Proceeds of debt issuance--MK Holdings, Inc. ...... -- 72,500 20,000
Proceeds of debt issuance--Motors and Gears, Inc. . -- -- 170,000
Proceeds from revolving credit facilities, net .... -- 7,213 40,909
Payment of financing costs ......................... (1,561) (2,322) (11,858)
Repayment of long-term debt ........................ (2,624) (6,020) (98,143)
Other borrowing .................................... -- 1,522 2,107
---------- ---------- ----------
Net cash (used in) provided by financing activities (4,185) 105,893 136,015
Foreign currency translation ....................... -- -- (345)
---------- ---------- ----------
Net decrease in cash and cash equivalents ......... (11,887) (15,133) (8,456)
Cash and cash equivalents at beginning of year .... 68,273 56,386 41,253
---------- ---------- ----------
Cash and cash equivalents at end of year .......... $ 56,386 $ 41,253 $ 32,797
========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest ......................................... $ 29,839 $ 33,360 $ 45,563
========== ========== ==========
Income taxes, net ................................ $ 2,213 $ 1,801 $ 2,603
========== ========== ==========
Noncash investing activities:
Capital leases.................................... $ 7,422 $ 19,151 $ 5,543
========== ========== ==========
</TABLE>
See accompanying notes.
F-8
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
(Dollars in Thousands)
NOTE 1 -- ORGANIZATION
Jordan Industries, Inc. (the Company), an Illinois corporation, was formed
by Chicago Group Holdings, Inc. on May 26, 1988 for the purpose of combining
into one corporation certain companies in which partners and affiliates of
The Jordan Company (the Jordan Group) acquired ownership interests through
leveraged buy-outs. Chicago Group Holdings, Inc. was formed on February 8,
1988 and had no operations. The Company was merged with Chicago Group
Holdings, Inc. on May 31, 1988 with the Company being the surviving company.
The Company's business is divided into five groups. The Specialty Printing
and Labeling group consists of Sales Promotion Associates, Inc. ("SPAI"),
Valmark Industries, Inc. ("Valmark"), Pamco Printed Tape and Label Co., Inc.
("Pamco") and Seaboard Folding Box, Inc. ("Seaboard"). The Motors and Gears
group consists of The Imperial Electric Company ("Imperial") and its
subsidiaries, The Scott Motors Company ("Scott") and Gear Research, Inc.
("Gear"), and Merkle-Korff Industries, Inc. ("Merkle-Korff"), which consists
of Merkle-Korff, Inc. and Barber-Colman Motors, Inc. ("Barber-Colman"). The
Telecommunications Products Group consists of Dura-Line Corporation
("Dura-Line"), AIM Electronics Corporation ("AIM"), Cambridge Products
Corporation ("Cambridge"), Johnson Components, Inc. ("Johnson"), Diversified
Wire and Cable, Inc. ("Diversified"), Viewsonics, Inc. ("Viewsonics"),
Vitelec Electronics Ltd. ("Vitelec"), Bond Holdings, Inc. ("Bond"), and
Northern Technologies, Inc. ("Northern"). Welcome Home, Inc. ("Welcome Home")
is managed on a stand-alone basis and the remaining businesses comprise the
Company's Consumer and Industrial Products group. This group consists of
DACCO, Incorporated ("DACCO"), Sate-Lite Manufacturing Company ("Sate-Lite"),
Riverside Book and Bible House, Inc. ("Riverside"), Parsons Precision
Products, Inc. ("Parsons"), Hudson Lock, Inc. ("Hudson"), Beemak Plastics,
Inc. ("Beemak"), Cape Craftsmen, Inc. ("Cape"), and Paw Print Mailing
Services, Inc. ("Paw Print"). All of the foregoing corporations are
collectively referred to herein as the "Subsidiaries," and individually as a
"Subsidiary."
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany balances and transactions
have been eliminated.
Inventories
Inventories are stated at the lower of cost or market. Inventories are
primarily valued at either average or first-in, first-out (FIFO) cost.
Depreciation and Amortization
Property, Plant and Equipment -- Depreciation and amortization of property,
plant and equipment is calculated using estimated useful lives, or over the
life of the underlying leases, if less, using the straight-line method.
The useful lives of plant and equipment for the purpose of computing book
depreciation are as follows:
<TABLE>
<CAPTION>
<S> <C>
Machinery and equipment ........3-10 years
Buildings and improvements ....7-35 years
Furniture & fixtures ...........5-10 years
Leaseholds .....................Life of Lease
</TABLE>
F-9
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
December 31, 1996
(Dollars in Thousands)
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES (Continued)
Goodwill -- Goodwill is being amortized on the straight-line basis over
periods ranging from 15 to 40 years. Goodwill at December 31, 1995 and 1996 is
net of accumulated amortization of $15,845, and $22,765, respectively.
Other Assets
Patents are amortized over the remainder of their legal lives, which
approximate their useful lives, on the straight-line basis. Deferred financing
costs amounting to $9,703 and $23,008, net of accumulated amortization of
$3,686 and $6,317 at December 31, 1995 and 1996, respectively, are amortized
over the terms of the loans or, if shorter, the period such loans are expected
to be outstanding. Non-compete covenants and customer lists amounting to
$5,705 and $9,518, net of accumulated amortization of $42,648 and $44,626 at
December 31, 1995 and 1996, respectively, are amortized on the straight-line
basis over their estimated useful lives, ranging from three to ten years.
Organizational costs are amortized over five years.
Adoption of FAS 121
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 ("FAS 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of".
FAS 121 requires, among other things, that the Company consider whether
indicators of impairment of long-lived assets held for use are present, that
if such indicators are present the Company determine whether the sum of the
estimated undiscounted future cash flows attributable to such assets is less
than their carrying amount, and if so, that the Company recognize an
impairment loss based on the excess of the carrying amount of the assets over
their fair value.
The Company adopted the provisions of FAS 121 in the fourth quarter of
1995. Accordingly, the Company evaluated the ongoing value of its long-lived
assets as of December 31, 1995, and December 31, 1996. It was determined that
in 1995, Welcome Home had certain leasehold improvements and furniture and
fixtures located in unprofitable stores with carrying values of $1,016 that
were impaired and that given the nature of such items, their estimated fair
value was insignificant. Accordingly, Welcome Home recorded an impairment loss
on such assets in the fourth quarter of 1995 of $1,016. This amount is
included in "other non-recurring charges" in the 1995 consolidated statement
of operations. The Company determined that an impairment loss was not incurred
on long-lived assets for the year ended December 31, 1996, and therefore no
such loss has been recorded during 1996. See Note 4 related to the Welcome
Home restructuring.
Income Taxes
The Company provides for deferred income taxes as temporary differences
arise in recording income and expenses between financial reporting and tax
reporting. The Company has not provided for U.S. Federal and State Income
Taxes on undistributed earnings of foreign subsidiaries to the extent the
undistributed earnings are considered to be permanently reinvested.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
initial maturity of three months or less to be cash equivalents.
At December 31, 1996, the Company's cash balance included $1,550 which is
being held as collateral with respect to a capital lease. A certain cash
balance is required to remain intact throughout the term of the lease which
expires on November 17, 1998. An additional $3,000 is being held as collateral
with regard to the Company's investment in Fannie May.
F-10
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
December 31, 1996
(Dollars in Thousands)
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Reclassification
Certain amounts in the 1995 financial statements have been reclassified to
conform with the presentation in 1996.
Realignment of Segment Reporting
In 1995, The Company's business segments were realigned into five distinct
groups. In 1996, Dura-Line was moved from the Consumer and Industrial Products
segment to the Telecommunications Products segment. Prior period results were
also realigned into these new groups in order to provide accurate comparisons
between periods.
NOTE 3 -- WELCOME HOME CHAPTER 11 FILING
On January 21, 1997, Welcome Home filed a voluntary petition for relief
under Chapter 11 ("Chapter 11") of title 11 of the United States code in the
United States Bankruptcy Court for the Southern District of New York
("Bankruptcy Court"). In Chapter 11, Welcome Home will continue to manage its
affairs and operate its business as a debtor-in-possession while it develops a
reorganization plan that will restructure its operations and allow it to
emerge from Chapter 11. As a debtor-in-possession in Chapter 11, Welcome Home
may not engage in transactions outside of the ordinary course of business
without approval of the Bankruptcy Court.
Subsequent to the filing, Welcome Home reached an agreement with Fleet
Capital Corporation to provide secured debtor-in-possession financing in the
form of a credit facility. The credit facility provides for borrowings
dependent upon Welcome Home's level of inventory with maximum borrowings of
$12,750. The agreement grants a security interest in substantially all assets.
Advances under the facility bear interest at the prime rate plus 1.5%. The
agreement will terminate on March 31, 1998.
As a result of Welcome Home's Chapter 11 filing, the Company no longer has
the ability to control the operations and financial affairs of Welcome Home.
Accordingly, the Company will no longer consolidate Welcome Home in its
financial statements as of January 21, 1997, the date of the filing.
The operating results of Welcome Home included in the consolidated results
of the Company over the last three years are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- ---------- ----------
<S> <C> <C> <C>
Net sales ........................ $81,654 $ 93,166 $ 81,855
Operating income ................. 7,076 (10,066) (15,975)
Income (loss) before income
taxes............................ 4,836 (11,586) (18,154)
</TABLE>
F-11
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
December 31, 1996
(Dollars in Thousands)
NOTE 3 -- WELCOME HOME CHAPTER 11 FILING (Continued)
The assets and liabilities of Welcome Home included in the consolidated
results of the Company at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Cash and cash equivalents .............................. $ 612
Inventories ............................................ 16,291
Prepaids and other assets .............................. 575
Property and equipment, net ............................ 8,563
Other assets............................................ 222
----------
Total assets........................................... 26,263
Accounts payable ....................................... 4,104
Accrued expenses ....................................... 7,723
Intercompany payable to the Company .................... 15,622
Credit line ............................................ 10,123
Capital leases.......................................... 927
----------
Total liabilities...................................... 38,499
----------
Excess of liabilities over assets at December 31, 1996 12,236
Elimination of intercompany payables.................... (15,622)
----------
Net assets included at December 31, 1996................ $ 3,386
==========
</TABLE>
The amounts listed in the table do not reflect any adjustments resulting
from the Welcome Home bankruptcy filings. Certain items, however, would be
significantly impacted by a liquidation of Welcome Home. The ultimate
disposition of the amounts are not expected to be finalized until the
resolution of the Welcome Home bankruptcy proceedings, the timing of which
cannot currently be estimated.
Cape Craftsmen, a consolidated subsidiary of the Company, would also be
adversely affected by a liquidation of Welcome Home. Currently 77% of Cape's
sales are to Welcome Home. Net assets included in the consolidated financial
statements are $2.4 million after intercompany eliminations.
NOTE 4 -- RESTRUCTURING CHARGES
In the fourth quarter of 1995, Welcome Home adopted a restructuring plan
which has continued into 1996. The major elements of the plan include a change
in Welcome Home's merchandising strategy and the liquidation of merchandise
which is not consistent with that strategy, closing unprofitable stores, and
strengthening the Company's executive management team and information systems
as necessary to successfully implement the above strategies.
In 1995, Welcome Home recorded the following restructuring charges:
(i) A charge of $2,379 against its inventory to reflect the reduction in
the value of items owned as of December 31, 1995 which management
determined did not fit with Welcome Home's strategy and, accordingly, were
liquidated at reduced prices in 1996.
(ii) A charge of $2,816 against its recorded investment in its
information systems as of December 31, 1995. Management determined that
these systems would not support its merchandising and other strategies
and, therefore, replaced these systems in 1996.
(iii) A charge of $526 to reflect the cost of planned store closings in
1996, representing primarily its recorded investment in the related
furniture, fixtures and leasehold improvements.
F-12
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
December 31, 1996
(Dollars in Thousands)
NOTE 4 -- RESTRUCTURING CHARGES (Continued)
(iv) A charge and accrued liability of $192 related to payments due to a
former executive in accordance with its employment and severance agreement
with that individual.
Restructuring charges incurred in 1996 were primarily due to store
closings. In the fourth quarter of 1996, Welcome Home recorded restructuring
charges of $8,106, of which $872 related to employee contracts, $4,266 related
to leases and inventory, and $2,968 related to its investment in furniture,
fixtures, and leasehold improvements.
See Note 3 for further discussion of Welcome Home.
NOTE 5 -- INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1995 1996
--------- ---------
<S> <C> <C>
Raw materials .. $24,251 $ 26,682
Work-in-process 5,968 12,274
Finished goods .. 54,040 69,176
--------- ---------
$84,259 $108,132
========= =========
</TABLE>
NOTE 6 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, consists of:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1995 1996
---------- ----------
<S> <C> <C>
Land ...................................... $ 4,365 $ 5,079
Machinery and equipment ................... 105,188 136,298
Buildings and improvements ................ 33,844 38,458
Furniture and fixtures .................... 18,995 25,851
---------- ----------
162,392 205,686
Accumulated depreciation and amortization (70,970) (94,646)
---------- ----------
$ 91,422 $111,040
========== ==========
</TABLE>
NOTE 7 -- NOTES RECEIVABLE FROM AFFILIATES AND INVESTMENT IN AFFILIATE
On May 15, 1995, the Company purchased $7,500 aggregate principal amount of
Subordinated Notes and 75.6133 shares of Junior Class A PIK Preferred Stock of
Fannie May Holdings, Inc. ("Fannie May") at face value for $9,071.
The Company also acquired 151.28 shares of Common Stock of Fannie May
(representing 15.1% of the outstanding Common Stock of Fannie May on a fully
diluted basis) for $151. These shares of Fannie May Common Stock were
purchased from the John W. Jordan II Revocable Trust. On June 28, 1995, the
Company purchased from The First National Bank of Chicago $7,000 aggregate
principal amount of participation in term loans of Archibald Candy
Corporation, a wholly owned subsidiary of Fannie May, for $7,000, and agreed
to purchase up to an additional $3,000 aggregate principal amount of such
participation, depending upon the financial performance of Fannie May. The
additional $3,000 obligation is secured by a pledge from the Company with a
$3,000 certificate of deposit purchased by the Company.
F-13
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
December 31, 1996
(Dollars in Thousands)
NOTE 7 -- NOTES RECEIVABLE FROM AFFILIATES AND INVESTMENT IN AFFILIATE
(Continued)
Fannie May's Chief Executive Officer is Mr. Quinn, and its stockholders
include Mr. Jordan, Mr. Quinn, Mr. Zalaznick, and Mr. Boucher, who are
directors and stockholders of the Company, as well as other partners,
principals and associates of The Jordan Company, who are also stockholders of
the Company. Fannie May, which is also known as "Fannie May Candies", is a
manufacturer and marketer of kitchen-fresh, high-end boxed chocolates through
its 375 company-owned retail stores and through specialty sales channels. Its
products are marketed under both the "Fannie May Candy" and "Fanny Farmer
Candy" names.
On July 29, 1996, Mr. Jordan purchased $2,000 of the Fannie May
Subordinated Notes from the Company at face value plus accrued interest.
On July 29, 1996, the Company acquired the stock of Cape Craftsmen, Inc.
("Cape Craftsmen") in exchange for $12,128 of notes receivable from Cape
Craftsmen. Since the Company and Cape Craftsmen have common ownership, the net
assets of Cape Craftsmen were recorded at the historical basis, $7,640, and
resulted in a non-cash loss of $4,488.
NOTE 8 -- ACCRUED LIABILITIES
Accrued liabilities consist of:
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1995 1996
--------- --------
<S> <C> <C>
Accrued vacation ..................................... $ 1,516 $ 2,276
Accrued income taxes ................................. 1,874 5,470
Accrued other taxes .................................. 1,777 1,179
Accrued commissions .................................. 1,025 2,411
Accrued interest payable ............................. 13,152 15,064
Accrued payroll and payroll taxes..................... 2,621 4,458
Accrued stock appreciation rights and preferred stock
payments ............................................ -- 7,127
Restructuring reserve ................................ -- 4,906
Insurance reserve .................................... -- 2,791
Accrued other expenses ............................... 4,902 12,228
--------- --------
$26,867 $57,910
========= ========
</TABLE>
NOTE 9 -- OPERATING LEASES
Certain subsidiaries lease land, buildings, and equipment under
noncancellable operating leases.
Total minimum rental commitments under noncancellable operating leases at
December 31, 1996 are:
<TABLE>
<CAPTION>
<S> <C>
1997 ........ $13,704
1998 ........ 12,146
1999 ........ 10,466
2000......... 8,370
2001......... 6,150
Thereafter .. 15,686
---------
$66,522
=========
</TABLE>
F-14
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
December 31, 1996
(Dollars in Thousands)
NOTE 9 -- OPERATING LEASES (Continued)
Rental expense amounted to $8,173, $11,378 and $14,808 for 1994, 1995 and
1996, respectively. The 1996 increase relates primarily to international
expansion at Dura-Line and additional companies purchased in 1996.
NOTE 10 -- BENEFIT PLANS
Certain subsidiaries of the Company have defined benefit pension plans. The
total expense for these plans amounted to $117 and $127 in 1995 and 1996,
respectively. The subsidiaries make contributions to the plans equal to the
amounts determined by accepted actuarial methods for the defined benefit plans
and on a cents-per-hour basis for plans covering certain hourly employees.
Plan benefits are generally based on years of service and employee
compensation during the last years of employment.
The following table sets forth the status of the defined benefit plans of
the Company:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
-----------------
1995 1996
-------- --------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested .............................................. $2,351 $2,028
Non-vested .......................................... 18 6
-------- --------
Accumulated benefit obligation ....................... 2,369 2,034
Effect of future salary growth........................ 570 612
-------- --------
Total projected benefit obligation.................... 2,939 2,646
Assets relating to such benefits:
Market value of funded assets, primarily invested in
money market and equity securities ................. 2,392 2,306
-------- --------
Underfunded projected benefit obligation.............. (547) (340)
Net deferral ......................................... (163) (334)
-------- --------
Pension liability recorded as a long-term liability .. $ (710) $ (674)
======== ========
</TABLE>
The weighted average discount rates used in determining the actuarial
present value of the projected benefit obligation range from 6%-7.25% in 1995
and 6.5%-7.25% in 1996. The assumed long-term rates of return on plan assets
range from 7.5%-7.75% in 1995 and 1996. The assumed rates of compensation
increase range from 3.8%-4.0% in 1995 and 1996.
In January 1993 the Company established the Jordan Industries, Inc. 401(k)
Savings Plan ("the Plan"), a defined-contribution plan. The Plan covers
substantially all employees of the Company. Contributions to the Plan are
discretionary and totaled $152 in 1995 and $450 in 1996.
F-15
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
December 31, 1996
(Dollars in Thousands)
NOTE 11 -- DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1995 1996
---------- ---------
<S> <C> <C>
Revolving Credit Facilities (A) ............. $ 15,713 $ 56,622
Notes payable (B) ........................... 1,907 2,199
Subordinated promissory notes (C) ........... 13,000 19,100
Capital lease obligations (D) ............... 26,295 27,494
Bank Term Loans (E) ......................... 94,375 36,037
Senior Notes (F) ............................ 275,000 445,000
Senior Subordinated Discount Debentures (G) 99,105 111,092
---------- ---------
525,395 697,544
Less current portion......................... 11,705 9,608
---------- ---------
$513,690 $687,936
========== =========
</TABLE>
Aggregate maturities of long-term debt at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 ........$ 9,608
1998 ........ 25,898
1999 ........ 45,688
2000......... 20,965
2001......... 25,701
Thereafter .. 569,684
---------
$697,544
=========
</TABLE>
A At December 31, 1996, the Company had borrowings outstanding on
lines of credit totaling $56,622. The borrowings were at Jordan
Industries, Inc., $34,000, Welcome Home, $10,122, and SPL
Holdings, $12,500.
On July 31, 1996, Jordan Industries, Inc. amended and restated its
revolving credit facility with the First National Bank of Boston
and other banks, increasing the facility amount from $50,000 to
$85,000. The facility, which matures on June 29, 1999, will be
used for working capital and acquisitions over the term of the
loan. At December 31, 1996, Jordan Industries, Inc. had
outstanding borrowings of $34,000. The applicable interest rate at
December 31, 1996, was 8.75%. The facility is secured by
substantially all of the assets of the Restricted Subsidiaries,
excluding Welcome Home. The Company must comply with certain
financial covenants as specified in the revolver agreement, and at
December 31, 1996, the Company is in compliance with such
covenants.
In May of 1995, Welcome Home entered into a Loan and Security
Agreement with Shawmut Capital Corporation. The credit facility
under this agreement provides for borrowings of up to 65% of
Welcome Home's eligible inventory, with a maximum borrowing of
$20,000. At December 31, 1996, Welcome Home had outstanding
borrowings of $10,122, which carried a weighted average interest
rate of 8.2%. The facility is secured by substantially all of
Welcome Home's assets. At December 31, 1996, Welcome Home was in
violation of certain financial covenants, however, the lender has
waived this violation in connection with the debtor in possession
financing.
F-16
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
December 31, 1996
(Dollars in Thousands)
NOTE 11 -- DEBT (Continued)
In August 1995, SPL established a Revolving Credit Facility (the
"Revolver") with The First National Bank of Boston. In May of
1996, the Revolver was amended and restated and available
borrowings increased from $20,000 to $27,000. The aggregate
outstanding amount at December 31, 1996, was $12,500. This
facility bears interest at the LIBOR rate plus 2.75% payable on a
30, 60, or 90 day basis. The facility is secured by all of the
assets of SPL. The applicable interest rate at December 31, 1996,
was 9.75%. The Company must comply with certain financial
covenants as specified in the revolver agreement, and at December
31, 1996, the Company is in compliance with such covenants.
Motors and Gears, Inc. has available a line of credit from Bankers
Trust Company in the amount of $75,000. Outstanding borrowings
carry a floating rate of Libor plus 2.5% or base rate plus 1.5%.
At December 31, 1996, no amounts were outstanding on the line of
credit.
Dura-Line has available a line of credit from ABN Amro Bank N.V.
of Prague, Czech Republic in the amount of $800. The line of
credit matures on April 15, 1997, if not renewed. At December 31,
1996, no amounts were outstanding on the line of credit.
Outstanding borrowings carry an interest rate of 1.25% above
PRIBOR (Prague Inter-Bank Offered Rate). The applicable rate at
December 31, 1996 was 12.18%. The facility is secured by the
assets of Dura-Line's majority owned subsidiary, Dura-Line CT
s.r.o., which is located in the Czech Republic. The facility is
also guaranteed with a standby letter of credit.
B Notes payable are due in monthly or quarterly installments and
bear interest at rates up to 9%. Certain assets of the
subsidiaries are pledged as collateral for the loans.
C Subordinated promissory notes payable are due to minority interest
shareholders and former shareholders of the subsidiaries in annual
installments through 2004, and bear interest at 8%-9%.
The loans are unsecured.
D Interest rates on capital leases range from 8.3% to 14.5% and
mature in installments through 2001.
The future minimum lease payments as of December 31, 1996 under
capital leases consist of the following:
<TABLE>
<CAPTION>
<S> <C>
1997 .......................................... $ 6,525
1998 .......................................... 10,734
1999 .......................................... 3,913
2000........................................... 11,545
2001........................................... 302
Thereafter..................................... --
--------
Total......................................... 33,019
Less amount representing interest.............. 5,525
--------
Present value of future minimum lease
payments...................................... $27,494
========
</TABLE>
The present value of the future minimum lease payments
approximates the book value of property, plant and equipment under
capital leases at December 31, 1996.
E Bank Term Loans consist of certain indebtedness at SPL ("SPL Term
Loans").
In August 1995, SPL borrowed $25,000 under a Term Loan agreement
with The First National
F-17
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
December 31, 1996
(Dollars in Thousands)
NOTE 11 -- DEBT (Continued)
Bank of Boston with a maturity date of December 31, 2001. This
debt bears interest at a rate of LIBOR plus 2.75% and is paid on a
quarterly basis. At December 31, 1996, $21,890 was outstanding.
The SPL Term Loans are secured by all of the assets of SPL. The
applicable interest rate at December 31, 1996, was 8.31%.
In May 1996, SPL borrowed $13,000 under a Term Loan agreement with
The First National Bank of Boston with a maturity date of June 30,
2002. This debt bears interest at a rate of Prime + 2.0% or LIBOR
+ 3.25%, and is paid on a quarterly basis. At December 31, 1996,
$12,903 was outstanding. The applicable interest rate at December
31, 1996 was 8.81%.
F In July of 1993, the Company issued $275,000 10 3/8% Senior Notes
("Senior Notes") due 2003. These notes bear interest at a rate of
10 3/8% per annum, payable semi-annually in cash on February 1
and August 1 of each year. The payments began on February 1,
1994.
The Senior Notes are redeemable for 105.18750% of the principal
amount from August 1, 1998 to July 31, 1999, 102.59375% from
August 1, 1999 to July 31, 2000, and 100% from August 1, 2000 and
thereafter plus any accrued and unpaid interest to the date of
redemption.
The fair value of the Senior Notes was $270,875 at December 31,
1996. The fair value was calculated using the Senior Notes'
December 31, 1996 market price multiplied by the face amount. The
Senior Notes are not secured by the assets of the Company.
On November 7, 1996, a majority owned subsidiary of the Company,
Motors and Gears Holdings, Inc., through its wholly-owned
subsidiary, Motors and Gears Inc., issued $170,000 aggregate
principal amount of 10 3/4% Senior Notes ("M&G Senior Notes").
Interest on the M&G Senior Notes is payable in arrears on May 15
and November 15 of each year commencing May 15, 1997. The M&G
Senior Notes are redeemable at the option of Motors and Gears,
Inc., in whole or in part, at any time on or after November 15,
2001. Motors and Gears, Inc. may also redeem up to 35% of the
original aggregate principal amount prior to November 15, 1999,
under certain circumstances.
The fair value of the M&G Senior Notes at December 31, 1996, was
$174,250. The fair value was calculated using the M&G Senior
Notes' December 31, 1996 market price multiplied by the face
amount. The M&G Senior Notes are not secured by the assets of
Motors and Gears, Inc., Motors and Gears Holdings, Inc., or the
Company.
G In July 1993 the Company issued $133,075 11 3/4% Senior
Subordinated Discount Debentures, ("Discount Debentures") due
2005. The Discount Debentures were issued at a substantial
discount from this principal amount. The interest on the Discount
Debentures will be payable in cash semi-annually on February 1 and
August 1 of each year beginning in 1999.
The Discount Debentures are redeemable for 105.87500% of the
accreted value from August 1, 1998 to July 31, 1999, 102.93750%
from August 1, 1999 to July 31, 2000 and 100% from August 1, 2000
and thereafter plus any accrued and unpaid interest from August 1,
1998 to the redemption date if such redemption occurs after August
1, 1998.
The fair value of the Discount Debentures was $105,795 at December
31, 1996. The fair value was calculated using the Discount
Debentures' December 31, 1996 market price multiplied by the face
amount. The Discount Debentures are not secured by the assets of
the Company.
The Indenture relating to the Senior Notes and Discount Debentures
restricts the ability of the Company to incur additional
indebtedness at its restricted subsidiaries. The Indenture also
F-18
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
December 31, 1996
(Dollars in Thousands)
NOTE 11 -- DEBT (Continued)
restricts: the payment of dividends, the repurchase of stock and the
making of certain other restricted payments; restrictions that can
be imposed on dividend payments to the Company by its subsidiaries;
significant acquisitions; and certain mergers or consolidations. The
Indenture will also require the Company to redeem the senior notes
and Discount Debentures upon a change of control and to offer to
purchase a specified percentage of the Senior Notes and Discount
Debentures if it fails to maintain a minimum level of capital funds
(as defined).
The Indenture relating to the M&G Senior Notes contains certain
covenants which restrict: the payment of dividends, the repurchase
of stock and the making of certain other restricted payments,
certain mergers or consolidations and the assumption of certain
levels of additional indebtedness. The Company is, and expects to
continue to be, in compliance with the provisions of these
Indentures.
Included in interest expense is $1,405, $1,743 and $3,001 of
amortization of debt issuance costs for the year ended December 31,
1994, 1995 and 1996, respectively.
NOTE 12 -- INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------
1994 1995 1996
-------- ---------- -------
<S> <C> <C> <C>
Current:
$
Federal.......... $ 356 $ 400 --
Foreign ......... 228 769 1,753
State and local 739 632 478
-------- ---------- -------
1,323 1,801 2,231
Deferred ........ 9 (4,247) 2,184
-------- ---------- -------
Total........... $1,332 $(2,446) $4,415
======== ========== =======
</TABLE>
F-19
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
December 31, 1996
(Dollars in Thousands)
NOTE 12 -- INCOME TAXES (Continued) Deferred income taxes consist of:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1995 1996
---------- ----------
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Tax over book depreciation ................... $ 7,368 $ 7,346
Basis in subsidiary .......................... 798 798
LIFO reserve ................................. 257 147
Intercompany tax gain ........................ -- 2,500
Other ........................................ 392 311
---------- ----------
Total deferred tax liabilities............... 8,815 11,102
DEFERRED TAX ASSETS:
NOL carryforwards ............................ 20,060 28,900
Stock Appreciation Rights Agreements ........ -- 3,162
Accrued interest on discount debentures ..... 8,187 12,262
Pension obligation ........................... 211 174
Vacation accrual ............................. 613 591
Uniform capitalization of inventory ......... 580 472
Allowance for doubtful accounts .............. 721 1,020
Capital lease obligations .................... 456 343
Tax asset basis over book basis at
subsidiary................................... -- 2,500
Other......................................... 193 248
---------- ----------
Total deferred tax assets..................... 31,021 49,672
Valuation allowance for deferred tax assets .. (21,466) (40,014)
---------- ----------
Net deferred tax assets...................... 9,555 9,658
---------- ----------
Net deferred tax (assets) liabilities ....... $ (740) $ 1,444
========== ==========
</TABLE>
The decrease (increase) in the valuation allowance during 1995 and 1996 was
$1,962 and $(18,548), respectively.
F-20
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
December 31, 1996
(Dollars in Thousands)
NOTE 12 -- INCOME TAXES (Continued)
The provision (benefit) for income taxes differs from the amount of income
tax benefit computed by applying the United States federal income tax rate to
(loss) income before income taxes, including the extraordinary loss.
A reconciliation of the differences is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
1994 1995 1996
--------- ---------- -----------
<S> <C> <C> <C>
Computed statutory tax provision (benefit) .. $ 9,414 $(4,003) $(17,413)
Increase (decrease) resulting from:
Foreign subsidiary losses ................... -- 680 1,465
Amortization of goodwill .................... 682 756 903
Disallowed meals and entertainment ......... -- 425 645
Use of separate company net operating loss
carryforward................................ (1,329) -- --
Tax basis in excess of book basis in partial
sale of a subsidiary ........................ (8,460) -- --
State and local tax ......................... 1,010 632 478
Alternative minimum tax ..................... -- 400 --
Increase (decrease) in valuation allowance . -- (1,962) 18,548
Other items, net ............................ 15 (143) (211)
--------- ---------- -----------
Provision (benefit) for income taxes ......... $ 1,332 $(2,446) $ 4,415
========= ========== ===========
</TABLE>
As of December 31, 1996, the consolidated loss carryforwards are
approximately $59,000 and $47,000 for regular tax and alternative minimum tax
purposes, respectively, and expire in various years through 2011. In addition,
a subsidiary of the Company, which is not consolidated for tax purposes, has
approximately $26,000 of net operating loss carryforwards that expire in
various years through 2,011. A valuation reserve of $8,800 has been recorded
against the related $8,800 asset.
NOTE 13 -- RELATED PARTY TRANSACTIONS
The principals, partners, officers, employees and affiliates of The Jordan
Company (the "Jordan Group") own substantially all of the common stock of the
Company.
On July 29, 1996, the Company acquired Cape Craftsmen from a related party
in exchange for $12,128 of notes receivable from Cape Craftsmen.
On June 1, 1988, an agreement was executed, which was amended and restated
on June 29, 1994, whereby the Company will pay TJC Management Corporation
("TJC") a quarterly fee equal to .75% of the Company's Cash Flow for the four
full fiscal quarters next preceding the date of payment of such quarterly fee.
Under this agreement the Company accrued fees to TJC of $1,962, $2,691 and
$2,530 in 1994, 1995 and 1996, respectively.
In addition, beginning June 1, 1988, The Jordan Company is to be paid an
investment banking fee of up to 2%, based on the aggregate consideration paid,
for its assistance in acquisitions undertaken by the Company or its
subsidiaries, and a financial consulting fee not to exceed 1% of the aggregate
debt and equity financing that is arranged by the Jordan Company, plus the
reimbursement of out-of-pocket and other expenses. The Company paid $1,803,
$2,055, and $2,610 in 1994, 1995, and 1996, respectively, to the Jordan
Company for their fees in relation to acquisition and refinancing activities.
In 1994, Welcome Home paid the Jordan Company $200 in relation to their New
Bank Credit Facility.
In February 1988, the Company entered into an employment agreement with its
President and Chief Operating Officer which provides for annual compensation,
including base salary and bonus, of not less
F-21
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
December 31, 1996
(Dollars in Thousands)
NOTE 13 -- RELATED PARTY TRANSACTIONS (Continued)
than $350. The agreement also provides for severance payments in the event of
termination for reasons other than cause, voluntary termination, disability or
death; disability payments, under certain conditions, in the event of
termination due to disability; and a lump sum payment of $1,000 in the event
of death. The Company maintains a $5,000 "key man" life insurance policy on
its president under which the Company is the beneficiary.
An individual who is a shareholder, Director, General Counsel and Secretary
for the Company is also a partner in a law firm used by the Company. The firm
was paid $660, $376 and $1,462 in fees and expenses in 1994, 1995 and 1996,
respectively. The rates charged to the Company were at arms-length.
Also see Notes 7, 16, 17, and 20.
NOTE 14 -- CAPITAL STOCK
Under the terms of a restricted common stock agreement with certain
shareholders and members of management, the Company has the right, under
certain circumstances, for a specified period of time to reacquire shares from
certain shareholders and management at their original cost. Starting in 1993
or within 60 days of termination, the Company's right to repurchase may be
nullified if $1,800, in the aggregate, is paid to the Company by management.
On January 20, 1989, the Company, in exchange for three thousand five
hundred dollars, sold warrants to acquire 3,500 shares of its common stock to
Mezzanine Capital & Income Trust 2001, PLC (MCIT), a publicly traded U.K.
investment trust, in which principal stockholders of the Company also hold
capital and income shares. These warrants were sold in conjunction with MCIT's
purchase of $7,000 of Senior Subordinated Notes. Each Warrant entitles the
holder to purchase one share of the Company's common stock at a price of $4.00
(dollars) at any time, subject to certain events, prior to January 20, 1999.
These warrants were valued at $700 based on an independent appraisal.
On November 17, 1996, the Company issued an additional 1,500 shares of
stock for $146 cash, and a promissory note of $1,314.
NOTE 15 -- BUSINESS SEGMENT INFORMATION
The Company's business operations are classified into five business
segments: Specialty Printing and Labeling, Motors and Gears,
Telecommunications Products, Welcome Home, and Consumer and Industrial
Products.
Motors and Gears includes the manufacture of electric motors for both
industrial and commercial use by Imperial; small electrical motors by Scott;
precision gears and gear boxes by Gear; AC and DC gears and gear motors for
both industrial and commercial use by Merkle-Korff; and subfractional AC and
DC motors and gear motors by Barber-Colman.
Telecommunications Products includes the manufacture and distribution of
silicon pre-lubricated plenum and other configurations of Innerduct, a
proprietary plastic pipe used in the installation of fiber optic cable, and
rigid polyethylene pipe used for transporting potable water by Dura-Line;
electronic connectors and switches by AIM and Cambridge; RF coaxial connectors
and electronic hardware by Johnson; cable TV electronic network components and
electronic security components by Viewsonics; custom electronic cables and
connectors for high technology, computer related applications by Bond; and
power conditioning and power protection equipment by Northern. Diversified and
Vitelec are not manufacturing-intensive. Diversified is a provider and
value-added reseller of wire, cable, and custom cable assemblies, and Vitelec
is an importer, packager, and master distributor of over 400 RF connectors and
other electronic components.
F-22
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
December 31, 1996
(Dollars in Thousands)
NOTE15 -- BUSINESS SEGMENT INFORMATION (Continued)
Welcome Home includes the specialty retailing of decorative home furnishing
accessories by 186 Welcome Home stores.
Consumer and Industrial Products includes the remanufacturing of
transmission sub-systems for the U.S. automotive aftermarket by DACCO;
manufacture and marketing of safety reflectors, lamp components, bicycle
reflector kits, colorants and emergency warning triangles by Sate-Lite; the
publishing of Bibles and the distribution of Bibles, religious books, and
recorded music by Riverside; precision machined titanium hot formed parts used
by the aerospace industry by Parsons; specialty-type locks by Hudson;
point-of-purchase advertising displays by Beemak; decorative home furnishing
accessories by Cape; and the provision of a full-range of direct mail
marketing services by Paw Print.
Inter-segment sales exist between Cape and Welcome Home. These sales are
eliminated in consolidation and are not presented in segment disclosures.
Foreign operations and export sales are not significant on a consolidated
basis. No single customer accounts for 10% or more of segment or consolidated
net sales.
Operating income by business segment is defined as net sales less operating
costs and expenses, excluding interest and corporate expenses.
Identifiable assets are those used by each segment in its operations.
Corporate assets consist primarily of cash and cash equivalents, equipment,
notes receivable from affiliates and deferred debt issuance costs.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net sales:
Specialty Printing & Labeling ............. $ 82,828 $ 96,514 $109,587
Motors and Gears .......................... 36,854 54,218 117,571
Telecommunications Products ............... 66,128 98,777 132,999
Welcome Home .............................. 81,654 93,166 81,855
Consumer and Industrial Products .......... 156,927 164,636 159,555
---------- ---------- ----------
Total .................................... $424,391 $507,311 $601,567
---------- ---------- ----------
Operating income:
Specialty Printing & Labeling ............. $ 5,522 $ 8,067 $ 7,078
Motors and Gears .......................... 9,484 12,236 26,164
Telecommunications Products ............... 11,996 17,774 12,985
Welcome Home .............................. 7,076 (10,066) (15,975)
Consumer and Industrial Products .......... 22,440 21,987 18,446
---------- ---------- ----------
Total business segment operating income... 56,518 49,998 48,698
Corporate expenses ........................ (13,574) (17,638) (35,306)
---------- ---------- ----------
Total consolidated operating income ...... $ 42,944 $ 32,360 $ 13,392
========== ========== ==========
Depreciation and amortization (including the amortization of goodwill and
intangibles):
Specialty Printing & Labeling ............. $ 3,252 $ 3,776 $ 4,800
Motors and Gears .......................... 1,070 2,262 7,078
Telecommunications Products ............... 5,101 5,105 7,204
Welcome Home .............................. 1,324 2,121 2,096
Consumer and Industrial Products .......... 6,560 6,248 5,785
---------- ---------- ----------
Total business segment depreciation and
amortization ............................ 17,307 19,512 26,963
Corporate ................................. 1,792 2,172 3,475
---------- ---------- ----------
F-23
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
December 31, 1996
(Dollars in Thousands)
NOTE 15 -- BUSINESS SEGMENT INFORMATION (Continued)
YEAR ENDED DECEMBER 31
--------------------------------
1994 1995 1996
---------- ---------- ----------
Total consolidated depreciation and
amortization ............................ $ 19,099 $ 21,684 $ 30,438
========== ========== ==========
Capital expenditures:
Specialty Printing & Labeling ............. $ 1,401 $ 1,106 $ 2,235
Motors and Gears .......................... 219 870 1,381
Telecommunications Products ............... 3,290 5,400 6,399
Welcome Home .............................. 3,434 5,022 1,403
Consumer and Industrial Products .......... 3,490 2,625 3,325
Corporate.................................. 278 253 2,652
---------- ---------- ----------
Total..................................... $ 12,112 $ 15,276 $ 17,395
========== ========== ==========
Identifiable assets:
Specialty Printing & Labeling ............. $ 76,997 $ 89,090 $107,016
Motors and Gears .......................... 27,988 142,289 173,565
Telecommunications Products ............... 50,427 62,908 175,796
Welcome Home .............................. 32,232 32,176 25,464
Consumer and Industrial Products .......... 119,767 112,804 136,021
---------- ---------- ----------
Total business segment assets............. 307,411 439,267 617,862
Corporate assets .......................... 91,063 93,117 64,023
---------- ---------- ----------
Total consolidated assets ................ $398,474 $532,384 $681,885
========== ========== ==========
</TABLE>
NOTE 16 -- ACQUISITION OF MINORITY INTEREST
In March 1992, a subsidiary of the Company entered into an agreement with
its minority shareholders whereby the shareholders would exchange their common
stock, which amounted to a 24% interest, for 7% cumulative preferred stock.
One-half of the preferred shares are redeemable in eight quarterly
installments, including the accrued but unpaid dividends, beginning on or
after April 1, 1993. As of December 31, 1996, these installments have been
paid in full.
An additional $1,875 is not redeemable and pays a cumulative dividend of 7%
per year. This amount is included in the shareholders' equity section of the
balance sheet.
The shareholders entered into covenants not to compete for $2,679 which
will be paid over five years beginning in 1992. Of this amount, $528 and $324
was paid in 1995 and 1996. The remaining payment of $81 was made in January
1997.
The shareholders were granted stock appreciation rights as part of the
non-compete agreements with $5,952 to be paid over three years. The rights
were paid off in 1995 with a final payment of $2,056.
The total consideration for minority interest which was accounted for as a
purchase was $12,381.
Additionally, the former shareholders were granted stock appreciation
rights exercisable in full or in part on the occurrence of the disposition by
merger or otherwise, in one or more transactions of (a) more than 50% of the
voting power and/or value of the capital stock of the subsidiary or (b) all or
substantially all the business or assets of the subsidiary. The value of the
stock appreciation rights is based on the ultimate sales price of the stock or
assets of the subsidiary, and is essentially 15% of the ultimate sales price,
less $15,625, of the stock or assets sold. No liability has been recorded
relative to these rights.
NOTE 17 -- ACQUISITIONS OF SUBSIDIARIES
On September 22, 1995, the Company, through its newly-formed subsidiary,
M-K Holdings, Inc., acquired all of the common stock of Merkle-Korff
Industries, Inc., Mercury Industries, Inc. and Elmco
F-24
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
December 31, 1996
(Dollars in Thousands)
NOTE 17 -- ACQUISITIONS OF SUBSIDIARIES (Continued)
Industries, Inc. ("Merkle-Korff"), a manufacturer of fractional horsepower
motors and gear motors. The motors are currently used in vending machines, ice
makers in refrigerators, washing machines and treadmills. M-K Holdings, Inc.,
Merkle-Korff, and their subsidiaries, were designated as non-restricted
subsidiaries for purposes of the Company's Indentures relating to its Senior
Notes and Senior Subordinated Discount Debentures.
The purchase price of $107,406, including costs incurred directly related
to the transaction, was allocated to working capital of $8,201, property,
plant and equipment of $3,652, non-compete agreements of $500, deferred
financing fees of $3,791, and resulted in an excess purchase price over net
identifiable assets of $91,262. The acquisition was financed with cash of
$29,625 from the Company, $281 of cash from affiliates, a $5,000 subordinated
note issued by M-K Holdings, Inc., and a $72,500 drawdown of a newly
established credit facility.
On January 23, 1996, the Company purchased the net assets of Johnson
Components, Inc. ("Johnson"), a manufacturer of RF coaxial connectors and
electronic hardware.
The purchase price of $16,098, including costs incurred directly related to
the transaction, was allocated to working capital of $1,616, property, plant
and equipment of $4,660, and non-compete agreements of $1,050, and resulted in
an excess purchase price over net identifiable assets of $8,772.
The acquisition was financed with cash.
On March 8, 1996, Merkle-Korff, then owned by a non-restricted subsidiary,
M-K Holdings, Inc., acquired the net assets of Barber-Colman Motors Division,
a division of Barber-Colman Company, which was wholly owned by Siebe, plc.
This division consisted of Colman OEM and Colman Motor Products, wholly owned
subsidiaries of Barber-Colman Company, and the motors division of
Barber-Colman Company, collectively Barber-Colman Motors ("BCM"), and is a
vertically integrated manufacturer of sub-fractional horsepower AC and DC
motors and gear motors, with applications in such products as vending
machines, copiers, printers, ATM machines, currency changers, X-ray machines,
peristaltic pumps, HVAC actuators and other products. BCM was subsequently
merged into Merkle-Korff in January 1997.
The purchase price of $21,700, including costs incurred directly related to
the transaction, was allocated to working capital of $4,882, property, plant
and equipment of $5,843, non-compete agreements of $1,000, and other
non-current assets of $810, and resulted in an excess purchase price over net
identifiable assets of $9,165. The acquisition was financed with $21,700 of
new and existing credit facilities.
On May 1, 1996, the Company through its non-restricted subsidiary, SPL
Holdings, Inc., acquired the net assets of Seaboard Folding Box Corporation
("Seaboard"), a manufacturer of printed folding cartons and boxes, insert
packaging, and blister pack cards.
The purchase price of $27,847, including costs incurred directly related to
the transaction, was allocated to working capital of $8,745, property, plant
and equipment of $6,965, non-compete agreements of $1,000, other non-current
assets of $10, long term liabilities of $1,663, and resulted in an excess
purchase price over net identifiable assets of $12,790. The acquisition was
financed with cash of $2,000 from the Company, a $1,500 subordinated seller
note, a new $13,000 term loan, and $11,000 from the existing SPL Holdings,
Inc. revolving credit facility.
On June 25, 1996, the Company purchased the stock of Diversified Wire and
Cable, Inc. ("Diversified"), a provider and value added re-seller of wire,
cable and custom cable assemblies.
The purchase price of $18,978, including costs incurred directly related to
the transaction, was allocated to working capital of $3,050 property, plant
and equipment of $607, non-compete agreements of
F-25
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
December 31, 1996
(Dollars in Thousands)
NOTE 17 -- ACQUISITIONS OF SUBSIDIARIES (Continued)
$500, other assets of $27, capital leases and minority interest of $388, and
resulted in an excess purchase price over net identifiable assets of $15,174.
The acquisition was financed with cash and a $1,500 subordinated seller note.
Immediately after Diversified was purchased by the Company, the seller
acquired a 12.5% interest in Diversified.
Certain sellers of Diversified are entitled to additional payments for
their stock, contingent upon operating results as defined in the Purchase
Agreement. The maximum contingent consideration to be paid is $3,200.
On August 1, 1996, the Company purchased the net assets of Viewsonics,
Inc. and Shanghai Viewsonics Electric Co., Ltd. ("Viewsonics"), a designer
and manufacturer of cable TV electronic network components and electronic
security components.
The purchase price of $15,319, including costs incurred directly related to
the transaction was allocated to working capital of $6,697, property, plant
and equipment of $446, and resulted in an excess purchase price over net
identifiable assets of $8,176. The acquisition was financed with cash.
On August 5, 1996, the Company purchased the stock of Vitelec Electronics,
Limited ("Vitelec"), a United Kingdom based importer, packager, and master
distributor of over 400 RF connectors sold to commercial and consumer
electronic markets.
The purchase price of $14,040, including costs incurred directly related to
the transaction was allocated to working capital of $1,496, property, plant
and equipment of $1,053, and resulted in an excess purchase price over net
identifiable assets of $11,491. The acquisition was financed with cash.
On September 20, 1996, the Company, through its wholly-owned subsidiary
Bond Holdings, Inc., purchased 80% of the outstanding common stock of Bond
Technologies, Inc. ("Bond"). The remaining 20% ownership has been retained by
the sellers. Bond designs, engineers and manufactures custom electronic cables
and connectors for high technology, computer related and telecommunication
customers.
The purchase price of $8,627, which included costs incurred directly
related to the transaction, was allocated to working capital of $2,099,
property, plant and equipment of $902, non compete agreements of $800, other
assets of $52, a minority interest and debt assumed of $53, and resulted in an
excess purchase price over net identifiable assets of $4,827. The purchase
price includes $700 of cash held in escrow which will be paid to the sellers
at a pre-determined date if certain levels of EBIT (as defined) are achieved.
The acquisition was financed with cash.
On November 8, 1996, the Company purchased the net assets of Paw Print
Mailing List Services, Inc. ("Paw Print"), a value-added provider of direct
mail services.
The purchase price of $11,751, including costs incurred directly related to
the acquisition, was allocated to working capital of $679, property, plant,
and equipment of $511, non-competition agreements of $900, and resulted in
excess purchase price over net identifiable assets of $9,661. The acquisition
was financed with cash of $9,250 and a $2,500 subordinated seller note.
On December 31, 1996, the Company purchased 100% of the stock of Northern
Technologies, Inc. ("Northern"), a manufacturer of power conditioning and
power protection equipment for telecommunications applications such as
cellular and personal communication system networks.
The purchase price of $21,500, including estimated costs incurred directly
related to the transaction, was allocated to working capital of $4,661,
property, plant, and equipment of $571, non-competition agreements of $500,
long-term assets of $425, long-term liabilities of $115, and resulted in an
excess purchase price over net identifiable assets of $15,458. The acquisition
was financed with cash.
F-26
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
December 31, 1996
(Dollars in Thousands)
NOTE 17 -- ACQUISITIONS OF SUBSIDIARIES (Continued)
On January 8, 1997, Beemak purchased the net assets of Arnon-Caine, Inc.
("ACI"), a designer and distributor of modular storage systems primarily for
sale to wholesale home centers and hardware stores. ACI subcontracts its
production to third party injection molders located primarily in Southern
California, which use materials and machines similar to those used by Beemak.
By early 1998, Beemak will serve as ACI's primary supplier. The integration of
ACI into Beemak's operations will provide for future manufacturing cost
savings as well as synergistic marketing efforts.
The purchase price of $4,600, including costs incurred directly related to
the acquisition, was allocated to working capital of $300, property, plant and
equipment of $82, and excess purchase price over net identifiable assets of
$4,218. The acquisition was financed with cash.
Unaudited pro forma information with respect to the Company as if the 1995
and 1996 acquisitions had occurred on January 1, 1995 and 1996 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31
---------------------
1995 1996
---------- ----------
(UNAUDITED)
<S> <C> <C>
Net sales .................................... $704,723 $693,092
Net income (loss) before extraordinary items 8,066 (12,873)
Net income (loss) ............................ $ 8,066 $(16,679)
</TABLE>
NOTE 18 -- SPL HOLDINGS, INC.
On August 30, 1995, the Company sold on an arms length basis, the net
assets of Sales Promotion Associates, Inc. ("SPAI"), formerly a wholly-owned
subsidiary of the Company, and a specialty printer and distributor of
calendars, advertising specialty products and soft cover year books, to SPL
Holdings, Inc. ("SPL", formerly known as J2, Inc.), a majority owned
subsidiary of the Company. SPL and its subsidiaries were designated as
non-restricted subsidiaries for purposes of the Company's Indentures relating
to its Senior Notes and Senior Subordinated Discount Debentures.
SPL was formed to combine a group of companies engaged in the design,
manufacture and marketing of specialty printing and label products. SPL is
comprised of Valmark Industries, Inc. ("Valmark"), Pamco Printed Tape and
Label Co., Inc. ("Pamco"), Sales Promotion Associates, Inc. ("SPAI"), and
Seaboard Folding Box Corporation ("Seaboard").
Concurrent with the sale of the net assets of SPAI, SPL was recapitalized
with (i) an equity investment of $22,300 by the Company and $160 from certain
affiliated investors, (ii) subordinated debt of $11,000, and (iii) a new
$45,000 senior secured bank financing comprised of a $20,000 Revolver and a
$25,000 Term Loan A. At December 31, 1996, $21,890 of the Term Loan A, and
$12,500 of the Revolver, was outstanding.
On May 1, 1996, concurrent with the acquisition of Seaboard, SPL entered
into an Amended and Restated Revolving Credit and Term Loan Agreement. This
agreement extended the above Revolver facility to $27,000 and added a Term
Loan B in the amount of $13,000. At December 31, 1996, $12,903 of Term Loan B
was outstanding.
Following the sale of the net assets and recapitalization transactions,
SPL is 83.3% owned by the Company and 16.7% owned by certain affiliates of
the Company, including partners and affiliates of The Jordan Company,
including Mr. Jordan, Mr. Quinn, Mr. Zalaznick, and Mr. Boucher.
NOTE 19 -- MOTORS AND GEARS HOLDINGS, INC.
Motors and Gears Holdings, Inc., along with its wholly-owned subsidiary,
Motors and Gears, Inc. ("M&G"), were formed in September 1995 to combine a
group of companies engaged in the manufacture and sale of fractional and
subfractional motors and gear motors primarily to customers located throughout
the United States.
M&G is comprised of Merkle-Korff and its wholly-owned subsidiary,
Barber-Colman, and Imperial and its wholly-owned subsidiaries, Scott and Gear.
All of the outstanding shares of Merkle-Korff were
F-27
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
December 31, 1996
(Dollars in Thousands)
NOTE 19 -- MOTORS AND GEARS HOLDINGS, INC. (Continued)
purchased in September 1995 and the net assets of Barber-Colman were
purchased by Merkle-Korff in March 1996. The net assets of Imperial, Scott and
Gear were purchased by M&G, from the Company, at an arms length basis on
November 7, 1996, with the proceeds from a debt offering (see Note 11). The
purchase price was $75,656, which included the repayment of $6,008 in Imperial
liabilities owed to the Company, and a contingent payment payable pursuant to
a contingent earnout agreement. Under the terms of the contingent earnout
agreement, 50% of Imperial, Scott and Gear's cumulative earnings before
interest, taxes, depreciation and amortization, as defined, exceeding $50,000
during the five fiscal years ended December 31, 1996, through December 31,
2000, will be paid to an affiliate of the Company. Payments, if any, under the
contingent earnout agreement will be determined and made on April 30, 2001.
As a result of this purchase, the Company recognized $62.7 million of
deferred gain at the time of purchase for Federal income tax purposes, as
adjusted for the value of the earnout, once finally determined. This deferred
gain will be reduced as the M&G group reports depreciation and amortization
over approximately 15 years on most of the step-up in basis of those purchased
assets. As long as M&G remains in the Company's affiliated group, the gain
reported and the depreciation on the step-up in basis should exactly offset
each other. Upon any future deconsolidation of M&G from the Company's
affiliated group for Federal income tax purposes, any unreported gain would be
fully reported and subject to tax. If such deconsolidation were to occur in
1997, the Company would report up to approximately $62 million of gain for
Federal income taxes (without giving effect to any of the Company's net
operating loss carry forwards), which would result in an income tax liability
up to approximately $25 million (assuming a combined 40% Federal, state and
local income tax rate, and without giving effect to any of the Company's net
operating loss carry forwards).
At December 31, 1996, Motors and Gears Holdings, Inc. is owned 86.3% by
the Company and 13.7% by certain affiliates of the Company, including
partners and affiliates of The Jordan Company, including Mr. Jordan, Mr.
Quinn, Mr. Zalaznick, and Mr. Boucher.
NOTE 20 -- STOCK APPRECIATION RIGHT AND COMPENSATION AGREEMENTS
In connection with the Company's acquisitions of AIM and Cambridge in 1989,
the seller of these companies was granted stock appreciation rights in respect
of the appreciation of these companies. The formula used to value these rights
is calculated by determining 20% of a multiple of average cash flow of these
companies for the two years preceding the date when these rights are exercised
less the indebtedness of these companies. The seller passed away during the
third quarter of 1996. The seller's estate has exercised these rights. The
total amount owed under these rights is approximately $6,200. AIM has fully
accrued for these rights as of December 31, 1996. Payment of these rights is
amortized over five years, such that one-third is payable upon exercise, and
two-thirds is payable in five equal installments over 5 years.
Effective October 1, 1996, the Company voluntarily agreed to pay to an
executive $3.9 million in view of his contributions to the Company, including
identifying and analyzing acquisition candidates for the Company and providing
strategic advice to the Board of Directors of the Company. The Company has
fully accrued for this compensation agreement as of December 31, 1996. The
Company agreed to pay the executive as follows: (i) one-third (or $1.3
million) was paid to the executive in October 1996 and (ii) the remaining
two-thirds (or $2.6 million) will be paid to the executive in six equal,
semi-annual installments payable on each October 1 and April 1, commencing on
April 1, 1997.
NOTE 21 -- CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of cash and cash equivalents
and accounts receivable. The Company places cash and cash equivalents with
high quality financial institutions, and is restricted by its revolving credit
facilities as to its investment instruments. Concentration of credit risk
relating to accounts receivable is limited due to the large number of
customers from many different industries and locations. The Company believes
that its allowance for doubtful accounts is adequate to cover potential credit
risk.
F-28
<PAGE>
JORDAN INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------
(DOLLARS IN
THOUSANDS)
<S> <C>
ASSETS
--------
Current assets:
Cash and cash equivalents ......................................... $ 30,887
Accounts receivable, net .......................................... 107,122
Inventories ....................................................... 111,372
Prepaid expenses and other current assets ......................... 13,876
--------------------
Total current assets ........................................... 263,257
Property, plant and equipment, net ................................ 100,079
Investments in and advances to affiliates ......................... 13,924
Goodwill, net ..................................................... 306,106
Other assets ...................................................... 48,566
--------------------
Total assets ................................................... $ 731,932
====================
LIABILITIES AND SHAREHOLDERS' EQUITY
(NET CAPITAL DEFICIENCY)
------------------------------------
Current liabilities:
Notes payable--lines of credit..................................... $ --
Accounts payable .................................................. 49,905
Accrued liabilities ............................................... 51,179
Advance deposits .................................................. 8,166
Current portion of long-term debt ................................. 8,530
--------------------
Total current liabilities ...................................... 117,780
Long-term debt ...................................................... 744,465
Other non-current liabilities ....................................... 9,732
Deferred income taxes................................................ 491
Minority interest.................................................... 4,013
Preferred stock.................................................... 1,515
Shareholders' equity (net capital deficiency):
Common stock ...................................................... 1
Additional paid-in capital ........................................ 2,117
Note receivable from shareholders.................................. (1,230)
Cumulative translation............................................. (179)
Retained earnings (accumulated deficit) ........................... (146,773)
--------------------
Total shareholders' equity (net capital deficiency) ............. (146,064)
--------------------
Total liabilities and shareholders' equity (net capital
deficiency) ...................................................... $ 731,932
====================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-29
<PAGE>
JORDAN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
1996 1997
---------- ----------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Net sales ..................................................... $267,220 $324,889
Cost of sales, excluding depreciation ......................... 164,053 203,059
Selling, general and administrative expenses .................. 64,743 67,802
Depreciation .................................................. 8,660 9,027
Amortization of goodwill and other intangibles ................ 5,156 6,906
Management fees and other ..................................... 2,403 16,918
---------- ----------
Operating income ............................................. 22,205 21,177
Other (income) and expenses:
Interest expense ............................................. 28,975 37,775
Interest income .............................................. (1,344) (1,606)
Gain on sale of subsidiary and other.......................... -- (18,012)
---------- ----------
Total other expenses .......................................... 27,631 18,157
Income (Loss) before income taxes, minority interest, equity
in investee and extraordinary items........................... (5,426) 3,020
Provision for income taxes .................................... 1,244 1,200
---------- ----------
Income (Loss) before minority interest, equity in investee,
and extraordinary items....................................... (6,670) 1,820
Minority interest ............................................. (1,086) 764
Equity in investee ............................................ -- 4,168
---------- ----------
Loss before extraordinary items ............................... (5,584) (3,112)
Extraordinary items ........................................... -- 9,363
Net loss....................................................... $ (5,584) $(12,475)
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-30
<PAGE>
JORDAN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------
1996 1997
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss...................................................... $ (5,584) $(12,475)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ............................... 13,816 15,813
Provision for (benefit from) deferred income taxes .......... (1,143) 163
Amortization of deferred financing fees ..................... 1,525 1,864
Minority interest ........................................... (1,086) 764
Non-cash interest ........................................... 5,822 6,776
Equity in investee .......................................... -- 4,168
Extraordinary items ......................................... -- 9,363
Gain on sale of subsidiary................................... -- (18,508)
Changes in operating assets and liabilities net of effects
from acquisitions:
Increase in current assets ................................. (3,723) (13,328)
Decrease in current liabilities ............................ (2,796) (3,199)
Increase in non-current assets ............................. (5,111) (6,000)
Increase in non-current liabilities ........................ 429 3,630
---------- -----------
Net cash provided by (used in) operating activities ....... 2,149 (10,969)
CASH FLOWS FROM INVESTING ACTIVITIES
Net proceeds from sale of subsidiary.......................... -- 35,218
Capital expenditures ......................................... (9,612) (5,758)
Advances to affiliates ....................................... (5,264) (1,335)
Acquisitions of minority interests and other ................. (144) --
Acquisition of subsidiaries .................................. (82,450) (70,913)
Cash acquired in purchase of subsidiaries .................... 1,390 456
Other......................................................... 2 (446)
---------- -----------
Net cash used in investing activities ..................... (96,078) (42,778)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Motors and Gears, Inc. common stock issuance.... -- 1,100
Proceeds from revolving credit facilities, net ............... 38,079 56,000
Proceeds from debt issuance--MK Holdings, Inc. ............... 20,000 --
Repayment of long-term debt .................................. (5,958) (5,263)
Proceeds from debt issuance--SPL Holdings, Inc. .............. 13,000 --
---------- -----------
Net cash provided by financing activities ................. 65,121 51,837
---------- -----------
Net decrease in cash and cash equivalents ...................... (28,808) (1,910)
Cash and cash equivalents at beginning of period ............... 41,253 32,797
---------- -----------
Cash and cash equivalents at end of period ..................... $ 12,445 $ 30,887
========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest ................................................... $ 20,984 $ 28,262
Income taxes, net........................................... $ 1,471 $ 2,642
Non-cash investing activities:
Capital leases ............................................. $ 344 $ 1,257
Seller notes issued in acquisitions......................... $ 3,000 $ 1,500
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-31
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
1. ORGANIZATION
The unaudited condensed consolidated financial statements, which reflect
all adjustments, consisting only of normally recurring adjustments, that
management believes necessary to present fairly the results of interim
operations, should be read in conjunction with the Notes to the Consolidated
Financial Statements (including the Summary of Significant Accounting
Policies) included in the Company's audited consolidated financial statements
for the year ended December 31, 1996, which are included elsewhere herein.
Results of operations for the interim periods are not necessarily indicative
of annual results of operations.
2. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
JUNE 30,
1997
----------
<S> <C>
Raw materials .. $ 37,834
Work-in-process 14,234
Finished goods . 59,304
----------
$111,372
==========
</TABLE>
3. NOTES AND OTHER RECEIVABLES FROM AFFILIATES AND INVESTMENT IN AFFILIATE
On January 21, 1997, Welcome Home filed for Chapter 11 bankruptcy
protection. As a result of the Chapter 11 filing, the Company no longer
consolidates Welcome Home in its financial statements as of January 21, 1997,
the date of the filing. For the period ended January 21, 1997, the Company
recorded a net loss of $1,195 related to Welcome Home. Receivables from
Welcome Home owed to the Company or its subsidiaries were $4,720 as of June
30, 1997.
On July 2, 1997, the Company received from Fannie May Holdings, Inc.
("Fannie May"), $14,348 in exchange for the following investments held by the
Company: $5,500 aggregate principal amount of Subordinated Notes and $7,000
aggregate principal amount of participation in outstanding term loans of
Archibald Candy Corporation, a wholly-owned subsidiary of Fannie May. The
amount received also included $1,573 of accrued interest and premium on the
above Subordinated Notes and term loans. On July 7, 1997, the Company received
$3,013 as a return of the $3,000 certificate of deposit held by the Company as
security for an obligation to purchase additional participation in the
above-mentioned term loans, plus $13 of accrued interest thereon.
4. ACQUISITION OF SUBSIDIARIES
On January 8, 1997, Beemak purchased the net assets of Arnon-Caine, Inc.
("ACI"), a designer and distributor of modular storage systems primarily for
sale to wholesale home centers and hardware stores. ACI subcontracts its
production to third party injection molders located primarily in Southern
California, which use materials and machines similar to those used by Beemak.
By early 1998, Beemak will serve as ACI's primary supplier. The Company
believes that the integration of ACI into Beemak's operations will provide for
future manufacturing cost savings as well as synergistic marketing efforts.
The purchase price of $4,600, including costs incurred directly related to
the acquisition, was allocated to working capital of $300, property, plant and
equipment of $82, and excess purchase price over net identifiable assets of
$4,218. The acquisition was financed with cash.
On May 30, 1997, JTP Industries, a newly formed wholly-owned subsidiary of
the Company, purchased the net assets of LoDan West, Inc. and L/D West, Inc.
The purchase price of $17,000, including costs incurred directly related to
the transaction, was preliminarily allocated to net working capital of $5,066,
property, plant and equipment of $783, non-competition agreement of $250,
non-current assets of $41, and resulted in an excess purchase price over net
identifiable assets of $10,860. The acquisition was financed with cash and a
$1,500 subordinated seller note.
One June 12, 1997, Motors and Gears Industries, Inc., through its newly
formed wholly-owned subsidiary, FIR Group Holdings, Inc. and its wholly-owned
subsidiaries, Motors and Gears Amsterdam,
F-32
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS)
4. ACQUISITION OF SUBSIDIARIES (Continued)
B.V. and FIR Group Holdings Italia, SrL, purchased all of the common stock of
the FIR Group Companies, consisting of CIME S.p.A., SELIN S.p.A. and FIR
S.p.A. The FIR Group Companies are manufacturers of electric motors and pumps
for niche applications such as pumps for catering dishwashers, motors for
industrial sewing machines, and motors for industrial fans and ventilators.
The purchase price of $51,313, including costs directly related to the
transaction, was preliminarily allocated to working capital of $16,882,
property, plant, and equipment of $4,942, other long term assets and
liabilities of $3,877, and resulted in an excess of purchase price over net
identifiable assets of $33,366. The cash was provided from borrowings under
the Motors and Gears Industries, Inc. Credit Agreement established on November
7, 1996 among Motors and Gears Industries, Inc., various banks, and Bankers
Trust Company, as agent.
5. DEBENTURE SWAP
On April 2, 1997, the Company privately placed approximately $214,036
aggregate principal amount of 11.75% Series A Senior Subordinated Discount
Debentures due 2009 (the "Series A Debentures"), at 56.52% of such principal
amount. The Series A Debentures are eligible for resale under Rule 144A of the
Securities Act of 1933, as amended (the "Securities Act"). The Company placed
the Series A Debentures to refinance substantially all of the $133,075
aggregate principal amount of its 11.75% Senior Subordinated Discount
Debentures due 2005. In conjunction with this transaction, the Company
recorded an extraordinary loss of $8,898 relating to the write-off of deferred
financing fees and the premium assessed on the new issue.
6. PAYMENT OF STOCK APPRECIATION RIGHTS
In March 1992, a subsidiary of the Company entered into an agreement with
its minority shareholders whereby the shareholders would exchange their common
stock, which amounted to a 24% interest, for 7% cumulative preferred stock,
covenants not to compete, and stock appreciation rights agreements. The total
consideration paid for this minority interest was $12,381.
Additionally, the former shareholders were granted stock appreciation
rights exercisable in full or in part on the occurrence of the disposition by
merger or otherwise in one or more transactions of (a) more than 50% of the
voting power and/or value of the capital stock of the subsidiary or (b) all or
substantially all the business or assets of the subsidiary. The value of the
stock appreciation rights is based on the ultimate sales price of the stock or
assets of the subsidiary, and is essentially 15% of the ultimate sales price,
less $15,625, of the stock or assets sold.
On April 10, 1997, the Company paid the former shareholders pursuant to an
agreement ("The Redemption Agreement"), as if the subsidiary was sold for
$110,000. The former shareholders received $9,438 in cash and a deferred
payment of $5,980 over five years at 8% interest. The Redemption Agreement
also requires that the $1,875 of remaining preferred stock be redeemed one
year from the date of the agreement.
If at any time prior to April 30, 1998, the Company has received offering
proceeds from the registration of any shares of common stock of the subsidiary
(the "IPO"), the Company will pay the former shareholders an additional
$2,250.
If the Company has not received proceeds from the IPO, the former
shareholders will receive a special bonus of 25% of the subsidiary's 1997
gross profit (as defined) in excess of $30,000.
As consideration for the signing of the Redemption Agreement, the former
shareholders will receive total non-compete payments of $352 payable over the
next thirteen months.
7. SALE OF SUBSIDIARIES
On May 15, 1997, the Company sold its subsidiary, Hudson Lock, Inc.
("Hudson"), for approximately $39.1 million. Hudson is a leading designer,
manufacturer, and marketer of highly engineered medium-
F-33
<PAGE>
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS)
7. SALE OF SUBSIDIARIES (Continued)
security custom and specialty locks for original equipment manufacturer
customers. A gain of $18,508 was recorded by the Company in connection with
the sale.
On July 31, 1997, the Company sold its subsidiary, Paw Print Mailing List
Services, Inc. ("Paw Print"), for approximately $12.5 million. Paw Print is a
value-added provider of direct mail services.
8. PREFERRED STOCK
In April 1997, the Company entered into an agreement ("The Redemption
Agreement") with certain former shareholders of a subsidiary. Pursuant to The
Redemption Agreement, the Company is required to redeem $1,875 of remaining
preferred stock one year from the date of the agreement. At June 30, 1997, the
preferred stock is classified as an accrued liability.
In May 1997, Motors and Gears Holdings, Inc., a majority-owned subsidiary
of the Company, issued $1.5 million of senior, non-voting 8% cumulative
preferred stock to its minority shareholders.
9. FINANCIAL RECAPITALIZATION AND BUSINESS REPOSITIONING PLAN
On May 16, 1997, the Company participated in a recapitalization of its
majority-owned subsidiary, of Motors and Gears Holdings, Inc. (M&G). In
connection with the Recapitalization, M&G issued 16,250 shares of M&G common
stock (representing approximately 82.5% of the outstanding shares of M&G
common stock) to certain stockholders and affiliates of the Company and M&G
management for a total consideration of $2.2 million (of which $1.1 million
was paid in cash and $1.1 million was paid through the delivery of 8% zero
coupon notes due 2007). As a result of the Recapitalization, certain of the
Company's affiliates and M&G management will own substantially all of the M&G
common stock and the Company's investment in M&G will be represented solely by
the Cumulative Preferred Stock of M&G (the "Junior Preferred Stock"), but not
by any common stock of M&G, which will be held by stockholders and affiliates
of the Company and management of M&G.
On July 25, 1997, the Company recapitalized its investment in Jordan
Telecommunication Products, Inc. ("JTP") and JTP acquired the Company's
telecommunications and data communications products business from the Company
for total consideration of approximately $294.0 million, consisting of $264.0
million in cash, $10.0 million of assumed indebtedness and preferred stock,
and the issuance to the Company of $20.0 million aggregate liquidation
preference of JTP Junior Preferred Stock. The Company's stockholders and
affiliates and JTP management invested in and acquired the JTP common stock.
JTP financed the cash portion of this total consideration through JTP's
private placement of $190 million of JTP Senior Notes due 2007, $85 million of
cash proceeds of JTP Senior Discount Debentures due 2007, and $25 million of
JTP Senior Preferred Stock due 2009.
The Company privately placed $120 million of the Company's Senior Notes due
2007, and used the net proceeds from this private placement, as well as the
net proceeds received by the Company in connection with the JTP
recapitalization, to repay approximately $78 million of bank borrowings by the
Company's subsidiaries under their credit agreements and repurchased $272
million of the Company's 10 3/8% Senior Notes due 2003 pursuant to a tender
offer and related consent solicitation. The Company also conducted a consent
solicitation with regard to its 11 3/4% Senior Subordinated Discount
debentures due 2009 in order to conform their covenant structure to those in
the Company's Senior Notes due 2007. As a result of the Recapitalization,
certain of the Company's affiliates and JTP management owns substantially all
of the JTP common stock. The Company's investment in JTP is represented solely
by the Junior Preferred Stock, but not by any common stock of JTP.
F-34
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
E.F. Johnson Company
In our opinion, the accompanying balance sheets and the related statements
of operations and of cash flows present fairly, in all material respects, the
financial position of E.F. Johnson Company-Components Division (a division of
E.F. Johnson Company) as of December 31, 1994, November 26, 1995 and January
23, 1996, and the results of its operations and its cash flows for the year
ended December 31, 1994, the eleven month period ended November 26, 1995 and
the two month period ended January 23, 1996 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.
/s/ Price Waterhouse LLP
Minneapolis, Minnesota
August 28, 1996
F-35
<PAGE>
E.F. JOHNSON COMPANY--COMPONENTS DIVISION
(A DIVISION OF E.F. JOHNSON COMPANY)
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 26, JANUARY 23,
1994 1995 1996
-------------- -------------- -------------
<S> <C> <C> <C>
ASSETS
------
Current assets:
Accounts receivable.................. $1,554 $1,579 $1,420
Inventory............................ 2,297 2,191 2,421
Deferred tax asset................... 191 226 198
-------------- -------------- -------------
Total current assets................ 4,042 3,996 4,039
Machinery and equipment, net.......... 3,591 3,264 3,336
-------------- -------------- -------------
Total assets........................ $7,633 $7,260 $7,375
============== ============== =============
LIABILITIES AND DIVISION EQUITY
- -------------------------------------
Current liabilities:
Accounts payable..................... $ 673 $ 844 $1,337
Accrued compensation and benefits ... 411 647 639
Accrued commissions payable.......... 72 68 59
Other liabilities.................... 118 174 190
-------------- -------------- -------------
Total current liabilities........... 1,274 1,733 2,225
Deferred tax liability................ 1,038 873 846
Commitments (Note 7)
Division equity....................... 5,321 4,654 4,304
-------------- -------------- -------------
Total liabilities and division
equity............................. $7,633 $7,260 $7,375
============== ============== =============
</TABLE>
See accompanying notes to financial statements.
F-36
<PAGE>
E.F. JOHNSON COMPANY-COMPONENTS DIVISION
(A DIVISION OF E.F. JOHNSON COMPANY)
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ELEVEN TWO
MONTHS MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, NOVEMBER 26, JANUARY 23,
1994 1995 1996
-------------- -------------- -------------
<S> <C> <C> <C>
Net sales:
Third party customers.......... $13,801 $14,001 $2,245
To Parent...................... 2,367 2,158 195
-------------- -------------- -------------
16,168 16,159 2,440
-------------- -------------- -------------
Cost of sales:
Third party customers.......... 8,844 8,641 1,424
To Parent...................... 1,539 1,403 127
-------------- -------------- -------------
10,383 10,044 1,551
-------------- -------------- -------------
Gross margin.................. 5,785 6,115 889
-------------- -------------- -------------
Operating expenses:
Selling and marketing.......... 1,666 1,750 267
Engineering.................... 498 483 84
Allocations from Parent
company....................... 667 591 106
-------------- -------------- -------------
Total operating expenses ..... 2,831 2,824 457
-------------- -------------- -------------
Operating income................ 2,954 3,291 432
Interest expense................ 237 -- --
-------------- -------------- -------------
Income before income taxes ..... 2,717 3,291 432
Provision for income taxes ..... (1,034) (1,251) (165)
-------------- -------------- -------------
Net income...................... $ 1,683 $ 2,040 $ 267
============== ============== =============
</TABLE>
See accompanying notes to financial statements.
F-37
<PAGE>
E.F. JOHNSON COMPANY-COMPONENTS DIVISION
(A DIVISION OF E.F. JOHNSON COMPANY)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ELEVEN MONTHS TWO MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, NOVEMBER 26, JANUARY 23,
1994 1995 1996
-------------- --------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income..................................... $ 1,683 $ 2,040 $ 267
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation.................................. 910 958 183
Deferred income taxes......................... 53 (200) 1
Loss on sale of property...................... 2 -- --
Changes in components of working capital:
(Increase) decrease in receivables........... (485) (25) 159
Decrease (increase) in inventories........... 347 106 (230)
Increase in accounts payable................. 355 171 493
(Decrease) increase in accrued liabilities .. (99) 288 (1)
-------------- --------------- -------------
Net cash provided by operating activities .. 2,766 3,338 872
-------------- --------------- -------------
Cash flows from investing activities:
Capital expenditures........................... (507) (656) (261)
Proceeds from sale of property................. 13 25 6
-------------- --------------- -------------
Net cash used by investing activities ...... (494) (631) (255)
-------------- --------------- -------------
Cash flows from financing activities:
Decrease in advances from Parent............... (4,041) -- --
Investment by (distributions to) Parent, net .. 1,769 (2,707) (617)
-------------- --------------- -------------
Net cash used by financing activities ...... (2,272) (2,707) (617)
-------------- --------------- -------------
Net change in cash.............................. -- -- --
Cash--beginning of period....................... -- -- --
-------------- --------------- -------------
Cash--end of period............................. $ -- $ -- $ --
============== =============== =============
</TABLE>
See accompanying notes to financial statements.
F-38
<PAGE>
E.F. JOHNSON COMPANY--COMPONENTS DIVISION
(A DIVISION OF E.F. JOHNSON COMPANY)
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
E.F. Johnson Company--Components Division (the Division) is a division of
E.F. Johnson Company (the Parent). The Division manufactures RF connectors,
cable assemblies, electronic circuit hardware, spacers and test plugs and
jacks, as well as components designed to specific customer requirements.
Basis of Presentation
These financial statements present the assets, liabilities and results of
operations of the Division. The Parent's year end is December 31. The
financial statements as of and for the eleven month period ended November 25,
1995 were prepared for purposes of a letter of intent entered into in
conjunction with the sale of the Division (see Note 7). The financial
statements as of and for the two month period ended January 23, 1996 were
prepared to present the Division's results of operations subsequent to the
signing of the letter of intent and through the sale transaction closing date.
Costs related to functions performed by the Parent and certain other costs
which are attributable to the Division are allocated to the Division by the
Parent. Costs related to these functions, as further described at Note 5,
include computer support, legal, insurance, human resources, financial and
other administrative services.
The Division is part of a consolidated group and as such has extensive
dealings with related entities. Management considers that the intercompany
charges, including the allocation of common costs from the Parent,
appropriately reflect the cost of services provided. However, the terms of
transactions were determined between related parties and may, therefore,
differ from terms which would have occurred between wholly unrelated parties
and may also differ from the costs which would have been incurred had the
Division operated as a completely autonomous entity.
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 and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The Division's financial instruments consist primarily of inventories,
short-term trade receivables and payables for which the current carrying
amounts approximate fair market value.
Inventories
Inventories are stated at the lower of cost or market, cost being
determined by the first-in, first-out (FIFO) method.
Machinery and Equipment
Machinery and equipment are stated at cost less accumulated depreciation.
Depreciation is provided using the straight-line method over estimated useful
lives which range from three to seven years.
F-39
<PAGE>
E.F. JOHNSON COMPANY--COMPONENTS DIVISION
(A DIVISION OF E.F. JOHNSON COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
Revenue Recognition
Revenue is recognized upon shipment of products. Rebates are granted to
certain distributors based on contractual formulas which consider the annual
sales volume to the distributors of Division product. Estimates of such
rebates are recorded as a reduction of sales at the time the product is
shipped by the Division.
Income Taxes
The Company is included in the consolidated federal income tax return filed
by the Parent. There is no tax sharing agreement between the Division and its
Parent. For financial statement purposes, the tax provision was computed as if
the Company filed a separate tax return using the liability method under
Financial Accounting Standard No. 109, "Accounting for Income Taxes." Income
taxes payable are recorded as a component of the investment by/distributions
to Parent in division equity.
Retirement Benefits
The Parent has a defined contribution qualified retirement savings and
profit sharing plan which covers all of its employees. The Company's profit
sharing contributions are discretionary. No profit sharing contributions were
authorized for 1994 and 1995. The Division's contributions to the retirement
savings plan during the year ended December 31, 1994, the eleven month period
ended November 26, 1995 and the two month period ended January 23, 1996 were
$45, $48 and $5, respectively.
Concentration of Credit Risk and Major Customers
Financial instruments which potentially subject the Division to
concentrations of credit risk consist principally of trade accounts
receivables; however, this risk is limited by the large number of customers in
the Division's customer base. Sales to Parent accounted for 15%, 13% and 8% of
net sales during the year ended December 31, 1994, the eleven month period
ended November 26, 1995 and the two month period ended January 23, 1996,
respectively.
NOTE 2--INVENTORY
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 26, JANUARY 23,
1994 1995 1996
-------------- -------------- -------------
<S> <C> <C> <C>
Finished goods ... $ 954 $ 901 $ 989
Work in process .. 849 847 926
Raw materials..... 494 443 506
-------------- -------------- -------------
Total
inventories..... $2,297 $2,191 $2,421
============== ============== =============
</TABLE>
F-40
<PAGE>
E.F. JOHNSON COMPANY--COMPONENTS DIVISION
(A DIVISION OF E.F. JOHNSON COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
NOTE 3--MACHINERY AND EQUIPMENT
Machinery and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 26, JANUARY 23,
1994 1995 1996
-------------- -------------- -------------
<S> <C> <C> <C>
Machinery and equipment............ $ 5,297 $ 5,828 $ 6,193
Furniture and fixtures............. 362 326 315
Construction in process............ -- 115 13
-------------- -------------- -------------
5,659 6,269 6,521
Less: Accumulated depreciation .... (2,068) (3,005) (3,185)
-------------- -------------- -------------
Total machinery and equipment,
net.............................. $ 3,591 $ 3,264 $ 3,336
============== ============== =============
</TABLE>
NOTE 4--DIVISION EQUITY
Division equity consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Balance at December 31,
1993........................ $ 1,869
Net income.................. 1,683
Investment by Parent, net .. 1,769
---------
Balance at December 31,
1994........................ 5,321
Net income.................. 2,040
Distributions to Parent,
net........................ (2,707)
---------
Balance at November 26,
1995........................ 4,654
Net income.................. 267
Distributions to Parent,
net........................ (617)
---------
Balance at January 23, 1996 . $ 4,304
=========
</TABLE>
Investments by/distributions to Parent represent the change in net assets
of the Division, net of income during each respective period.
NOTE 5--ALLOCATED COSTS
Services provided to the Division by the Parent include expenses incurred
and paid by the Parent on the Division's behalf, charges for periodic Parent
services provided at rates which management considers to reflect the
incremental cost of providing these services, and allocations of costs based
upon utilization of shared services by the Division. In addition, interest
expense was charged on advances from Parent at the Parent's average borrowing
rate. Management considers that these allocations are reasonable given the
services provided. Costs related to functions performed by the Parent and
certain other costs which are attributable to the Division are allocated to
the Division by the Parent as follows:
<TABLE>
<CAPTION>
ELEVEN TWO
MONTHS MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, NOVEMBER 26, JANUARY 23,
1994 1995 1996
-------------- -------------- -------------
<S> <C> <C> <C>
Operating expenses:
Management compensation.......................... $202 $241 $ 40
Computer support................................. 65 47 11
Legal services................................... 5 8 2
Insurance........................................ 34 24 3
Finance, human resources and other
administrative support services................. 361 271 50
-------------- -------------- -------------
$667 $591 $106
============== ============== =============
</TABLE>
F-41
<PAGE>
E.F. JOHNSON COMPANY--COMPONENTS DIVISION
(A DIVISION OF E.F. JOHNSON COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
NOTE 6--INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
ELEVEN TWO
MONTHS MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, NOVEMBER 26, JANUARY 23,
1994 1995 1996
-------------- -------------- -------------
<S> <C> <C> <C>
Current:
Federal .. $ 826 $1,222 $138
State..... 155 229 26
-------------- -------------- -------------
981 1,451 164
Deferred .. 53 (200) 1
-------------- -------------- -------------
$1,034 $1,251 $165
============== ============== =============
</TABLE>
The Company's effective income tax rate varies from the federal statutory
tax rate as follows:
<TABLE>
<CAPTION>
ELEVEN TWO
MONTHS MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, NOVEMBER 26, JANUARY 23,
1994 1995 1996
-------------- -------------- -------------
<S> <C> <C> <C>
Federal statutory tax rate.............. 34.0% 34.0% 34.0%
Increase in tax rate resulting from:
State taxes, net of federal tax
benefit............................... 4.0 4.0 4.0
Other, net.............................. 0.1 -- 0.2
-------------- -------------- -------------
Effective tax rate...................... 38.1% 38.0% 38.2%
============== ============== =============
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of asset and liabilities for financial reporting
and income tax purposes. Significant components of the Division's deferred tax
assets and liabilities consist of the following:
<TABLE>
<CAPTION>
ELEVEN TWO
MONTHS MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, NOVEMBER 26, JANUARY 23,
1994 1995 1996
-------------- -------------- -------------
<S> <C> <C> <C>
Deferred income tax assets:
Inventory....................... $ 80 $ 66 $ 70
Accruals........................ 111 160 128
-------------- -------------- -------------
191 226 198
Deferred income tax
liabilities:.................... (1,038) (873) (846)
-------------- -------------- -------------
Machinery and equipment......... $ (847) $(647) $(648)
============== ============== =============
</TABLE>
NOTE 7--SUBSEQUENT EVENT
During 1995, the Company entered into a letter of intent to sell the
Division's assets. The transaction was completed on January 23, 1996.
Prior to the sale of the Division's assets, substantially all assets of the
Division were pledged as collateral under the parent's revolving credit
facility and bank term debt agreement. Concurrent with the sale, the Division
obtained a release of its assets as collateral under the bank agreements.
F-42
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Boards of Directors
Viewsonics, Inc. and
Shanghai Viewsonics Electronic Co., Ltd.
We have audited the accompanying combined balance sheet of Viewsonics, Inc.
and Shanghai Viewsonics Electronic Co., Ltd. as of December 31, 1995, and the
related combined statements of income, stockholder's equity, and cash flows
for the year then ended. These financial statements are the responsibility of
the Companies' management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Viewsonics, Inc.
and Shanghai Viewsonics Electronic Co., Ltd. at December 31, 1995, and the
combined results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Chicago, Illinois
April 10, 1996
F-43
<PAGE>
VIEWSONICS, INC. AND SHANGHAI VIEWSONICS ELECTRONIC CO., LTD.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER 31, JULY 31,
1995 1996
-------------- ------------
<S> <C> <C>
ASSETS
------
Current assets:
Cash................................................. $ 484,884 $ 620,932
Accounts receivable, less allowance of $9,161 ....... 1,218,410 1,488,355
Accounts receivable from related entity.............. 75,305 36,277
Inventories.......................................... 2,567,198 5,678,514
Other current assets................................. 18,051 --
-------------- ------------
Total current assets................................ 4,363,848 7,824,028
Property, equipment, and leasehold improvements--Net . 456,666 445,713
Other assets.......................................... 12,516 14,529
-------------- ------------
$4,833,030 $8,284,270
============== ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable..................................... $ 442,938 $ 820,332
Accrued expenses..................................... 398,259 429,884
-------------- ------------
Total current liabilities........................... 841,197 1,250,216
Stockholder's equity:
Common stock......................................... 501 501
Additional paid-in capital........................... 614,499 614,499
Retained earnings.................................... 3,372,658 6,416,446
Foreign currency translation adjustment.............. 4,175 2,608
-------------- ------------
Total stockholder's equity.......................... 3,991,833 7,034,054
-------------- ------------
$4,833,030 $8,284,270
============== ============
</TABLE>
See accompanying notes.
F-44
<PAGE>
VIEWSONICS, INC. AND SHANGHAI VIEWSONICS ELECTRONIC CO., LTD.
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(UNAUDITED)
YEAR ENDED PERIOD ENDED
DECEMBER 31 JULY 31
1995 1996
------------- --------------
<S> <C> <C>
Net sales .................................... $10,997,478 $8,069,407
Cost of sales................................. 4,867,307 3,276,123
------------- --------------
Gross profit.................................. 6,130,171 4,793,284
Selling, general, and administrative
expenses..................................... 2,974,998 1,762,562
------------- --------------
Operating income.............................. 3,155,173 3,030,722
Interest income............................... 48,938 13,066
------------- --------------
Net income.................................... $ 3,204,111 $3,043,788
============= ==============
</TABLE>
See accompanying notes.
F-45
<PAGE>
VIEWSONICS, INC. AND SHANGHAI VIEWSONICS ELECTRONIC CO., LTD.
COMBINED STATEMENT OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
FOREIGN
ADDITIONAL CURRENCY
COMMON PAID-IN RETAINED TRANSLATION STOCKHOLDER'S
STOCK CAPITAL EARNINGS ADJUSTMENT EQUITY
-------- ------------ ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1994........................ $501 $304,499 $ 4,069,643 $ 4,849 $ 4,379,492
Capital contribution......... -- 310,000 -- -- 310,000
Cash dividends paid.......... -- -- (3,901,096) -- (3,901,096)
Foreign currency translation
adjustment.................. -- -- -- (674) (674)
Net income................... -- -- 3,204,111 -- 3,204,111
-------- ------------ ------------- ------------- ---------------
Balance at December 31,
1995........................ 501 614,499 3,372,658 4,175 3,991,833
Foreign currency translation
adjustment (unaudited)...... -- -- -- (1,567) (1,567)
Net income (unaudited)....... -- -- 3,043,788 -- 3,043,788
-------- ------------ ------------- ------------- ---------------
Balance at July 31, 1996
(unaudited)................. $501 $614,499 $ 6,416,446 $ 2,608 $ 7,034,054
======== ============ ============= ============= ===============
</TABLE>
See accompanying notes.
F-46
<PAGE>
VIEWSONICS, INC. AND SHANGHAI VIEWSONICS ELECTRONIC CO., LTD.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(UNAUDITED)
YEAR ENDED PERIOD ENDED
DECEMBER 31, JULY 31,
1995 1996
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................. $ 3,204,111 $ 3,043,788
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization............................. 148,387 86,559
Provision for bad debts................................... 4,711 --
Changes in operating assets and liabilities:
Accounts receivable...................................... (251,571) (269,945)
Accounts receivable from related entity.................. (75,305) 39,078
Inventories.............................................. (989,526) (3,111,316)
Other current assets..................................... (9,460) 18,051
Other assets............................................. 5,687 (2,013)
Accounts payable......................................... 106,596 377,394
Accrued expenses......................................... 204,491 31,625
-------------- --------------
Net cash provided by operating activities............... 2,348,121 213,221
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, equipment, and leasehold
improvements.............................................. (184,716) (75,606)
-------------- --------------
Net cash used for investing activities.................. (184,716) (75,606)
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contribution....................................... 310,000 --
Dividends paid............................................. (3,901,096) --
-------------- --------------
Net cash used for financing activities..................... (3,591,096) --
Effect of exchange rate changes on cash.................... (674) (1,567)
-------------- --------------
(Decrease) increase in cash................................ (1,428,365) 136,048
Cash at beginning of period................................ 1,913,249 484,884
-------------- --------------
Cash at end of period...................................... $ 484,884 $ 620,932
============== ==============
</TABLE>
See accompanying notes.
F-47
<PAGE>
VIEWSONICS, INC. AND SHANGHAI VIEWSONICS ELECTRONIC CO., LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Viewsonics, Inc. (VSI) and Shanghai Viewsonics Electronic Co., Ltd.
(SVECL), collectively referred to as the "Companies," are commonly controlled.
VSI designs, manufactures, and markets branded cable television electronic
network component and security electronic network component products primarily
to customers located throughout the United States.
VSI is economically dependent on SVECL an affiliate located in Shanghai,
China, which sells 100% of its production to VSI. Although there are a limited
number of manufacturers of the products currently purchased from Svecl, VSI
management believes that other suppliers could provide similar products.
However, the time required to locate and qualify other suppliers, and the
nature of their terms (which would likely not be comparable to those currently
in place) could cause a delay in filling orders and may be financially
disruptive to VSI.
The unaudited combined financial statements have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in annual combined
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Companies believe these disclosures are adequate to
make the information presented not misleading. In the opinion of management,
all adjustments necessary for a fair presentation for the period presented
have been reflected and are of a formal recurring nature.
Results of operations for the period from January 1, 1996 to July 31, 1996
are not necessarily indicative of the results that may be achieved for the
entire year ended December 31, 1996.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Combination
The combined financial statements include the accounts of VSI and SVECL.
Significant intercompany accounts and transactions have been eliminated in the
combined financial statements.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
by the first in, first out (FIFO) method.
Property, Equipment, and Leasehold Improvements
Property and equipment are stated at cost, less accumulated depreciation.
Provisions for depreciation of property and equipment are determined using the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are stated at cost, less accumulated amortization. Leasehold
improvements are amortized on a straight-line basis over the shorter of the
lease term or the life of the respective asset.
Research and Development Cost
Research and development costs related to both present and future products
are expensed as incurred.
F-48
<PAGE>
VIEWSONICS, INC. AND SHANGHAI VIEWSONICS ELECTRONIC CO., LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Advertising Costs
Advertising costs are expensed as incurred.
Income Taxes
VSI is taxed as an S corporation under applicable provisions of the
Internal Revenue Code and, therefore, is generally not liable for federal and
certain state income taxes, as the income of VSI is included in the taxable
income of its stockholder.
SVECL is governed by the Income Tax Law of the People's Republic of China
(the PRC) concerning Enterprises with Foreign Investment and Foreign
Enterprises and various local income tax laws of the PRC (the FIE Income Tax
Laws). Pursuant to the FIE Income Tax Laws, the income of SVECL is fully
exempted from income tax for two years commencing from the first profitable
year of operations, followed by a 50% exemption for the next three years,
after which the income of SVECL will be taxable at a rate which is currently
27%.
No income tax provision has been recorded, as SVECL incurred a loss for the
year ended December 31, 1995 and has incurred losses since its inception.
Financial Instruments
Cash and trade receivables may subject the Companies to credit risk. VSI
holds cash at highly rated financial institutions which are federally insured
up to prescribed limits. Cash balances may exceed the federally insured limits
at any given time.
During 1995, VSI's two largest customers accounted for approximately 27% of
sales. These same customers accounted for approximately 36% of VSI's December
31, 1995 accounts receivable. VSI closely monitors the credit quality of its
customers and maintains an allowance for potential credit losses which,
historically, have been within the range of management's expectations.
Foreign Currency Translation
The accounts of SVECL are translated into U.S. dollars from the functional
local currency in accordance with Statement of Financial Accounting Standards
(SFAS) No. 52.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER 31, JULY 31,
1995 1996
-------------- -----------
<S> <C> <C>
Raw materials.................. $ 371,929 $ 734,094
Work in process................ 77,971 153,895
Finished goods................. 2,857,513 5,640,007
Inventory obsolescence
reserve....................... (740,215) (849,482)
-------------- -----------
$2,567,198 $5,678,514
============== ===========
</TABLE>
F-49
<PAGE>
VIEWSONICS, INC. AND SHANGHAI VIEWSONICS ELECTRONIC CO., LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS
Property, equipment, and leasehold improvements consist of the following as
of December 31, 1995:
<TABLE>
<CAPTION>
<S> <C>
Equipment ...................................... $698,984
Furniture and fixtures.......................... 127,506
Vehicles........................................ 51,176
Leasehold improvements.......................... 51,102
----------
928,768
----------
Less: Accumulated depreciation and
amortization................................... 472,102
----------
$456,666
==========
</TABLE>
5. STOCKHOLDER'S EQUITY
Common Stock and Additional Paid-in Capital
<TABLE>
<CAPTION>
<S> <C>
VSI
Common stock; $1 par value; 1,000 shares authorized; 501 shares issued
and outstanding.......................................................... $ 501
Additional paid-in capital................................................ 4,499
SVECL
Additional paid-in capital (registered capital)........................... 610,000
---------
$615,000
=========
</TABLE>
SVECL was registered on August 16, 1993 under the Laws of the PRC on
enterprises operated exclusively with foreign capital. The tenure of the
Company is for a period of 30 years.
The registered capital of the Company is $610,000. Since SVECL is a
"Limited Liability Company" under PRC Law, it does not issue stock of any
class.
Retained Earnings
As stipulated in the relevant regulations applicable to wholly
foreign-owned investment enterprises established in PRC, SVECL is required to
appropriate 10% of its profit after tax, after offsetting accumulated deficit,
determined in accordance with the PRC's accounting principles and financial
regulations, to the general reserve fund until such reserve reaches 50% of the
registered capital of SVECL. The general reserve fund would not be available
for distribution as dividends.
Svecl has not generated any profit as of December 31, 1995 and,
accordingly, there were no profit distributions or appropriations to the
general reserve fund.
6. COMMITMENTS
The Companies lease manufacturing, office, and storage facilities and
certain equipment under noncancelable operating leases expiring in various
years through 2000. The leases require the Companies to pay real estate taxes
and maintenance costs.
F-50
<PAGE>
VIEWSONICS, INC. AND SHANGHAI VIEWSONICS ELECTRONIC CO., LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Commitments for future minimum payments under noncancelable leases are as
follows as of December 31, 1995:
<TABLE>
<CAPTION>
<S> <C>
1996 ... $260,692
1997.... 262,774
1998.... 356,066
1999.... 11,193
2000.... 1,106
</TABLE>
Rental expense for the year ended December 31, 1995 was approximately
$239,000.
7. FOREIGN CURRENCY
In April 1995, the National Foreign Exchange Training Center is Shanghai
(the exchange center) commenced operations. Enterprises operating in the PRC
can enter into exchange transactions at the exchange center through the Bank
of China or other authorized institutions. Payments for imported materials are
subject to the availability of foreign currency, which depends on the foreign
currency denominated earnings of the enterprises, or must be arranged through
the exchange center. Approval for exchange at the exchange center is granted
to enterprises in the PRC for valid reasons such as purchases of imported
materials and remittance of earnings. While conversion of Renminbi into United
States dollars or other foreign currencies can generally be effected at the
exchange center, there is no guarantee that it can be effected at all times.
SVECL has not had and does not believe it will have any difficulty in
exchanging its currency (Renminbi) for U.S. dollars at the rate of exchange
quoted by the People's Bank of China.
F-51
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder of
Seaboard Folding Box Corp. and Affiliates:
We have audited the accompanying combined balance sheets of Seaboard
Folding Box Corp. (a Massachusetts corporation) and affiliates as of December
31, 1994 and 1995, and the related combined statements of income,
stockholder's equity, and cash flows for the years then ended. These combined
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined 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 combined financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the combined
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 combined financial statements referred to above present
fairly, in all material respects, the financial position of Seaboard Folding
Box Corp. and affiliates as of December 31, 1994 and 1995, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
/s/ Canby, Maloney & Co., Inc.
Framingham, Massachusetts
February 15, 1996
F-52
<PAGE>
SEABOARD FOLDING BOX CORP. AND AFFILIATES
COMBINED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
------------- -------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents ..................................... $ 1,449,883 $ 2,293,600
Accounts receivable, net of allowance for doubtful accounts of
$127,154 in 1994 and $189,358 in 1995 ........................ 2,376,683 3,090,644
Inventories ................................................... 2,535,521 3,359,008
Other current assets .......................................... 20,053 17,744
------------- -------------
Total current assets ......................................... 6,382,140 8,760,996
Property and Equipment, at cost:
Land .......................................................... 510,780 510,780
Buildings ..................................................... 2,494,220 2,494,220
Building improvements ......................................... 493,697 503,089
Furniture and fixtures ........................................ 85,544 89,425
Machinery and equipment ....................................... 5,888,338 5,972,723
Motor vehicles ................................................ 393,306 416,865
Tooling ....................................................... 582,522 690,522
------------- -------------
10,448,407 10,677,624
Less--Accumulated depreciation and amortization .............. (4,689,099) (5,426,099)
------------- -------------
5,759,308 5,251,525
Other Assets:
Deposits ...................................................... 10,088 10,088
Other assets .................................................. -- 35,000
------------- -------------
$12,151,536 $14,057,609
============= =============
LIABILITIES AND STOCKHOLDER'S EQUITY:
Current liabilities:
Demand note payable to a bank ................................. $ 700,000 $ --
Accounts payable .............................................. 919,002 816,543
Accrued expenses and payroll tax withholdings ................. 1,521,420 2,111,721
Accrued state income taxes .................................... 118,105 181,571
Due to officer ................................................ 385,000 385,000
------------- -------------
Total current liabilities .................................... 3,643,527 3,494,835
Deferred state income taxes .................................... 30,000 30,000
Stockholder's equity:
Common stock, no par value--Seaboard Folding Box Corp.,
authorized, issued and outstanding--200 shares ............... 200,000 200,000
Common stock, no par value--A&R Sales, Inc., authorized,
issued and outstanding--1,000 shares ......................... 1,000 1,000
Common stock, no par value--Seaboard Holding Corp., authorized
200 shares, issued and outstanding--10 shares ................ -- 1,000
Additional paid-in capital .................................... 200,000 200,000
Retained earnings ............................................. 8,077,009 10,130,774
------------- -------------
8,478,009 10,532,774
------------- -------------
$12,151,536 $14,057,609
============= =============
</TABLE>
The accompanying notes are an integral part
of these combined financial statements.
F-53
<PAGE>
SEABOARD FOLDING BOX CORP. AND AFFILIATES
COMBINED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
------------- -------------
<S> <C> <C>
Net sales ...................................... $15,561,044 $16,079,710
Cost of sales .................................. 9,405,511 9,319,217
------------- -------------
Gross profit .................................. 6,155,533 6,760,493
Selling, general and administrative expenses .. 3,162,741 3,080,521
------------- -------------
Income from operations......................... 2,992,792 3,679,972
Other income (expense):
Interest expense .............................. (31,902) (10,636)
Interest income ............................... 31,406 42,550
Sublease rental income ........................ 43,455 --
------------- -------------
42,959 31,914
------------- -------------
Income before provision for state income taxes 3,035,751 3,711,886
Provision for state income taxes ............... 82,000 113,000
------------- -------------
Net income ..................................... $ 2,953,751 $ 3,598,886
============= =============
</TABLE>
The accompanying notes are an integral part of
these combined financial statements.
F-54
<PAGE>
SEABOARD FOLDING BOX CORP. AND AFFILIATES
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK
----------------------
NUMBER ADDITIONAL
OF SHARES PAID-IN RETAINED
ISSUED AMOUNT CAPITAL EARNINGS
----------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1993 .. 1,200 $201,000 $200,000 $ 6,436,258
Distributions to stockholder -- -- -- (1,313,000)
Net income .................. -- -- -- 2,953,751
----------- ---------- ------------ -------------
Balance, December 31, 1994 .. 1,200 201,000 200,000 8,077,009
Issuance of common stock in
Seaboard Holding Corp. .... 10 1,000 -- --
Distribution to stockholder -- -- -- (1,545,121)
Net income .................. -- -- -- 3,598,886
----------- ---------- ------------ -------------
Balance, December 31, 1995 .. 1,210 $202,000 $200,000 $10,130,774
=========== ========== ============ =============
</TABLE>
The accompanying notes are an integral part of
these combined financial statements.
F-55
<PAGE>
SEABOARD FOLDING BOX CORP. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Collections from customers .................................. $ 15,580,612 $ 15,287,749
Interest income collected ................................... 31,406 42,550
Sublease rental income collected ............................ 43,455 --
Payment of operating expenses ............................... (11,381,550) (11,918,074)
Payment of interest ......................................... (32,914) (10,636)
Payment of state income taxes ............................... (42,690) (49,534)
-------------- --------------
Net cash provided by operating activities .................. 4,198,319 3,352,055
INVESTING ACTIVITIES
Purchase of property and equipment .......................... (2,234,638) (229,217)
Increase in other assets .................................... -- (35,000)
-------------- --------------
Net cash used for investing activities ..................... (2,234,638) (264,217)
FINANCING ACTIVITIES
Net (payments of) proceeds from demand note payable to a
bank ....................................................... 700,000 (700,000)
Payment of long-term debt ................................... (1,086,217) --
Distributions to stockholder ................................ (1,313,000) (1,545,121)
Sale of common stock ........................................ -- 1,000
-------------- --------------
Net cash used for financing activities ..................... (1,699,217) (2,244,121)
-------------- --------------
Net increase in cash and cash equivalents .................... 264,464 843,717
Cash and cash equivalents, beginning of year ................. 1,185,419 1,449,883
-------------- --------------
Cash and cash equivalents, end of year ....................... $ 1,449,883 $ 2,293,600
============== ==============
</TABLE>
The accompanying notes are an integral part of
these combined financial statements.
F-56
<PAGE>
SEABOARD FOLDING BOX CORP. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
(CONTINUED)
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
<TABLE>
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
Net Income .......................................................... $2,953,751 $3,598,886
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization ..................................... 747,958 737,000
(Increase) decrease in:
Accounts receivable .............................................. 242,568 (713,961)
Inventories ...................................................... (247,094) (823,487)
Other current assets ............................................. 3,409 2,309
------------ ------------
Increase (decrease) in:
Accounts payable ................................................. 114,270 (102,459)
Accrued expenses and payroll tax withholdings .................... 344,147 590,301
Accrued state income taxes ....................................... 39,310 63,466
------------ ------------
Net cash provided by operating activities ........................ $4,198,319 $3,352,055
============ ============
</TABLE>
The accompanying notes are an integral part of
these combined financial statements.
F-57
<PAGE>
SEABOARD FOLDING BOX CORP. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Seaboard Folding Box Corp. and its affiliates, A&R Sales, Inc. and
Seaboard Holding Corp. (the Company), are engaged in the manufacture and sale
of cardboard boxes. The accompanying combined financial statements reflect
the application of certain accounting policies as described in this note.
Other policies and practices are covered in the remaining notes.
(a) Principles of Combination
The accompanying combined financial statements of Seaboard Folding Box
Corp., A&R Sales, Inc. (a Florida corporation) and Seaboard Holding Corp. (a
New York corporation), have been prepared on a combined basis, as all of the
entities are under common ownership and control. Seaboard Holding Corp. was
incorporated in March, 1995. All material transactions and accounts among the
three entities have been eliminated in combination.
(b) Cash Equivalents
The Company considers commercial paper purchased with an original maturity
of three months or less to be a cash equivalent.
(c) Inventories
Inventories, which include material, labor, and manufacturing overhead are
stated at the lower of cost (first-in, first-out) or market, and consist of
the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1995
------------ ------------
<S> <C> <C>
Raw Materials ... $1,188,169 $1,191,431
Work-in-progress 207,816 396,220
Finished goods .. 1,139,536 1,771,357
------------ ------------
$2,535,521 $3,359,008
============ ============
</TABLE>
(d) Depreciation and Amortization
The Company provides for depreciation and amortization by charges to income
in amounts estimated to recover the cost of its property and equipment over
their estimated useful lives, using the straight-line method as follows:
<TABLE>
<CAPTION>
ASSET CLASSIFICATION ESTIMATED USEFUL LIFE
- ---------------------------- -------------------------
<S> <C>
Buildings ................... 25-39 Years
Building improvements ....... 10 Years
Furniture and fixtures ..... 5-10 Years
Machinery and equipment .... 10 Years
Motor vehicles .............. 3-5 Years
Tooling ..................... 3 Years
</TABLE>
(e) 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 combined
financial statements and the reported amounts of revenues and expenses during
the reporting period. Significant estimates used in preparing these financial
statements include those assumed in calculating the allowance for doubtful
accounts, the allowance for obsolete inventory and the costing of certain
inventory components. It is at least reasonably possible that the estimates
used will change within the next year.
F-58
<PAGE>
SEABOARD FOLDING BOX CORP. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994 AND 1995
2. DEMAND NOTE PAYABLE TO A BANK
The demand note payable to a bank represents borrowings under a working
capital line of credit agreement with a bank. The Company may borrow sums
under this agreement provided that the principal amount outstanding at any
time does not exceed $2,000,000. Borrowings under the agreement bear interest
at the bank's prime interest rate (8.5% at December 31, 1995) and are
collateralized by substantially all of the assets of the Company. The
agreement, among other things, requires the Company to maintain certain
financial ratios, as defined, and restricts the amount of distributions to be
paid to the stockholder.
3. SALES TO SIGNIFICANT CUSTOMERS
One customer accounted for 16% of net sales during the year ended December
31, 1994. Two customers accounted for 22% of net sales during the year ended
December 31, 1995.
4. INCOME TAXES
The Company's stockholder has elected to have the Company's income taxed as
an S Corporation under the provisions of the Internal Revenue Code and various
state tax codes, thereby consenting to include the Company's income in the
individual tax return of the stockholder. As a result, the Company is not
subject to federal income taxes.
The provision for state income taxes in the accompanying statements of
income results from taxable income generated in certain states in which the S
Corporation provisions differ from the Internal Revenue Code.
The Company accounts for income taxes according to SFAS No. 109,
"Accounting for Income Taxes," which requires an asset and liability approach
to financial accounting and reporting for income taxes. The difference between
the financial statement and tax bases of assets and liabilities is determined
annually. Deferred income tax assets and liabilities are computed for those
differences that have future tax consequences using the currently enacted tax
laws and rates that apply to the periods in which they are expected to affect
taxable income. Income tax expense is the current tax payable or refundable
for the period plus or minus the net change in the deferred tax assets and
liabilities.
The deferred state tax liability included in the accompanying combined
financial statements results principally from differences in depreciation
methods used for financial and tax reporting purposes.
The components of state income tax expense are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
1994 1995
--------- ---------
<S> <C> <C>
Current .. $82,000 $113,000
========= =========
</TABLE>
5. EMPLOYEE BENEFIT PLANS
The Company has a non-contributory, defined benefit pension plan covering
all eligible union employees. The plan calls for benefits to be paid to
eligible union employees at retirement based upon years of service with the
Company. The Company's funding policy is to contribute annually an amount
needed to be consistent with the plan's objectives. Pension expense for the
years ended December 31, 1994 and 1995, was $14,395 and $41,137, respectively.
During the year ended December 31, 1995, the Company decided to terminate
this pension plan. At December 31, 1995, the estimated payout of all plan
benefits exceeds the net assets available for benefit. The total cost to
terminate the pension plan, including the estimated payout of all plan
benefits, is approximately $30,000, which is included in accrued expenses at
December 31, 1995.
F-59
<PAGE>
SEABOARD FOLDING BOX CORP. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994 AND 1995
5. EMPLOYEE BENEFIT PLANS (Continued)
The Company also has a profit sharing plan covering all eligible non-union
employees. Contributions are made annually at the discretion of the Company's
directors. There were no contributions for the years ended December 31, 1994
and 1995, respectively.
6. CONCENTRATION OF CREDIT RISK
The Company extends credit on an unsecured basis to customers in a broad
range of industries located primarily in the eastern region of the United
States. Also, the Company has a cash account with a bank that has deposits in
excess of federally insured limits.
7. LETTER OF CREDIT
The Company has two letter of credit agreements with a bank for $200,000 as
of December 31, 1995. The letters of credit are collateralized by cash on
deposit with the bank.
8. DUE TO OFFICER
The amount due to officer in the combined balance sheet is due on demand
and noninterest bearing.
9. SUBSEQUENT EVENTS
(a) Acquisition of Majestic Packaging Co., Inc.
Subsequent to December 31, 1995, Seaboard Holding Corp. purchased the
operating assets of Majestic Packaging Co., Inc. (seller) for approximately
$2,300,000. For a period of five years after the closing, Seaboard Holding
Corp. will pay the seller commissions on sales as defined in the purchase and
sale agreement. Seaboard Holding Corp. also entered into lease agreements for
two facilities. Seaboard Folding Box Corp. has guaranteed the payment and
performance of all terms and conditions of the purchase and sale agreement.
(b) Sale of the Company's Assets
Subsequent to December 31, 1995, the Company entered into a purchase and
sale agreement to sell substantially all of its assets. The final closing of
the sale is subject to various provisions in the agreement, and as of date of
issuance of these financial statements, had not occurred.
F-60
<PAGE>
SEABOARD FOLDING BOX CORP. AND AFFILIATES
COMBINED BALANCE SHEET
MAY 1, 1996
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
<S> <C>
Current assets:
Cash and cash equivalents............................................. $ 1,369,266
Accounts receivable, net of allowance for doubtful accounts of
$193,070............................................................. 4,515,869
Inventories........................................................... 4,335,293
Other current assets ................................................. 73,572
-------------
Total current assets ................................................ 10,294,000
-------------
Property and Equipment, at cost:
Land.................................................................. 510,780
Buildings............................................................. 2,494,220
Building improvements................................................. 515,092
Furniture and fixtures................................................ 104,425
Machinery and equipment............................................... 6,900,512
Motor vehicles........................................................ 459,550
Tooling .............................................................. 726,522
-------------
11,711,101
Less--Accumulated depreciation and amortization ...................... (5,675,476)
-------------
6,035,625
-------------
Other assets:
Goodwill, net of accumulated amortization of $4,400................... 670,600
Other assets ......................................................... 45,088
-------------
715,688
-------------
$17,045,313
=============
</TABLE>
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
<S> <C>
Current liabilities:
Demand note payable to a bank........................................ $ 2,318,905
Accounts payable..................................................... 1,170,984
Accrued expenses and payroll tax withholdings........................ 838,290
Accrued income taxes................................................. 219,768
Due to officer ...................................................... 385,000
-------------
Total current liabilities .......................................... 4,932,947
Deferred income taxes ................................................ 34,400
Stockholder's equity:
Common stock, no par value--Seaboard Folding Box Corp., authorized,
issued and outstanding--200 shares.................................. 200,000
Common stock, no par value--A & R Sales, Inc., authorized, issued
and outstanding--1,000 shares....................................... 1,000
Common stock, no par value--Seaboard Holding Corp., authorized 200
shares, issued and outstanding--10 shares........................... 1,000
Additional paid-in capital........................................... 200,000
Retained earnings ................................................... 11,675,966
-------------
12,077,966
-------------
$17,045,313
=============
</TABLE>
The accompanying notes are an integral part of
these combined financial statements.
F-61
<PAGE>
SEABOARD FOLDING BOX CORP. AND AFFILIATES
COMBINED STATEMENT OF INCOME
FOR THE PERIOD FROM JANUARY 1, 1996 THROUGH MAY 1, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
Net sales ..................................... $7,726,315
Cost of sales ................................. 4,602,519
------------
Gross profit.................................. 3,123,796
Selling, general, and administrative expenses 1,260,343
------------
Income from operations ....................... 1,863,453
Other income (expense):
Interest expense.............................. (45,170)
Interest income............................... 26,117
Rental income................................. 31,737
Miscellaneous income ......................... 129,073
------------
141,757
------------
Income before provision for income taxes ..... 2,005,210
Provision for income taxes .................... 115,000
------------
Net income.................................... $1,890,210
============
</TABLE>
The accompanying notes are an integral part of
these combined financial statements.
F-62
<PAGE>
SEABOARD FOLDING BOX CORP. AND AFFILIATES
COMBINED STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE PERIOD FROM JANUARY 1, 1996 THROUGH MAY 1, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
----------------------
NUMBER OF ADDITIONAL
SHARES PAID-IN RETAINED
ISSUED AMOUNT CAPITAL EARNINGS
----------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1995 .. 1,210 $202,000 $200,000 $10,130,774
Distribution to stockholder -- -- -- (345,018)
Net income ................. -- -- -- 1,890,210
----------- ---------- ------------ -------------
Balance, May 1, 1996......... 1,210 $202,000 $200,000 $11,675,966
=========== ========== ============ =============
</TABLE>
The accompanying notes are an integral part of
these combined financial statements.
F-63
<PAGE>
SEABOARD FOLDING BOX CORP. AND AFFILIATES
COMBINED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1996 THROUGH MAY 1, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
OPERATING ACTIVITIES
Collections from customers..................... $ 6,272,954
Interest income collected...................... 26,117
Miscellaneous and rental income collected ..... 160,810
Payment of operating expenses.................. (6,802,847)
Payment of interest............................ (45,170)
Payment of income taxes ....................... (72,703)
-------------
Net cash used for operating activities ...... (460,839)
-------------
INVESTING ACTIVITIES
Purchase of property and equipment ............ (118,477)
-------------
Net cash used for investing activities ...... (118,477)
-------------
FINANCING ACTIVITIES
Distributions to stockholder .................. (345,018)
-------------
Net cash used for financing activities ...... (345,018)
-------------
Net decrease in cash and cash equivalents ...... (924,334)
Cash and cash equivalents, beginning of period 2,293,600
-------------
Cash and cash equivalents, end of period ..... $ 1,369,266
=============
</TABLE>
The accompanying notes are an integral part of
these combined financial statements.
F-64
<PAGE>
SEABOARD FOLDING BOX CORP. AND AFFILIATES
COMBINED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1996 THROUGH MAY 1, 1996
(UNAUDITED)
(CONTINUED)
RECONCILIATION OF NET INCOME TO NET CASH
USED FOR OPERATING ACTIVITIES
<TABLE>
<CAPTION>
<S> <C>
Net income...................................................................... $ 1,890,210
Adjustments to reconcile net income to net cash used for operating activities:
Depreciation and amortization.................................................. 253,777
Deferred income taxes.......................................................... 4,400
Increase in:
Accounts receivable........................................................... (1,425,225)
Inventories................................................................... (247,380)
Other current assets.......................................................... (55,828)
Increase (decrease) in:
Accounts payable.............................................................. 354,441
Accrued expenses and payroll tax withholdings................................. (1,273,431)
Accrued income taxes ......................................................... 38,197
-------------
Net cash used for operating activities....................................... $ (460,839)
=============
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Purchase of substantially all assets of Majestic Packaging Co., Inc.
in exchange for demand note payable to a bank as follows:
Inventories.................................................................... $ 728,905
Machinery and equipment........................................................ 915,000
Goodwill ...................................................................... 675,000
-------------
$ 2,318,905
=============
</TABLE>
The accompanying notes are an integral part of
these combined financial statements.
F-65
<PAGE>
SEABOARD FOLDING BOX CORP. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
MAY 1, 1996
(UNAUDITED)
1. BASIS OF PRESENTATION
The unaudited combined financial statements have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in annual combined
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Companies believe these disclosures are adequate to
make the information presented not misleading. In the opinion of management,
all adjustments necessary for a fair presentation for the period presented
have been reflected and are of a formal recurring nature. These financial
statements should be read in conjunction with the financial statements and the
notes thereto for the two years ended December 31, 1995.
Results of operations for the period from January 1, 1996 to May 1, 1996
are not necessarily indicative of the results that may be achieved for the
entire year ended December 31, 1996.
2. INVENTORIES
Inventories, which include material, labor, and manufacturing overhead are
stated at the lower of cost (first-in, first-out) or market, and consist of
the following:
<TABLE>
<CAPTION>
<S> <C>
Raw materials .. $1,351,610
Work-in-process 723,006
Finished goods . 2,260,677
------------
$4,335,293
============
</TABLE>
3. EMPLOYEE BENEFIT PLANS
The Company has elected to terminate its non-contributory, defined benefit
pension plan covering all eligible union employees. As of May 1, 1996, the
estimated payout of all plan benefits exceeds the net assets available for
benefit. The total cost to terminate the pension plan, including the estimated
payout of all plan benefits, is approximately $40,000, which is included in
accrued expenses at May 1, 1996.
4. ACQUISITION
On February 5, 1996, Seaboard Holding Corp. acquired certain assets of
Majestic Packaging Co., Inc. The acquisition has been accounted for using the
purchase method of accounting and the purchase price has been allocated to the
assets at their estimated fair market value on the date of acquisition as
follows:
<TABLE>
<CAPTION>
<S> <C>
Inventories............ $ 728,905
Property and
equipment............. 915,000
Goodwill............... 675,000
-----------
$2,318,905
===========
</TABLE>
In connection with the acquisition, $100,000 of the purchase price has been
placed in escrow for a period of twelve months to insure the sale and
collection of the inventory purchased.
Included in accounts payable at May 1, 1996, is approximately $220,000
which is payable to the seller. The majority of this represents trade
receivables which have been collected by the Company on behalf of the seller.
F-66
<PAGE>
SEABOARD FOLDING BOX CORP. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
MAY 1, 1996
(UNAUDITED)
5. DUE TO OFFICER
The amount due to officer in the combined balance sheet is due on demand
and noninterest bearing.
6. COMMITMENTS
(a) Commission and Non-Compete Agreement
In connection with the acquisition as described in Note 4, the Company
entered into a commission and noncompetition agreement with the seller for a
period of five years. Commissions due under the agreement are based upon sales
activity of the customer base existing on the date of acquisition, and new
sales activity obtained by the seller.
Commissions under this agreement for the period from February 5, 1996
through May 1, 1996 were approximately $230,000.
(B) FACILITY LEASES
In connection with the acquisition as described in Note 4, the Company was
assigned two separate operating leases for two facilities. The non-cancellable
leases expire in November, 1996 and March, 1997. The leases have options of
five and one year term extensions.
The future minimum rent due under these operating leases are:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31 AMOUNT
- ------------- ----------
<S> <C>
1996.......... $182,192
1997.......... 36,150
----------
$218,342
==========
</TABLE>
Rent expense under these leases for the period from February 5, 1996
through May 1, 1996 was $78,236.
7. SUBSEQUENT EVENT
The Company has entered into an agreement to sell substantially all of the
assets of Seaboard Folding Box Corp. and A & R Sales, Inc. and all of the
outstanding common stock of Seaboard Holding Corp. for approximately
$23,000,000. The closing of the transaction occurred on May 1, 1996.,
effective May 2, 1996. The buyer acquired substantially all assets and assumed
certain liabilities of Seaboard Folding Box Corp. and A & R Sales, Inc. The
buyer also acquired all of the outstanding common stock of Seaboard Holding
Corp. The final selling price is subject to post closing adjustments based
upon activity, up to and including, May 1, 1996.
F-67
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT 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 THE EXCHANGE AGENT. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
SUCH DATE.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Available Information....................... ii
Summary..................................... 1
Risk Factors................................ 12
Use of Proceeds............................. 19
Capitalization.............................. 20
Selected Financial Data..................... 21
Management's Discussion and Analysis of
Results of Operations and Financial
Condition.................................. 23
Business.................................... 33
Management.................................. 48
Principal Stockholders...................... 51
Certain Transactions........................ 53
Recapitalization and Repositioning Plan .... 58
Description of Certain Indebtedness ........ 60
Description of Capital Stock................ 65
The Exchange Offer.......................... 67
Description of the New Securities........... 76
Plan of Distribution........................ 101
Certain U.S. Federal Income Tax
Considerations............................. 102
Legal Matters............................... 108
Independent Auditors........................ 108
Index to Financial Statements and
Information................................ I-1
</TABLE>
[JORDAN INDUSTRIES, INC. LOGO]
Jordan Industries, Inc.
$120,000,000
10 3/8% SERIES B SENIOR NOTES
DUE 2007
$214,036,493
11 3/4% SERIES B SENIOR
SUBORDINATED DISCOUNT
DEBENTURES DUE 2009
---------------
PROSPECTUS
---------------
SEPTEMBER 9, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) The Illinois Business Corporation Act (Section 8.75) empowers Illinois
corporations to indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative by reason
of the fact that the person is or was a director, officer, employee or agent
of the registrant, or is or was serving at the request of the registrant as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against 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, so long as such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of
the registrant and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. For actions or
suits by or in the right of the registrant, no indemnification is permitted in
respect of any claim, issue or matter as to which such person is adjudged to
be liable to the registrant, unless, and only to the extent that, the court in
which such action or suit was brought determines upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the court deems proper. Any indemnification (unless ordered by
a court) will be made by the registrant only as authorized in the specific
case upon a determination that indemnification of the director, officer,
employee or agent is proper in the circumstances because the person has met
the applicable standard of conduct set forth above. Such determination shall
be made (1) by the board of directors by a majority vote of a quorum
consisting of the directors who are not parties to such action, suit or
proceeding, or (2) if such a quorum is not obtainable or if such directors so
direct, by independent legal counsel in a written opinion, or (3) by the
stockholders. Such indemnification is not exclusive of any other rights to
which those indemnified may be entitled under any by-laws, agreement, vote of
stockholders or otherwise.
Section 8.75 also authorizes the registrant to buy directors' and officers'
liability insurance and gives a director, officer, employee or agent of the
registrant, or a person who is or was serving at the request of the registrant
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against any liability asserted
against such person and incurred by such person in any capacity, or arising
out of the person's status as such, whether or not the registrant has the
power to indemnify the person against such liability.
(b) The Articles of Incorporation of the registrant require, and the
By-Laws of the registrant provide for, indemnification of directors, officers,
employees and agents to the full extent permitted by law.
(c) The Purchase Agreements and the Registration Rights Agreements (the
forms of which are included as Exhibits 1.1 and 4.10-4.12 to this registration
statement) provide for the indemnification under certain circumstances of the
registrant, its directors and certain of its officers by the Initial
Purchasers.
ITEM. 21 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
A list of the exhibits included as part of this registration statement is
set forth below and in the Exhibit Index that immediately precedes such
exhibits.
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------
<S> <C>
1.1 Purchase Agreement, dated July 21, 1997, by and among Jordan Industries, Inc., Jefferies &
Company, Inc. and Donaldson, Lufkin & Jenrette Securities Corporation(5)
1.2 Purchase and Sale Agreement, dated as of April 2, 1997, by and between Jordan Industries,
Inc. and the holders of 11 3/4% Senior Subordinated Discount Debentures due 2005 parties
thereto(5)
1.3 Purchase and Sale Agreement, dated as of April 2, 1997, by and between Jordan Industries,
Inc. and the holders of 11 3/4% Senior Subordinated Discount Debentures due 2005 parties
thereto(5)
1.4 Exchange Agreement, dated as of April 2, 1997, by and between Jordan Industries, Inc. and
the holders of 11 3/4% Senior Subordinated Discount Debentures due 2005 parties thereto(5)
3.1 Articles of Incorporation of Jordan Industries, Inc.(1)
3.2 Bylaws of Jordan Industries, Inc.(1)
4.1 Series A and Series B 10 3/8% Senior Notes Indenture, dated July 25, 1997, between Jordan
Industries, Inc. and First Trust National Association, as Trustee(5)
4.2 Series A and Series B 11 3/4% Senior Subordinated Discount Debentures Indenture, dated April
2, 1997, between Jordan Industries, Inc. and First Trust National Association, as Trustee(5)
4.3 First Supplemental Indenture, dated as of July 25, 1997, between Jordan Industries, Inc. and
First Trust National Association, as Trustee, to the 11 3/4% Senior Subordinated Discount
Debentures Indenture, dated as of April 2, 1997(5)
4.4 Global Series A Senior Note(5)
4.5 Form of Global Series B Senior Note(6)
4.6 Form of Global Series B Senior Subordinated Discount Debenture(6)
4.7 $120,000,000 10 3/8% Series A Senior Notes due 2007 Registration Rights Agreement, dated
July 25, 1997, by and among Jordan Industries, Inc., Jefferies & Company, Inc. and
Donaldson, Lufkin & Jenrette Securities Corporation(5)
4.8 11 3/4% Series A Senior Subordinated Discount Debentures due 2009 Registration Rights
Agreement, dated April 2, 1997, between Jordan Industries, Inc. and the purchasers a party
thereto(5)
4.9 11 3/4% Series A Senior Subordinated Discount Debentures due 2009 Registration Rights
Agreement, dated April 2, 1997, between Jordan Industries, Inc. and the purchasers a party
thereto (identical to the agreement filed as Exhibit 4.8)
4.10 10 3/8% Senior Notes Indenture, dated as of July 15, 1993, between Jordan Industries, Inc.
and First Trust National Association, as Trustee(5)
4.11 First Supplemental Indenture, dated as of July 25, 1997, between
Jordan Industries, Inc. and First Trust National Association, as
Trustee, to 10 3/8% Senior Notes Indenture, dated as of July 15,
1993(5)
5 Opinion of Mayer, Brown & Platt(6)
10.1 Intercompany Notes, dated June 1, 1988, by and among Jordan Industries, Inc. and its
subsidiaries(1)(2)
10.2 Tax Sharing Agreement, dated as of June 1, 1988, by and among Jordan Industries, Inc. and
its subsidiaries(1)(2)
10.3 Stockholders Agreement, dated as of June 1, 1988, by and among
Jordan Industries, Inc.'s holders of Common Stock(1)
10.4 Employment Agreement, dated as of February 25, 1988, between Jordan Industries, Inc. and
Thomas H. Quinn(1)
II-2
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------
10.5 Restricted Stock Agreement, dated as of February 25, 1988, between Jordan Industries, Inc.
and Jonathan F. Boucher(1)
10.6 Restricted Stock Agreement, dated as of February 25, 1988, between Jordan Industries, Inc.
and John R. Lowden(1)
10.7 Restricted Stock Agreement, dated as of February 25, 1988, between Jordan Industries, Inc.
and Thomas H. Quinn(1)
10.8 Stock Purchase Agreement, dated as of June 1, 1988, between Leucadia Investors, Inc. and
John W. Jordan, II(1)
10.9 Zero Coupon Note, dated June 1, 1988, issued by John W. Jordan, II to Leucadia Investors,
Inc.(1)
10.10 Amended and Restated Revolving Credit Agreement, dated as of July
25, 1997, by and among JII, Inc., the lenders listed thereto and
BankBoston, N.A., as agent(6)
10.11 Revolving Credit Agreement, dated as of July 25, 1997, between JTP
Industries, Inc., the lenders listed thereto and BankBoston, N.A.,
as agent(4)
10.12 Credit Agreement, dated as of November 7, 1996, between Motors &
Gears, Inc., the leaders party thereto and Bankers Trust Company,
as agent(7)
10.13 Properties Services Agreement, dated as of July 25, 1997, between Jordan Industries, Inc.
and its subsidiaries(5)
10.14 Transition Agreements, each dated as of July 25, 1997, between Jordan Industries, Inc. and
Jordan Telecommunication Products, Inc. and Motors & Gears, Inc., respectively(5)
10.15 New Subsidiary Advisory Agreements, each dated as of July 25, 1997, between Jordan
Industries, Inc. and its subsidiaries(5)
10.16 New Subsidiary Consulting Agreements, each dated as of July 25, 1997, between Jordan
Industries, Inc. and its subsidiaries(5)
10.17 New TJC Management Consulting Agreement, dated as of July 25, 1997, between TJC Management
Corp. and Jordan Industries, Inc.(4)
10.18 Termination Agreement, dated as of July 25, 1997, between Jordan Industries, Inc. and its
subsidiaries(5)
10.19 Form of Indemnification Agreement between Jordan Industries, Inc. and its subsidiaries and
their directors(5)
12 Statement re: Computation of Ratios(5)
22 Subsidiaries of Jordan Industries, Inc.(6)
23.1 Consent of Mayer, Brown & Platt (included in the opinion filed as Exhibit 5)
23.2 Consent of Ernst & Young LLP(6)
23.3 Consent of Mellon, Smith & Pivoz, P.C.(6)
23.4 Consent of Blackman Kallick Bartelstein, LLP(6)
23.5 Consent of Price Waterhouse, LLP(6)
23.6 Consent of Canby, Maloney & Co., Inc.(6)
24 Power of Attorney (included on the signature page in Part II of the Registration Statement)
25 Statement of Eligibility of Trustee(5)
28 Phantom Share Plan(3)
99 Form of Letter of Transmittal(6)
</TABLE>
- ------------
(1) Incorporated by reference to the Company's Registration Statement on
Form S-1 (No. 33-24317).
II-3
<PAGE>
(2) The Company has entered into Intercompany Notes and Intercompany Tax
Sharing Agreements with Riverside, AIM, Cambridge, Beemak, Hudson,
Scott and Motors and Gears, which are identical in all material
respects to the notes and agreements incorporated by reference in this
Registration Statement. Copies of such additional notes and agreements
have therefore not been included at exhibits in this filing in
accordance with Instruction 2 to Item 601 of Regulation S-K.
(3) Incorporated by reference to the Company's 1989 Form 10-K.
(4) Incorporated by reference to Jordan Telecommunication Products, Inc.'s
Registration Statement on Form S-4 (No. 333-34585).
(5) Previously filed.
(6) Filed herewith.
(7) Incorporated by reference to Motors and Gears, Inc.'s Registration
Statement on Form S-4 (No. 333-19257).
(b) Financial Statement Schedules:
A list of schedules included as part of this registration statement is set
forth below. All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission have been
omitted because they are not required, amounts which would otherwise be
required to be shown with respect to any item are not material, are
inapplicable or the required information has already been provided elsewhere
in the registration statement.
<TABLE>
<CAPTION>
SCHEDULE
NUMBER DESCRIPTION
- ------------ ------------------------------------------------------------
<S> <C>
II JORDAN INDUSTRIES, INC., VALUATION AND QUALIFYING ACCOUNTS
</TABLE>
ITEM 22. UNDERTAKINGS
(a) 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 1933;
(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 end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 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.
II-4
<PAGE>
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 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 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) 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.
(2) For the purpose 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.
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(f) The registrant has not entered into any arrangement or understanding
with any person to distribute the securities to be received in the Exchange
Offer and to the best of the registrant's information and belief, each person
participating in the Exchange Offer is acquiring the securities in its
ordinary course of business and has no arrangement or understanding with any
person to participate in the distribution of the securities to be received in
the Exchange Offer. In this regard, the registrant will make each person
participating in the Exchange Offer aware (through the Exchange Offer
Prospectus or otherwise) that if the Exchange Offer is being registered for
the purpose of secondary resales, any securityholder using the exchange offer
to participate in a distribution of the securities to be acquired in the
registered exchange offer (1) could not rely on the staff position enunciated
in Exxon Capital Holdings Corporation (available April 13, 1989) or similar
letters and (2) must comply with registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction. The registrant acknowledges that such a secondary resale
transaction should be covered by an effective registration statement
containing the selling securityholder information required by Item 507 of
Regulation S-K.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CHICAGO,
STATE OF ILLINOIS, ON SEPTEMBER 9, 1997.
JORDAN INDUSTRIES, INC.
By /s/ John W. Jordan
---------------------------------
John W. Jordan, II
Chairman, Chief Executive Officer
and Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS JOHN W. JORDAN, II, HIS TRUE AND LAWFUL
ATTORNEY-IN-FACT AND AGENT, WITH FULL POWER OF SUBSTITUTION AND
RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN ANY AND ALL
CAPACITIES, TO SIGN ANY AND ALL AMENDMENTS (INCLUDING POST-EFFECTIVE
AMENDMENTS) TO THIS REGISTRATION STATEMENT, AND TO FILE THE SAME, WITH ALL
EXHIBITS THERETO, AND ANY AND ALL DOCUMENTS IN CONNECTION THEREWITH, WITH THE
SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID ATTORNEY-IN-FACT AND
AGENT, FULL POWER AND AUTHORITY TO DO AND PERFORM ANY AND ALL ACTS AND THINGS
REQUISITE AND NECESSARY TO BE DONE IN AND ABOUT THE PREMISES, AS FULLY TO ALL
INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING AND
CONFIRMING ALL THAT SAID ATTORNEY-IN-FACT AND AGENT, OR HIS SUBSTITUTE OR
NOMINEE, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities indicated on September 9, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------------- -------------------------------------------------------
<S> <C>
*
-------------------------------- Chairman, Chief Executive Officer and Director
John W. Jordan II
*
-------------------------------- President, Chief Operating Officer and Director
Thomas H. Quinn
*
-------------------------------- Vice President and Director
Jonathan F. Boucher
*
-------------------------------- General Counsel, Secretary and Director
G. Robert Fisher
*
-------------------------------- Director
David W. Zalaznick
*
-------------------------------- Director
Joseph S. Steinberg
*
-------------------------------- Vice President, Controller and Principal Accounting
Thomas C. Spielberger Officer
*By /s/ John W. Jordan
----------------------------
Name: John W. Jordan, II as
Attorney-in-Fact
</TABLE>
II-6
<PAGE>
SCHEDULE II
JORDAN INDUSTRIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
UNCOLLECTIBLE
ADDITIONS BALANCES
BALANCE AT CHARGED TO WRITTEN OFF BALANCE AT
BEGINNING OF COSTS AND NET OF END OF
PERIOD EXPENSES RECOVERIES OTHER PERIOD
-------------- ------------ --------------- ------- ------------
<S> <C> <C> <C> <C> <C>
December 31, 1994:
Allowance for doubtful accounts .... $ 1,131 $ 580 $(790) $137 $ 1,058
Valuation allowances for deferred
tax assets ......................... (25,782) (2,354) -- -- (23,428)
December 31, 1995:
Allowance for doubtful accounts .... 1,058 884 (636) -- 1,306
Valuation allowance for deferred tax
assets ............................. (23,428) (1,962) -- -- (21,466)
December 31, 1996:
Allowance for doubtful accounts .... 1,306 1,343 (731) 765 2,683
Valuation allowance for deferred tax
assets ............................. (21,466) 18,548 -- -- (40,014)
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------
<S> <C>
1.1 Purchase Agreement, dated July 21, 1997, by and among Jordan Industries, Inc., Jefferies &
Company, Inc. and Donaldson, Lufkin & Jenrette Securities Corporation
1.2 Purchase and Sale Agreement, dated as of April 2, 1997, by and between Jordan Industries,
Inc. and the holders of 11 3/4% Senior Subordinated Discount Debentures due 2005 parties
thereto
1.3 Purchase and Sale Agreement, dated as of April 2, 1997, by and between Jordan Industries,
Inc. and the holders of 11 3/4% Senior Subordinated Discount Debentures due 2005 parties
thereto
1.4 Exchange Agreement, dated as of April 2, 1997, by and between Jordan Industries, Inc. and
the holders of 11 3/4% Senior Subordinated Discount Debentures due 2005 parties thereto
3.1 Articles of Incorporation of Jordan Industries, Inc.
3.2 Bylaws of Jordan Industries, Inc.
4.1 Series A and Series B 10 3/8% Senior Notes Indenture, dated July 25, 1997, between Jordan
Industries, Inc. and First Trust National Association, as Trustee
4.2 Series A and Series B 11 3/4% Senior Subordinated Discount Debentures Indenture, dated April
2, 1997, between Jordan Industries, Inc. and First Trust National Association, as Trustee
4.3 First Supplemental Indenture, dated as of July 25, 1997, between Jordan Industries, Inc. and
First Trust National Association, as Trustee, to the 11 3/4% Senior Subordinated Discount
Debentures Indenture, dated as of April 2, 1997
4.4 Global Series A Senior Note
4.5 Form of Global Series B Senior Note
4.6 Form of Global Series B Senior Subordinated Discount Debenture
4.7 $120,000,000 10 3/8% Series A Senior Notes due 2007 Registration Rights Agreement, dated
July 25, 1997, by and among Jordan Industries, Inc., Jefferies & Company, Inc. and
Donaldson, Lufkin & Jenrette Securities Corporation
4.8 11 3/4% Series A Senior Subordinated Discount Debentures due 2009 Registration Rights
Agreement, dated April 2, 1997, between Jordan Industries, Inc. and the purchasers a party
thereto
4.9 13 1/4% Series A Senior Subordinated Discount Debentures due 2009 Registration Rights
Agreement, dated April 2, 1997, between Jordan Industries, Inc. and the purchasers a party
thereto
4.10 10 3/8% Senior Notes Indenture, dated as of July 23, 1993, between Jordan Industries, Inc.
and First Trust National Association, as Trustee
4.11 First Supplemental Indenture, dated as of July 25, 1997, between
Jordan Industries, Inc. and First Trust National Association, as
Trustee, to 10 3/8% Senior Notes Indenture, dated as of July 23,
1993
5 Opinion of Mayer, Brown & Platt
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------
10.1 Intercompany Notes, dated June 1, 1988, by and among Jordan Industries, Inc. and its
subsidiaries
10.2 Tax Sharing Agreement, dated as of June 1, 1988, by and among Jordan Industries, Inc. and
its subsidiaries
10.3 Stockholders Agreement, dated as of June 1, 1988, by and among
Jordan Industries, Inc.'s holders of Common Stock
10.4 Employment Agreement, dated as of February 25, 1988, between Jordan Industries, Inc. and
Thomas H. Quinn
10.5 Restricted Stock Agreement, dated as of February 25, 1988, between Jordan Industries, Inc.
and Jonathan F. Boucher
10.6 Restricted Stock Agreement, dated as of February 25, 1988, between Jordan Industries, Inc.
and John R. Lowden
10.7 Restricted Stock Agreement, dated as of February 25, 1988, between Jordan Industries, Inc.
and Thomas H. Quinn
10.8 Stock Purchase Agreement, dated as of June 1, 1988, between Leucadia Investors, Inc. and
John W. Jordan, II
10.9 Zero Coupon Note, dated June 1, 1988, issued by John W. Jordan, II to Leucadia Investors,
Inc.
10.10 Amended and Restated Revolving Credit Agreement, dated as of July
25, 1997, by and among JII, Inc., the lenders listed thereto and
BankBoston, N.A., as agent
10.11 Revolving Credit Agreement, dated as of July 25, 1997, between JTP
Industries, Inc., the lenders listed thereto and BankBoston, N.A.,
as agent
10.12 Credit Agreement, dated as of November 7, 1997, between Motors &
Gears, Inc., the lenders party thereto and Bankers Trust Company,
as agent
10.13 Properties Services Agreement, dated as of July 25, 1997, between Jordan Industries, Inc.
and its subsidiaries
10.14 Transition Agreements, each dated as of July 25, 1997, between Jordan Industries, Inc. and
Jordan Telecommunication Products, Inc. and Motors & Gears, Inc., respectively
10.15 New Subsidiary Advisory Agreements, each dated as of July 25, 1997, between Jordan
Industries, Inc. and its subsidiaries
10.16 New Subsidiary Consulting Agreements, each dated as of July 25, 1997, between Jordan
Industries, Inc. and its subsidiaries
10.17 New TJC Management Consulting Agreement, dated as of July 25, 1997, between TJC Management
Corp. and Jordan Industries, Inc.
10.18 Termination Agreement, dated as of July 25, 1997, between Jordan Industries, Inc. and its
subsidiaries
10.19 Form of Indemnification Agreement between Jordan Industries, Inc. and its subsidiaries and
their directors
12 Statement re: Computation of Ratios
22 Subsidiaries of Jordan Industries, Inc.
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------
23.1 Consent of Mayer, Brown & Platt (included in the opinion filed as Exhibit 5)
23.2 Consent of Ernst & Young LLP
23.3 Consent of Mellon, Smith & Pivoz, P.C.
23.4 Consent of Blackman Kallick Bartelstein, LLP
23.5 Consent of Price Waterhouse, LLP
23.6 Consent of Canby, Maloney & Co., Inc.
24 Power of Attorney (included on the signature page in Part II of the Registration Statement)
25 Statement of Eligibility of Trustee
28 Phantom Shares Plan
99 Form of Letter of Transmittal
</TABLE>
<PAGE>
Exhibit 4.5
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE
FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TRUST
COMPANY (THE "DEPOSITORY") TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE
DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY OR BY THE
DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH
SUCCESSOR DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DEPOSITORY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR
SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
DEPOSITORY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY
OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE &
CO., HAS AN INTEREST HEREIN.
2
<PAGE>
JORDAN INDUSTRIES, INC.
10 3/8% SERIES B SENIOR NOTE
DUE 2007
No. $
CUSIP NO.
Jordan Industries, Inc., an Illinois corporation (the "Company"), as
obligor, for value received promises to pay to Cede & Co. or registered assigns,
the principal sum of Dollars
on August 1, 2007. Interest Payment Dates: February 1 and August 1 and on the
maturity date. Record Dates: January 15 and July 15 (whether or not a
Business Day).
Reference is hereby made to the further provisions of this Note set forth
on the reverse hereof, which further provisions shall for all purposes have the
same effect as if set forth at this place.
IN WITNESS WHEREOF, the Company has caused this Note to be signed manually
or by facsimile by its duly authorized officers.
Dated:
JORDAN INDUSTRIES, INC,
By:
------------------------------------
Name: G. Robert Fisher
Title: General Counsel and Secretary
By
------------------------------------
Name: Gordon L. Nelson, Jr.
Title: Senior Vice President
3
<PAGE>
Trustee's Certificate of Authentication:
This is one of the Notes referred to
in the within-mentioned Indenture:
FIRST TRUST NATIONAL ASSOCIATION,
as Trustee
By:
--------------------------------------
Authorized Signature
4
<PAGE>
(Back of Security)
10 3/8% SERIES B SENIOR NOTE
DUE 2007
1. Interest. Jordan Industries, Inc., (the "Company") promises to pay
interest on the principal amount of the Notes at the rate and in the manner
specified below. Interest on the Notes will accrue at 10 3/8% per annum from the
date this Note is issued until maturity and will be payable semiannually in cash
on February 1 and August 1 of each year, or if any such day is not a Business
Day on the next succeeding Business Day (each an "Interest Payment Date").
Interest on the Notes will accrue from the most recent date on which interest
has been paid or, if no interest has been paid, from July 25, 1997; provided
that the first Interest Payment Date shall be February 1, 1998. Interest will be
computed on the basis of a 360-day year of twelve 30-day months.
2. Method of Payment. The Company shall pay interest on the Notes (except
defaulted interest) to the Persons who are registered Holders of Notes at the
close of business on the record date for the next Interest Payment Date even if
such Notes are cancelled after such record date and on or before such Interest
Payment Date. Holders must surrender Notes to a Paying Agent to collect
principal payments on such Notes. The Company shall pay principal, premium, if
any, and interest in money of the United States that at the time of payment is
legal tender for payment of public and private debts. However, the Company may
pay principal, premium, if any, and interest by check payable in such money, and
any such check may be mailed to a Holder's registered address.
3. Paying Agent and Registrar. First Trust National Association (the
"Trustee") will initially act as the Paying Agent and Registrar. The Company may
appoint additional paying agents or co-registrars, and change the Paying Agent,
any additional paying agent, the Registrar or any co-registrar without prior
notice to any Holder. The Company or any of its Subsidiaries may act in any such
capacity.
4. Indenture. The Company issued the Notes under an Indenture dated as of
July 25, 1997 (the "Indenture") between the Company and the Trustee. The terms
of the Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (the "TIA") (15 U.S.
Code ss.ss. 77aaa-77bbbb). The Notes are subject to, and qualified by, all such
terms, certain of which are summarized herein, and Holders
5
<PAGE>
are referred to the Indenture and the TIA for a statement of such terms (all
capitalized terms not defined herein shall have the meanings assigned than in
the Indenture). The Notes are unsecured general obligations of the Company
limited to $120,000,000 in aggregate principal amount.
5. Optional Redemption. Except as described in paragraph 6 below, the
Notes may not be redeemed at the option of the Company prior to August 1, 2002.
During the twelve (12) month period beginning August 1 of the years indicated
below, the Notes will be redeemable at the option of the Company, in whole or in
part, at the redemption prices (expressed as percentages of the principal
amount) set forth below, plus any accrued and unpaid interest to the date of
redemption:
Year Percentage
---- ----------
2002 .............................. 105.188 %
2003 .............................. 102.594 %
2004 and thereafter ............... 100.000 %
6. Mandatory Redemption. Subject to the Company's obligation to make an
offer to purchase Notes under certain circumstances pursuant to Section 4.13 and
4.14 of the Indenture (as described in paragraph 7 below), the Company is not
required to make any mandatory redemption, purchase or sinking fund payments
with respect to Securities.
7. Mandatory Offers to Purchase Securities. (a) Following the occurrence
of a Change of Control (the "Change of Control Trigger Date"), the Company will
be required to offer (a "Change of Control Offer") to purchase all outstanding
Securities at a purchase price equal to 101% of the principal amount of such
Securities, plus any accrued and unpaid interest to the date of purchase.
(b) If the Company or any Restricted Subsidiary consummates one or more
Asset Sales and does not use all of the Net Proceeds from such Asset Sales as
provided in the Indenture, the Company will be required, under certain
circumstances, to utilize the Excess Proceeds from such Asset Sales to offer (an
"Asset Sale Offer") to purchase Notes at a purchase price equal to 100% of the
principal amount of the Notes, plus any accrued and unpaid interest to the date
of purchase. If the Excess Proceeds are insufficient to purchase all Notes
tendered pursuant to any Asset Sale Offer, the Trustee shall select the Notes to
be purchased in accordance with the terms of the Indenture.
6
<PAGE>
(c) Holders may tender all or, subject to paragraph 8 below, any portion
of their Notes in a Change of Control or Asset Sale Offer (collectively, an
"Offer") by completing the form below entitled "OPTION OF HOLDER TO ELECT
PURCHASE."
(d) The Company will comply with Rule 14e-1 under the Securities Exchange
Act of 1934, as amended, and any other securities laws and regulations to the
extent applicable to any Offer.
8. Notice of Redemption or Purchase. Notice of an optional redemption or
an Offer will be mailed to each Holder at its registered address at least 30
days but not more than 60 days before the date of redemption or purchase. Notes
may be redeemed or purchased in part, but only in whole multiples of $1000
unless all Notes held by a Holder are to be redeemed or purchased. On or after
any date on which Notes are redeemed or purchased, interest ceases to accrue on
the Notes or portions thereof called for redemption or accepted for purchase on
such date.
9. Denominations, Transfer, Exchange. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples thereof. The
transfer of Notes may be registered and Notes may be exchanged as provided in
the Indenture. Holders seeking to transfer or exchange their Notes may be
required, among other things, to furnish appropriate endorsements and transfer
documents and to pay any taxes and fees required by law or permitted by the
Indenture. The Registrar need not exchange or register the transfer of any Note
or portion of a Note selected for redemption or tendered pursuant to an Offer.
10. Persons Deemed Owners. The registered Holder of a Note may be treated
as its owner for all purposes.
11. Amendments and Waivers. Subject to certain exceptions, the Indenture
or the Notes may be amended with the consent of the Holders of at least a
majority in principal amount of the then outstanding Notes, and any existing
Default or Event of Default (except a payment default) may be waived with the
consent of the Holders of a majority in principal amount of the then outstanding
Notes. Without the consent of any Holder, the Indenture and the Notes may be
amended to: cure any ambiguity, defect or inconsistency; provide for
uncertificated Notes in addition to or in place of certified Notes; provide for
the assumption by another corporation of the Company's obligations to the
7
<PAGE>
Holders in the event of a merger or consolidation of the Company in which the
Company is not the surviving corporation or a sale of substantially all of the
Company's assets to such other corporation; comply with the Securities and
Exchange Commission's requirements to effect or maintain the qualification of
the Indenture under the TIA; or, make any change that does not materially
adversely effect any Holder's rights under the Indenture. Certain provisions of
the Indenture cannot be amended without the consent of each holder of affected
thereby.
12. Defaults and Remedies. Events of Default include: default for 30 days
in payment of interest on the Notes; default in payment of principal of or
premium, if any, on the Notes; failure by the Company for 30 days after notice
to it to comply with any of its other agreements or covenants in, or provisions
of, the Indenture or the Notes; certain defaults under and acceleration prior to
maturity, or failure to pay at maturity, of certain other Indebtedness; certain
final judgments that remain undischarged; and, certain events of bankruptcy or
insolvency involving the Company or any Restricted Subsidiary that is a
Significant Subsidiary. If an Event of Default occurs and is continuing, the
Trustee or the Holders of at least 25% in principal amount of the Notes may
declare all the Notes to be immediately due and payable in an amount equal to
the principal amount of such Notes, plus any accrued and unpaid interest;
provided, however, that in the case of an Event of Default arising from certain
events of bankruptcy or insolvency, the principal amount of, and any accrued and
unpaid interest on, the Notes becomes due and payable immediately without
further action or notice. Subject to certain exceptions, Holders of a majority
in principal amount of the then outstanding Notes may direct the Trustee in its
exercise of any trust or power, provided that the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of the Holders unless such Holders have offered to the Trustee security
and indemnity satisfactory to it. Holders may not enforce the Indenture or the
Notes except as provided in the Indenture. The Trustee may withhold from Holder
notice of any continuing default (except a payment Default) if it determines
that withholding notice is in their interests. The Company must furnish an
annual compliance certificate to the Trustee.
13. Trustee Dealings with Company. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from and perform services for
the Company or any Affiliates, and may otherwise deal with the Company or any
Affiliates, as if it were not Trustee.
8
<PAGE>
14. No Recourse Against Others. No director, officer, employee or
stockholder of the Company shall have any liability for any Obligations of the
Company under the Notes, the Indenture or the Registration Rights Agreement or
for any claim based on, in respect of, or by reason of such Obligations or the
creation of any such Obligation. Each Holder by accepting a Note waives and
releases all such liability, and such waiver and release is part of the
consideration for the issuance of the Notes.
15. Successor Substituted. Upon the consolidation or merger by the Company
with or into another corporation, or upon the sale, conveyance, lease or other
disposition of all or substantially all of its assets to another corporation, in
accordance with the Indenture, the corporation surviving any such merger or
consolation (if not the Company) or the corporation to which such assets were
sold or transferred to shall succeed to, and be substituted for, and may
exercise every right and power of the Company under the Indenture with the same
effect as if such surviving or other corporation had been named as the Company
in the Indenture.
16. Governing Law. This Note shall be governed by and construed in
accordance with the internal laws of the State of New York.
17. Authentication. This Note shall not be valid until authenticated by
the manual signature of the Trustee or an authenticating agent.
18. Abbreviations. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
19. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and has directed the Trustee to use
CUSIP numbers in notices of redemption as a convenience to Holders. No
representation is made as to the accuracy of such numbers either as printed on
the Notes or as contained in any notice of redemption and reliance may be placed
only on the other identification numbers placed thereon.
20. Holders' Compliance with Registration Rights Agreement. Each Holder of
a Note, by his acceptance thereof, acknowledges and agrees to
9
<PAGE>
the provisions of the Registration Rights Agreement, dated as of July 25, 1997,
among the Company and the parties named on the signature page thereof (the
"Registration Rights Agreement"), including but not limited to the obligations
of the Holders with respect to a registration and the indemnification of the
Company and the Purchasers (as defined therein) to the extent provided therein.
The Company shall furnish to any Holder upon written request and without
charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to: Jordan Industries, Inc., ArborLake Centre, 1751 Lake
Cook Road, Suite 300, Deerfield, Illinois 60015.
10
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and
transfer this Note to:
________________________________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint______________________________ as agent to transfer this
Note on the books of the Company. The agent may substitute another to act for
him.
________________________________________________________________________________
Date:_______________________
Your Signature:
--------------------------------------------------
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee*
- ------------------------
* NOTICE: The signature must be guaranteed by an institution which is
a member of one of the following recognized signature
guarantee programs:
(1) The Securities Transfer Agent Medallion Program (STAMP);
(2) The New York Stock Exchange Medallion Program (MSP);
(3) The Stock Exchange Medallion Program (SEMP).
11
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company pursuant
to Section 4.13 of the Indenture, check the box: | |
If you want to elect to have this Note purchased by the Company pursuant
to Section 4.14 of the Indenture, check the box: | |
If you elect to have only part of this Note purchased by the Company
pursuant to Section 4.13 or 4.14 of the Indenture, state the amount (multiples
of $1000 only):
$_____________________________
Date: Your Signature:
------------------ -------------------------
(Sign exactly as your name appears
on the face of this Note)
Signature Guarantee*
- ------------------------
* NOTICE: The signature must be guaranteed by an institution which is a
member of one of the following recognized signature guarantee
programs:
(1) The Securities Transfer Agent Medallion Program (STAMP);
(2) The New York Stock Exchange Medallion Program (MSP);
(3) The Stock Exchange Medallion Program (SEMP).
12
<PAGE>
SCHEDULE OF EXCHANGES OF DEFINITIVE NOTES
The following exchanges of a part of this Global Note for Definitive Notes
have been made:
<TABLE>
<CAPTION>
Principal Amount of this
Amount of decrease in Amount of increase in Global Note following
Principal Amount of this Principal Amount of this such decrease (or Signature of authorized
Date of Exchange Global Note Global Note increase) officer of Trustee
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
13
<PAGE>
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF NOTES
Re: Series B 10 3/8% Senior Notes due 2007 (the "Notes") of Jordan Industries,
Inc.
This Certificate relates to $______ principal amount of Notes held in *
| | book-entry or * | | definitive form by _______________________ (the
"Transferor").
The Transferor, by written order, has requested the Trustee:
| | to deliver in exchange for its beneficial interest in the Global Note held
by the depository, a Note or Notes in definitive, registered form of
authorized denominations and an aggregate principal amount equal to its
beneficial interest in such Global Note (or the portion thereof indicated
above); or
| | to exchange or register the transfer of a Note or Notes. In connection
with such request and in respect of each such Note, the Transferor does
hereby certify that Transferor is familiar with the indenture relating to
the above captioned Notes and the transfer of this Note does not require
registration under the Securities Act of 1933, as amended (the "Securities
Act") because such Note:
| | is being acquired for the Transferor's own account, without transfer;
| | is being transferred pursuant to an effective registration statement;
| | is being transferred to a "qualified institutional buyer" (as defined in
Rule 144A under the Securities Act), in reliance on such Rule 144A;
| | is being transferred to an institutional "accredited investor" as defined
in Rule 501(a)(l), (2), (3) or (7) under the Securities Act;**
| | is being transferred pursuant to an exemption from registration in
accordance with Rule 904 under the Securities Act;***
| | is being transferred pursuant to Rule 144 under the Securities Act;*** or
| | is being transferred pursuant to another exemption from the registration
requirements of the Securities Act (explain:______________________________
_____________________________________________________________________).***
----------------------------------
[INSERT NAME OF TRANSFEROR]
By:
-------------------------------
14
<PAGE>
Date:
---------------------
* Check applicable box.
** If this box is checked, this certificate must be accompanied by a
transferee letter of representations.
*** If this box is checked, this certificate must be accompanied by an
opinion of counsel to the effect that such transfer is in compliance
with the Securities Act.
15
<PAGE>
(Face of Security)
11 3/4% SERIES B SENIOR SUBORDINATED DISCOUNT
DEBENTURE DUE 2009
Cusip No. $
JORDAN INDUSTRIES, INC.
promises to pay to CEDE & CO.
or registered assigns,
the principal sum of Dollars on April 1, 2009
Interest Payment Dates: October 1 and April 1
Record Dates: September 15 and March 15
Dated:
Authenticated:
FIRST TRUST NATIONAL ASSOCIATION, JORDAN INDUSTRIES, INC.
as Trustee
By: By:
----------------------------- ----------------------------
Authorized Signature
OR
By:
-----------------------------
By: (SEAL)
-----------------------------
Authorized Signature
This is one of the Securities referenced
in the within-mentioned indenture.
<PAGE>
Unless and until it is exchanged in whole or in part for Securities in
definitive form, this Security may not be transferred except as a whole by the
Depository to a nominee of the Depository or by a nominee of the Depository to
the Depository or another nominee of the Depository or by the Depository or
any such nominee to a successor Depository or a nominee of such successor
Depository. The Depository Trust Company shall act as the Depository until a
successor shall be appointed by the Company and the Registrar. Unless this
certificate is presented by an authorized representative of The Depository
Trust Company (55 Water Street, New York, New York) ("DTC"), to the issuer or
its agent for registration of transfer, exchange or payment, and any
certificate issued is registered in the name of Cede & Co. or such other name
as may be requested by an authorized representative of DTC (and any payment is
made to Cede & Co. or such other entity as may be requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY Person IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.
Additional provisions of this Security are set forth on the other side
of this Security.
<PAGE>
(Back of Security)
11 3/4% SERIES A SENIOR SUBORDINATED
DISCOUNT DEBENTURE DUE 2009
1. INTEREST. Jordan Industries, Inc. (the "Company") promises to pay
interest on the principal amount of the Securities at the rate and in the
manner specified below. The Company will pay Liquidated Damages pursuant to
Section 5 of the Registration Rights Agreement referred to below. Interest will
not accrue on the Securities prior to April 1, 2002. Thereafter, interest on
the Securities will accrue at 11 3/4% per annum and will be payable
semiannually in cash on October 1 and April 1 of each year, or if any such day
is not a Business Day on the next succeeding Business Day (each an "Interest
Payment Date"). Interest on the Securities will accrue from the most recent
date on which interest has been paid or, if no interest has been paid, from
April 1, 2002; provided that the first Interest Payment Date shall be
October 1, 2002. The Company shall pay interest on overdue principal and
premium, if any, from time to time on demand at the rate of 2% per annum in
excess of the interest rate then in effect and shall pay interest on overdue
installments of interest (without regard to any applicable grace periods) from
time to time on demand at the same rate to the extent lawful. Interest will be
computed on the basis of a 360-day year of twelve 30-day months.
2. METHOD OF PAYMENT. The Company will pay interest on the Securities
(except defaulted interest) to the Persons who are registered holders of
Securities at the close of business on the record date for the next interest
Payment Date even if such Securities are canceled after such record date and
on or before such Interest Payment Date. Holders must surrender Securities to
a Paying Agent to collect principal payments on such Securities. The Company
will pay principal, premium, if any, and interest and Liquidated Damages, if
any, in money of the United States that at the time of payment is legal tender
for payment of public and private debts. However, the Company may pay
principal, premium, if any, and interest and Liquidated Damages, if any, by
check payable in such money, and any such check may be mailed to a Holder's
registered address; provided that payment by wire transfer of immediately
available funds will be required with respect to principal, premium, if any,
interest and Liquidated Damages, if any, on all Global Securities.
3. PAYING AGENT AND REGISTRAR. First Trust National Association (the
"Trustee") will initially act as the Paying Agent and Registrar. The Company
may appoint additional paying agents or co-registrars, and change the
Paying Agent, any additional paying agent, the Registrar or any co-registrar
without prior notice to any Holder. The Company or any of its Subsidiaries may
act in any such capacity.
4. INDENTURE. The Company issued the Securities under an Indenture, dated
as of April 2, 1997, (the "Indenture), between the Company and the Trustee. The
terms of the Securities include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.
Code Sections 77aaa-77bbbb) as in effect on the date of the original issuance
of the Securities (the "Trust Indenture Act"). The Securities are subject to,
and qualified by, all such terms, certain of which are summarized herein, and
Holders are referred to the Indenture and the Trust Indenture Act for a
statement of such terms (all capitalized terms not defined herein shall have
the meanings assigned them in the Indenture). The Securities are unsecured
general obligations of the Company limited to $133,075,293 in aggregate
principal amount.
<PAGE>
5. OPTIONAL REDEMPTION. (a) Except as described in paragraph 5(b) below
the Securities may not be redeemed at the option of the Company prior to
April 1, 2002. During the twelve (12) month period beginning April 1, of the
years indicated below, the Securities will be redeemable at the option of
the Company, in whole or in part, at the redemption prices (expressed as
percentages of the principal amount of the Securities on the date of
redemption) set forth below, plus any accrued and unpaid interest to the date
of redemption:
YEAR PERCENTAGE
------ ----------
2002 ............................. 105.87500%
2003 ............................. 102.93750%
2004 and thereafter .............. 100.00000%
6. MANDATORY REDEMPTION. Subject to the Company's obligation to make an
offer to purchase Securities under certain circumstances pursuant to
Section 4.13 and 4.14 of the Indenture (as described in paragraph 7 below),
the Company is not required to make any mandatory redemption, purchase or
sinking fund payments with respect to the Securities.
7. MANDATORY OFFERS TO PURCHASER SECURITIES. (a) Following the occurrence
of a Change of Control (the "Change of Control Trigger Date"), the Company
will be required to offer (a "Change of Control Offer") to purchase all
outstanding Securities at a purchase price equal to 101% of the Accreted Value
of such Securities, plus any accrued and unpaid interest from April 1, 2002
to the purchase date if such purchase occurs after April 1, 2002; provided,
however, that if any outstanding Senior Indebtedness is required or entitled
pursuant to its terms to be redeemed or purchased by the Company upon a Change
of Control, the Change of Control Trigger Date shall be the first date on which
all such Senior Indebtedness that elects, or is required to be, redeemed or
purchased as a result of the Change of Control has been redeemed or purchased.
(b) If the Company or any Restricted Subsidiary consummates one or more
Asset Sales and does not use all of the Net Proceeds from such Asset Sales as
provided in the Indenture, the Company will be required, under certain
circumstances, to utilize the Excess Proceeds from such Asset Sales to offer
(an "Asset Sale Offer") to purchase Securities at a purchase price equal to
100% of the Accreted Value of the Securities, plus any accrued and unpaid
interest from April 1, 2002 to the purchase date if such purchase occurs after
April 1, 2002. If the Excess Proceeds are insufficient to purchase all
Securities tendered pursuant to any Asset Sale Offer, the Trustee shall select
the Securities to be purchased in accordance with the terms of the Indenture.
(c) Holders may tender all or, subject to paragraph 8 below, any portion
of their Securities in a Change of Control Offer or Asset Sale Offer
(collectively, an "Offer") by completing the form below entitled "OPTION OF
HOLDER TO ELECT PURCHASE."
(d) The Company will comply with Rule 14e-1 under the Securities Exchange
Act of 1934, as amended, and any other securities laws and regulations to the
extent applicable to any Offer.
8. NOTICE OF REDEMPTION OR PURCHASE. Notice of an optional redemption or
an Offer will be mailed to each Holder at its registered address at least
30 days but not more than 60 days before the date of redemption or purchase.
Securities may be redeemed or purchased in part, but only in principal
<PAGE>
amount of at least $1,000 unless all Securities held by a Holder are to be
redeemed or purchased. On or after any date on which Securities are redeemed
or purchased, interest ceases to accrue on the Securities or portions thereof
called for redemption or accepted for purchase on such date.
9. SUBORDINATION. The Securities are subordinated in right of payment, to
the extent and in the manner provided in the Indenture, to the prior payment
in full of all Senior Indebtedness. In the event of an Insolvency or
Liquidation Proceeding or upon the maturity of any Senior Indebtedness, whether
by lapse of time, acceleration or otherwise, the holders of Senior Indebtedness
must be paid in full in cash before any payment of principal of, or premium,
if any, or interest (including any Post-Petition Interest) on, the Securities.
The Company agrees, and each Holder by accepting a Security consents and
agrees, to the subordination provided in the Indenture and authorizes the
Trustee to give it effect.
10. DENOMINATIONS, TRANSFER, EXCHANGE. The Securities are in registered
form without. The transfer of Securities may be registered and Securities may
be exchanged as provided in the Indenture. Holders seeking to transfer or
exchange their Securities may be required, among other things, to furnish
appropriate endorsements and transfer documents and to pay any taxes and fees
required by law or permitted by the Indenture. The Registrar need not exchange
or register the transfer of any Security or portion of a Security selected for
redemption or tendered pursuant to an Offer. Also, it need not exchange or
register the transfer of any Securities for a period of 15 Business Days before
a selection of Securities to be redeemed or between a record date and the next
succeeding Interest Payment Date.
11. PERSONS DEEMED OWNERS. The registered holder of a Security may be
treated as its owner for all purposes.
12. AMENDMENTS AND WAIVERS. Subject to certain exceptions, the Indenture
or the Securities may be amended with the consent of the Holders of at least
a majority in principal amount of the then outstanding Securities, and any
existing Default (except a payment Default) may be waived with the consent of
the Holders of a majority in principal amount of the then outstanding
Securities. Without the consent of any Holder, the Indenture or the Securities
may be amended to: cure any ambiguity, defect or inconsistency, provide for
uncertificated Securities in addition to or in place of certificated
Securities: provide for the assumption by another corporation of the Company's
obligations to Holders in the event of a merger or consolidation of the Company
in which the Company is not the surviving corporation or a sale of
substantially all of the Company's assets to such other corporation; comply
with the SEC's requirements to effect or maintain the qualification of the
Indenture under the Trust Indenture Act; or, make any change that does not
materially adversely affect any Holder's rights under the Indenture. Certain
providions of the Indenture cannot be amended without the consent of holders
of Senior Indebtedness.
13. DEFAULTS AND REMEDIES. Events of Default include: default for 30 days
in payment of interest on the Securities; default in payment of principal of
or premium, if any, on the Securities; failure by the Company for 30 days after
notice to it to comply with any of its other agreements or covenants in, or
provisions of, the Indenture or the Securities; certain defaults under and
acceleration prior to maturity, or failure to pay at maturity, of certain other
Indebtedness; certain final judgments that remain undischarged; and, certain
events of bankruptcy or insolvency involving the Company or any Restricted
Subsidiary that is a Significant Subsidiary. If an Event of Default occurs and
is continuing, the Trustee or the Holders of at least 25% in principal amount
of the Securities may declare all the Securities to be immediately due and
payable in an amount equal to the Accreted Value of such Securities, plus any
<PAGE>
accrued and unpaid interest; provided, however, that in the case of an Event
of Default arising from certain events of bankruptcy or insolvency, the
Accreted Value of, and any accrued and unpaid interest on, the Securities
becomes due and payable immediately without further action or notice, provided
further that if any Indebtedness is outstanding under the Credit Agreement or
the New Credit Agreement, upon a declaration of acceleration of the Securities,
the Accreted Value of, and any accrued and unpaid interest on, the Securities
shall not be payable until the earlier of (1) the day which is five Business
Days after notice of acceleration is given to the Company and the Credit Agent,
or (2) the date of acceleration of the Indebtedness under the Credit Agreement
or the New Credit Agreement, as the case may be. Subject to certain exceptions,
Holders of a majority in principal amount of the then outstanding Securities
may direct the Trustee in its exercise of any trust or power, provided that the
Trustee will be under no obligation to exercise any of its rights or powers
under the Indenture at the request of Holders unless such Holders have offered
to the Trustee security and indemnity satisfactory to it. Holders may not
enforce the Indenture or the Securities except as provided in the Indenture.
The Trustee may withhold from Holders notice of any continuing default (except
a payment Default) if it determines that withholding notice is in their
interests. The Company must furnish an annual compliance certificate to the
Trustee.
14. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for the Company or any Affiliate, and may otherwise deal with the Company or
any Affiliate, as if it were not Trustee.
15. NO RECOURSE AGAINST OTHERS. No director, officer, employee or
stockholder of the Company shall have any liability for any Obligations of the
Company under the Securities or the Indenture or for any claim based on, in
respect of, or by reason of, such Obligations or the creation of any such
Obligation. Each Holder by accepting a Security waives and releases all such
liability, and such waiver and release is part of the consideration for the
issuance of the Securities.
16. SUCCESSOR SUBSTITUTED. Upon the consolidation or merger by the Company
with or into another corporation, or upon the sale, conveyance, lease or other
disposition of all or substantially all of its assets to another corporation,
in accordance with the Indenture, the corporation surviving any such merger
or consolidation (if not the Company) or the corporation to which such assets
were sold or transferred to shall succeed to, and be substituted for, and may
exercise every right and power of the Company under the Indenture with the same
effect as if such surviving or other corporation had been named as the Company
in the Indenture.
17. GOVERNING LAW. This Security shall be governed by and construed in
accordance with the internal laws of the State of New York.
18. AUTHENTICATION. This Security shall not be valid until authenticated
by the manual signature of the Trustee or an authenticating agent.
19. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U G M A (= Uniform Gifts
to Minors Act).
20. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the
<PAGE>
Securities and have directed the Trustee to use CUSIP numbers in notices of
redemption as a convenience to Holders. No representation is made as to the
accuracy of such numbers either as printed on the Securities or as contained
in any notice of redemption and reliance may be placed only on the other
identification numbers printed on the securities.
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture, which has in it the text of this Security in
larger type. Request may be made to:
Jordan Industries, Inc.
1751 Lake Cook Road
ArborLake Centre
Suite 550
Deerfield, Illinois 60015
Attention: Secretary
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below:
(I) or (we) assign and transfer this Security to:
---------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
---------------------------------------------
---------------------------------------------
---------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
as agent to transfer this Security on the books of the Company.
The agent may substitute another to act for him.
Date: Your Signature:
----------- ----------------------------------------------
(Sign exactly as your name appears on the other
side of this Security)
Signature Guarantee:
- ---------------------------------
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you elect to have this Security purchased by the Company pursuant to
Section 4.13 of the Indenture, check the box: [ ]
If you elect to have this Security purchased by the Company pursuant to
Section 4.14 of the Indenture, check the box: [ ]
If you elect to have only part of this Security purchased by the Company
pursuant to Section 4.13 or 4.14 of the Indenture, state the amount (principal
amount of at least $1,000 only):
$
-----------------------------
Date: Your Signature:
---------------- -------------------------------------
(Sign exactly as your name appears on
the other side of the Security)
Signature Guarantee:
- ---------------------------------
<PAGE>
Jordan Industries, Inc.
September 9, 1997
Page 1
Exhibit 5
September 9, 1997
Jordan Industries, Inc.
1751 Lake Cook Road, Suite 550
Deerfield, IL 60015
Re: $120 million 103/8% Series B Senior Notes due 2007,
$214,036,493 11 3/4% Series B Senior Subordinated Discount
Debentures due 2009
Ladies and Gentlemen:
We have acted as counsel to Jordan Industries, Inc., an Illinois
corporation (the "Company"), in connection with the registration under the
Securities Act of 1933, as amended (the "Act") of an exchange offer (the
"Exchange Offer") relating to $120 million principal amount of Series A 103/8%
Senior Notes due 2007 (the "Series A Senior Notes") and $214,036,493 principal
amount at maturity of Series A 11 3/4% Senior Subordinated Discount Debentures
due 2009 (the "Series A Discount Debentures"). The Series A Senior Notes and
the Series A Discount Debentures were each issued under indentures (the
"Indentures") between the Company and First Trust National Association, as
trustee. We have also participated in the preparation and filing with the
Securities and Exchange Commission under the Act of a registration statement on
Form S-4 (the "Registration Statement") relating to $120 million principal
amount of Series B 103/8% Senior Notes due 2007 (the "Series B Senior Notes")
and $214,036,493 principal amount at maturity of Series B 11 3/4% Senior
Subordinated Discount Debentures due 2009 (the "Series B Discount Debentures")
with respect to the proposed Exchange Offer for the Series A Senior Notes and
Series A Discount Debentures, respectively. In this connection, we have
examined such corporate and other records, instruments, certificates and
documents as we considered necessary to enable us to express this opinion.
Based on the foregoing, it is our opinion that, upon completion of the
Exchange Offer, the Series B Senior Notes and the Series B Discount Debentures
will have been duly authorized for issuance and, when each series of Series
B Senior Notes or
<PAGE>
Jordan Industries, Inc.
September 9, 1997
Page 2
Series B Discount Debentures is duly executed, authenticated, issued and
delivered, such series will constitute valid and legally binding obligations
of the Company entitled to the benefits of the Indentures, subject to
bankruptcy, insolvency, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditor's rights and to general equity
principles (whether considered in a proceeding at law or in equity).
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters."
Very truly yours,
MAYER, BROWN & PLATT
<PAGE>
AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
dated as of July 25, 1997
among
JII, INC.
and
BANKBOSTON, N.A.
CERTAIN OTHER BANKS
and
BANKBOSTON, N.A., AS AGENT
<PAGE>
ii
TABLE OF CONTENTS
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Page
----
ss.1. DEFINITIONS AND RULES OF INTERPRETATION 1
ss.1.1. Definitions 1
ss.1.2. Rules of Interpretation 21
ss.2. THE REVOLVING CREDIT FACILITY 22
ss.2.1. Commitment to Lend 22
ss.2.2. Commitment Fee 23
ss.2.3. Reduction of Total Commitment 23
ss.2.4. The Revolving Credit Notes 23
ss.2.5. Interest on Revolving Credit Loans 24
ss.2.6. Request for Revolving Credit Loans 24
ss.2.7. Conversion Options 25
ss.2.7.1. Conversion to Different Type of Revolving
Credit Loan 25
ss.2.7.2. Continuation of Type of Revolving Credit Loan 25
ss.2.7.3. Eurodollar Rate Loans 26
ss.2.8. Funds for Revolving Credit Loans 26
ss.2.8.1. Funding Procedures 26
ss.2.8.2. Advances by Agent 26
ss.3. REPAYMENT OF THE REVOLVING CREDIT LOANS 27
ss.3.1. Maturity 27
ss.3.2. Mandatory Repayments of Revolving Credit Loans 27
ss.3.3. Optional Repayments of Revolving Credit Loans 27
ss.4. LETTERS OF CREDIT .................................................28
ss.4.1. Letter of Credit Commitments 28
ss.4.1.1. Commitment to Issue Letters of Credit 28
ss.4.1.2. Letter of Credit Applications 28
ss.4.1.3. Terms of Letters of Credit 28
ss.4.1.4. Reimbursement Obligations of Banks 28
ss.4.1.5. Participations of Banks 29
ss.4.2. Reimbursement Obligation of the Borrower 29
ss.4.3. Letter of Credit Payments 29
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iii
ss.4.4. Obligations Absolute 30
ss.4.5 Reliance by Issuer 30
ss.4.6. Letter of Credit Fee 30
ss.5. CERTAIN GENERAL PROVISIONS 31
ss.5.1. Closing Fee 31
ss.5.2. Agent's Fee 31
ss.5.3. Funds for Payments 31
ss.5.3.1. Payments to Agent 32
ss.5.3.2. No Offset 32
ss.5.4. Computations 32
ss.5.5. Inability to Determine Eurodollar Rate 32
ss.5.6. Illegality 33
ss.5.7. Additional Costs 33
ss.5.8. Capital Adequacy 35
ss.5.9. Certificate 35
ss.5.10. Indemnity 35
ss.5.11. Interest on Overdue Amounts 36
ss.5.12. Replacement Banks 36
ss.6. COLLATERAL SECURITY AND GUARANTIES 36
ss.6.1. Security of the Borrower 36
ss.6.2. Guaranties and Security of Subsidiaries 37
ss.6.3. Parent Guaranty 38
ss.7. REPRESENTATIONS AND WARRANTIES 38
ss.7.1. Corporate Authority 38
ss.7.1.1. Incorporation; Good Standing 38
ss.7.1.2. Authorization 38
ss.7.1.3. Enforceability 39
ss.7.2. Governmental Approvals 39
ss.7.3. Title to Properties; Leases 39
ss.7.4. Financial Statements 39
ss.7.5. No Material Changes 40
ss.7.6. Franchises, Patents, Copyrights 40
ss.7.7. Litigation 40
ss.7.8. No Materially Adverse Contracts 41
ss.7.9. Compliance with Other Instruments, Laws 41
ss.7.10. Tax Status 41
ss.7.11. No Event of Default 41
<PAGE>
iv
ss.7.12. Holding Company and Investment Company Acts 41
ss.7.13. Absence of Financing Statements 42
ss.7.14. Perfection of Security Interest 42
ss.7.15. Certain Transactions 42
ss.7.16. Employee Benefit Plans 42
ss.7.16.1. In General 42
ss.7.16.2. Terminability of Welfare Plans 42
ss.7.16.3. Guaranteed Pension Plans 43
ss.7.16.4. Multiemployer Plans 43
ss.7.17. Regulations U and X 43
ss.7.18. Environmental Compliance 43
ss.7.19. Subsidiaries 45
ss.7.20. Chief Executive Offices 46
ss.7.21. Fiscal Year 46
ss.7.22. Disclosure 46
ss.8. AFFIRMATIVE COVENANTS OF THE BORROWER 46
ss.8.1. Punctual Payment 46
ss.8.2. Maintenance of Office 47
ss.8.3. Records and Accounts 47
ss.8.4. Financial Statements, Certificates and Information 47
ss.8.5. Notices 48
ss.8.5.1. Defaults 48
ss.8.5.2. Environmental Events 49
ss.8.5.3. Notification of Claim against Collateral 49
ss.8.5.4. Notice of Litigation and Judgments 49
ss.8.6. Corporate Existence; Maintenance of Properties 49
ss.8.7. Insurance 50
ss.8.8. Taxes ....................................................50
ss.8.9. Inspection of Properties and Books 51
ss.8.9.1. General 51
ss.8.9.2. Communications with Accountants 51
ss.8.10. Compliance with Laws, Contracts, Licenses,
and Permits 52
ss.8.11. Employee Benefit Plans 52
ss.8.12. Use of Proceeds 52
ss.8.13. Additional Subsidiaries 52
ss.8.14. Fair Labor Standards Act 53
ss.8.15. Further Assurances 53
ss.9. CERTAIN NEGATIVE COVENANTS OF THE BORROWER 53
<PAGE>
v
ss.9.1. Restrictions on Indebtedness 53
ss.9.2. Restrictions on Liens 56
ss.9.3. Restrictions on Investments 58
ss.9.4. Distributions; Other Affiliate Payments 60
ss.9.5. Merger, Consolidation and Disposition of Assets 61
ss.9.5.1. Mergers and Acquisitions 61
ss.9.5.2. Disposition of Assets 61
ss.9.6. Sale and Leaseback 61
ss.9.7. Compliance with Environmental Laws 62
ss.9.8. Employee Benefit Plans 62
ss.9.9. Change in Terms of Capital Stock 63
ss.9.10. Hostile Takeovers 63
ss.9.11. Limitation on Transactions 63
ss.9.12. Fiscal Year 63
ss.10. FINANCIAL COVENANTS OF THE BORROWER 63
ss.10.1. Cash Flow Coverage Ratio 64
ss.10.2. Debt Service Coverage Ratio 64
ss.10.3. Minimum Net Worth 64
ss.10.4 Senior Debt to Consolidated Cash Flow Ratio 64
ss.11. CLOSING CONDITIONS .................................................65
ss.11.1. Loan Documents 65
ss.11.2. Certified Copies of Charter Documents 65
ss.11.3. Corporate Action 65
ss.11.4. Incumbency Certificate 65
ss.11.5. Validity of Liens 65
ss.11.6. Perfection Certificates and UCC Search Results 65
ss.11.7. Certificates of Insurance 66
ss.11.8. Opinions of Counsel 66
ss.11.9. Payment of Fees 66
ss.11.10. Consents and Approvals 66
ss.11.11. Projections 66
ss.11.12 Borrower Reorganization 66
ss.11.13 SPL Credit Agreement 66
ss.11.14 Jordan Recapitalization and Repositioning Plan 67
ss.12. CONDITIONS TO ALL BORROWINGS 67
ss.12.1. Representations True; No Event of Default 67
ss.12.2. No Legal Impediment 67
<PAGE>
vi
ss.12.3. Governmental Regulation 67
ss.12.4. Proceedings and Documents 67
ss.13. EVENTS OF DEFAULT; ACCELERATION; ETC 68
ss.13.1. Events of Default and Acceleration 68
ss.13.2. Termination of Commitments 70
ss.13.3. Remedies 71
ss.13.4. Distribution of Collateral Proceeds 71
ss.14. SETOFF ..............................................................72
ss.15. THE AGENT 73
ss.15.1. Authorization 73
ss.15.2. Employees and Agents 73
ss.15.3. No Liability 73
ss.15.4. No Representations 73
ss.15.5. Payments 74
ss.15.5.1. Payments to Agent 74
ss.15.5.2. Distribution by Agent 74
ss.15.5.3. Delinquent Banks 74
ss.15.6. Holders of Notes 75
ss.15.7. Indemnity 75
ss.15.8. Agent as Bank 75
ss.15.9. Resignation 75
ss.15.10. Notification of Defaults and Events of Default 76
ss.15.11. Duties in the Case of Enforcement 76
ss.16. EXPENSES ............................................................76
ss.17. INDEMNIFICATION .....................................................77
ss.18. SURVIVAL OF COVENANTS 77
ss.19. ASSIGNMENT AND PARTICIPATION 78
ss.19.1. Conditions to Assignment by the Banks 78
ss.19.2. Certain Representations and Warranties;
Limitations; Covenants 78
ss.19.3. Register 79
ss.19.4. New Notes 80
ss.19.5. Participations 80
<PAGE>
vii
ss.19.6. Disclosure 80
ss.19.7. Assignee or Participant Affiliated with the Borrower 81
ss.19.8. Miscellaneous Assignment Provisions 81
ss.19.9. Assignment by Borrower 82
ss.20. NOTICES ...............................................................
ss.21. GOVERNING LAW .......................................................82
ss.22. HEADINGS ............................................................83
ss.23 COUNTERPARTS ........................................................83
ss.24. ENTIRE AGREEMENT ....................................................83
ss.25. WAIVER OF JURY TRIAL 83
ss.26. CONSENTS, AMENDMENTS, WAIVERS, ETC 83
ss.27. SEVERABILITY ........................................................84
ss.28. TRANSITIONAL ARRANGEMENTS 84
ss.28.1 Original Credit Agreement Superseded 84
ss.28.2 Return and Cancellation of Revolving Credit Notes 84
ss.28.3 Interest and Fees Under Superseded Agreement 85
EXHIBITS:
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Exhibit A - Form of Note
Exhibit B - Form of Non-Wholly-Owned Subsidiary Guaranty
Exhibit C - Form of Parent Guaranty
Exhibit D - Form of Security Agreement
Exhibit E - Form of Subsidiary Guaranty
Exhibit F - Form of Loan Request
Exhibit G - Form of Compliance Certificate
<PAGE>
1
Exhibit H - Form of Assignment and Acceptance
SCHEDULES:
Schedule 1 - Banks; Commitment Amounts; Commitment Percentages;
Lending Offices
Schedule 6.2 - Foreign Subsidiaries
Schedule 7.3 - Title to Properties
Schedule 7.18 - Environmental Matters
Schedule 7.19 - Subsidiaries
Schedule 9.1 - Existing Indebtedness
Schedule 9.2 - Existing Liens
Schedule 9.3 - Existing Investments
<PAGE>
-2-
AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
This AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT is made as of
July 25, 1997, by and among JII, INC. (the "Borrower"), a Delaware corporation
having its principal place of business at Arbor Lake Centre, Suite 550, 1751
Lake Cook Road, Deerfield, Illinois 60015, BANKBOSTON, N.A. (F/K/A THE FIRST
NATIONAL BANK OF BOSTON), the other lending institutions listed on Schedule 1
attached hereto, and BANKBOSTON, N.A. (F/K/A THE FIRST NATIONAL BANK OF BOSTON)
as agent for itself and such other lending institutions.
WHEREAS, the Borrower intends to reorganize its operations by
disposing of the assets or stock, as the case may be, of the Old Subsidiaries
(as hereinafter defined) and by acquiring the New Subsidiaries (as hereinafter
defined) (the "Borrower Reorganization"); and
WHEREAS, the Borrower has requested, in connection with the Borrower
Reorganization, to, among other things, amend and restate the Revolving Credit
Agreement dated as of June 29, 1994 (as amended from time to time, the
"Original Credit Agreement"), by and among the Borrower, certain of the Banks
(as hereinafter defined) and the Agent (as hereinafter defined), (a) to release
certain of the Old Subsidiaries as Guarantors (as defined in the Original
Credit Agreement) in connection with the disposition of the stock of such Old
Subsidiaries, (b) to add the New Subsidiaries as Guarantors (as hereinafter
defined) and (c) to make certain other modifications, and the Banks and the
Agent are willing to amend and restate the Original Credit Agreement and to
provide such additional financing on the terms and conditions set forth herein;
NOW, THEREFORE, the Borrower, the Banks and the Agent agree that on
the Closing Date the Original Credit Agreement shall be hereby amended and
restated in its entirety and shall remain in full force and effect only as set
forth herein.
ss.1. DEFINITIONS AND RULES OF INTERPRETATION.
ss.1.1. DEFINITIONS. The following terms shall have the meanings set
forth in this ss.1 or elsewhere in the provisions of this Credit Agreement
referred to below:
Affected Bank. See ss.5.12 hereof.
4. Affiliate. Any Person that would be considered to be an affiliate
of another Person under Rule 144(a) of the Rules and Regulations of the
Securities and Exchange Commission, as in effect on the date hereof, if such
other Person were issuing securities.
<PAGE>
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Agent's Head Office. The Agent's head office located at 100 Federal
Street, Boston, Massachusetts 02110, or at such other location as the Agent may
designate from time to time.
Agent. BankBoston, N.A. acting as agent for the Banks.
Agent's Fee. See ss.5.2 hereof.
Agent's Special Counsel. Bingham, Dana & Gould LLP or such other
counsel as may be approved by the Agent.
Aim. Aim Electronics Corporation, a Delaware corporation.
Applicable Margin. (a) With respect to any Base Rate Loan, one-half
percent (1/2%), (b) with respect to any Eurodollar Rate Loan, two percent (2%),
and (c) with respect to any Letter of Credit Fee, two percent (2%).
Assignment and Acceptance. See ss.19.1 hereof.
Assumption Agreement. The Assumption Agreement, dated as of June 29,
1994, between the Borrower and the Parent, as such agreement is in effect on
the Closing Date.
Balance Sheet Date. December 31, 1996.
Banks. BkB and the other lending institutions listed on Schedule 1
attached hereto and any other Person who becomes an assignee of any rights and
obligations of a Bank pursuant to ss.19 hereof.
3. Base Rate. The annual rate of interest announced from time to time
by BkB at its head office in Boston, Massachusetts, as its "base rate".
Base Rate Loans. Revolving Credit Loans bearing interest calculated by
reference to the Base Rate.
BkB. BankBoston, N.A., a national banking association, in its
individual capacity.
Bond Holdings. Bond Holdings, Inc., a Delaware corporation.
Borrower. As defined in the preamble hereto.
Borrower Reorganization. As defined in the preamble hereto.
Business Day. Any day on which banking institutions in Boston,
Massachusetts, New York, New York and Chicago, Illinois are open for the
transaction of banking business and, in the case of Eurodollar Rate Loans, also
a day which is a Eurodollar Business Day.
<PAGE>
-4-
Cambridge. Cambridge Products Corporation, a Delaware corporation.
Cape Craftsmen. Cape Craftsmen, Inc., a Delaware corporation.
Capital Assets. Fixed assets, both tangible (such as land, buildings,
fixtures, machinery and equipment) and intangible (such as patents, copyrights,
trademarks, franchises and good will); provided that Capital Assets shall not
include any item customarily charged directly to expense or depreciated over a
useful life of twelve (12) months or less in accordance with generally accepted
accounting principles.
Capital Expenditures. Amounts paid or indebtedness incurred by any
Person in connection with the purchase or lease by such Person of Capital
Assets that would be required to be capitalized and shown on the balance sheet
of such Person in accordance with generally accepted accounting principles
provided, that Capital Expenditures shall not include amounts paid or
indebtedness incurred in connection with the purchase by any Person of all or
substantially all of the Capital Assets of any other Person or of a division of
any other Person, or capital stock of any other Person to the extent that such
acquisition is permitted under the terms of this Credit Agreement.
Capitalized Leases. Leases under which a Person is the lessee or
obligor, the discounted future rental payment obligations under which are
required to be capitalized on the balance sheet of the lessee or obligor in
accordance with generally accepted accounting principles.
Cash Flow Coverage Ratio. As at any date of determination and with
respect to any Person, the ratio of (a) the Consolidated Cash Flow of such
Person for the fiscal period ending on such date to (b) the sum of the
Consolidated Interest Expense of such Person for such fiscal period plus the
aggregate amount of all dividend payments made in cash during such fiscal
period with respect to any series of Preferred Stock of such Person or any of
such Person's Subsidiaries, plus, with respect to the Borrower, the Parent
Interest Expense..
CERCLA. See ss.7.18 hereof.
Closing Date. The first date on which the conditions set forth in
ss.11 hereof have been satisfied, the Original Credit Agreement shall be
amended and restated as set forth herein, any existing Revolving Credit Loans
and Letters of Credit under the Original Credit Agreement are converted to
Revolving Credit Loans or Letters of Credit hereunder, as the case may be, and
any Revolving Credit Loans are to be made or any Letter of Credit is to be
issued hereunder.
Code. The Internal Revenue Code of 1986.
Collateral. All of the property, rights and interests of the Borrower
and the Guarantors that are or are intended to be subject to the security
interests and created by the Security Documents.
<PAGE>
-5-
Collateral Assignment of Intercompany Agreements. The Collateral
Assignment of Intercompany Agreements, dated on or prior to the Closing Date
among the Borrower, the domestic Subsidiaries, the Parent and the Agent, in
form and substance satisfactory to the Banks.
Commitments. The agreement of each Bank, subject to the terms and
conditions of this Credit Agreement, to make Revolving Credit Loans to, and to
participate in the issuance, extension and renewal of Letters of Credit for the
account of, the Borrower.
Commitment Amount. With respect to each Bank, the amount set forth on
Schedule 1 attached hereto as the amount of such Bank's Commitment, as the same
may be reduced from time to time; or if the Commitments are terminated pursuant
to the provisions hereof, zero.
Commitment Fee. See ss.2.2 hereof.
Commitment Percentage. With respect to each Bank, the percentage set
forth on Schedule 1 attached hereto as such Bank's percentage of the Total
Commitment.
Compliance Certificate. See ss.8.4(c) hereof.
Consolidated or consolidated. With reference to any term defined
herein, shall mean that term as applied to the accounts of the Borrower and its
Subsidiaries, as applicable, consolidated in accordance with generally accepted
accounting principles.
Consolidated Cash Flow. With respect to any Person, and for any fiscal
period, the sum, without duplication, of (a) the Consolidated Net Income for
such Person, plus (b) the portion of Consolidated Net Income attributable to
the minority interests in its Subsidiaries, to the extent not included in
calculating Consolidated Net Income, plus (c) any provisions for taxes based on
income or profits of such Person to the extent that such income or profits were
included in the calculation of the Consolidated Net Income of such Person, plus
(d) the Consolidated Interest Expense of such Person, plus (e) the amortization
of all intangible assets to the extent that such amortization was deducted in
the calculation of the Consolidated Net Income of such Person (including but
not limited to, inventory write-ups, goodwill, debt and financing costs and
Incentive Arrangements), plus (f) the aggregate amount of non-capitalized
transaction costs incurred in connection with financings or acquisitions,
(including, but not limited to, financing and refinancing fees), to the extent
such costs were deducted in the calculation of such Person's Consolidated Net
Income, plus (g) all depreciation and all other non-cash charges (including,
without limitation, such charges relating to purchase accounting adjustments
and, without duplication, non-cash charges in respect of Incentive
Arrangements), to the extent deducted in the calculation of such Person's
Consolidated Net Income, plus (h) any interest income to the extent such income
was not included in the calculation of such Person's Consolidated Net Income,
plus (i) all dividend payments on Preferred Stock (whether or not paid in
cash), to the extent such payments were deducted in the calculation of such
Person's Consolidated Net Income, plus (j) any extraordinary or non-recurring
charge or expense arising out of the implementation of Statement of Financial
Accounting Standards Nos. 106 or 109 to the extent deducted in the calculation
of such Person's Consolidated
<PAGE>
-6-
Net Income, provided that any such calculation of Consolidated Cash Flow shall
at all times be made on a Pro Forma Basis.
Consolidated Financial Obligations. With respect to any Person, for
any fiscal period, an amount equal to the sum of all payments on account of the
principal of Indebtedness that became due and payable or that are to become due
and payable during such fiscal period pursuant to any agreement or instrument
to which such Person or any of its Subsidiaries is a party relating to the
borrowing of money or the obtaining of credit or in respect of Capitalized
Leases. Demand obligations shall be deemed to be due and payable during any
fiscal period during which such obligations are outstanding.
Consolidated Interest Expense. With respect to any Person, for any
fiscal period, the aggregate of the interest expense in respect of all
Indebtedness of such Person and its Subsidiaries for such period, on a
consolidated basis, determined in accordance with generally accepted accounting
principles (including amortization of original issue discount on any such
Indebtedness, the interest portion of any deferred payment obligation and the
interest component of Capitalized Lease obligations, but excluding all non-cash
interest payments and amortization of deferred financing fees if such
amortization would otherwise be included in interest expense); provided,
however, that for purposes of the Cash Flow Coverage Ratio and the Debt Service
Coverage Ratio, Consolidated Interest Expense shall be calculated on a Pro
Forma Basis and, provided further, that all premiums, fees and expenses
(including the amortization thereof) payable in connection with the refinancing
of any Indebtedness shall be excluded.
Consolidated Net Income. With respect to any Person, for any fiscal
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with generally
accepted accounting principles, provided that (a) the Net Income of any Person
acquired in a pooling of interests transaction for any period prior to the date
of such acquisition shall be excluded (unless Consolidated Net Income is to be
calculated on a Pro Forma Basis under this Credit Agreement), and (b)
Consolidated Net Income of any Person will not include, without duplication,
any deduction for:
(i) any increased amortization or depreciation resulting from the
write-up of assets pursuant to Accounting Principal Board
Opinions Nos. 16 and 17, as amended or supplemented from time
to time,
(ii) the amortization of all intangible assets (including
amortization attributable to inventory write-ups, goodwill,
debt and financing costs, and Incentive Arrangements),
(iii) any non-capitalized transaction costs incurred in connection
with financings or acquisitions (including, but not limited to,
financing and refinancing fees),
(iv) any extraordinary or nonrecurring charges relating to any
premium or penalty paid, write-off or deferred financing costs
or other financial recapitalization charges in connection with
redeeming or retiring any Indebtedness prior to its stated
maturity;
<PAGE>
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(v) any non-recurring charges arising out of the restructuring or
consolidation of the operations of any entities or businesses
either alone or together with such Person or any Subsidiary of
such Person incurred within 18 months following the acquisition
of such entity or business by such Person or any Subsidiary of
such Person; and
(vi) in calculating Senior Debt to Consolidated Cash Flow Ratio for
purposes of ss.2.3(b) and Consolidated Cash Flow for purposes
of ss.10.4, any nonrecurring gains or losses arising from the
sales of assets;
provided, however, that for purposes of determining the Cash Flow Coverage
Ratio, Consolidated Net Income shall be calculated on a Pro Forma Basis.
Consolidated Net Worth. With respect to any Person means, as of any
date, the consolidated equity of the common stockholders of such Person
(excluding the cumulated foreign currency translation adjustment), all
determined on a consolidated basis in accordance with generally accepted
accounting principles, but without any reduction in respect of the payment of
dividends on any series of such Person's Preferred Stock if such dividends are
paid in additional shares of capital stock; provided, however, that
Consolidated Net Worth shall also include, without duplication:
(a) the amortization of all write-ups of inventory,
(b) the amortization of all intangible assets (including
amortization of goodwill, debt and financing costs, and
Incentive Arrangements),
(c) any non-capitalized transaction costs incurred in connection
with financings or acquisitions (including, but not limited to,
financing and refinancing fees),
(d) any increased amortization or depreciation resulting from the
write-up of assets pursuant to Accounting Principles Board
Opinion Nos. 16 and 17, as amended and supplemented from time
to time,
(e) any extraordinary or nonrecurring charges or expenses relating
to any premium or penalty paid, write-off or deferred financing
costs or other financial recapitalization charges incurred in
connection with redeeming or retiring any Indebtedness prior to
its stated maturity,
(f) any non-recurring cash charge arising out of the restructuring
or consolidation of the operations of any entity or business
either alone or together with such Person or any Subsidiary of
such Person, incurred within 18 months following the
acquisition of such entity or business by such Person or any
Subsidiary of such Person, and
(g) any extraordinary or non-recurring charge arising out of the
implementation of Statement of Financial Accounting Standards
Nos. 106 or 109;
<PAGE>
-8-
provided, however that for purposes of determining Consolidated Net Worth of
the Parent and its Subsidiaries for purposes of ss.10.3 hereof, Consolidated
Net Worth shall be calculated on a Pro Forma Basis.
Conversion Request. A notice given by the Borrower to the Agent of the
Borrower's election to convert or continue a Revolving Credit Loan in
accordance with ss.2.7 hereof.
Credit Agreement. This Amended and Restated Revolving Credit
Agreement, including the Schedules and Exhibits hereto.
Debt Service Coverage Ratio. As at the date of determination and with
respect to any Person, the ratio of (a)(i) the Consolidated Cash Flow of such
Person for the fiscal period ending on such date minus (ii) the aggregate
amount of Capital Expenditures made during such period to (b) the Total Debt
Service of such Person for such fiscal period.
Default. See ss.13.1 hereof.
Delinquent Bank. See ss.15.5.3 hereof.
Distribution. The declaration or payment of any dividend on or in
respect of any shares of any class of capital stock of a Person, other than
dividends payable solely in shares of common stock of such Person; the
purchase, redemption, or other retirement of any shares of any class of capital
stock of a Person, directly or indirectly through a Subsidiary of such Person
or otherwise; the return of capital by a Person to its shareholders as such; or
any other distribution on or in respect of any shares of any class of capital
stock of a Person.
Diversified. Diversified Wire & Cable, Inc., a Delaware corporation.
Dollars or $. Dollars in lawful currency of the United States of
America.
Domestic Lending Office. Initially, the office of each Bank designated
as such in Schedule 1 attached hereto; thereafter, such other office of such
Bank, if any, located within the United States that will be making or
maintaining Base Rate Loans.
Drawdown Date. The date on which any Revolving Credit Loan is made or
is to be made, and the date on which any Revolving Credit Loan is converted or
continued in accordance with ss.2.7 hereof.
Dura-Line. Dura-Line Corporation, a Delaware corporation.
Eligible Assignee. Any of (a) a commercial bank organized under the
laws of the United States, or any State thereof or the District of Columbia,
and having total assets in excess of $1,000,000,000; (b) a savings and loan
association or savings bank organized under the laws of the United States, or
any State thereof or the District of Columbia, and having a net worth of at
least $100,000,000, calculated in accordance with generally accepted accounting
principles; (c) a commercial bank organized under the laws of any other
<PAGE>
-9-
country which is a member of the Organization for Economic Cooperation and
Development (the "OECD"), or a political subdivision of any such country, and
having total assets in excess of $1,000,000,000, provided that such bank is
acting through a branch or agency located in the country in which it is
organized or another country which is also a member of the OECD; and (d) the
central bank of any country which is a member of the OECD.
Employee Benefit Plan. Any employee benefit plan within the meaning of
ss.3(3) of ERISA maintained of contributed to by the Borrower or any ERISA
Affiliate, other than a Multiemployer Plan.
Environmental Laws. See ss.7.18(a) hereof.
ERISA. The Employee Retirement Income Security Act of 1974.
ERISA Affiliate. Any Person which is treated as a single employer with
the Borrower under ss.414 of the Code.
ERISA Reportable Event. A reportable event with respect to a
Guaranteed Pension Plan within the meaning of ss.4043 of ERISA and the
regulations promulgated thereunder as to which the requirement of notice has
not been waived.
Eurocurrency Reserve Rate. For any day with respect to a Eurodollar
Rate Loan, the maximum rate (expressed as a decimal) at which any lender
subject thereto would be required to maintain reserves under Regulation D of
the Board of Governors of the Federal Reserve System (or any successor or
similar regulations relating to such reserve requirements) against
"Eurocurrency Liabilities" (as that term is used in Regulation D), if such
liabilities were outstanding. The Eurocurrency Reserve Rate shall be adjusted
automatically on and as of the effective date of any change in the Eurocurrency
Reserve Rate.
Eurodollar Business Day. Any day on which commercial banks are open
for international business (including dealings in Dollar deposits) in London or
such other eurodollar interbank market as may be selected by the Agent in its
sole discretion acting in good faith.
Eurodollar Lending Office. Initially, the office of each Bank
designated as such in Schedule 1 attached hereto; thereafter, such other office
of such Bank, if any, that shall be making or maintaining Eurodollar Rate
Loans.
Eurodollar Rate. For any Interest Period with respect to a Eurodollar
Rate Loan, the rate of interest equal to (a) the rate per annum (rounded
upwards to the nearest 1/16 of one percent) at which the Reference Bank's
Eurodollar Lending Office is offered Dollar deposits two Eurodollar Business
Days prior to the beginning of such Interest Period in the interbank eurodollar
market where the eurodollar and foreign currency and exchange operations of
such Eurodollar Lending Office are customarily conducted, for delivery on the
first day of such Interest Period for the number of days comprised therein and
in an amount comparable to the amount of the Eurodollar Rate Loan of the
Reference Bank to which such Interest Period applies, divided by (b) a number
equal to 1.00 minus the Eurocurrency Reserve Rate, if applicable.
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Eurodollar Rate Loans. Revolving Credit Loans bearing interest
calculated by reference to the Eurodollar Rate.
Event of Default. See ss.13.1 hereof.
Fee Letter. That certain letter agreement, dated as of the Closing
Date, between the Borrower and the Agent.
Foreign Entity. Any Person which is organized under the laws of a
jurisdiction other than the United States of America and the states (or the
District of Columbia) thereof.
generally accepted accounting principles. (a) When used in ss.10
hereof, whether directly or indirectly through reference to a capitalized term
used therein, means (i) principles that are consistent with the principles
promulgated or adopted by the Financial Accounting Standards Board and its
predecessors, in effect on December 31, 1996, and (ii) to the extent consistent
with such principles, the accounting practice of the Parent reflected in its
financial statements for the fiscal period including December 31, 1996, and (b)
when used in general, other than as provided above, means principles that are
(i) consistent with the principles promulgated or adopted by the Financial
Accounting Standards Board and its predecessors, as in effect from time to
time, and (ii) consistently applied with past financial statements of the
Parent adopting the same principles, provided that in each case referred to in
this definition of "generally accepted accounting principles" a certified
public accountant would, insofar as the use of such accounting principles is
pertinent, be in a position to deliver an unqualified opinion (other than a
qualification regarding changes in generally accepted accounting principles) as
to financial statements in which such principles have been properly applied.
Guaranteed Pension Plan. Any employee pension benefit plan within the
meaning of ss.3(2) of ERISA maintained or contributed to by the Parent, the
Borrower or any ERISA Affiliate the benefits of which are guaranteed on
termination in full or in part by the PBGC pursuant to Title IV of ERISA, other
than a Multiemployer Plan.
Guaranties. Collectively, the Subsidiary Guaranty, the
Non-Wholly-Owned Subsidiary Guaranty and the Parent Guaranty.
Guarantors. Collectively, all of and, individually, each of the
Wholly-Owned Guarantors and the Non-Wholly-Owned Guarantors.
Hazardous Substances. See ss.7.18(b) hereof.
Incentive Arrangements. With respect to any Person, any earn-out
agreements, stock appreciation rights, including the Stock Appreciation Rights
Agreements, "phantom" stock plans, non-competition agreements, subscription and
stockholders agreements and other incentive and bonus plans and similar
arrangements made in connection with the acquisition of entities or businesses
by such Person or any of its Subsidiaries or the retention of executives,
officers or employees by such Person or any of its Subsidiaries.
<PAGE>
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Indebtedness. All obligations, contingent and otherwise, that in
accordance with generally accepted accounting principles should be classified
upon the obligor's balance sheet as liabilities, or to which reference should
be made by footnotes thereto, including in any event and whether or not so
classified: (a) all debt and similar monetary obligations, whether direct or
indirect; (b) all liabilities secured by any mortgage, pledge, security
interest, lien, charge or other encumbrance existing on property owned or
acquired subject thereto, whether or not the liability secured thereby shall
have been assumed; and (c) all guarantees, endorsements and other contingent
obligations whether direct or indirect in respect of indebtedness of others,
including any obligation to supply funds to or in any manner to invest in,
directly or indirectly, the debtor, to purchase indebtedness, or to assure the
owner of indebtedness against loss, through an agreement to purchase goods,
supplies, or services for the purpose of enabling the debtor to make payment of
the indebtedness held by such owner or otherwise, and the obligations to
reimburse the issuer in respect of any letters of credit.
Intercompany Advances. See the definition of Maximum Liability.
Intercompany Loan Agreement. The several Line Letters, dated on or
prior to the Closing Date, from the Borrower to certain of its domestic
Subsidiaries, and all instruments delivered in connection therewith, in form
and substance satisfactory to the Agent
Interest Payment Date. (a) As to any Base Rate Loan, the last day of
the calendar quarter which includes the Drawdown Date thereof, and (b) as to
any Eurodollar Rate Loan in respect of which the Interest Period is (i) 3
months or less, the last day of such Interest Period and (ii) more than 3
months, the date that is 3 months from the first day of such Interest Period,
the last day of each 3 month period thereafter and, in addition, the last day
of such Interest Period.
Interest Period. With respect to each Revolving Credit Loan, (a)
initially, the period commencing on the Drawdown Date of such Revolving Credit
Loan and ending on the last day of one of the periods set forth below, as
selected by the Borrower in a Loan Request (i) for any Base Rate Loan, the last
day of the calendar quarter; and (ii) except as provided below, for any
Eurodollar Rate Loan, 1, 2, 3, 6, 9 or 12 months; and (b) thereafter, each
period commencing on the last day of the next preceding Interest Period
applicable to such Revolving Credit Loan and ending on the last day of one of
the periods set forth above, as selected by the Borrower in a Conversion
Request; provided that during the period commencing on the Closing Date through
the date which occurs sixty (60) days after the Closing Date, the Borrower may
not select an Interest Period longer than one (1) month with respect to
Eurodollar Rate Loans, and provided further that all of the foregoing
provisions relating to Interest Periods are subject to the following:
(A) if any Interest Period with respect to a Eurodollar Rate
Loan would otherwise end on a day that is not a Eurodollar Business
Day, that Interest Period shall be extended to the next succeeding
Eurodollar Business Day unless the result of such extension would be
to carry such Interest Period into another calendar month, in which
event such Interest Period shall end on the immediately preceding
Eurodollar Business Day;
(B) if any Interest Period with respect to a Base Rate Loan
would end on a day that is not a Business Day, that Interest Period
shall end on the next succeeding Business Day;
<PAGE>
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(C) if the Borrower shall fail to give notice as provided in
ss.2.7 hereof, the Borrower shall be deemed to have requested a
conversion of the affected Eurodollar Rate Loan to a Base Rate Loan
and the continuance of all Base Rate Loans as Base Rate Loans on the
last day of the then current Interest Period with respect thereto;
(D) any Interest Period relating to any Eurodollar Rate Loan
that begins on the last Eurodollar Business Day of a calendar month
(or on a day for which there is no numerically corresponding day in
the calendar month at the end of such Interest Period) shall end on
the last Eurodollar Business Day of a calendar month; and
(E) any Interest Period that would otherwise extend beyond
the Revolving Credit Loan Maturity Date shall end on the Revolving
Credit Loan Maturity Date.
Investments. All expenditures made (other than Capital Expenditures)
and all liabilities incurred (contingently or otherwise) for the acquisition of
stock or Indebtedness of, or for loans, advances, capital contributions or
transfers of property to, or in respect of any guaranties (or other commitments
as described under Indebtedness), or obligations of, any Person. In determining
the aggregate amount of Investments outstanding at any particular time: (a) the
amount of any Investment represented by a guaranty shall be taken at not less
than the principal amount of the obligations guaranteed and still outstanding;
(b) there shall be included as an Investment all interest accrued with respect
to Indebtedness constituting an Investment unless and until such interest is
paid; (c) there shall be deducted in respect of each such Investment any amount
received as a return of capital (but only by repurchase, sale, redemption,
retirement, repayment, liquidating dividend or liquidating distribution); (d)
there shall not be deducted in respect of any Investment any amounts received
as earnings on such Investment, whether as dividends, interest or otherwise,
except that accrued interest included as provided in the foregoing clause (b)
may be deducted when paid; and (e) there shall not be deducted from the
aggregate amount of Investments any decrease in the value thereof.
JI Properties Services Agreement. The services agreement, dated as of
July 25, 1997, among JI Properties, Inc., the Parent and each of its
Subsidiaries in the form delivered to the Agent on or prior to the Closing
Date.
Johnson. Johnson Components, Inc., a Delaware corporation.
Jordan Group. (a) The Jordan Company, Jordan/Zalaznick Capital
Company, Mezzanine Capital & Income Trust 2001 PLC, and their respective
Affiliates (including Leucadia Investors, Inc.); (b) partners, principals,
directors, officers, employees and agents of the Persons referred to in clause
(a) hereof; (c) The John W. Jordan II Revocable Trust, The Jordan Family Trust
and/or any other trusts established by John W. Jordan II; (d) any other trust
established by the Persons referred to in clause (b) hereof; and (e) any
corporation, partnership or other entity controlled by, or which is an
Affiliate of, the Persons referred to in clauses (a), (b), (c) and (d) hereof.
Jordan Reorganization. The series of related transactions occurring on
or prior to the Closing Date in which (a) the Parent forms and capitalizes JTP,
which in turn forms certain Subsidiaries and acquires the
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assets and/or stock of certain Subsidiaries of the Borrower; (b) the Offering
is consummated; (c) the Parent repurchases Old Senior Notes for an aggregate
principal amount of up to $275,000,000 and obtains the required consent to such
repurchase by the holders of the Subordinated Debentures; (d) the Parent
refinances the Indebtedness of Archibald Candy Corporation; and (e) the Parent
reclassifies certain of its Subsidiaries as Restricted Subsidiaries.
JTP. Jordan Telecommunications Products, Inc., a Delaware corporation.
Letter of Credit. See ss.4.1.1 hereof.
Letter of Credit Application. See ss.4.1.1 hereof.
Letter of Credit Fee. See ss.4.6 hereof.
Letter of Credit Participation. See ss.4.1.4 hereof.
Loan Documents. This Credit Agreement, the Notes, the Letter of Credit
Applications, the Letters of Credit, the Fee Letter and the Security Documents.
Loan Request. See ss.2.6 hereof.
Majority Banks. As of any date, (a) if there are no more than two
Banks on such date, both Banks, and (b) if there are more than two Banks on
such date, the Banks holding at least 66-2/3% of the outstanding principal
amount of the Notes on such date or, if no such principal is outstanding, the
Banks whose aggregate Commitment Amounts constitute at least 66-2/3% of the
Total Commitment.
Maximum Drawing Amount. The maximum aggregate amount that the
beneficiaries may at any time draw under all outstanding Letters of Credit, as
such aggregate amount may be reduced from time to time pursuant to the terms of
the Letters of Credit.
Maximum Liability. As to each Non-Wholly-Owned Guarantor shall be an
amount equal to the principal amount of advances made by the Borrower to such
Non-Wholly-Owned Guarantor under the Intercompany Loan Agreement ("Intercompany
Advances").
Multiemployer Plan. Any multiemployer plan within the meaning of
ss.3(37) of ERISA maintained or contributed to by the Borrower or any ERISA
Affiliate.
Net Proceeds. The aggregate amount of cash or readily marketable cash
equivalents received by the Borrower or any of its Subsidiaries resulting from
the sale or other disposition of any assets or group of assets (other than
inventory sold in the ordinary course of business), whether in one transaction
or a series of related transactions, net of reasonable closing costs and
out-of-pocket expenses and the costs of any taxes, reserves (including reserves
for reasonable, anticipated post-closing adjustments, provided, that upon
resolution of such adjustments, any remaining reserved amount shall constitute
Net Proceeds) or required payments in
<PAGE>
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respect of any permitted Indebtedness or leases associated with such sale, and
reasonable relocation expenses and reasonable severance and shutdown costs
incurred directly as a result of such sale.
New Senior Notes. The 10.375% Senior Notes due 2007 issued by the
Parent pursuant to the New Senior Notes Indenture.
New Senior Notes Indenture. That certain Indenture, dated as of July
25, 1997, between the Parent and First Bank National Association, as Trustee,
pursuant to which the New Senior Notes in an original aggregate principal
amount of at least $105,000,000 shall be issued by the Parent, in the form
delivered to the Agent on or before the Closing Date, as such agreement may be
amended and in effect from time to time in accordance with the terms of this
Credit Agreement and the other Loan Documents.
New Subsidiaries. Collectively, Cape Craftsmen, SPL Holdings, Inc. and
its Subsidiaries.
New Subsidiary Advisory Agreements. The advisory agreements, dated as
of July 25, 1997, between the Parent and each of its Subsidiaries in the form
delivered to the Agent on or prior to the Closing Date.
New Subsidiary Consulting Agreements. The management consulting
agreements, dated as of July 25, 1997, between the Parent and each of its
Subsidiaries in the form delivered to the Agent on or prior to the Closing
Date.
New TJC Management Consulting Agreement. The management services
agreement, dated as of July 25, 1997, between the Parent and TJC Management
Corp. in the form delivered to the Agent on or prior to the Closing Date.
Non-Affected Bank(s). As at any date of determination, those Banks
which are not Affected Banks.
Non-Wholly-Owned Guarantor(s). Collectively, all of, and, individually
each of, the non-wholly owned Subsidiaries of the Borrower listed on Schedule
7.19 attached hereto, provided that each such Person shall constitute a
Non-Wholly-Owned Guarantor hereunder only while the Borrower does not own,
either directly or indirectly, 100% of issued and outstanding capital stock of
such Person.
Non-Wholly-Owned Subsidiary Guaranty. The Guaranty, dated or to be
dated on or prior to the Closing Date, made by each of the Non-Wholly-Owned
Guarantors in favor of the Banks and the Agent pursuant to which each
Non-Wholly-Owned Guarantor guaranties to the Banks and the Agent the payment
and performance of the Obligations, substantially in the form of Exhibit B
attached hereto.
Note Record. A Record with respect to a Note.
Notes. See ss.2.4 hereof.
NT Holdings. Northern Technologies Holdings, Inc., a Delaware
corporation.
<PAGE>
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Obligations. All indebtedness, obligations and liabilities of any of
the Borrower and its Subsidiaries to any of the Banks and the Agent,
individually or collectively, existing on the date of this Credit Agreement or
arising thereafter, direct or indirect, joint or several, absolute or
contingent, matured or unmatured, liquidated or unliquidated, secured or
unsecured, arising by contract, operation of law or otherwise, arising or
incurred (a) under this Credit Agreement or any of the other Loan Documents or
in respect of any of the Loans made or Reimbursement Obligations incurred or
any of the Notes, Letter of Credit Application, Letter of Credit or other
instruments at any time evidencing any thereof, or (b) in respect of interest
rate protection arrangements between the Borrower or any of its Subsidiaries
and any Bank.
Offering. The offering by the Parent to certain accredited investors
of the New Senior Notes pursuant to the offering circular dated June 25, 1997.
Old JTPG. Old Jordan Telecommunications Products Group, Inc., a
Delaware corporation.
Old Senior Indenture. That certain Indenture, dated as of July 15,
1993, between the Parent and First Trust National Association, as Trustee,
pursuant to which Senior Notes in an original aggregate principal amount of
$275,000,000, but not to exceed $5,000,000 from and after the Closing Date,
were issued by the Parent, as such agreement has been amended pursuant to a
supplemental indenture dated on or near the Closing Date and as may be amended
and in effect from time to time in accordance with the terms of this Credit
Agreement and the other Loan Documents.
Old Senior Notes. The 10-3/8% Senior Notes due 2003 issued by the
Parent pursuant to the Old Senior Indenture.
Old Subsidiaries. Collectively, Aim, Bond Holdings, Cambridge,
Diversified, Dura-Line, Johnson, NT Holdings, Old JTPG and Viewsonics.
outstanding. With respect to the Revolving Credit Loans, the aggregate
unpaid principal thereof as of any date of determination.
Parent. Jordan Industries, Inc., an Illinois corporation.
Parent Guaranty. The Amended and Restated Guaranty, dated or to be
dated on or prior to the Closing Date, made by the Parent in favor of the Banks
and the Agent pursuant to which the Parent guaranties to the Banks and the
Agent the payment and performance of the Obligations, substantially in the form
of Exhibit C attached hereto.
Parent Interest Expense. With respect to the Parent, for any fiscal
period, the aggregate interest expense of the Parent and its Subsidiaries in
respect of the Old Senior Notes and the New Senior Notes for such period, on a
consolidated basis, determined in accordance with generally accepted accounting
principles, provided that Parent Interest Expense shall be calculated net of
interest income on funds that are segregated by the Parent for payments in
respect of the Old Senior Notes.
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Parent Loan Agreement. The Line Letter, dated as of July 25, 1997,
from the Parent to the Borrower, and all instruments delivered in connection
therewith, in form and substance satisfactory to the Agent.
Parent Phantom Share Plan. The Jordan Industries, Inc. Phantom Share
Plan dated as of December 11, 1989, and related grants of up to 1,000,000 Units
(as defined therein) thereunder.
PBGC. The Pension Benefit Guaranty Corporation created by ss.4002 of
ERISA and any successor entity or entities having similar responsibilities.
Perfection Certificates. The Perfection Certificates as defined in the
Security Agreement.
Permitted Liens. Liens, security interests and other encumbrances
permitted by ss.9.2 hereof.
Person. Any individual, corporation, partnership, trust,
unincorporated association, business, or other legal entity, and any government
or any governmental agency or political subdivision thereof.
Preferred Stock. As applied to the capital stock of any Person, means
the capital stock of any class or classes (however designated) that is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of capital stock of any other class of such Person.
Pro Forma Basis. (a) For the purposes of determining the Cash Flow
Coverage Ratio, Debt Service Coverage Ratio and Consolidated Cash Flow, (i)
Consolidated Net Income shall be calculated on a pro forma basis as if all
businesses acquired or sold during the relevant period had been acquired or
sold on the first day of such period and, for the four fiscal quarters
following the date hereof, as if the Borrower Reorganization had occurred on
the first day of such period, (ii) Consolidated Interest Expense shall be
calculated on a pro forma basis as if all Indebtedness created, incurred,
issued, assumed or repaid during the relevant period in connection with any
acquisition or sale or the Borrower Reorganization referred to in clause (i)
above had been created, incurred, issued, assumed or repaid on the first day of
such period; and in making such pro forma calculation, interest on any such
Indebtedness at a variable rate shall be calculated using the rate in effect at
time the calculation is made, (iii) Capital Expenditures shall be calculated on
a pro forma basis to include all Capital Expenditures incurred during the
relevant period of all businesses acquired during the relevant period and to
exclude all Capital Expenditures incurred during the relevant period of all
businesses sold during the relevant period, and (iv) Consolidated Financial
Obligations shall be calculated on a pro forma basis to include all
Consolidated Financial Obligations during the relevant period of all businesses
acquired during the relevant period and to exclude all Consolidated Financial
Obligations during the relevant period of all businesses sold during the
relevant period, and (b) for purposes of determining the Consolidated Net Worth
of the Parent and its Subsidiaries for purpose of ss.10.3 hereof, the
Consolidated Net Worth of the Parent and its Subsidiaries shall be calculated
on a pro forma basis as if all businesses acquired or sold during the relevant
period had been acquired or sold on the first day of such period.
Real Estate. All real property at any time owned or leased (as lessee
or sublessee) by the Parent, Borrower or any of the Borrower's Subsidiaries.
<PAGE>
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Record. The grid attached to a Note, or the continuation of such grid,
or any other similar record, including computer records, maintained by any Bank
with respect to any Revolving Credit Loan referred to in such Note.
Reference Bank. BkB.
Register. See ss.19.3 hereof.
Reimbursement Obligation. The Borrower's obligation to reimburse the
Agent and the Banks on account of any drawing under any Letter of Credit as
provided in ss.4.2 hereof.
Revolving Credit Loan Maturity Date. June 30, 2002.
Revolving Credit Loans. Revolving credit loans made or to be made by
the Banks to the Borrower pursuant to ss.2 hereof.
Security Agreement. The Security and Pledge Agreement, dated or to be
dated on or prior to the Closing Date, among the Borrower, each of the
Guarantors and the Agent, substantially in the form of Exhibit D attached
hereto.
Security Documents. The Guaranties, the Security Agreement, all
Guaranties and Security Agreements delivered to the Agent and the Banks after
the Closing Date pursuant to ss.8.13 hereof, and the Collateral Assignment of
Intercompany Agreements.
Senior Debt. As at any date of determination, with respect to the
Borrower and its Subsidiaries, (a) for purposes of calculating Senior Debt for
ss.ss.9.1(o), 9.3(m) and 10.4 hereof, an amount equal to the sum of (i)
Indebtedness relating to the borrowing of money, plus (ii) Indebtedness in
respect of Capitalized Leases, plus (iii) all obligations in respect of
guaranties to the extent that such obligations are not included in sub-clauses
(i) and (ii) of this clause (a), of the Borrower and its Subsidiaries, and (b)
for purposes of calculating Senior Debt for ss.2.3(b) hereof, an amount equal
to the sum of (i) Indebtedness of the Borrower and its Subsidiaries relating to
the borrowing of money, other than Indebtedness in respect of Revolving Credit
Loans, plus (ii) Indebtedness of the Borrower and its Subsidiaries in respect
of Capitalized Leases, plus (iii) all obligations of the Borrower and its
Subsidiaries in respect of guaranties to the extent that such obligations are
not included under sub-clauses (i) and (ii) of this clause (b), plus (iv) the
Total Commitment in effect on such date without regard to any reductions in the
Total Commitment pursuant to ss.2.3(b) hereof.
Senior Debt to Consolidated Cash Flow Ratio. As of any date of
determination, with respect to the Borrower and its Subsidiaries of which the
Borrower owns, directly or indirectly, on and as of the relevant date of
determination, and after giving effect to any proposed disposition, at least
51% of the outstanding common stock of every class (each, a "51% Subsidiary"),
the ratio of (a) the aggregate amount of Senior Debt of the Borrower and its
Subsidiaries, excluding any such Indebtedness which is, by its terms,
subordinated in right of payment to the Obligations on terms satisfactory to
the Banks, outstanding on such date of
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determination to (b) the Consolidated Cash Flow of the Borrower and its 51%
Subsidiaries for the period of the four fiscal quarters most recently ended
prior to such date of determination.
Services Agreements. Collectively, (a) the New TJC Management
Consulting Agreement, (b) the JI Properties Services Agreement, (c) the New
Subsidiary Advisory Agreements, (d) the New Subsidiary Consulting Agreements,
and (e) the Transition Agreements.
SPL Credit Agreement. That certain Amended and Restated Revolving
Credit and Term Loan Agreement, dated as of May 1, 1996, by and among SPL
Holdings, Inc. and its Subsidiaries, BankBoston, N.A. (f/k/a The First National
Bank of Boston) and the other lending institutions listed on Schedule 1
attached thereto.
Subordinated Debentures. The 11-3/4% Senior Subordinated Discount
Debentures due 2009 issued by the Parent pursuant to the Subordinated
Indenture.
Subordinated Indenture. That certain Indenture, dated as of April 2,
1997, between the Parent and First Trust National Association, as Trustee,
pursuant to which Subordinated Debentures in the original aggregate principal
amount of $213,635,725 were issued by the Parent, as such agreement may be
amended and in effect from time to time in accordance with the terms of this
Credit Agreement and the other Loan Documents.
Subsidiary. Any corporation, association, trust, or other business
entity of which the designated parent shall at any time own directly or
indirectly through a Subsidiary or Subsidiaries at least a majority (by number
of votes) of the outstanding Voting Stock.
Subsidiary Guaranty. The Guaranty, dated or to be dated on or prior to
the Closing Date, made by each Wholly-Owned Guarantor in favor of the Banks and
the Agent pursuant to which each Wholly-Owned Guarantor guaranties to the Banks
and the Agent the payment and performance of the Obligations, substantially in
form of Exhibit E attached hereto.
Tax Sharing Agreement(s). The Tax Sharing Agreement, dated as of June
29, 1994, by and among the Parent, the Borrower and each of the Subsidiaries of
the Parent listed on the signature pages thereto, in the form delivered to the
Banks and the Agent on or prior to the Closing Date.
Total Commitment. The sum of the Commitment Amounts of the Banks, as
in effect from time to time.
Total Debt Service. For any period, with respect to any Person, the
Consolidated Financial Obligations of such Person plus the Consolidated
Interest Expense of such Person paid in cash in that period, plus, with respect
to the Borrower, the Parent Interest Expense.
Transition Agreements. The transition agreements, dated as of July 25,
1997, between the Parent and certain of its Subsidiaries in the form delivered
to the Agent on or prior to the Closing Date.
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Type. As to any Revolving Credit Loan, its nature as a Base Rate Loan
or a Eurodollar Rate Loan.
Uniform Customs. With respect to any Letter of Credit, the Uniform
Customs and Practice for Documentary Credits (1993 Revision), International
Chamber of Commerce Publication No. 500 or any successor version thereto
adopted by the Agent in the ordinary course of its business as a letter of
credit issuer and in effect at the time of issuance of such Letter of Credit.
Unpaid Reimbursement Obligation. Any Reimbursement Obligation for
which the Borrower does not reimburse the Agent and the Banks on the date
specified in, and in accordance with, ss.4.2 hereof.
Viewsonics. Viewsonics, Inc., a Delaware corporation.
Voting Stock. Stock or similar interests, of any class or classes
(however designated), the holders of which are at the time entitled, as such
holders, to vote for the election of the directors (or persons performing
similar functions) of the corporation, association, trust or other business
entity involved, whether or not the right so to vote exists by reason of the
happening of a contingency.
Wholly-Owned Guarantor(s). Collectively, all of, and individually,
each of, the Subsidiaries of the Borrower that are not Non-Wholly-Owned
Guarantors.
ss.1.2. RULES OF INTERPRETATION.
(a) A reference to any document or agreement shall include such
document or agreement as amended, modified or supplemented from time to time in
accordance with its terms and the terms of this Credit Agreement.
(b) The singular includes the plural and the plural includes the
singular.
(c) A reference to any law includes any amendment or modification
to such law.
(d) A reference to any Person includes its permitted successors
and permitted assigns.
(e) Accounting terms not otherwise defined herein have the
meanings assigned to them by generally accepted accounting principles applied
on a consistent basis by the accounting entity to which they refer.
(f) The words "include", "includes" and "including" are not
limiting.
(g) All terms not specifically defined herein or by generally
accepted accounting principles, which terms are defined in the Uniform
Commercial Code as in effect in the Commonwealth of Massachusetts, have the
meanings assigned to them therein, with the term "instrument" being that
defined under Article 9 of the Uniform Commercial Code.
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(h) Reference to a particular "ss." refers to that section of
this Credit Agreement unless otherwise indicated.
(i) The words "herein", "hereof", "hereunder" and words of like
import shall refer to this Credit Agreement as a whole and not to any
particular section or subdivision of this Credit Agreement.
ss.2. THE REVOLVING CREDIT FACILITY.
ss.2.1. COMMITMENT TO LEND. Subject to the terms and conditions set
forth in this Credit Agreement, each of the Banks severally agrees to lend to
the Borrower and the Borrower may borrow, repay, and reborrow from time to time
between the Closing Date and the Revolving Credit Loan Maturity Date upon
notice by the Borrower to the Agent given in accordance with ss.2.6 hereof,
such sums as are requested by the Borrower up to a maximum aggregate amount
outstanding (after giving effect to all amounts requested) at any one time
equal to such Bank's Commitment Amount minus such Bank's Commitment Percentage
of the sum of the Maximum Drawing Amount and all Unpaid Reimbursement
Obligations, provided that the sum of the outstanding amount of the Revolving
Credit Loans (after giving effect to all amounts requested) plus the Maximum
Drawing Amount and all Unpaid Reimbursement Obligations shall not at any time
exceed the Total Commitment. The Revolving Credit Loans shall be made pro rata
in accordance with each Bank's Commitment Percentage. Each request for a
Revolving Credit Loan hereunder shall constitute a representation and warranty
by the Borrower that the conditions set forth in ss.ss.11 and 12 hereof, in the
case of the initial Revolving Credit Loans to be made on the Closing Date, and
ss.12 hereof, in the case of all other Revolving Credit Loans, have been
satisfied on the date of such request.
ss.2.2. COMMITMENT FEE. The Borrower agrees to pay to the Agent for
the accounts of the Banks in accordance with their respective Commitment
Percentages a commitment fee (the "Commitment Fee") calculated at the rate of
3/8% per annum on the average daily amount during each calendar quarter or
portion thereof from the Closing Date to the Revolving Credit Loan Maturity
Date by which the Total Commitment minus the sum of the Maximum Drawing Amount
and all Unpaid Reimbursement Obligations exceeds the outstanding amount of
Revolving Credit Loans during such calendar quarter. The Commitment Fee shall
be payable quarterly in arrears on the last day of each calendar quarter for
the immediately preceding calendar quarter commencing on the first such date
following the Closing Date, with a final payment on the Revolving Credit Loan
Maturity Date or any earlier date on which the Commitments shall terminate.
ss.2.3. REDUCTION OF TOTAL COMMITMENT. (a) The Borrower shall have the
right at any time and from time to time upon three (3) Business Days' prior
written notice to the Agent to reduce by $500,000 or an integral multiple of
$100,000 in excess thereof the unborrowed portion of the Total Commitment or
terminate entirely the Commitments, whereupon the Commitment Amounts of the
Banks shall be reduced pro rata in accordance with their respective Commitment
Percentages of the amount specified in such notice or, as the case may be, the
Commitments of the Banks shall be terminated. Promptly after receiving any
notice of the Borrower delivered pursuant to this ss.2.3, the Agent will notify
the Banks of the substance thereof. Upon the effective date of any such
reduction or termination, the Borrower shall pay to the Agent for the
respective accounts of the Banks the full amount of any Commitment Fee then
accrued on the amount of the reduction. No reduction of the Total Commitment or
termination of the Commitments may be reinstated.
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(b) If at any time after the Closing Date the Borrower or any of its
Subsidiaries receives Net Proceeds pursuant to ss.9.5.2(f) hereof in excess of
$5,000,000, the Borrower shall immediately repay the outstanding Revolving
Credit Loans in an amount equal to 100% of such Net Proceeds, and, if the
Senior Debt to Consolidated Cash Flow Ratio equals or exceeds 3.00 to 1 (as
reflected in a certificate of the Borrower delivered to the Agent on the date
such Net Proceeds are received), the Total Commitment shall be automatically
reduced upon such receipt by an aggregate amount equal to 75% of such Net
Proceeds. Any such reduction of the Total Commitment pursuant to this ss.2.3(b)
shall be reinstated on the first day of the month immediately following the
month in which a Compliance Certificate is delivered by the Borrower which
reflects that the Senior Debt to Consolidated Cash Flow Ratio is less than 3.00
to 1 as at such date of determination, provided that no Default or Event of
Default shall have occurred and be continuing.
ss.2.4. THE REVOLVING CREDIT NOTES. The Revolving Credit Loans shall
be evidenced by separate amended and restated promissory notes of the Borrower
in substantially the form of Exhibit A attached hereto (each a "Note"), dated
as of the Closing Date and completed with appropriate insertions. One Note
shall be payable to the order of each Bank in a principal amount equal to such
Bank's Commitment Amount or, if less, the outstanding amount of all Revolving
Credit Loans made by such Bank, plus interest accrued thereon, as set forth
below. The Borrower irrevocably authorizes each Bank to make or cause to be
made, at or about the time of the Drawdown Date of any Revolving Credit Loan or
at the time of receipt of any payment of principal on such Bank's Note, an
appropriate notation on such Bank's Note Record reflecting the making of such
Revolving Credit Loan or (as the case may be) the receipt of such payment. The
outstanding amount of the Revolving Credit Loans set forth on such Bank's Note
Record shall be prima facie evidence of the principal amount thereof owing and
unpaid to such Bank, but the failure to record, or any error in so recording,
any such amount on such Bank's Note Record shall not limit or otherwise affect
the obligations of the Borrower hereunder or under any Note to make payments of
principal of or interest on any Note when due.
ss.2.5. INTEREST ON REVOLVING CREDIT LOANS. (a) Except as otherwise
provided in ss.5.11 hereof,
(i) each Base Rate Loan shall bear interest for the period
commencing with the Drawdown Date thereof and ending on the last day of the
Interest Period with respect thereto at the rate per annum equal to the Base
Rate plus the Applicable Margin; and
(ii) each Eurodollar Rate Loan shall bear interest for the period
commencing with the Drawdown Date thereof and ending on the last day of the
Interest Period with respect thereto at the rate per annum equal to the
Eurodollar Rate determined for such Interest Period plus the Applicable Margin.
(b) The Borrower promises to pay interest on each Revolving
Credit Loan in arrears on each Interest Payment Date with respect thereto.
ss.2.6. REQUESTS FOR REVOLVING CREDIT LOANS. The Borrower shall give
to the Agent written notice in the form of Exhibit F attached hereto (or
telephonic notice confirmed in a writing in the form of Exhibit F attached
hereto) of each Revolving Credit Loan requested hereunder (a "Loan Request") no
later than 1:00 p.m. (Boston time) (a) one (1) Business Day prior to the
proposed Drawdown Date of any Base Rate Loan
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and (b) three (3) Eurodollar Business Days prior to the proposed Drawdown Date
of any Eurodollar Rate Loan. Each such notice shall specify (i) the principal
amount of the Revolving Credit Loan requested, (ii) the proposed Drawdown Date
of such Revolving Credit Loan, (iii) the Interest Period for such Revolving
Credit Loan, and (iv) the Type of such Revolving Credit Loan. Promptly upon
receipt of any such notice, the Agent shall notify each of the Banks thereof.
Each Loan Request shall be irrevocable and binding on the Borrower and shall
obligate the Borrower to accept the Revolving Credit Loan requested from the
Banks on the proposed Drawdown Date. Each Loan Request shall be in a minimum
aggregate amount of $500,000 or a larger integral multiple of $100,000.
ss.2.7. CONVERSION OPTIONS.
ss.2.7.1. CONVERSION TO DIFFERENT TYPE OF REVOLVING CREDIT LOAN.
The Borrower may elect from time to time to convert any outstanding Revolving
Credit Loan to a Revolving Credit Loan of another Type, provided that (a) with
respect to any such conversion of a Eurodollar Rate Loan to a Base Rate Loan,
the Borrower shall give the Agent at least one (1) Business Day prior written
notice of such election; (b) with respect to any such conversion of a Base Rate
Loan to a Eurodollar Rate Loan, the Borrower shall give the Agent at least
three (3) Eurodollar Business Days' prior written notice of such election; (c)
with respect to any such conversion of a Eurodollar Rate Loan into a Base Rate
Loan, such conversion shall only be made on the last day of the Interest Period
with respect thereto; (d) no Revolving Credit Loan may be converted into a
Eurodollar Rate Loan when any Default or Event of Default under either ss.13(a)
or ss.13(b) hereof or resulting from the Borrower's failure to comply with any
of the covenants set forth in ss.10 hereof has occurred and is continuing, and
(e) no more than eight (8) Eurodollar Rate Loans having different Interest
Periods may be outstanding at any time. On the date on which such conversion is
being made each Bank shall take such action as is necessary to transfer its
Commitment Percentage of such Revolving Credit Loans to its Domestic Lending
Office or its Eurodollar Lending Office, as the case may be. All or any part of
outstanding Revolving Credit Loans of any Type may be converted into a
Revolving Credit Loan of another Type as provided herein, provided that any
partial conversion shall be in an aggregate principal amount of $500,000 or a
larger integral multiple of $100,000 in excess thereof. Each Conversion Request
relating to the conversion of a Base Rate Loan to a Eurodollar Rate Loan shall
be irrevocable by the Borrower.
ss.2.7.2. CONTINUATION OF TYPE OF REVOLVING CREDIT LOAN. Any
Revolving Credit Loan of any Type may be continued as a Revolving Credit Loan
of the same Type upon the expiration of an Interest Period with respect thereto
by compliance by the Borrower with the notice provisions contained in ss.2.7.1
hereof; provided that no Eurodollar Rate Loan may be continued as such when any
Default or Event of Default has occurred and is continuing, but shall be
automatically converted to a Base Rate Loan on the last day of the first
Interest Period relating thereto ending during the continuance of any Default
or Event of Default of which officers of the Agent active upon the Borrower's
account have actual knowledge. In the event that the Borrower fails to provide
any such notice with respect to the continuation of any Eurodollar Rate Loan as
such, then such Eurodollar Rate Loan shall be automatically converted to a Base
Rate Loan on the last day of the first Interest Period relating thereto. The
Agent shall notify the Banks promptly when any such automatic conversion
contemplated by this ss.2.7.2 is scheduled to occur.
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ss.2.7.3. EURODOLLAR RATE LOANS. Any conversion to or from
Eurodollar Rate Loans shall be in such amounts and be made pursuant to such
elections so that, after giving effect thereto, the aggregate principal amount
of all Eurodollar Rate Loans having the same Interest Period shall not be less
than $500,000 or a larger integral multiple of $100,000 in excess thereof.
ss.2.8. FUNDS FOR REVOLVING CREDIT LOANS.
ss.2.8.1. FUNDING PROCEDURES. Not later than 1:00 p.m. (Boston
time) on the proposed Drawdown Date of any Revolving Credit Loans, each of the
Banks will make available to the Agent, at the Agent's Head Office, in
immediately available funds, the amount of such Bank's Commitment Percentage of
the amount of the requested Revolving Credit Loans. Upon receipt from each Bank
of such amount, and upon receipt of the documents required by ss.ss.11 and 12
hereof and the satisfaction of the other conditions set forth therein, to the
extent applicable, the Agent will make available to the Borrower the aggregate
amount of such Revolving Credit Loans made available to the Agent by the Banks.
The failure or refusal of any Bank to make available to the Agent at the
aforesaid time and place on any Drawdown Date the amount of its Commitment
Percentage of the requested Revolving Credit Loans shall not relieve any other
Bank from its several obligation hereunder to make available to the Agent the
amount of such other Bank's Commitment Percentage of any requested Revolving
Credit Loans.
ss.2.8.2. ADVANCES BY AGENT. The Agent may, unless notified to
the contrary by any Bank prior to a Drawdown Date, assume that such Bank has
made available to the Agent on such Drawdown Date the amount of such Bank's
Commitment Percentage of the Revolving Credit Loans to be made on such Drawdown
Date, and the Agent may (but it shall not be required to), in reliance upon
such assumption, make available to the Borrower a corresponding amount. If any
Bank makes available to the Agent such amount on a date after such Drawdown
Date, such Bank shall pay to the Agent on demand an amount equal to the product
of (a) the average computed for the period referred to in clause (c) below, of
the weighted average interest rate paid by the Agent for federal funds acquired
by the Agent during each day included in such period, times (b) the amount of
such Bank's Commitment Percentage of such Revolving Credit Loans, times (c) a
fraction, the numerator of which is the number of days that elapse from and
including such Drawdown Date to the date on which the amount of such Bank's
Commitment Percentage of such Revolving Credit Loans shall become immediately
available to the Agent, and the denominator of which is 365. A statement of the
Agent submitted to such Bank with respect to any amounts owing under this
paragraph shall be prima facie evidence of the amount due and owing to the
Agent by such Bank. If the amount of such Bank's Commitment Percentage of such
Revolving Credit Loans is not made available to the Agent by such Bank within
three (3) Business Days following such Drawdown Date, the Agent shall be
entitled to recover such amount from the Borrower on demand, with interest
thereon at the rate per annum applicable to the Revolving Credit Loans made on
such Drawdown Date.
ss.3. REPAYMENT OF THE REVOLVING CREDIT LOANS.
ss.3.1. MATURITY. The Borrower promises to pay on the Revolving Credit
Loan Maturity Date, and there shall become absolutely due and payable on the
Revolving Credit Loan Maturity Date, all of the
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Revolving Credit Loans outstanding on such date, together with any and all
accrued and unpaid interest thereon.
ss.3.2. MANDATORY REPAYMENTS OF REVOLVING CREDIT LOANS. If at any time
the sum of the outstanding amount of the Revolving Credit Loans plus the
Maximum Drawing Amount plus all Unpaid Reimbursement Obligations exceeds the
Total Commitment, then the Borrower shall immediately pay the amount of such
excess to the Agent for the respective accounts of the Banks for application:
first, to any Unpaid Reimbursement Obligations; second, to the Revolving Credit
Loans; and third, to provide to the Agent cash collateral for Reimbursement
Obligations as contemplated by ss.4.2(b) and (c) hereof. Each payment of any
Unpaid Reimbursement Obligations or prepayment of Revolving Credit Loans shall
be allocated among the Banks, in proportion, as nearly as practicable, to each
Reimbursement Obligation or (as the case may be) the respective unpaid
principal amount of each Bank's Note, with adjustments to the extent
practicable to equalize any prior payments or repayments not exactly in
proportion.
ss.3.3. OPTIONAL REPAYMENTS OF REVOLVING CREDIT LOANS. The Borrower
shall have the right, at its election, to repay the outstanding amount of the
Revolving Credit Loans, as a whole or in part, at any time without penalty or
premium, provided that any full or partial prepayment of the outstanding amount
of any Eurodollar Rate Loans pursuant to this ss.3.3 may be made only on the
last day of the Interest Period relating thereto. The Borrower shall give the
Agent, no later than 11:00 a.m., Boston time, at least one (1) Business Day
prior written notice of any proposed prepayment pursuant to this ss.3.3 of Base
Rate Loans and three (3) Eurodollar Business Days' notice of any proposed
prepayment pursuant to this ss.3.3 of Eurodollar Rate Loans, in each case
specifying the proposed date of prepayment of Revolving Credit Loans and the
principal amount to be prepaid. Each such partial prepayment of the Revolving
Credit Loans shall be in an integral multiple of $100,000, shall be accompanied
by the payment of accrued interest on the principal prepaid to the date of
prepayment and shall be applied, in the absence of instruction by the Borrower,
first to the principal of Base Rate Loans and then to the principal of
Eurodollar Rate Loans. Each partial prepayment shall be allocated among the
Banks, in proportion, as nearly as practicable, to the respective unpaid
principal amount of each Bank's Note, with adjustments to the extent
practicable to equalize any prior repayments not exactly in proportion.
ss.4. LETTERS OF CREDIT.
ss.4.1. LETTER OF CREDIT COMMITMENTS.
ss.4.1.1. COMMITMENT TO ISSUE LETTERS OF CREDIT. Subject to the
terms and conditions hereof and the execution and delivery by the Borrower of a
letter of credit application on the Agent's customary form (a "Letter of Credit
Application"), the Agent on behalf of the Banks and in reliance upon the
agreement of the Banks set forth in ss.4.1.4 hereof and upon the
representations and warranties of the Borrower contained herein, agrees, in its
individual capacity, to issue, extend and renew for the account of the Borrower
one or more standby or documentary letters of credit (individually, a "Letter
of Credit"), in such form as may be requested from time to time by the Borrower
and agreed to by the Agent; provided, however, that, after giving effect to
such request, (a) the sum of the aggregate Maximum Drawing Amount plus all
Unpaid Reimbursement Obligations shall not exceed $10,000,000 at any time and
(b) the sum of (i) the Maximum
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Drawing Amount plus (ii) all Unpaid Reimbursement Obligations plus (iii) the
aggregate amount of all Revolving Credit Loans outstanding shall not exceed the
Total Commitment at any time.
ss.4.1.2. LETTER OF CREDIT APPLICATIONS. Each Letter of Credit
Application shall be completed to the satisfaction of the Agent. In the event
that any provision of any Letter of Credit Application shall be inconsistent
with any provision of this Credit Agreement, then the provisions of this Credit
Agreement shall, to the extent of any such inconsistency, govern.
ss.4.1.3. TERMS OF LETTERS OF CREDIT. Each Letter of Credit
issued, extended or renewed hereunder shall, among other things, (a) provide
for the payment of sight drafts for honor thereunder when presented in
accordance with the terms thereof and when accompanied by the documents
described therein, and (b) have an expiry date no later than the date which is
fourteen (14) days (or, if the beneficiary is located outside of the United
States of America, forty-five (45) days) prior to the Revolving Credit Loan
Maturity Date. Each Letter of Credit so issued, extended or renewed shall be
subject to the Uniform Customs.
ss.4.1.4. REIMBURSEMENT OBLIGATIONS OF BANKS. Each Bank severally
agrees that it shall be absolutely liable, without regard to the occurrence of
any Default or Event of Default or any other condition precedent whatsoever, to
the extent of such Bank's Commitment Percentage, to reimburse the Agent on
demand for the amount of each draft paid by the Agent under each Letter of
Credit to the extent that such amount is not reimbursed by the Borrower
pursuant to ss.4.2 hereof (such agreement for a Bank being called herein the
"Letter of Credit Participation" of such Bank).
ss.4.1.5. PARTICIPATIONS OF BANKS. Each such payment made by a
Bank shall be treated as the purchase by such Bank of a participating interest
in the Borrower's Reimbursement Obligation under ss.4.2 hereof in an amount
equal to such payment. Each Bank shall share in accordance with its
participating interest in any interest which accrues pursuant to ss.4.2 hereof.
ss.4.2. REIMBURSEMENT OBLIGATION OF THE BORROWER. In order to induce
the Agent to issue, extend and renew each Letter of Credit and the Banks to
participate therein, the Borrower hereby agrees to reimburse or pay to the
Agent, for the account of the Agent or (as the case may be) the Banks, with
respect to each Letter of Credit issued, extended or renewed by the Agent
hereunder,
(a) except as otherwise expressly provided in ss.4.2(b) and (c)
hereof, on each date that any draft presented under such Letter of Credit is
honored by the Agent, or the Agent otherwise makes a payment with respect
thereto, (i) the amount paid by the Agent under or with respect to such Letter
of Credit, and (ii) the amount of any taxes, fees, charges or other costs and
expenses whatsoever incurred by the Agent or any Bank in connection with any
payment made by the Agent or any Bank under, or with respect to, such Letter of
Credit,
(b) upon the reduction of the Total Commitment (but not the
termination of the Commitments) to an amount less than the Maximum Drawing
Amount, an amount equal to such difference, which amount shall be held by the
Agent for the benefit of the Banks and the Agent as cash collateral for all
Reimbursement Obligations, and
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(c) upon the termination of the Commitments, or the acceleration
of the Reimbursement Obligations with respect to all Letters of Credit in
accordance with ss.13 hereof, an amount equal to the then Maximum Drawing
Amount on all Letters of Credit, which amount shall be held by the Agent for
the benefit of the Banks and the Agent as cash collateral for all Reimbursement
Obligations.
Each such payment shall be made to the Agent at the Agent's Head Office in
immediately available funds. Interest on any and all amounts remaining unpaid
by the Borrower under this ss.4.2 at any time from the date such amounts become
due and payable (whether as stated in this ss.4.2, by acceleration or
otherwise) until payment in full (whether before or after judgment) shall be
payable to the Agent on demand at the rate specified in ss.5.11 hereof for
overdue principal on the Revolving Credit Loans.
ss.4.3. LETTER OF CREDIT PAYMENTS. If any draft shall be presented or
other demand for payment shall be made under any Letter of Credit, the Agent
shall notify the Borrower of the date and amount of the draft presented or
demand for payment and of the date and time when it expects to pay such draft
or honor such demand for payment. If the Borrower fails to reimburse the Agent
as provided in ss.4.2 hereof on or before the date that such draft is paid or
other payment is made by the Agent, the Agent may at any time thereafter notify
the Banks of the amount of any such Unpaid Reimbursement Obligation. No later
than 3:00 p.m. (Boston time) on the Business Day next following the receipt of
such notice, each Bank shall make available to the Agent, at the Agent's Head
Office, in immediately available funds, such Bank's Commitment Percentage of
such Unpaid Reimbursement Obligation, together with an amount equal to the
product of (a) the average, computed for the period referred to in clause (c)
below, of the weighted average interest rate paid by the Agent for federal
funds acquired by the Agent during each day included in such period, times (b)
the amount equal to such Bank's Commitment Percentage of such Unpaid
Reimbursement Obligation, times (c) a fraction, the numerator of which is the
number of days that elapse from and including the date the Agent paid the draft
presented for honor or otherwise made payment to the date on which such Bank's
Commitment Percentage of such Unpaid Reimbursement obligation shall become
immediately available to the Agent, and the denominator of which is 360. The
responsibility of the Agent to the Borrower and the Banks shall be only to
determine that the documents (including each draft) delivered under each Letter
of Credit in connection with such presentment shall be in conformity in all
material respects with such Letter of Credit.
ss.4.4. OBLIGATIONS ABSOLUTE. The Borrower's obligations under this
ss.4 shall be absolute and unconditional under any and all circumstances and
irrespective of the occurrence of any Default or Event of Default or any
condition precedent whatsoever or any setoff, counterclaim or defense to
payment which the Borrower may have or have had against the Agent, any Bank or
any beneficiary of a Letter of Credit. The Borrower further agrees with the
Agent and the Banks that the Agent and the Banks shall not be responsible for,
and the Borrower's Reimbursement Obligations under ss.4.2 hereof shall not be
affected by, among other things, the validity or genuineness of documents or of
any endorsements thereon, even if such documents should in fact prove to be in
any or all respects invalid, fraudulent or forged, or any dispute between or
among the Borrower, the beneficiary of any Letter of Credit or any financing
institution or other party to which any Letter of Credit may be transferred or
any claims or defenses whatsoever of the Borrower against the beneficiary of
any Letter of Credit or any such transferee. The Agent and the Banks shall not
be liable for any error, omission, interruption or delay in transmission,
dispatch or delivery of any message or advice, however transmitted, in
connection with any Letter of Credit. The Borrower agrees that any action taken
or
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omitted by the Agent or any Bank under or in connection with each Letter of
Credit and the related drafts and documents, if done in good faith, shall be
binding upon the Borrower and shall not result in any liability on the part of
the Agent or any Bank to the Borrower.
ss.4.5. RELIANCE BY ISSUER. To the extent not inconsistent with ss.4.4
hereof, the Agent shall be entitled to rely, and shall be fully protected in
relying upon, any Letter of Credit, draft, writing, resolution, notice,
consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex
or teletype message, statement, order or other document believed by it to be
genuine and correct and to have been signed, sent or made by the proper Person
or Persons and upon advice and statements of legal counsel, independent
accountants and other experts selected by the Agent. The Agent shall be fully
justified in failing or refusing to take any action under this Agreement unless
it shall first have received such advice or concurrence of the Majority Banks
as it reasonably deems appropriate or it shall first be indemnified to its
reasonable satisfaction by the Banks against any and all liability and expense
which may be incurred by it by reason of taking or continuing to take any such
action. The Agent shall in all cases be fully protected in acting, or in
refraining from acting, under this Agreement in accordance with a request of
the Majority Banks, and such request and any action taken or failure to act
pursuant thereto shall be binding upon the Banks and all future holders of the
Notes or of a Letter of Credit Participation.
ss.4.6. LETTER OF CREDIT FEE. The Borrower shall pay to the Agent a
fee (in each case, a "Letter of Credit Fee") (a) in respect of each standby
Letter of Credit issued pursuant to this Credit Agreement, calculated at the
rate of the Applicable Margin per annum on the face amount of each such Letter
of Credit, and the Agent shall, in turn, remit to each Bank (other than the
Agent) its pro rata portion of such Letter of Credit Fee calculated at a rate
of the Applicable Margin minus 1/4% per annum on the face amount of each such
Letter of Credit, and (b) in respect of each documentary Letter of Credit
issued pursuant to this Credit Agreement, calculated at the rate of the
Applicable Margin minus 1/2% per annum on the face amount of such Letter of
Credit, and the Agent shall, in turn, remit to each Bank (other than the Agent)
its pro rata portion of such Letter of Credit Fee calculated at a rate of the
Applicable Margin minus 3/4% per annum on the face amount of each such Letter
of Credit. The Letter of Credit Fee for each Letter of Credit shall be payable
quarterly in advance, on the date of issuance of such Letter of Credit, and on
the first day of each fiscal quarter thereafter until such Letter of Credit
expires or is cancelled. In addition, the Borrower shall pay to the Agent, for
its own account, the Agent's standard issuance, processing, negotiation,
amendment and administrative fees, determined in accordance with customary fees
and charges for similar facilities.
ss.5. CERTAIN GENERAL PROVISIONS.
ss.5.1. AMENDMENT FEE. The Borrower agrees to pay to the Agent on the
Closing Date an amendment fee as set forth in the Fee Letter.
ss.5.2. AGENT'S FEE. The Borrower shall pay to the Agent an Agent's
fee (the "Agent's Fee") as provided in the Fee Letter.
ss.5.3. FUNDS FOR PAYMENTS.
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ss.5.3.1. PAYMENTS TO AGENT. All payments of principal, interest,
Reimbursement Obligations, Commitment Fees, Letter of Credit Fees and any other
amounts due hereunder or under any of the other Loan Documents shall be made to
the Agent, for the respective accounts of the Banks and the Agent, at the
Agent's Head Office or at such other location in the Boston, Massachusetts area
that the Agent may from time to time designate, in each case in immediately
available funds.
ss.5.3.2. NO OFFSET. All payments by the Borrower hereunder and
under any of the other Loan Documents shall be made without setoff or
counterclaim and free and clear of and without deduction for any taxes, levies,
imposts, duties, charges, fees, deductions, withholdings, compulsory loans,
restrictions or conditions of any nature now or hereafter imposed or levied by
any jurisdiction or any political subdivision thereof or taxing or other
authority therein unless the Borrower is compelled by law to make such
deduction or withholding. If any such obligation is imposed upon the Borrower
with respect to any amount payable by it hereunder or under any of the other
Loan Documents (other than with respect to taxes based upon the Agent's or any
Bank's net income), the Borrower will pay to the Agent, for the account of the
Banks or (as the case may be) the Agent, on the date on which such amount is
due and payable hereunder or under such other Loan Document, such additional
amount in Dollars as shall be necessary to enable the Banks or the Agent to
receive the same net amount which the Banks or the Agent would have received on
such due date had no such obligation been imposed upon the Borrower. The
Borrower will deliver promptly to the Agent certificates or other valid
vouchers for all taxes or other charges deducted from or paid with respect to
payments made by the Borrower hereunder or under such other Loan Document.
ss.5.4. COMPUTATIONS. All computations of interest on the Revolving
Credit Loans and of Commitment Fees, Letter of Credit Fees or other fees shall
be based on a 360-day year and paid for the actual number of days elapsed.
Except as otherwise provided in the definition of the term "Interest Period"
with respect to Eurodollar Rate Loans, whenever a payment hereunder or under
any of the other Loan Documents becomes due on a day that is not a Business
Day, the due date for such payment shall be extended to the next succeeding
Business Day, and interest shall accrue during such extension. The outstanding
amount of the Revolving Credit Loans as reflected on the Note Records from time
to time shall be considered correct and binding on the Borrower unless within
five (5) Business Days after receipt of any notice by the Agent or any of the
Banks of such outstanding amount, the Agent or such Bank shall notify the
Borrower to the contrary.
ss.5.5. INABILITY TO DETERMINE EURODOLLAR RATE. In the event, prior to
the commencement of any Interest Period relating to any Eurodollar Rate Loan,
the Agent shall determine or be notified by the Majority Banks that adequate
and reasonable methods do not exist for ascertaining the Eurodollar Rate that
would otherwise determine the rate of interest to be applicable to any
Eurodollar Rate Loan during any Interest Period, the Agent shall forthwith give
notice of such determination (which shall be conclusive and binding on the
Borrower and the Banks) to the Borrower and the Banks. In such event (a) any
Loan Request or Conversion Request with respect to Eurodollar Rate Loans shall
be automatically withdrawn and shall be deemed a request for Base Rate Loans,
(b) each Eurodollar Rate Loan will automatically, on the last day of the then
current Interest Period relating thereto, become a Base Rate Loan, and (c) the
obligations of the Banks to make Eurodollar Rate Loans shall be suspended until
the Agent or the Majority Banks determine that the circumstances giving rise to
such suspension no longer exist, whereupon the Agent or, as the case may be,
the Agent upon the instruction of the Majority Banks, shall so notify the
Borrower and the Banks.
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ss.5.6. ILLEGALITY. Notwithstanding any other provisions herein, if
any present or future law, regulation, treaty or directive or in the
interpretation or application thereof shall make it unlawful for any Bank to
make or maintain Eurodollar Rate Loans, such Bank shall forthwith give notice
of such circumstances to the Borrower and the other Banks and thereupon (a) the
commitment of such Bank to make Eurodollar Rate Loans or convert Base Rate
Loans to Eurodollar Rate Loans shall forthwith be suspended and (b) such Bank's
Revolving Credit Loans then outstanding as Eurodollar Rate Loans, if any, shall
be converted automatically to Base Rate Loans on the last day of each Interest
Period applicable to such Eurodollar Rate Loans or within such earlier period
as may be required by law. The Borrower hereby agrees promptly to pay the Agent
for the account of such Bank, upon demand by such Bank, any additional amounts
necessary to compensate such Bank for any costs incurred by such Bank in making
any conversion in accordance with this ss.5.6, including any interest or fees
payable by such Bank to lenders of funds obtained by it in order to make or
maintain its Eurodollar Loans hereunder.
ss.5.7. ADDITIONAL COSTS. If any present or future applicable law,
which expression, as used herein, includes statutes, rules and regulations
thereunder and interpretations thereof by any competent court or by any
governmental or other regulatory body or official charged with the
administration or the interpretation thereof and requests, directives,
instructions and notices at any time or from time to time hereafter made upon
or otherwise issued to any Bank or the Agent by any central bank or other
fiscal, monetary or other authority (whether or not having the force of law),
shall:
(a) subject any Bank or the Agent to any tax, levy, impost, duty,
charge, fee, deduction or withholding of any nature with respect to this Credit
Agreement, the other Loan Documents, any Letters of Credit, such Bank's
Commitment or the Revolving Credit Loans (other than taxes based upon or
measured by the income or profits of such Bank or the Agent), or
(b) materially change the basis of taxation (except for changes
in taxes on income or profits) of payments to any Bank of the principal of or
the interest on any Revolving Credit Loans or any other amounts payable to any
Bank or the Agent under this Credit Agreement or any of the other Loan
Documents, or
(c) impose or increase or render applicable (other than to the
extent specifically provided for elsewhere in this Credit Agreement) any
special deposit, reserve, assessment, liquidity, capital adequacy or other
similar requirements (whether or not having the force of law) against assets
held by, or deposits in or for the account of, or loans by, or letters of
credit issued by, or commitments of an office of any Bank, or
(d) impose on any Bank or the Agent any other conditions or
requirements with respect to this Credit Agreement, the other Loan Documents,
any Letters of Credit, the Revolving Credit Loans, such Bank's Commitment, or
any class of loans, letters of credit or commitments of which any of the
Revolving Credit Loans or such Bank's Commitment forms a part,
and the result of any of the foregoing is:
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(i) to increase the cost to any Bank of making, funding,
issuing, renewing, extending or maintaining any of the Revolving
Credit Loans or such Bank's Commitment or any Letter of Credit, or
(ii) to reduce the amount of principal, interest,
Reimbursement Obligation or other amount payable to such Bank or the
Agent hereunder on account of such Bank's Commitment, any Letter of
Credit or any of the Revolving Credit Loans, or
(iii) to require such Bank or the Agent to make any payment
or to forego any interest or Reimbursement Obligation or other sum
payable hereunder, the amount of which payment or foregone interest or
Reimbursement Obligation or other sum is calculated by reference to
the gross amount of any sum receivable or deemed received by such Bank
or the Agent from the Borrower hereunder,
then, and in each such case, the Borrower will, upon demand made by such Bank
or (as the case may be) the Agent at any time and from time to time and as
often as the occasion therefor may arise, pay to such Bank or the Agent such
additional amounts as will be sufficient to compensate such Bank or the Agent
for such additional cost, reduction, payment or foregone interest or
Reimbursement Obligation or other sum.
ss.5.8. CAPITAL ADEQUACY. If after the date hereof any Bank or the
Agent determines that (a) the adoption of or change in any law, governmental
rule, regulation, policy, guideline or directive (whether or not having the
force of law) regarding capital requirements for banks or bank holding
companies or any change in the interpretation or application thereof by a court
or governmental authority with appropriate jurisdiction, or (b) compliance by
such Bank or the Agent or any corporation controlling such Bank or the Agent
with any law, governmental rule, regulation, policy, guideline or directive
(whether or not having the force of law) of any such entity regarding capital
adequacy, has the effect of reducing the return on such Bank's or the Agent's
Commitment with respect to any Revolving Credit Loans to a level below that
which such Bank or the Agent could have achieved but for such adoption, change
or compliance (taking into consideration such Bank's or the Agent's then
existing policies with respect to capital adequacy and assuming full
utilization of such entity's capital) by any amount deemed by such Bank or (as
the case may be) the Agent to be material, then such Bank or the Agent may
notify the Borrower of such fact. To the extent that the amount of such
reduction in the return on capital is not reflected in the Base Rate, the
Borrower and such Bank shall thereafter attempt to negotiate in good faith,
within thirty (30) days of the day on which the Borrower receives such notice,
an adjustment payable hereunder that will adequately compensate such Bank in
light of these circumstances. If the Borrower and such Bank are unable to agree
to such adjustment within thirty (30) days of the date on which the Borrower
receives such notice, then commencing on the date of such notice (but not
earlier than the effective date of any such increased capital requirement), the
fees payable hereunder shall increase by an amount that will, in such Bank's
reasonable determination, provide adequate compensation. Each Bank shall
allocate such cost increases among its customers in good faith and on an
equitable basis.
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ss.5.9. CERTIFICATE. A certificate setting forth any additional
amounts payable pursuant to ss.ss.5.7 or 5.8 hereof and a brief explanation of
such amounts which are due, submitted by any Bank or the Agent to the Borrower,
shall be conclusive, absent manifest error, that such amounts are due and
owing.
ss.5.10. INDEMNITY. The Borrower agrees to indemnify each Bank and to
hold each Bank harmless from and against any loss, cost or expense (including
loss of anticipated profits) that such Bank may sustain or incur as a
consequence of (a) default by the Borrower in payment of the principal amount
of or any interest on any Eurodollar Rate Loans as and when due and payable,
including any such loss or expense arising from interest or fees payable by
such Bank to lenders of funds obtained by it in order to maintain its
Eurodollar Rate Loans, (b) default by the Borrower in making a borrowing or
conversion after the Borrower has given (or is deemed to have given) a Loan
Request or a Conversion Request relating thereto in accordance with ss.ss.2.6
or 2.7 hereof or (c) the making of any payment of a Eurodollar Rate Loan or the
making of any conversion of any such Eurodollar Rate Loan to a Base Rate Loan
on a day that is not the last day of the applicable Interest Period with
respect thereto, including interest or fees payable by such Bank to lenders of
funds obtained by it in order to maintain any such Revolving Credit Loans.
ss.5.11. INTEREST ON OVERDUE AMOUNTS. Overdue principal and (to the
extent permitted by applicable law) interest on the Revolving Credit Loans and
all other overdue amounts payable hereunder or under any of the other Loan
Documents shall bear interest compounded monthly and payable on demand at a
rate per annum equal to two percent (2%) above the Base Rate until such amount
shall be paid in full (after as well as before judgment).
ss.5.12 REPLACEMENT BANKS. Within 30 days after (a) any Bank has
demanded compensation from the Borrower pursuant to ss.ss.5.7 or 5.8 hereof, or
(b) there shall have occurred a change in law with respect to any Bank as a
consequence of which it shall have become unlawful for such Bank to make a
Eurodollar Rate Loan on any Drawdown Date, as described in ss.5.6 hereof (any
such Bank described in the foregoing clauses (a) or (b) is hereinafter referred
to as an "Affected Bank"), the Borrower may request that the Non-Affected Banks
acquire all, but not less than all, of the Affected Bank's outstanding
Revolving Credit Loans and assume all, but not less than all, of the Affected
Bank's Commitment. If the Borrower so requests, the Non-Affected Banks may
elect to acquire all or any portion of the Affected Bank's outstanding
Revolving Credit Loans and to assume all or any portion of the Affected Bank's
Commitment. If the Non-Affected Banks do not elect to acquire and assume all of
the Affected Bank's outstanding Revolving Credit Loans and Commitment, the
Borrower may designate a replacement bank or banks, which must be satisfactory
to the Agent, to acquire and assume that portion of the outstanding Revolving
Credit Loans and Commitment of the Affected Bank not being acquired and assumed
by the Non-Affected Banks. The provisions of ss.19 hereof shall apply to all
reallocations pursuant to this ss.5.12, and the Affected Bank and any
Non-Affected Banks and/or replacement banks which are to acquire the Revolving
Credit Loans and Commitment of the Affected Bank shall execute and deliver to
the Agent, in accordance with the provisions of ss.19 hereof, such Assignments
and Acceptances and other instruments, including, without limitation, Notes, as
are required pursuant to ss.19 hereof to give effect to such reallocations. Any
Non-Affected Banks and/or replacement banks which are to acquire the Revolving
Credit Loans and Commitment of the Affected Bank shall be deemed to be Eligible
Assignees for all purposes of ss.19 hereof. On the effective date of the
applicable Assignments and Acceptances, the Borrower shall pay to the Affected
Bank all interest accrued on its
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Revolving Credit Loans up to but excluding such date, along with any fees
payable to such Affected Bank hereunder up to but excluding such date.
ss.6. COLLATERAL SECURITY AND GUARANTIES.
ss.6.1. SECURITY OF THE BORROWER. The Obligations shall be secured by
a perfected first priority security interest (subject only to Permitted Liens
entitled to priority under applicable law) in certain of the assets of the
Borrower, whether now owned or hereafter acquired, pursuant to the terms of the
Security Documents to which the Borrower is a party.
ss.6.2. GUARANTIES AND SECURITY OF SUBSIDIARIES. (a) The Obligations
shall also be guaranteed by each of the Wholly-Owned Guarantors pursuant to
the Subsidiary Guaranty. The obligations of each Wholly-Owned Guarantor under
the Subsidiary Guaranty shall be in turn secured by a perfected first priority
security interest (subject only to Permitted Liens entitled to priority under
applicable law) in certain of the personal property of such Wholly-Owned
Guarantor, whether now owned or hereafter acquired, pursuant to the terms of
the Security Documents to which such Wholly-Owned Guarantor is a party.
Notwithstanding anything to the contrary contained in this ss.6.2(a), each of
the Wholly-Owned Subsidiaries set forth on Schedule 6.2(a) attached hereto (the
"Scheduled Subsidiaries") shall only be required to pledge the amount of the
capital stock of any of the Subsidiaries set forth opposite such Scheduled
Subsidiary's name on Schedule 6.2(a) (the "Foreign Scheduled Subsidiaries")
that it owns, up to 65% of the capital stock of such Foreign Scheduled
Subsidiary, and only to the extent that such a pledge of the capital stock does
not either create a "deemed dividend", income recognition or other adverse
Federal income tax consequence or any other materially adverse tax consequence
to the Borrower, such Scheduled Subsidiary or such Foreign Subsidiary and such
pledge does not violate any document, instrument, agreement, law or regulation
existing on the Closing Date to which the Borrower, such Scheduled Subsidiary
or its Foreign Scheduled Subsidiary is a party. In addition, if after the
Closing Date the Borrower or any Subsidiary makes an Investment or a series of
related Investments (x) of not more than $5,000,000 per transaction or a series
of related transactions or $15,000,000 in the aggregate in one or more Foreign
Entities (other than a Foreign Scheduled Subsidiary) which is a start-up entity
or start-up joint venture or (y) of not more than $5,000,000 per transaction or
a series of related transactions or $10,000,000 in the aggregate in connection
with the acquisition of a business or company which is a Foreign Entity (other
than a Foreign Scheduled Subsidiary), the Borrower or such Subsidiary, as the
case may be, making such an Investment shall only be required to pledge those
shares of the capital stock owned by the Borrower or such Subsidiary, as the
case may be, of such Foreign Entity up to 65% of the capital stock of such
Foreign Entity and only to the extent that such a pledge of the capital stock
does not either create a "deemed dividend", income recognition or other adverse
Federal income tax consequence or any other materially adverse tax consequence
to the Borrower, such Subsidiary or such Foreign Subsidiary and such pledge
does not violate any document, instrument, agreement, law or regulation
existing on the date such Investment was made to which the Borrower, such
Subsidiary or such Foreign Entity is a party.
(b) The Obligations shall also be guaranteed by each of the
Non-Wholly-Owned Guarantors pursuant to the Non-Wholly-Owned Subsidiary
Guaranty. The obligations of each Non-Wholly-Owned Guarantor under the
Non-Wholly-Owned Subsidiary Guaranty shall (i) while (but only
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while) such Non-Wholly-Owned Guarantor continues to be a Non-Wholly-Owned
Guarantor, be equal to such Non-Wholly-Owned Guarantor's Maximum Liability, and
(ii) be secured by a perfected first priority security interest (subject only
to Permitted Liens entitled to priority under applicable law) in certain of the
personal property of such Non-Wholly-Owned Guarantor, whether now owned or
hereafter acquired, pursuant to the terms of the Security Documents to which
such Non-Wholly-Owned Guarantor is a party. Notwithstanding anything to the
contrary contained in this ss.6.2(b), (a) each of the Foreign Scheduled
Subsidiaries shall not be required to become a Guarantor and shall not be
required to pledge its assets hereunder; and (b) in the event that after the
Closing Date any Foreign Entity (other than a Foreign Scheduled Subsidiary)
becomes a Subsidiary due to an Investment or a series of related Investments
(x) of not more than $5,000,000 per transaction or a series of related
transactions or $15,000,000 in the aggregate in one or more Foreign Entities
(other than a Foreign Scheduled Subsidiary) which is a start-up entity or
start-up joint venture or (y) of not more than $5,000,000 per transaction or a
series of related transactions or $10,000,000 in the aggregate in connection
with the acquisition of a business or company which is a Foreign Entity (other
than a Foreign Scheduled Subsidiary), such Foreign Entity shall not be required
to become a Guarantor and shall not be required to pledge its assets hereunder.
ss.6.3. PARENT GUARANTY. The Obligations shall also be guaranteed by
the Parent pursuant to the terms of the Parent Guaranty.
ss.6.4. ACKNOWLEDGMENT OF RELEASE OF OLD SUBSIDIARIES. On the Closing
Date, (i) Aim, Bond Holdings, Diversified, NT Holdings and Old JTPG shall be
released as Guarantors hereunder, and shall have no obligations as Guarantors
under the Loan Documents from and after the Closing Date, and (ii) the Agent
shall release its lien on the assets of Cambridge, Dura-Line, Johnson and
Viewsonics which are being transferred to JTP or its Subsidiaries pursuant to
certain asset transfer agreements, dated on or prior to the Closing Date, which
asset transfer agreements are in form and substance satisfactory to the Agent.
ss.7. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents
and warrants to the Banks and the Agent as follows:
ss.7.1. CORPORATE AUTHORITY.
ss.7.1.1. INCORPORATION; GOOD STANDING. Each of the Parent, the
Borrower and its Subsidiaries (a) is a corporation duly organized, validly
existing and in good standing under the laws of its state of incorporation, (b)
has all requisite corporate power to own its property and conduct its business
as now conducted and as presently contemplated, and (c) is in good standing as
a foreign corporation and is duly authorized to do business in each
jurisdiction where such qualification is necessary except where a failure to be
so qualified would not have a materially adverse effect on the business, assets
or financial condition of the Parent or the Borrower and its Subsidiaries
considered as a whole, and would not have any effect on the enforceability
against the Parent, the Borrower or any of its Subsidiaries of any of the Loan
Documents to which such Person is a party.
ss.7.1.2. AUTHORIZATION. The execution, delivery and performance
of this Credit Agreement and the other Loan Documents to which the Parent, the
Borrower or any of its Subsidiaries is or is to become
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a party and the transactions contemplated hereby and thereby (a) are within the
corporate authority of such Person, (b) have been duly authorized by all
necessary corporate proceedings, (c) do not conflict with or result in any
breach or contravention of any provision of law, statute, rule or regulation to
which the Parent, the Borrower or any of its Subsidiaries is subject or any
judgment, order, writ, injunction, license or permit applicable to the Parent,
the Borrower or any of its Subsidiaries and (d) do not conflict with any
provision of the corporate charter or bylaws of, or any agreement or other
instrument binding upon, the Parent, the Borrower or any of its Subsidiaries.
ss.7.1.3. ENFORCEABILITY. The execution and delivery of this
Credit Agreement and the other Loan Documents to which the Parent, the Borrower
or any of its Subsidiaries is or is to become a party will result in valid and
legally binding obligations of such Person enforceable against it in accordance
with the respective terms and provisions hereof and thereof, except as
enforceability is limited by bankruptcy, insolvency, reorganization, moratorium
or other laws relating to or affecting generally the enforcement of creditors'
rights and except to the extent that availability of the remedy of specific
performance or injunctive relief is subject to the discretion of the court
before which any proceeding therefor may be brought.
ss.7.2. GOVERNMENTAL APPROVALS. The execution, delivery and
performance by the Parent, the Borrower and any of its Subsidiaries of this
Credit Agreement and the other Loan Documents to which such Person is or is to
become a party and the transactions contemplated hereby and thereby do not
require the approval or consent of, or filing with, any governmental agency or
authority other than those already obtained.
ss.7.3. TITLE TO PROPERTIES; LEASES. Except as indicated on Schedule
7.3 attached hereto, the Borrower and its Subsidiaries own all of the assets
reflected as owned by them in the consolidated and consolidating balance sheets
of the Parent and its Subsidiaries as at the Balance Sheet Date or acquired
since that date (except property and assets sold or otherwise disposed of in
the ordinary course of business since that date), subject to no rights of
others, including any mortgages, leases, conditional sales agreements, title
retention agreements, liens or other encumbrances except Permitted Liens.
ss.7.4. FINANCIAL STATEMENTS. There has been furnished to each of the
Banks (a) the consolidated balance sheet of the Parent and its Subsidiaries as
at the Balance Sheet Date and the consolidated statement of income of the
Parent and its Subsidiaries for the fiscal year then ended, each prepared in
accordance with generally accepted accounting principles, certified by Ernst &
Young and fairly presenting the financial condition of the Parent and its
Subsidiaries as at the close of business on the date thereof and the results of
operations for the fiscal year then ended, and (b) the consolidating balance
sheet of the Parent and its Subsidiaries as at the Balance Sheet Date and the
consolidating statement of income of the Parent and its Subsidiaries for the
fiscal year then ended, each in reasonable detail and prepared by management in
accordance with the past financial practice of the Parent and its Subsidiaries,
together with a certification by the principal financial or accounting officer
of the Borrower that the information contained in such consolidating financial
statements fairly presents the financial position of the Parent and its
Subsidiaries on the date hereof. There are no contingent liabilities of the
Parent or any of its Subsidiaries as of such date involving material amounts,
known to the officers of the Parent, which were not disclosed in such balance
sheets and the notes related thereto.
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ss.7.5. NO MATERIAL CHANGES. (a) Since the Balance Sheet Date there
has occurred no change in the financial condition or business of the Parent and
its Subsidiaries as shown on or reflected in the consolidated and consolidating
balance sheets of the Parent and its Subsidiaries as at the Balance Sheet Date,
or the consolidated and consolidating statements of income for the fiscal year
then ended, other than changes in the ordinary course of business that have not
had any materially adverse effect either individually or in the aggregate on
the business or financial condition of Parent and its Subsidiaries considered
as a whole or the Borrower and its Subsidiaries considered as a whole. Since
the Balance Sheet Date, the Borrower has not made any Distribution.
(b) The Parent, the Borrower and each of its Subsidiaries (before and
after giving effect to the transactions contemplated by this Credit Agreement
and the other Loan Documents) (i) is solvent, (ii) has assets having a fair
value in excess of its liabilities, (iii) has assets having a fair value in
excess of the amount required to pay its liabilities on existing debts as such
debts become absolute and matured, and (iv) has, and expects to continue to
have, access to adequate capital for the conduct of its business and the
ability to pay its debts from time to time incurred in connection with the
operation of its business as such debts mature.
ss.7.6. FRANCHISES, PATENTS, COPYRIGHTS. Each of the Borrower and its
Subsidiaries possesses all franchises, patents, copyrights, trademarks, trade
names, licenses and permits, and rights in respect of the foregoing, adequate
for the conduct of its business substantially as now conducted without known
conflict with any rights of others.
ss.7.7. LITIGATION. There are no actions, suits, proceedings or
investigations of any kind pending or threatened against the Parent, the
Borrower or any of its Subsidiaries before any court, tribunal or
administrative agency or board that, if adversely determined, might, either in
any case or in the aggregate, materially adversely affect the properties,
assets, financial condition or business of the Parent or the Borrower and its
Subsidiaries or materially impair the right of the Borrower and its
Subsidiaries, considered as a whole, to carry on business substantially as now
conducted by them, or result in any substantial liability not adequately
covered by insurance, or for which adequate reserves are not maintained on the
consolidated balance sheet of the Parent and its Subsidiaries, or which
question the validity of this Credit Agreement or any of the other Loan
Documents, or any action taken or to be taken pursuant hereto or thereto.
ss.7.8. NO MATERIALLY ADVERSE CONTRACTS. None of the Parent, the
Borrower nor any of its Subsidiaries is subject to any charter, corporate or
other legal restriction, or any judgment, decree, order, rule or regulation
that has or is expected in the future to have a materially adverse effect on
the business, assets or financial condition of the Parent or the Borrower and
its Subsidiaries considered as a whole. None of the Parent, the Borrower nor
any of its Subsidiaries is a party to any contract or agreement that has or is
expected, in the judgment of the Parent's and the Borrower's officers, to have
any materially adverse effect on the business of the Parent or the Borrower and
its Subsidiaries considered as a whole.
ss.7.9. COMPLIANCE WITH OTHER INSTRUMENTS, LAWS. None of the Parent,
the Borrower nor any of its Subsidiaries is in violation of any provision of
its charter documents, bylaws, or any agreement or instrument to which it may
be subject or by which it or any of its properties may be bound or any decree,
order, judgment, statute, license, rule or regulation, in any of the foregoing
cases in a manner that could result in
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the imposition of substantial penalties or materially and adversely affect the
financial condition, properties or business of the Parent or the Borrower and
its Subsidiaries considered as a whole.
ss.7.10. TAX STATUS. Each of the Parent, the Borrower and its
Subsidiaries (a) has made or filed all federal and state income and all other
tax returns, reports and declarations required by any jurisdiction to which it
is subject, (b) has paid all taxes and other governmental assessments and
charges shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and by appropriate
proceedings, and (c) has set aside on its books provisions reasonably adequate
for the payment of all taxes for periods subsequent to the periods to which
such returns, reports or declarations apply. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any jurisdiction,
and the officers of the Parent and the Borrower know of no basis for any such
claim.
ss.7.11. NO EVENT OF DEFAULT. No Default or Event of Default has
occurred and is continuing.
ss.7.12. HOLDING COMPANY AND INVESTMENT COMPANY ACTS. None of the
Parent, the Borrower nor any of its Subsidiaries is a "holding company", or a
"subsidiary company" of a "holding company", or an affiliate" of a "holding
company", as such terms are defined in the Public Utility Holding Company Act
of 1935; nor is it an "investment company", or an "affiliated company" or a
"principal underwriter" of an "investment company", as such terms are defined
in the Investment Company Act of 1940.
ss.7.13. ABSENCE OF FINANCING STATEMENTS. Except with respect to
Permitted Liens, there is no financing statement, security agreement, chattel
mortgage, real estate mortgage or other document filed or recorded with any
filing records, registry or other public office, that purports to cover, affect
or give notice of any present or possible future lien on, or security interest
in, any assets or property of the Borrower or any of its Subsidiaries or any
rights relating thereto.
ss.7.14. PERFECTION OF SECURITY INTEREST. All filings, assignments,
pledges and deposits of documents or instruments have been made and all other
actions have been taken that are necessary or advisable, under applicable law,
to establish and perfect the Agent's security interest in the Collateral. The
Collateral and the Agent's rights with respect to the Collateral are not
subject to any setoff, claims, withholdings or other defenses. The Borrower or
the applicable Guarantor is the owner of the Collateral free from any lien,
security interest, encumbrance and any other claim or demand, except for
Permitted Liens.
ss.7.15. CERTAIN TRANSACTIONS. Except for arm's length transactions
pursuant to which the Parent, the Borrower or any of its Subsidiaries makes
payments in the ordinary course of business upon terms no less favorable than
the such Person could obtain from third parties, none of the officers,
directors, or employees of the Parent, the Borrower or any of its Subsidiaries
is presently a party to any transaction with such Person (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Parent and the Borrower, any corporation, partnership, trust
or other entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or partner.
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ss.7.16. EMPLOYEE BENEFIT PLANS.
ss.7.16.1. IN GENERAL. Each Employee Benefit Plan has been
maintained and operated in compliance in all material respects with the
provisions of ERISA and, to the extent applicable, the Code, including but not
limited to the provisions thereunder respecting prohibited transactions.
ss.7.16.2. TERMINABILITY OF WELFARE PLANS. Under each Employee
Benefit Plan which is an employee welfare benefit plan within the meaning of
ss.3(1) or ss.3(2)(B) of ERISA, no benefits are due unless the event giving
rise to the benefit entitlement occurs prior to plan termination (except as
required by Title I, Part 6 of ERISA). The Parent, the Borrower or an ERISA
Affiliate, as appropriate, may terminate each such Plan at any time (or at any
time subsequent to the expiration of any applicable bargaining agreement) in
the discretion of the Parent, the Borrower or such ERISA Affiliate without
liability to any Person.
ss.7.16.3. GUARANTEED PENSION PLANS. Each contribution required
to be made to a Guaranteed Pension Plan, whether required to be made to avoid
the incurrence of an accumulated funding deficiency, the notice or lien
provisions of ss.302(f) of ERISA, or otherwise, has been timely made. No waiver
of an accumulated funding deficiency or extension of amortization periods has
been received with respect to any Guaranteed Pension Plan. No liability to the
PBGC (other than required insurance premiums, all of which have been paid) has
been incurred by the Parent, the Borrower or any ERISA Affiliate with respect
to any Guaranteed Pension Plan and there has not been any ERISA Reportable
Event, or any other event or condition which presents a material risk of
termination of any Guaranteed Pension Plan by the PBGC. Based on the latest
valuation of each Guaranteed Pension Plan (which in each case occurred within
twelve months of the date of this representation), and on the actuarial methods
and assumptions employed for that valuation, the aggregate benefit liabilities
of all such Guaranteed Pension Plans within the meaning of ss.4001 of ERISA did
not exceed the aggregate value of the assets of all such Guaranteed Pension
Plans, disregarding for this purpose the benefit liabilities and assets of any
Guaranteed Pension Plan with assets in excess of benefit liabilities, by more
than $5,000,000.
ss.7.16.4. MULTIEMPLOYER PLANS. None of the Parent, the Borrower
nor any ERISA Affiliate has incurred any material liability (including
secondary liability) to any Multiemployer Plan as a result of a complete or
partial withdrawal from such Multiemployer Plan under ss.4201 of ERISA or as a
result of a sale of assets described in ss.4204 of ERISA. None of the Parent,
the Borrower nor any ERISA Affiliate has been notified that any Multiemployer
Plan is in reorganization or insolvent under and within the meaning of ss.4241
or ss.4245 of ERISA or that any Multiemployer Plan intends to terminate or has
been terminated under ss.4041A of ERISA.
ss.7.17. REGULATIONS U AND X. The proceeds of the Revolving Credit
Loans shall be used (a) to convert existing Indebtedness to the Banks under the
Original Credit Agreement to Revolving Credit Loans or Letters of Credit, as
the case may be, hereunder, (b) for acquisitions, Investments, Capital
Expenditures and Distributions permitted hereunder, and (c) for general
corporate and working capital purposes permitted hereunder. The Borrower will
obtain Letters of Credit solely for general corporate and working capital
purposes. No portion of any Revolving Credit Loan is to be used, and no portion
of any Letter of Credit is to be obtained, for the purpose of purchasing or
carrying any "margin security" or "margin stock" as such
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terms are used in Regulations U and X of the Board of Governors of the Federal
Reserve System, 12 C.F.R. Parts 221 and 224.
ss.7.18. ENVIRONMENTAL COMPLIANCE. To the best of the Borrower's
knowledge, except as disclosed on Schedule 7.18 attached hereto:
(a) none of the Parent, the Borrower, its Subsidiaries or any
operator of the Real Estate or any operations thereon is in violation, nor has
the Parent, the Borrower or any of its Subsidiaries received notice that it, or
any operator of the Real Estate is in alleged violation, of any judgment,
decree, order, law, license, rule or regulation pertaining to environmental
matters, including without limitation, those arising under the Resource
Conservation and Recovery Act ("RCRA"), the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 as amended ("CERCLA"), the
Superfund Amendments and Reauthorization Act of 1986 ("SARA"), the Federal
Clean Water Act, the Federal Clean Air Act, the Toxic Substances Control Act,
or any state or local statute, regulation, ordinance, order or decree relating
to health, safety or the environment (hereinafter "Environmental Laws"), which
violation would have a material adverse effect on the environment or the
business, assets or financial condition of the Parent or the Borrower and its
Subsidiaries considered as a whole;
(b) none of the Parent, the Borrower nor any of its Subsidiaries
has received notice from any third party including, without limitation; any
federal, state or local governmental authority: (i) that any one of them has
been identified by the United States Environmental Protection Agency ("EPA") as
a potentially responsible party under CERCLA with respect to a site listed on
the National Priorities List, 40 C.F.R. Part 300 Appendix B (1986); (ii) that
any hazardous waste, as defined by 42 U.S.C. ss. 9601(5), any hazardous
substances as defined by 42 U.S.C. ss. 9601(14), any pollutant or contaminant
as defined by 42 U.S.C. ss.9601(33) and any toxic substances, oil or hazardous
materials or other chemicals or substances regulated by any Environmental Laws
("Hazardous Substances") which any one of them has generated, transported or
disposed of has been found at any site at which a federal, state or local
agency or other third party has conducted or has ordered that the Parent, the
Borrower or any of its Subsidiaries conduct a remedial investigation, removal
or other response action pursuant to any Environmental Law; or (iii) except to
the extent that the following would not have a material adverse effect on the
business, assets or financial condition of the Parent or the Borrower and its
Subsidiaries, taken as a whole, that it is or shall be a named party to any
claim, action, cause of action, complaint, or legal or administrative
proceeding (in each case, contingent or otherwise) arising out of any third
party's incurrence of costs, expenses, losses or damages of any kind whatsoever
in connection with the release of Hazardous Substances;
(c) (i) no portion of the Real Estate has been used for the
handling, processing, storage or disposal of Hazardous Substances other than in
accordance with applicable Environmental Laws the noncompliance with which
would have a material adverse effect on the business, assets or financial
condition of the Parent or the Borrower and its Subsidiaries, taken as a whole;
and no underground tank or other underground storage receptacle for Hazardous
Substances is located on any portion of the Real Estate in violation of any
applicable Environmental Law the noncompliance with which would have a material
adverse effect on the business, assets or financial condition of the Parent or
the Borrower and its Subsidiaries, taken as a whole; (ii) in the course of any
activities conducted by the Parent, the Borrower, its Subsidiaries or
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operators of such Person's properties, no Hazardous Substances have been
generated or are being used on the Real Estate except in accordance (in all
material respects) with applicable Environmental Laws the noncompliance with
which would have a material adverse effect on the business, assets or financial
condition of the Parent or the Borrower and its Subsidiaries, taken as a whole;
(iii) there have been no releases (i.e. any past or present releasing,
spilling, leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, disposing or dumping) or threatened releases of Hazardous
Substances on, upon, into or from the properties of the Parent, the Borrower or
its Subsidiaries, which releases would have a material adverse effect on the
business, assets or financial condition of the Parent or the Borrower and its
Subsidiaries, taken as a whole; (iv) there have been no releases on, upon, from
or into any real property in the vicinity of any of the Real Estate which,
through soil or groundwater contamination, may have come to be located on any
of the Real Estate, and which would have a material adverse effect on the
business, assets or financial condition of the Parent or the Borrower and its
Subsidiaries, taken as a whole; and (v) in addition, except to the extent that
the following would not have a material adverse effect on the business, assets
or financial condition of the Parent or the Borrower and its Subsidiaries,
taken as a whole, any Hazardous Substances that have been generated on any of
the Real Estate have been transported offsite only by carriers having an
identification number issued by the EPA, treated or disposed of only by
treatment or disposal facilities maintaining valid permits as required under
applicable Environmental Laws, which transporters and facilities have been and
are operating in compliance with such permits and applicable Environmental
Laws; and
(d) none of the Parent, the Borrower or its Subsidiaries or any
of the Real Estate is subject to any applicable environmental law requiring the
performance of Hazardous Substances site assessments, or the removal or
remediation of Hazardous Substances, or the giving of notice to any
governmental agency or the recording or delivery to other Persons of an
environmental disclosure document or statement by virtue of the transactions
set forth herein and contemplated hereby, or as a condition to the
effectiveness of any other transactions contemplated hereby.
ss.7.19. SUBSIDIARIES. (a) As of the Closing Date, the Parent does not
have any Subsidiaries except for its Subsidiaries listed on Schedule 7.19
attached hereto and the Borrower does not have any Subsidiaries except for its
Subsidiaries listed on Schedule 7.19 attached hereto. The Parent is the record
and beneficial owner of 100% of the outstanding capital stock of the Borrower
and of each of the Parent's other Subsidiaries except as set forth on Schedule
7.19 attached hereto. The Borrower is the record and beneficial owner of 100%
of the outstanding capital stock of each of the Wholly-Owned Guarantors, and is
the record and beneficial owner of the outstanding capital stock of each of the
Non-Wholly Owned Guarantors as set forth on Schedule 7.19 attached hereto. The
Borrower has no material assets other than the capital stock of its
Subsidiaries. Other than as set forth on Schedule 7.19(a) attached hereto, the
Parent has no material assets other than the capital stock of its Subsidiaries.
(b) Except as described in ss.ss.7.19(a) and 9.3 hereof and as
shown on Schedules 7.19 and 9.3 attached hereto, neither the Parent nor the
Borrower owns or holds of record and/or beneficially (whether directly or
indirectly) any shares of any class in the capital of any other corporations or
any legal and/or beneficial interests in any partnership, business trust or
joint venture or in any other unincorporated trade or business enterprise.
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ss.7.20. CHIEF EXECUTIVE OFFICES. Each of the Borrower's and the
Parent's chief executive office is at ArborLake Centre, Suite 550, 1751 Lake
Cook Road, Deerfield, Illinois 60015 at which location its books and records
are kept.
ss.7.21. FISCAL YEAR. Each of the Parent and the Borrower has a fiscal
year which is the twelve months ending on December 31 of each year.
ss.7.22. DISCLOSURE. None of this Credit Agreement or any of the other
Loan Documents contains any untrue statement of a material fact or omits to
state a material fact (known to the Borrower or the Parent in the case of any
document or information not furnished by it) necessary in order to make the
statements herein or therein not misleading. There is no fact known to the
Borrower or the Parent which materially adversely affects, or which is
reasonably likely in the future to materially adversely affect, exclusive or
effects resulting from changes in general economic conditions, the business,
assets, financial condition or prospects of the Parent or the Borrower and its
Subsidiaries, taken as a whole.
ss.8. AFFIRMATIVE COVENANTS OF THE BORROWER. The Borrower hereby
covenants and agrees that, so long as any Revolving Credit Loan, Unpaid
Reimbursement Obligation, Letter of Credit or Note is outstanding or any Bank
has any obligation to make any Revolving Credit Loans or the Agent has any
obligation to issue, extend or renew any Letters of Credit:
ss.8.1. PUNCTUAL PAYMENT. The Borrower will duly and punctually pay or
cause to be paid the principal and interest on the Revolving Credit Loans, all
Reimbursement Obligations, the Letter of Credit Fees, the Commitment Fees, the
Agent's Fee and all other amounts provided for in this Credit Agreement and the
other Loan Documents to which the Borrower or any of its Subsidiaries is a
party, all in accordance with the terms of this Credit Agreement and such other
Loan Documents.
ss.8.2. MAINTENANCE OF OFFICE. The Borrower will maintain its chief
executive office at ArborLake Centre, Suite 550, 1751 Lake Cook Road,
Deerfield, Illinois 60015, or at such other place in the United States of
America as the Borrower shall designate upon written notice to the Agent, where
notices, presentations and demands to or upon the Borrower in respect of the
Loan Documents to which the Borrower is a party may be given or made.
ss.8.3. RECORDS AND ACCOUNTS. The Borrower will (a) keep, and cause
each of its Subsidiaries to keep, true and accurate records and books of
account in which full, true and correct entries will be made in accordance with
generally accepted accounting principles and (b) maintain adequate accounts and
reserves for all taxes (including income taxes), depreciation, depletion,
obsolescence and amortization of its properties and the properties of its
Subsidiaries, contingencies, and other reserves.
ss.8.4. FINANCIAL STATEMENTS, CERTIFICATES AND INFORMATION. The
Borrower will deliver to each of the Banks:
(a) as soon as practicable, but in any event not later than one
hundred and five (105) days after the end of each fiscal year of the Parent,
(i) the consolidated balance sheet of the Parent and its
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Subsidiaries as at the end of such year, and the related consolidated statement
of income and consolidated statement of cash flow for such year, each setting
forth in comparative form the figures for the previous fiscal year and all such
consolidated statements to be in reasonable detail, prepared in accordance with
generally accepted accounting principles, and certified without qualification
by Ernst & Young or by other independent certified public accountants
satisfactory to the Agent; and (ii) the unaudited consolidating balance sheet
of the Parent and its Subsidiaries as at the end of such year, and the related
unaudited consolidating statement of income and unaudited consolidating
statement of cash flow for such year, each setting forth in comparative form
the figures for the previous fiscal year and all such consolidating statements
to be in reasonable detail, prepared by management in accordance with the past
financial practice of the Parent and its Subsidiaries, and certified by the
principal financial or accounting officer of the Borrower that the information
contained in such financial statements fairly presents the financial position
of the Parent and its Subsidiaries on the date hereof;
(b) as soon as practicable, but in any event not later than
forty-five (45) days after the end of each of the fiscal quarters of the
Parent, copies of the unaudited consolidated and consolidating balance sheets
of the Parent and its Subsidiaries, each as at the end of such quarter, and the
related consolidated and consolidating statements of income and consolidated
and consolidating statements of cash flow for the portion of the Parent's
fiscal year then elapsed, all in reasonable detail and, with respect to the
consolidated financial statements, prepared in accordance with generally
accepted accounting principles, and in each case together with a certification
by the principal financial or accounting officer of the Borrower that the
information contained in such financial statements fairly presents the
financial position of the Parent and its Subsidiaries on the date thereof
(subject to year-end adjustments);
(c) simultaneously with the delivery of the financial statements
referred to in subsections (a) and (b) above, a statement certified by the
principal financial or accounting officer of the Borrower substantially in the
form of Exhibit G attached hereto (a "Compliance Certificate") and setting
forth in reasonable detail computations evidencing compliance with the
covenants contained in ss.10 hereof and (if applicable) reconciliations to
reflect changes in generally accepted accounting principles since the Balance
Sheet Date;
(d) as soon as practicable but, in any event, within ten (10)
Business Days after the issuance thereof, copies of all material of a financial
nature filed with the Securities and Exchange Commission by the Parent or any
of its Subsidiaries or sent to the stockholders of the Parent or any of its
Subsidiaries; and
(e) from, time to time such other financial data and information
(including accountants management letters) as the Agent or any Bank may
reasonably request.
The Banks and the Agent agree that they will treat in confidence all financial
information with respect to the Parent and its Subsidiaries which has not
become public, and will not, without the consent of the Borrower, disclose such
information to any third party, and, if any representative or agent of the
Banks or the Agent shall not be an employee of one of the Banks or the Agent or
any affiliate of the Banks or the Agent, such designee shall be reputable and
of recognized standing and shall agree to treat in confidence the information
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obtained during any such inspection and, without the prior written consent of
the Borrower, not to disclose such information to any third party or make use
of such information for personal gain. Notwithstanding the foregoing, the
Borrower hereby authorizes the Agent and each of the Banks to disclose
information obtained pursuant to this Credit Agreement which has not become
public to banks or other financial institutions who are participants or
assignees or potential participants or assignees of the Revolving Credit Loans
made or to be made hereunder with the Borrower's consent not to be unreasonably
withheld, and where required or requested by governmental or regulatory
authorities.
ss.8.5. NOTICES.
ss.8.5.1. DEFAULTS. The Borrower will, within five (5) days of
becoming aware thereof, notify the Agent and each of the Banks in writing of
the occurrence of any Default or Event of Default. If any Person shall give any
notice or take any other action in respect of a claimed default (whether or not
constituting an Event of Default) under this Credit Agreement or any other
note, evidence of indebtedness, indenture or other obligation to which or with
respect to which the Parent or any of its Subsidiaries is a party or obligor,
whether as principal, guarantor, surety or otherwise, the Borrower shall
forthwith give written notice thereof to the Agent and each of the Banks,
describing the notice or action and the nature of the claimed default.
ss.8.5.2. ENVIRONMENTAL EVENTS. The Borrower will promptly give
notice to the Agent and each of the Banks (a) of any violation of any
Environmental Law that the Parent or any of its Subsidiaries reports in writing
or is reportable by such Person in writing (or for which any written report
supplemental to any oral report is made) to any federal, state or local
environmental agency and (b) upon becoming aware thereof, of any inquiry,
proceeding, investigation, or other action, including a notice from any agency
of potential environmental liability, or any federal, state or local
environmental agency or board, that has the potential to materially adversely
affect the assets, liabilities, financial conditions or operations of the
Parent or the Borrower and its Subsidiaries considered as a whole, or the
Agent's security interests pursuant to the Security Documents.
ss.8.5.3. NOTIFICATION OF CLAIM AGAINST COLLATERAL. The Borrower
will, immediately upon becoming aware thereof, notify the Agent and each of the
Banks in writing of any setoff, claims, withholdings or other defenses to which
any of the Collateral with an aggregate net book value of $500,000 or more, or
the Agent's rights with respect to such Collateral are subject.
ss.8.5.4. NOTICE OF LITIGATION AND JUDGMENTS. The Borrower will,
and will cause each of its Subsidiaries to, give notice to the Agent and each
of the Banks in writing within ten (10) Business Days of becoming aware of any
litigation or proceedings threatened in writing or any pending litigation and
proceedings affecting the Parent, the Borrower or any of its Subsidiaries or to
which any such Person is or becomes a party involving an uninsured claim of
more than $1,000,000 against such Person, as the case may be, and stating the
nature and status of such litigation or proceedings. The Borrower will, and
will cause each of its Subsidiaries to, give notice to the Agent and each of
the Banks, in writing, in form and detail satisfactory to the Agent, within ten
(10) Business Days of any judgment final or otherwise, against the Parent or
any of its Subsidiaries in an amount in excess of $1,000,000.
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ss.8.6. CORPORATE EXISTENCE; MAINTENANCE OF PROPERTIES. The Borrower
will do or cause to be done all things necessary to preserve and keep in full
force and effect its corporate existence, rights and franchises and those of
its Subsidiaries except as permitted under ss.9.5.1 hereof or the dissolution
of any Subsidiary whose operation has been discontinued if such dissolution is,
in the judgment of the Borrower desirable in the conduct of its business and
does not materially adversely effect the business of the Borrower and its
Subsidiaries on a consolidated basis. The Borrower (a) will cause all of its
properties and those of its Subsidiaries used or useful in the conduct of its
business or the business of its Subsidiaries to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment,
(b) will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Borrower
may be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times, and (c) will, and will
cause each of its Subsidiaries to, continue to engage primarily in the
businesses now conducted by them and in related businesses; provided that
nothing in this ss.8.6 shall prevent the Borrower from discontinuing the
operation and maintenance of any of its properties or any of those of its
Subsidiaries if such discontinuance is, in the judgment of the Borrower,
desirable in the conduct of its or their business and that do not in the
aggregate materially adversely affect the business of the Borrower and its
Subsidiaries on a consolidated basis.
ss.8.7. INSURANCE. (a) The Borrower will, and will cause each of its
Subsidiaries to, maintain with financially sound and reputable insurers
insurance with respect to its properties and business against such casualties
and contingencies as shall be in accordance with the general practices of
businesses engaged in similar activities in similar geographic areas and in
amounts, containing such terms, in such forms and for such periods as may be
reasonable and prudent. All such insurance shall be payable to the Agent as
loss payee for the benefit of the Banks and the Agent.
(b) Within sixty (60) days after the Closing Date, the Borrower shall
cause all policies of insurance of the Borrower and its Subsidiaries to provide
for at least thirty (30) days prior written cancellation notice to the Agent.
In the event of failure by the Borrower or any of its Subsidiaries to provide
and maintain insurance as herein provided, the Agent may, at its option,
provide such insurance and charge the amount thereof to the Borrower or such
Subsidiary, as applicable. The Borrower and each of its Subsidiaries shall
furnish the Agent with certificates of insurance and policies evidencing
compliance with the foregoing insurance provisions.
(c) The Borrower shall deliver to the Agent, within sixty (60) days
after the Closing Date, a certificate of insurance from an independent
insurance broker, identifying insurers, types of insurance, insurance limits,
and policy terms, and otherwise describing the insurance obtained in accordance
with the provisions of this Credit Agreement and certified copies of all
policies evidencing such insurance (or certificates therefor signed by the
insurer or an agent authorized to bind the insurer).
ss.8.8. TAXES. The Borrower will, and will cause each of its
Subsidiaries to, duly pay and discharge, or cause to be paid and discharged,
before the same shall become overdue, all taxes, assessments and other
governmental charges imposed upon it and its real properties, sales and
activities, or any part thereof, or upon the income or profits therefrom, as
well as all claims for labor, materials, or supplies that if unpaid might by
law become a lien or charge upon any of its property; provided that any such
tax, assessment, charge, levy
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or claim need not be paid if the validity or amount thereof shall currently be
contested in good faith by appropriate proceedings and if the Borrower or such
Subsidiary, as applicable, shall have set aside on its books adequate reserves
with respect thereto; and provided further that the Borrower and each
Subsidiary of the Borrower will pay all such taxes, assessments, charges,
levies or claims forthwith upon the commencement of proceedings to foreclose
any lien that may have attached as security therefor.
ss.8.9. INSPECTION OF PROPERTIES AND BOOKS.
ss.8.9.1. GENERAL. The Borrower shall permit the Banks, through
the Agent or any of the Banks' other designated representatives, to (a) visit
and inspect any of the properties of the Borrower or any of its Subsidiaries,
(b) examine the books of account of the Borrower and its Subsidiaries (and to
make copies thereof and extracts therefrom), (c) discuss the affairs, finances
and accounts of the Borrower and its Subsidiaries with, and to be advised as to
the same by, its and their officers, and (d) conduct commercial finance
examinations and appraisals of assets, all at such reasonable times and
intervals as the Agent or any Bank may reasonably request. Each of the Banks
agrees that it will treat in confidence the information obtained during any
inspection which is designated by the Borrower as confidential and will not,
without the consent of the Borrower disclose such information to any third
party and, if any representative or agent of any Bank or the Agent shall not be
an employee of such Bank or the Agent, as the case may be, or any affiliate of
such Bank or the Agent, as the case may be, such designee shall be reputable
and of recognized standing and shall agree in writing to treat in confidence
the information obtained during any such inspection and, without the prior
written consent of the Borrower, not to disclose such information to any third
party or make use of such information for personal gain. Notwithstanding the
foregoing, the Banks and the Agent may disclose information obtained pursuant
to this Credit Agreement to other banks or financial institutions who are
potential participants or potential assignees or participants in the Revolving
Credit Loans made or to be made hereunder with the Borrower's consent not to be
unreasonably withheld, and where required or requested by governmental or
regulatory authorities.
ss.8.9.2. COMMUNICATIONS WITH ACCOUNTANTS. The Borrower hereby
authorizes the Agent and, if accompanied by the Agent, the Banks to communicate
directly with the Borrower's independent certified public accountants and
authorizes such accountants to disclose to the Agent and the Banks any and all
financial statements and other supporting financial documents and schedules
including copies of any management letters with respect to the business,
financial condition and other affairs of the Borrower or any of its
Subsidiaries. At the request of the Agent, the Borrower shall deliver a letter
addressed to such accountants instructing them to comply with the provisions of
this ss.8.9.2.
ss.8.10. COMPLIANCE WITH LAWS, CONTRACTS, LICENSES, AND PERMITS. The
Borrower will, and the Borrower will cause each of its Subsidiaries to, comply
with (a) the applicable laws and regulations wherever its business is
conducted, including all Environmental Laws the noncompliance with which would
have a material adverse effect on the business, assets or financial condition
of the Borrower and its Subsidiaries considered as a whole or the ability of
the Borrower or any of its Subsidiaries to fulfill its obligations under this
Credit Agreement or the other Loan Documents to which such Person is a party,
(b) the provisions of its charter documents and by-laws, (c) all agreements and
instruments by which it or any of its properties may be bound and (d) all
applicable decrees, orders, and judgments. If any authorization, consent,
approval,
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permit or license from any officer, agency or instrumentality of any government
shall become necessary or required in order that the Borrower or any of its
Subsidiaries may fulfill any of its obligations hereunder or any of the other
Loan Documents to which such Person is a party, the Borrower will, or (as the
case may be) will cause such Subsidiary to, immediately take or cause to be
taken all reasonable steps within the power of such Person to obtain such
authorization, consent, approval, permit or license and furnish the Agent and
the Banks with evidence thereof.
ss.8.11. EMPLOYEE BENEFIT PLANS. The Borrower will (a) promptly upon
filing the same with the Department of Labor or Internal Revenue Service upon
request of the Agent, furnish to the Agent a copy of the most recent actuarial
statement required to be submitted under ss.103(d) of ERISA and Annual Report,
Form 5500, with all required attachments, in respect of each Guaranteed Pension
Plan and (b) promptly upon receipt or dispatch, furnish to the Agent any
notice, report or demand sent or received in respect of a Guaranteed Pension
Plan under ss.ss.302, 4041, 4042, 4043, 4063, 4065, 4066 and 4068 of ERISA, or
in respect of a Multiemployer Plan, under ss.ss.4041A, 4202, 4219, 4242, or
4245 of ERISA.
ss.8.12. USE OF PROCEEDS. The Borrower will use the proceeds of the
Revolving Credit Loans (a) to convert existing Indebtedness to the Banks under
the Original Credit Agreement to Revolving Credit Loans or Letters of Credit,
as the case may be, hereunder, (b) for acquisitions, Investments, Capital
Expenditures and Distributions permitted hereunder, and (c) for general
corporate and working capital purposes permitted hereunder. The Borrower will
obtain Letters of Credit solely for general corporate and working capital
purposes.
ss.8.13. ADDITIONAL SUBSIDIARIES. (a) If, after the Closing Date, the
Borrower acquires, either directly or indirectly, any Subsidiary, it will
notify the Banks within three (3) Business Days of such acquisition and provide
the Banks with an updated Schedule 7.19.
(b) The Borrower shall at all times own, directly or indirectly,
not less than 51% of the outstanding Voting Stock of each of its Subsidiaries
which becomes a Subsidiary subsequent to the Closing Date.
(c) The Borrower shall cause each of its Subsidiaries that is not
a party on the Closing Date to a Subsidiary Guaranty or a Non-Wholly-Owned
Subsidiary Guaranty, as the case may be, to execute and deliver to the Banks,
on the date which is five (5) Business Days after such Person becomes a
Subsidiary of the Borrower, a guaranty substantially in the form of a
Subsidiary Guaranty or a Non-Wholly-Owned Subsidiary Guaranty, as appropriate,
and a security agreement substantially in the form of the Security Agreements,
together with such supporting documentation, including Uniform Commercial Code
financing statements, legal opinions and corporate authority documents as the
Banks may reasonably request.
ss.8.14. FAIR LABOR STANDARDS ACT. The Borrower and each of its
Subsidiaries shall at all times operate its business in compliance with all
material applicable provisions of the Fair Labor Standards Act of 1938, as
amended. None of the inventory of the Borrower or any of its Subsidiaries are
or will be produced by employees of (a) the Borrower or any of its Subsidiaries
or (b) to the best knowledge of the Borrower and each of its Subsidiaries, by
employees of suppliers, who are, in each case, employed in violation of the
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minimum wage or maximum hour provisions of the Fair Labor Standards Act (29
U.S.C. ss.ss.206 and 207) or any regulations promulgated thereunder, in each
case, as in effect from time to time.
ss.8.15. FURTHER ASSURANCES. The Borrower will, and the Borrower will
cause each of its Subsidiaries to, cooperate with the Banks and the Agent and
execute such further instruments and documents as the Banks or the Agent shall
reasonably request to carry out to their satisfaction the transactions
contemplated by this Credit Agreement and the other Loan Documents.
ss.9. CERTAIN NEGATIVE COVENANTS OF THE BORROWER. The Borrower hereby
covenants and agrees that, so long as any Revolving Credit Loan, Unpaid
Reimbursement Obligation, Letter of Credit or Note is outstanding or any Bank
has any obligation to make any Revolving Credit Loans or the Agent has any
obligations to issue, extend or renew any Letters of Credit:
ss.9.1. RESTRICTIONS ON INDEBTEDNESS. The Borrower will not, and will
not permit any of its Subsidiaries to, create, incur, assume, guarantee or be
or remain liable, contingently or otherwise, with respect to any Indebtedness
other than:
(a) Indebtedness to the Banks and the Agent arising under any of
the Loan Documents;
(b) current liabilities of the Borrower or such Subsidiary of the
Borrower incurred in the ordinary course of business not incurred through (i)
the borrowing of money, or (ii) the obtaining of credit, except for credit on
an open account basis customarily extended and in fact extended in connection
with purchases of goods and services in the ordinary course of business;
(c) Indebtedness in respect of taxes, assessments, governmental
charges or levies, reimbursement-type obligations and bonds regarding workers'
compensation claims, and claims for labor, materials and supplies to the extent
that payment therefor shall not at the time be required to be made in
accordance with the provisions of ss.8.8 hereof;
(d) Indebtedness in respect of judgments or awards that have been
in force for less than the applicable period for taking an appeal so long as
either (i) execution is not levied thereunder or (ii) the Borrower or such
Subsidiary shall at the time in good faith be prosecuting an appeal or
proceedings for review and in respect of which a stay of execution shall have
been obtained pending such appeal or review;
(e) endorsements for collection, deposit or negotiation and
warranties of products or services, in each case incurred in the ordinary
course of business;
(f) Indebtedness of Subsidiaries of the Borrower incurred as a
result of (i) the acquisition of a business or assets (including existing
Indebtedness assumed in connection with such acquisition), (ii) obligations
under Capitalized Leases, (iii) purchase money obligations for property
acquired in the ordinary course of business, (iv) sale-leaseback transactions
permitted under ss.9.6 hereof, or (v) other similar financing transactions, in
an aggregate principal amount of all such Indebtedness under this clause (f)
not to exceed $20,000,000 outstanding at any one time, provided that after
giving effect to the incurrence of any such
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Indebtedness under this clause (f) no Event of Default under ss.ss.13.1(a), (b)
or (c) (only a result of the failure by the Borrower to comply with any of its
covenants set forth in ss.10 hereof) exists hereunder;
(g) Indebtedness of the Borrower or any Subsidiary of the
Borrower in respect of intercompany loans, advances, obligations or similar
transfers to or among the Borrower or any Subsidiary of the Borrower,
including, without limitation, pursuant to the Intercompany Loan Agreement, the
Tax Sharing Agreements and the Services Agreements, provided that (i) the
Non-Wholly-Owned Guarantors shall only incur Intercompany Advances from the
Borrower (and not from any other Subsidiaries of the Borrower), such
Intercompany Advances must be advanced pursuant to the Intercompany Loan
Agreement and all Intercompany Advances evidenced by notes must be pledged and
assigned to the Agent for the benefit of the Banks and (ii) all Intercompany
Advances advanced by any Non-Wholly-Owned Guarantors to the Borrower shall be
evidenced by notes which expressly prohibit set off against the notes referred
to in subsection (i) above from the Borrower to such Non-Wholly-Owned
Guarantor;
(h) Indebtedness of the Borrower and its Subsidiaries listed on,
and not in excess of the principal amounts and otherwise as described on
Schedule 9.1 attached hereto;
(i) Indebtedness of the Subsidiaries of the Borrower in respect
of operating leases;
(j) Indebtedness (i) of the Borrower to the Parent incurred in
connection with any Distribution permitted under ss.9.4 hereof, provided that
such Indebtedness is evidenced by the Parent Loan Agreement, and provided
further that such Indebtedness is subordinated to the Obligations in a manner
that is satisfactory to the Agent in all respects and (ii) of the Subsidiaries
of the Borrower incurred in connection with any Distribution permitted under
ss.9.4(a) hereof;
(k) Indebtedness in respect of interest rate protection
arrangements and in respect of foreign exchange rate protection arrangements;
(l) Indebtedness of the Borrower or any of its Subsidiaries
incurred in connection with agreements providing for indemnification, purchase
price adjustments and similar obligations in connection with the sale or
disposition of any of their businesses, properties or assets, provided that
such sale or disposition is permitted under the terms of this Credit Agreement;
(m) Indebtedness of the Borrower or any of its Subsidiaries in
respect of Incentive Arrangements;
(n) Indebtedness of the Borrower or any of its Subsidiaries, as
applicable, incurred to refinance and replace Indebtedness of such Person
permitted under clause (f) or clause (h) hereof, provided, that (i) the
principal amount (or committed principal amount) of such refinancing
Indebtedness shall not exceed the outstanding principal amount (or committed
principal amount) of the Indebtedness being refinanced, (ii) the terms of such
refinancing Indebtedness are no more onerous to the Borrower or such
Subsidiary, as applicable, than the terms of the Indebtedness being refinanced,
and (iii) the Majority Banks
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shall have consented to the incurrence of such refinancing Indebtedness, such
consent not to be unreasonably withheld;
(o) any additional unsecured Indebtedness, provided, that (i)
after giving effect to the incurrence of such Indebtedness on a pro forma
basis, the Borrower's Senior Debt to Consolidated Cash Flow Ratio is less than
2.25 to 1, (ii) the incurrence of such Indebtedness would be permitted under
the New Senior Notes Indenture (as in effect on the Closing Date), (iii) no
Default or Event of Default has occurred and is continuing or would result
therefrom, and (iv) the Borrower delivers to the Agent, on the date of such
incurrence, a certificate signed by a duly authorized officer of the Borrower
and evidence satisfactory to the Agent showing compliance with the matters set
forth in sub clauses (i) through (iii) of this clause (o); and
(p) guaranties by the Borrower and/or any of its Subsidiaries of
Indebtedness of the Borrower and/or any of its Subsidiaries that is otherwise
permitted under this ss.9.1;
(q) Indebtedness of the Borrower and/or any of its Subsidiaries
with respect to performance, surety, statutory, appeal or similar bonds
obtained in the ordinary course of business;
(r) Indebtedness of the Borrower and/or any of its Subsidiaries
arising from the honoring by a bank or other financial institution of a check,
draft or similar instrument inadvertently (except in the case of daylight
overdrafts, which will not be deemed to be inadvertent) drawn against
insufficient funds in the ordinary course of business;
(s) Indebtedness of the Borrower arising under or in respect of
the Assumption Agreement, provided that (i) such Indebtedness, to the extent
assumed by the Borrower after the date hereof, is otherwise permitted under
this ss.9.1, and (ii) the Borrower gives the Agent notice of any such assumed
Indebtedness incurred by the Parent after the date hereof, promptly after such
incurrence; and
(t) unsecured Indebtedness not otherwise permitted hereunder,
provided that the aggregate principal amount of all such Indebtedness does not
exceed $15,000,000 at any time.
ss.9.2. RESTRICTIONS ON LIENS. The Borrower will not, and will not
permit any of its Subsidiaries to, (i) create or incur or suffer to be created
or incurred or to exist any lien, encumbrance, mortgage, pledge, charge,
restriction or other security interest of any kind upon any of its property or
assets of any character whether now owned or hereafter acquired, or upon the
income or profits therefrom; (ii) transfer any of such property or assets or
the income or profits therefrom for the purpose of subjecting the same to the
payment of Indebtedness or performance of any other obligation in priority to
payment of its general creditors; (iii) acquire, or agree or have an option to
acquire, any property or assets upon conditional sale or other title retention
or purchase money security agreement, device or arrangement; (iv) suffer to
exist for a period of more than thirty (30) days after the same shall have been
incurred any Indebtedness or claim or demand against it that if unpaid might by
law or upon bankruptcy or insolvency, or otherwise, be given any priority
whatsoever over its general creditors; or (v) sell, assign, pledge or otherwise
transfer any accounts, contract rights, general intangibles, chattel paper or
instruments, with or without recourse; provided that the Borrower and any
Subsidiary of the Borrower may create or incur or suffer to be created or
incurred or to exist:
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(a) liens to secure taxes, assessments and other government
charges or liens on properties to secure claims for labor, material or
supplies, in each case in respect of obligations not overdue or which
are being contested in good faith by appropriate proceedings
satisfactory to the Banks and for which adequate reserves have been
established and are maintained in accordance with generally accepted
accounting principles;
(b) deposits or pledges made in connection with, or to secure
payment of, workmen's compensation, unemployment insurance, old age
pensions or other social security obligations, and good faith deposits
in connection with tenders, contracts or leases to which it is a party
or deposits to secure, or in lieu of, surety, penalty or appeal bonds,
performance bonds or other similar obligations;
(c) liens on properties in respect of judgments or awards, the
Indebtedness with respect to which is permitted by ss.9.1(d) hereof;
(d) liens of carriers, warehousemen, mechanics and materialmen,
and other like liens on properties in existence less than 120 days
from the date of creation thereof in respect of obligations not
overdue;
(e) encumbrances on Real Estate consisting of easements, rights
of way, zoning restrictions, restrictions on the use of real property
and defects and irregularities in the title thereto, landlord's or
lessor's liens under leases to which the Borrower or a Subsidiary of
the Borrower is a party, and other minor liens or encumbrances none of
which in the opinion of the Borrower interferes materially with the
use of the property affected in the ordinary conduct of the business
of the Borrower and its Subsidiaries, which defects do not
individually or in the aggregate have a materially adverse effect on
the business of the Borrower and its Subsidiaries on a consolidated
basis;
(f) liens existing on the date hereof and listed on Schedule 9.2
attached hereto;
(g) liens on assets of Subsidiaries of the Borrower securing
Indebtedness permitted under ss.9.1(f) hereof;
(h) liens in favor of the Agent for the benefit of the Banks and
the Agent under the Loan Documents;
(i) liens on assets sold in sale-leaseback transactions permitted
under ss.9.6 hereof;
(j) liens securing refinancing Indebtedness permitted under
ss.9.1(n) hereof, but only to the extent that the Indebtedness so
refinanced was secured, and only covering assets which secured the
Indebtedness being refinanced;
(k) the subordination of certain amounts advanced under the
Intercompany Loan Agreement and permitted under ss.9.1 hereof;
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(l) (i) leases entered into by Riverside Book and Bible House,
Incorporated as lessor with respect to its property located at the
River Hills Mall in Iowa Falls, Iowa and (ii) leases entered into by
DACCO Incorporated as lessor with respect to its property located in
Cookeville, Tennessee that is not required for its immediate ongoing
operations; and
(m) liens in respect of (i) Indebtedness permitted under
ss.9.1(q) hereof and (ii) Indebtedness permitted under ss.9.1(k)
hereof, provided that the aggregate amount of Indebtedness under
ss.9.1(k) hereof secured pursuant to this ss.9.2(m) does not exceed
$2,500,000.
ss.9.3. RESTRICTIONS ON INVESTMENTS. The Borrower will not, and will
not permit any of its Subsidiaries to, make or permit to exist or to remain
outstanding any Investment except:
(a) Investments in marketable direct or guaranteed obligations of
the United States of America that mature within one (1) year from the date of
purchase;
(b) Investments in demand deposits, certificates of deposit,
bankers acceptances and time deposits of United States banks having total
assets in excess of $500,000,000;
(c) Investments in securities commonly known as "commercial
paper" issued by a corporation organized and existing under the laws of the
United States of America or any state thereof that at the time of purchase have
been rated and the ratings for which are not less than "P 1" if rated by
Moody's Investors Service, Inc., and not less than "A 1" if rated by Standard
and Poor's Corporation;
(d) Investments in repurchase agreements secured by any one or
more of the foregoing;
(e) Investments in shares of any so-called "money market fund"
provided that such fund is registered under the Investment Company Act of 1940,
as amended, has net assets of at least $50,000,000 and has at least eighty-five
percent (85%) of its net assets invested in investments of the types described
in clauses (a), (b) and (c) above;
(f) Investments existing on the date hereof and in amounts not to
exceed the amounts listed on Schedule 9.3 attached hereto;
(g) Investments by the Borrower in Subsidiaries of the Borrower
and by any Subsidiary of the Borrower in its Subsidiaries which are also
Subsidiaries of the Borrower existing on the Closing Date or in any other
Person which concurrently with such Investment becomes a Subsidiary of the
Borrower on such date, and Investments by Subsidiaries of the Borrower in the
Borrower, provided that the Borrower's Investments in Non-Wholly-Owned
Guarantors shall be made pursuant to the Intercompany Loan Agreement and if
evidenced by notes, such notes shall be pledged and assigned to the Agent for
the benefit of the Banks;
(h) Investments consisting of the Guaranties and any guaranties
delivered pursuant to ss.8.13 hereof;
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(i) certain Investments by the Borrower and its Subsidiaries in
marketable securities and other negotiable instruments through the William Penn
Funds (including the William Penn Interest Income Fund), provided, however that
such Investments shall not exceed $5,000,000 in the aggregate at any time;
(j) Investments in respect of Incentive Arrangements to the
extent that such Investments are permitted hereunder;
(k) Investments by the Borrower and/or any of its Subsidiaries
made in connection with (i) any Distribution permitted under ss.9.4 hereof, or
(ii) any Indebtedness permitted under ss.ss.9.1(g), (m), (p) or (s) hereof;
(l) Investments not exceeding $25,000,000 in the aggregate
outstanding at any time;
(m) other Investments not otherwise permitted hereunder,
provided, that at the time of making of such Investment (i) no Default or Event
of Default has occurred and is continuing or would result from making the
proposed Investment and (ii) the Borrower delivers to the Agent, on the date on
which any such Investment is made, a certificate signed by an authorized
officer of the Borrower and evidence satisfactory to the Agent showing
compliance with the matters set forth in this clause (m); and
(n) Investments in the Parent to the extent that a Distribution
of such amount would be permitted under ss.9.4 hereof.
ss.9.4. DISTRIBUTIONS; OTHER AFFILIATE PAYMENTS. (a) Neither the
Borrower nor any of its Subsidiaries will make any Distributions so long as any
Default or Event of Default has occurred or is continuing or would result
therefrom, other than:
(i) scheduled payments of dividends on and redemptions of (A) the
preferred stock of Sate-Lite Manufacturing Company in an aggregate amount not
to exceed $20,000 in any calendar year and (B) the common stock of Sate-Lite
Manufacturing Company in an aggregate amount not to exceed $12,500 in any
calendar year;
(ii) Distributions by Subsidiaries of the Borrower to the
Borrower and Distributions by Subsidiaries of Subsidiaries of the Borrower to
such Subsidiaries of the Borrower;
(iii) Distributions and other payments under the Tax Sharing
Agreement and the JI Properties Services Agreement;
(iv) payments under the Incentive Arrangements;
(v) director fees of the Parent (not to exceed $250,000 in any
calendar year);
(vi) indemnity payments required by the articles of
incorporation, by-laws, director indemnity agreements and management consulting
agreements of the Parent;
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(vii) filing, registration, reportion, qualification and similar
fees and charges payable or owed by the Parent in respect of the requirements
of the Securities and Exchange Commission, state qualifications to conduct
business and other applicable governmental and regulatory requirements; and
(viii) Distributions to the Parent not to exceed an aggregate of
$5,000,000 solely for the purpose of repurchasing Old Senior Notes which remain
outstanding after the Closing Date.
(b) Without limiting the foregoing, if an Event of Default under
ss.ss.13.1(a), (b) or (c) (only as a result of the failure by the Borrower to
comply with any of its covenants set forth in ss.10 hereof) has occurred and is
continuing, or if an Event of Default under ss.ss.13.1(a), (b) or (c) (only as
a result of the failure by the Borrower to comply with any of its covenants set
forth in ss.10 hereof) would result from the payment thereof, the Borrower
shall not make any payments under the Services Agreements (payments under which
shall be expressly subordinated to the Obligations), or any similar agreement
(except the JI Properties Services Agreement) relating to the providing of
consulting, financial or investment banking services by any Affiliate to the
Borrower or any of its Subsidiaries.
ss.9.5. MERGER, CONSOLIDATION AND DISPOSITION OF ASSETS.
ss.9.5.1. MERGERS AND ACQUISITIONS. The Borrower will not, and
will not permit any of its Subsidiaries to, become a party to any merger or
consolidation, or agree to or effect any asset acquisition or stock acquisition
unless otherwise permitted under ss.ss.9.3 or 9.11 hereof, except the merger or
consolidation of one or more of the Subsidiaries of the Borrower with and into
the Borrower (provided that the Borrower is the survivor of such merger or
consolidation), or the merger or consolidation of two or more Subsidiaries of
the Borrower (provided that to the extent any such Subsidiary involved in such
a merger or consolidation is a Guarantor hereunder, such Guarantor is the
survivor of such merger or consolidation).
ss.9.5.2. DISPOSITION OF ASSETS. The Borrower will not, and will
not permit any of its Subsidiaries to, become a party to or agree to or effect
any disposition of assets, other than (a) the sale of inventory in the ordinary
course of business, consistent with past practices, (b) the disposition of
obsolete assets which are no longer used or useful in current or planned
business operations of such Person, (c) the sale of assets pursuant to
sale-leaseback transactions permitted under ss.9.6 hereof, (d) sales of Capital
Assets the proceeds of which are reinvested as permitted Capital Expenditures
within 360 days of such sale, (e) the sale of assets by a Guarantor to a
Guarantor, and (f) sales of assets in arms-length transactions for fair and
reasonable value, provided that (i) no Default or Event of Default shall have
occurred and be continuing at the time of such sale and no Default or Event of
Default will exist after giving effect to such sale, (ii) at least 80% of the
purchase price for such asset is received in cash and the Net Proceeds from
such sale are applied as provided in ss.2.3(b) hereof, and (iii) any promissory
note or other instrument received by the Borrower or such Subsidiary in
connection with such sale is an Investment permitted under ss.9.3 hereof, and
the Borrower or such Subsidiary, as applicable, has delivered such promissory
note or other instrument to the Agent to be held in pledge for the benefit of
itself and the Banks in accordance with the terms of the Credit Agreement; (iv)
the Borrower shall have delivered to the Agent on the date of such sale a
certificate signed by an authorized officer of the Borrower and evidence
satisfactory to the Agent showing compliance with the provisions of clauses (i)
and (iii) of this ss.9.5.2(f).
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ss.9.6. SALE AND LEASEBACK. The Borrower will not, and will not permit
any of its Subsidiaries to, enter into any arrangement, directly or indirectly,
whereby the Borrower or any Subsidiary of the Borrower shall sell or transfer
any property owned by it in order then or thereafter to lease such property or
lease other property that the Borrower or any Subsidiary of the Borrower
intends to use for substantially the same purpose as the property being sold or
transferred, provided that the Borrower or any Subsidiary of the Borrower may
enter into such sale-leaseback transactions to the extent that the Indebtedness
incurred in connection with such transactions are permitted under ss.9.1(f)
hereof or ss.9.1(h) hereof to the extent described in item 15 of Schedule 9.1
attached hereto.
ss.9.7. COMPLIANCE WITH ENVIRONMENTAL LAWS. The Borrower will not, and
the Borrower will not permit any of its Subsidiaries to, (a) use any of the
Real Estate or any portion thereof for the handling, processing, storage or
disposal of Hazardous Substances in violation of any Environmental Law the
noncompliance with which would have a material adverse effect on the business,
assets or financial condition of the Parent or the Borrower and its
Subsidiaries considered as a whole; (b) cause or permit to be located on any of
the Real Estate any underground tank or other underground storage receptacle
for Hazardous Substances in violation of any Environmental Law the
noncompliance with which would have a material adverse effect on the business,
assets or financial condition of the Parent or the Borrower and its
Subsidiaries considered as a whole; (c) generate any Hazardous Substances on
any of the Real Estate in violation of any Environmental Law the noncompliance
with which would have a material adverse effect on the business, assets or
financial condition of the Parent or the Borrower and its Subsidiaries
considered as a whole; (d) conduct any activity at any Real Estate or use any
Real Estate in any manner so as to cause a release (i.e. releasing, spilling,
leaking, pumping, pouring, emitting, emptying, discharging, injecting,
escaping, leaching, disposing or dumping) or threatened release of Hazardous
Substances on, upon or into the Real Estate, or (e) otherwise conduct any
activity at any Real Estate or use any Real Estate in any manner that would
violate any Environmental Law or bring such Real Estate in violation of any
Environmental Law, in each case if such violation would have a material adverse
effect on the business, assets or financial condition of the Parent or the
Borrower and its Subsidiaries, taken as a whole..
ss.9.8. EMPLOYEE BENEFIT PLANS. Neither the Borrower nor any ERISA
Affiliate will:
(a) engage in any "prohibited transaction" within the meaning of
ss.406 of ERISA or ss.4975 of the Code which could result in a material
liability for the Parent, the Borrower or any of its Subsidiaries; or
(b) permit any Guaranteed Pension Plan to incur an "accumulated
funding deficiency", as such term is defined in ss.302 of ERISA, whether or not
such deficiency is or may be waived; or
(c) fail to contribute to any Guaranteed Pension Plan to an
extent which, or terminate any Guaranteed Pension Plan in a manner which, could
result in the imposition of a lien or encumbrance on the assets of the Parent,
the Borrower or any of its Subsidiaries pursuant to ss.302(f) or ss.4068 of
ERISA; or
(d) permit or take any action which would result in the aggregate
benefit liabilities (within the meaning of ss.4001 of ERISA) of all Guaranteed
Pension Plans exceeding the value of the
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aggregate assets of any such Plan with assets in excess of benefit liabilities,
by more than the amount set forth in ss.7.16.3 hereof.
ss.9.9. CHANGE IN TERMS OF CAPITAL STOCK. The Borrower shall not and
shall not permit any of its Subsidiaries to effect or permit any change in or
amendment to any document or instrument pertaining to the terms of such
Person's capital stock without the written consent of the Banks.
ss.9.10. HOSTILE TAKEOVERS. The Borrower will not and will not permit
its Subsidiaries to acquire or attempt to acquire, whether by stock
acquisition, purchase of assets, merger, consolidation or otherwise, any
assets, stock or business of any entities in any transaction that has not been
approved by the board of directors of the entity whose stock, assets or
business is or are to be acquired; provided, however, that the foregoing shall
not prohibit any purchase in the open market of not more than 5% of the
fully-diluted outstanding capital stock of any corporation made in accordance
with the provisions of this Credit Agreement.
ss.9.11. LIMITATION ON TRANSACTIONS. The Borrower will not and will
not permit any of its Subsidiaries to enter into any acquisition transaction,
including, but not limited to, any asset purchase, stock purchase, merger,
consolidation, noncompetition agreement or any similar transaction, involving
an aggregate Investment or other outlay of funds or assumption of debt or other
consideration in excess of $25,000,000 in any single transaction. Payments
which are contingent upon post-closing performance, including, without
limitation, as set forth in any Incentive Arrangement delivered in connection
with any such acquisition transaction, shall be excluded from this ss.9.11.
ss.9.12. FISCAL YEAR. The Borrower will not change the date of the end
of its fiscal year from that set forth in ss.7.21 hereof.
ss.10. FINANCIAL COVENANTS OF THE BORROWER. The Borrower hereby
covenants and agrees that, so long as any Revolving Credit Loan, Unpaid
Reimbursement Obligation, Letter of Credit or Note is outstanding or any Bank
has any obligation to make any Revolving Credit Loans or the Agent has any
obligation to issue, extend or renew any Letters of Credit:
ss.10.1. CASH FLOW COVERAGE RATIO. As at the end of any fiscal quarter
of the Parent ending during the periods specified in the table set forth below,
the Cash Flow Coverage Ratio of the Borrower and its Subsidiaries, calculated
on a Pro Forma Basis for the period of the four consecutive fiscal quarters
then ended, shall not be less than the ratio set forth opposite such period in
such table:
- -------------------------------------------------------------------------------
Period Ratio
- -------------------------------------------------------------------------------
Closing Date - 12/31/98 1.85 to 1.00
- -------------------------------------------------------------------------------
1/1/99 - 12/31/99 1.90 to 1.00
- -------------------------------------------------------------------------------
1/1/00 and thereafter 2.00 to 1.00
- -------------------------------------------------------------------------------
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ss.10.2. DEBT SERVICE COVERAGE RATIO. As at the end of any fiscal
quarter of the Parent ending during the periods specified in the table set
forth below, the Debt Service Coverage Ratio of the Borrower and its
Subsidiaries, shall not, for the period of the four consecutive fiscal quarters
then ended, be less than 1.25 to 1.00
ss.10.3. MINIMUM NET WORTH. The Consolidated Net Worth of the Parent
and its Subsidiaries, calculated on a Pro Forma Basis, shall at no time during
the periods set forth below be less than the amount set forth opposite such
period.
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Period Amount
- -------------------------------------------------------------------------------
Closing Date - 12/30/97 $67,500,000
- -------------------------------------------------------------------------------
12/31/97 - 12/30/98 $77,500,000
- -------------------------------------------------------------------------------
12/31/98 and thereafter $90,000,000
- -------------------------------------------------------------------------------
ss.10.4. SENIOR DEBT TO CONSOLIDATED CASH FLOW RATIO. As at the end of
any fiscal quarter of the Borrower ending after the Closing Date, the Senior
Debt to Consolidated Cash Flow Ratio of the Borrower and its Subsidiaries for
the period of four consecutive fiscal quarters then ended shall not be greater
than 2.25 to 1.00.
ss.11. CLOSING CONDITIONS. The obligations of the Banks to amend and
restate the Original Credit Agreement, to convert the Revolving Credit Loans
and Letters of Credit thereunder to Revolving Credit Loans and Letters of
Credit hereunder and to make the initial Revolving Credit Loans and of the
Agent to issue any initial Letters of Credit shall be subject to the
satisfaction of the following conditions precedent on or prior to July 31,
1997:
ss.11.1. LOAN DOCUMENTS. Each of the Loan Documents shall have been
duly executed and delivered by the respective parties thereto, shall be in full
force and effect and shall be in form and substance satisfactory to each of the
Banks. Each Bank shall have received a fully executed copy of each such
document.
ss.11.2. CERTIFIED COPIES OF CHARTER DOCUMENTS. Each of the Banks
shall have received from the Parent, the Borrower and each of the Guarantors a
copy, certified by a duly authorized officer of such Person to be true and
complete on the Closing Date, of each of (a) its charter or other incorporation
documents as in effect on such date of certification, and (b) its by-laws as in
effect on such date.
ss.11.3. CORPORATE ACTION. All corporate action necessary for the
valid execution, delivery and performance by the Parent, the Borrower and each
of the Guarantors of this Credit Agreement and the other Loan Documents to
which it is or is to become a party
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shall have been duly and effectively taken, and evidence thereof satisfactory
to the Banks shall have been provided to each of the Banks.
ss.11.4. INCUMBENCY CERTIFICATE. Each of the Banks shall have received
from the Parent, the Borrower and each of the Guarantors an incumbency
certificate, dated as of the Closing Date, signed by a duly authorized officer
of such Person, and giving the name and bearing a specimen signature of each
individual who shall be authorized: (a) to sign, in the name and on behalf of
each such Person, each of the Loan Documents to which such Person is or is to
become a party; (b) in the case of the Borrower, to make Loan Requests and
Conversion Requests and to apply for Letters of Credit; and (c) to give notices
and to take other action on its behalf under the Loan Documents.
ss.11.5. VALIDITY OF LIENS. The Security Documents shall be effective
to create in favor of the Agent a legal, valid and enforceable first (except
for Permitted Liens entitled to priority under applicable law) security
interest in and lien upon the Collateral. All filings, recordings, deliveries
of instruments and other actions necessary or desirable in the opinion of the
Agent to protect and preserve such security interests shall have been duly
effected. The Agent shall have received evidence thereof in form and substance
satisfactory to the Agent.
ss.11.6. PERFECTION CERTIFICATES AND UCC SEARCH RESULTS. The Agent
shall have received from the Borrower and each of the Guarantors a completed
and fully executed Perfection Certificate and the results of UCC searches with
respect to the Collateral, indicating no liens other than Permitted Liens and
otherwise in form and substance satisfactory to the Agent.
ss.11.7. INSURANCE. The Agent shall have received a schedule outlining
all of the Borrower's and its Subsidiaries insurance coverage, including policy
limits and deductibles.
ss.11.8. OPINIONS OF COUNSEL. Each of the Banks and the Agent shall
have received favorable legal opinions addressed to the Banks and the Agent,
dated as of the Closing Date, in form and substance satisfactory to the Banks
and the Agent, from:
(a) Bryan Cave LLP, special counsel to the Parent, the Borrower
and the Guarantors; and
(b) Mayer, Brown & Platt, special counsel to the Parent, the
Borrower and the Guarantors.
ss.11.9. PAYMENT OF AMENDMENT FEE. The Borrower shall have paid to the
Banks the amendment fee payable pursuant to the Fee Letter.
ss.11.10. CONSENTS AND APPROVALS. The Banks shall have received
waivers or consents from any source reasonably requested by them, in form and
substance satisfactory to the Banks, in connection with the transactions
contemplated by this Credit Agreement.
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ss.11.11. PROJECTIONS. The projections of the annual operating budgets
of the Parent and its Subsidiaries on a consolidated and consolidating basis,
balance sheets and cash flow statements for the 1997 to 2001 fiscal years,
shall have been delivered to each Bank. The projections have been prepared on
the basis of reasonable assumptions and reflect the reasonable estimates of the
Borrower of the results of operations (in the aggregate) and other information
projected therein.
ss.11.12 BORROWER REORGANIZATION.
ss.11.12.1. ACQUISITION OF NEW SUBSIDIARIES. The Agent shall have
received evidence satisfactory to the Agent that Cape Craftsmen, SPL
Holdings, Inc. and its Subsidiaries have become wholly-owned
Subsidiaries of the Borrower.
ss.11.12.2. DISPOSITION OF ASSETS OR STOCK OF OLD SUBSIDIARIES.
The Agent shall have received evidence satisfactory to the Agent that
the sale of certain of the assets and liabilities of Cambridge,
Dura-Line, Johnson and Viewsonics to JTP or its Subsidiaries, and the
sale of the capital stock owned by the Borrower of Aim, Bond Holdings,
Diversified, NT Holdings and Old JTPG to JTP or its Subsidiaries has
occurred and the Borrower has received consideration therefor of not
less than $260,000,000 in the aggregate.
ss.11.13 SPL CREDIT AGREEMENT. The Agent shall have received evidence
satisfactory to the Agent that SPL Holdings, Inc. and its Subsidiaries have
indefeasibly repaid in full in cash all Obligations (as defined in the SPL
Credit Agreement) under the SPL Credit Agreement and all liens, security
interests and encumbrances granted by SPL Holdings, Inc. and its Subsidiaries
in respect thereof have been discharged in full.
ss.11.14 JORDAN REORGANIZATION. The Agent shall have received evidence
satisfactory to the Agent that the Jordan Reorganization has been completed in
all material respects.
ss.12. CONDITIONS TO ALL BORROWINGS. The obligations of the Banks to
make any Revolving Credit Loan, including the Revolving Credit Loans, and of
the Agent to issue, extend or renew any Letter of Credit, in each case whether
on or after the Closing Date, shall also be subject to the satisfaction of the
following conditions precedent:
ss.12.1. REPRESENTATIONS TRUE; NO EVENT OF DEFAULT. Each of the
representations and warranties of any of the Parent, the Borrower and the
Guarantors contained in this Credit Agreement, the other Loan Documents or in
any document or instrument delivered pursuant to or in connection with this
Credit Agreement shall be true as of the date as of which they were made and
shall also be true at and as of the time of the making of such Revolving Credit
Loan or the issuance, extension or renewal of such Letter of Credit, with the
same effect as if made at and as of that time (except to the extent of changes
resulting from transactions contemplated or permitted by this Credit Agreement
and the other Loan Documents and changes occurring in the ordinary course of
business that singly or in the aggregate are not materially adverse, and to the
extent that such representations and warranties relate expressly to an earlier
date) and no Default or Event of Default shall have occurred and be continuing.
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ss.12.2. NO LEGAL IMPEDIMENT. No change shall have occurred in any law
or regulations thereunder or interpretations thereof that in the reasonable
opinion of any Bank would make it illegal for such Bank to make such Revolving
Credit Loan or to participate in the issuance, extension or renewal of such
Letter of Credit or in the reasonable opinion of the Agent would make it
illegal for the Agent to issue, extend or renew such Letter of Credit.
ss.12.3. GOVERNMENTAL REGULATION. Each Bank shall have received such
statements in substance and form reasonably satisfactory to such Bank as such
Bank shall require for the purpose of compliance with any applicable
regulations of the Comptroller of the Currency or the Board of Governors of the
Federal Reserve System.
ss.12.4. PROCEEDINGS AND DOCUMENTS. All proceedings in connection with
the transactions contemplated by this Credit Agreement, the other Loan
Documents and all other documents incident thereto shall be satisfactory in
substance and in form to the Banks and to the Agent and the Agent's Special
Counsel, and the Banks, the Agent and such counsel shall have received all
information and such counterpart originals or certified or other copies of such
documents as the Agent may reasonably request.
ss.13. EVENTS OF DEFAULT; ACCELERATION; ETC.
ss.13.1. EVENTS OF DEFAULT AND ACCELERATION. If any of the following
events ("Events of Default" or, if the giving of notice or the lapse of time or
both is required, then, prior to such notice or lapse of time, "Defaults")
shall occur:
(a) the Borrower shall fail to pay any principal of the Revolving
Credit Loans or any Reimbursement Obligation when the same shall become due and
payable, whether at the stated date of maturity or any accelerated date of
maturity or at any other date fixed for payment;
(b) the Borrower shall fail to pay any interest on the Revolving
Credit Loans, the Commitment Fee, any Letter of Credit Fee, the Agent's Fee, or
other sums due hereunder or under any of the other Loan Documents, when the
same shall become due and payable, whether at the stated date of maturity or
any accelerated date of maturity or at any other date fixed for payment, and
such failure shall continue for five (5) days;
(c) the Borrower shall fail to comply with any of its covenants
contained in the first sentence of ss.8.6, ss.ss.8.9, 8.12, 8.13, 9.1 through
9.6, 9.9, 9.10 through 9.12 or 10 or the Parent shall fail to comply with any
of its covenants contained in ss.8 of the Parent Guaranty;
(d) the Parent, the Borrower or any of the Guarantors shall fail
to perform any term, covenant or agreement contained herein or in any of the
other Loan Documents (other than those specified elsewhere in this ss.13.1) for
thirty (30) days after written notice of such failure has been given to the
Borrower by the Agent;
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(e) any representation or warranty of the Parent, the Borrower or
any of the Guarantors in this Credit Agreement or any of the other Loan
Documents or in any other document or instrument delivered pursuant to or in
connection with this Credit Agreement shall prove to have been false in any
material respect upon the date when made or deemed to have been made or
repeated;
(f) the Parent, the Borrower or any of its Subsidiaries shall (i)
fail to pay at maturity, or within any applicable period of grace, any
obligation for borrowed money or credit received or in respect of any
Capitalized Leases in an aggregate amount in excess of $15,000,000, or (ii)
fail to observe or perform any material term, covenant or agreement contained
in any agreement by which it is bound, evidencing or securing borrowed money or
credit received or in respect of any Capitalized Leases in an aggregate amount
in excess of $15,000,000 for such period of time as would permit (assuming the
giving of appropriate notice if required) the holder or holders thereof or of
any obligations issued thereunder to accelerate the maturity thereof;
(g) the Parent, the Borrower or any of its Subsidiaries shall
make an assignment for the benefit of creditors, or admit in writing its
inability to pay or generally fail to pay its debts as they mature or become
due, or shall petition or apply for the appointment of a trustee or other
custodian, liquidator or receiver of such Person or of any substantial part of
the assets of such Person or shall commence any case or other proceeding
relating to such Person under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation or similar law of
any jurisdiction, now or hereafter in effect, or shall take any action to
authorize or in furtherance of any of the foregoing, or if any such petition or
application shall be filed or any such case or other proceeding shall be
commenced against the Parent, the Borrower or any of its Subsidiaries and such
Person shall indicate its approval thereof, consent thereto or acquiescence
therein;
(h) a decree or order is entered appointing any such trustee,
custodian, liquidator or receiver or adjudicating the Parent, the Borrower or
any of its Subsidiaries bankrupt or insolvent, or approving a petition in any
such case or other proceeding, or a decree or order for relief is entered in
respect of any such Person in an involuntary case under federal bankruptcy laws
as now or hereafter constituted and such case or proceeding remains undismissed
for sixty (60) days;
(i) there shall remain in force, undischarged, unsatisfied and
unstayed, for more than thirty days, whether or not consecutive, any final
judgment against the Parent, the Borrower or any of its Subsidiaries that, with
other outstanding final judgments, undischarged, against the such Persons
exceeds in the aggregate $2,000,000;
(j) if any of the Loan Documents shall be cancelled, terminated,
revoked or rescinded or the Agent's security interests or liens in any
substantial portion of the Collateral shall cease to be perfected, or shall
cease to have the priority contemplated by the Security Documents, in each case
otherwise than in accordance with the terms thereof or with the express prior
written agreement, consent or approval of the Banks, or any action at law, suit
or in equity or other legal proceeding to cancel, revoke or rescind any of the
Loan Documents shall be commenced by or on behalf of the Parent, the Borrower
or any of the Guarantors party thereto or any of their respective stockholders,
or any court or any other governmental or regulatory
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authority or agency of competent jurisdiction shall make a determination that,
or issue a judgment, order, decree or ruling to the effect that, any one or
more of the Loan Documents is illegal, invalid or unenforceable in accordance
with the terms thereof, or if any Guarantor or the Parent shall deny that it
has any further or continuing liability under such Person's Guaranty;
(k) with respect to any Guaranteed Pension Plan, an ERISA
Reportable Event shall have occurred and the Majority Banks shall have
determined in their reasonable discretion that such event reasonably could be
expected to result in liability of the Parent or the Borrower or any of its
Subsidiaries to the PBGC or such Guaranteed Pension Plan in an aggregate amount
exceeding $5,000,000 and such event in the circumstances occurring reasonably
could constitute grounds for the termination of such Guaranteed Pension Plan by
the PBGC or for the appointment by the appropriate United States District Court
of a trustee to administer such Guaranteed Pension Plan; or a trustee shall
have been appointed by the United States District Court to administer such
Plan; or the PBGC shall have instituted proceedings to terminate such
Guaranteed Pension Plan;
(l) the Jordan Group, shall, at any time, legally or
beneficially, own less than 51% of the outstanding Voting Stock of the Parent,
as adjusted pursuant to any stock split, stock dividend or recapitalization or
reclassification of the capital of the Parent; or
(m) the Parent shall at any time, legally or beneficially, own
less than 100% of the outstanding capital stock of the Borrower, as adjusted
pursuant to any stock split, stock divided or recapitalization or
reclassification of the capital of the Borrower;
then, and in any such event, so long as the same may be continuing, the Agent
may, and upon the request of the Majority Banks shall, by notice in writing to
the Borrower declare all amounts owing with respect to this Credit Agreement,
the Notes and the other Loan Documents and all Reimbursement Obligations to be,
and they shall thereupon forthwith become, immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived by the Borrower; provided that in the event of any
Event of Default specified in ss.ss.13.1(g) or 13.1(h) hereof, all such amounts
shall become immediately due and payable automatically and without any
requirement of notice from the Agent or any Bank.
ss.13.2. TERMINATION OF COMMITMENTS. If any one or more of the Events
of Default specified in ss.13.1(g) or ss.13.1(h) hereof shall occur, any unused
portion of the credit hereunder shall forthwith terminate and each of the Banks
shall be relieved of all further obligations to make Revolving Credit Loans to
the Borrower and the Agent shall be relieved of all further obligations to
issue, extend or renew Letters of Credit. If any other Event of Default shall
have occurred and be continuing, the Agent may and, upon the request of the
Majority Banks, shall, by notice to the Borrower, terminate the unused portion
of the credit hereunder, and upon such notice being given such unused portion
of the credit hereunder shall terminate immediately and each of the Banks shall
be relieved of all further obligations to make Revolving Credit Loans and the
Agent shall be relieved of all further obligations to issue, extend or renew
Letters of Credit. No termination of the credit hereunder shall relieve the
Parent, the Borrower or any of the Guarantors of any of the Obligations.
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ss.13.3. REMEDIES. In case any one or more of the Events of Default
shall have occurred and be continuing, and whether or not the Banks shall have
accelerated the maturity of the Revolving Credit Loans pursuant to ss.13.1
hereof, each Bank, if owed any amount with respect to the Revolving Credit
Loans or the Reimbursement Obligations, may proceed to protect and enforce its
rights by suit in equity, action at law or other appropriate proceeding,
whether for the specific performance of any covenant or agreement contained in
this Credit Agreement and the other Loan Documents or any instrument pursuant
to which the Obligations to such Bank are evidenced, including as permitted by
applicable law the obtaining of the ex parte appointment of a receiver, and, if
such amount shall have become due, by declaration or otherwise, proceed to
enforce the payment thereof or any other legal or equitable right of such Bank.
No remedy herein conferred upon any Bank or the Agent or the holder of any Note
or purchaser of any Letter of Credit Participation is intended to be exclusive
of any other remedy and each and every remedy shall be cumulative and shall be
in addition to every other remedy given hereunder or now or hereafter existing
at law or in equity or by statute or any other provision of law.
ss.13.4. DISTRIBUTION OF COLLATERAL PROCEEDS. In the event that,
following the occurrence or during the continuance of any Default or Event of
Default, the Agent or any Bank, as the case may be, receives any monies in
connection with the enforcement of any the Security Documents, or otherwise
with respect to the realization upon any of the Collateral, such monies shall
be distributed for application as follows:
(a) first, to the payment of, or (as the case may be) the
reimbursement of the Agent for or in respect of all reasonable costs, expenses,
disbursements and losses which shall have been incurred or sustained by the
Agent in connection with the collection of such monies by the Agent, for the
exercise, protection or enforcement by the Agent of all or any of the rights,
remedies, powers and privileges of the Agent under this Credit Agreement or any
of the other Loan Documents or in respect of the Collateral or in support of
any provision of adequate indemnity to the Agent against any taxes or liens
which by law shall have, or may have, priority over the rights of the Agent to
such monies;
(b) second, to all other Obligations in such order or preference
as the Majority Banks may determine; provided, however, that distributions in
respect of such obligations shall be made (i) pari passu among Obligations with
respect to the Agent's Fee payable pursuant to ss.5.2 hereof and all other
Obligations and (ii) Obligations owing to the Banks with respect to each type
of Obligation such as interest, principal, fees and expenses, shall be made
among the Banks pro rata; and provided, further, that the Agent may in its
discretion make proper allowance to take into account any Obligations not then
due and payable;
(c) third, upon payment and satisfaction in full or other
provisions satisfactory to the Banks and the Agent for payment in full of all
of the Obligations, to the payment of any obligations required to be paid
pursuant to ss.9-504(1)(c) of the Uniform Commercial Code of the Commonwealth
of Massachusetts; and
(d) fourth, the excess, if any, shall be returned to the Borrower
or to such other Persons as are entitled thereto.
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ss.14. SETOFF. Regardless of the adequacy of any collateral, during
the continuance of any Event of Default, any deposits or other sums credited by
or due from any of the Banks to the Borrower and any securities or other
property of the Borrower in the possession of such Bank may be applied to or
set off by such Bank against the payment of Obligations and any and all other
liabilities, direct, or indirect, absolute or contingent, due or to become due,
now existing or hereafter arising, of the Borrower to such Bank. Each of the
Banks agrees with each other Bank that (a) if an amount to be set off is to be
applied to Indebtedness of the Borrower to such Bank, other than Indebtedness
evidenced by the Notes held by such Bank or constituting Reimbursement
Obligations owed to such Bank, such amount shall be applied ratably to such
other Indebtedness and to the Indebtedness evidenced by all such Notes held by
such Bank or constituting Reimbursement Obligations owed to such Bank, and (b)
if such Bank shall receive from the Borrower, whether by voluntary payment,
exercise of the right of setoff, counterclaim, cross action, enforcement of the
claim evidenced by the Notes held by, or constituting Reimbursement Obligations
owed to, such Bank by proceedings against the Borrower at law or in equity or
by proof thereof in bankruptcy, reorganization, liquidation, receivership or
similar proceedings, or otherwise, and shall retain and apply to the payment of
the Note or Notes held by, or Reimbursement Obligations owed to, such Bank any
amount in excess of its ratable portion of the payments received by all of the
Banks with respect to the Notes held by, and Reimbursement Obligations owed to,
all of the Banks, such Bank will make such disposition and arrangements with
the other Banks with respect to such excess, either by way of distribution, pro
tanto assignment of claims, subrogation or otherwise as shall result in each
Bank receiving in respect of the Notes held by it or Reimbursement Obligations
owed it, its proportionate payment as contemplated by this Credit Agreement;
provided that if all or any part of such excess payment is thereafter recovered
from such Bank, such disposition and arrangements shall be rescinded and the
amount restored to the extent of such recovery, but without interest.
ss.15. THE AGENT.
ss.15.1. AUTHORIZATION. The Agent is authorized to take such action on
behalf of each of the Banks and to exercise all such powers as are hereunder
and under any of the other Loan Documents and any related documents delegated
to the Agent, together with such powers as are reasonably incident thereto,
provided that no duties or responsibilities not expressly assumed herein or
therein shall be implied to have been assumed by the Agent. The relationship
between the Agent and the Banks is and shall be that of agent and principal
only, and nothing contained in this Credit Agreement or any of the other Loan
Documents shall be construed to constitute the Agent as a trustee for any Bank.
ss.15.2. EMPLOYEES AND AGENTS. The Agent may exercise its powers and
execute its duties by or through employees or agents and shall be entitled to
take, and to rely on, advice of counsel concerning all matters pertaining to
its rights and duties under this Credit Agreement and the other Loan Documents.
The Agent may utilize the services of such Persons as the Agent in its sole
discretion may reasonably determine, and all reasonable fees and expenses of
any such Persons shall be paid by the Borrower.
ss.15.3. NO LIABILITY. Neither the Agent nor any of its shareholders,
directors, officers or employees nor any other Person assisting them in their
duties nor any agent or employee thereof, shall be liable for any waiver,
consent or approval given or any action taken, or omitted to be taken, in good
faith by it or them
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hereunder or under any of the other Loan Documents, or in connection herewith
or therewith, or be responsible for the consequences of any oversight or error
of judgment whatsoever, except that the Agent or such other Person, as the case
may be, may be liable for losses due to its willful misconduct or gross
negligence.
ss.15.4. NO REPRESENTATIONS. The Agent shall not be responsible for
the execution or validity or enforceability of this Credit Agreement, the
Notes, the Letters of Credit, any of the other Loan Documents or any instrument
at any time constituting, or intended to constitute, collateral security for
the Notes, or for the value of any such collateral security or for the
validity, enforceability or collectability of any such amounts owing with
respect to the Notes, or for any recitals or statements, warranties or
representations made herein or in any of the other Loan Documents or in any
certificate or instrument hereafter furnished to it by or on behalf of the
Parent, the Borrower or any of its Subsidiaries, or be bound to ascertain or
inquire as to the performance or observance of any of the terms, conditions,
covenants or agreements herein or in any instrument at any time constituting,
or intended to constitute, collateral security for the Notes or to inspect any
of the properties, books or records of the Parent, the Borrower or any of its
Subsidiaries. The Agent shall not be bound to ascertain whether any notice,
consent, waiver or request delivered to it by the Borrower or any holder of any
of the Notes shall have been duly authorized or is true, accurate and complete.
The Agent has not made nor does it now make any representations or warranties,
express or implied, nor does it assume any liability to the Banks, with respect
to the credit worthiness or financial condition of the Parent, the Borrower or
any of its Subsidiaries. Each Bank acknowledges that it has, independently and
without reliance upon the Agent or any other Bank, and based upon such
information and documents as it has deemed appropriate, made its own credit
analysis and decision to enter into this Credit Agreement.
ss.15.5. PAYMENTS.
ss.15.5.1. PAYMENTS TO AGENT. A payment by the Borrower to the
Agent hereunder or any of the other Loan Documents for the account of any Bank
shall constitute a payment to such Bank. The Agent agrees promptly to
distribute to each Bank such Bank's pro rata share of payments received by the
Agent for the account of the Banks except as otherwise expressly provided
herein or in any of the other Loan Documents.
ss.15.5.2. DISTRIBUTION BY AGENT. If in the opinion of the Agent
the distribution of any amount received by it in such capacity hereunder, under
the Notes or under any of the other Loan Documents might involve it in
liability, it may refrain from making distribution until its right to make
distribution shall have been adjudicated by a court of competent jurisdiction.
If a court of competent jurisdiction shall adjudge that any amount received and
distributed by the Agent is to be repaid, each Person to whom any such
distribution shall have been made shall either repay to the Agent its
proportionate share of the amount so adjudged to be repaid or shall pay over
the same in such manner and to such Persons as shall be determined by such
court.
ss.15.5.3. DELINQUENT BANKS. Notwithstanding anything to the
contrary contained in this Credit Agreement or any of the other Loan Documents,
any Bank that fails (i) to make available to the Agent its pro rata share of
any Revolving Credit Loan or to purchase any Letter of Credit Participation or
(ii) to
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comply with the provisions of ss.14 hereof with respect to making dispositions
and arrangements with the other Banks, where such Bank's share of any payment
received, whether by setoff or otherwise, is in excess of its pro rata share of
such payments due and payable to all of the Banks, in each case as, when and to
the full extent required by the provisions of this Credit Agreement, shall be
deemed delinquent (a "Delinquent Bank") and shall be deemed a Delinquent Bank
until such time as such delinquency is satisfied. A Delinquent Bank shall be
deemed to have assigned any and all payments due to it from the Borrower,
whether on account of outstanding Revolving Credit Loans, Unpaid Reimbursement
Obligations, interest, fees or otherwise, to the remaining nondelinquent Banks
for application to, and reduction of, their respective pro rata shares of all
outstanding Revolving Credit Loans and Unpaid Reimbursement Obligations. The
Delinquent Bank hereby authorizes the Agent to distribute such payments to the
nondelinquent Banks in proportion to their respective pro rata shares of all
outstanding Revolving Credit Loans and Unpaid Reimbursement Obligations. A
Delinquent Bank shall be deemed to have satisfied in full a delinquency when
and if, as a result of application of the assigned payments to all outstanding
Revolving Credit Loans and Unpaid Reimbursement Obligations of the
nondelinquent Banks, the Banks' respective pro rata shares of all outstanding
Revolving Credit Loans and Unpaid Reimbursement Obligations have returned to
those in effect immediately prior to such delinquency and without giving effect
to the nonpayment causing such delinquency.
ss.15.6. HOLDERS OF NOTES. The Agent may deem and treat the payee of
any Note or the purchaser of any Letter of Credit Participation as the absolute
owner or purchaser thereof for all purposes hereof until it shall have been
furnished in writing with a different name by such payee or by a subsequent
holder, assignee or transferee.
ss.15.7. INDEMNITY. The Banks ratably agree hereby to indemnify and
hold harmless the Agent from and against any and all claims, actions and suits
(whether groundless or otherwise), losses, damages, costs, expenses (including
any expenses for which the Agent has not been reimbursed by the Borrower as
required by ss.16 hereof), and liabilities of every nature and character
arising out of or related to this Credit Agreement, the Notes, or any of the
other Loan Documents or the transactions contemplated or evidenced hereby or
thereby, or the Agent's actions taken hereunder or thereunder, except to the
extent that any of the same shall be directly caused by the Agent's willful
misconduct or gross negligence.
ss.15.8. AGENT AS BANK. In its individual capacity, BkB shall have the
same obligations and the same rights, powers and privileges in respect to its
Commitment and the Revolving Credit Loans made by it, and as the holder of any
of the Notes and as the purchaser of any Letter of Credit Participations, as it
would have were it not also the Agent.
ss.15.9. RESIGNATION. The Agent may resign at any time by giving sixty
(60) days' prior written notice thereof to the Banks and the Borrower. Upon any
such resignation, the Majority Banks shall have the right to appoint a
successor Agent. Unless a Default or Event of Default shall have occurred and
be continuing, such successor Agent shall be reasonably acceptable to the
Borrower. If no successor Agent shall have been so appointed by the Majority
Banks and shall have accepted such appointment within thirty (30) days after
the retiring Agent's giving of notice of resignation, then the retiring Agent
may, on behalf of the Banks, appoint a successor Agent, which shall be a
financial institution having a rating of not less than A or its equivalent by
Standard & Poor's Corporation. Upon the acceptance of any appointment as Agent
hereunder
<PAGE>
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by a successor Agent, such successor Agent shall thereupon succeed to and
become vested with all the rights, powers, privileges and duties of the
retiring Agent, and the retiring Agent shall be discharged from its duties and
obligations hereunder. After any retiring Agent's resignation, the provisions
of this Credit Agreement and the other Loan Documents shall continue in effect
for its benefit in respect of any actions taken or omitted to be taken by it
while it was acting as Agent.
ss.15.10. NOTIFICATION OF DEFAULTS AND EVENTS OF DEFAULT. Each Bank
hereby agrees that, upon learning of the existence of a Default or an Event of
Default, it shall promptly notify the Agent thereof. The Agent hereby agrees
that upon receipt of any notice under this ss.15.10 it shall promptly notify
the other Banks of the existence of such Default or Event of Default.
ss.15.11. DUTIES IN THE CASE OF ENFORCEMENT. In case one of more
Events of Default have occurred and shall be continuing, and whether or not
acceleration of the Obligations shall have occurred, the Agent shall, if (a) so
requested by the Majority Banks and (b) the Banks have provided to the Agent
such additional indemnities and assurances against expenses and liabilities as
the Agent may reasonably request, proceed to enforce the provisions of the
Security Documents authorizing the sale or other disposition of all or any part
of the Collateral and exercise all or any such other legal and equitable and
other rights or remedies as it may have in respect of such Collateral. The
Majority Banks may direct the Agent in writing as to the method and the extent
of any such sale or other disposition, the Banks hereby agreeing to indemnify
and hold the Agent, harmless from all liabilities incurred in respect of all
actions taken or omitted in accordance with such directions, provided that the
Agent need not comply with any such direction to the extent that the Agent
reasonably believes the Agent's compliance with such direction to be unlawful
or commercially unreasonable in any applicable jurisdiction.
ss.16. EXPENSES. Whether or not the transactions contemplated hereby
shall be consummated, the Borrower, hereby promises to pay (a) the cost of (i)
reproducing this Credit Agreement and other instruments mentioned herein and
(ii) any taxes (including any interest and penalties in respect thereof),
filing fees or recording fees or taxes payable by any Bank (other than taxes
based upon such Bank's net income or profits) on or with respect to the
transactions contemplated by this Credit Agreement or the other Loan Documents
(the Borrower hereby agreeing to indemnify each Bank with respect thereto); (b)
the documented fees, expenses and disbursements of the Agent's Special Counsel
incurred in connection with the preparation of this Credit Agreement and other
instruments mentioned herein, each closing hereunder, amendments,
modifications, approvals, consents or waivers hereto or hereunder and the
syndication and the termination hereof; (c) all reasonable fees, expenses and
disbursements incurred by BkB in connection with the syndication of its
Commitment hereunder, provided that the Borrower shall not bear the costs of
syndication hereunder which are in excess of $5,000; and (d) all out-of-pocket
expenses (including reasonable attorneys' fees and costs) incurred by any Bank
or the Agent in connection with (i) the enforcement of this Credit Agreement
the Notes and the other Loan Documents against the Parent, the Borrower or any
Guarantor or the administration thereof after the occurrence and during the
continuance of a Default or Event of Default and (ii) in connection with any
litigation, proceeding or dispute whether arising hereunder or under the other
Loan Documents or arising out of the transactions contemplated hereby or
thereby. The covenants of this ss.16 shall survive payment or satisfaction of
all other Obligations.
<PAGE>
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ss.17. INDEMNIFICATION. The Borrower further agrees to indemnify and
hold harmless the Agent and the Banks as well as each such Person's
shareholders, directors, agents, officers, Subsidiaries and affiliates, from
and against all damages, losses, settlement payments, obligations, liabilities,
claims, actions or causes of action, and costs and expenses incurred, suffered,
sustained or required to be paid by an indemnified party by reason of or
resulting from the transactions contemplated hereby, except any of the
foregoing which result from the gross negligence or willful misconduct of the
indemnified party. In any investigation, proceeding or litigation, or the
preparation therefor, each Bank and the Agent shall be entitled to select its
own counsel and, in addition to the foregoing indemnity, the Borrower agrees to
pay promptly the fees and expenses of such counsel. If, and to the extent that
the obligations of the Borrower under this ss.17 are unenforceable for any
reason, the Borrower hereby agrees to make the maximum contribution to the
payment in satisfaction of such obligations which is permissible under
applicable law. The covenants contained in this ss.17 shall survive payment or
satisfaction in full of all other Obligations.
ss.18. SURVIVAL OF COVENANTS. All covenants, agreements,
representations and warranties made herein, in the Notes, in any of the other
Loan Documents or in any documents or other papers delivered by or on behalf of
the Parent, the Borrower or any of its Subsidiaries pursuant hereto shall be
deemed to have been relied upon by the Banks and the Agent, notwithstanding any
investigation heretofore or hereafter made by any of them, and shall survive
the making by the Banks of any of the Revolving Credit Loans and the issuance,
extension or renewal of any Letters of Credit, as herein contemplated, and
shall continue in full force and effect so long as any Letter of Credit or any
amount due under this Credit Agreement or the Notes or any of the other Loan
Documents remains outstanding or any Bank has any obligation to make any
Revolving Credit Loans or the Agent has any obligation to issue, extend or
renew any Letter of Credit, and for such further time as may be otherwise
expressly specified in this Credit Agreement. All statements contained in any
certificate or other paper delivered to any Bank or the Agent at any time by or
on behalf of the Borrower or any of its Subsidiaries pursuant hereto or in
connection with the transactions contemplated hereby shall constitute
representations and warranties by the Borrower or such Subsidiary hereunder.
ss.19. ASSIGNMENTS AND PARTICIPATIONS.
ss.19.1. CONDITIONS TO ASSIGNMENT BY THE BANKS. Except as provided
herein, any Bank may assign to one or more Eligible Assignees all or a portion
of its interests, rights and obligations under this Credit Agreement (including
all or a portion of its Commitment Percentage and Commitment and the same
portion of the Revolving Credit Loans at the time owing to it, the Note held by
it and its participating interest in the risk relating to any Letters of
Credit); provided that (a) each such assignment shall be of a constant, and not
a varying, percentage of all of such Bank's rights and obligations under this
Credit Agreement, (b) each assignment shall be in an amount no less than
$5,000,000, or a larger integral multiple of $1,000,000, and (c) and the
parties to such assignment shall execute and deliver to the Agent, for
recording in the Register, an Assignment and Acceptance, substantially in the
form of Exhibit H attached hereto (an "Assignment and Acceptance"), together
with any Notes subject to such assignment. Upon such execution, delivery,
acceptance and recording, from and after the effective date specified in each
Assignment and Acceptance, which effective date shall be at least five (5)
Business Days after the execution thereof, (i) the assignee thereunder shall,
upon payment to the Agent of the registration fee referred to in ss.19.3
hereof, be a party hereto and, to the extent provided in such Assignment and
Acceptance, have the rights and obligations of a
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Bank hereunder, and (ii) the assigning Bank shall, to the extent provided in
such assignment, be released from its obligations under this Credit Agreement.
ss.19.2. CERTAIN REPRESENTATIONS AND WARRANTIES; LIMITATIONS;
COVENANTS. By executing and delivering an Assignment and Acceptance, the
parties to the assignment thereunder confirm to and agree with each other and
the other parties hereto as follows:
(a) other than the representation and warranty that it is the
legal and beneficial owner of the interest being assigned thereby free and
clear of any adverse claim, the assigning Bank makes no representation or
warranty, express or implied, and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Credit Agreement or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of this Credit Agreement, the other Loan
Documents or any other instrument or document furnished pursuant hereto or the
attachment, perfection or priority of any security interest or mortgage;
(b) the assigning Bank makes no representation or warranty and
assumes no responsibility with respect to the financial condition of the
Parent, the Borrower or any of its Subsidiaries or any other Person primarily
or secondarily liable in respect of any of the Obligations, or the performance
or observance by the Parent, the Borrower or any of its Subsidiaries or any
other Person primarily or secondarily liable in respect of any of the
Obligations of any of their obligations under this Credit Agreement or any of
the other Loan Documents or any other instrument or document furnished pursuant
hereto or thereto;
(c) such assignee confirms that it has received a copy of this
Credit Agreement, together with copies of the most recent financial statements
referred to in ss.7.4 and ss.8.4 hereof and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance;
(d) such assignee will, independently and without reliance upon
the assigning Bank, the Agent or any other Bank and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Credit Agreement;
(e) such assignee represents and warrants that it is an Eligible
Assignee and that, on the effective date of such Assignment and Acceptance, the
circumstances described in ss.ss.5.6 and 5.7 hereof are not applicable to such
assignee;
(f) such assignee appoints and authorizes the Agent to take such
action as agent on its behalf and to exercise such powers under this Credit
Agreement and the other Loan Documents as are delegated to the Agent by the
terms hereof or thereof, together with such powers as are reasonably incidental
thereto;
(g) such assignee agrees that it will perform in accordance with
their terms all of the obligations that by the terms of this Credit Agreement
are required to be performed by it as a Bank;
<PAGE>
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(h) such assignee represents and warrants that it is legally
authorized to enter into such Assignment and Acceptance; and
(i) such assignee acknowledges that it has made arrangements with
the assigning Bank satisfactory to such assignee with respect to its pro rata
share of Letter of Credit Fees in respect of outstanding Letters of Credit.
ss.19.3. REGISTER. The Agent shall maintain a copy of each Assignment
and Acceptance delivered to it and a register or similar list (the "Register")
for the recordation of the names and addresses of the Banks and the Commitment
Percentage of, and principal amount of the Revolving Credit Loans owing to and
Letter of Credit Participations purchased by, the Banks from time to time. The
entries in the Register shall be conclusive, in the absence of manifest error,
and the Borrower, the Agent and the Banks may treat each Person whose name is
recorded in the Register as a Bank hereunder for all purposes of this Credit
Agreement. The Register shall be available for inspection by the Borrower and
the Banks at any reasonable time and from time to time upon reasonable prior
notice. Upon each such recordation, the assignee Bank agrees to pay to the
Agent a registration fee in the sum of $5,000.
ss.19.4. NEW NOTES. Upon its receipt of an Assignment and Acceptance
executed by the parties to such assignment, together with each Note subject to
such assignment, the Agent shall (a) record the information contained therein
in the Register, and (b) give prompt notice thereof to the Borrower and the
Banks. Within five (5) Business Days after receipt of such notice, the
Borrower, at its own expense, shall execute and deliver to the Agent, in
exchange for each surrendered Note, a new Note to the order of such Eligible
Assignee in an amount equal to the amount assumed by such Eligible Assignee
pursuant to such Assignment and Acceptance and, if the assigning Bank has
retained some portion of its obligations hereunder, a new Note to the order of
the assigning Bank in an amount equal to the amount retained by it hereunder.
Such new Notes shall provide that they are replacements for the surrendered
Notes, shall be in an aggregate principal amount equal to the aggregate
principal amount of the surrendered Notes, shall be dated the effective date of
such Assignment and Acceptance and shall otherwise be substantially the form of
the assigned Notes, provided that any Notes issued to the assigning Bank shall
also evidence the obligations of the Borrower to pay any accrued but unpaid
interest on the surrendered Note or Notes. Within five (5) days of issuance of
any new Notes pursuant to this ss.19.4, the Borrower shall deliver an opinion
of counsel, addressed to the Banks and the Agent, relating to the due
authorization, execution and delivery of such new Notes and the legality,
validity and binding effect thereof, in form and substance satisfactory to the
Banks. The surrendered Note or Notes shall be cancelled and returned to the
Borrower.
ss.19.5. PARTICIPATIONS. Each Bank may sell participations to one or
more banks or other entities in all or a portion of such Bank's rights and
obligations under this Credit Agreement and the other Loan Documents; provided
that (a) each such participation shall be in an amount of not less than
$1,000,000, (b) any such sale or participation shall not affect the rights and
duties of the selling Bank hereunder to the Borrower and (c) the only rights
granted to the participant pursuant to such participation arrangements with
respect to waivers, amendments or modifications of the Loan Documents shall be
the rights to approve waivers, amendments or modifications that would reduce
the principal of or the interest rate on any Revolving Credit Loans, extend the
term of the Commitment or increase the Commitment Amount of such Bank as it
<PAGE>
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relates to such participant, reduce the amount of any Commitment Fees or Letter
of Credit Fees to which such participant is entitled or extend any regularly
scheduled payment date for principal or interest.
ss.19.6. DISCLOSURE. The Borrower agrees that in addition to
disclosures made in accordance with standard and customary banking practices
any Bank may disclose information obtained by such Bank pursuant to this Credit
Agreement to assignees or participants and potential assignees or participants
hereunder; provided that such assignees or participants or potential assignees
or participants shall agree (a) to treat in confidence such information unless
such information otherwise becomes public knowledge, (b) not to disclose such
information to a third party, except as required by law or legal process and
(c) not to make use of such information for purposes of transactions unrelated
to such contemplated assignment or participation.
ss.19.7. ASSIGNEE OR PARTICIPANT AFFILIATED WITH THE BORROWER. If any
assignee Bank is an Affiliate of the Borrower, then any such assignee Bank
shall have no right to vote as a Bank hereunder or under any of the other Loan
Documents for purposes of granting consents or waivers or for purposes of
agreeing to amendments or other modifications to any of the Loan Documents or
for purposes of making requests to the Agent pursuant to ss.13.1 or ss.13.2
hereof, and the determination of the Majority Banks shall for all purposes of
this Agreement and the other Loan Documents be made without regard to such
assignee Bank's interest in any of the Revolving Credit Loans. If any Bank
sells a participating interest in any of the Revolving Credit Loans or
Reimbursement Obligations to a participant, and such participant is the
Borrower or an Affiliate of the Borrower, then such transferor Bank shall
promptly notify the Agent of the sale of such participation. A transferor Bank
shall have no right to vote as a Bank hereunder or under any of the other Loan
Documents for purposes of granting consents or waivers or for purposes of
agreeing to amendments or modifications to any of the Loan Documents or for
purposes of making requests to the Agent pursuant to ss.13.1 or ss.13.2 hereof
to the extent that such participation is beneficially owned by the Borrower or
any Affiliate of the Borrower, and the determination of the Majority Banks
shall for all purposes of this Agreement and the other Loan Documents be made
without regard to the interest of such transferor Bank in the Loans to the
extent of such participation.
ss.19.8. MISCELLANEOUS ASSIGNMENT PROVISIONS. Any assigning Bank shall
retain its rights to be indemnified pursuant to ss.16 hereof with respect to
any claims or actions arising prior to the date of such assignment. If any
assignee Bank is not incorporated under the laws of the United States of
America or any state thereof, it shall, prior to the date on which any interest
or fees are payable hereunder or under any of the other Loan Documents for its
account, deliver to the Borrower and the Agent certification as to its
exemption from deduction or withholding of any United States federal income
taxes. If BkB transfers all of its interest, rights and obligations under this
Credit Agreement, the Agent shall, in consultation with the Borrower and with
the consent of the Borrower and the Majority Banks, appoint another Bank to act
as a Reference Bank hereunder. Anything contained in this ss.19 to the contrary
notwithstanding, any Bank may at any time pledge all or any portion of its
interest and rights under this Credit Agreement (including all or any portion
of its Notes) to any of the twelve Federal Reserve Banks organized under ss.4
of the Federal Reserve Act, 12 U.S.C. ss.341. No such pledge or the enforcement
thereof shall release the pledgor Bank from its obligations hereunder or under
any of the other Loan Documents.
<PAGE>
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ss.19.9. ASSIGNMENT BY BORROWER. The Borrower shall not assign or
transfer any of its rights or obligations under any of the Loan Documents
without the prior written consent of each of the Banks.
ss.20. NOTICES. Except as otherwise expressly provided in this Credit
Agreement, all notices and other communications made or required to be given
pursuant to this Credit Agreement or the Notes or any Letter of Credit
Applications shall be in writing and shall be delivered in hand, mailed by
United States registered or certified first class mail, postage prepaid, sent
by overnight courier, or sent by telegraph, telecopy, facsimile or telex and
confirmed by delivery via courier or postal service, addressed as follows:
(a) if to the Borrower, at ArborLake Centre, Suite 550, 1751 Lake
Cook Road, Deerfield, Illinois 60015, Attention: Gordon L. Nelson, Jr., Senior
Vice President, or at such other address for notice as the Borrower shall last
have furnished in writing to the Person giving the notice;
(b) if to BkB or the Agent, at 100 Federal Street, Boston,
Massachusetts 02110, USA, Attention: Mark M. Andrew, Vice President, or such
other address for notice as the Agent shall last have furnished in writing to
the Person giving the notice; and
(c) if to any Bank (other than BkB), at such Bank's address set
forth on Schedule 1 attached hereto, or such other address for notice as such
Bank shall have last furnished in writing to the Person giving the notice.
Any such notice or demand shall be deemed to have been duly given or
made and to have become effective (i) if delivered by hand, overnight courier
or facsimile to a responsible officer of the party to which it is directed, at
the time of the receipt thereof by such officer or the sending of such
facsimile and (ii) if sent by registered or certified first-class mail, postage
prepaid, on the third Business Day following the mailing thereof.
ss.21. GOVERNING LAW. THIS CREDIT AGREEMENT AND, EXCEPT AS OTHERWISE
SPECIFICALLY PROVIDED THEREIN, EACH OF THE OTHER LOAN DOCUMENTS ARE CONTRACTS
UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND SHALL FOR ALL PURPOSES
BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF SAID COMMONWEALTH
OF MASSACHUSETTS (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW).
THE BORROWER AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS CREDIT AGREEMENT
OR ANY OF THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE
COMMONWEALTH OF MASSACHUSETTS OR ANY FEDERAL COURT SITTING THEREIN AND CONSENTS
TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND SERVICE OF PROCESS IN ANY
SUCH SUIT BEING MADE UPON SUCH PERSON BY MAIL AT THE ADDRESS SPECIFIED IN ss.20
HEREOF. THE BORROWER HEREBY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER
HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS
BROUGHT IN AN INCONVENIENT COURT.
<PAGE>
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ss.22. HEADINGS. The captions in this Credit Agreement are for
convenience of reference only and shall not define or limit the provisions
hereof.
ss.23. COUNTERPARTS. This Credit Agreement and any amendment hereof
may be executed in several counterparts and by each party on a separate
counterpart, each of which when executed and delivered shall be an original,
and all of which together shall constitute one instrument. In proving this
Credit Agreement it shall not be necessary to produce or account for more than
one such counterpart signed by the party against whom enforcement is sought.
ss.24. ENTIRE AGREEMENT. The Loan Documents and any other documents
executed in connection herewith or therewith express the entire understanding
of the parties with respect to the transactions contemplated hereby. Neither
this Credit Agreement nor any term hereof may be changed, waived, discharged or
terminated, except as provided in ss.26 hereof.
ss.25. WAIVER OF JURY TRIAL. The Borrower hereby waives its right to a
jury trial with respect to any action or claim arising out of any dispute in
connection with this Credit Agreement, the Notes or any of the other Loan
Documents, any rights or obligations hereunder or thereunder or the performance
of which rights and obligations. Except as prohibited by law, the Borrower
hereby waives any right it may have to claim or recover in any litigation
referred to in the preceding sentence any special, exemplary, punitive or
consequential damages or any damages other than, or in addition to, actual
damages. The Borrower (a) certifies that no representative, agent or attorney
of any Bank or the Agent has represented, expressly or otherwise, that such
Bank or the Agent would not, in the event of litigation, seek to enforce the
foregoing waivers and (b) acknowledges that the Agent and the Banks have been
induced to enter into this Credit Agreement, the other Loan Documents to which
it is a party by, among other things, the waivers and certifications contained
herein.
ss.26. CONSENTS, AMENDMENTS, WAIVERS, ETC. Any consent or approval
required or permitted by this Credit Agreement to be given by all of the Banks
may be given, and any term of this Credit Agreement, the other Loan Documents
or any other instrument related hereto or mentioned herein may be amended, and
the performance or observance by the Parent, the Borrower or any of its
Subsidiaries of any terms of this Credit Agreement, the other Loan Documents or
such other instrument or the continuance of any Default or Event of Default may
be waived (either generally or in a particular instance and either
retroactively or prospectively) with, but only with, the written consent of the
Borrower and the written consent of the Majority Banks. Notwithstanding the
foregoing, the rate of interest on the Notes, the term of the Notes, the
Commitment Amounts, and the amount of Commitment Fee or Letter of Credit Fees
hereunder may not be changed without the written consent of the Borrower and
the written consent of each Bank affected thereby; the definition of Majority
Banks, ss.2.3(b) hereof and this ss.26 may not be amended without the written
consent of all of the Banks; and the amount of the Agent's Fee or any Letter of
Credit Fees payable for the Agent's account and ss.15 hereof may not be amended
without the written consent of the Agent. No waiver shall extend to or affect
any obligation not expressly waived or impair any right consequent thereon. No
course of dealing or delay or omission on the part of the Agent or any Bank in
exercising any right shall operate as a waiver thereof or otherwise be
prejudicial thereto. No notice to or demand upon the Borrower shall entitle the
Borrower to other or further notice or demand in similar or other
circumstances.
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ss.27. SEVERABILITY. The provisions of this Credit Agreement are
severable and if any one clause or provision hereof shall be held invalid or
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect only such clause or provision, or part thereof,
in such jurisdiction, and shall not in any manner affect such clause or
provision in any other jurisdiction, or any other clause or provision of this
Credit Agreement in any jurisdiction.
ss.28. TRANSITIONAL ARRANGEMENTS
ss.28.1. ORIGINAL CREDIT AGREEMENT SUPERSEDED.
This Credit Agreement shall on the Closing Date supersede the Original
Credit Agreement in its entirety, except as provided in this ss.28. On the
Closing Date, the rights and obligations of the parties evidenced by the
Original Credit Agreement shall be evidenced by the Credit Agreement and other
Loan Documents, the "Revolving Credit Loans" as defined in the Original Credit
Agreement shall be converted to Revolving Credit Loans as defined herein, and
all outstanding letters of credit issued by the Agent for the account of the
Borrower prior to the Closing Date shall, for the purposes of this Credit
Agreement, be Letters of Credit.
ss.28.2. RETURN AND CANCELLATION OF REVOLVING CREDIT NOTES.
As soon as reasonably practicable after its receipt of its Revolving Credit
Note hereunder on the Closing Date, each of the Banks will promptly return to
the Borrower, marked "Substituted" or "Cancelled", as the case may be, any
notes of the Borrower held by such Bank pursuant to the Original Credit
Agreement.
ss.28.3. INTEREST AND FEES UNDER SUPERSEDED AGREEMENT.
All interest and fees and expenses, if any, owing or accruing under or in
respect of the Original Credit Agreement through the Closing Date shall be
calculated as of the Closing Date (prorated in the case of any fractional
periods), and shall be paid in accordance with the method, and on the dates,
specified in the Original Credit Agreement, as if the Original Credit Agreement
were still in effect. Commencing on the Closing Date, the commitment fees shall
be payable by the Borrower to the Agent for the account of the Banks in
accordance with ss.2.2.
IN WITNESS WHEREOF, the undersigned have duly executed this Credit
Agreement as a sealed instrument as of the date first set forth above.
JII, INC.
By:
-------------------------------
Title:
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BANKBOSTON, N.A.,
(F/K/A THE FIRST NATIONAL BANK OF
BOSTON), individually and as Agent
By:
-------------------------------
Title:
CAISSE NATIONALE DE CREDIT AGRICOLE
By:
-------------------------------
Title:
BANK OF SCOTLAND
By:
-------------------------------
Title:
BANQUE PARIBAS
By:
-------------------------------
Title:
By:
-------------------------------
Title:
BANKERS TRUST COMPANY
By:
-------------------------------
Title:
<PAGE>
EXHIBIT 22
JORDAN INDUSTRIES, INC.
SUBSIDIARY STATE OF INCORPORATION
---------- ----------------------
AIM Electronics Corporation Delaware
Beemak Plastics, Inc. Delaware
Bond Holdings, Inc. (1) Delaware
Cambridge Products Corporation Delaware
Cape Craftsmen, Inc. Delaware
DACCO, Incorporated (2) Ohio
Direct Mail and Computer Services, Inc. Delaware
Diversified Wire & Cable, Inc. Delaware
Dura-Line Corporation (3) Delaware
Engineered Endeavors, Inc. Delaware
FIR Group Holdings, Inc. (4) Delaware
Gear Research, Inc. Delaware
Hallmark Data Systems, Inc. Delaware
Home Again Stores, Inc./Les Magasins Home Again, Inc. Canada
J.I. Finance Delaware
JI Properties, Inc. Delaware
JII, Inc. Delaware
Johnson Components, Inc. Delaware
Jordan Telecommunication Products, Inc. Delaware
Jordan Telecommunications Product Group, Inc. (5) Delaware
JTP Industries, Inc. Delaware
LoDan West, Inc. Delaware
Merkle-Korff Industries, Inc. Illinois
Motors and Gears Holdings, Inc. Delaware
- ---------------
(1) Bond Holdings, Inc., together with its five domestic subsidiaries,
engages in the manufacture of custom cable assemblies. Bond Holdings,
Inc. has no subsidiaries operating in foreign countries.
(2) DACCO, Incorporated, together with its 23 domestic subsidiaries, engages
in the distribution of rebuilt transmissions and torque converters.
DACCO, Incorporated has no subsidiaries operating in foreign countries.
(3) Dura-Line Corporation, together with is one domestic subsidiary and its
five foreign subsidiaries, engages in the manufacture and supply of
extruded plastic pipe.
(4) FIR Group Holdings, Inc., together with its six foreign subsidiaries,
engages in the manufacture and distribution of subfractional horsepower
electrical motors.
(5) Jordan Telecommunications Product Group, Inc., together with its one
domestic subsidiary and one foreign subsidiary, engages in the
manufacture and distribution of electronic connectors.
<PAGE>
Motors and Gears Industries, Inc. Delaware
Motors and Gears, Inc. Delaware
Northern Technologies Holdings, Inc. Delaware
Northern Technologies, Inc. Idaho
Pamco Printed Tape & Label Co., Inc. Delaware
Parsons Precision Products, Inc. Delaware
Paw Print Mailing List Services, Inc. Kansas
Riverside Book and Bible House, Incorporated Delaware
Sales Promotion Associates, Inc. Delaware
Sate-Lite Manufacturing Company Delaware
Seaboard Folding Box Corporation Delaware
SourceLink Business Services, Inc. Delaware
SourceLink Industries, Inc. Delaware
SPL Holdings, Inc. Illinois
The Imperial Electric Company Delaware
The Scott Motors Company Delaware
Valmark Industries, Inc. Delaware
Viewsonics, Inc. (6) Delaware
Welcome Home, Inc. Delaware
World Bible Publishers, Inc. Delaware
- ---------------
(6) Viewsonics, Inc., together with its one domestic and two foreign
subsidiaries, engages in the manufacture and distribution of cable
connectors, amplifiers and splitters.
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report, dated March 27, 1997, on the consolidated balance sheets of
Jordan Industries, Inc. as of December 31, 1995 and 1996, and the related
consolidated statements of operations, shareholders' equity (net capital
deficiency), and cash flows for each of the three years in the period ended
December 31, 1996; our report, dated April 10, 1996, on the combined balance
sheet of Viewsonics, Inc. and Shanghai Viewsonics Electronic Co., Ltd. as of
December 31, 1995, and the related combined statements of income,
stockholder's equity, and cash flows for the year then ended; in the
Registration Statement (Form S-4 No. 333-34529) and related Prospectus of
Jordan Industries, Inc. for the registration of $120,000,000 of 10 3/8% Series
B Senior Notes due 2007 and $213,635,725 of 11 3/4% Series B Senior
Subordinated Discount Debentures due 2009.
Ernst & Young LLP
Chicago, Illinois
September 8, 1997
<PAGE>
EXHIBIT 23.2 (CONTINUED)
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the use of our report, dated March 27, 1997, on the consolidated
financial statement schedule of Jordan Industries, Inc. as of December 31,
1995 and 1996 and for the three years in the period ended December 31, 1996,
in the Registration Statement (Form S-4 No. 333-34529) and related Prospectus
of Jordan Industries, Inc. for the registration of $120,000,000 of 10 3/8%
Series B Senior Notes due 2007 and $213,635,725 of 11 3/4% Series B Senior
Subordinated Discount Debentures due 2009.
Ernst & Young LLP
Chicago, Illinois
September 8, 1997
<PAGE>
EXHIBIT 23.3
[MELLEN, SMITH & PIVOZ, P.C. LETTERHEAD]
CONSENT OF MELLEN, SMITH & PIVOZ, P.C., INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report, dated February 13, 1997, on the balance sheet of
Diversified Wire & Cable, Inc. as of December 31, 1996, and the related
statement of operations, changes in stockholders' equity, and cash flows for
the period June 25, 1996 to December 31, 1996, in the Registration Statement
(Form S-4 No. 333-34529) and related Prospectus of Jordan Industries, Inc. for
the registration of $120,000,000 of 10 3/8% Series B Senior Notes due 2007 and
$213,635,725 of 11 3/4% Series B Subordinated Discount Debentures due 2009.
/s/ Mellen, Smith &
Pivoz, P.C.
Mellen, Smith & Pivoz,
P.C.
Bingham Farms, Michigan
September 8, 1997
<PAGE>
EXHIBIT 23.4
CONSENT OF BLACKMAN KALLICK BARTELSTEIN, LLP,
INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report, dated February 11, 1997, except for Note 11, as to which
the date is June 6, 1997, on the balance sheet of Paw Print Mailing List
Services, Inc. as of December 31, 1996, and the related statements of loss and
accumulated deficit and cash flows for the period from November 9, 1996
(inception) through December 31, 1996, in the Registration Statement (Form S-4
No. 333-34529) and related Prospectus of Jordan Industries, Inc. for the
registration of $120,000,000 of 10 3/8% Series B Senior Notes due 2007 and
$213,635,725 of 11 3/4% Series B Senior Subordinated Discount Debentures due
2009.
/s/ Blackman Kallick
Bartelstein, LLP
Blackman Kallick
Bartelstein, LLP
Chicago, Illinois
September 8, 1997
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 (333-34529) of Jordan Industries, Inc. of
our report dated August 28, 1996 relating to the financial statements of E.F.
Johnson Company -Components Division which appears in such Prospectus. We also
consent to the references to us under the headings "Experts".
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Minneapolis, Minnesota
September 8, 1997
<PAGE>
EXHIBIT 23.6
[CANBY, MALONEY & CO., INC. LETTERHEAD]
CONSENT OF CANBY, MALONEY & CO., INC. INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report, dated February 15, 1996, on the combined balance sheets of
Seaboard Folding Box Corp. and affiliates as of December 31, 1994 and 1995,
and the related combined statements of income, stockholder's equity, and cash
flows for the years then ended; in the Registration Statement (Form S-4 No.
333-34529) and related Prospectus of Jordan Industries, Inc. for the
registration of $120,000,000 of 10 3/8% Series B Senior Notes due 2007 and
$213,635,725 of 11 3/4% Series B Senior Subordinated Discount Debentures due
2009.
/s/ Canby, Maloney &
Co., Inc.
Canby, Maloney & Co.,
Inc.
Framingham, MA
September 8, 1997
<PAGE>
LETTER OF TRANSMITTAL
FOR TENDERS OF
$120,000,000 AGGREGATE PRINCIPAL AMOUNT OF
10 3/8% SERIES A SENIOR NOTES DUE 2007
$214,036,493 PRINCIPAL AMOUNT AT MATURITY
OF 11-3/4% SERIES A SENIOR SUBORDINATED DISCOUNT DEBENTURES DUE 2009
JORDAN INDUSTRIES, INC.
PURSUANT TO THE PROSPECTUS
DATED SEPTEMBER 9, 1997 OF JORDAN INDUSTRIES, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
SEPTEMBER 29, 1997 (UNLESS EXTENDED)(THE "EXPIRATION DATE"). TENDERED OLD
SECURITIES MAY BE WITHDRAWN AT ANY TIME ON OR PRIOR TO THE EXPIRATION DATE
OF THE EXCHANGE OFFER.
Deliver to: First Trust National Association, Exchange Agent:
By Mail (registered or certified mail
recommended), Hand or Overnight Courier:
First Trust National Association
180 East Fifth Street
St. Paul, Minnesota 55101
Attn: David Haugen
Specialized Finance Corporation Trust Department
Fourth Floor
Telephone Number:
(612) 244-8162
By Facsimile:
(612) 244-1537
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE,
OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE,
WILL NOT CONSTITUTE A VALID DELIVERY.
<PAGE>
The undersigned acknowledges that he or she has received the Prospectus,
dated September 9, 1997 (the "Prospectus"), of Jordan Industries, Inc., an
Illinois corporation (the "Company"), and this Letter of Transmittal, which
may be amended from time to time (this "Letter"), which together constitute
the Company's offer (the "Exchange Offer") to exchange up to $120 million
aggregate principal amount of 10% Series B Senior Notes due 2007 (the "New
Senior Notes") and $214,036,493 principal amount at maturity of 11-3/4% Series
B Senior Subordinated Discount Debentures due 2009 (the "New Discount
Debentures" and together with the New Senior Notes, the "New Securities") of
the Company for a like principal amount of the Company's issued and
outstanding 10% Series A Senior Notes due 2007 (the "Old Senior Notes" and
together with the New Senior Notes, the "Senior Notes") and 11-3/4% Series A
Senior Subordinated Discount Debentures due 2009 (the "Old Discount
Debentures" and together with the New Discount Debentures, the "Discount
Debentures;" the Old Discount Debentures and Old Senior Notes are sometimes
collectively referred to as the "Old Securities" and sometimes collectively
with the New Securities, as the "Exchange Securities"), with the holders (each
holder of Old Securities, a "Holder") thereof.
For each Old Security accepted for exchange, the Holder of such Old
Security will receive a New Note having a principal amount equal to that of
the surrendered Old Security. The New Senior Notes will bear interest at a
rate of 10 3/8% per annum from July 25, 1997. The New Discount Debentures will
not bear interest prior to April 1, 2002. Thereafter, interest on the New
Discount Debentures will accrue at 11-3/4% per annum. Accordingly, registered
holders of New Securities on the relevant record date for the first interest
payment date following the consummation of the Exchange Offer will receive
interest accruing from the most recent date to which interest has been paid
or, if no interest has been paid, from July 25, 1997 with respect to the New
Senior Notes, or from April 1, 2002 with respect to the New Discount
Debentures. Old Securities accepted for exchange will cease to accrue interest
from and after the date of consummation of the Exchange Offer. Holders of Old
Securities whose Old Securities are accepted for exchange will not receive any
payment in respect of interest or dividends on such Old Securities otherwise
payable on any interest payment date the record date for which occurs on or
after consummation of the Exchange Offer.
This Letter is to be used: (i) by all Holders who are not members of the
Automated Tender Offering Program ("ATOP") at the Depository Trust Company
("DTC"); (ii) by Holders who are ATOP members but choose not to use ATOP; or
(iii) if the Old Securities are to be tendered in accordance with the
guaranteed delivery procedures set forth in "The Exchange Offer--Guaranteed
Delivery Procedures" section of the Prospectus. See Instruction 2. Delivery of
this Letter to DTC does not constitute delivery to the Exchange Agent.
Notwithstanding anything to the contrary in the registration rights
agreements, dated July 25, 1997 and April 2, 1997, among the Company and the
original purchasers of Old Securities (the "Registration Rights Agreements"),
the Company will accept for exchange any and all Old Securities validly
tendered on or prior to 5:00 p.m., New York City time, on September 29, 1997
(unless the Exchange Offer is extended by the Company) (the "Expiration
Date"). Tenders of Old Securities may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date.
IMPORTANT: HOLDERS WHO WISH TO TENDER OLD SECURITIES IN THE EXCHANGE OFFER
MUST COMPLETE THIS LETTER OF TRANSMITTAL AND TENDER THE OLD SECURITIES TO THE
EXCHANGE AGENT AND NOT TO THE COMPANY.
The Exchange Offer is not conditioned upon any minimum principal amount of
Old Securities being tendered for exchange. However, the Exchange Offer is
subject to certain conditions. Please see the Prospectus under the section
titled "The Exchange Offer--Conditions to the Exchange Offer."
The Exchange Offer is not being made to, nor will tenders be accepted from
or on behalf of, Holders of Old Securities in any jurisdiction in which the
making or acceptance of the Exchange Offer would not be in compliance with the
laws of such jurisdiction.
The instructions included with this Letter of Transmittal must be followed
in their entirety. Questions and request for assistance or for additional
copies of the Prospectus or this Letter of Transmittal may be directed to the
Exchange Agent at the address listed above.
2
<PAGE>
APPROPRIATE SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
LADIES AND GENTLEMEN:
The undersigned hereby tenders to the Company the principal amount of Old
Securities indicated below under "Description of Old Securities," in
accordance with and upon the terms and subject to the conditions set forth in
the Prospectus, receipt of which is hereby acknowledged, and in this Letter of
Transmittal, for the purpose of exchanging the principal amount of Old
Securities designated herein held by the undersigned and tendered hereby for
an equal principal amount of the New Securities. New Senior Notes will be
issued only in integral multiples of $1,000 to each tendering Holder of Old
Senior Notes whose Old Senior Notes are accepted in the Exchange Offer.
Holders may tender all or a portion of their Old Securities pursuant to the
Exchange Offer.
Subject to, and effective upon, the acceptance for exchange of the Old
Securities tendered herewith in accordance with the terms of the Exchange
Offer, the undersigned hereby sells, assigns and transfers to, or upon the
order of, the Company all right, title and interest in and to all such Old
Securities that are being tendered hereby and that are being accepted for
exchange pursuant to the Exchange Offer. The undersigned hereby irrevocably
constitutes and appoints the Exchange Agent as the true and lawful agent and
attorney-in-fact of the undersigned (with full knowledge that the Exchange
Agent also acts as the agent of the Company), with respect to the Old
Securities tendered hereby and accepted for exchange pursuant to the Exchange
Offer with full power of substitution (such power of attorney being deemed to
be an irrevocable power coupled with an interest) to deliver the Old
Securities tendered hereby to the Company (together with all accompanying
evidences of transfer and authenticity) for transfer or cancellation by the
Company.
All authority conferred or agreed to be conferred in this Letter of
Transmittal shall not be affected by, and shall survive, the death or
incapacity of the undersigned and any obligation of the undersigned hereunder
shall be binding upon the heirs, executors, administrators, legal
representatives, successors and assigns of the undersigned. Any tender of Old
Securities hereunder may be withdrawn only in accordance with the procedures
set forth in the instructions contained in this Letter of Transmittal. See
Instruction 4 hereto.
The undersigned hereby represents and warrants that he or she has full
power and authority to tender, exchange, assign and transfer the Old
Securities tendered hereby and that the Company will acquire good and
unencumbered title thereto, free and clear of all liens, restrictions, charges
and encumbrances and not subject to any adverse claim. The undersigned will,
upon request, execute and deliver any additional documents deemed by the
Company to be necessary or desirable to complete the assignment and transfer
of the Old Securities tendered. The undersigned has read and agrees to all of
the terms of the Exchange Offer.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Securities tendered hereby. All
authority conferred or agreed to be conferred in this Letter and every
obligation of the undersigned hereunder shall be binding upon the successors,
assigns, heirs, executors, administrators, trustees in bankruptcy and legal
representatives of the undersigned and shall not be affected by, and shall
survive, the death or incapacity of the undersigned. This tender may be
withdrawn only in accordance with the procedures set forth in "The Exchange
Offer--Withdrawal Rights" section of the Prospectus.
The name(s) and address(es) of the registered Holder(s) should be printed
herein under "Description of Old Securities" (unless a label setting forth
such information appears thereunder), exactly as they appear on the Old
Securities tendered hereby. The certificate number(s) and the principal amount
of Old Securities to which this Letter of Transmittal relates, together with
the principal amount of such Old Securities that the undersigned wishes to
tender, should be indicated in the appropriate boxes herein under "Description
of Old Securities."
The undersigned agrees that acceptance of any tendered Old Securities by
the Company and the issuance of New Securities in exchange therefor shall
constitute performance in full by the Company of its obligations under the
Registration Rights Agreements and that, upon the issuance of the New
Securities, the Company will have no further obligations or liabilities
thereunder.
The undersigned understands that the tender of Old Securities pursuant to
one of the procedures described in the Prospectus under "The Exchange
Offer--Procedures for Tendering Old Securities" and
3
<PAGE>
the Instructions hereto will constitute the tendering Holder's acceptance of
the terms and the conditions of the Exchange Offer. The undersigned hereby
represents and warrants to the Company that the New Securities to be acquired
by such Holder pursuant to the Exchange Offer are being acquired in the
ordinary course of such Holder's business, that such Holder has no arrangement
or understanding with any person to participate in the distribution of the New
Securities. The Company's acceptance for exchange of Old Securities tendered
pursuant to the Exchange Offer will constitute a binding agreement between the
tendering Holder and the Company upon the terms and subject to the conditions
of the Exchange Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT IT IS NOT ENGAGED IN,
AND DOES NOT INTEND TO ENGAGE IN, A DISTRIBUTION OF THE NEW SECURITIES.
The undersigned also acknowledges that this Exchange Offer is being made
based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no action letters issued to third
parties in other transactions substantially similar to the Exchange Offer,
which lead the Company to believe that the New Securities issued in exchange
for the Old Securities pursuant to the Exchange Offer may be offered for
resale, resold and otherwise transferred by holders thereof (other than (i)
any such holder that is an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act, (ii) an Initial Purchaser or holder of Old
Discount Debentures who acquired the Old Securities directly from the Company
solely in order to resell pursuant to Rule 144A of the Securities Act or any
other available exemption under the Securities Act, or (iii) a broker-dealer
who acquired the Old Securities as a result of market making or other trading
activities), without further compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such New Securities
are acquired in the ordinary course of such holders' business and such holders
are not participating and have no arrangement or understanding with any person
to participate in the distribution (within the meaning of the Securities Act)
of such New Securities. If the undersigned is not a broker-dealer, the
undersigned represents that it is not engaged in, and does not intend to
engage in, a distribution of New Securities and has no arrangement or
understanding to participate in a distribution of New Securities. If any
holder is an affiliate of the Company or is engaged in or has any arrangement
or understanding with respect to the distribution of the New Securities to be
acquired pursuant to the Exchange Offer, such holder (i) could not rely on the
applicable interpretations of the staff of the Commission and (ii) must comply
with the registration and prospectus delivery requirements of the Securities
Act. If the undersigned is a broker-dealer that will receive New Securities
for its own account in exchange of Old Securities, it represents that the Old
Securities to be exchanged for the New Securities were acquired by it as a
result of market-making activities or other trading activities and
acknowledges that it will deliver a prospectus in connection with any resale
of such New Securities; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of Section 2(11) of the Securities Act.
The undersigned understands that the New Securities issued in consideration
of Old Securities accepted for exchange, and/or any principal amount of Old
Securities not tendered or not accepted for exchange, will only be issued in
the name of the Holder(s) appearing herein under "Description of Old
Securities." Unless otherwise indicated under "Special Delivery Instructions,"
please mail the New Securities issued in consideration of Old Securities
accepted for exchange, and/or any principal amount of Old Securities not
tendered or not accepted for exchange (and accompanying documents, as
appropriate), to the Holder(s) at the address(es) appearing herein under
"Description of Old Securities." In the event that the Special Delivery
Instructions are completed, please mail the New Securities issued in
consideration of Old Securities accepted for exchange, and/or any Old
Securities for any principal amount or liquidation preference not tendered or
not accepted for exchange, in the name of the Holder(s) appearing herein under
"Description of Old Securities," and send such New Securities and/or Old
Securities to the address(es) so indicated. Any transfer of Old Securities to
a different holder must be completed, according to the provisions on transfer
of Old Securities contained in the Indentures.
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD
SECURITIES" BELOW AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED
THE OLD SECURITIES AS SET FORTH IN SUCH BOX BELOW.
4
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. Guarantee of Signatures. Signatures on this Letter of Transmittal or
notice of withdrawal, as the case may be, must be guaranteed by an institution
which falls within the definition of "eligible guarantor institution"
contained in Rule 17Ad 15 as promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended (hereinafter,
an "Eligible Institution") unless (i) the Old Securities tendered hereby are
tendered by the Holder(s) of the Old Securities who has (have) not completed
the box entitled "Special Delivery Instructions" on this Letter of Transmittal
or (ii) the Old Securities are tendered for the account of an Eligible
Institution.
2. Delivery of this Letter of Transmittal and Old Securities; Guaranteed
Delivery Procedures. This Letter of Transmittal is to be used: (i) by all
Holders who are not ATOP members, (ii) by Holders who are ATOP members but
choose not to use ATOP or (iii) if the Old Securities are to be tendered in
accordance with the guaranteed delivery procedures set forth in the Prospectus
under "The Exchange Offer--Guaranteed Delivery Procedures." To validly tender
Old Securities, a Holder must physically deliver a properly completed and duly
executed Letter of Transmittal (or facsimile thereof) with any required
signature guarantees and all other required documents to the Exchange Agent at
its address set forth on the cover of this Letter of Transmittal prior to the
Expiration Date (as defined below) or the Holder must properly complete and
duly execute an ATOP ticket in accordance with DTC procedures. Otherwise, the
Holder must comply with the guaranteed delivery procedures set forth in the
next paragraph. Notwithstanding anything to the contrary in the Registration
Rights Agreements, the term "Expiration Date" means 5:00 p.m., New York City
time, on September 29, 1997 (or such later date to which the Company may, in
its sole discretion, extend the Exchange Offer). If this Exchange Offer is
extended, the term "Expiration Date" shall mean the latest time and date to
which the Exchange Offer is extended. The Company expressly reserves the
right, at any time or from time to time, to extend the period of time during
which the Exchange Offer is open by giving oral (confirmed in writing) or
written notice of such extension to the Exchange Agent and by making a public
announcement of such extension prior to 9:00 a.m., New York City time, on the
next business day after the previously scheduled Expiration Date.
LETTERS OF TRANSMITTAL SHOULD NOT BE SENT TO THE COMPANY OR TO DTC.
If a Holder of the Old Securities desires to tender such Old Securities and
time will not permit such Holder's required documents to reach the Exchange
Agent before the Expiration Date, a tender may be effected if (a) the tender
is made through an Eligible Institution; (b) on or prior to the Expiration
Date, the Exchange Agent receives from such Eligible Institution a properly
completed and duly executed Letter of Transmittal (or a facsimile thereof) and
Notice of Guaranteed Delivery (by telegram, facsimile transmission, mail or
hand delivery) setting forth the name and address of the Holder of the Old
Securities and the principal amount Old Securities tendered, stating that the
tender is being made thereby and guaranteeing that within three New York Stock
Exchange trading days after the Expiration Date, any documents required by the
Letter of Transmittal will be deposited by the Eligible Institution with the
Exchange Agent; and (c) all other documents required by the Letter of
Transmittal are received by the Exchange Agent within three New York Stock
Exchange trading days after the Expiration Date. See "The Exchange
Offer--Guaranteed Delivery Procedures" as set forth in the Prospectus.
Only a Holder of Old Securities may tender Old Securities in the Exchange
Offer. The term "Holder" as used herein with respect to the Old Securities
means any person in whose name Old Securities are registered on the books of
the Trustee. If the Letter of Transmittal or any Old Securities are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must
be so submitted.
Any beneficial Holder whose Old Securities are registered in the name of
his broker, dealer, commercial bank, trust company or other nominee and who
wishes to validly surrender those Old Securities in the Exchange Offer should
contact such registered Holder promptly and instruct such registered Holder to
tender on his behalf. If such beneficial Holder wishes to tender on his own
behalf, such beneficial Holder must, prior to completing and executing the
Letter of Transmittal, make
5
<PAGE>
appropriate arrangements to register ownership of the Old Securities in such
beneficial holder's name. It is the responsibility of the beneficial holder to
register ownership in his own name if he chooses to do so. The transfer of
record ownership may take considerable time.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL (OR FACSIMILE HEREOF)
AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE EXCHANGING
HOLDER, but, except as otherwise provided below, the delivery will be deemed
made only when actually received or confirmed by the Exchange Agent. If sent
by mail, registered mail with return receipt requested, properly insured, is
recommended. In all cases, sufficient time should be allowed to assure timely
delivery to the Exchange Agent before the Expiration Date. No Letters of
Transmittal or Old Securities should be sent to the Company.
No alternative, conditional or contingent tenders will be accepted. All
tendering Holders, by execution of this Letter of Transmittal (or facsimile
hereof), waive any right to receive notice of acceptance of their Old
Securities for exchange.
3. Inadequate Space. If the space provided herein is inadequate, the
certificate numbers and principal amount of the Old Securities to which this
Letter of Transmittal relates should be listed on a separate signed schedule
attached hereto.
4. Withdrawal of Tender. Tenders of Old Securities may be withdrawn at any
time prior to 5:00 p.m., New York City time, on the Expiration Date.
To be effective, a written or facsimile transmission notice of withdrawal
must (i) be received by the Exchange Agent at the address set forth herein
prior to 5:00 p.m., New York City time, on the Expiration Date: (ii) specify
the name of the person having tendered the Old Securities to be withdrawn;
(iii) identify the Old Securities to be withdrawn; and (iv) be (a) signed by
the Holder in the same manner as the original signature on the Letter of
Transmittal by which such Old Securities were tendered (including any required
signature guarantees) or (b) accompanied by evidence satisfactory to the
Company that the Holder withdrawing such tender has succeeded to beneficial
ownership of such Old Securities. If Old Securities have been tendered
pursuant to the ATOP procedure with DTC, any notice of withdrawal must
otherwise comply with the procedures of DTC. Old Securities properly withdrawn
will thereafter be deemed not validly tendered for purposes of the Exchange
Offer; provided, however, that withdrawn Old Securities may be retendered by
again following one of the procedures described herein at any time prior to
5:00 p.m., New York City time, on the Expiration Date. All questions as to the
validity, form and eligibility (including time of receipt) of notice of
withdrawal will be determined by the Company, whose determinations will be
final and binding on all parties. Neither the Company, the Exchange Agent, nor
any other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure
to give any such notification. The Exchange Agent intends to use reasonable
efforts to give notification of such defects and irregularities.
5. Partial Tenders; Pro Rata Effect. Tenders of the Old Senior Notes will
be accepted only in integral multiples of $1,000. Tenders of Old Discount
Debentures may be for the face amount of such Old Discount Debentures, or any
portion thereof. If less than the entire principal amount evidenced by any Old
Securities is to be tendered, fill in the principal amount that is to be
tendered in the box entitled "Principal Amount Tendered" below. The entire
principal amount of all Old Securities delivered to the Exchange Agent will be
deemed to have been tendered unless otherwise indicated.
6. Signatures on this Letter of Transmittal; Bond Powers and Endorsements.
If this Letter of Transmittal is signed by the registered Holder(s) of the Old
Securities tendered hereby, the signature must correspond with the name as
written on the face of the certificate representing such Old Securities
without alteration, enlargement or any change whatsoever.
If any of the Old Securities tendered hereby are owned of record by two or
more joint owners, all such owners must sign this Letter of Transmittal.
If any of the Old Securities tendered hereby are registered in different
names, it will be necessary to complete, sign and submit as many separate
copies of this Letter of Transmittal and any necessary accompanying documents
as there are different registrations.
6
<PAGE>
When this Letter of Transmittal is signed by the Holder(s) of Old
Securities listed and tendered hereby, no endorsements or separate bond powers
are required.
If this Letter of Transmittal is signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or
others acting in a fiduciary or representative capacity, such persons should
so indicate when signing, and, unless waived by the Company, proper evidence
satisfactory to the Company of their authority to so act must be submitted.
7. Special Delivery Instructions. Tendering Holders should indicate in the
applicable box the name and address to which New Securities issued in
consideration of Old Securities accepted for exchange, or Old Securities for
principal amounts not exchanged or not tendered, are to be sent, if different
from the name and address of the person signing this Letter of Transmittal.
8. Waiver of Conditions. The Company reserves the absolute right to waive
any of the specified conditions in the Exchange Offer, in whole at any time
or in part from time to time, in the case of any Old Securities tendered
hereby. See "The Exchange Offer--Conditions to the Exchange Offer" in the
Prospectus.
9. Transfer Taxes. The Company will pay all transfer taxes, if any,
applicable to the exchange of Old Securities pursuant to the Exchange Offer.
If, however, New Securities and/or substitute Old Securities for principal
amounts not exchanged are to be delivered to any person other than the Holder
of the Old Securities or if a transfer tax is imposed for any reason other
than the exchange of Old Securities pursuant to the Exchange Offer, the amount
of any such transfer taxes (whether imposed on the registered Holder or any
other persons) will be payable by the tendering Holder. If satisfactory
evidence of payment of such taxes or exemption therefrom is not submitted, the
amount of such transfer taxes will be billed directly to such tendering
Holder.
10. Irregularities. All questions as to validity, form, eligibility
(including time of receipt), acceptance and withdrawal of tendered Old
Securities will be resolved by the Company, in its sole discretion, whose
determination shall be final and binding. The Company reserves the absolute
right to reject any or all tenders of any particular Old Securities that are
not in proper form, or the acceptance of which would, in the opinion of the
Company or its counsel, be unlawful. The Company also reserves the absolute
right to waive any defect, irregularity or condition of tender with regard to
any particular Old Securities. The Company's interpretation of the terms of,
and conditions to, the Exchange Offer (including the instructions herein) will
be final and binding. Unless waived, any defects or irregularities in
connection with tenders must be cured within such time as the Company shall
determine. Neither the Company nor the Exchange Agent shall be under any duty
to give notification of defects in such tenders or shall incur any liability
for failure to give such notification. The Exchange Agent intends to use
reasonable efforts to give notification of such defects and irregularities.
Tenders of Old Securities will not be deemed to have been made until all
defects and irregularities have been cured or waived. Any Old Securities
received by the Exchange Agent that are not properly tendered and as to which
the irregularities have not been cured or waived will be returned by the
Exchange Agent to the tendering Holder, unless otherwise provided by this
Letter of Transmittal, as soon as practicable following the Expiration Date.
11. Interest on Exchanged Old Securities. Holders whose Old Securities are
accepted for exchange will not receive accrued interest or dividends thereon
on the date of exchange. Instead, interest accruing from July 25, 1997 through
the Expiration Date will be payable on the New Senior Notes on February 1,
1998, in accordance with the terms of the New Securities. No interest will
accrue on the Discount Debentures prior to April 1, 2002. See "The Exchange
Offer--Acceptance of Old Securities for Exchange; Delivery of New Securities"
and "Description of Notes" as set forth in the Prospectus.
12. Mutilated, Lost, Stolen or Destroyed Certificates. Holders whose
certificates for Old Securities have been mutilated, lost, stolen or
destroyed should contact the Exchange Agent at the address indicated above
for further instructions.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE HEREOF), TOGETHER WITH
ALL REQUIRED DOCUMENTS, OR A NOTICE OF GUARANTEED DELIVERY, MUST BE RECEIVED
BY THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
7
<PAGE>
PLEASE READ ACCOMPANYING INSTRUCTIONS CAREFULLY
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1 AND 7)
To be completed ONLY if the New Securities issued in
consideration of Old Securities exchanged, or
certificates for Old Securities in a principal amount
not surrendered for exchange, are to be mailed to
someone other than the undersigned or to the
undersigned at an address other than that below.
Mail to:
Name:
-----------------------------------------------------
(Please Print)
Address:
-----------------------------------------------------
-----------------------------------------------------
(Zip Code)
<TABLE>
<CAPTION>
DESCRIPTION OF OLD SECURITIES
(SEE INSTRUCTIONS 2 AND 7)
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES)
OF REGISTERED HOLDER(S) CERTIFICATE(S)
(PLEASE FILL IN, IN BLANK) (ATTACH ADDITIONAL SIGNED LIST, IF NECESSARY)
- ---------------------------- -----------------------------------------------------------------------------
PRINCIPAL AMOUNT OF OLD
AGGREGATE PRINCIPAL SECURITIES
AMOUNT OF OLD TENDERED(2)(MUST BE
SECURITIES EVIDENCED BY INTEGRAL MULTIPLES OF
CERTIFICATE NUMBER(S) CERTIFICATE(S) $1,000)
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
TOTAL
- ----------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
(Boxes below to be checked by Eligible Institutions only)
[ ] CHECK HERE IF TENDERED OLD SECURITIES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution
------------------------------------------------------------------------
DTC Account Number
------------------------------------------------------------------------
Transaction Code Number
------------------------------------------------------------------------
[ ] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY
IF TENDERED OLD SECURITIES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING:
Name(s) of Registered Holder(s)
------------------------------------------------------------------------
Window Ticket Number (if any)
------------------------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery
------------------------------------------------------------------------
Name of Institution which Guaranteed Delivery
------------------------------------------------------------------------
If Guaranteed Delivery is to be made by Book-Entry Transfer:
Name of Tendering Institution
------------------------------------------------------------------------
DTC Account Number
------------------------------------------------------------------------
Transaction Code Number
------------------------------------------------------------------------
[ ] CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OLD
SECURITIES ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET
FORTH ABOVE.
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD SECURITIES
FOR ITS OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING
ACTIVITIES (A "PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR
SUPPLEMENTS THERETO.
Name
- -----------------------------------------------------------------------------
Address
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
9
<PAGE>
PLEASE SIGN HERE
WHETHER OR NOT OLD SECURITIES ARE BEING
PHYSICALLY TENDERED HEREBY
X___________________________ ___________
X___________________________ ___________
SIGNATURE(S) OF OWNER(S) DATED
OF AUTHORIZED SIGNATORY
Area Code and Telephone Number:
- -----------------------------------------------------------------------------
This box must be signed by registered holder(s) of Old Securities as their
name(s) appear(s) on certificate(s) for Old Securities hereby tendered or on a
security position listing, or by any person(s) authorized to become registered
holder(s) by endorsement and documents transmitted with this Letter (including
such opinions of counsel, certifications and other information as may be
required by the Company or the Trustee for the Old Securities to comply with
the restrictions on transfer applicable to the Old Securities). If signature
is by an attorney-in-fact, trustee, executor, administrator, guardian, officer
or other person acting in a fiduciary or representative capacity, such person
must set forth his or her full title below.
Name(s)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
(PLEASE PRINT)
Capacity (full title)
- -----------------------------------------------------------------------------
Address
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Tax Identification or Social Security Number(s)
- -----------------------------------------------------------------------------
GUARANTEE OF SIGNATURE(S)
(See Instructions 1 and 6 to determine if required)
- -----------------------------------------------------------------------------
AUTHORIZED SIGNATURE
- -----------------------------------------------------------------------------
NAME
- -----------------------------------------------------------------------------
NAME OF FIRM
- -----------------------------------------------------------------------------
TITLE
- -----------------------------------------------------------------------------
ADDRESS
10
