<PAGE> 1
REGISTRATION NO. 333-84613
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
AMENDMENT NO. 3
TO
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------------------
DAYTON SUPERIOR CORPORATION
(Exact name of Registrant as specified in its charter)
OHIO
(State or other jurisdiction of incorporation or organization)
31-0676346
(I.R.S. Employer Identification No.)
7777 WASHINGTON VILLAGE DRIVE, SUITE 130
DAYTON, OHIO 45459
(937) 428-6360
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
DAYTON SUPERIOR CAPITAL TRUST
(Exact name of Registrant as specified in its Trust Agreement)
DELAWARE
(State or other jurisdiction of incorporation or organization)
31-6625500
(I.R.S. Employer Identification No.)
7777 WASHINGTON VILLAGE DRIVE, SUITE 130
DAYTON, OHIO 45459
(937) 428-6360
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
J.A. CICCARELLI
PRESIDENT AND CHIEF EXECUTIVE OFFICER
DAYTON SUPERIOR CORPORATION
7777 WASHINGTON VILLAGE DRIVE, SUITE 130
DAYTON, OHIO 45459
(937) 428-6360
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
WITH COPIES TO:
David A. Neuhardt, Esq.
Thompson Hine & Flory LLP
2000 Courthouse Plaza N.E.
P.O. Box 8801
Dayton, Ohio 45401-8801
(937) 443-6775
Michael T. Pepke, Esq.
James M. Bedore, Esq.
Reinhart, Boerner, Van Deuren, Norris & Rieselbach, S.C.
1000 North Water Street
P.O. Box 514000
Milwaukee, Wisconsin 53203-3400
(414) 298-1000
------------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a), OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
PROSPECTUS
DAYTON SUPERIOR LOGO
DAYTON SUPERIOR CAPITAL TRUST
1,062,500 PREFERRED SECURITIES
10% Convertible Trust Preferred Securities
($20 liquidation amount per Preferred Security)
Guaranteed, to the extent described herein by,
and convertible into Class A Common Shares of,
DAYTON SUPERIOR CORPORATION
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DAYTON SUPERIOR CORPORATION
- - We manufacture and distribute metal accessories and forms used in concrete
construction and metal accessories used in masonry construction.
- - Dayton Superior Corporation
7777 Washington Village Dr., Suite 130
Dayton, Ohio 45459
(937) 428-6360
PROPOSED SYMBOL & MARKET
- - DSDpr/New York Stock Exchange
THE OFFERING:
- - Dayton Superior Capital Trust is offering 1,062,500 of its preferred
securities.
- - The underwriters have a 30-day option to purchase up to 159,375 additional
preferred securities to cover over-allotments.
- - The trust will use the proceeds to purchase $21,250,000 of our junior
subordinated debentures with terms that correspond to the preferred
securities.
- --------------------------------------------------------------------------------
The preferred securities have been approved for listing, subject to official
notice of issuance, on the New York Stock Exchange. Trading on the New York
Stock Exchange is expected to commence within a 30-day period after the initial
delivery of the preferred securities.
THIS INVESTMENT INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 8.
<TABLE>
<CAPTION>
PER TRUST
PREFERRED SECURITY TOTAL
------------------ -----------
<S> <C> <C>
Public offering price................... $20.00 $21,250,000
Underwriting commissions to be paid by
Dayton Superior Corporation.......... $ 1.00 $ 1,062,500
Proceeds to Dayton Superior Capital
Trust................................ $20.00 $21,250,000
</TABLE>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
ROBERT W. BAIRD & CO.
INCORPORATED
LEGG MASON WOOD WALKER
INCORPORATED
MCDONALD INVESTMENTS INC.
SEPTEMBER 30, 1999
<PAGE> 3
[Outside Front Cover of Fold-Out]
[Graphic]
<TABLE>
<CAPTION>
<S> <C>
Picture 1 - From 1997 Annual Report, black Picture 2 - From 1997, Annual
and white photograph portraying Report, black and white
use of American Highway Technology's photograph portraying
paving products as used on a use of Dur-O-Wal's
roadway construction site. masonry accessories
products used for masonry
wall reinforcement.
Picture 2 - From 1997 Annual Report, Picture 4 - From 1997 Annual Report,
black and white photograph black and white photograph
portraying use of Symons' concrete portraying use of Dayton/Richmond's
forming system on a large-scale steel inserts and bracing concrete
construction site. accessories used for tilt-up construction.
</TABLE>
<PAGE> 4
[Inside Left and Right of Fold-Out]
[Graphic]
[Artist rendering used in 1998 Annual Report of Dayton Superior
products as used on a construction site]
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................... 1
Risk Factors.............................. 8
Forward Looking Statements and Cautionary
Matters................................. 13
Use of Proceeds........................... 14
Price Range of Common Shares.............. 14
Dividend Policy........................... 14
Capitalization............................ 15
Accounting Treatment...................... 15
Selected Financial Data................... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 17
Business.................................. 29
Management................................ 38
Ownership of Common Shares................ 43
The Trust................................. 45
Description of the Preferred Securities... 46
Description of the Guarantee.............. 61
Description of the Junior Subordinated
Debentures.............................. 64
Relationship Among the Preferred
Securities, the Junior Subordinated
Debentures and the Guarantee............ 71
Description of Our Capital Shares......... 73
United States Taxation.................... 74
Book-Entry Issuance....................... 81
Underwriting.............................. 83
Legal Matters............................. 84
Experts................................... 84
Where You Can Find More Information....... 84
Index to Financial Statements............. F-1
</TABLE>
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[Page Intentionally Left Blank]
<PAGE> 7
SUMMARY
This summary highlights important information about our business and about
this offering. Because it is a summary, it does not include all information you
should consider before investing in preferred securities. Please review this
entire prospectus, including our financial statements, before you decide to
invest. Unless we indicate otherwise, we have not adjusted the information in
this prospectus to account for the exercise of the over-allotment option the
trust has granted to the underwriters. The terms "Dayton Superior," "we," "us"
and "our" refer to Dayton Superior Corporation and its subsidiaries. The term
"trust" refers to Dayton Superior Capital Trust.
DAYTON SUPERIOR
OUR COMPANY
We are Dayton Superior Corporation, an Ohio corporation incorporated in
1959 as the successor to a business founded in 1924. We believe that we are the
largest North American manufacturer and distributor of metal accessories and
forms used in concrete construction and of metal accessories used in masonry
construction. Our products are used primarily in two segments of the
construction industry:
- non-residential building projects such as schools, stadiums, prisons,
retail sites, commercial offices and manufacturing facilities; and
- infrastructure projects such as highways, bridges, utilities, water and
waste treatment facilities and airport runways.
We manufacture most of our products at ten plants in the United States
using, in many cases, high-volume, automated equipment designed and built or
customized by us.
We have four principal operating divisions, which are organized around the
following product lines:
- Concrete Accessories (Dayton/Richmond (R)). Concrete accessories are used
in connecting forms for poured-in-place concrete walls, anchoring or
bracing concrete walls and floors, supporting bridge framework and
positioning steel reinforcing bars, also known as rebar.
- Concrete Forming Systems (Symons (R)). Concrete forming systems are
comprised of reusable, highly-engineered forms used in the construction
of concrete walls, columns and bridge supports to hold liquid concrete in
place while it cures.
- Paving Products (American Highway Technology (R)). Paving products are
used to extend the longevity of roads and runways by transferring loads
between adjacent concrete slabs.
- Masonry Products (Dur-O-Wal (R)). Masonry products are placed between
layers of brick and covered with mortar to provide additional strength to
walls. Masonry products also include engineered products used to repair
or restore brick and stone buildings.
Collectively, we sell over 18,000 discrete products under a number of brand
names that are well-recognized in the construction industry. Most of our
products are consumable, providing us with a source of recurring revenue. In
addition, while our products represent a relatively small portion of a
construction project's total cost, our products assist in ensuring the on-time,
quality completion of those projects.
Our distribution system, which we believe is one of the largest in our industry,
consists of a network of 58 service/distribution centers in the United States
and Canada, ten of which also are manufacturing plants. Through this network of
service/distribution centers, we serve over 4,000 independent distributors, as
well as brokers, rebar fabricators, precast concrete manufacturers, brick and
concrete block manufacturers, general contractors, subcontractors and metal
fabricators. We also rent forming systems and tilt-up bracing to contractors
through rental centers and distributors nationwide.
Our revenues have grown rapidly through a focused strategy of internal
growth and a highly disciplined acquisition program. Since the beginning of
1994, we have completed eleven acquisi-
1
<PAGE> 8
tions, the largest of which was our 1997 acquisition of Symons Corporation. As a
result of these acquisitions and internal growth, our revenues have increased
from $82.3 million in 1994 to $282.8 million in 1998, representing a compound
annual growth rate of 36.1%.
OUR STRATEGY
Our principal business objective is to achieve profitable growth through a
combination of acquisitions and internal operating initiatives. Key elements of
our strategy to achieve our principal business objective are outlined below:
- Complete Additional Strategic Acquisitions. Since the beginning of 1994,
we have successfully completed and integrated eleven strategic
acquisitions. We seek additional acquisitions that leverage our
significant economies of scale and manufacturing and distribution
expertise.
- Continue Product Innovation. We have a long and successful history of
innovation and continue to focus significant resources on new product
development.
- Continue Efficient Manufacturing and Continuous Improvement Programs. We
continue to implement strategic initiatives designed to reduce
manufacturing costs and improve product quality. To improve our
efficiency, we design and build or customize much of our high-volume,
automated manufacturing equipment.
- Leverage Our Extensive Distribution System. We leverage our extensive
distribution system, consisting of 58 service/ distribution centers and
over 4,000 independent distributors located in virtually every major
domestic market, by acquiring new product lines, developing new products
and purchasing products sold by third parties, all of which can be sold
through our distribution system.
- Encourage Decentralized and Entrepreneurial Management. We encourage an
entrepreneurial spirit at each of our divisions. We believe utilizing the
capabilities, customer relationships and market knowledge of our managers
is essential to realizing our growth objectives.
OUR INDUSTRY
We believe the characteristics and trends in the non-residential
construction and infrastructure segments of the construction industry, the two
segments in which our products are primarily used, are favorable to our
business:
- These segments are less cyclical than the overall construction industry.
We have little exposure to single-family residential construction, which
is the most cyclical segment of the construction industry.
- We believe the significant decline in commercial real estate vacancy
rates over the past five years should continue to have a positive effect
on commercial construction even if an economic downturn occurs.
- We believe the May 1998 passage of The Transportation Equity Act for the
21st Century (TEA-21), the largest federal public works legislation in
U.S. history, will have a positive impact on infrastructure construction
within the United States.
- Competitors in our industry are mostly regional suppliers of limited
product lines and lack our economies of scale and manufacturing and
distribution strengths.
- Our industry is highly fragmented and it provides us with numerous
acquisition opportunities.
Our executive offices are located at 7777 Washington Village Drive, Suite
130, Dayton, Ohio 45459. Our telephone number is (937) 428-6360.
2
<PAGE> 9
THE OFFERING
DAYTON SUPERIOR CAPITAL
TRUST......................... The trust is a statutory business trust created
under the laws of Delaware. The trust will:
- issue and sell preferred securities,
representing beneficial interests in the
trust, to the public;
- issue and sell common securities to us; and
- use the proceeds from these sales to buy from
us junior subordinated debentures with terms
that correspond to the preferred securities.
The trust's executive offices are the same as
ours.
THE TRUSTEES.................. We will appoint three trustees to conduct the
trust's business. The trustees for the trust
will be:
- Firstar Bank, N.A., as property trustee;
- Mark A. Ferrucci, as the Delaware trustee;
and
- three of our officers or employees, as
individual administrative trustees.
DAYTON SUPERIOR............... We will:
- own the common securities of the trust;
- sell to the trust our junior subordinated
debentures, which we:
- will pay principal and interest on, subject
to payment of our senior debt; and
- may choose to distribute pro-rata to the
holders of the preferred securities and the
common securities if we dissolve the trust;
and
- guarantee payments on the preferred
securities on a junior subordinated basis, as
described under "Guarantee" below.
SECURITIES OFFERED............ 1,062,500 10% Convertible Trust Preferred
Securities ($20 liquidation amount per
security) issued by the trust. The trust also
has granted the underwriters an option for 30
days to purchase up to an additional 159,375
preferred securities at the initial offering
price solely to cover any over-allotments.
OFFERING PRICE................ $20 per preferred security.
DISTRIBUTIONS................. Distributions on the preferred securities will
be:
- cumulative from the date of original
issuance;
- payable at the annual rate of 10.0% of the
liquidation preference of $20 per security;
- made quarterly in arrears on September 30,
December 31, March 31 and June 30, commencing
on December 31, 1999;
- made only to the extent that funds of the
trust are available for distribution; and
- deferrable as described below.
3
<PAGE> 10
DEFERRAL OF DISTRIBUTIONS..... We may defer payment of interest on the junior
subordinated debentures. If we do that, the
trust will defer making distributions on the
preferred securities during the same period. We
may defer interest on the debentures for up to
20 consecutive quarters, but we may not defer
interest beyond September 30, 2029, the
maturity date of the debentures. At the end of
the deferral period, we must pay all accrued
and unpaid interest, including accrued interest
on the deferred payments.
During any deferral, distributions will
continue to accrue on the preferred securities
at an annual rate of 10.0% of the liquidation
amount of $20 per security. Also, the deferred
distributions will themselves accrue interest
at an annual rate of 10.0%, to the extent
permitted by law. If a holder of preferred
securities converts preferred securities into
common shares during a deferral period, the
holder will not receive any of the deferred
distributions.
Once we have paid all deferred interest,
including accrued interest on the deferred
payments, we again can defer payment of
interest on the debentures for up to 20
consecutive quarters if no event of default
under the debentures exists.
During any deferral, we generally will not be
permitted to:
- pay a dividend or make any distributions on,
or repurchase, our capital shares; or
- make any payment on any of our debt that
ranks equal to or junior to the debentures.
TAX CONSEQUENCES OF
DEFERRAL...................... If we defer payments of interest on the junior
subordinated debentures, the holders of the
preferred securities will be required to
recognize interest income and include the
deferred amounts in gross income for federal
income tax purposes, even though the holders
will not have received any cash distributions
relating to that interest income. See "UNITED
STATES TAXATION -- Interest Income and Original
Issue Discount."
LIQUIDATION PREFERENCE........ $20 per preferred security, plus all accrued
and unpaid distributions.
CONVERSION INTO COMMON
SHARES...................... Each preferred security is convertible at the
option of a holder into our common shares at
the rate of 0.80 common shares for each
preferred security. This equates to an initial
conversion price of $25 per common share. The
conversion ratio will be adjusted in certain
circumstances. We will pay cash in lieu of
issuing any fractional shares.
A holder desiring to convert preferred
securities into common shares must surrender
the securities, together with an irrevocable
conversion notice, to the property trustee, who
will serve as conversion agent. The conversion
agent then will exchange the preferred
securities for a corresponding portion of the
junior
4
<PAGE> 11
subordinated debentures held by the trust. The
conversion agent then will convert those
debentures into common shares.
- For example, if you convert 100 preferred
securities, the conversion agent will
exchange those securities for $2,000
principal amount of debentures, which the
agent then will convert into 80 common
shares, which the agent will deliver to you.
A holder will not recognize gain or loss for
United States federal income tax purposes upon
the exchange. See "UNITED STATES TAXATION
-- Conversion of Preferred Securities into
Common Shares."
REDEMPTION.................... The trust must redeem all of the preferred
securities and common securities when the
junior subordinated debentures are paid at
maturity on September 30, 2029. In addition, if
we redeem any junior subordinated debentures
before maturity, the trust will use the cash it
receives to redeem, on a pro rata basis, the
same dollar amount of preferred securities and
common securities.
We can redeem some or all of the junior
subordinated debentures at any time on or after
October 1, 2002. We must pay a premium if we
redeem junior subordinated debentures before
October 1, 2009.
In addition, we may redeem some or all of the
junior subordinated debentures at a premium at
any time on or after October 1, 2001 and before
October 1, 2002 if the closing price of our
common shares has exceeded 150% of the
conversion price then in effect for at least 20
trading days within a period of 30 consecutive
trading days ending not more than five trading
days prior to the date of the mailing of a
notice of the redemption.
EXCHANGE OR REDEMPTION DUE TO
CHANGES IN TAX LAW.......... If changes in the tax law occur that result in
more than an insubstantial risk that:
- the trust would become subject to federal tax
with respect to income received on the junior
subordinated debentures, or
- interest payable by us on the debentures
would not be deductible by us, or
- the trust would be subject to other taxes,
the trust can redeem the preferred securities
or we can pay additional amounts to the trust
for distribution to the holders of the
preferred securities. If we do neither, the
preferred securities will be exchanged for
junior subordinated debentures. See
"DESCRIPTION OF THE PREFERRED SECURITIES
-- Tax Event Exchange or Redemption."
EXCHANGE DUE TO INVESTMENT
COMPANY STATUS.............. If a change in the law creates more than an
insubstantial risk that the trust would be
considered an investment company required to
register under the Investment Company Act, the
preferred securities will be exchanged for
junior subordinated deben-
5
<PAGE> 12
tures. See "DESCRIPTION OF THE PREFERRED
SECURITIES -- Investment Company Event
Exchange."
DISTRIBUTION OF JUNIOR
SUBORDINATED DEBENTURES..... We may dissolve the trust at any time and
require the trust, after it satisfies its
creditors, to distribute junior subordinated
debentures to you, on a pro rata basis, in
satisfaction of the liquidation amount of $20
per preferred security plus accumulated and
unpaid distributions.
GUARANTEE..................... We will guarantee the payment of:
- the distributions payable by the trust on the
preferred securities to the extent the trust
has funds on hand available to make the
distributions;
- the redemption price, including all
accumulated and unpaid distributions, of the
preferred securities to the extent the trust
has funds on hand available to make the
distributions; and
- amounts due on liquidation with respect to
the preferred securities, unless the
debentures are distributed to the holders of
the preferred securities, to the extent that
there are assets of the trust available for
distribution to the holders of the preferred
securities.
The guarantee is unsecured and ranks
subordinate and junior in right of payment to
all our liabilities. It ranks equal in right of
payment with our most senior preferred shares,
if we issue any.
VOTING RIGHTS................. Generally, holders of preferred securities will
not have voting rights, except primarily for
those relating to the modification of the terms
of the preferred securities. See "DESCRIPTION
OF THE PREFERRED SECURITIES -- Voting Rights;
Amendment of the Trust Agreement."
JUNIOR SUBORDINATED
DEBENTURES.................. The junior subordinated debentures are
convertible into common shares, have a maturity
of 30 years from the date of issuance and bear
interest at the rate of 10.0% per annum,
payable quarterly in arrears. Payment of the
principal and interest on the debentures is
subordinate to payment of all of our senior
debt. See "DESCRIPTION OF THE JUNIOR
SUBORDINATED DEBENTURES -- Definition of Senior
Debt." We expect to use the proceeds of the
sale of the junior subordinated debentures to
repay outstanding borrowings under our
revolving credit facility.
6
<PAGE> 13
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
SIX FISCAL MONTHS
ENDED
--------------------------- YEARS ENDED DECEMBER 31,
JULY 2, JULY 3, -----------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------------ ------------ -------- -------- -------- ------- -------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales.......................... $156,832 $135,981 $282,849 $167,412 $124,486 $92,802 $82,341
Gross profit....................... 56,308 47,500 105,755(1) 56,368(1) 38,465 28,812 24,330
Income from operations............. 15,048 10,762 29,821 17,722 13,079 8,623 6,303
Net income......................... 4,916 2,722 10,076 6,953 2,302 3,705 30,672(2)
Basic net income per share......... 0.83 0.47 1.72 1.22 0.51 0.02 15.18(2)
Diluted net income per share....... 0.79 0.45 1.65 1.17 0.47 0.02 14.93(2)
OTHER DATA:
Depreciation and amortization...... $ 7,131 $ 6,087 $ 12,289 $ 7,016 $ 6,053 $ 4,268 $ 3,499
Property, plant and equipment
additions, net................... 2,825 2,371 6,118 4,410 3,198 2,730 2,075
Rental equipment additions, net.... 4,292 3,247 6,783 1,247 534 99 (421)
EBITDA(3).......................... 22,179 16,849 42,110 24,738 19,132 12,891 9,802
Net cash provided by (used in):
Operating activities............. (5,766) (896) 19,601 10,367 7,766 8,325 (7,997)(2)
Investing activities............. (12,692) (6,885) (14,685) (39,139) (8,646) (26,420) (1,654)
Financing activities............. 19,483 8,116 (4,281) 28,615 446 18,256 3,912
Ratio of EBITDA to interest
expense.......................... 3.7x 2.9x 3.6x 4.5x 4.0x 3.0x 1.6x
Ratio of earnings to fixed
charges(4)....................... 2.3x 1.7x 2.4x 2.9x 2.5x 1.9x 0.9x
Deficiency......................... $ -- $ -- $ -- $ -- $ -- $ -- $ 587
</TABLE>
<TABLE>
<CAPTION>
AS OF JULY 2, 1999
-----------------------------
ACTUAL AS ADJUSTED(5)
----------- --------------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................... $ 62,209 $ 62,209
Total assets.............................................. 275,777 275,777
Long-term debt (including current portion)................ 137,749 118,061
Trust preferred securities................................ -- 19,688
Shareholders' equity...................................... 79,388 79,388
</TABLE>
- ---------------
(1) We made a reclassification to the 1998 and 1997 amounts to conform to the
1999 presentation.
(2) In May 1994, we recorded an extraordinary gain of $31,354, net of income tax
effect of $92, and paid $14,631 of accrued and unpaid interest as a result
of an agreement to restructure our senior debt. We had defaulted on certain
financial covenants in that debt in December 1992 and were unable to make
payments of principal and interest as they came due. From December 1992 to
May 1994, we accrued additional penalty interest on our senior debt.
(3) "EBITDA" is income from operations plus depreciation and amortization.
EBITDA does not represent and should not be considered as an alternative to
net income or cash flow from operations as determined by generally accepted
accounting principles, and our calculation of EBITDA may not be comparable
to that reported by other companies. We believe that it is widely accepted
that EBITDA provides useful information regarding a company's ability to
service and/or incur indebtedness. Our belief is based on EBITDA being a
component in our bank credit agreement financial covenants. EBITDA does not
take into account our working capital requirements, debt service
requirements and other commitments and, accordingly, is not necessarily
indicative of amounts that may be available for discretionary use.
(4) The ratio of earnings to fixed charges is computed by dividing (i) income
before income taxes, interest expense and the portion of rent determined to
be interest by (ii) total fixed charges, which includes interest expense,
minority interest and the portion of rent expense determined to be interest.
The portion of rent expense determined to be interest is 33% of gross rent
expense.
(5) As adjusted to reflect:
- the sale by the trust of 1,062,500 preferred securities,
- our sale to the trust of an equivalent amount of junior subordinated
debentures, and
- our application of the net proceeds as described in "USE OF PROCEEDS." See
"CAPITALIZATION."
7
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RISK FACTORS
Your investment in the preferred securities will involve risks. You should
carefully consider the following discussion of risks and the other information
in this prospectus before buying the preferred securities.
RISKS RELATING TO OUR BUSINESS
THE CONSTRUCTION INDUSTRY IS CYCLICAL AND A SIGNIFICANT DOWNTURN IN THE
CONSTRUCTION INDUSTRY COULD DECREASE OUR REVENUES AND PROFITS AND ADVERSELY
AFFECT OUR FINANCIAL CONDITION.
Because our products primarily are used in nonresidential building and
infrastructure construction, our sales and earnings are strongly influenced by
construction activity, which historically has been cyclical. Construction
activity can decline because of many factors we cannot control, such as:
- weakness in the general economy,
- a decrease in government spending,
- interest rate increases,
- changes in banking and tax laws, and
- continued delay by the states in initiating construction projects under
the TEA-21 program.
OUR HIGH LEVEL OF DEBT MAY AFFECT OUR ABILITY TO IMPLEMENT OUR BUSINESS STRATEGY
AND PAY INTEREST ON THE JUNIOR SUBORDINATED DEBENTURES AND THE TRUST'S ABILITY
TO PAY DISTRIBUTIONS TO HOLDERS OF THE PREFERRED SECURITIES.
Although we intend to use the proceeds of this offering to reduce the
amount outstanding under our revolving credit facility, our long-term debt at
July 2, 1999 was approximately $137.7 million while our total shareholders'
equity was approximately $79.4 million. This substantial leverage can affect our
financial position in several ways:
- a substantial portion of our cash flow from operations must be dedicated
to pay interest on our debt and, therefore, will not be available for
other purposes;
- our ability to obtain additional financing in the future to meet working
capital needs or for capital expenditures, acquisitions and other
corporate purposes, or to refinance our existing debt upon maturity, may
be impaired;
- our vulnerability to the cyclicality of the construction industry and
economic downturns may be increased and our ability to withstand
competitive pressures may be limited;
- our ability to capitalize on significant business opportunities may be
limited; and
- a portion of our debt is subject to fluctuations in interest rates.
RESTRICTIONS IMPOSED BY OUR DEBT COVENANTS MAY LIMIT OUR ABILITY TO IMPLEMENT
OUR BUSINESS STRATEGY.
Our credit agreements contain a number of restrictive covenants, such as:
- restrictions on the amount of additional debt that we may incur;
- restrictions on the acquisitions and capital expenditures that we may
make;
- restrictions on our use of the proceeds from asset and stock sales; and
- restrictions on the amount of dividends we may declare.
SYMONS MAY LOSE ITS APPEAL IN THE EFCO LITIGATION, WHICH COULD ADVERSELY AFFECT
OUR EARNINGS AND FINANCIAL CONDITION AND REDUCE THE FUNDS AVAILABLE TO IMPLEMENT
OUR BUSINESS STRATEGY.
Our Symons subsidiary was sued by a competitor, EFCO Corp., in 1996. In
April 1999, the trial court judge entered a judgment in the amount of $14.1
million against Symons. Symons is appealing that judgment and, while we believe
that Symons has grounds for a successful appeal, Symons nevertheless might lose
the appeal and be required to pay the full amount of the judgment plus interest.
We have not recorded any liability for the resolution of this amount, so payment
of the judgment plus interest would adversely affect our earnings. In addition,
a significant payment would adversely affect our financial condition and could
reduce our liquidity and the
8
<PAGE> 15
funds available to us for implementing our business strategy. For more
information, see "BUSINESS -- Legal Proceedings."
WE MAY LOSE OUR DISPUTE WITH THE FORMER OWNERS OF SYMONS, WHICH MAY ADVERSELY
AFFECT OUR FINANCIAL CONDITION AND REDUCE THE FUNDS AVAILABLE TO IMPLEMENT OUR
BUSINESS STRATEGY.
Our purchase agreement to acquire Symons provided for a post-closing
purchase price adjustment. We are currently in a dispute with the former
stockholders of Symons regarding this purchase price adjustment. The dispute
includes a lawsuit brought by the former stockholders in Delaware and an
arbitration proceeding which began in July 1999. We have demanded a number of
adjustments that would reduce the purchase price, while the former stockholders
have demanded adjustments that would increase the purchase price by $5.0 million
if all of their adjustments were made and none of our adjustments were made. At
this time, we are unable to determine the final amount of the adjustment, if
any, that will be made to the purchase price. If the former stockholders of
Symons prevail in this dispute, however, we may be required to make an
additional purchase price payment to them. We would expect to record any such
payment as additional goodwill with respect to the acquisition. A significant
payment would adversely affect our financial condition and could reduce our
liquidity and the funds available to us for implementing our business strategy.
IMPLEMENTATION OF OUR BUSINESS STRATEGY DEPENDS UPON OUR ABILITY TO IDENTIFY AND
COMPLETE ACQUISITIONS OF SUITABLE CANDIDATES.
Implementation of our business strategy depends on our ability to identify
and acquire complementary businesses. However, we may not be able to identify
suitable new acquisition candidates, obtain financing necessary to complete
acquisitions, acquire businesses on satisfactory terms or enter into definitive
acquisition agreements.
WE MAY COMPLETE ACQUISITIONS WHICH DISRUPT OUR BUSINESS AND DILUTE OUR
SHAREHOLDERS.
Our strategy of growing, in part, by making acquisitions can be risky. If
we do make acquisitions, we could do any of the following, which could adversely
affect our financial results, our ability to pay interest on the junior
subordinated debentures and our other borrowings, the trust's ability to pay
distributions on the preferred securities, the market price of the preferred
securities and the market price of our common shares:
- issue additional equity securities that dilute the percentage ownership
of the existing shareholders and might dilute the book value of their
shares;
- incur substantial additional debt, which may reduce funds available for
operations and future opportunities and increase our vulnerability to
adverse general economic and industry conditions and competition;
- assume contingent liabilities; or
- take substantial charges to amortize goodwill and other intangible
assets.
In addition, acquisitions can involve other risks, such as:
- difficulty in integrating the acquired operations, products and personnel
into our existing business;
- unanticipated costs or cost savings which are less than anticipated;
- diversion of management time and attention;
- adverse effects on existing business relationships with our suppliers and
customers and the suppliers and customers of the acquired business;
- risk of entering new markets in which we have limited or no experience;
and
- loss of key employees from either the acquired business or our
pre-existing business.
9
<PAGE> 16
WE MAY NOT BE ABLE TO PASS ON THE COST OF STEEL PRICE INCREASES TO OUR
CUSTOMERS.
Steel, in its various forms, is our principal raw material, constituting
approximately 40-45% of our cost of sales. Historically, steel prices have
fluctuated. If we are unable to pass on to our customers the cost of increases
in the price of steel, our operating results are likely to suffer.
WEATHER COULD ADVERSELY AFFECT THE DEMAND FOR OUR PRODUCTS AND DECREASE OUR
REVENUES.
Weather could adversely affect our business, operating results and
financial condition. Adverse weather, such as unusually prolonged periods of
cold or rain, blizzards, hurricanes and other severe weather patterns, could
delay or halt construction activity over wide regions of the country. For
example, an unusually severe winter can lead to reduced construction activity
and magnify the seasonal decline in our revenues and earnings during the winter
months. This could cause the market price of our common shares and the preferred
securities to decline if we fail to meet the expectations of public market
analysts and investors, and it may negatively impact our liquidity.
INCREASING CONSOLIDATION OF OUR DISTRIBUTORS MAY NEGATIVELY AFFECT OUR EARNINGS.
We believe that there is an increasing trend among our distributors to
consolidate into larger entities. As the size and market power of our
distributors increase, they may be able to exert pressure on us to reduce prices
or create price competition by dealing more readily with our competitors. If the
consolidation of our distributors does result in increased price competition,
our sales and profit margins may be adversely affected.
THE MIX OF PRODUCTS WE SELL CAN NEGATIVELY AFFECT OUR EARNINGS.
Some of our products historically have had narrow profit margins. If the
mix of products we sell shifts to include a larger percentage of products with
narrow profit margins, our earnings may be negatively affected.
OUR OPERATING RESULTS CAN FLUCTUATE FROM QUARTER TO QUARTER RESULTING IN
VOLATILITY IN THE MARKET PRICE OF THE PREFERRED SECURITIES AND OUR COMMON
SHARES.
Our operating results tend to fluctuate from quarter to quarter because,
due to weather, the construction industry is seasonal in most of North America,
which is where almost all of our sales are made. Demand for our products
generally is higher in the spring and summer than in winter and late fall. As a
result, our first quarter net sales typically are the lowest of the year and we
experience a net loss. Our net sales and net income in the fourth quarter also
generally are less than in the second and third quarters. The seasonality of our
business may make it more difficult for us to meet the expectations of public
market analysts and investors and increase volatility in the market price of the
preferred securities and our common shares.
WE ARE SIGNIFICANTLY SMALLER THAN SOME OF OUR CONSTRUCTION CHEMICAL COMPETITORS.
In the sale of some construction chemicals, we must compete with a number
of national and international companies that are many times larger than we are
in terms of total assets and annual revenues. Because our resources are more
limited, we may not be able to compete effectively and profitably on a sustained
basis in the markets in which those competitors are actively present.
THE FAILURE OF OUR SUPPLIERS OR CUSTOMERS TO ADDRESS THEIR YEAR 2000 COMPUTER
PROBLEMS COULD HARM OUR BUSINESS.
Certain software and hardware systems are date sensitive. Older date
sensitive systems often use a two digit dating convention ("00" rather than
"2000") which could result in system failure and disruption of operations as the
year 2000 approaches. We believe our most significant continuing year 2000 risk
is the failure of third parties with which we do business to address their year
2000 problems. If our suppliers, particularly public utilities, or customers are
not year 2000 ready, we may not be able to receive orders, collect receivables
or supply our customers with products. For a more detailed discussion of this
risk, see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- Year 2000."
10
<PAGE> 17
RISKS RELATING TO THE PREFERRED SECURITIES
OUR OBLIGATIONS UNDER THE GUARANTEE AND THE JUNIOR SUBORDINATED DEBENTURES ARE
UNSECURED AND SUBORDINATED. IF WE ARE IN DEFAULT UNDER OUR SENIOR DEBT, WE
CANNOT MAKE ANY PAYMENTS ON THE JUNIOR SUBORDINATED DEBENTURES AND THE TRUST
CANNOT PAY ANY DISTRIBUTIONS TO THE HOLDERS OF THE PREFERRED SECURITIES.
Our obligations under the junior subordinated debentures are unsecured and
will rank junior in priority of payment to all of our senior debt. See
"DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES -- Definition of Senior
Debt." This means we cannot make any payments on the junior subordinated
debentures if we default on a payment of senior debt and do not cure the default
within the applicable grace period or if the senior debt becomes immediately due
because of a default and has not yet been paid in full. If we do not make
payments on the junior subordinated debentures, the trust cannot pay
distributions to the holders of the preferred securities. At July 2, 1999, we
had approximately $137.7 million of senior debt outstanding.
Our obligations under the guarantee rank in priority of payment as follows:
- subordinate and junior in right of payment to all of our other
liabilities;
- equal in rank to our most senior preferred shares, if any are issued; and
- senior to the common shares.
This means that we cannot make any payments on the guarantee if we are in
default on a payment on any of our other liabilities. In addition, in the event
of our bankruptcy, liquidation or dissolution, our assets will be available to
pay obligations under the guarantee only after we make all payments on our other
liabilities. See "DESCRIPTION OF THE GUARANTEE -- Subordination of the
Guarantee."
Neither the preferred securities, the junior subordinated debentures nor
the guarantee limit our ability, or the ability of our subsidiaries, to incur
additional debt, including debt that ranks senior in priority of payment to the
junior subordinated debentures and the guarantee.
THE GUARANTEE COVERS PAYMENTS ONLY IF THE TRUST HAS CASH AVAILABLE.
The ability of the trust to pay scheduled distributions on the preferred
securities, the redemption price of the preferred securities and the liquidation
amount of each preferred security is solely dependent upon us making the related
payments on the junior subordinated debentures when due.
If we fail to pay principal or interest on the junior subordinated
debentures when due, the trust will not have sufficient funds to pay
distributions, the redemption price or the liquidation amount of each preferred
security. In those circumstances, you will not be able to rely upon the
guarantee for payment of those amounts.
DEFERRAL OF DISTRIBUTIONS WOULD HAVE ADVERSE TAX CONSEQUENCES FOR YOU AND MAY
DEPRESS THE TRADING PRICE OF THE PREFERRED SECURITIES.
So long as no event of default under the junior subordinated debentures has
occurred and is continuing, we can, on one or more occasions, defer making
interest payments on the junior subordinated debentures for up to 20 consecutive
quarterly periods. If we defer making interest payments on the junior
subordinated debentures, the trust will defer making distributions on the
preferred securities during the same period. Unpaid distributions will
accumulate and the deferred distributions themselves will accrue interest at the
rate of 10.0% per annum to the extent permitted by law.
If we defer making interest payments on the junior subordinated debentures,
you will be required to recognize interest income, in the form of original issue
discount, for United States federal income tax purposes, based on your pro rata
share of the interest on the junior subordinated debentures held by the trust,
before you receive any cash relating to that interest. In addition, you will not
receive the cash if you sell the preferred securities before the end of any
interest deferral period or before the record date relating to distributions
which are paid.
If we exercise our right to defer making interest payments, the preferred
securities may trade at a price that does not fully reflect the value of accrued
but unpaid interest on the junior subordinated debentures. If you sell the
preferred securi-
11
<PAGE> 18
ties during a period in which interest is deferred,
you may not receive the same return on investment as someone else who continues
to hold the preferred securities. In addition, the existence of our right to
defer payment of interest on the junior subordinated debentures may mean that
the market price of the preferred securities may be more volatile than the price
of other securities that do not have these rights.
See "UNITED STATES TAXATION" for more information regarding the tax
consequences of purchasing, holding and selling the preferred securities.
IF THE PREFERRED SECURITIES ARE REDEEMED PRIOR TO MATURITY, YOU MAY BE TAXED ON
THE PROCEEDS AND MAY NOT BE ABLE TO REINVEST THE PROCEEDS AT THE SAME OR A
HIGHER RATE OF RETURN.
If certain changes in the tax law occur and other conditions are satisfied,
we may redeem some or all of the junior subordinated debentures. We also may
redeem the junior subordinated debentures at our option in whole or in part at
any time on or after October 1, 2002 or, in some circumstances, after October 1,
2001. If we redeem the junior subordinated debentures, the trust is required to
redeem a corresponding amount of its preferred securities at a redemption price
equal to $20 per security plus any accrued and unpaid distributions and, in the
case of some redemptions, a redemption premium. Under current United States
federal income tax law, the redemption of the preferred securities would be a
taxable event to you. In addition, you may not be able to reinvest the money you
receive at a rate that is equal to or higher than the rate of return on the
preferred securities. See "UNITED STATES TAXATION -- Redemption of Preferred
Securities for Junior Subordinated Debentures or Cash."
YOU WILL NOT HAVE THE PROTECTION OF FINANCIAL COVENANTS OR A SINKING FUND.
Because neither the indenture under which the junior subordinated
debentures will be issued nor the trust agreement require us to meet any
financial tests that measure such things as our working capital, interest
coverage or net worth, these instruments will not protect you in the event of a
material adverse change in our financial condition nor will they limit our
ability to incur additional debt. You also do not have the protection of
periodic sinking fund payments by us. As a result, we may be able to take
actions that adversely affect our ability to repay the debentures or the market
price of the preferred securities.
WE MAY DISSOLVE THE TRUST AT ANY TIME AND YOU MAY BE TAXED ON THE RESULTING
DISTRIBUTION OF THE JUNIOR SUBORDINATED DEBENTURES.
We have the right to dissolve the trust at any time. If we exercise that
right, the trust will liquidate, after satisfying any liabilities to creditors
of the trust as provided by law, by distributing the junior subordinated
debentures to the holders of the preferred securities and the common securities
on a pro rata basis.
Under current United States federal income tax law, a distribution of
junior subordinated debentures to you on the dissolution of the trust will not
be taxable to you. However, if the trust is characterized for United States
federal income tax purposes as an association taxable as a corporation at the
time it is dissolved due to a change in law or a new judicial or administrative
tax decision, the distribution of junior subordinated debentures to you may be
taxable to you.
We may exercise this right if the expenses associated with maintaining the
trust are substantially greater than currently expected, such as an unfavorable
change in tax law or investment company law occurs. We cannot predict the other
circumstances under which we might exercise this right.
YOU MAY HAVE DIFFICULTY SELLING PREFERRED SECURITIES OR JUNIOR SUBORDINATED
DEBENTURES BECAUSE OF THE LIMITED TRADING MARKET.
We cannot assure you that there will be an active public market for the
preferred securities or the junior subordinated debentures that you may receive
in a liquidation of the trust or in an exchange. Although we have applied to
list the preferred securities for trading on the New York Stock Exchange and we
will use reasonable efforts to list the junior subordinated debentures on the
New York Stock Exchange or any other exchange on which the preferred securities
then are listed if they are distributed from the trust, we do not know whether
there will be sufficient investor interest for a trading market to develop nor
do we know how liquid the market might be.
12
<PAGE> 19
WE CANNOT ASSURE YOU OF THE MARKET PRICES AT WHICH THE PREFERRED SECURITIES OR
THE JUNIOR SUBORDINATED DEBENTURES MAY TRADE.
The preferred securities or the junior subordinated debentures that you may
receive upon a liquidation of the trust or an exchange may trade at a discount
to the price you paid to purchase the preferred securities. As a result of our
right to defer making interest payments on the junior subordinated debentures,
the market price of the preferred securities and the junior subordinated
debentures may be more volatile than the market prices of other securities that
are not subject to similar optional deferrals.
YOU HAVE VOTING RIGHTS ONLY UNDER LIMITED CIRCUMSTANCES.
You have limited voting rights. In particular, generally only we can
appoint or remove the trustees of the trust. See "DESCRIPTION OF THE PREFERRED
SECURITIES -- Voting Rights; Amendment of the Trust Agreement."
RISKS INVOLVING OUR COMMON SHARES
WE DO NOT INTEND TO PAY DIVIDENDS ON OUR COMMON SHARES.
We do not intend to pay dividends on our common shares in the foreseeable
future. We also are prohibited from paying dividends by the covenants in our
bank credit agreement.
ANTITAKEOVER PROVISIONS MAY DISCOURAGE A TAKEOVER OF OUR COMPANY.
Provisions in our Articles of Incorporation, bank credit agreement and Ohio
law may discourage, delay or prevent a merger or other change in control that a
shareholder may consider favorable. These provisions also could discourage proxy
contests or make other corporate action by shareholders more difficult. These
provisions include:
- the authority of the directors to authorize the issuance, without
shareholder approval, of preferred shares with conversion, voting and
other rights that could be superior to the rights of the shareholders;
- prohibition of cumulative voting in the election of directors;
- effective prohibition of shareholder action by written consent;
- prohibition on engaging in a merger, asset sale or other transaction
resulting in a financial benefit with a person who acquires 10% or more
of the voting shares without the prior approval of our Board of
Directors; and
- acceleration of all outstanding indebtedness under our bank credit
agreement if a person or group acquires more than 30% of the voting
power.
FORWARD LOOKING STATEMENTS AND CAUTIONARY MATTERS
Some of our statements under "SUMMARY," "RISK FACTORS," "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,"
"BUSINESS" and elsewhere in this prospectus are forward-looking statements.
These statements relate to things like future operating and financial
performance, growth opportunities and growth rates, acquisition opportunities
and other similar forecasts and statements of expectation. In some cases, you
can identify forward-looking statements by words such as "expects,"
"anticipates," "intends," "plans," "believes," "seeks," "estimates" and "should"
and variations of these words and other similar expressions. Forward-looking
statements which we make are based on our estimates, projections, beliefs and
assumptions and are not guarantees of future performance. We disclaim any
obligation to update or revise any forward-looking statement based on the
occurrence of future events, the receipt of new information or otherwise.
Actual future performance, outcomes and results may differ materially from
those expressed in forward-looking statements which we make as the result of a
number of important factors, including those discussed above under "RISK
FACTORS." In addition to those factors, actual future performance, outcomes and
results may differ materially because of other, more general, factors including
general industry and market conditions and growth rates, domestic economic
conditions, governmental and public policy changes and the continued
availability of financing in the amounts, at the terms and on the conditions
necessary to support our future business.
13
<PAGE> 20
USE OF PROCEEDS
The trust will use all of the proceeds it receives from the sale of the
preferred securities and common securities to purchase junior subordinated
debentures from us. We intend to use the proceeds we receive from the sale of
our junior subordinated debentures to repay borrowings under our revolving
credit facility.
Our revolving credit facility expires on September 29, 2002. On July 2,
1999, the interest rates for outstanding borrowings under our revolving credit
facility ranged from 6.5% to 8.5%. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Liquidity and Capital
Resources."
PRICE RANGE OF COMMON SHARES
Our common shares are traded on the New York Stock Exchange under the
symbol "DSD." The following table shows the high and low closing prices for the
common shares for each fiscal quarter during 1997 and 1998 and the first three
fiscal quarters of 1999 through September 29, 1999.
On September 29, 1999, the last reported sale price of a common share on
the New York Stock Exchange was $16.750. As of March 18, 1999, we had 58
shareholders of record. Based on requests from brokers and other nominees, we
estimate that there are approximately 950 additional beneficial owners of the
common shares.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
FISCAL YEAR 1997
First Quarter............................................. $13.500 $11.250
Second Quarter............................................ 13.250 9.750
Third Quarter............................................. 19.438 12.500
Fourth Quarter............................................ 19.000 14.813
FISCAL YEAR 1998
First Quarter............................................. $20.375 $15.875
Second Quarter............................................ 22.125 16.500
Third Quarter............................................. 21.375 16.625
Fourth Quarter............................................ 20.875 14.375
FISCAL YEAR 1999
First Quarter............................................. $23.500 $17.313
Second Quarter............................................ 20.125 16.750
Third Quarter (through September 29, 1999)................ 20.250 16.500
</TABLE>
DIVIDEND POLICY
We do not pay dividends on our common shares. We intend to retain future
earnings to fund the development and growth of our business and, therefore, we
do not anticipate paying cash dividends on the common shares in the foreseeable
future. Our Board of Directors will decide whether to pay dividends on the
common shares in the future based principally on the results of our operations,
our general financial condition, other uses for our available funds and any
obligation we may have to pay dividends on outstanding preferred shares.
The terms of our bank credit agreement, which covers both our revolving
credit facility and our term notes, prohibit the payment of cash dividends on
our common shares. Also, we are prohibited from paying cash dividends on our
common shares during any period in which we defer payments of interest on the
junior subordinated debentures. We have amended the revolving credit facility
portion of the bank credit agreement to permit us to issue and pay interest on
the junior subordinated debentures. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Liquidity and Capital
Resources" and "DESCRIPTION OF THE PREFERRED SECURITIES -- Distributions."
14
<PAGE> 21
CAPITALIZATION
The following table summarizes our historical capitalization as of July 2,
1999 and our capitalization as adjusted to reflect:
- the sale of 1,062,500 preferred securities, assuming no exercise of the
over-allotment option which the trust granted to the underwriters and
after deducting the underwriting commissions and estimated expenses of
the offering,
- the sale of the common securities of the trust, and
- the use of proceeds in the manner described under "USE OF PROCEEDS."
<TABLE>
<CAPTION>
AS OF JULY 2, 1999
--------------------------
ACTUAL AS ADJUSTED
----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 1,647 $ 1,647
======== ========
Long-term debt:
Bank credit agreement..................................... $132,560 $112,872
Other..................................................... 5,189 5,189
Less: current maturities.................................. (32) (32)
-------- --------
Total long-term debt................................... 137,717 118,029
-------- --------
Company-obligated mandatorily redeemable convertible trust
preferred securities of Dayton Superior Capital Trust
which holds solely debentures............................. -- 19,688
-------- --------
Shareholders' equity:
Preferred shares, without par value; 5,000,000 shares
authorized; none issued or outstanding................. -- --
Class A common shares, without par value; 22,005,850
shares authorized; 5,962,200 shares issued and
5,943,183 outstanding.................................. 47,417 47,417
Class A treasury shares, 19,017 shares.................... (387) (387)
Cumulative other comprehensive income..................... (219) (219)
Retained earnings......................................... 32,577 32,577
-------- --------
Total shareholders' equity............................. 79,388 79,388
-------- --------
Total capitalization................................. $217,105 $217,105
======== ========
</TABLE>
ACCOUNTING TREATMENT
The trust will be treated as our subsidiary for accounting purposes, and
the accounts of the trust will be included in our consolidated financial
statements. Currently the Financial Accounting Standards Board is considering
the proper classification of trust preferred securities within the balance
sheet. Pending clarification from the FASB, the preferred securities will be
presented as a separate line item on our balance sheet, and disclosures
concerning the preferred securities, the guarantee and the junior subordinated
debentures will be included in the notes to our consolidated financial
statements. We will record distributions paid on the preferred securities as
dividends on subsidiary preferred securities in our consolidated financial
statements.
15
<PAGE> 22
SELECTED FINANCIAL DATA
The following table sets forth summary financial data for the fiscal years ended
December 31, 1994 through 1998 which have been derived from our consolidated
financial statements which have been audited by Arthur Andersen LLP, independent
public accountants, and which, in the case of the three years ended December 31,
1998, are included elsewhere in this prospectus. The table also includes data as
of and for the six fiscal months ended July 3, 1998 and July 2, 1999 which have
been derived from our unaudited consolidated financial statements included
elsewhere in this prospectus and which, in our opinion, reflect all material
adjustments of a normal and recurring nature necessary for a fair presentation
of the data. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" below and our consolidated financial statements and
the accompanying notes.
<TABLE>
<CAPTION>
SIX FISCAL MONTHS ENDED
------------------------- YEARS ENDED DECEMBER 31,
JULY 2, JULY 3, ----------------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
----------- ----------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales.................... $ 156,832 $ 135,981 $ 282,849 $ 167,412 $ 124,486 $ 92,802 $ 82,341
Cost of sales................ 100,524 88,481 177,094(1) 111,044(1) 86,021 63,990 58,011
---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit................. 56,308 47,500 105,755(1) 56,368(1) 38,465 28,812 24,330
Selling, general, and
administrative expenses.... 40,077 35,706 73,721(1) 36,761(1) 23,637 18,698 16,722
Amortization of goodwill and
intangibles................ 1,183 1,032 2,213 1,885 1,749 1,491 1,305
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income from operations....... 15,048 10,762 29,821 17,722 13,079 8,623 6,303
Interest expense, net........ 6,024 5,814 11,703 5,556 4,829 4,231 6,017
Other expense (income),
net........................ 85 (1) (202) (64) 96 (3) 873
Provision (benefit) for
income taxes............... 4,023 2,227 8,244 5,277 3,538 690(2) 95(2)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before
extraordinary items........ 4,916 2,722 10,076 6,953 4,616 3,705 (682)
Extraordinary items, net of
tax........................ -- -- -- -- (2,314)(3) -- 31,354(4)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income................... $ 4,916 $ 2,722 $ 10,076 $ 6,953 $ 2,302 $ 3,705 $ 30,672
========== ========== ========== ========== ========== ========== ==========
Net income available to
common shareholders........ $ 4,916 $ 2,722 $ 10,076 $ 6,953 $ 2,302 $ 71 $ 30,175
========== ========== ========== ========== ========== ========== ==========
Basic income (loss) per share
before extraordinary
items...................... $ 0.83 $ 0.47 $ 1.72 $ 1.22 $ 1.02 $ 0.02 $ (0.34)
Basic net income per share... $ 0.83 $ 0.47 $ 1.72 $ 1.22 $ 0.51 $ 0.02 $ 15.18
Basic weighted average common
and common share
equivalents
outstanding(5)............. 5,946,144 5,782,528 5,867,338 5,703,601 4,547,527 2,990,847 1,766,700
Diluted income (loss) per
share before extraordinary
items...................... $ 0.79 $ 0.45 $ 1.65 $ 1.17 $ 0.94 $ 0.02 $ (0.58)
Diluted net income per
share...................... $ 0.79 $ 0.45 $ 1.65 $ 1.17 $ 0.47 $ 0.02 $ 14.93
Diluted weighted average
common and common share
equivalents
outstanding(5)............. 6,185,426 6,011,089 6,098,205 5,933,244 4,925,464 3,558,908 2,020,717
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF DECEMBER 31,
------------------------- ---------------------------------------------------
JULY 2, JULY 3,
1999 1998 1998 1997 1996 1995 1994
----------- ----------- -------- -------- -------- -------- -------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............................. $275,777 $252,348 $253,620 $226,930 $107,835 $103,860 $72,371
Long-term debt (including current
portion)............................... 137,749 130,471 118,205 120,236 34,769 53,012 24,448
Shareholders' equity..................... 79,388 67,351 74,588 60,529 52,872 27,485 27,674
</TABLE>
- ---------------
(1) We made a reclassification to the 1998 and 1997 amounts to conform to the
1999 presentation.
(2) In 1994, the provision for income taxes related to alternative minimum
taxes. In 1995, the provision for income taxes was reduced to reflect the
utilization of net operating losses.
(3) During June 1996, we prepaid our $40,000 unsecured senior promissory notes.
In conjunction therewith, we paid a prepayment premium of $2,400 and
expensed unamortized financing costs of $795 and debt discount of $538. We
recorded an extraordinary loss of $2,314, net of an income tax effect of
$1,419. We funded this repayment with $23,041 in proceeds from our initial
public stock offering and $19,359 from our credit facility.
(4) In May 1994, we recorded an extraordinary gain of $31,354, net of an income
tax effect of $92, and paid $14,631 of accrued and unpaid interest as a
result of an agreement to restructure our senior debt. We had defaulted on
certain financial covenants in that debt in December 1992 and were unable to
make payments of principal and interest as they came due. From December 1992
to May 1994, we accrued additional penalty interest on that debt.
(5) Basic net income per share is computed by dividing net income available to
common shareholders by the weighted average number of common shares
outstanding during the year. Diluted net income per share is computed by
dividing net income available to common shareholders by the weighted average
number of common and common share equivalents outstanding during the year.
Common share equivalents include the number of shares issuable upon the
exercise of outstanding options and warrants, less the shares that could be
purchased with the proceeds from the exercise of the options and warrants,
based on the average trading price of our common shares for 1998, 1997 and
1996 and the initial public offering price of $13.00 per share for 1995 and
1994. Common equivalent shares are excluded in periods with a net loss
available to common shareholders. See Note 3(h) to our consolidated
financial statements.
16
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We believe we are the largest North American manufacturer and distributor
of metal accessories and forms used in concrete construction and of metal
accessories used in masonry construction. Although almost all of our products
are used in concrete or masonry construction, the function and nature of the
products differ widely. We have four principal operating divisions, which are
organized around the following product lines:
- Concrete Accessories;
- Concrete Forming Systems;
- Paving Products; and
- Masonry Products.
Through our divisions, we design, manufacture and distribute metal
accessories to independent distributors for resale to contractors, brokers and
other manufacturers. In some of our product lines we also may sell directly to
end users and may provide equipment for rental. When our business was started in
1924, it consisted primarily of the concrete accessories business and operated
primarily in the eastern United States. In 1982, we acquired Superior Concrete
Accessories, Inc., which expanded our geographic reach to include the rest of
the continental United States and doubled the size of our company. In 1995, we
acquired our masonry products division through the acquisition of Dur-O-Wal,
which we believe is the leading domestic manufacturer of masonry wall
reinforcement products and other metal masonry accessories. In 1996, we created
a separate paving products division to operate a business which previously was
part of our concrete accessories division. In 1997, we again doubled our size
when we acquired our concrete forming systems division and added to our concrete
accessories division through the acquisition of Symons Corporation. With the
addition of Symons, we also approximately doubled the number of our distribution
and manufacturing locations. We believe that Symons is the leading domestic
manufacturer of concrete forming systems. We also have expanded some of our
divisions through additional smaller acquisitions. Each of our businesses are
subject to seasonal and cyclical fluctuations in revenues.
Unless otherwise indicated, the discussion of our results of operations
that follows includes information for Symons, Dur-O-Wal and the other
acquisitions only from the dates that we acquired each of those companies.
CONCRETE ACCESSORIES (DAYTON/RICHMOND(R))
Our concrete accessories division derives its revenues from the sale of
products primarily to independent distributors. We also provide some equipment
on a rental basis. Our concrete accessories division manufactures substantially
all of the products it sells, which are shipped to customers based on orders. We
design and manufacture or customize most of the machines we use to produce
concrete accessories, and these proprietary designs allow for quick changeover
of machine set-ups. This flexibility, together with our extensive distribution
system, enable this division to deliver many of its products within 24 hours of
a customer order. Therefore, product inventories are maintained at relatively
low levels. Cost of sales for our concrete accessories division consists
primarily of purchased steel, as well as the costs associated with manufacture,
assembly, testing, internal shipping and associated overhead.
CONCRETE FORMING SYSTEMS (SYMONS(R))
Our concrete forming systems division derives its revenues from the sale
and rental of highly engineered, reusable modular systems to independent
distributors and contractors. Sales of concrete forming systems generally
represent approximately two-thirds of the revenues of this division, and rentals
represent the remaining one-third. Sales of concrete forming systems generally
are more sensitive to economic cycles than rentals. Rental equipment also can be
sold as used equipment. The division's products include systems with steel
frames and a plywood face, also known as Steel-Ply(R), and systems that use
steel in both the frame and face. All-steel forming systems are characterized by
larger, project driven orders, which increases backlog relative to the
Steel-Ply(R) forms which are held in inventory for rental and sale. Our concrete
forming systems
17
<PAGE> 24
division manufactures and assembles Steel-Ply(R) forms and outsources some of
the manufacturing involved in all-steel forms. This outsourcing strategy allows
us to fulfill larger orders without increased overhead. Cost of sales for our
concrete forming systems division consists primarily of purchased steel and
specialty plywood, depreciation and maintenance of rental equipment, as well as
the costs associated with manufacturing, assembly and overhead.
PAVING PRODUCTS (AMERICAN HIGHWAY
TECHNOLOGY(R))
Our paving products division derives its revenues from sales to independent
distributors and contractors. Orders from customers are affected by state and
local governmental infrastructure expenditures and their related bid processes.
This is our division most affected by the demand expected to be generated as a
consequence of TEA-21. Due to the project-oriented nature of paving jobs, these
products generally are made to order. This serves to keep inventories low but
increases the importance of backlog in this division. Our paving products
division manufactures nearly all of its products. Cost of sales for our paving
products division consists primarily of steel, as well as the costs associated
with manufacturing and overhead.
MASONRY PRODUCTS (DUR-O-WAL(R))
Our masonry products division derives its revenues from sales to
independent distributors and brick and concrete block manufacturers who package
our products with other products for resale to customers. Our masonry products
division sells two principal categories of products: new construction products
and restoration and repair products. New construction products are used to
strengthen masonry walls or the connection between masonry and other portions of
the wall at the time a building is constructed. Restoration and repair products
are used to refurbish masonry and brick buildings and strengthen connections
between masonry and the interior portions of the wall and are more highly
engineered and generally generate higher margins than new construction products.
We maintain adequate inventories of finished product to meet ongoing demand. The
masonry products division manufactures and assembles the majority of its
products before shipping to customers based on orders. Cost of sales for the
masonry products division consists primarily of steel, as well as costs
associated with manufacture and overhead.
18
<PAGE> 25
RESULTS OF OPERATIONS
The following table summarizes our results of operations as a percentage of
net sales for the periods indicated:
<TABLE>
<CAPTION>
SIX FISCAL
MONTHS ENDED
------------------------- YEARS ENDED DECEMBER 31,
JULY 2, JULY 3, ---------------------------------------
1999 1998 1998 1997 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold........... 64.1 65.1 62.6(1) 66.3(1) 69.1
----- ----- ----- ----- -----
Gross profit................. 35.9 34.9 37.4(1) 33.7(1) 30.9
----- ----- ----- ----- -----
Selling, general and
administrative expenses.... 25.6 26.3 26.1(1) 22.0(1) 19.0
Amortization of goodwill and
intangibles................ 0.7 0.7 0.8 1.1 1.4
----- ----- ----- ----- -----
Total selling, general and
administrative expenses.... 26.3 27.0 26.9 23.1 20.4
----- ----- ----- ----- -----
Operating income............. 9.6 7.9 10.5 10.6 10.5
Interest expense, net........ 3.9 4.3 4.1 3.3 3.9
Other income, net............ -- -- (0.1) -- --
----- ----- ----- ----- -----
Income before income taxes
and extraordinary item..... 5.7 3.6 6.5 7.3 6.6
Provision (benefit) for
income taxes............... 2.6 1.6 2.9 3.1 2.9
----- ----- ----- ----- -----
Income before extraordinary
item....................... 3.1 2.0 3.6 4.2 3.7
Extraordinary item, net of
tax........................ -- -- -- -- (1.9)(2)
----- ----- ----- ----- -----
Net income................. 3.1% 2.0% 3.6% 4.2% 1.8%
===== ===== ===== ===== =====
</TABLE>
- ---------------
(1) We made a reclassification to the 1998 and 1997 amounts to conform to the
1999 presentation.
(2) In June 1996, we extinguished debt creating an extraordinary loss of $2.3
million, net of tax effect.
19
<PAGE> 26
COMPARISON OF SIX FISCAL MONTHS
ENDED JULY 2, 1999 AND JULY 3, 1998
Net Sales
Net sales increased $20.9 million, or 15.3%, to $156.8 million in the first
half of 1999 from $136.0 million in the first half of 1998.
The following table summarizes our net sales by segment for the periods
indicated:
<TABLE>
<CAPTION>
SIX FISCAL MONTHS ENDED
-----------------------------------
JULY 2, 1999 JULY 3, 1998
---------------- ----------------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
NET NET %
SALES % SALES % CHANGE
-------- ----- -------- ----- --------
<S> <C> <C> <C> <C> <C>
Concrete accessories....... $ 72,538 46.3% $ 64,136 47.2% 13.1%
Concrete forming systems... 58,168 37.1 49,316 36.2 17.9
Paving products............ 17,738 11.3 16,195 11.9 9.5
Masonry products........... 13,142 8.4 10,982 8.1 19.7
Intersegment
eliminations............. (4,754) (3.1) (4,648) (3.4) 2.3
-------- ----- -------- -----
Net sales............. $156,832 100.0% $135,981 100.0% 15.3%
======== ===== ======== =====
</TABLE>
Net sales of concrete accessories increased by 13.1% to $72.5 million in
the first half of 1999 from $64.1 million in the first half of 1998, due to the
contribution of Cempro, increases in volume and new product initiatives. Net
sales of concrete forming systems were $58.2 million for the first half of 1999
compared to $49.3 million in the first half of 1998, due to the net sales of the
acquired Symons Concrete Forms and Northwoods businesses and, to a lesser
extent, increased volume. Net sales of paving products increased $1.5 million,
or 9.5%, in the first half of 1999 compared to the first half of 1998 due to an
increase in volume. Net sales of masonry products increased $2.2 million, or
19.7%. This was due to strategic pricing initiatives as well as a shift of
resources to higher margin engineered products.
Gross Profit
Gross profit for the first half of 1999 was $56.3 million, an 18.5%
increase from $47.5 million in the first half of 1998, due primarily to
increased sales. Gross margin was 35.9% in the first half of this year,
increasing from 34.9% last year due primarily to higher manufacturing
efficiencies in concrete accessories, the shift to higher margin engineered
products in the masonry products division.
Operating Expenses
Selling, general and administrative expenses, including amortization of
goodwill and intangibles, also know as SG&A expenses, increased $4.5 million to
$41.3 million in the first half of 1999, from $36.7 million in the first half of
1998, due to the acquisitions and higher volume. Additionally, we recorded a
$0.7 million non-recurring pension plan termination gain. SG&A expenses were
lower as a percent of net sales, from 27.0% in the first half of 1998 to 26.7%
without the pension gain in the first half of 1999, due to increased net sales,
partially offset by increases in new product development and sales personnel.
Interest Expense
Interest expense increased from $5.8 million in the first half of 1998 to
$6.0 million in the first half of 1999, due to increased long-term debt
resulting from the acquisition of Cempro and working capital growth, partially
offset by lower interest rates.
20
<PAGE> 27
Income Before Income Taxes
Income before income taxes in the first half of 1999 increased to $8.9
million from $4.9 million in the first half of 1998, and was comprised of the
following:
<TABLE>
<CAPTION>
SIX FISCAL MONTHS ENDED
------------------------------
JULY 2, JULY 3,
1999 1998
------------- -------------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Concrete accessories............................ $9,608 $7,320
Concrete forming systems........................ 3,268 1,943
Paving products................................. 451 893
Masonry products................................ 140 (469)
Intersegment eliminations....................... (2,398) (2,248)
Corporate....................................... (2,130) (2,490)
------ ------
Income before income taxes...................... $8,939 $4,949
====== ======
</TABLE>
Concrete accessories' income before income taxes of $9.6 million in the
first half of 1999 increased 31.3% from $7.3 million in the first half of 1998
due primarily to the increase in net sales and manufacturing efficiencies.
Concrete forming systems' income before income taxes was $3.3 million in the
first half of 1999 compared to $1.9 million in the first half of 1998 due to the
increased sales. Income before income taxes from paving products decreased to
$0.5 million in the first half of 1999 from $0.9 million in the first half of
1998 due to increases in personnel made in anticipation of the growth of the
business as a result of TEA-21. Income before income taxes from masonry products
was $0.1 million in the first half of 1999 compared to ($0.5) million in the
first half of 1998 due to higher net sales and the shift to higher gross margin
engineered products. Corporate expenses decreased to $2.1 million from $2.5
million primarily due to the non-recurring pension gain, partially offset by the
full six month effect of 1998 personnel additions. Elimination of profit on
intersegment sales was $2.4 million in the first half of 1999 as compared to
$2.2 million in the first half of 1998.
Net Income
The effective tax rate remained flat at 45.0% in the first half of 1999
compared to the first half of 1998. Net income for the first half of 1999 was
$4.9 million, or $0.83 per basic and $0.79 per diluted share, compared to $2.7
million, or $0.47 per basic and $0.45 per diluted share, in the first half of
1998. Without the pension gain, net income per diluted share in the first half
of 1999 was $0.72, a 60% increase from the first half of 1998.
21
<PAGE> 28
COMPARISON OF YEARS ENDED
DECEMBER 31, 1998 AND 1997
Net Sales
Our 1998 net sales were a record $282.8 million, a 69.0% increase from
$167.4 million in 1997 and a 12.1% increase from pro forma 1997 sales
of $252.3 million as if Symons had been acquired on January 1, 1997.
The following table summarizes our net sales by segment for the periods
indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1998 1997
----------------- -----------------
(IN THOUSANDS)
NET NET %
SALES % SALES % CHANGE
-------- ----- -------- ----- --------
<S> <C> <C> <C> <C> <C>
Concrete accessories........ $131,467 46.4% $ 92,251 55.1% 42.5%
Concrete forming systems.... 104,711 37.0 21,066 12.6 397.1
Paving products............. 30,967 11.0 29,177 17.4 6.1
Masonry products............ 24,292 8.6 24,918 14.9 (2.5)
Intersegment eliminations... (8,588) (3.0) -- -- --
-------- ----- -------- -----
Net sales.............. $282,849 100.0% $167,412 100.0% 69.0%
======== ===== ======== =====
</TABLE>
Concrete accessories' net sales increased by 42.5% from $92.2 million in
1997 to $131.4 million in 1998, due to a full year's net sales resulting
primarily from the Richmond Screw Anchor division of Symons. Concrete forming
systems net sales increased from $21.1 million in 1997 to $104.7 million in 1998
due to a full year's net sales resulting from the acquisition of Symons. Net
sales of paving products increased by 6.1% to $31.0 million in 1998 from $29.2
million in 1997 due to increased market gains. Net sales of masonry accessories
decreased to $24.3 million in 1998 from $24.9 million in 1997, due to a high
level of competition in the hot dipped and mill galvanized masonry wall
reinforcement product markets, which was somewhat offset by a shift to higher
margin, lower volume engineered products.
Gross Profit
Gross profit for 1998 was $105.8 million, an 87.6% increase over $56.4
million for 1997. Gross margin was 37.4% in 1998 compared to 33.7% in 1997.
Gross margin increased primarily due to the inclusion of the Symons business for
a full year as concrete forming systems have higher gross margins, primarily due
to rental revenues, than our other product lines.
Operating Expenses
Our SG&A expenses increased from $38.6 million in 1997 to $75.9 million in
1998. The increase is due to a full year of expenses resulting from the
acquisition of Symons. SG&A expenses increased as a percent of sales from 23.1%
in 1997 to 26.9% in 1998, due to concrete forming systems having a higher
percentage of SG&A expenses to net sales than our other operating segments.
22
<PAGE> 29
This reflects the additional distribution costs associated with the management
of the rental equipment fleet.
Interest Expense
Interest expense increased to $11.7 million in 1998 from $5.6 million in
1997 due primarily to the full year effect of higher debt resulting from the
Symons acquisition, and to a lesser extent, higher capital expenditures.
Income Before Income Taxes
Income before income taxes in 1998 increased 49.8% to a record $18.3
million from $12.2 million in 1997, and was comprised of the following:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Concrete accessories...................................... $19,387 $13,723
Concrete forming systems.................................. 6,133 364
Paving products........................................... 1,677 1,377
Masonry products.......................................... 487 5
Intersegment eliminations................................. (4,153) --
Corporate................................................. (5,211) (3,239)
------- -------
Income before income taxes................................ $18,320 $12,230
======= =======
</TABLE>
Concrete accessories' income before income taxes of $19.4 million in 1998
increased 41.3% from $13.7 million due primarily to the increase in concrete
accessories' net sales. Concrete forming systems' income before income taxes of
$6.1 million in 1998 increased from $0.4 million in 1997 due primarily to the
full year effect of the acquisition of Symons. Income before income taxes from
paving products increased to $1.7 million, or 5.5% of net sales, in 1998 from
$1.4 million, or 4.8% of net sales in 1997 due to higher net sales. Income
before income taxes from masonry products was $0.5 million in 1998 compared to
virtually breakeven in 1997, despite the decrease in net sales, due to a shift
to higher margin, lower volume engineered products. Corporate expenses
increased to $5.2 million from $3.2 million
primarily due to the addition of personnel in the finance, treasury, tax,
purchasing, logistics and corporate development functions. Elimination of profit
on intersegment sales was $4.2 million in 1998.
Net Income
Our effective tax rate in 1998 was 45.0%, or $8.2 million, compared to a
rate of 43.1%, or $5.3 million, in 1997. Nondeductible goodwill amortization and
state and local taxes caused our effective tax rate to exceed federal statutory
levels. Net income increased $3.2 million to $10.1 million in 1998 from $6.9
million in 1997 due to the factors described above.
23
<PAGE> 30
COMPARISON OF YEARS ENDED
DECEMBER 31, 1997 AND 1996
Net Sales
Our 1997 net sales reached a record of $167.4 million, a 34.5% increase
from $124.5 million in 1996.
The following table summarizes our net sales by segment for the periods
indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1997 1996
----------------- -----------------
(IN THOUSANDS)
NET NET %
SALES % SALES % CHANGE
-------- ----- -------- ----- --------
<S> <C> <C> <C> <C> <C>
Concrete accessories........ $ 92,251 55.1% $ 76,637 61.6% 20.4%
Concrete forming systems.... 21,066 12.6 -- -- --
Paving products............. 29,177 17.4 21,930 17.6 33.0
Masonry products............ 24,918 14.9 25,919 20.8 (3.9)
-------- ----- -------- -----
Net sales.............. $167,412 100.0% $124,486 100.0% 34.5%
======== ===== ======== =====
</TABLE>
Concrete accessories net sales increased by 20.4% from $76.7 million in
1996 to $92.2 million in 1997, due to the addition of the Richmond Screw Anchor
division of Symons for three
months, which contributed 38.0% of the increase. Additionally, strong heavy
construction activity in the U.S. and new product sales of concrete accessories
also contributed to the increased net sales. Net sales of paving products
increased by 33.0% to $29.2 million in 1997 from $21.9 million in 1996 due to
the acquisition of Ironco, a full year's net sales resulting from the
acquisition of Steel Structures, and an increased presence in the market place.
Net sales of masonry accessories were $24.9 million for 1997 versus $25.9
million in 1996. Competition continued at a high level in the hot dipped and
mill galvanized masonry wall reinforcement product markets. Concrete forming
systems net sales were $21.1 million in 1997 as a result of the acquisition of
Symons at the beginning of the fourth quarter of 1997.
Gross Profit
Gross profit for 1997 was $56.4 million, a 46.5% increase over $38.5
million for 1996. Gross margin was 33.7% in 1997 compared to 30.9% in 1996. The
gross margin increased primarily as a result of the inclusion of the sales of
Symons in the fourth quarter, as concrete forming systems have higher gross
margins, primarily due to rental revenues, than our other product lines. The
increase in gross profit dollars is attributable to the fourth quarter
contribution of Symons, and, to a lesser extent, improved selling prices and a
shift in sales mix in favor of higher margin products in our concrete
accessories business. Continued investments in fixed assets also added to gross
margin in 1997 by allowing us to reduce our manufacturing costs. We also
continued our focus on cost improvement programs.
Operating Expenses
SG&A expenses increased $13.2 million, or 52.2%, from $25.4 million in 1996
to $38.6 million in 1997. Approximately 70% of the increase resulted from the
acquisition of Symons. SG&A expenses also were up due to the acquisition of
Ironco, management personnel relocations, and integration costs from the Symons
acquisition. SG&A expenses were up as a percent of sales from 20.4% in 1996 to
23.1% in 1997, due to concrete forming systems having a higher percentage of
SG&A expenses to net sales than our other businesses.
Interest Expense
Interest expense increased 15.1% to $5.6 million in 1997 from $4.8 million
in 1996 due to higher debt resulting from the Symons acquisition. Additionally,
deferred financing costs of
24
<PAGE> 31
$0.3 million related to the previous credit facility were expensed. The lower
average debt outstanding in the first three quarters of 1997 and the lower
interest rates obtained in the June 1996 debt restructuring were offset by the
increased long-term debt for the Symons acquisition.
Income Before Income Taxes
Income before income taxes in 1997 increased 50.0% to $12.2 million from
$8.2 million in 1996, and was comprised of the following:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------
1997 1996
------- ------
(IN THOUSANDS)
<S> <C> <C>
Concrete accessories....................................... $13,723 $9,477
Concrete forming systems................................... 364 --
Paving products............................................ 1,377 906
Masonry products........................................... 5 601
Corporate.................................................. (3,239) (2,830)
------- ------
Income before income taxes................................. $12,230 $8,154
======= ======
</TABLE>
Concrete accessories' income before income taxes of $13.7 million in 1997
increased 44.8% from $9.5 million due primarily to the increase in concrete
accessories net sales. Concrete forming systems' income before income taxes was
$0.4 million for the three months following the acquisition of Symons. Income
before income taxes in 1997 from paving products increased to $1.4 million, or
4.8% of net sales, from $0.9 million, or 4.1% of net sales, in 1996 due to the
increase in net sales. Income before income taxes from masonry products was
virtually breakeven in 1997 compared to income before income taxes of $0.6
million in 1996 due to the decrease in net sales. Corporate expenses increased
to $3.2 million in 1997 from $2.8 million in 1996 due to the hiring of an
additional financial officer in December 1996 and the full year effect of
directors and officers insurance and other expenses related to being a public
company.
Net Income
The effective tax rate in 1997 was 43.1%, or $5.3 million, compared to a
rate of 43.4%, or $3.5 million, in 1996. Nondeductible goodwill amortization and
state and local taxes caused our effective tax rate to exceed federal statutory
levels.
As described in Note 4 to our consolidated financial statements, we prepaid
certain indebtedness in June 1996 that resulted in an extraordinary charge of
$2.3 million. Net income increased $4.7 million to $7.0 million in 1997 from
$2.3 million in 1996 due to the factors described above.
LIQUIDITY AND CAPITAL RESOURCES
Our key statistics for measuring liquidity and capital resources are net
cash provided by operating activities, capital expenditures, debt to total
capitalization ratio, amounts available under our revolving credit facility and
cash gap. We define cash gap as the number of days our accounts receivable are
outstanding plus the number of days of inventory we have, less the number of
days our accounts payable are outstanding.
Our capital requirements relate primarily to capital expenditures, debt
service and the cost of acquisitions. Historically, our primary sources of
financing have been cash generated from operations, borrowings under our
revolving credit facility and the issuance of long-term debt and equity.
Net cash provided by operating activities for 1998 was $19.6 million.
Sources of operating cash flow for 1998 were comprised of:
- $10.1 million in net income;
- $6.6 million in non-cash reductions of net income; and
- $2.9 million of working capital changes.
25
<PAGE> 32
This cash was used for:
- net capital expenditures of $12.9 million;
- acquisitions of $1.8 million; and
- repayment of long-term debt of
$4.3 million.
Capital expenditures in 1998 included net additions to the rental equipment
fleet of $6.8 million to support the growth of our concrete forming systems
division and, to a lesser extent, our concrete accessories division, as well as
property, plant and equipment additions of $7.2 million as we continued to focus
on cost improvement programs. Proceeds from sales of property, plant and
equipment of $1.1 million related to the sales of duplicate facilities as a
result of the acquisition of Symons. We anticipate that our net capital
expenditures in each of 1999 and 2000 will be comparable to 1998.
At July 2, 1999, our working capital was $62.2 million, compared to $44.7
million at December 31, 1998. The growth in our working capital is primarily
attributable to seasonal growth as the summer construction season begins.
At July 2, 1999, all of our $50.0 million revolving credit facility was
available, of which $32.6 million was outstanding. The aggregate outstanding
amount of the term loans under our credit agreement at July 2, 1999 was $100.0
million. We also had other long-term debt, consisting of a $5.0 million note we
owed to one of the former stockholders of Symons and $200,000 we owed to the
City of Parsons, Kansas. At July 2, 1999, we had a total of $137.7 million of
long-term debt outstanding, of which $32,000 was current. Our debt to total
capitalization ratio increased to 63.2% as of July 2, 1999 from 61.3% as of
December 31, 1998 due to our purchase of the Cempro business and due to the
normal seasonal increase in our long-term debt.
For 1998, our average net cash gap days were 79, as compared to 70 for
1997, due to the effects of the acquisition of Symons, which has higher average
cash gap days.
We believe our liquidity, capital resources and cash flows from operations
are sufficient, in the absence of additional acquisitions, to fund the capital
expenditures we have planned and our working capital and debt service
requirements.
We intend to fund future acquisitions with cash, securities or a
combination of cash and securities. To the extent we use cash for all or part of
any future acquisitions, we expect to raise the cash primarily from our business
operations, from borrowings under our credit agreement or, if feasible and
attractive, by issuing long-term debt or selling additional common shares.
SEASONALITY
Our operations are seasonal with approximately 60% of our sales
historically occurring in the second and third quarters of the year. Our working
capital and borrowings fluctuate with the volume of our sales. Historically,
more than 50% of our annual cash flow from operations is generated in the fourth
quarter.
INFLATION
We do not believe inflation has had a significant impact on our operations
over the past two years. In the past, we have been able to pass along all or a
portion of increases in the price of steel (our principal raw material). We may
not be able to pass on steel price increases in the future.
YEAR 2000
Certain software and hardware systems are date sensitive. Older date
sensitive systems often use a two digit dating convention ("00" rather than
"2000") that could result in system failure and disruption of operations as the
year 2000 approaches. This is referred to as the "Year 2000" issue. The Year
2000 issue will impact us, our suppliers, our customers and others with whom we
transact business.
We have a Year 2000 compliance team. This team is reviewing substantially
all hardware and software systems we use, the products we sell and significant
suppliers and others with whom we transact business. We have established
projects to address all significant Year 2000 issues that we have identified in
our review. The Year 2000 team reports regularly to our senior management on the
progress of significant Year 2000 projects. Our senior management reports to the
Board of Directors concerning our progress with Year 2000 projects.
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Our compliance review has involved testing of our hardware and software
systems, including non-information technology systems such as telephones and
Computer Numerically Controlled machines. We have determined that we need to
replace or modify some of our software and hardware systems, and we are in the
process of replacing or upgrading the systems which we have identified as having
Year 2000 issues.
We believe that we have no material exposure to contingencies related to
Year 2000 issues concerning our products since almost none of our products
contain time sensitive hardware or software systems.
We have initiated communications with our significant suppliers, customers
and others to identify and minimize the possibility of disruptions to our
operations and to assist in resolving Year 2000 issues. We have given particular
attention to those suppliers who may be our only source for certain products or
components. Approximately 85% of the parties we have contacted have responded
indicating their Year 2000 readiness. We are diligently attempting to obtain
responses from the remaining parties who have not responded and to clarify the
readiness of those parties whose responses were not clear. Nevertheless, there
can be no certainty that the systems and products of other parties on whom we
rely will be Year 2000 compliant. We also have given particular attention to our
customers and their ability to communicate orders and pay for goods received.
Our estimates of our Year 2000 costs are based on numerous assumptions, and
our actual costs could be greater than our estimates. A few of the specific
factors that might cause such differences are the continuing availability of
personnel trained in this area, our ability to identify and correct all relevant
software and hardware systems on a timely basis and the success of our suppliers
in addressing their own Year 2000 issues. To date, we have incurred $862,000 in
costs, of which $782,000 was capitalized and $80,000 was expensed. These costs
were to replace existing hardware and third party software and professional fees
for external assistance. We estimate that our future cost to resolve remaining
Year 2000 issues is approximately $58,000, of which we expect $48,000 to be
capitalized and $10,000 to be expensed. These costs are to replace or upgrade
existing hardware and third party software, including professional fees for
external assistance.
We believe that we are diligently addressing the Year 2000 issues and that
we will satisfactorily resolve all significant internal Year 2000 problems. We
successfully completed tests of our integrated systems in the fourth quarter of
1998 and the second quarter of 1999. We completed substantially all of our major
Year 2000 projects by the end of the second quarter of 1999. We will continue to
focus internal resources on ongoing contingency planning throughout the balance
of 1999.
We believe that the most reasonably likely worst case scenario for us would
be related to the lack of success of third party vendors in addressing their own
Year 2000 issues, particularly suppliers who are our only source, such as local
electricity providers. If one of our facilities is unable to manufacture
products due to a lack of electricity, our contingency plans include the
transfer of production orders to other facilities. We believe that the impact on
us would not be significant due to the seasonal capacity that we have in
January.
RECENTLY ISSUED ACCOUNTING STANDARDS
In July 1997, the FASB issued Statement No. 131, "Disclosures About
Segments of an Enterprise and Related Information." Statement 131 introduced a
new model for segment reporting, called the "management approach." The
management approach is based on the way that the chief operating decision maker
organizes segments within a company for making operating decisions and assessing
performance. Reportable segments are based on products and services, geography,
legal structure, management structure -- any manner in which management
disaggregates a company. The management approach replaces the notion of industry
and geographic segments in current FASB standards. We adopted SFAS 131 for our
1998 financial statements. See Note 9 to our consolidated financial statements.
In February 1998, the FASB issued Statement No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits" Statement 132
amends the disclosures required for pensions and other postretirement benefits.
We have adopted Statement No. 132. See Note 7 to our consolidated financial
statements and "Quantita-
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tive and Qualitative Disclosures About Market Risk" below.
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires companies to recognize all
derivative contracts at their fair values, as either assets or liabilities on
the balance sheet. Our only derivatives are our interest rate swap agreements.
Changes in the fair value of the swaps would be recorded each period as an
adjustment to interest expense. We do not expect the adoption of SFAS No. 133 to
have a material impact on the consolidated statements of income. In June 1999,
the FASB issued Statement No. 137, which amended SFAS No. 133 such that the
effective date of adoption will be for all fiscal quarters beginning after June
15, 2000. We do not intend to adopt SFAS No. 133 prior to its effective date.
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
As of July 2, 1999, we had financial instruments which were sensitive to
changes in interest rates. These financial instruments consisted of:
- $50.0 million revolving credit facility, of which $32.6 million was
outstanding;
- $100.0 million term loan;
- $5.2 million in other fixed-rate, long-term debt; and
- variable-to-fixed interest rate swaps on $50.0 million of the term loan.
Our revolving credit facility terminates in 2002 and has several interest
rate options which re-price on a short-term basis. Accordingly, the fair value
of the revolving credit facility as of July 2, 1999 approximated its $32.6
million face value. The weighted average interest rate at July 2, 1999 was 6.6%.
Our $100.0 million term loan is due in 2005. The term loan permits us to
choose from various interest rate options which re-price on a short-term basis.
Accordingly, the fair value of the term loan as of July 2, 1999 approximated its
face value. The term loan had a weighted average interest rate of 8.4% at July
2, 1999.
Our other long-term debt at July 2, 1999 consisted of a $5.0 million, 10.5%
note payable due in 2004 with an estimated fair value of $5.5 million and a $0.2
million, 7.0% loan due in installments of $31,500 per year with an estimated
fair value as of July 2, 1999 of $0.2 million.
We have two interest rate swap agreements on a total of $50.0 million of
our term loan that fixed the LIBOR-based component of the interest rate formula
(as required by our credit agreement). The swaps have a fixed 90-day LIBOR
component of 6.3% and expire on November 1, 2000. The 90-day LIBOR as of July 2,
1999 was 5.3%. These swaps are contracts to exchange floating rate for fixed
rate interest payments without the exchange of underlying amounts. The estimated
fair value of the interest rate swaps as of July 2, 1999 was a liability of $0.5
million.
In the ordinary course of our business, we also are exposed to price
changes in raw materials (particularly steel rod) and products purchased for
resale. The prices of these items can change significantly due to changes in the
markets in which our suppliers operate. We generally do not, however, use
financial instruments to manage our domestic or international exposure to
changes in commodity prices.
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BUSINESS
OVERVIEW
We believe we are the largest North American manufacturer and distributor
of metal accessories and forms used in concrete construction and of metal
accessories used in masonry construction. Our products are used primarily in
non-residential and infrastructure construction projects. We have four principal
operating divisions, which are organized around the following product lines:
- Concrete Accessories (Dayton/Richmond(R))
- Concrete Forming Systems (Symons(R))
- Paving Products (American Highway Technology(R))
- Masonry Products (Dur-O-Wal(R))
Collectively, we sell over 18,000 discrete products under a number of brand
names that are well recognized in the construction industry.
BUSINESS STRENGTHS
We believe we have the following competitive advantages:
Industry Leader. We believe we are the leading North American provider of
concrete wall forming accessories, concrete wall tilt-up braces, concrete
forming systems, concrete paving load transfer devices and masonry wall
reinforcement products. We believe this market share leadership allows us to
attract and maintain customers who prefer to deal with a "one-stop" supplier. In
addition, our size allows us to achieve purchasing economies and also allows us
to distribute acquired product lines efficiently and effectively.
Leadership in Manufacturing Efficiency. We design and build or customize
much of the equipment we use to manufacture our products. These proprietary
designs would be difficult for a competitor to duplicate cost effectively. By
developing our own automatic, high-speed manufacturing equipment, we believe we
generally have achieved significantly greater productivity, lower capital
equipment costs, lower scrap rates, higher product quality, faster changeover
times and lower inventory levels than most of our competitors.
Extensive Distribution System. We believe our distribution system is one of
the largest in our industry. We operate a network of 58 service/distribution
centers in the United States and Canada, ten of which also are manufacturing
plants. We serve over 4,000 independent distributors, as well as brokers, rebar
fabricators, precast concrete manufacturers, brick and concrete block
manufacturers, general contractors, subcontractors and metal fabricators. We
also rent forming systems and tilt-up bracing to contractors through rental
centers and distributors nationwide. This extensive network allows us to provide
our products to every major geographic construction market within the
continental United States.
Experienced Management Team. Our management team is one of the most
experienced in the concrete and masonry accessories businesses. Our executive
officers average approximately 20 years of experience in these industries. Our
management team has demonstrated its ability to succeed in each of our business
lines. The senior management team has a strong record of integrating
acquisitions into the organization profitability and efficiently, while
realizing targeted synergies on schedule.
STRATEGY
Our principal business objective is to achieve profitable growth through a
combination of acquisitions and internal operating initiatives. Key elements of
our strategy to achieve our principal business objective are outlined below:
Complete Additional Strategic Acquisitions. We compete in a highly
fragmented market that provides numerous potential acquisition opportunities.
Since the beginning of 1994, we have successfully completed and integrated
eleven strategic acquisitions. We seek additional acquisitions that leverage our
significant economies of scale and manufacturing and distribution expertise.
Most of our acquisition targets are small, privately held producers of one or
two product lines for a single geographic market. In addition, we pursue larger
stand-alone acquisitions in markets that we do not yet serve, but that represent
complementary product line extensions.
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Continue Product Innovation. We have a long and successful history of
innovation and continue to focus significant resources on new product
development. We have benefited from the ability of our engineers and
manufacturing and marketing managers to develop innovative, leading-edge
products and to successfully introduce them to the market. For example, we
recently introduced a post tensioning system for concrete block walls, as well
as a unique wall bracing system for our masonry business.
Continue Efficient Manufacturing and Continuous Improvement Programs. We
continue to implement strategic initiatives designed to reduce manufacturing
costs and improve product quality. To improve our efficiency, we design and
build or customize much of our high-volume, automated manufacturing equipment.
To develop this proprietary equipment, we employ a team of experienced
manufacturing engineers and tool and die makers. Since the beginning of 1994, we
have made over $20 million in capital expenditures, primarily to increase
factory efficiency and upgrade computer systems.
Leverage Our Extensive Distribution System. We use our distribution system
to sell products manufactured by third parties, which enables us to increase our
sales without making significant capital investments. In addition, we leverage
our extensive distribution system by purchasing and licensing new product lines,
and developing new products internally, that can be sold through our
distribution system. For example, our concrete forming systems division
currently is testing two European forming systems for possible introduction into
the United States and our concrete accessories division has negotiated an
exclusive domestic distribution arrangement for a new rebar splicing system
developed in the Far East.
Encourage Decentralized and Entrepreneurial Management. We encourage an
entrepreneurial spirit at each of our divisions. We believe utilizing the
capabilities, customer relationships and market knowledge of our managers is
essential to realizing our growth objectives. We provide managers a high degree
of autonomy in achieving their objectives and we effectively utilize the
managerial talent gained through acquisitions.
INDUSTRY
The construction industry is comprised of three major segments:
- non-residential building projects, such as institutional buildings,
retail sites, commercial offices and manufacturing facilities;
- infrastructure projects, such as highways, bridges, utilities, water and
waste treatment facilities and airport runways; and
- residential building projects, comprised of single- and multi-family
residential units and improvements.
Our products are used primarily in non-residential and infrastructure
construction and to a limited extent in multi-family residential construction.
As a result, we have limited exposure to the single-family construction market.
Historically, based upon the dollar volume of contracts awarded for new
construction starts, infrastructure, non-residential building and multi-family
residential construction, taken together, have been less cyclical than single
family residential
construction.
Non-residential Building Construction. Non-residential building
construction includes institutional buildings (such as government buildings,
schools and hospitals), retail sites, commercial offices and manufacturing
facilities. The institutional construction segment is less cyclical than the
commercial and manufacturing segment because the funding sources for
institutional projects are somewhat independent of the general economy.
Moreover, we believe the effect of a future economic downturn on the commercial
sector has been mitigated to some extent as a result of the significant decline
in commercial vacancy rates.
Infrastructure Construction. This segment of the construction industry is
comprised of construction of highways, bridges, utilities, water and waste
treatment facilities and airport runways. Compared to other segments of the
construction industry, infrastructure construction is less dependent on general
economic conditions, as funding for infrastructure projects often comes from
federal, state and local taxes, user taxes, gasoline taxes and bond issues. In
certain instances, infrastructure spending has increased notwithstanding a soft
economy, as local and federal govern-
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ments attempted to offset recessionary trends. In addition, we believe that the
May 1998 passage of The Transportation Equity Act for the 21st Century, known as
"TEA-21," the largest federal public works legislation in U.S. history, will
have a positive impact on the infrastructure construction segment. TEA-21
authorizes $217 billion in spending for surface transportation through the year
2003 and represents a 40% increase over the 1991 Intermodal Surface
Transportation Act, which was known as "ISTEA." Approximately $174 billion of
the $217 billion has been allocated to highway and bridge programs.
ACQUISITIONS
We believe we have been successful at implementing our acquisition
strategy, having completed and integrated eleven acquisitions since the
beginning of 1994. Although the majority of these acquisitions were small add-on
acquisitions, two of them represented large stand-alone acquisitions that
provided us with access to new markets:
- Our 1995 acquisition of Dur-O-Wal, for which we paid $23.6 million,
established us as a leader in the masonry accessories market; and
- Our 1997 acquisition of Symons, for which we paid $85.0 million (subject
to adjustment), established us as a leader in the prefabricated concrete
forming equipment market.
The following table summarizes the acquisitions that we have made since the
beginning of 1994 in chronological order:
<TABLE>
<CAPTION>
PURCHASE PRICE
YEAR BUSINESS ACQUIRED DIVISION (IN MILLIONS)
- ---- ------------------------------ ------------------------ --------------
<C> <S> <C> <C>
1994 Alpha Rebar Paving Products $ 0.1
1995 C&B Construction Supplies Concrete Accessories 0.2
1995 Dur-O-Wal Masonry Accessories 23.6
1996 Steel Structures Paving Products 5.6
1997 Ironco Paving Products 1.5
1997 Baron Steel Concrete Accessories 0.3
1997 Symons Corporation: 85.0*
Symons Division Concrete Forming Systems
Richmond Screw
Anchor Division Concrete Accessories
1998 Symons Concrete Forms
(formerly known as CAI) Concrete Forming Systems 6.6
1998 Northwoods Concrete Forming Systems 0.8
1998 Secure Paving Products 0.6
1999 Cempro Concrete Accessories 5.4
</TABLE>
- ---------------
*Subject to adjustment
PRODUCTS
Although almost all of our products are used in concrete or masonry
construction, the function and nature of the products differ widely. Most of our
products are consumable, providing us with a source of recurring revenue. In
addition, while our products represent a relatively small portion of a
construction project's total cost, our products assist in ensuring the on-time,
quality completion of those projects. We continually attempt to increase the
number of products we offer by using engineers and product development teams to
introduce new products and refine existing products.
Concrete Accessories. Our concrete accessories division manufactures and
sells concrete accessories primarily under the Dayton/
Richmond(R) brand name. Net sales of our concrete accessories division to
external customers accounted for $128.1 million, or approximately 45%, of our
total 1998 net sales.
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Concrete accessories include:
- Wall-forming products such as shaped metal ties and accessories that are
used with modular forms to hold concrete in place when walls are poured
at a construction site or are prefabricated off site. These products,
which generally are not reusable, are made of wire or plastic or a
combination of both materials. We generally manufacture these products on
customized high-speed automatic equipment.
- Bridge deck products are metal assemblies of varying designs used to
support the formwork used by contractors in the construction and
rehabilitation of bridges.
- Bar supports are non-structural metal or plastic supports used to
position rebar within a horizontal slab or form to be filled with
concrete. Bar supports are often plastic or epoxy coated, galvanized or
equipped with plastic tips to prevent creating a conduit for corrosion of
the embedded rebar.
- Precast and prestressed concrete construction products are metal
assemblies of varying designs used in the manufacture of precast concrete
panels and prestressed concrete beams and structural members. Precast
concrete panels and prestressed concrete beams are fabricated away from
the construction site and transported to the site. Precast concrete
panels are used in the construction of prisons, freeway sound barrier
walls, external building facades and other similar applications.
Prestressed concrete beams use multiple strands of steel under tension
embedded in concrete beams to provide rigidity and bearing strength, and
often are used in the construction of bridges, parking garages and other
applications where long, unsupported spans are required.
- Tilt-up construction products include a complete line of inserts, lifting
hardware and adjustable beams used in the tilt-up method of construction,
in which the concrete floor slab is used as part of a form for casting
the walls of a building. After the cast walls have hardened on the floor
slab, a crane is used to "tilt-up" the walls, which then are braced in
place until they are secured to the rest of the structure. Tilt-up
construction generally is considered to be a faster method of
constructing low-rise buildings than conventional poured-in-place
concrete construction. Some of our tilt-up construction products can be
rented as well as sold.
- Formliner products include plastic and elastomeric products that adhere
to the inside face of forms to provide shape to the surface of the
concrete.
- Our concrete accessories division also sells a broad spectrum of chemical
products used in concrete construction, including form release agents,
bond breakers, curing compounds, liquid hardeners, sealers, water
repellents, bonding agents, grouts and epoxies, and other chemicals used
in the pouring and placement of concrete.
Concrete Forming Systems. Our concrete forming systems division
manufactures, sells and rents reusable modular concrete forming systems
primarily under the Symons(R) name. These products include standard and
specialty concrete forming systems, shoring systems and accessory products. To
capitalize on the durability and relatively high unit cost of prefabricated
forming equipment, we also rent forming products. Net revenues of our concrete
forming systems division to external customers accounted for $99.5 million, or
approximately 35%, of our total 1998 net sales.
- Concrete forming systems are reusable, highly-engineered modular forms
which hold liquid concrete in place on concrete construction jobs while
it cures. Standard forming systems are made of steel and plywood and are
sold or rented for use in the creation of concrete walls and columns.
Specialty forming systems consist primarily of steel forms that are
designed to meet architects' specific needs for concrete placements.
- Shoring systems include aluminum beams and joists, post shores and
shoring frames used to support deck and other raised forms while concrete
is being poured.
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- Construction chemicals sold by the concrete forming systems division
include form release agents, sealers, water repellents, grouts and
epoxies and other chemicals used in the pouring, stamping and placement
of concrete.
Paving Products. Our paving products division sells products, primarily
consisting of welded dowel assemblies and dowel baskets, used in the
construction and rehabilitation of roads, highways and airport runways to extend
the life of the pavement. The division sells paving products primarily under the
American Highway Technology(R) name, but we also offer some paving products
under the Dayton/Richmond(R) name. We manufacture welded dowel assemblies
primarily using automated and semi-automated equipment. Net sales of paving
products accounted for $31.0 million, or approximately 11%, of our total 1998
net sales.
- Welded dowel assemblies and dowel baskets are used to transfer dynamic
loads between two adjacent slabs of concrete roadway. Metal dowels which
are part of a dowel basket design are imbedded in two adjacent slabs to
transfer the weight of vehicles as they move over a road.
- We provide corrosive-preventing epoxy coatings for infrastructure
construction products and a wide range of industrial and construction
uses.
- Our paving products division also sells construction chemicals specific
to concrete road construction, primarily curing
compounds.
Masonry Products. Our masonry products division manufactures and sells
masonry products under the Dur-O-Wal(R) name. Our masonry product line consists
primarily of masonry wall reinforcement products, masonry anchors, engineered
products and other accessories used in masonry construction and restoration to
reinforce brick and concrete walls, anchor inner to outer walls and provide
avenues for water to escape. Net sales of masonry products accounted for
approximately $24.3 million, or approximately 9%, of our total 1998 net sales.
- Masonry products are wire products that improve the performance and
longevity of masonry walls by providing crack control, greater elasticity
and higher strength to withstand seismic shocks and better resistance to
rain penetration.
- We have the in-house ability to produce hot-dipped zinc galvanized
finishes on masonry wall reinforcement products. Hot-dipped galvanized
finishes are considered to provide superior protection against corrosion
compared to alternative finishes. In recent years, model building codes
in a number of regions of the country in which masonry construction is
used have been amended to require use of hot-dipped galvanized masonry
wall reinforcement products.
- We also sell other masonry products which connect one form of masonry to
another or masonry to the building structure and that are used in the
restoration of existing masonry construction, for seismic retrofitting of
existing brick veneer surfaces to strengthen the surfaces against
earthquake damage and for moisture control applications.
DISTRIBUTION
We distribute our products through a network of 58 service/distribution
centers located in the United States and Canada. Ten of the service/distribution
centers are associated with our manufacturing plants. Of these 58 locations, 20
are dedicated principally to the distribution of concrete accessories, 31 are
dedicated principally to the distribution of forming systems, three are
dedicated primarily to the distribution of paving products, four are dedicated
principally to the distribution of masonry products and some locations carry
more than one of our product lines. We ship most of our products to our
service/distribution centers from our manufacturing plants; however, a majority
of our centers also are able to produce smaller batches of some products on an
as-needed basis to fill rush orders.
We have an on-line inventory tracking system for the concrete accessories,
paving products and construction chemicals businesses, which enables our
customer service representatives to identify, reserve and ship inventory quickly
from any of our locations in response to telephone orders.
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Our system provides us with a competitive advantage since our service
representatives are able to answer customer questions about availability and
shipping dates while still on the telephone. We primarily use third-party common
carriers to ship our products.
We also use our distribution system to sell products which are manufactured
by others. These products usually are sold under our brand names, and often are
produced for us on an exclusive basis. Sales of these products allow us to
utilize our distribution network to increase sales without making significant
capital investments.
CUSTOMERS
We have over 4,000 customers, over 75% of which purchase our products for
resale. Our customer base is geographically diverse, with no customer accounting
for more than 5% of net sales in 1998 and with our ten largest customers
accounting for less than 17% of our net sales. Customers who purchase our
products for resale generally do not sell our products exclusively.
Concrete Accessories. Our concrete accessories division has approximately
2,350 customers, consisting of distributors, rebar fabricators and precast and
prestressed concrete manufacturers. We estimate that approximately 90% of the
customers of this division purchase our products for resale. The largest
customer of the division accounted for approximately 3% of the division's 1998
net sales, and the division's top ten customers accounted for less than 20% of
its 1998 net sales.
Our concrete accessories division has instituted a certified dealer program
for those dealers who handle our tilt-up construction products. This program was
established to educate dealers in the proper use of our tilt-up products and to
assist them in providing engineering assistance to their customers. Certified
dealers are not permitted to carry other manufacturers' tilt-up products, which
we believe are incompatible with ours and, for that reason, could be unsafe if
used with our products. The division currently has 77 certified tilt-up
construction product dealers.
Concrete Forming Systems. Our concrete forming systems division has
approximately 2,500 customers, consisting of distributors, precast and
prestressed concrete manufacturers, general contractors and subcontractors. We
estimate that approximately 90% of the customers of this division are the
end-users of its products, while approximately 10% of those customers purchase
its products for resale or re-rent. This division's largest customer accounted
for approximately 6% of the division's 1998 net sales, and its ten largest
customers accounted for approximately 25% of its 1998 net sales.
Paving Products. Our paving products division has approximately 150
customers, consisting primarily of distributors of construction supplies, and,
to a lesser extent, general contractors and subcontractors. This division's
largest customer accounted for approximately 15% of the division's 1998 net
sales, and its ten largest customers accounted for approximately 80% of its 1998
net sales.
Masonry Products. Our masonry products division has approximately 1,600
customers consisting of distributors, brick and concrete block manufacturers,
general contractors and sub-contractors. We estimate that approximately 90% of
the division's customers purchase its products for resale. The masonry products
division's largest customer accounted for approximately 5% of its 1998 net
sales, and its ten largest customers accounted for approximately 23% of its 1998
net sales.
SALES AND MARKETING
We employ approximately 400 sales and marketing personnel, of whom
approximately one-half are salesmen and one-half are customer service
representatives. Sales and marketing personnel are located in all of our
locations. We produce product catalogs and promotional materials that illustrate
certain construction techniques in which our products can be used to solve
typical construction problems. We promote our products through seminars and
other customer education efforts and work directly with architects and engineers
to secure the use of our products whenever possible.
We consider our engineers to be an integral part of the sales and marketing
effort. Our engineers have developed proprietary software applications to
conduct extensive pre-testing on both new products and construction projects.
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MANUFACTURING
We manufacture the majority of the products we sell. Most of our concrete
accessories, paving products, and masonry products are manufactured at eight
principal facilities in the United States, although a majority of our
service/distribution facilities also can produce smaller lots of some products.
Our production volumes enable us to design and build or custom modify much of
the equipment we use to manufacture these products, using a team of experienced
manufacturing engineers and tool and die makers.
By developing our own automatic high-speed manufacturing equipment, we
believe we generally have achieved significantly greater productivity, lower
capital equipment costs, lower scrap rates, higher product quality, faster
changeover times and lower inventory levels than most of our competitors. In
addition, our masonry products division's ability to "hot-dip" galvanize
products provides it with an advantage over many competitors manufacturing
masonry wall reinforcement products, who lack this internal capability. We also
have a flexible manufacturing setup and can make the same products at several
locations using short and discrete manufacturing lines.
We manufacture our concrete forming systems at two facilities in the United
States. These facilities incorporate semi-automated and automated production
lines, heavy metal presses, forging equipment, stamping equipment, robotic
welding machines, drills, punches, and other heavy machinery typical for this
type of manufacturing operation.
We generally operate our manufacturing facilities two shifts per day, five
days per week (six days per week during peak months and, in some instances,
three shifts), with the number of employees increasing or decreasing as
necessary to satisfy demand on a seasonal basis.
RAW MATERIALS
Our principal raw materials are steel wire rod, steel hot rolled bar, metal
stampings and flat steel, aluminum sheets and extrusions, plywood, cement and
cementitious ingredients, liquid chemicals, zinc and injection-molded plastic
parts. Steel, in its various forms, constitutes approximately 40-45% of our cost
of sales. We currently purchase materials from over 300 vendors and are not
dependent on any single vendor or small group of vendors for any significant
portion of our raw material purchases.
COMPETITION
Our industry is highly competitive in most product categories and
geographic regions. We compete with a relatively small number of full-line
national manufacturers of concrete accessories, concrete forming systems,
masonry products and paving products, and a much larger number of regional
manufacturers and manufacturers with limited product lines. We believe
competition in our industry is largely based on, among other things, price,
quality, breadth of product lines, distribution capabilities (including quick
delivery times) and customer service. Due primarily to factors such as freight
rates, quick delivery times and customer preference for local suppliers, some
local or regional manufacturers and suppliers may have a competitive advantage
over us in a given region. We believe the size, breadth and quality of our
product lines provide us with advantages of scale in both distribution and
production relative to our competitors.
PATENTS AND TRADEMARKS
We sell most products under the registered trade names Dayton Superior(R),
Dayton/Richmond(R), Symons(R), Dur-O-Wal(R) and American Highway Technology(R),
which we believe are widely recognized in the construction industry and,
therefore, are important to our business. Although some of our products (and
components of some products) are protected by patents, we do not believe these
patents are material to our business. We have approximately 120 trademarks and
90 patents.
EMPLOYEES
As of December 31, 1998, we employed approximately 750 salaried and 1,330
hourly personnel, of whom approximately 1,000 of the hourly personnel and six of
the salaried personnel are represented by labor unions. Employees at our
Miamisburg, Ohio; Parsons, Kansas; Des Plaines, Illinois; New Braunfels, Texas;
Tremont, Pennsylvania; St. Joseph, Missouri and Aurora, Illinois
manufacturing/distribution plants and our ser-
35
<PAGE> 42
vice/distribution centers in Baltimore, Maryland; Atlanta, Georgia and Santa Fe
Springs, California are covered by collective bargaining agreements. In 1998,
hourly employees at our Kankakee, Illinois manufacturing/distribution plant
voted to be represented by a labor union, although a contract has not yet been
negotiated. We believe we have good employee and labor relations.
SEASONALITY
Our operations are seasonal in nature, with approximately 60% of our sales
historically occurring in the second and third quarters. Working capital and
borrowings fluctuate with sales volume. Historically, more than 50% of our cash
flow from operations is generated in the fourth quarter.
BACKLOG
We typically ship most of our products, other than paving products and some
specialty forming systems, within one week and often within 24 hours after we
receive the order. Other product lines, including paving products and specialty
forming systems, may be shipped up to six months after we receive the order,
depending on our customer's needs. Accordingly, we do not maintain significant
backlog, and backlog as of any particular date is not representative of our
actual sales for any succeeding period.
PRINCIPAL PROPERTIES
Our corporate headquarters are located in leased facilities in Dayton,
Ohio. We believe our facilities provide adequate manufacturing and distribution
capacity for our needs. We also believe all of the leases were entered into on
market terms. Our other principal facilities are located throughout North
America, as follows:
<TABLE>
<CAPTION>
LEASED/ SIZE
LOCATION USE PRINCIPAL DIVISION OWNED (# SQ. FT.)
- -------------------------- -------------------------- ------------------ ------- -----------
<S> <C> <C> <C> <C>
Des Plaines, Illinois Manufacturing/Distribution Concrete Forming Owned 171,650
and Symons Headquarters Systems
Miamisburg, Ohio Manufacturing/Distribution Concrete Accessories Owned 126,000
and Dayton/Richmond
Headquarters
Aurora, Illinois Manufacturing/Distribution Masonry Products Owned 109,000
and Dur-O-Wal Headquarters
Kankakee, Illinois Manufacturing/Distribution Paving Products Leased 107,900
and American Highway
Technology Headquarters
Tremont, Pennsylvania Manufacturing/Distribution Concrete Accessories Owned 102,650
Parsons, Kansas Manufacturing/Distribution Paving Products Owned 98,250
New Braunfels, Texas Manufacturing/Distribution Concrete Forming Owned 89,600
Systems
Atlanta, Georgia Service/Distribution Concrete Accessories Leased 74,090
Parker, Arizona Manufacturing/Distribution Concrete Accessories Leased 60,000
Birmingham, Alabama Service/Distribution Concrete Accessories Leased 55,000
Centralia, Illinois Service/Distribution Concrete Forming Owned 53,500
Systems
St. Joseph, Missouri Manufacturing/Distribution Concrete Accessories Owned 53,342
Grand Prairie, Texas Service/Distribution Concrete Accessories Leased 45,000
Seattle, Washington Service/Distribution Concrete Accessories Leased 42,825
Santa Fe Springs, Service/Distribution Concrete Accessories Leased 40,000
California
Toronto, Ontario Service/Distribution Concrete Accessories Leased 40,000
Oregon, Illinois Service/Distribution Concrete Accessories Owned 39,000
Helena, Alabama Manufacturing/Distribution Paving Products Leased 32,000
Folcroft, Pennsylvania Service/Distribution Concrete Accessories Owned 32,000
Baltimore, Maryland Service/Distribution Masonry Products Owned 30,000
</TABLE>
36
<PAGE> 43
LEGAL PROCEEDINGS
Our Symons subsidiary currently is a defendant involved in a civil suit
brought by EFCO Corp., a competitor of Symons in one portion of its business, in
1996 in the United States District Court for the Southern District of Iowa (Case
No. 4-96-CV-80552). EFCO Corp. alleged that Symons engaged in false advertising,
misappropriation of trade secrets, intentional interference with contractual
relations, and certain other activities. After a jury trial, preliminary damages
of approximately $14 million were awarded against Symons in January 1999. In
ruling on post-trial motions in April 1999, the district court judge dismissed
EFCO's claim of intentional interference with contractual relations but
increased the damages awarded to EFCO by $100,000.
We believe Symons has grounds for a successful appeal and we remain
committed to vigorously pursuing our appellate rights. A successful appeal could
overturn the judgment against Symons or result in a new trial. Symons'
liability, if any, cannot finally be determined until such time as all rights of
the parties have been exhausted or have expired by lapse of time. We consider
the outcome of this litigation to be not estimable and, accordingly, we have not
recorded any liability for the resolution of this suit. In the event Symons is
unsuccessful in its appeal, it could have a material adverse effect on us.
Our businesses are subject to regulation under various and changing
federal, state and local laws and regulations relating to the environment and to
employee safety and health. These environmental laws and regulations govern the
generation, storage, transportation, disposal and emission of various
substances. Permits are required for operation of our businesses (particularly
air emission permits), and these permits are subject to renewal, modification
and, in certain circumstances, revocation. We believe we are in substantial
compliance with these laws and permitting requirements. Our businesses also are
subject to regulation under various and changing federal, state and local laws
and regulations which allow regulatory authorities to compel (or seek
reimbursement for) cleanup of environmental contamination at a business' own
sites and at facilities where its waste is or has been disposed.
We expect to incur on-going capital and operating costs to maintain
compliance with currently applicable environmental laws and regulations;
however, we do not expect those costs, in the aggregate, to be material.
37
<PAGE> 44
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers and their ages as of May 12, 1999,
positions and principal occupation during the past five years (unless otherwise
stated, their positions are with us) are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------- --- --------------------------------------------------
<S> <C> <C>
John A. Ciccarelli 59 President, Chief Executive Officer and Director
Raymond E. Bartholomae 52 Vice President and General Manager, Symons
Michael C. Deis, Sr. 48 Vice President and General Manager,
Dayton/Richmond
James W. Fennessy 55 Vice President and General Manager, Dayton
Superior Canada Ltd.
Mark K. Kaler 41 Vice President and General Manager, American
Highway Technology
Alan F. McIlroy 48 Vice President and Chief Financial Officer
William C. Mongole 49 Vice President and General Manager, Dur-O-Wal
John R. Paine, Jr. 56 Vice President, Sales and Marketing,
Dayton/Richmond
Thomas W. Roehrig 33 Corporate Controller
John M. Rutherford 39 Treasurer and Assistant Secretary
James C. Stewart 51 Vice President, Corporate Development
William F. Andrews 67 Director
Timothy C. Collins 42 Director
Matthew O. Diggs, Jr. 66 Director and non-executive Chairman of the Board
Daniel W. Duval 62 Director
Matthew M. Guerreiro 42 Director
Robert B. Holmes 67 Director
</TABLE>
JOHN A. CICCARELLI has been President since 1989 and has been Chief
Executive Officer and a director since 1994.
RAYMOND E. BARTHOLOMAE has been Vice President and General Manager, Symons,
since February 1998, and was Executive Vice President and General Manager of
Symons from 1986 to February 1998.
MICHAEL C. DEIS, SR. has been Vice President and General Manager,
Dayton/Richmond since February 1998. From 1987 to February 1998, Mr. Deis was
Vice President, Eastern Division of Dayton/Richmond (formerly, Concrete
Accessories).
JAMES W. FENNESSY has been Vice President and General Manager, Dayton
Superior Canada, Ltd. since 1988.
MARK K. KALER has been Vice President and General Manager, American Highway
Technology since April 1996. From 1990 to April 1996, Mr. Kaler was Vice
President, Engineering and Product Manager, Paving Division.
ALAN F. MCILROY has been Vice President and Chief Financial Officer since
July 1997. From January 1994 until July 1997, Mr. McIlroy was President of The
Greenock Group, a private operational investment company.
WILLIAM C. MONGOLE has been Vice President and General Manager, Dur-O-Wal
since May 1999. From 1987 until May 1999, he was a Vice President of our
Dur-O-Wal subsidiary.
JOHN R. PAINE, JR. has been Vice President, Sales and Marketing of
Dayton/Richmond (formerly, Concrete Accessories) since 1984.
THOMAS W. ROEHRIG has been Corporate Controller since April 1998. From 1987
until March 1998, Mr. Roehrig was employed by Arthur Andersen LLP, an
international public accounting firm, most recently as an Experienced Manager in
the Assurance and Business Advisory division.
38
<PAGE> 45
JOHN M. RUTHERFORD has been Treasurer and Assistant Secretary since
February 1998. From January 1993 until January 1998, Mr. Rutherford was Director
of Treasury and Risk Management for Gibson Greetings, Inc., a greeting card
manufacturer.
JAMES C. STEWART has been Vice President, Corporate Development since
February 1998. From 1984 to February 1998, Mr. Stewart was Vice President,
Western Division of Dayton/Richmond (formerly Concrete Accessories).
WILLIAM F. ANDREWS has been a director since February 1997. He has been
Chairman of the Board of Scovill Fasteners Inc., a manufacturer of apparel and
industrial fasteners, since 1995 and has been Chairman of the Board of
Northwestern Steel and Wire Company, a producer of structural steel products and
rod and wire products, since November 1998. Mr. Andrews was Chairman of the
Board of Schrader-Bridgeport International, Inc., a manufacturer of tire valves
and automotive accessories, from 1995 to 1998 and was Chairman, President and
Chief Executive Officer of Amdura Corporation (formerly American Hoist & Derrick
Co.), a specialty manufacturer, from 1993 until 1995. Mr. Andrews also is a
director of Black Box Corp., Johnson Controls, Inc., Katy Industries and
Navistar International Corporation.
TIMOTHY C. COLLINS has been a director since 1991 and was Chairman of the
Board of Directors from June 1994 until December 1995. Mr. Collins is Senior
Managing Director and Chief Executive Officer of Ripplewood Holdings L.L.C., a
private holding company he formed in October 1995. From February 1990 to October
1995, Mr. Collins was a Senior Managing Director of Onex Investment Corp. (New
York), a management company for the United States investments of Onex
Corporation, an Ontario corporation listed on the Toronto and Montreal Stock
Exchanges. Mr. Collins also is a director of Danielson Holding Corp. and several
privately-held companies.
MATTHEW O. DIGGS, JR. has been a director since October 1995 and
non-executive Chairman of the Board of Directors since December 1995. Mr. Diggs
has been Chief Executive Officer of The Diggs Group, a private investment firm,
since 1990. Mr. Diggs also has been the non-executive Chairman of Ripplewood
Holdings L.L.C. since its inception in October 1995. From 1991 to 1994, Mr.
Diggs was Chairman of The Delfield Company, a manufacturer of food service
equipment. Mr. Diggs also is a director of Helix Technologies Corporation and
Tower Automotive, Inc.
DANIEL W. DUVAL has been a director since May 1999. Mr. Duval is Vice
Chairman of the Board of Directors of Robbins & Myers, Inc., an international
manufacturer and marketer of fluids management products and systems, and was
President and Chief Executive Officer from 1986 until he retired in 1998. Mr.
Duval also serves on the Board of Directors of Arrow Electronics, Inc. and
several privately-held companies.
MATTHEW M. GUERREIRO has been a director since February 1994. Mr. Guerreiro
has been a private investor since June 1999. From September 1997 until June
1999, Mr. Guerreiro was a Managing Director of Salomon Smith Barney, Inc., an
investment banking firm. From October 1995 until September 1997, Mr. Guerreiro
was a principal of Ripplewood Holdings L.L.C., a private holding company, and
from August 1992 to October 1995, he was a principal in the New York office of
Onex Investment Corp. (New York).
ROBERT B. HOLMES has been a director since March 1996. Mr. Holmes is a
director of Mitsubishi International Corporation, an advisory director of
Ripplewood Holdings L.L.C., a private holding company, and a principal of the
Lens Fund, a private investment company.
We currently have seven directors. Each director is elected to serve until
the next annual meeting of shareholders or until a successor is elected. Our
executive officers are elected by the directors to serve at the pleasure of the
directors. There are no family relationships between any of our directors or
executive officers.
Our Board of Directors has three committees:
- An Executive Committee (Messrs. Ciccarelli (Chair), Collins and Diggs),
which may exercise any of the Board's authority between meetings of the
Board
- An Audit Committee (Messrs. Andrews, Diggs, Duval and Holmes (Chair)),
which
- recommends the engagement of the independent public accountants;
39
<PAGE> 46
- reviews the professional services provided by, and the fees charged by,
the independent public accountants;
- reviews the scope of the internal and external audit; and
- reviews the financial statements and matters relating to the audit.
- A Compensation and Benefits Committee (Messrs. Andrews, Collins, Diggs
(Chair) and Guerreiro), which is responsible for assuring that officers
and other key management are effectively compensated and that
compensation is internally equitable and externally competitive.
We do not have a Nominating Committee.
DIRECTOR COMPENSATION
Directors who are not employees receive for their service an annual
retainer of $20,000 plus an additional $2,000 for each committee of which the
director serves as chairman (a total of $50,000, in the case of the Chairman of
the Board) payable in common shares and an annual grant of an option to purchase
2,000 common shares at an exercise price per share equal to the fair market
value of a common share on the grant date. The nonemployee directors also
receive a $500 cash fee for each meeting of the Board of Directors or committee
they attend. Directors who are employed by us receive no additional compensation
for serving as directors.
40
<PAGE> 47
EXECUTIVE COMPENSATION
The following table summarizes the 1998, 1997 and 1996 compensation of our
chief executive officer and each of our four other most highly compensated
executive officers who was serving as an executive officer on December 31, 1998:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
----------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
----------------------------- ---------- ---------
OTHER LONG
ANNUAL SHARES TERM ALL OTHER
COMPEN- UNDERLYING INCENTIVE COMPEN-
NAME AND PRINCIPAL SALARY BONUS SATION OPTIONS PAYOUTS SATION
POSITION YEAR ($) ($) ($) (#) ($) ($)(1)
- ------------------------------ ---- ------ ----- ------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
John A. Ciccarelli............ 1998 $293,077 $275,000 $ -- 15,000(2) $-- $12,800
President and Chief 1997 227,692 160,000 -- -- -- 3,000
Executive Officer 1996 194,454 120,000 -- -- -- 3,000
Alan F. McIlroy............... 1998 191,154 148,000 16,202(4) 6,000(2) -- 10,400
Vice President and 1997 65,856 37,000 39,617(4) 25,000(5) -- --
Chief Financial Officer(3)
Raymond E. Bartholomae........ 1998 173,000 126,000 -- 6,000(2) -- 9,515
Vice President and General
Manager, Symons(6)
Michael C. Deis, Sr........... 1998 146,154 129,000 -- 6,000(2) -- 10,400
Vice President and 1997 105,231 60,000 -- -- -- 3,166
General Manager, 1996 96,200 53,700 -- -- -- 2,016
Dayton/Richmond
James C. Stewart.............. 1998 146,231 110,000 -- 6,000(2) -- 10,400
Vice President, 1997 107,538 60,000 1,600(4) -- -- 3,166
Corporate Development 1996 100,115 55,400 -- -- -- 2,176
</TABLE>
- ---------------
(1) For 1998, consists of our retirement account contributions to the Savings
Plan in the amount of $9,600 for Mr. Ciccarelli and $7,200 for each of the
other named executive officers and our matching sec.401(k) contributions to
the Savings Plan in the amount of $2,315 for Mr. Bartholomae and $3,200 for
each of the other named executive officers. For years prior to 1998,
consists only of our matching sec.401(k) contributions to the Savings Plan.
(2) Options to purchase common shares were granted under the 1996 Stock Option
Plan and the 1997 Stock Option and Restricted Stock Plan at an exercise
price of $16.81 per share, the average of the high and low prices on the
date of the grant. The options have a term of ten years and become
exercisable in three equal annual installments, commencing on the first
anniversary of the date of grant.
(3) Mr. McIlroy was elected as an executive officer on July 17, 1997.
(4) Relocation expense paid by us.
(5) Options to purchase 25,000 Common Shares were granted to Mr. McIlroy in July
1997 under the 1996 Stock Option Plan in connection with his initial
employment. The options have an exercisable price of $12.5625 per share, the
average of the high and low prices on the date of the grant, and a term of
ten years. The options were exercisable on the date of grant with respect to
12,500 shares and became exercisable with respect to an additional 6,250
shares on the first and second anniversaries of the date of grant.
(6) Mr. Bartholomae was elected an executive officer on February 26, 1998
following our acquisition of Symons Corporation in September 1997.
41
<PAGE> 48
FISCAL 1998 STOCK OPTION GRANTS
The stock options granted in 1998 to each of the executive officers named
in the Summary Compensation Table are shown in the following table. This table
also shows the hypothetical gains that would exist for the options at the end of
their ten year terms, assuming compound rates of stock appreciation of 5% and
10%, respectively. The actual future value of the options will depend on the
market value of the common shares.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
----------------------------------------------------------------------
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
NUMBER % OF ANNUAL RATES
OF TOTAL OF STOCK PRICE
SHARES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(3)
OPTIONS EMPLOYEES PRICE EXPIRATION -------------------
NAME GRANTED(#) IN 1998 ($/SH)(2) DATE 5%($) 10%($)
- ------------------------- ---------- ---------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
John A. Ciccarelli....... 15,000 20.1% $16.81 2/28/08 $158,576 $401,862
Alan F. McIlroy.......... 6,000 8.1 16.81 2/28/08 63,430 160,745
Raymond E. Bartholomae... 6,000 8.1 16.81 2/28/08 63,430 160,745
Michael C. Deis, Sr...... 6,000 8.1 16.81 2/28/08 63,430 160,745
James C. Stewart......... 6,000 8.1 16.81 2/28/08 63,430 160,745
</TABLE>
- ---------------
(1) The options become exercisable in three equal annual installments,
commencing on February 27, 1999. In the event of a change in control (as
defined in the option plans), the options will become exercisable in full.
(2) The average of the high and low sale prices on the date the option was
granted.
(3) These amounts are calculated in accordance with rules adopted by the SEC
assuming annual compounding at the specified rates over the term of the
options. These amounts are not intended to forecast future appreciation of
the price of the common shares.
FISCAL YEAR-END OPTION VALUES
The number and value of all unexercised options held by each of the
executive officers named in the Summary Compensation Table at December 31, 1998
are shown in the following table. No options were exercised by any of the named
executive officers in 1998.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT 12/31/98(#) AT 12/31/98($)(1)
------------------------- -------------------------
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---------------------------------- ------------------------- -------------------------
<S> <C> <C>
John A. Ciccarelli................ 144,000/15,000 $2,408,160/$36,600
Alan F. McIlroy................... 18,750/12,250 125,391/ 56,437
Raymond E. Bartholomae............ 0/ 6,000 0/ 14,640
Michael C. Deis, Sr............... 18,600/ 6,000 315,474/ 14,640
James C. Stewart.................. 18,600/ 6,000 315,474/ 14,640
</TABLE>
- ---------------
(1) Represents the excess of the aggregate closing price on December 31, 1998 of
the common shares subject to the options over the aggregate option exercise
price.
42
<PAGE> 49
OWNERSHIP OF COMMON SHARES
DIRECTORS AND EXECUTIVE OFFICERS
The following table shows the common shares beneficially owned by each
director, each executive officer named in the Summary Compensation Table and all
directors and executive officers as a group as of June 30, 1999:
<TABLE>
<CAPTION>
NUMBER OF
COMMON SHARES
BENEFICIALLY OWNED
AS OF % OF
INDIVIDUAL OR GROUP JUNE 30, 1999(1) COMMON SHARES(1)
- ----------------------------------------------- ------------------ ----------------
<S> <C> <C>
William F. Andrews(2).......................... 11,834 *
Raymond E. Bartholomae(3)...................... 4,800 *
John A. Ciccarelli(4).......................... 186,500 3.1%
Timothy C. Collins(5).......................... 51,827 *
Michael C. Deis, Sr.(6)........................ 26,950 *
Matthew O. Diggs, Jr.(7)....................... 139,260 2.3
Daniel W. Duval(8)............................. 5,013 *
Matthew M. Guerreiro(9)........................ 8,095 *
Robert B. Holmes(10)........................... 14,437 *
Alan F. McIlroy(11)............................ 22,150 *
James C. Stewart(12)........................... 26,950 *
Directors and Executive Officers As a Group (17
persons)(13)................................. 590,152 9.5
</TABLE>
- ---------------
* Signifies less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the SEC
and generally includes sole or shared voting or investment power with
respect to the shares. Includes the number of common shares subject to
outstanding options exercisable within 60 days as of June 30, 1999. Unless
otherwise indicated, voting and investment power are exercised solely by
each individual and/or a member of his household. Based on a total of
5,943,183 common shares outstanding on June 30, 1999.
(2) Includes 6,000 common shares which may be acquired upon the exercise of
stock options.
(3) Includes 2,000 common shares which may be acquired upon the exercise of
stock options.
(4) Includes 149,000 common shares which may be acquired upon the exercise of
stock options.
(5) Includes 48,781 common shares held by the Ripplewood Foundation and 2,000
common shares which may be acquired upon the exercise of stock options.
(6) Includes 20,600 common shares which may be acquired upon the exercise of
stock options.
(7) Includes 125,000 common shares owned by EJJM, an Ohio limited partnership,
a family limited partnership of which Mr. Diggs is a general partner. Also
includes 6,000 common shares which may be acquired upon the exercise of
stock options.
(8) Includes 2,000 common shares which may be acquired upon the exercise of
stock options.
(9) Includes 5,333 common shares which may be acquired upon the exercise of
stock options.
(10) Includes 6,000 common shares which may be acquired upon the exercise of
stock options.
(11) Includes 20,750 common shares which may be acquired upon the exercise of
stock options.
(12) Includes 20,600 common shares which may be acquired upon the exercise of
stock options.
(13) Includes 288,919 common shares which may be acquired by directors and
executive officers upon the exercise of stock options.
43
<PAGE> 50
PRINCIPAL SHAREHOLDERS
The following table shows information about the only shareholders known by
us to be the beneficial owner of more than 5% of the outstanding common shares:
<TABLE>
<CAPTION>
NUMBER OF COMMON
SHARES % OF COMMON
NAME AND ADDRESS BENEFICIALLY OWNED SHARES(1)
- -------------------------------------------- ----------------------- ---------------------
<S> <C> <C>
Skyline Asset Management, L.P.(2)........... 538,800 9.1%
31 South Wacker Drive Suite 450
Chicago, Illinois 60606
FMR Corp.(3)................................ 537,170 9.0
82 Devonshire Street
Boston, Massachusetts 02109
Brinson Partners, Inc.(4)................... 528,100 8.9
UBS AG
209 South LaSalle
Chicago, Illinois 60604-1295
</TABLE>
- ---------------
(1) Based on a total of 5,943,183 common shares outstanding on June 30, 1999.
(2) As reported in an Amendment to Schedule 13G dated February 16, 1999 filed
with the SEC by Skyline Asset Management, L.P., a registered investment
adviser, with respect to common shares held by its clients. Skyline Asset
Management, L.P. reported shared voting and dispositive power with respect
to 538,800 common shares.
(3) As reported in Amendment No. 2 to Schedule 13G dated April 10, 1999 filed
with the SEC jointly by FMR Corp., Edward C. Johnson 3d, Abigail P. Johnson,
Fidelity Management & Research Company and Fidelity Mid Cap Stock Fund with
respect to 325,270 common shares as to which Fidelity Management & Research
Company, a registered investment adviser and wholly-owned subsidiary of FMR
Corp., has sole dispositive power as a result of acting as investment
adviser to various registered investment companies (including Fidelity Mid
Cap Stock Fund, which reported holding 256,700 common shares) and with
respect to 211,900 common shares beneficially owned by Fidelity Management
Trust Company, a wholly-owned subsidiary of FMR Corp., as a result of acting
as investment manager of certain institutional accounts, as to which
Fidelity Management Trust Company, Edward C. Johnson 3d and FMR Corp.
reported sole dispositive power and, with respect to 98,600 of those shares,
sole voting power.
(4) As reported in Amendment No. 2 to Schedule 13G dated February 3, 1999 filed
with the SEC jointly by Brinson Partners, Inc. and UBS AG (Bahnhofstrasse
45, 8021, Zurich, Switzerland) with respect to 528,100 common shares held by
Brinson Partners, Inc., a registered investment advisor. Brinson Partners,
Inc. is an indirect wholly-owned subsidiary of UBS AG, a bank. They reported
shared voting and dispositive power with respect to all 528,100 common
shares.
44
<PAGE> 51
THE TRUST
The Dayton Superior Capital Trust is a statutory business trust that we
have formed under Delaware law by filing a certificate of trust with the
Delaware Secretary of State and executing a trust agreement. The trust will be
governed by an amended trust agreement to be signed by us as depositor, by
Firstar Bank, N.A., as property trustee, by Mark A. Ferrucci, as Delaware
trustee, and by three of our officers or employees as administrative trustees.
The trust agreement, indenture and guarantee will each be qualified under the
Trust Indenture Act. The trust has a term of 45 years, but may dissolve earlier
as provided in the trust agreement.
THE ISSUANCE AND SALE OF THE TRUST SECURITIES
We have created the trust solely to:
- issue and sell its preferred securities and common securities, which
represent proportionate beneficial ownership interests in the trust and
its assets;
- use the proceeds from the sale of the trust securities to buy junior
subordinated debentures from us; and
- engage in only those other activities necessary or convenient to
accomplish the other purposes.
Because the trust's only assets will be the junior subordinated debentures
that we issue to it, our payments on those debentures will be the only source of
funds to be paid to the owners of the trust securities.
We will acquire and own all of the common securities of the trust. The
common securities will have an aggregate liquidation amount of at least 3% of
the total capital of the trust. The remainder, representing up to 97% of the
ownership interests in the trust, will be preferred securities of the trust that
may be sold to the public. The common securities and the preferred securities
will have substantially the same terms, including the same priority of payment,
and will receive proportionate payments from the trust in respect of
distributions and payments upon liquidation, redemption or otherwise at the same
times, with one exception: if we default on the junior subordinated debentures
that we issue to the trust and do not cure the default within the time specified
in the indenture, our rights to receive payments as the holder of the common
securities of the trust will be subordinated to the rights of the holders of the
preferred securities. See "DESCRIPTION OF THE PREFERRED SECURITIES
-- Subordination of Common Securities."
The trust's business and affairs will be conducted by its trustees, whom
we, as holder of the common securities, will appoint. Under the trust agreement,
the trustees for the trust are:
- Firstar Bank, N.A., as the property trustee;
- Mark A. Ferrucci, as the Delaware trustee; and
- Three of our officers or employees, as individual administrative
trustees.
We refer to all of these trustees collectively as the "issuer trustees."
Firstar Bank, N.A., as property trustee, will act as sole indenture trustee
under the trust agreement for purposes of compliance with the Trust Indenture
Act. Firstar Bank, N.A. also will act as guarantee trustee under our guarantee
agreement relating to the preferred securities. See "DESCRIPTION OF THE
GUARANTEE" and "DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES."
The property trustee will hold title to the junior subordinated debentures
for the benefit of the trust and the holders of the preferred securities and
common securities, and will have the power to exercise all of the rights, powers
and privileges as the holder of the debentures. In addition, the property
trustee will maintain exclusive control of a segregated non-interest bearing
bank account to hold all payments made by us in respect of the debentures. The
property trustee will make all payments to the holders of the preferred
securities and the common securities out of funds from this bank account. The
guarantee trustee will hold the guarantee for the benefit of the holders of the
preferred securities.
As the holder of the common securities of the trust, we ordinarily will
have the right to appoint, remove or replace the property trustee or the
Delaware trustee. However, if we are in default with respect to the junior
subordinated debentures issued to the trust and we haven't cured that de-
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fault within the time specified in the indenture, then the holders of a majority
in liquidation amount of the trust's outstanding preferred securities will be
entitled to appoint, remove or replace the property trustee and/or the Delaware
trustee. In no event will the holders of the preferred securities have the right
to vote to appoint, remove or replace the administrative trustees; we retain
that right exclusively as the holder of the common securities. The duties and
obligations of each issuer trustee are governed by the trust agreement.
Under the indenture and the trust agreement, we promise to pay all fees and
expenses related to the trust and the offering of the preferred securities. We
also will pay, directly or indirectly, all ongoing costs, expenses and
liabilities of the trust, except obligations under the preferred securities and
the common securities.
The trust has no separate financial statements. Separate financial
statements would not be material to holders of the preferred securities because
the trust has no independent operations. It exists solely for the limited
functions summarized above.
The principal executive office of the trust is c/o Dayton Superior
Corporation, 7777 Washington Village Drive, Suite 130, Dayton, Ohio 45459, and
its telephone number is (937) 428-6360.
DESCRIPTION OF THE PREFERRED SECURITIES
Under the terms of the trust agreement, the issuer trustees are authorized
to issue preferred securities and common securities on behalf of the trust. We
have summarized selected provisions of the preferred securities and the trust
agreement below. Because this is a summary, it does not contain all information
you should consider. The form of trust agreement has been filed as an exhibit to
the registration statement of which this prospectus forms a part. You should
read the form of trust agreement for provisions that may be important to you.
You should also consider applicable provisions of the Trust Indenture Act.
GENERAL
The preferred securities will represent undivided preferred beneficial
ownership interests in the assets of the trust. The common securities will
represent undivided common beneficial ownership interests in the assets of the
trust. The preferred securities of the trust will rank equally, and payments on
the preferred securities will be made pro rata, with the common securities of
the trust, except that the holders of the preferred securities will be entitled
to a preference over holders of the common securities of the trust in the
circumstances described below under "Subordination of Common Securities."
Holders of preferred securities also will have the other benefits described in
the trust agreement.
DISTRIBUTIONS
Distributions on each preferred security will be payable at the annual rate
of 10.0% of the liquidation preference of $20 per preferred security.
Distributions will be cumulative and will accumulate from the date of original
issuance. Except as set forth below, the property trustee will make payments
quarterly in arrears on September 30, December 31, March 31 and June 30 of each
year to holders of record on the applicable record date, commencing on December
31, 1999. The amount of distributions payable for any period will be computed on
the basis of a 360-day year of twelve 30-day months.
The funds of the trust available for distribution to the holders of the
preferred securities are limited to payments made under the junior subordinated
debentures by us to the trust. The debentures will be the only assets of the
trust. Therefore, if we do not make interest payments under the debentures, the
property trustee will not have funds available to pay distributions on the
preferred securities. We have guaranteed the payment of distributions on the
preferred securities on a limited basis, but only if and to the extent the trust
has funds legally available for the payment of distributions. See "DESCRIPTION
OF THE GUARANTEE."
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If any date on which distributions are payable on the preferred securities
is not a business day, then the distributions will be payable on the next
succeeding business day. No additional distributions or other payments will
accrue because of the delay in the payment date. For this purpose, a business
day is any day that is not a Saturday, a Sunday, a day on which banking
institutions in New York City may legally close, or a day on which the corporate
trust office of the property trustee or debenture trustee is closed for
business.
The record date for each distribution will be 15 days prior to the
distribution date. Distributions on the preferred securities will be payable to
the holders as they appear on the register of the trust on the relevant record
dates. As long as the preferred securities remain in book entry form, subject to
any applicable laws and regulations and to the provisions of the trust
agreement, each distribution payment will be made as described under "BOOK-ENTRY
ISSUANCE."
DEFERRAL OF DISTRIBUTIONS
If we are not in default under the terms of the junior subordinated
debentures, we have the right to defer the payment of interest on the debentures
at any time or times for periods of up to 20 consecutive quarters each; however,
we may not defer the payment of interest beyond the stated maturity date of the
debentures. We may exercise this deferral right on multiple occasions during the
term of the debentures. If we defer the payment of interest on the junior
subordinated debentures, the quarterly distributions to the holders of the
preferred securities will be deferred by the trust for the same period.
Additional distributions will accumulate on any unpaid distributions to which
the holders of the preferred securities are entitled at the rate of 10.0% per
annum, compounded quarterly from the relevant payment date of the unpaid
distribution. References in this prospectus to distributions on preferred
securities include any additional distributions which may accumulate on any
unpaid distributions, unless otherwise stated in this prospectus.
During any period in which we elect not to pay interest on the junior
subordinated debentures, we may not, and our subsidiaries may not, take any of
the following actions:
- declare or pay any dividends or distributions on, or redeem, purchase,
acquire, or make a liquidation payment with respect to, any of our
capital shares, or
- make any payment of principal, interest or premium, if any, on, or repay,
repurchase or redeem any of our debt that ranks equal to or junior to the
junior subordinated debentures,
other than:
- any dividend, redemption, liquidation, interest, principal or guarantee
payment, if the payment is made by way of securities that rank equal to
or junior to the securities on which the payment is being made,
- redemptions or purchases of any rights pursuant to a stockholder rights
agreement and the declaration of a dividend of the rights or the issuance
of preferred shares under the stockholder rights agreement in the future,
- any payment under the guarantee relating to the preferred securities of
the trust,
- purchases of common shares related to the issuance of common shares under
any of our benefit plans for our directors, officers or employees,
- reclassifications of our capital shares, or exchanges or conversions of
one series or class of our capital shares for another series or class of
our capital shares, and
- purchases of fractional interests in our capital shares pursuant to the
conversion or exchange provisions of the capital shares or the security
being converted or exchanged.
We have no current intention to exercise our right to defer payments of
interest under the junior subordinated debentures.
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CONVERSION RIGHTS -- GENERALLY
The holders of the preferred securities may convert their securities into
our common shares at any time in the manner described below at the conversion
price of 0.80 common shares for each preferred security, subject to adjustment
as described under "Conversion Price Adjustments." This equates to an initial
conversion price of $25 per common share. We will not issue fractional common
shares as a result of conversion, but rather will pay cash in lieu of any
fractional share interest.
A holder of preferred securities who desires to convert preferred
securities should contact the property trustee, as conversion agent, to obtain
the required form of conversion notice. If the book-entry system for the
preferred securities is no longer in effect, the holder will surrender the
certificates representing the preferred securities to the conversion agent,
along with an irrevocable conversion notice. The conversion agent will then
exchange the holder's preferred securities for a portion of the junior
subordinated debentures, and immediately convert those debentures into our
common shares.
When we deliver the fixed number of common shares into which the junior
subordinated debentures are convertible, together with any cash payment made in
lieu of payment of a fractional share, we will have no further obligation to pay
the principal amount at maturity of the debentures that were converted or to pay
any interest that had accrued on those debentures at the time of conversion.
The trust will not pay accrued distributions on preferred securities that
are converted, unless the conversion occurs during the period between the record
date for the payment of a distribution and the corresponding distribution
payment date. Each conversion will be effective as of the end of the day before
the day on which the conversion agent receives the notice of conversion.
Common shares issued upon conversion of the preferred securities will be
validly issued, fully paid and non-assessable.
CONVERSION PRICE ADJUSTMENTS
General
The conversion price of the preferred securities will be adjusted, without
duplication, upon the happening of the following events:
- the payment of dividends and other distributions payable exclusively in
common shares on common shares.
- the issuance to all holders of common shares of rights or warrants
entitling holders of those rights or warrants to subscribe for or
purchase common shares for a period not exceeding 45 days at less than
the then current market price of the common shares.
- subdivisions and combinations of common shares.
- the payment of dividends and other distributions to all holders of common
shares consisting of evidences of our indebtedness, securities or capital
stock, cash or assets, except for those rights or warrants referred to in
the second bullet clause above and dividends and distributions paid
exclusively in cash.
- payment in respect of a tender or exchange offer, other than an odd-lot
offer, by us or any of our subsidiaries for common shares at a price per
share in excess of 110% of the current market price of a common share on
the trading day next succeeding the last date tenders or exchanges may be
made pursuant to the tender or exchange offer. In this case, the
adjustment is limited, in respect of the excess over current market
price, to the amount in excess of 110% of the current market price.
- the payment of dividends and other distributions on common shares paid
exclusively in cash, excluding:
- cash dividends that do not exceed the per share amount of the
immediately preceding regular cash dividend, as adjusted to reflect any
of the events described above; and
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- cash dividends if the annualized per share amount of the dividends does
not exceed 12.5% of the last sale price of a common share, as reported
on the New York Stock Exchange consolidated transactions tape, on the
trading day immediately preceding the date of declaration of the
dividend. In this case, an adjustment will be made for the amount in
excess of 12.5% of the current market price of a common share.
We may reduce the conversion price of the debentures, and thus the
conversion price of the preferred securities, at any time by any amount we
select and for any period of at least 30 days. We may exercise this right by
giving at least 15 days' notice of the reduction. We may also, at our option,
make other reductions in the conversion price, if our Board of Directors deems
those reductions to be advisable to avoid or diminish any income tax to our
shareholders resulting from any dividend or distribution of shares, or rights to
acquire shares, or from any event treated similarly for federal income tax
purposes. See "UNITED STATES TAXATION -- Adjustment of Conversion Price."
The conversion price will not be adjusted in the case of the issuance of
any of our common shares, or securities convertible into common shares, except
as specifically described above. If any action would require adjustment of the
conversion price pursuant to more than one of the anti-dilution provisions
described in the bullet points above, only one adjustment will be made. It will
be the adjustment that has the highest absolute value to the holders of the
preferred securities. In addition, no adjustment in the conversion price will be
required unless the adjustment would require an increase or decrease of at least
1% of the conversion price. If the adjustment is not made because the adjustment
does not change the conversion price by more than 1%, then the adjustment that
is not made will be carried forward and taken into account in any future
adjustment.
As used above, "current market price" of a common share for any day means
the last reported sale price on that day, or if no sale takes place on that day,
the average of the reported closing bid and asked prices on that day, as
reported on the New York Stock Exchange consolidated transactions tape. If our
common shares are not listed or admitted to trading on the New York Stock
Exchange on that day, then the current market price will be determined based on
the alternative exchanges or systems set forth in the trust agreement.
Merger, Consolidation or Sale of Our Assets
If we are a party to a transaction which results in our common shares being
converted into the right to receive, or being exchanged for, securities, cash or
other property of a third party, the conversion price may be adjusted as
described below. Examples of transactions which may result in an adjustment to
the conversion price include:
- a merger,
- a consolidation,
- a sale of all or substantially all of our assets,
- a recapitalization or reclassification of our common shares, except for
changes relating to par value or occurring as a result of a subdivision
or combination of common shares, or
- any compulsory share exchange.
The holders of preferred securities will have no voting rights with respect
to any of these transactions.
Transactions Affecting All or Substantially All of Our Common Shares
-- Over 50% Consideration Paid in Stock
If all or substantially all of our common shares are exchanged for,
converted into or acquired for securities, cash or other property in a
transaction in which more than 50% of the value of the consideration received by
our shareholders consists of common stock of another corporation that has been
admitted for listing on a national securities exchange or quoted on the Nasdaq
National Market, then each preferred security will thereafter be convertible
into common stock of the kind received by our shareholders in the transaction.
For this to be applicable, the common stock received by our shareholders must
have been admitted for listing or admitted for listing subject to notice of
issuance on the exchange or Nasdaq for each of the ten consecutive trading days
prior to
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the record date for the determination of our
shareholders entitled to receive consideration in the transaction. In addition,
one of the following also must be true:
- we continue to exist after the transaction closes and the outstanding
preferred securities of the trust continue to exist as outstanding
preferred securities; or
- on or before the closing of the transaction, the outstanding preferred
securities are converted into or exchanged for shares of convertible
preferred stock of an entity succeeding to our business or the business
of one of our subsidiaries, and that convertible preferred stock has
powers, preferences and relative rights and limitations substantially
similar to those of the preferred securities.
If the transaction meets the requirements described above, the conversion
price of the preferred securities in effect immediately prior to the transaction
will be adjusted immediately after the closing of the transaction by multiplying
the current conversion price by a fraction. The numerator of the fraction will
be the average of the closing prices for the common stock received from the
third party in the transaction for the ten consecutive trading days prior to and
including the record date for the determination of our shareholders entitled to
receive consideration in the transaction, as adjusted by us in good faith to
appropriately reflect any of the events referred to in the six bullet points
appearing under "Conversion Price Adjustments -- General." The denominator will
be the average of the closing prices for our common shares during the ten
trading days prior to the record date for the determination of our shareholders
entitled to receive consideration in the transaction. The term "closing price"
means on any day the last reported sale price on that day or in case no sale
takes place on that day, the average of the reported closing bid and asked
prices, in each case on the New York Stock Exchange consolidated transactions
tape, or if the stock is not listed or admitted to trading on the New York Stock
Exchange, then on the alternative exchanges or systems set forth in the trust
agreement.
If the transaction meets the requirements described above, but:
- the consideration received by our shareholders was paid entirely in
common stock of the third party, except for any cash payment for
fractional share interests, and
- all of our outstanding common shares were exchanged for, converted into
or acquired in the transaction, except for cash payment for fractional
share interests,
then the conversion price of the preferred securities will be adjusted by
using a different fraction than the one set forth above. In this case, the
conversion price will be multiplied by a fraction in which the numerator is one,
and the denominator is the number of shares of common stock of the third party
received by our shareholders for each one of our shares that they owned.
Transactions Affecting All or Substantially All of Our Common Shares
-- Other Consideration
In all other transactions in which all or substantially all of our common
shares are exchanged for, converted into or acquired for securities, cash or
other property, then each preferred security will thereafter be convertible into
the kind of consideration received by our shareholders in the transaction. In
this case, the conversion price of the preferred securities will be adjusted
immediately after the transaction, but only if the calculation set forth below
results in a lower conversion price than the one in effect immediately prior to
the closing of the transaction:
Step One: If the only consideration received by our shareholders in the
transaction was cash, determine which is greater:
- the amount of cash received by our shareholders for one common share, and
- $11.1667, as this number may be adjusted from time to time.
Alternative Step One: If the consideration received by our shareholders in
the transaction was not entirely cash, determine which is greater:
- the average of the closing prices for our common shares during the ten
trading days prior to the record date for the determination of our
shareholders entitled to receive consideration in the transaction, and
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- $11.1667, as this number may be adjusted from time to time.
Step Two: If the closing date of the transaction was after September 30,
2002, add the amount of (a) the redemption price for one preferred security,
assuming that the redemption date was on the closing date of the
transaction, plus (b) the then-accrued and unpaid distributions on one
preferred security.
Alternative Step Two: If the closing date of the transaction was during the
period commencing on the first date of issuance of the preferred securities
through September 30, 2000, or in the 12-month period commencing October 1,
2000, or in the 12-month period commencing October 1, 2001, then multiply
110.0%, 109.0% or 108.0%, respectively, by $20. Then add (a) the result of
this multiplication, plus (b) the amount of any then-accrued and unpaid
distributions on one preferred security.
Step Three: Multiply the number determined in Step One or Alternative Step
One by a fraction. The numerator of the fraction is $20. The denominator of
the fraction is the amount determined in Step Two or Alternative Step Two.
The conversion price of the preferred securities following any transaction
described above will be the lower of:
- the conversion price in effect immediately prior to the closing of the
transaction, but after giving effect to any other prior adjustments, and
- the conversion price resulting from the three-step calculation set forth
above.
The number that is referenced as the second bullet point in each of Step
One and Alternative Step One above is an amount equal to 66 2/3% of the reported
last sales price of a common share on the New York Stock Exchange consolidated
transactions tape on September 29, 1999. That number will be adjusted any time
the conversion price of the preferred securities is adjusted, unless the
conversion price adjustment occurs as a result of the above three-step
calculation, so that the ratio of this number to the conversion price, after
giving effect to the adjustment, will always be the same as the original ratio
of the initial number to the initial conversion price.
If, with respect to any adjustment to the conversion price, reference is
made to the record date for the determination of our shareholders entitled to
receive consideration in the transaction, and no record date exists, then the
relevant date will be the date upon which our shareholders became entitled to
receive the consideration.
Transactions Affecting Less Than Substantially All of Our Common Shares
In all other transactions in which some, but not all or substantially all,
of our common shares are converted into the right to receive, or are exchanged
for, securities, cash or other property of a third party, then each preferred
security thereafter will be convertible into the kind and amount of securities,
cash or other property received by a shareholder of that number of common shares
into which a preferred security was convertible immediately prior to the closing
of the transaction.
TAX EVENT EXCHANGE OR REDEMPTION
If a tax event, as described below, occurs, we may:
- redeem the preferred securities;
- pay additional sums for distribution to the holders of preferred
securities; or
- take no action and thereby allow the preferred securities to be exchanged
for junior subordinated debentures.
If a tax event occurs and is continuing, we will have the right, upon not
less than 30 nor more than 60 days' notice, to redeem all or a portion of the
junior subordinated debentures for cash within 90 days following the occurrence
of the tax event. Following the redemption, the trust will redeem preferred
securities and common securities with an aggregate liquidation preference equal
to the aggregate principal amount of the debentures that are being redeemed, at
the liquidation preference of the securities, plus accrued and unpaid
distributions on those securities to the redemption date. The common securities
will be redeemed on a pro rata basis with the preferred
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securities, except that if an event of default under the trust agreement has
occurred and is continuing, the preferred securities will have priority over the
common securities in the redemption.
If a tax event occurs and is continuing, we will also have the right to
elect to pay whatever additional amounts as are necessary in order that the
amount of distributions then due and payable by the trust to the holders of the
preferred securities and the common securities are not reduced as a result of
any additional taxes, duties and other governmental charges to which the trust
has become subject to as a result of a tax event. We may exercise this right
with respect to all or a portion of the outstanding preferred securities.
If we do not exercise our redemption right or our right to pay additional
sums as described above with respect to any or all of the preferred securities,
the property trustee will direct the conversion agent to exchange those
outstanding preferred securities to which we have not exercised either of our
rights for junior subordinated debentures.
A "tax event" occurs if the property trustee, on behalf of the trust,
receives an opinion of counsel stating that there is more than an insubstantial
risk that after the date of the opinion one of the following will occur:
- the trust is, or will be within 90 days after the date of the opinion,
subject to United States federal income tax with respect to income
received or accrued on the junior subordinated debentures;
- interest payable by us on the junior subordinated debentures is not, or
within 90 days after the date of the opinion will not be, deductible by
us, in whole or in part, for federal income tax purposes; or
- the trust is, or will be within 90 days after the date of the opinion,
subject to more than a de minimis amount of other taxes, duties or other
governmental charges.
Additionally, in order for any of the above to constitute a tax event, the
event must have occurred as a result of any amendment or change in the tax laws
or regulations of the United States, tax laws or regulations of any political
subdivision or taxing authority in the United States, or any official
administrative pronouncement or judicial decision interpreting or applying those
laws or regulations, which does not pertain to the use of the proceeds from the
issuance of the junior subordinated debentures. The change or amendment also
must be effective, or the pronouncement or decision must be announced, on or
after the date that the preferred securities are originally issued. Finally, in
order for any of the above to constitute a tax event, the opinion of counsel
must be given by a firm having a national tax and securities practice, who has
not rescinded its opinion.
INVESTMENT COMPANY EVENT EXCHANGE
If an investment company event occurs, as described below, the property
trustee will direct the conversion agent to exchange all outstanding preferred
securities for junior subordinated debentures. An "investment company event"
occurs if the property trustee, on behalf of the trust, receives an opinion of
counsel to the effect that, as a result of a change in law or regulation or a
change in interpretation or application of law or regulation by any legislative
body, court, governmental agency or regulatory authority, there is more than an
insubstantial risk that the trust is or will be considered an "investment
company" that is required to be registered under the Investment Company Act of
1940, as amended. In order to be an investment company event, the change must be
effective on or after the date of original issuance of the preferred securities,
and the opinion of counsel must be given by a firm having a national tax and
securities practice.
The trust agreement provides that the holders of preferred securities, by
purchasing the securities, will be deemed to have agreed to be bound by these
provisions and those described in "Tax Event Exchange or Redemption" regarding
the exchange of preferred securities for junior subordinated debentures.
DISTRIBUTION OF
JUNIOR SUBORDINATED DEBENTURES
We will have the right to terminate the trust at any time and, after
satisfaction of the liabilities of creditors of the trust as provided by
applicable law, cause the junior subordinated debentures to be distributed to
the holders of the preferred securities in liquidation of the trust. Under
current
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United States federal income tax law and its interpretations and assuming, as
expected, that the trust is not treated as an association taxable as a
corporation for United States federal income tax purposes, a distribution of the
debentures will not be a taxable event to the trust and holders of the preferred
securities. Should there be a change in law, a change in legal interpretation, a
tax event or an investment company event or other circumstances, however, the
distribution could be a taxable event to holders of the preferred securities.
See "UNITED STATES TAXATION -- Redemption of Preferred Securities for Junior
Subordinated Debentures or Cash."
After the liquidation date fixed for any distribution of junior
subordinated debentures for preferred securities:
- the preferred securities will no longer be deemed to be outstanding,
- DTC or its nominee, as the record holder of the preferred securities,
will receive a registered global certificate or certificates representing
the junior subordinated debentures to be delivered upon the distribution,
and
- any certificates representing the preferred securities not held by DTC or
its nominee will be deemed to represent the junior subordinated
debentures having a principal amount equal to the liquidation preference
of those preferred securities, and bearing accrued and unpaid interest in
an amount equal to the accrued and unpaid distributions on those
preferred securities until the certificates are presented to the property
trustee for transfer or reissuance.
OPTIONAL REDEMPTION
The preferred securities may not be redeemed by the trust prior to October
1, 2002, except as described below and as provided under "Tax Event Exchange or
Redemption" above and under "Mandatory Redemption" below.
On and after October 1, 2002, the preferred securities are subject to
redemption, in whole or in part, at a fixed percentage of the liquidation
preference of the preferred securities, plus accrued and unpaid distributions,
if any, to the date fixed for redemption. If the preferred securities are
redeemed during the 12-month period commencing October 1 in each of the
following years indicated, the fixed percentage of the liquidation preference
will be as set forth below in the "Redemption Price" column:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ----------------------------- ----------
<S> <C>
2002......................... 107.000%
2003......................... 106.000
2004......................... 105.000
2005......................... 104.000
2006......................... 103.000
2007......................... 102.000
2008......................... 101.000
2009 and thereafter.......... 100.000
</TABLE>
The trust also may redeem the preferred securities, in whole or in part, on
or after October 1, 2001 and prior to October 1, 2002, at a redemption price of
108.000%, plus accrued and unpaid distributions, if any, to the date fixed for
redemption if the closing price of our common shares has exceeded 150% of the
conversion price then in effect for at least 20 trading days within a period of
30 consecutive trading days ending not more than five trading days prior to the
date of mailing of the notice of redemption.
The trust may not redeem less than all of the outstanding preferred
securities unless all accrued and unpaid distributions have been paid in full on
all outstanding preferred securities for all quarterly distribution periods
terminating on or prior to the redemption date.
MANDATORY REDEMPTION
The junior subordinated debentures will be redeemed by us in their entirety
upon repayment of the indebtedness represented by the debentures at maturity or
as a result of the acceleration of the debentures. The proceeds from our
repayment will be applied to redeem preferred securities and common securities
having an aggregate liquidation preference equal to the aggregate principal
amount of debentures so repaid or redeemed at a redemption price equal to the
respective liquidation preference of the preferred securities and common
securities or, in the case of
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a redemption of the debentures, at the redemption price paid with respect to the
debentures, as described below, together with accrued and unpaid distributions
on the preferred securities and common securities to the date of redemption. If
the indebtedness under the junior subordinated debentures is accelerated, the
preferred securities will be redeemed only when repayment of the junior
subordinated debentures actually has been received by the trust.
REDEMPTION PROCEDURES
Any preferred securities that are redeemed will receive the redemption
price from the contemporaneous redemption of the junior subordinated debentures.
Redemptions of the preferred securities will be made and the redemption price
will be payable on the redemption date only to the extent that the trust has
funds on hand available for the payment of the redemption price. See
"Distributions."
The property trustee will mail to each record holder of preferred
securities that are being redeemed an irrevocable notice of any optional or
mandatory redemption at least 30 but not more than 60 days prior to the
redemption date. If the property trustee gives a notice of redemption, then, by
12:00 noon New York City time on the redemption date, to the extent funds are
available, the property trustee will deposit irrevocably with DTC or the
conversion agent, as the case may be, funds sufficient to pay the applicable
redemption price and will give DTC or the conversion agent, as the case may be,
irrevocable instructions and authority to pay the redemption price to the
holders of the preferred securities being redeemed. See "BOOK-ENTRY ISSUANCE."
If the preferred securities are no longer in book-entry form, the property
trustee, to the extent funds are available, will irrevocably deposit with the
paying agent for the preferred securities funds sufficient to pay the applicable
redemption price and will give the paying agent irrevocable instructions and
authority to pay the redemption price to the holders upon surrender of their
certificates evidencing the preferred securities.
Distributions payable on or prior to the redemption date for any preferred
securities called for redemption will be paid to the holders of the preferred
securities as of the relevant record dates for the related distribution dates.
If a notice of redemption has been given and funds deposited as required, all
rights of the holders of the preferred securities called for redemption will
cease, except the right to receive the redemption price, but without interest on
the redemption price, and those preferred securities will cease to be
outstanding.
In the event that any redemption date is not a business day, then payment
of the redemption price will be made on the next succeeding day that is a
business day (and without any interest or other payment in respect of any such
delay). However, if the next business day falls in the next calendar year, the
redemption price will be payable on the immediately preceding business day. In
the event that payment of the redemption price is improperly withheld or refused
and not paid either by the trust or by us pursuant to our guarantee as described
under "DESCRIPTION OF THE GUARANTEE," then:
- distributions on the preferred securities will continue to accrue at the
then applicable rate, from the redemption date originally established by
the trust for those preferred securities to the date the redemption price
is actually paid, and
- the actual payment date will be the date fixed for redemption for
purposes of calculating the redemption price.
Subject to applicable law, which includes United States federal securities
law, we or our subsidiaries may at any time and from time to time purchase
outstanding preferred securities by tender, in the open market or by private
agreement.
Payment of the redemption price and any distribution or exchange of junior
subordinated debentures will be made to the record holders as they appear on the
register for the preferred securities on the relevant record date. The record
date will be the 15th day prior to the redemption date or liquidation date, as
applicable.
If less than all of the outstanding preferred securities and common
securities are to be redeemed on a redemption date, then the aggregate
liquidation preference of the preferred securities and common securities to be
redeemed shall be allocated pro rata among the preferred securities
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and the common securities based on the relative liquidation amounts of the two
classes. The property trustee will select the particular preferred securities to
be redeemed not more than 60 days prior to the redemption date from the
outstanding preferred securities not previously called for redemption, by lot or
by another method that the property trustee determines is fair and appropriate
and which may provide for the selection for redemption of portions (equal to $20
or an integral multiple of $20 in excess thereof) of the liquidation preference
of the preferred securities. The property trustee will promptly notify the
conversion agent in writing of the preferred securities selected for redemption
and, in the case of any preferred securities selected for partial redemption,
the liquidation preference of those securities to be redeemed. In the case of
preferred securities held by DTC (or any successor) or its nominee, the
preferred securities to be released and the distribution of the proceeds of any
redemption will be made in accordance with the procedures of DTC or its nominee.
See "BOOK-ENTRY ISSUANCE."
Unless we default in paying the redemption price, interest will cease to
accrue on the junior subordinated debentures being redeemed on and after the
redemption date.
SUBORDINATION OF COMMON SECURITIES
Payment of distributions on, and the redemption price of, the trust's
preferred securities and common securities generally shall be made pro rata
based on the liquidation amount of the preferred securities and the common
securities. If on any distribution date or redemption date an event of default
exists under the trust agreement, then:
- the trust will not pay any distribution on, or redemption price of, any
of the trust's common securities, and the trust will not make any other
payment on account of the redemption, liquidation or other acquisition of
its common securities, unless
- all accumulated and unpaid distributions on all of the trust's
outstanding preferred securities are paid in cash for all distribution
periods ending on or prior to any payment on the common securities, or
- in the case of a payment of the redemption price, the full amount of
the redemption price on all of the trust's outstanding preferred
securities then called for redemption shall have been paid or provided
for; and
- all funds available to the property trustee shall first be applied to the
payment in full in cash of all distributions on, or redemption price of,
the preferred securities then due and payable.
If an event of default occurs under the trust agreement, we (as holder of
the trust's common securities) will be deemed to have waived any right to act
with respect to the event of default until the effect of all events of default
with respect to the preferred securities has been cured, waived or otherwise
eliminated. Until any events of default under the trust agreement have been
cured, waived or otherwise eliminated, the property trustee is required to act
solely on behalf of the holders of the preferred securities and not on our
behalf as holder of the common securities, and only the holders of the preferred
securities will have the right to direct the property trustee to act on their
behalf.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
Upon any voluntary or involuntary liquidation, termination, dissolution or
winding up of the trust, the holders of the preferred securities will be
entitled to receive out of the assets of the trust, after all liabilities of the
trust to its creditors are satisfied:
- distributions in an amount equal to the aggregate of the stated
liquidation preference of $20 per preferred security, plus accrued and
unpaid distributions on the preferred securities to the date of payment,
or
- distributions of junior subordinated debentures on a pro rata basis in
exchange for the preferred securities, together with accrued and unpaid
interest equal to accrued and unpaid distributions on the preferred
securities. The debentures distributed will be in an aggregate principal
amount equal to the aggregate stated liquidation preference of, and with
an interest rate identical
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to the distribution rate of, the preferred securities.
If the liquidation distribution can be paid only in part because the trust
has insufficient assets available to pay in full the aggregate liquidation
distribution, then the amounts payable directly by the trust on its preferred
securities will be paid on a pro rata basis.
As the holder of the trust's common securities, we will be entitled to
receive distributions upon any liquidation pro rata with the holders of the
preferred securities. However, if an event of default relating to the junior
subordinated debentures has occurred and is continuing, the preferred securities
will have a priority over the common securities.
The trust automatically will dissolve upon expiration of its term and will
dissolve on the first to occur of:
- specified events relating to our bankruptcy, dissolution or liquidation;
- our discretionary, written direction to the property trustee to dissolve
the trust and distribute the junior subordinated debentures to the
holders of the preferred securities and common securities;
- the redemption, conversion or exchange of all of the trust's preferred
securities and common securities;
- the entry of an order for the dissolution of the trust by a court of
competent jurisdiction; and
- the occurrence of a tax event or investment company event, except in the
case of a tax event after which we elect to pay additional amounts to the
holders of the preferred securities, as described in "Tax Event Exchange
or Redemption," and we have not revoked the election or failed to make
the required payments.
EVENTS OF DEFAULT; NOTICE
An event of default under the indenture for the junior subordinated
debentures also is an event of default under the trust agreement. This is true
regardless of the type of default under the indenture. A waiver of an event of
default under the indenture by the property trustee at the direction of the
holders of the preferred securities also is valid as a waiver of the
corresponding event of default under the trust agreement.
Within 60 days after the property trustee learns of a trust agreement event
of default, the property trustee must give notice of that event of default to
the holders of the preferred securities, to the administrative trustees and to
us, unless the event of default has been cured or waived. We and the
administrative trustees are required to file annually with the property trustee
a certificate as to whether or not we each are in compliance with all the
conditions and covenants applicable to us under the trust agreement.
If an event of default exists with respect to the junior subordinated
debentures, the preferred securities will have a preference over the common
securities on termination of the trust as described under "Liquidation
Distribution upon Dissolution" above. The existence of a trust agreement event
of default does not entitle the holders of preferred securities to have their
preferred securities redeemed.
ENFORCEMENT OF RIGHTS BY HOLDERS
OF PREFERRED SECURITIES
If a trust agreement event of default exists, the holders of preferred
securities may rely on the property trustee, as holder of the junior
subordinated debentures, to enforce its rights against us. The property trustee
is required to notify each holder of preferred securities whenever the property
trustee receives notice of default with respect to the junior subordinated
debentures, unless the property trustee determines in good faith that
withholding notice is in the best interests of the holders of the preferred
securities or the default has been cured or waived. The holders of a majority in
aggregate liquidation preference of the preferred securities have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the property trustee or to direct the exercise of any trust or
power conferred upon the property trustee under the trust agreement, including
the right to direct the property trustee to exercise the remedies available to
it as a holder of the junior subordinated debentures, unless the property
trustee determines in good faith that withholding notice is
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in the best interests of the holders of the preferred securities or the default
has been cured or waived. If the property trustee fails to enforce its rights as
holder of the junior subordinated debentures after it is requested to do so by a
holder of preferred securities, the holder may proceed to enforce his rights
directly against us.
However, if the trust agreement event of default is attributable to our
failure to pay interest or principal on the junior subordinated debentures on
the date the interest or principal otherwise is payable, or on the redemption
date in the case of redemption, then a holder of preferred securities may
institute action directly against us for enforcement of payment to him of the
principal of or interest on junior subordinated debentures having a principal
amount equal to the aggregate liquidation preference of the holder's preferred
securities on or after the respective due date specified in the debentures. In
connection with this direct action by a holder, we will be subrogated to the
rights of the holder under the trust agreement to the extent of any payment made
by us to the holder in the direct action. The holders of preferred securities
will not be able to exercise directly against us any other remedy available to
the property trustee unless the property trustee first fails to do so.
MERGER OR CONSOLIDATION OF ISSUER TRUSTEES
Any successor to the property trustee, the Delaware trustee or any
administrative trustee by merger, conversion or consolidation or which otherwise
succeeds to that trustee's corporate trust business will take the place of that
trustee under the trust agreement if the successor otherwise is qualified and
eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS
OR REPLACEMENTS OF THE TRUST
The trust may not merge, consolidate, amalgamate or be replaced by
transferring or leasing its assets substantially as an entirety except as
described below. The trust may, at our request, with the consent of the
administrative trustees and without the consent of the property trustee, the
Delaware trustee or the holders of the preferred securities, merge with or into,
consolidate, amalgamate, or be replaced by or convey, transfer or lease its
properties and assets substantially as an entirety to a trust organized as such
under the laws of any state if:
- the successor entity either (a) expressly assumes all of the obligations
of the trust with respect to the preferred securities, or (b) substitutes
for the preferred securities other successor securities having
substantially the same terms as the preferred securities so long as the
successor securities rank the same as the preferred securities rank in
priority with respect to distributions and payments upon liquidation,
redemption and otherwise;
- we expressly appoint a trustee of the successor entity possessing the
same powers and duties that the property trustee has as the holder of the
junior subordinated debentures;
- the successor securities are listed on the same national securities
exchange or other organization on which the preferred securities are then
listed, if any;
- the transaction does not adversely affect the rights, preferences and
privileges of the holders of the preferred securities, including any
successor securities, in any material respect;
- the successor entity has a purpose substantially identical to that of the
trust;
- prior to the transaction we receive an opinion from independent counsel
to the trust experienced in such matters to the effect that:
- the transaction does not adversely affect the rights, preferences and
privileges of the holders of the preferred securities, including any
successor securities, in any material respect, other than with respect
to any dilution of the holders' interest in the new entity, and
- following the transaction, neither the trust nor the successor entity
will be required to register as an investment company under the
Investment Company Act;
- following the transaction, the successor entity will be treated as a
grantor trust for
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United States federal income tax purposes; and
- we or any permitted successor or assignee owns all of the common
securities of the successor entity and guarantees the obligations of the
successor entity under the successor securities at least to the extent
provided by the guarantee relating to the preferred securities of the
trust.
Notwithstanding the general provisions described above, the trust may not,
except with the consent of holders of 100% in aggregate liquidation amount of
the preferred securities, merge with or into, consolidate, amalgamate, or be
replaced by or convey, transfer or lease its properties and assets substantially
as an entirety to any other entity or permit any other entity to consolidate,
amalgamate, merge with or into, or replace it if the transaction would cause the
trust or the successor entity to be classified as other than a grantor trust for
United States federal income tax purposes.
VOTING RIGHTS;
AMENDMENT OF THE TRUST AGREEMENT
The holders of the preferred securities have only the voting rights
described below and under "DESCRIPTION OF THE GUARANTEE -- Amendments and
Assignment," plus any voting rights required by law.
We and the issuer trustees may amend the trust agreement from time to time
without the consent of any of the holders of the preferred securities:
- to cure any ambiguity, correct or supplement any provisions in the trust
agreement that may be inconsistent with any other provision, or to
address matters or questions arising under the trust agreement in a way
that is consistent with the other provisions of the trust agreement, in
each case so long as the amendment does not materially adversely affect
the interests of the holders of the trust's securities; or
- to modify, eliminate or add to any provision of the trust agreement if
necessary to ensure that the trust will be classified for United States
federal income tax purposes as a grantor trust at all times that any
preferred securities and common securities are outstanding or to ensure
that the trust will not be required to register as an "investment
company" under the Investment Company Act; or
- to maintain the qualification of the trust agreement under the Trust
Indenture Act.
We and the issuer trustees may amend the trust agreement in other respects
with the consent of holders representing not less than a majority of the
liquidation amounts of the outstanding preferred securities and common
securities acting as a single class. In order to make these amendments, the
issuer trustees must first receive an opinion of counsel experienced in these
matters to the effect that the amendment or the exercise of any power granted to
the issuer trustees in accordance with the amendment will not affect the trust's
status as a grantor trust for United States federal income tax purposes or the
trust's exemption from status as an "investment company" under the Investment
Company Act.
Additionally, without the consent of each holder of preferred securities
and common securities, no amendment may:
- change the amount or timing of any distribution on the preferred
securities and common securities or otherwise adversely affect the amount
of any distribution required to be made in respect of the preferred
securities and common securities as of a specified date; or
- restrict the right of a holder of preferred securities or common
securities to sue for the enforcement of any distribution payment.
If any proposed amendment to the trust agreement provides for, or the
issuer trustees otherwise propose to effect, the dissolution, winding-up or
termination of the trust in a manner that is not permitted by the trust
agreement, then the holders of the then outstanding preferred securities are
entitled to vote as a class on the proposed amendment or proposal. The amendment
or proposal will not be effective except with the approval of the holders of the
majority in aggregate liquidation preference of the preferred securities.
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Any amendment of the trust agreement becomes effective when we give notice
of the amendment to the holders of the preferred securities and common
securities.
The property trustee is required to notify each holder of preferred
securities whenever the property trustee receives notice of a default with
respect to the junior subordinated debentures, unless the property trustee
determines in good faith that withholding notice is in the best interests of the
holders of the preferred securities. The holders of a majority in aggregate
liquidation preference of preferred securities have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the property trustee or to direct the exercise of any trust or power conferred
upon the property trustee under the trust agreement. This includes the right to
direct the property trustee to exercise the remedies available to it as a holder
of the junior subordinated debentures. If a default occurs while the junior
subordinated debentures are held by the property trustee, the issuer trustees
are not permitted to:
- direct the time, method and place of conducting any proceeding for any
remedy available to the debenture trustee, or execute any trust or power
conferred on the debenture trustee with respect to the junior
subordinated debentures;
- waive any past default that is waivable under the indenture governing the
junior subordinated debentures;
- exercise any right to rescind or annul a declaration that the principal
of all the junior subordinated debentures shall be due and payable; or
- give a required consent to any amendment, modification or termination of
the indenture or the junior subordinated debentures,
unless, in each case, they first obtain the approval of the holders of a
majority in aggregate liquidation amount of all outstanding preferred
securities. In the case of the fourth bullet clause above, when no trust
agreement event of default exists, the holders of the preferred securities and
the common securities, voting together as a single class, must approve. When the
indenture requires the consent of the holders of the junior subordinated
debentures, the property trustee cannot give the consent without first obtaining
the consent of each holder of the preferred securities. The issuer trustees
cannot revoke any action previously authorized or approved by a vote of the
holders of the preferred securities except by subsequent vote of the holders of
the preferred securities.
Any required approval of holders of preferred securities may be given
either at a properly convened meeting of holders of preferred securities or by a
written consent. The property trustee must notify record holders of preferred
securities of any meeting or of any matter upon which written action is
requested.
No vote or consent of the holders of preferred securities is required for
the trust to redeem the preferred securities in accordance with the trust
agreement. Holders of preferred securities have no right to appoint or remove
the issuer trustees.
Whenever holders of preferred securities are entitled to vote or consent
under any of the circumstances described above, neither we nor the issuer
trustees are permitted to vote, and any preferred securities that we or any of
the issuer trustees or any of our affiliates own will be treated as if they were
not outstanding for that purpose.
PAYMENT AND PAYING AGENCY
DTC will make payments on the preferred securities by crediting the
relevant accounts at DTC on the distribution dates. If any preferred securities
are not held by DTC, then the paying agent will mail checks to the registered
holders at their addresses as shown on its register, and the redemption price or
liquidation amount will be paid in immediately available funds when the holder
surrenders the preferred security. The paying agent will initially be the
property trustee and any co-paying agent chosen by the property trustee and
acceptable to the administrative trustees and to us. The paying agent can resign
upon 30 days' written notice to the property trustee and to us. If the property
trustee resigns as paying agent, the administrative trustees will appoint a bank
or trust company acceptable to the administrative trustees and to us to act as
paying agent.
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TRANSFER AGENT, REGISTRAR AND PAYING,
CONVERSION AND EXCHANGE AGENT
The property trustee will act as transfer agent, registrar and paying,
conversion and exchange agent for the preferred securities. If the trust issues
certificated preferred securities, they will be registered in the name of the
security holder. The preferred securities may be transferred or exchanged, based
on administrative procedures described in the trust agreement, without the
payment of any service charge (other than any tax or other governmental charge)
by contacting the registrar and transfer agent, Firstar Bank, N.A., Corporate
Trust, 425 Walnut Street, Cincinnati, Ohio 45202. The trust will not register
transfers of the preferred securities after they are called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The property trustee is required to perform only the duties that are
specifically set forth in the trust agreement, other than during the continuance
of a trust agreement event of default. After a trust agreement event of default,
the property trustee is required to exercise the same degree of care and skill
as a prudent person would exercise or use in the conduct of his or her own
affairs. Subject to this provision, the property trustee has no obligation to
exercise any of its powers under the trust agreement at the request of any
holder of preferred securities unless it is offered reasonable indemnity against
the costs, expenses and liabilities that it might incur by doing so. If no trust
agreement event of default exists and the property trustee is required to decide
between alternative courses of action, construe ambiguous provisions in the
trust agreement or is unsure of the application of any provision of the trust
agreement, then we will have the right to tell the property trustee which action
to take unless the matter is one on which holders of preferred securities are
entitled to vote. If we don't give any directions, the property trustee will
take whatever action it deems advisable and in the best interests of the holders
of the preferred securities and common securities. The property trustee will
have no liability except for its own bad faith, negligence or willful
misconduct. We and our subsidiaries may maintain deposit accounts and conduct
other banking and securities transactions and relationships with the property
trustee in the ordinary course of business.
EXPENSES OF THE TRUST
We will pay all of the costs, expenses or liabilities of the trust, other
than obligations of the trust to pay to the holders of any preferred securities
or common securities the amounts due to the holders under the terms of those
securities.
MISCELLANEOUS
The administrative trustees are to operate the trust in such a way that:
- the trust will not be:
- deemed to be an "investment company" required to be registered under
the Investment Company Act; or
- classified as an association taxable as a corporation or partnership
for United States federal income tax purposes; and
- the junior subordinated debentures will be treated as our indebtedness
for United States federal income tax purposes.
We and the administrative trustees are authorized to take any lawful action
consistent with the certificate of trust and the trust agreement that we and the
administrative trustees determine in our discretion to be necessary or desirable
for these purposes, as long as the action does not materially and adversely
affect the interests of the holders of the preferred securities.
Holders of the preferred securities have no preemptive or similar rights.
The trust may not borrow money or issue debt or mortgage or pledge any of
its assets.
GOVERNING LAW
The trust agreement and the preferred securities are governed by Delaware
law, excluding Sections 3540 and 3561 of Title 12 of the Delaware Code.
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DESCRIPTION OF THE GUARANTEE
When the trust securities are issued, we will execute and deliver a
guarantee agreement for the benefit of the holders of the preferred securities.
The guarantee agreement will be qualified as an indenture under the Trust
Indenture Act. Firstar Bank, N.A. will act as guarantee trustee under the
guarantee for the purposes of compliance with the Trust Indenture Act, and will
hold the guarantee for the benefit of the holders of the preferred securities.
We have summarized certain provisions of the guarantee below. Because this
is a summary, it does not contain all information you should consider. The form
of the guarantee agreement has been filed as an exhibit to the registration
statement of which this prospectus is a part, and you should read the guarantee
agreement for provisions that may be important to you.
GENERAL
We will promise to make the guarantee payments to the holders of the
preferred securities, as and when due, regardless of any defense, right of
set-off or counterclaim that the trust may have or assert, other than the
defense of payment. The guarantee covers the following payments, to the extent
not paid by or on behalf of the trust:
- any accumulated and unpaid distributions required to be paid on the
preferred securities, but only if and to the extent that the trust has
funds on hand available for the distributions at that time;
- the redemption price of any preferred securities called for redemption,
if and to the extent that the trust has funds on hand available to pay
the redemption price at that time; or
- upon a voluntary or involuntary dissolution, winding up or liquidation of
the trust, unless the junior subordinated debentures are distributed to
the holders of the preferred securities, the lesser of
- the liquidation distribution to the extent that the trust has funds on
hand available to make the distribution; or
- the amount of assets of the trust remaining available for distribution
to holders of preferred securities.
Our obligation to make a guarantee payment may be satisfied either by our
direct payment of the required amounts to the holders of the preferred
securities or by causing the trust to pay them.
The guarantee is an irrevocable guarantee on a subordinated basis of the
trust's obligations under the preferred securities, but applies only to the
extent that the trust has funds sufficient to make the required payments. If we
do not make interest payments on the junior subordinated debentures held by the
trust, the trust will not be able to pay distributions on the preferred
securities. The guarantee is a guarantee of payment, not a guarantee of
collection. This means that the guaranteed party may institute legal proceedings
against us as the guarantor to enforce its rights under the guarantee without
first suing anyone else.
We also have agreed to guarantee the obligations of the trust with respect
to the common securities to the same extent as our guarantee to holders of the
preferred securities. If there is a trust agreement event of default, however,
the holders of preferred securities will have priority over the holders of
common securities as to distributions and payments on liquidation, redemption or
otherwise during the continuance of the default.
Our obligations described in this prospectus under the guarantee agreement,
the trust agreement, the junior subordinated debentures, and the securities
resolution under the indenture, taken together, constitute our full, irrevocable
and unconditional guarantee of payments due on the preferred securities. No
single document standing alone or operating in conjunction with fewer than all
of the other documents constitutes the guarantee. It is only the combined
operation of these documents that has the effect of providing a full,
irrevocable and unconditional guarantee of the trust's obligations under the
preferred securities. See "THE TRUST," "DESCRIPTION OF THE PREFERRED SECURITIES"
and "DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES."
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SUBORDINATION OF THE GUARANTEE
The guarantee is an unsecured obligation and will rank subordinate and
junior in right of payment to all of our other liabilities. The guarantee will
rank equal in right of payment with most senior preferred shares, if any, which
we may issue and with any guarantee of any preferred shares of any of our
affiliates that we may enter into.
The guarantee will be held for the benefit of the holders of the preferred
securities, and can be discharged only by payment of the guaranteed payments in
full (to the extent not paid by the trust) or by distribution of the junior
subordinated debentures to the holders of the preferred securities. The
guarantee does not limit the additional debt that we may incur.
AMENDMENTS AND ASSIGNMENT
The guarantee may not be amended without the prior approval of the holders
of not less than a majority of the aggregate liquidation amount of the
outstanding preferred securities, except that no approval is required for
changes that do not adversely affect the rights of the holders of the preferred
securities. The manner of obtaining approval is the same as described under
"DESCRIPTION OF THE PREFERRED SECURITIES -- Voting Rights; Amendment of the
Trust Agreement." All guarantees and agreements contained in the guarantee
agreement will bind our successors, assigns, receivers, trustees and
representatives.
OUR PROMISES
We promise in the guarantee that we will pay all required additional sums
to the trust, if the trust holds all of the junior subordinated debentures, a
tax event exists and we elect to pay additional amounts with respect to the
preferred securities and common securities. This promise is subject to the
subordination provisions described above. For a description of a tax event and
our right to elect to pay additional amounts, see "DESCRIPTION OF THE PREFERRED
SECURITIES -- Tax Event Exchange or Redemption."
We also promise to be bound by a number of restrictions if:
- we actually know of a debenture event of default or an event that, with
notice or time will be a debenture event of default, and we have not
taken reasonable steps to cure that default;
- we are in default in paying any of our obligations under the guarantee;
or
- we have given notice of our election to defer interest payments on the
junior subordinated debentures and we have not rescinded that notice.
The restrictions that will be in effect in the above instances are the same
ones that are described in "DESCRIPTION OF THE PREFERRED
SECURITIES -- Distributions" that will be in effect if we elect to defer
interest payments.
We also promise in the guarantee agreement:
- for so long as preferred securities are outstanding, we will not convert
junior subordinated debentures except pursuant to a notice of conversion
delivered to the conversion agent by a holder of preferred securities;
- to maintain, directly or indirectly, 100% ownership of the common
securities, except that successors described in the indenture are
permitted to succeed to our ownership of the common securities;
- not to voluntarily terminate, wind-up or liquidate the trust except in
connection with a distribution of the junior subordinated debentures to
the holders of the preferred securities in liquidation of the trust or in
connection with the mergers, consolidations or amalgamations permitted by
the trust agreement;
- to reserve for issuance the number of common shares that would be
required from time to time to be issued upon the conversion of all the
junior subordinated debentures then outstanding;
- to use our reasonable efforts, consistent with the terms of the trust
agreement, to cause the trust to remain classified as a grantor trust and
not as an association taxable as a corporation or a partnership for
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United States federal income tax purposes; and
- to deliver common shares upon the conversion of preferred securities by
the holders.
We also promise to honor all obligations described in the guarantee
relating to the conversion or exchange of the preferred securities into or for
common shares or junior subordinated debentures.
EVENTS OF DEFAULT
We will be in default under the guarantee agreement if we don't make
required payments when due or if we fail to perform some other obligation and we
do not cure our failure to perform within 60 days after we receive notice of
that failure. The holders of a majority in aggregate liquidation amount of the
preferred securities have the right:
- to direct the time, method and place of conducting any proceeding for any
remedy available to the guarantee trustee under the guarantee agreement;
- to direct the exercise of any power conferred upon the guarantee trustee
under the guarantee agreement; and
- waive any event of default and its consequences.
If the guarantee trustee fails to enforce the guarantee, any holder of
preferred securities may institute a legal proceeding directly against us to
enforce that holder's rights under the guarantee agreement without first
instituting a legal proceeding against the trust, the guarantee trustee or
anyone else. In addition, any record holder of preferred securities may proceed
directly against us to obtain payment of the guaranteed amounts described under
"General" above without first waiting for the guarantee trustee to enforce the
guarantee and without instituting any legal proceedings against the trust, the
guarantee trustee or anyone else.
As guarantor, we are required to file annually with the guarantee trustee a
certificate stating whether or not we are in compliance with all the conditions
and covenants applicable to us under the guarantee agreement.
INFORMATION CONCERNING
THE GUARANTEE TRUSTEE
The guarantee trustee promises to perform only the duties that are
specifically set forth in the guarantee agreement, unless we are in default in
performing the guarantee. When we are in default under the guarantee, the
guarantee trustee must exercise the same degree of care and skill as a prudent
person would exercise or use in the conduct of his or her own affairs. Subject
to this provision, the guarantee trustee is under no obligation to exercise any
of the powers vested in it by the guarantee agreement at the request of any
holder of preferred securities unless it is offered reasonable indemnity against
the costs, expenses and liabilities that it might incur by doing so.
TERMINATION OF THE GUARANTEE
The guarantee will terminate upon:
- full payment of the redemption price of the preferred securities,
- full payment of the amounts payable upon liquidation of the trust,
- a distribution of common shares to the holders of preferred securities
upon conversion of their preferred securities, or
- the distribution of junior subordinated debentures to the holders of the
preferred securities in exchange for all of the preferred securities.
The guarantee will continue to be effective or will be reinstated, as the
case may be, if any holder of the preferred securities must ever restore payment
of any sums paid under the preferred securities or the guarantee.
GOVERNING LAW
The guarantee agreement is governed by the laws of Ohio.
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DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES
We will issue the junior subordinated debentures under a Junior Convertible
Subordinated Indenture between us and Firstar Bank, N.A., as debenture trustee.
We have summarized selected provisions of the junior subordinated debentures and
the indenture below. Because this is a summary, it does not contain all
information you should consider. The form of indenture has been filed as an
exhibit to the registration statement of which this prospectus is a part. You
should read the form of indenture for provisions that may be important to you.
GENERAL
The junior subordinated debentures are unsecured and rank junior and
subordinate in right of payment to all of our senior debt, as described below.
The debentures are limited in aggregate principal amount to approximately
$21,887,500 ($25,170,625, if the option granted to the underwriters to buy
additional securities is exercised in full), which equals the sum of the
aggregate stated liquidation preference of the preferred securities and the
capital contributed by us in exchange for the common securities. The indenture
does not limit us from incurring or issuing additional debt. See
"Subordination." Concurrently with the issuance of the preferred securities, the
trust will invest the proceeds of the sale of those securities and the
consideration paid by us for the common securities in the junior subordinated
debentures.
The junior subordinated debentures are not subject to any sinking fund
provision. The entire principal amount of the debentures matures, and becomes
due and payable, together with any accrued and unpaid interest on the
debentures, on September 30, 2029.
DEFINITION OF SENIOR DEBT
For purposes of the junior subordinated debentures, "senior debt" means the
principal of, and premium, if any, and interest, if any, on the following types
of our debt:
- all of our obligations for borrowed money;
- all of our obligations evidenced by bonds, debentures, notes or other
similar instruments, including obligations incurred in connection with
the acquisition of property, assets or businesses;
- all of our reimbursement obligations with respect to letters of credit,
bankers' acceptances or similar facilities issued for our account;
- all of our obligations issued or assumed as the deferred purchase price
of property or services, except trade accounts payable or accrued
liabilities arising in the ordinary course of business;
- all of our capital lease obligations; and
- all obligations of another person or entity of the nature set forth above
that we have guaranteed or for which we are responsible or liable,
directly or indirectly, as obligor or in any other capacity.
Nevertheless, if the documents that create or evidence any of the foregoing
kinds of debt specifically state that the particular obligation is not superior
in right of payment to the junior subordinated debentures or to other of our
debt that ranks equally with or subordinate to the debentures, then that debt
will not be senior debt. Senior debt can be contingent indebtedness, and it
includes both existing indebtedness and indebtedness that we may incur in the
future.
However, in no event will the following types of debt ever be considered to
be senior debt:
- any of our debt which is without recourse to us when it is incurred and
without respect to any election under Section 1111(b) of the United
States Bankruptcy Code;
- any debt we owe to our subsidiaries;
- any debt we owe to any of our employees;
- any liability for taxes;
- any debt or other monetary obligations to trade creditors or assumed by
us or any of our subsidiaries in the ordinary course of business in
connection with obtaining goods, materials or services; and
- the junior subordinated debentures issued to the trust.
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INTEREST
The junior subordinated debentures bear interest at the annual rate of
10.0% per annum, payable quarterly in arrears on September 30, December 31,
March 31 and June 30 of each year, commencing on December 31, 1999, to the
holders of record at the close of business on the last business day before the
interest payment date. We anticipate that each debenture will be held in the
name of the property trustee in trust for the benefit of the holders of the
preferred securities and the common securities, unless and until the trust is
liquidated. The amount of interest payable for any period will be computed on
the basis of a 360-day year of twelve 30-day months.
If any date on which interest is payable is not a business day, then
payment of the interest payable on that date will be made on the next succeeding
day that is a business day. No additional interest or other payment will accrue
because of this delay in the payment date. Accrued interest that is not paid on
the applicable interest payment date will bear additional interest, to the
extent permitted by law, at the stated rate per annum, compounded quarterly. The
term "interest" includes quarterly interest payments, interest on quarterly
interest payments not paid on the applicable interest payment date, and
additional sums described in "DESCRIPTION OF THE PREFERRED SECURITIES -- Tax
Event Exchange or Redemption," as applicable.
PAYMENT AND PAYING AGENTS
Payments on junior subordinated debentures represented by a global security
will be made to DTC, as the depositary for the debentures. See "BOOK-ENTRY
ISSUANCE." In the event junior subordinated debentures are issued in definitive
form rather than as a global security, principal of and premium, if any, and any
interest on debentures will be payable, the transfer of the debentures will be
registerable, and the debentures will be exchangeable for debentures of other
denominations of a like aggregate principal amount at the corporate office of
the debenture trustee or at the office of any paying agent or paying agents as
we may designate. However, at our option, payment of any interest may be made:
- by check mailed to the holder at the address appearing in the securities
register, or
- by wire transfer to an account maintained by the holder as specified in
the securities register, provided that proper transfer instructions have
been received by the record date.
Payment of any interest on junior subordinated debentures will be made to
the registered holder of the debentures at the close of business on the record
date for such interest, except in the case of defaulted interest. The record
date for the interest payable on any interest payment date will be 15 days prior
to the relevant interest payment date. We may at any time designate additional
paying agents or rescind the designation of any paying agent.
If we have deposited any monies with the debenture trustee or any paying
agent, or if we hold any monies in trust, for payments due and payable on the
junior subordinated debentures and those funds remain unclaimed after two years,
then we may request that those funds be returned to us or we may cease holding
them in trust. In that case, the holder of the debenture may seek payment of the
unpaid amount only from us in the capacity of a general unsecured creditor.
OPTION TO DEFER PAYMENT OF INTEREST
If we are not in default under the indenture, we have the right to defer
the payment of interest, including any liquidated damages, on the junior
subordinated debentures at any time or times for periods of up to 20 consecutive
quarters each. We may not, however, defer the payment of interest beyond the
stated maturity date of the debentures. We may exercise this deferral right on
multiple occasions during the term of the junior subordinated debentures. To the
extent permitted by law, additional interest will accumulate on any unpaid
interest to which the holder of the debentures is entitled at the stated annual
rate, compounded quarterly from the relevant payment date of the unpaid
interest. At the end of any interest deferral period, we must pay all interest
then accrued and unpaid. During an interest deferral period, the holders of the
debentures, or the holders of preferred securities while the preferred
securities are outstanding, will continue to
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be required to accrue interest income for United States federal income tax
purposes. See "UNITED STATES TAXATION -- Interest Income and Original Issue
Discount."
We are restricted during any interest deferral period from taking certain
actions. These restrictions are described in "DESCRIPTION OF THE PREFERRED
SECURITIES -- Distributions."
If we intend to defer interest as described above, we will give the
property trustee, the administrative trustees and the debenture trustee notice
of our election to defer interest at least one business day before the earlier
of:
- the record date for distributions on the preferred securities, or if no
preferred securities are outstanding, the record date for the date
interest on the junior subordinated debentures would have been payable
except for the election to defer interest; and
- the date the property trustee is required to give notice of the record
date to the New York Stock Exchange or other applicable self-regulatory
organization or to holders of the preferred securities, or if no
preferred securities are outstanding, the date the debenture trustee is
required to give notice of the record date to the New York Stock Exchange
or other applicable self-regulatory organization or to holders of the
junior subordinated debentures.
The debenture trustee and the property trustee will notify the holders of
the junior subordinated debentures and the preferred securities, respectively,
of our election to defer interest payments.
MANDATORY REDEMPTION
We will redeem the junior subordinated debentures in their entirety upon
repayment of the indebtedness represented by the debentures at maturity or as a
result of acceleration upon the occurrence of an indenture event of default. The
redemption price will equal 100% of the principal amount of the debentures,
together with any accrued and unpaid interest on the debentures. The redemption
payment will be made prior to 12:00 noon, New York City time, on the date of the
repayment or acceleration or at any other time on any earlier date that we and
the holders of the debentures may agree. The debentures are not entitled to the
benefit of any sinking fund or, except as set forth above or as a result of
acceleration, any other provision for mandatory prepayment.
OPTIONAL REDEMPTION
On and after October 1, 2002, we will have the right, at any time and from
time to time, to redeem all or any part of the junior subordinated debentures,
upon notice given as provided below. If the debentures are redeemed during the
12-month period commencing October 1, in each of the following years, the
redemption price will be as set forth below expressed as a percentage of the
principal amount of the debentures being redeemed, together with any accrued but
unpaid interest on the portion being redeemed:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ----------------------------- ----------
<S> <C>
2002......................... 107.000%
2003......................... 106.000
2004......................... 105.000
2005......................... 104.000
2006......................... 103.000
2007......................... 102.000
2008......................... 101.000
2009 and thereafter.......... 100.000
</TABLE>
We also may redeem the junior subordinated debentures, in whole or in part,
on or after October 1, 2001 and prior to October 1, 2002, at a redemption price
of 108.000%, plus accrued and unpaid interest, if any, to the date fixed for
redemption if the closing price of our common shares has exceeded 150% of the
conversion price then in effect for at least 20 trading days within a period of
30 consecutive trading days ending not more than five trading days prior to the
date of mailing of the notice of redemption.
For so long as the trust holds all the outstanding junior subordinated
debentures, the proceeds of any redemption will be used by the trust to redeem
preferred securities and common securities in accordance with their terms. We
may not
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redeem the debentures in part unless all accrued and unpaid interest has been
paid in full on all outstanding debentures. We may not, in any case, redeem the
junior subordinated debentures unless all accrued and unpaid interest has been
paid in full on all outstanding debentures through the last interest payment
date prior to and including the date of redemption.
We also will have the right to redeem the junior subordinated debentures
following the occurrence of a tax event, as described in "DESCRIPTION OF THE
PREFERRED SECURITIES -- Tax Event Exchange or Redemption," at a redemption price
equal to the principal amount of the debentures, plus any accrued and unpaid
interest.
REDEMPTION PROCEDURES
Notice of a redemption of the junior subordinated debentures and the
procedures for the redemption will be as provided with respect to the preferred
securities under "DESCRIPTION OF THE PREFERRED SECURITIES -- Redemption
Procedures." We will mail notice of a redemption at least 30 days but not more
than 60 days before the redemption date to each holder of junior subordinated
debentures to be redeemed at its registered address. Unless we fail to pay the
redemption price, interest will cease to accrue on the debentures called for
redemption on and after the redemption date.
DISTRIBUTION OF
JUNIOR SUBORDINATED DEBENTURES
We have the right to terminate the trust at any time and cause the junior
subordinated debentures to be distributed to the holders of the preferred
securities after all liabilities to creditors of the trust are satisfied as
provided by applicable law. If the junior subordinated debentures are
distributed to the holders of preferred securities in liquidation of the trust,
including a dissolution and liquidation following a tax event or investment
company event, the debentures will be issued in the form of one or more global
securities and DTC, or the successor depositary for the preferred securities,
will act as depository for the debentures. We anticipate that the depositary
arrangements for the debentures will be substantially the same as those for the
preferred securities. For a description of DTC and the terms of the depositary
matters, see "BOOK-ENTRY ISSUANCE."
CONVERSION OF THE
JUNIOR SUBORDINATED DEBENTURES
The junior subordinated debentures are convertible at the option of the
holders into our common shares at any time prior to redemption or maturity at
the rate of 0.80 common shares for each $20 in principal amount of the
debentures, subject to the conversion price adjustments described under
"DESCRIPTION OF THE PREFERRED SECURITIES -- Conversion Price Adjustments." This
equates to an initial conversion price of $25 per common share. For so long as
the preferred securities are outstanding, the trust is prevented from converting
the junior subordinated debentures except pursuant to a notice of conversion
delivered to the conversion agent by a holder of preferred securities. Upon
surrender of preferred securities to the conversion agent for conversion, the
trust will distribute the commensurate principal amount of the debentures to the
conversion agent on behalf of the holder of the preferred security converted.
The conversion agent will convert those debentures into common shares on behalf
of the holder. Our delivery through the conversion agent to the holders of the
debentures of the fixed number of common shares into which the debentures are
convertible (together with the cash payment, if any, in lieu of fractional
shares) will satisfy our obligation to pay the principal amount of the
debentures, and the accrued and unpaid interest attributable to the period from
the last date to which interest has been paid or provided for.
MODIFICATION OF INDENTURE
We and the debenture trustee may amend the indenture from time to time
without the consent of any of the holders of the junior subordinated debentures:
- to cure ambiguities, defects or inconsistencies, if such action does not
materially adversely affect the interest of the holders of the junior
subordinated debentures or the
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holders of the preferred securities as long as they remain outstanding;
or
- to qualify or maintain the qualification of the indenture under the Trust
Indenture Act.
We and the debenture trustee may amend the indenture in other respects with
the consent of holders representing not less than a majority in principal amount
of the outstanding junior subordinated debentures. However, without the consent
of each holder of the junior subordinated debentures so affected, no amendment
may:
- change the stated maturity of the junior subordinated debentures;
- reduce the principal amount of the junior subordinated debentures;
- reduce the rate or extend the time of payment of interest on the junior
subordinated debentures, other than deferrals of the payments of interest
as described above under "Option to Defer Payment of Interest;"
- reduce the premiums payable upon the redemption of the junior
subordinated debentures;
- impair any right to institute suit for the enforcement of any payment on
the junior subordinated debentures;
- change the subordination provisions of the indenture;
- change any right to convert any junior subordinated debentures in a
manner adverse to the holders; or
- reduce the percentage of principal amount of the junior subordinated
debentures that is required to consent to any modification of the
indenture.
In addition, for so long as any of the preferred securities remain
outstanding and any indebtedness remains outstanding under the junior
subordinated debentures, none of the following actions may occur without the
prior consent of the holders of at least a majority in aggregate liquidation
preference of the preferred securities then outstanding:
- no modification of the indenture may be made that adversely effects the
holders of the preferred securities in any material respect;
- no termination of the indenture may occur; or
- no waiver of any debenture event of default or waiver of any covenant
under the indenture may be effective.
Finally, where a consent under the indenture would require the consent of
each holder of junior subordinated debentures, the property trustee will not
give this consent without the prior consent of each holder of the preferred
securities.
DEBENTURE EVENTS OF DEFAULT
Each of the following is an event of default with respect to the junior
subordinated debentures:
- our failure for 30 days to pay any interest on the junior subordinated
debentures when due, except in the case of permitted deferrals of
interest as described under "Option to Defer Payment of Interest;"
- our failure to pay any principal of or premium, if any, on the junior
subordinated debentures when due, whether at maturity, upon redemption by
declaration, or at any other time;
- our failure to deliver common shares upon an election by a holder of
junior subordinated debentures to convert the debentures;
- our continued failure for 90 days to observe or perform any other promise
we made in the indenture after written notice of the default is given as
provided in the indenture; or
- certain events of bankruptcy, insolvency or reorganization relating to
us.
The holders of a majority in aggregate outstanding principal amount of the
junior subordinated debentures have the right to direct the time, method and
place of conducting any proceeding
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for any remedy available to the debenture trustee or exercising any trust or
power conferred on the trustee consistent with the indenture. The debenture
trustee or the holders of not less than 25% in aggregate principal amount of the
junior subordinated debentures then outstanding may declare the principal due
and payable immediately upon an event of default described above. If the
debenture trustee or the holders of the junior subordinated debentures fail to
make the declaration, the holders of at least 25% in aggregate liquidation
preference of the preferred securities then outstanding will have that right.
The holders of a majority in aggregate outstanding principal amount of the
debentures may annul and rescind this declaration if the default (other than the
non-payment of the principal of the debentures that has become due solely by
acceleration) has been cured or waived and a sum sufficient to pay all matured
installments of interest and principal due otherwise than by acceleration has
been deposited with the debenture trustee. If the holders of the debentures fail
to annul and rescind the declaration, the holders of a majority in aggregate
liquidation preference of the preferred securities then outstanding will have
that right.
The holders of a majority in aggregate outstanding principal amount of the
junior subordinated debentures affected may, on behalf of the holders of all the
debentures, waive any past default, except:
- a default in the payment of principal or interest, unless we have cured
the default and deposited with the debenture trustee an amount sufficient
to pay all matured installments of interest and principal due otherwise
than by acceleration; or
- a default under a provision which under the indenture cannot be modified
or amended without the consent of the holder of each outstanding
debenture.
If the holders of the junior subordinated debentures fail to waive the
default, the holders of a majority in aggregate liquidation preference of the
preferred securities will have that right. We are required to file annually with
the debenture trustee a certificate as to whether or not we are in compliance
with all the conditions and covenants applicable to us under the indenture.
If a debenture event of default exists, the property trustee has the right
to declare the principal of and the interest on the debentures and any other
amounts payable under the indenture to be immediately due and payable and to
enforce its other rights as a creditor with respect to the junior subordinated
debentures.
ENFORCEMENT OF RIGHTS
BY HOLDERS OF PREFERRED SECURITIES
If a debenture event of default exists and the event is attributable to our
failure to pay interest or principal on the junior subordinated debentures on
the date interest or principal is due, a holder of preferred securities may
institute a direct action for payment after the due date. We may not amend the
indenture to remove the foregoing right to bring a direct action unless we have
received the prior written consent of the holders of all of the preferred
securities. Our payment to a holder of preferred securities in connection with a
direct action will not affect our obligation to pay the principal of or interest
on the junior subordinated debentures held by the trust or the property trustee.
We will be subrogated to the rights of the holder of the preferred securities
with respect to payments on the preferred securities to the extent of any
payments made by us to the holder in any direct action.
CONSOLIDATION, MERGER, SALE OF ASSETS
AND OTHER TRANSACTIONS
We may not merge, consolidate, transfer or lease our assets substantially
as an entirety to any entity, and no entity may merge, consolidate or transfer
or lease its assets substantially as an entirety to us, unless:
- in case we consolidate with or merge into another entity or transfer our
assets substantially as an entirety to any entity, the successor entity
is organized under the laws of the United States or any state or the
District of Columbia and the successor expressly assumes our obligations
under the junior subordinated debentures;
- immediately after giving effect to the transaction, no debenture event of
default, and no event that with notice or time would be a debenture event
of default, will exist;
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- in the case of the junior subordinated debentures, the transaction is
permitted under the trust agreement and guarantee relating to the
preferred securities, and does not give rise to any breach or violation
of the trust agreement or the guarantee; and
- other conditions as prescribed in the indenture are met.
The general provisions of the indenture do not afford holders of the junior
subordinated debentures protection in the event of a highly leveraged or other
transaction involving us that may adversely affect those holders.
SATISFACTION AND DISCHARGE
The indenture will cease to be effective, with limited exceptions, and we
will have satisfied and discharged the indenture, if sufficient funds are
deposited in trust to pay all junior subordinated debentures not previously
delivered to the debenture trustee for cancellation. We may make this deposit
with respect to the debentures when they are due and payable, when they will
become due and payable at their stated maturity within one year, or when they
are to be properly called for redemption within one year.
SUBORDINATION
All junior subordinated debentures issued under the indenture will be
subordinate and junior in right of payment to all our senior debt. Upon any
payment or distribution of our assets to creditors upon any liquidation,
dissolution, winding-up, reorganization, assignment for the benefit of
creditors, marshaling of assets or any bankruptcy, insolvency, debt
restructuring or similar proceedings in connection with any insolvency or
bankruptcy proceeding, the holders of our senior debt first will be entitled to
receive payment of the senior debt in full before the property trustee, on
behalf of the holders of the junior subordinated debentures, will be entitled to
receive or retain any payment on the debentures.
If the maturity of the junior subordinated debentures is accelerated, the
holders of all senior debt outstanding at the time of the acceleration first
will be entitled to receive payment of all amounts due on the senior debt,
including any amounts due upon its acceleration, in full before the holders of
debentures will be entitled to receive or retain any payment on the debentures.
No payments may be made on account of the junior subordinated debentures if
a default in paying any senior debt exists or if an event of default with
respect to any senior debt resulting in the acceleration of the maturity of the
senior debt exists or if any judicial proceeding is pending with respect to any
default.
GOVERNING LAW
The indenture and the junior subordinated debentures are governed by the
laws of Ohio.
INFORMATION CONCERNING THE
JUNIOR SUBORDINATED DEBENTURE TRUSTEE
The debenture trustee is under no obligation to exercise any of the powers
vested in it by the indenture at the request of any holder of the debentures,
unless offered reasonable indemnity against the costs, expenses and liabilities
that it might incur by doing so. The debenture trustee is not required to expend
or risk its own funds or otherwise incur personal financial liability in the
performance of its duties if the debenture trustee reasonably believes that
repayment or adequate indemnity is not reasonably assured to it.
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RELATIONSHIP AMONG THE PREFERRED SECURITIES,
THE JUNIOR SUBORDINATED DEBENTURES AND THE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
We irrevocably guarantee payment of distributions and other amounts due on
the preferred securities to the extent that the trust has funds available for
the payment of the distributions and as set forth under "DESCRIPTION OF THE
GUARANTEE." Taken together, our obligations under the junior subordinated
debentures, the securities resolution, the indenture, the trust agreement and
the guarantee agreement provide, in the aggregate, a full, irrevocable and
unconditional guarantee of payments of distributions and other amounts due on
the preferred securities. No single document standing alone or operating in
conjunction with fewer than all of the other documents constitutes the full
guarantee. It is only the combined operation of these documents that has the
effect of providing a full, irrevocable and unconditional guarantee of the
trust's obligations under the preferred securities.
If and to the extent that we do not make payments on the junior
subordinated debentures, the trust will not make distributions or pay other
amounts due on the preferred securities. The guarantee does not cover payment of
distributions when the trust does not have sufficient funds to pay the
distributions. In that event, the remedy for a holder of preferred securities is
to institute a legal proceeding directly against us for enforcement of payment
of the distributions to the holder. Our obligations under the guarantee are
subordinate and junior in right of payment to all of our other liabilities and
rank pari passu with most senior preferred shares, if any, we may issue and with
any guarantee we may enter into within respect of any preferred shares of any of
our affiliates.
SUFFICIENCY OF PAYMENTS
As long as all payments are made when due on the junior subordinated
debentures, those payments will be sufficient to cover distributions and other
payments due on the preferred securities. This is primarily because:
- the aggregate principal amount of the junior subordinated debentures will
be equal to the sum of the aggregate stated liquidation amount of the
preferred securities and related common securities;
- the interest rate and interest and other payment dates on the junior
subordinated debentures will match the distribution rate and distribution
and other payment dates for the preferred securities;
- we have promised to pay any and all costs, expenses and liabilities of
the trust other than the trust's obligations under its preferred and
common securities; and
- the trust agreement provides that the trust will not engage in any
activity that is not consistent with the limited purposes of the trust.
We have the right to set-off any payment we are otherwise required to make
under the indenture if and to the extent we have already made, or are
concurrently making, a payment under the guarantee agreement.
ENFORCEMENT OF RIGHTS OF
HOLDERS OF PREFERRED SECURITIES
A holder of a preferred security may institute a legal proceeding directly
against us to enforce the holder's rights under the guarantee agreement without
first instituting a legal proceeding against the guarantee trustee, the trust or
anyone else.
A default by us under our senior debt would not necessarily constitute a
trust agreement event of default. In the event of a payment default under, or
acceleration of, our senior debt, the subordination provisions of the indenture
provide that no payments may be made with respect to the junior subordinated
debentures until the senior debt has been paid in full or the payment default
under the senior debt has been cured or waived. For a description of our senior
debt, see "DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES -- General." Our
failure to make required payments on the junior subordinated debentures would
constitute a trust agreement event of default.
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LIMITED PURPOSE OF THE TRUST
The trust's preferred securities evidence undivided beneficial ownership
interests in the assets of the trust, and the trust exists for the sole purpose
of issuing its preferred securities and common securities, investing the
proceeds in junior subordinated debentures and engaging in only those other
activities necessary, convenient or incidental to those purposes. A principal
difference between the rights of a holder of a preferred security and a holder
of a debenture is that a holder of a debenture is entitled to receive from us
the principal amount of and interest accrued on junior subordinated debentures
held, while a holder of preferred securities is entitled to receive
distributions from the trust, or from us under the guarantee agreement, if and
to the extent the trust has funds available for the payment of the
distributions.
RIGHTS UPON LIQUIDATION
Upon any voluntary or involuntary termination, winding-up or liquidation of
the trust involving the liquidation of the junior subordinated debentures, the
holders of the preferred securities will be entitled to receive the liquidation
distribution in cash, out of the assets of the trust. See "DESCRIPTION OF THE
PREFERRED SECURITIES -- Liquidation Distribution upon Dissolution." If we become
subject to any voluntary or involuntary liquidation or bankruptcy, the property
trustee, as holder of the junior subordinated debentures, would be one of our
subordinated creditors. The property trustee would be subordinated in right of
payment to all of our senior debt, but it would be entitled to receive payment
in full of principal and interest before our shareholders receive payments or
distributions. We are the guarantor under the guarantee agreement and pursuant
to the indenture have agreed to pay all costs, expenses and liabilities of the
trust, other than the trust's obligations to the holders of its preferred and
common securities. Accordingly, in the event of our liquidation or bankruptcy,
the positions of a holder of preferred securities and of a holder of junior
subordinated debentures are expected to be substantially the same relative to
our other creditors and to our shareholders.
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DESCRIPTION OF OUR CAPITAL SHARES
Our articles of incorporation provide that we may issue up to 22,005,850
common shares and 5,000,000 preferred shares. As of June 30, 1999, we had a
total of 5,943,183 common shares outstanding, we held 19,017 common shares in
our treasury and options to purchase 446,783 additional common shares were
outstanding. None of our preferred shares are outstanding. The following
description of our capital shares is intended to be a summary and does not
describe all of the provisions of our articles of incorporation or regulations.
For a more thorough understanding of the terms of our capital shares, you should
refer to our articles of incorporation and regulations, which are filed with the
SEC and included as exhibits to the registration statement of which this
prospectus is a part. See "WHERE YOU CAN FIND MORE INFORMATION" below.
COMMON SHARES
Our outstanding common shares are listed on the New York Stock Exchange.
The holders of the common shares are entitled to one vote per share on each
matter on which the shareholders vote. Subject to the preferences of any
outstanding preferred shares, the holders of the common shares are entitled to
receive ratably any dividends declared by the Board of Directors. If we
liquidate, are dissolved or our business is wound up, the holders of the common
shares are entitled to share ratably in all assets remaining after payment of
all liabilities and any liquidation preference of any outstanding preferred
shares. All outstanding common shares are fully paid and non-assessable, and all
common shares issued upon conversion of junior subordinated debentures will be
fully paid and non-assessable when issued.
The transfer agent and registrar for our common shares is American Stock
Transfer & Trust Company in New York, New York.
PREFERRED SHARES
Our Board of Directors has the authority, without further action by the
shareholders, to issue up to 5,000,000 preferred shares in one or more series
and may designate the dividend rates, dividend payment dates, redemption rates,
redemption prices, liquidation prices, sinking fund requirements, conversion
rights, restrictions on the issuance of shares of the same series or of any
other class or series and the like. The Board of Directors also has the
authority to amend the terms of the preferred shares to fix the voting rights of
the entire class at any time that there are no preferred shares outstanding.
Accordingly, without shareholder approval, we can issue preferred shares with
conversion, voting and other rights which might discourage or prevent a takeover
or other change in control. We have no current plans to issue any of our
preferred shares.
OHIO MERGER MORATORIUM ACT
We are subject to Ohio's Merger Moratorium Act. This act prohibits us from
engaging in specified business transactions, including mergers, asset sales,
loans, liquidation and the like, with a beneficial owner of 10% or more of our
outstanding common shares during the three-year period following the date the
person became the owner of the 10% interest unless, prior to that date, the
specified transaction or the person's acquisition of shares was approved by our
directors. After the three-year moratorium, we can engage in a transaction with
the beneficial owner of the 10% or greater interest only if:
- the transaction is approved by the holders of two-thirds of all of our
outstanding voting shares and by the holders of a majority of our voting
shares held by persons other that the owner of the 10% or greater
interest; or
- the shareholders receive in the transaction an amount for their shares
equal to the higher of the highest amount paid in the past by the owner
of the 10% or greater interest or the amount that would be due to them if
we were to dissolve.
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UNITED STATES TAXATION
The following discussion summarizes certain of the material United States
Federal income tax consequences of the purchase, ownership, disposition and
conversion of the preferred securities and junior subordinated debentures.
Unless otherwise stated, this summary deals with only preferred securities held
as capital assets by holders who purchase the preferred securities upon original
issuance. This summary does not deal with special classes of holders such as
banks, thrifts, real estate investment trusts, regulated investment companies,
insurance companies, dealers in securities or currencies, tax-exempt investors,
foreign taxpayers (except to the extent discussed under the heading "United
States Alien Holders") or persons that will hold the preferred securities as a
position in a straddle, as part of a synthetic security or hedge, as part of a
conversion transaction or other integrated investment or as other than a capital
asset. This summary also does not address the tax consequences to persons that
have a functional currency other than the United States dollar. Further, it does
not include any description of any alternative minimum tax consequences or the
tax laws of any state or local government or of any foreign government that may
be applicable to the preferred securities. The following discussion constitutes
the opinion of Thompson Hine & Flory LLP, tax counsel for us and the trust. This
summary is based on the Internal Revenue Code of 1986, legislative history,
Treasury regulations, and administrative and judicial interpretations thereof,
as of the date of this prospectus, all of which are subject to change, possibly
on a retroactive basis. The authorities on which this discussion is based are
subject to various interpretations, and it is therefore possible that the United
States federal income tax treatment of the purchase, ownership and disposition
of the preferred securities may differ from the treatment described below.
We cannot assure you that the IRS will not challenge the positions
discussed below with respect to the tax consequences associated with the
preferred securities.
YOU SHOULD CONSULT YOUR TAX ADVISORS AS TO THE UNITED STATES FEDERAL INCOME
TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF PREFERRED SECURITIES IN
LIGHT OF YOUR PARTICULAR CIRCUMSTANCES, AS WELL AS THE EFFECT OF ANY STATE,
LOCAL, FOREIGN OR OTHER TAX LAWS AND OF POTENTIAL CHANGES IN APPLICABLE TAX
LAWS.
CLASSIFICATION OF THE
JUNIOR SUBORDINATED DEBENTURES
Based in part upon certain factual assumptions and upon certain factual
representations made by us, which Thompson Hine & Flory LLP has relied upon and
assumed to be true, correct and complete, the junior subordinated debentures
will be classified for United States Federal income tax purposes as our
indebtedness under current law. By accepting the preferred securities, each
holder agrees to treat the junior subordinated debentures as indebtedness and
the preferred securities as evidence of the holder's indirect beneficial
ownership interest in the corresponding debentures. Because the junior
subordinated debentures are treated as indebtedness and the preferred securities
are treated as an indirect interest in the debentures, corporate holders of
preferred securities will not be entitled to a dividends-received deduction with
respect to any income recognized with respect to the debentures.
We are aware of several recent actions by the IRS concerning obligations
that are similar to the junior subordinated debentures. First, in a case
involving Enron Corporation now pending before the United States Tax Court, the
IRS initially sought to disallow the deduction for interest expense on
obligations that are similar to, although different in a number of respects
from, the junior subordinated debentures. Those obligations were issued in 1993
and 1994 to partnerships which, in turn, issued "monthly income preferred
securities" to investors. In a stipulation filed on December 28, 1998 in the
United States Tax Court, the IRS conceded that Enron was entitled to deduct its
interest expense on the obligations. Although the IRS apparently has conceded
the interest deductibility issue in the Enron case, we cannot assure you that
the IRS will not challenge the interest deductions of other taxpayers (such as
us) that engage in similar arrangements.
The IRS also recently issued a technical advice memorandum (PLR
1999-10-046) that addresses whether obligations that are similar to,
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although different in a number of respects from, the junior subordinated
debentures constituted debt or equity for federal income tax purposes. The IRS
concluded that the instruments constituted debt. A technical advice memorandum
is not binding on the IRS, but it does provide some indication of the views of
the IRS National Office on the issues addressed in the memorandum.
A successful IRS challenge to the classification of the junior subordinated
debentures as debt would prevent us from deducting the interest paid or accrued
on the debentures for United States Federal income tax purposes and would be a
"tax event" that results in the exchange of the debentures for preferred
securities or, in certain limited circumstances, the redemption of the
debentures by us and the distribution of the resulting cash in redemption of the
preferred securities (see "Redemption of Preferred Securities for Junior
Subordinated Debentures or Cash" below), or a payment of additional amounts to
holders of the preferred securities. Additionally, if the interest on the junior
subordinated debentures is not deductible, it could adversely affect our ability
to make payments on the junior subordinated debentures. The remainder of this
discussion assumes that the junior subordinated debentures will be classified as
our indebtedness for United States Federal income tax purposes.
CLASSIFICATION OF THE TRUST
The trust will be classified as a grantor trust and will not be classified
as an association taxable as a corporation or partnership for United States
Federal income tax purposes. Accordingly, for United States Federal income tax
purposes, each holder of preferred securities generally will be considered the
owner of an undivided interest in the junior subordinated debentures held by the
trust, and each holder of preferred securities will be required to include in
the holder's gross income any interest with respect to the holder's allocable
share of those junior subordinated debentures. In effect, the preferred
securities are ignored for Federal income tax purposes, and each holder is
treated as owning an allocable share of the junior subordinated debentures held
by the trust.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Under the indenture, we have the option to defer the payment of interest on
the junior subordinated debentures at any time or from time to time for a period
not exceeding 20 consecutive quarters with respect to each deferral so long as
the deferral does not extend beyond the stated maturity of the debentures. Our
option to defer the payment of interest on the junior subordinated debentures
will cause the debentures to have original issue discount. Under Treasury
regulations that apply to debt instruments issued on or after August 13, 1996, a
debt instrument that provides terms and conditions that make the likelihood of
late payment a remote contingency does not give rise to "original issue
discount." If we exercise our option to defer interest, then we are not
permitted to make certain distributions to our shareholders or make payments on
any debt that has the same priority as, or is subordinated to, the junior
subordinated debentures. The terms and conditions imposed on the junior
subordinated debentures are not significant enough to prevent us from electing
to defer interest payments because we do not have a history of paying dividends
and we have little or no debt on a priority with or subordinated to the junior
subordinated debentures.
Regardless of a holder's regular method of accounting, a holder will
recognize interest income (in the form of original issue discount) as it accrues
daily on an economic accrual basis instead of on the dates the holder actually
received the cash payments. The amount of original issue discount that will be
recognized in any quarter (other than during a period in which we exercise our
option to defer interest payments on the junior subordinated debentures) will
equal approximately the amount of income that accrues on the junior subordinated
debentures in that quarter at the stated interest rate. A holder will include
interest (in the form of original issue discount) in the holder's gross income
regardless of whether the holder receives cash with respect to the period to
which the income is attributable. Thus, if we exercise the option to extend any
interest payment period, each holder will be required to include original issue
discount in gross income even though the holder will not receive any cash
payments from the trust during that period.
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The application of the original issue discount rules also may cause certain
United States federal income tax consequences when the holder sells the
preferred securities. These tax consequences are discussed below under "Sale of
Preferred Securities."
DEDUCTIBILITY OF INTEREST BY US
Interest accrued on the junior subordinated debentures will be deductible
by us for United States Federal income tax purposes.
We have reviewed the following Federal income tax provisions in determining
whether all or a portion of the interest or original issue discount deductions
on the junior subordinated debentures is deductible:
- Section 163(l) of the Internal Revenue Code disallows interest deductions
on certain convertible debt instruments. According to its legislative
history, this section does not apply where the conversion price of the
debt instrument is significantly higher than the market price of the
stock on the date of the debt issuance. The junior subordinated
debentures are issued with a conversion price that is significantly
higher than the market price of our common shares on the date the junior
subordinated debentures are issued. Thus, Section 163(l) should not
adversely affect our interest or original issue discount deduction with
respect to the junior subordinated debentures.
- Section 279 of the Internal Revenue Code disallows interest deductions on
corporate acquisition indebtedness, which generally is defined as certain
subordinated and convertible debt instruments issued to provide
consideration for the stock or assets of another company. We will take
the position that the junior subordinated debentures are not corporate
acquisition indebtedness within the meaning of Section 279 of the
Internal Revenue Code because:
- the junior subordinated debentures are not issued to provide
consideration for the stock or assets of another company within the
meaning of Section
279(b)(1) of the Internal Revenue Code, and
- we anticipate that we will satisfy certain financial ratios under
Section 279(b)(4) of the Internal Revenue Code at the end of this year.
A successful IRS challenge to the deductibility of interest paid or accrued
on the junior subordinated debentures could be a "tax event" that results in the
exchange of the junior subordinated debentures for preferred securities or, in
certain limited circumstances, the redemption of the junior subordinated
debentures by us and the distribution of the resulting cash in redemption of the
preferred securities (see "Redemption of Preferred Securities for Junior
Subordinated Debentures or Cash" below), or a payment of additional amounts to
holders of the preferred securities. For a description of the circumstances that
could cause a tax event to occur, see "DESCRIPTION OF THE PREFERRED
SECURITIES -- Tax Event Exchange or Redemption." Additionally, if the interest
on the junior subordinated debentures is not deductible, it could adversely
affect our ability to make payments on the junior subordinated debentures.
REDEMPTION OF PREFERRED SECURITIES FOR
JUNIOR SUBORDINATED DEBENTURES OR CASH
Under some circumstances, the junior subordinated debentures may be
distributed to the holders of the preferred securities in exchange for their
preferred securities. Upon the distribution, a holder will receive directly a
proportional share of the junior subordinated debentures previously held
indirectly through the trust. Assuming the treatment of the trust as a grantor
trust is respected, a holder will not be taxed on the distribution of the junior
subordinated debentures. In that case, a holder's holding period and aggregate
tax basis in its junior subordinated debentures will be equal to the holding
period and aggregate tax basis in the preferred securities before the
distribution. If, however, the trust is treated as an association taxable as a
corporation, the distribution likely would constitute a taxable event to the
trust and holders of the preferred securities.
Under certain circumstances, the junior subordinated debentures may be
redeemed by us for
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cash and the proceeds of such redemption distributed to holders in redemption of
their preferred securities (see "DESCRIPTION OF THE PREFERRED SECURITIES -- Tax
Event Exchange or Redemption"). Under current law, such a redemption would
constitute a taxable disposition of the redeemed preferred securities, and a
holder would recognize gain or loss in the same manner as if it sold such
redeemed preferred securities for cash (see "Sale of Preferred Securities"
immediately below).
SALE OF PREFERRED SECURITIES
A holder of preferred securities that sells preferred securities will
recognize gain or loss equal to the difference between the amount realized on
the sale of the preferred securities and the holder's adjusted tax basis in the
preferred securities sold. The tax basis of a preferred security will be
increased by the amount of any interest (in the form of original issue discount)
that is included in income, and will be decreased by the amount of any payment
we made on the junior subordinated debentures. In general, the gain or loss will
be a capital gain or loss and will be a long-term capital gain or loss if the
preferred securities have been held for more than one year at the time of sale.
Long-term capital gain of an individual U.S. Holder is subject to a maximum
United States Federal income tax rate of 20% for capital assets held for more
than one year. Capital gain on the disposition of assets held for not more than
one year is taxed at the rates applicable for ordinary income (i.e., up to 39.6%
for individuals for United States Federal income tax purposes).
The preferred securities may trade at a price that does not accurately
reflect the value of accrued but unpaid interest with respect to the underlying
junior subordinated debentures (for example, if we exercise our option to defer
interest payments on the debentures). A holder that disposes of its preferred
securities before the record date for the payment of distributions will not
receive payment of distributions for the period before the sale. The holder,
however, will be required to include accrued original issue discount on the
junior subordinated debentures through the date of the sale as ordinary income
for U.S. federal income tax purposes. This accrued but unpaid original issue
discount will increase the holder's adjusted tax basis in the preferred
securities. This increase in the adjusted tax basis in the preferred securities
will increase the amount of any capital loss or reduce the amount of any capital
gain that the holder may have otherwise realized on the sale. In general, an
individual U.S. taxpayer may use capital losses to offset capital gains plus up
to $3,000 ($1,500 for married individuals filing separate returns) of ordinary
income for United States Federal income tax purposes.
CONVERSION OF PREFERRED SECURITIES
INTO COMMON SHARES
A holder of preferred securities may at any time elect to convert the
preferred securities into our common shares. Upon exercising this election, the
holder will exchange the preferred securities that are converted for a portion
of the corresponding junior subordinated debentures held by the trust, and the
junior subordinated debentures will be converted into common shares. Assuming
the treatment of the trust as a grantor trust is respected, a holder of
preferred securities will not recognize income, gain or loss upon the exchange
of the preferred securities for the corresponding amount of junior subordinated
debentures, and then converted into common shares. A holder of preferred
securities will recognize gain, however, upon the receipt of cash in lieu of a
fractional common share equal to the small amount of cash received less the
holder's tax basis in the fractional share. The holder's tax basis in the common
shares received upon conversion will be equal to such holder's tax basis in the
preferred securities delivered to the conversion agent for exchange, which will
include any accrued but unpaid original issue discount, less the basis allocated
to any fractional share for which cash is received. The holder's holding period
in the common shares received upon conversion begins on the date the holder
acquired the preferred securities.
ADJUSTMENT OF CONVERSION PRICE
A holder of preferred securities may at any time elect to convert the
preferred securities into our common shares at an established conversion ratio.
This conversion ratio is subject to an adjustment in certain events (see
"DESCRIPTION OF THE PREFERRED SECURITIES -- Conversion Price Adjustments").
Under some circumstances,
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an increase in the conversion ratio (i.e., a reduction in the conversion price)
for the junior subordinated debentures will be treated as a deemed distribution
from us. The deemed distribution would be treated as dividend income to holders
of the preferred securities to the extent of our current or accumulated earnings
and profits. The holders of the preferred securities would be required to
include this deemed distribution in gross income but would not receive any cash.
Dividend income is taxed at the rates applicable for ordinary income (i.e., up
to 39.6% for an individual for United States Federal income tax purposes). A
holder's tax basis in the preferred securities will be increased by the amount
of the deemed dividend.
UNITED STATES ALIEN HOLDERS
For purposes of this discussion, a "United States Alien Holder" is any
corporation, individual, partnership, estate or trust that is, as to the United
States, a foreign corporation, a non-resident alien individual, a foreign
partnership, or a foreign estate or trust.
Payments by the trust or any of its paying agents to any holder of a
preferred security who or which is a United States Alien Holder will not be
subject to United States Federal withholding tax; provided, that:
- the beneficial owner of the preferred security does not actually or
constructively own 10% or more of the total combined voting power of all
classes of our shares entitled to vote,
- the beneficial owner of the preferred security is not a controlled
foreign corporation that is related to us through stock ownership or a
bank receiving interest described in Section 881(c)(3)(A) of the Internal
Revenue Code, and either
- the beneficial owner of the preferred security certifies its status as
a United States Alien Holder to the trust or its agent, under penalties
of perjury, and provides its name and address; or
- a securities clearing organization, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or
business, and holds the preferred security in this capacity on behalf
of the beneficial owner, certifies to the trust or its agent, under
penalties of perjury, that the statement described above has been
received from the beneficial owner by it or by the financial
institution holding the preferred security for the beneficial owner and
furnishes the trust or its agent with a copy; or
- with respect to payments after December 31, 2000, a "qualified
intermediary," which includes certain foreign financial institutions,
foreign clearing organizations or foreign branches of United States
financial institutions or clearing organizations which have entered
into withholding agreements with the Internal Revenue Service and have
received appropriate certification from the beneficial owner, provides
the trust or any of its paying agents with an intermediary withholding
certificate.
Dividends paid on our common shares to a United States Alien Holder
generally will be subject to withholding of United States Federal income tax at
a 30% rate, or a lower rate that is specified by an applicable income tax
treaty, unless the dividend is effectively connected with the conduct of a trade
or business of the United States Alien Holder within the United States and other
certification requirements are satisfied, or if an income tax treaty applies, is
attributable to a United States permanent establishment of the United States
Alien Holder.
Except to the extent that an applicable treaty otherwise provides, a United
States Alien Holder generally will be taxed in the same manner as other holders
with respect to interest, in the form of original issue discount, or dividends
if the income is effectively connected with a United States trade or business of
the United States Alien Holder. Effectively connected interest, in the form of
original issue discount, or dividends received by a corporate United States
Alien Holder, under certain circumstances, also may be subject to an additional
"branch profits tax" at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty.
A United States Alien Holder of a preferred security or our common shares
generally will not
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be subject to United States federal income or withholding tax on any gain (other
than that attributable to accrued but unpaid interest (in the form of original
issue discount), which is taxable in the manner described above) realized upon
the sale or other disposition of a preferred security or common shares
(including the receipt of cash in lieu of fractional shares upon conversion of
preferred securities into common shares), unless:
- the gain is effectively connected with the conduct of a trade or business
of the United States Alien Holder in the United States or if a tax treaty
applies, the gain is attributable to a United States permanent
establishment of the United States Alien Holder;
- in the case of a United States Alien Holder who is an individual and
holds the preferred securities or common shares as a capital asset, the
holder is present in the United States for 183 or more days in the
taxable year of the disposition and certain other conditions are met;
- the United States Alien Holder is subject to tax pursuant to the
provisions of United States Federal income tax laws applicable to some
United States expatriates; or
- we are or have been a "U.S. real property holding corporation" for United
States federal income tax purposes at any time during the five-year
period ending on the date of disposition, or, if shorter, the period
during which the United States Alien Holder held the preferred securities
or common shares and the interest sold is not considered stock that is
"regularly traded on an established securities market" at any time during
the year of disposition or the United States Alien Holder meets certain
minimum ownership requirements.
Except to the extent that an applicable treaty otherwise provides, a United
States Alien Holder generally will be taxed in the same manner as other holders
with respect to gain on the sale or disposition of preferred securities or
common shares if the gain is effectively connected with a United States trade or
business of the United States Alien Holder. Effectively connected gain realized
by a corporate United States Alien holder, under certain circumstances, also may
be subject to an additional "branch profits tax" at a 30% rate or such lower
rate as may be specified by an applicable income tax treaty.
A United States Alien Holder who sells or otherwise disposes of preferred
securities or common shares generally will recognize gain or loss that is
subject to United States Federal income tax if:
- we are or have been a "U.S. real property holding corporation" during the
period described above, and
- the interest sold is not considered stock that is "regularly traded on an
established securities market" at any time during the calendar year of
disposition or the United States Alien Holder meets certain minimum
ownership requirements.
We do not believe that we are a U.S. real property holding corporation as
of the date of this prospectus, although we have not determined or established
whether we will be a U.S. real property holding corporation in the future. A
United States Alien Holder that sells or otherwise disposes of preferred
securities or common shares may request a statement from us that we have not
been a "U.S. real property holding corporation" during the period described
above as of the date of the sale or disposition of his preferred securities or
common shares. We will provide the requested statement if it would be accurate
at the time given.
Under current United States Treasury regulations, dividends paid to an
address in a foreign country are presumed to be paid to a resident of that
country (unless the payor has knowledge to the contrary) for purposes of the
withholding discussed above and, under the current interpretation of such
regulations, for purposes of determining the applicability of an income tax
treaty rate. Recently published final Treasury Regulations (the "1997
Withholding Regulations"), generally effective for payments after December 31,
2000, provide certain presumptions which differ from the presumption described
above. Under the 1997 Withholding Regulations, a United States Alien Holder of
our common shares that wishes to claim the benefit of a treaty rate is required
to satisfy applicable certification requirements. In addition, the 1997
Withholding Regulations provide that dividend payments are generally subject to
infor-
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mation reporting and backup withholding unless
applicable certification requirements are satisfied. The 1997 Withholding
Regulations also require, in the case of interest or dividends with respect to
preferred securities or our common shares held by a foreign partnership, that
the certification requirements described above be provided by the partners
rather than by the foreign partnership and the partnership provide certain
information, which in some circumstances may include a United States taxpayer
identification number. A "look-through" rule would apply in the case of tiered
partnerships.
INFORMATION REPORTING TO HOLDERS
Income on the preferred securities will be reported to non-corporate
holders on Form 1099-OID. These forms will be mailed to holders of record of the
preferred securities prior to January 31 following each calendar year.
BACKUP WITHHOLDING
Payments made on, and proceeds from the sale of, preferred securities may
be subject to a backup withholding tax of 31% if the holder:
- failed to provide its social security or taxpayer identification number
to its broker;
- provided its broker with an incorrect social security or tax
identification number;
- failed to provide its broker with a certified statement that its social
security or tax identification number is correct and that it is not
subject to backup withholding; or
- improperly reported interest and dividends on its tax return.
Any withheld amounts will generally be allowed as a credit against the
holder's United States Federal income tax, provided the required information is
timely filed with the Internal Revenue Service.
POSSIBLE TAX LEGISLATION
Legislation has been introduced in the United States Congress in the past
that would, if enacted, deny an interest deduction to issuers of instruments
such as the junior subordinated debentures. The proposed legislation has not
been enacted as of the date of this prospectus. There can be no assurance,
however, that similar legislation will not ultimately be enacted into law, or
that other developments will not occur after the date hereof that would
adversely affect the tax treatment of the junior subordinated debentures and
could be a "tax event" and result in the exchange of the junior subordinated
debentures for preferred securities or, in certain circumstances, the redemption
of the junior subordinated debentures by us and the distribution of the
resulting cash in redemption of the preferred securities, or a payment of
additional amounts to holders of the preferred securities. See "DESCRIPTION OF
THE PREFERRED SECURITIES -- Tax Event Exchange or Redemption."
The Clinton Administration has recommended legislative changes this year
that would defer the deduction for accrued stated interest and original issue
discount on convertible debt (such as the junior subordinated debentures) until
actual payment. This proposal, if enacted, could apply to the junior
subordinated debentures. This could be a "tax event" and result in the exchange
of the junior subordinated debentures for preferred securities or the redemption
of the junior subordinated debentures by us and the distribution of the
resulting cash in redemption of the preferred securities (see "Redemption of
Preferred Securities For Junior Subordinated Debentures or Cash" above), or a
payment of additional amounts to holders of the preferred securities.
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BOOK-ENTRY ISSUANCE
The preferred securities will be issued in the form of a global security
that will be deposited with DTC. Unless and until it is exchanged for the
individual securities that it represents, a book-entry security may not be
transferred except as a whole to a nominee of the depositary or to a successor
depositary or any nominee of the successor.
DTC has advised us that DTC is
- a limited purpose trust company organized under the New York banking law,
- a "banking organization" within the meaning of the New York banking law,
- a member of the Federal Reserve System,
- a "clearing corporation" within the meaning of the New York Uniform
Commercial Code, and
- a "clearing agency" registered pursuant to the provisions of Section 17A
of the Exchange Act.
DTC holds securities that its participants deposit with DTC. It also
facilitates the settlement among participants of securities transactions, such
as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. DTC is owned by a number of its
direct participants and by the New York Stock Exchange, Inc., the American Stock
Exchange, Inc. and the National Association of Securities Dealers, Inc. Access
to the DTC system is also available to others such as securities brokers and
dealers, banks and trust companies that clear through or maintain custodial
relationships with participants, either directly or indirectly. The rules
applicable to DTC and its participants are on file with the SEC.
Purchases of book-entry securities within the DTC system must be made by or
through direct participants, which will receive a credit for the book-entry
securities on DTC's records. The ownership interest of each actual purchaser of
each book-entry security (Beneficial Owner) is in turn to be recorded on the
direct and indirect participants' records. Beneficial Owners will not receive
written confirmation from DTC of their purchases, but Beneficial Owners are
expected to receive written confirmations providing details of the transactions,
as well as periodic statements of their holdings, from the direct or indirect
participants through which the Beneficial Owners purchased book-entry
securities. Transfers of ownership interests in the book-entry securities are to
be accomplished by entries made on the books of participants acting on behalf of
Beneficial Owners. Beneficial Owners will not receive certificates representing
their ownership interests in book-entry securities, except in the event that use
of the book-entry system is discontinued.
To facilitate subsequent transfers, all book-entry securities deposited by
participants with DTC are registered in the name of DTC's partnership nominee,
Cede & Co. The deposit of book-entry securities with DTC and their registration
in the name of Cede & Co. effect no change in beneficial ownership. DTC has no
knowledge of the actual Beneficial Owners of the book-entry securities; DTC's
records reflect only the identity of the direct participants to whose accounts
such book-entry securities are credited, which may or may not be the Beneficial
Owners. The participants will remain responsible for keeping account of their
holdings on behalf of their customers.
Because DTC can act only on behalf of its participants, which in turn act
on behalf of indirect participants and certain banks, the ability of a person
having beneficial interests in a global certificate to pledge the interest to
persons or entities that do not participate in the DTC system, or otherwise take
actions in respect of the interests, may be affected by the lack of a physical
certificate evidencing the interests.
Delivery of notices and other communications by DTC to direct participants,
by direct participants to indirect participants, and by direct participants and
indirect participants to Beneficial Owners, and the voting rights of direct
participants, indirect participants and Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
81
<PAGE> 88
Redemption and conversion notices will be sent to DTC. If less than all of
the book-entry securities are being redeemed, DTC's current practice is to
determine by lot the amount of the interest of each direct participant to be
redeemed. DTC will process all notices of conversion through its "conversions"
program.
Although voting with respect to the book-entry securities is limited to the
holders of record of the book-entry securities, in those instances in which a
vote is required, neither DTC nor Cede & Co. will itself consent or vote with
respect to book-entry securities. Under its usual procedures, DTC would mail an
omnibus proxy to the property trustee as soon as possible after the record date.
The omnibus proxy assigns Cede & Co's consenting or voting rights to those
direct participants to whose accounts the book-entry securities are credited on
the record date (identified in a listing attached to the omnibus proxy).
As long as the book-entry securities are held by Cede & Co., as nominee of
DTC, and DTC continues to make its same-day funds settlement system available to
us, all payments on the book-entry securities (other than distribution payments
on the preferred securities) will be made by us in immediately available funds
to Cede & Co. Distribution payments on the preferred securities will be made by
the property trustee to Cede & Co. We and the trust have been advised that DTC's
practice is to credit direct participants' accounts on the relevant payment date
in accordance with their respective holdings shown on DTC's records. Payments by
participants to Beneficial Owners will be governed by standing instructions and
customary practices, as is the case with securities held for the accounts of
customers in bearer form or registered in "street name," and will be the
responsibility of such participant and not of DTC, the property trustee, the
trust or us, subject to any statutory or regulatory requirements as may be in
effect from time to time. Disbursement of payments to direct participants is the
responsibility of Cede & Co., and disbursements of those payments to the
Beneficial Owners is the responsibility of direct or indirect participants.
DTC may discontinue providing its services as securities depository with
respect to the book-entry securities at any time by giving reasonable notice to
us and the property trustee. If a successor depository is not obtained, the
trust will issue individual definitive preferred securities in exchange for the
global security representing the preferred securities. In addition, the trust
and we may at any time determine not to have the preferred securities
represented by global securities and, in that event, the trust will issue
individual definitive securities in exchange for the global securities. Finally,
if an event of default has occurred under the indenture governing the junior
subordinated debentures, the trust will issue individual definitive securities
in exchange for the global securities.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that we and the trust believe to be accurate, but
we and the trust assume no responsibility for the accuracy of the information.
Neither we nor the trust have any responsibility for the performance by DTC or
its participants of their respective obligations as described in this prospectus
or under the rules and procedures governing their respective operations.
82
<PAGE> 89
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement, we and the trust have agreed to sell to each of the underwriters
named below the indicated number of preferred securities.
<TABLE>
<CAPTION>
NUMBER OF
PREFERRED
UNDERWRITERS SECURITIES
- ------------------------------------------------------------ -----------
<S> <C>
Robert W. Baird & Co. Incorporated.......................... 531,250
Legg Mason Wood Walker Incorporated......................... 265,625
McDonald Investments Inc.................................... 265,625
-----------
Total............................................. 1,062,500
===========
</TABLE>
The underwriters are obligated to take and pay for the total number of
preferred securities that are being offered by this prospectus if any are
purchased. The underwriting agreement provides that, if an underwriter defaults,
in some instances the purchase commitments of the non-defaulting underwriters
may be increased or the underwriting agreement may be terminated.
The underwriting agreement provides that we and the trust will indemnify
the several underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended.
Since the proceeds of the sale of the preferred securities will be used by
the trust to purchase our junior subordinated debentures, the underwriting
agreement provides that we will compensate the underwriters $1.00 per preferred
security for the accounts of the several underwriters ($1,062,500 in the
aggregate).
The underwriters propose to offer the preferred securities, in part,
directly to the public at the initial public offering price set forth on the
cover page of this prospectus and to certain dealers at that price less a
concession of $0.60 per preferred security. The underwriters may allow, and
those dealers may reallow, a concession of not more than $0.10 per preferred
security to certain brokers and dealers. After the preferred securities are
released for sale to the public, the offering price and other selling terms from
time to time may be varied by the representatives of the underwriters.
We have applied to list the preferred securities on the New York Stock
Exchange, and the preferred securities have been approved for listing, subject
to official notice of issuance. Trading on the New York Stock Exchange is
expected to commence within a 30-day period after the initial delivery of the
preferred securities. Prior to this offering, there has been no public market
for the preferred securities. In order to meet one of the requirements for
listing the preferred securities on the New York Stock Exchange, the
underwriters will undertake to sell lots of 100 or more preferred securities to
a minimum of 400 beneficial holders. The underwriters have advised us that they
intend to make a market in the preferred securities prior to the commencement of
trading on the New York Stock Exchange, but they are not obligated to do so and
may discontinue market making at any time without notice. You cannot be assured
of the liquidity of this trading market for the preferred securities.
We and the trust have agreed, subject to certain limited exceptions, during
the period of 90 days from the date of the underwriting agreement, not to sell,
offer to sell, grant any option for the sale of, or otherwise dispose of any
preferred securities, any security convertible into or exchangeable into or
exercisable for preferred securities or the junior subordinated debentures or
any debt securities substantially similar to the junior subordinated debentures
or equity securities substantially similar to the preferred securities (except
for the junior subordinated debentures and the preferred securities issued
pursuant to the underwriting agreement), without the prior written consent of
the representatives.
In order to facilitate the offering of the preferred securities, the
underwriters may engage in transactions that stabilize, maintain or otherwise
affect the price of the preferred securities. Specifically, the underwriters may
overallot in connection with the offering, creating a short position in the
preferred securities, and the underwriters
83
<PAGE> 90
may bid for and purchase the preferred securities in the open market. Finally,
the underwriting syndicate may reclaim selling concessions allowed to an
underwriter or a dealer for distributing the preferred securities in the
offering, if the syndicate repurchases previously distributed preferred
securities in transactions to cover syndicate short positions, in stabilization
transactions or otherwise. Any of these activities may stabilize or maintain the
market price of the preferred securities above an independent market level. The
underwriters are not required to engage in these activities, and if commenced,
may end any of these activities at any time.
Certain of the underwriters and their affiliates have in the past provided,
and may in the future provide, investment and/or commercial banking services to
us and our affiliates in the ordinary course of business.
LEGAL MATTERS
Legal matters in connection with the preferred securities, the junior
subordinated debentures, the guarantee and our common shares and federal income
tax matters will be passed upon for us by Thompson Hine & Flory LLP, Dayton,
Ohio, our legal counsel. Legal matters in connection with the validity of the
preferred securities under Delaware law will be passed upon for the trust by
Young Conaway Stargett and Taylor, LLP, special Delaware counsel to us and the
trust. Legal matters relating to this offering will be passed upon for the
Underwriters by Reinhart, Boerner, Van Deuren, Norris & Rieselbach, S.C.,
Milwaukee, Wisconsin.
EXPERTS
The audited financial statements included in this prospectus have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their audit report and are included in this prospectus in reliance upon the
authority of that firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. Our SEC filings are available to the public over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and copy
any document we file at the SEC's public reference rooms in Washington, D.C.,
New York, and Chicago, as well as at the offices of the New York Stock Exchange,
20 Broad Street, New York, New York, 10005, where our common shares are listed
under the symbol "DSD." You can call the SEC at 1-800-732-0330 for further
information about the public reference rooms.
The SEC allows us to "incorporate by reference" the information we file
with them, which means we are assumed to have disclosed important information to
you when we refer you to documents that are on file with the SEC. The
information we have incorporated by reference is an important part of this
prospectus, and information that we file later with the SEC automatically will
update and supersede this information. We incorporate by reference the documents
listed below and any future documents we file with the SEC under Sections 13(a),
13(c) or 15(d) of the Securities Exchange Act of 1934 until we sell all of the
preferred securities covered by this prospectus.
- Annual Report on Form 10-K for the fiscal year ended December 31, 1998.
- Quarterly Report on Form 10-Q for the quarter ended April 2, 1999.
- Quarterly Report on Form 10-Q for the quarter ended July 2, 1999.
- Current Reports on Form 8-K dated January 7, 1999 and February 17, 1999.
You may request a copy of these documents at no cost by writing to us at
the following address:
DAYTON SUPERIOR CORPORATION
7777 WASHINGTON VILLAGE DRIVE
SUITE 130
DAYTON, OHIO 45459
ATTN: TREASURER
TELEPHONE: (937) 428-6360
You should rely only on the information provided in or incorporated by
reference (and not later changed) in this prospectus or any prospec-
84
<PAGE> 91
tus supplement. We have not authorized anyone else to provide you with
additional or different information. We are not making an offer of any
securities in any state where the offer is not permitted. You should not assume
that the information in this prospectus or any prospectus supplement is accurate
as of any date other than the date on the front of those documents.
85
<PAGE> 92
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public
Accountants.................. F-2
Consolidated Balance Sheets as
of December 31, 1998 and
1997......................... F-3
Consolidated Statements of
Income for the years ended
December 31, 1998, 1997 and
1996......................... F-5
Consolidated Statements of
Shareholders' Equity for the
years ended December 31,
1998, 1997 and 1996.......... F-6
Consolidated Statements of Cash
Flows for the years ended
December 31, 1998, 1997 and
1996......................... F-7
Consolidated Statements of
Comprehensive Income for the
years ended December 31,
1998, 1997 and 1996.......... F-8
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Notes to Consolidated Financial
Statements................... F-9
Consolidated Balance Sheets as
of July 2, 1999 and December
31, 1998 (unaudited)......... F-25
Consolidated Statements of
Income for the three and six
fiscal months ended July 2,
1999 and July 3, 1998
(unaudited).................. F-26
Consolidated Statements of Cash
Flows for the six fiscal
months ended July 2, 1999 and
July 3, 1998 (unaudited)..... F-27
Consolidated Statements of
Comprehensive Income for the
three and six fiscal months
ended July 2, 1999 and July
3, 1998 (unaudited).......... F-28
Notes to Consolidated Financial
Statements................... F-29
</TABLE>
F-1
<PAGE> 93
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Dayton Superior Corporation:
We have audited the accompanying consolidated balance sheets of Dayton
Superior Corporation (an Ohio corporation) and Subsidiaries as of December 31,
1998 and 1997, and the related consolidated statements of income, shareholders'
equity, cash flows, and comprehensive income for each of the three years in the
period ended December 31, 1998. These financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Dayton Superior Corporation
and Subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed under Part IV, Item
14(a)(2) is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states, in all material respects, the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Dayton, Ohio
January 26, 1999 (except with respect to the matter discussed in Note 12, as to
which the date is February 17, 1999)
F-2
<PAGE> 94
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
ASSETS (Note 5)
Current assets
Cash...................................................... $ 560 $ --
Accounts receivable, net of allowances for doubtful
accounts and sales returns and allowances of $4,432 and
$5,015................................................. 42,996 35,054
Inventories (Note 3)...................................... 36,058 32,873
Prepaid expenses and other current assets................. 4,396 3,047
Prepaid income taxes...................................... 828 2,087
Future income tax benefits (Notes 3 and 8)................ 3,521 3,657
-------- --------
Total current assets................................... 88,359 76,718
-------- --------
Rental equipment, net (Note 3).............................. 52,586 38,327
-------- --------
Property, plant and equipment (Note 3)
Land and improvements..................................... 5,481 5,577
Building and improvements................................. 20,030 19,330
Machinery and equipment................................... 38,339 33,156
-------- --------
63,850 58,063
Less accumulated depreciation............................. (22,069) (16,711)
-------- --------
Net property, plant and equipment...................... 41,781 41,352
-------- --------
Goodwill and intangible assets, net of accumulated
amortization (Note 3)..................................... 70,130 68,590
Other assets................................................ 764 1,943
-------- --------
Total assets......................................... $253,620 $226,930
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated
balance sheets.
F-3
<PAGE> 95
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt (Note 5)................ $ 32 $ 32
Accounts payable.......................................... 20,749 15,753
Accrued compensation and benefits......................... 12,443 7,480
Other accrued liabilities................................. 10,408 8,088
-------- --------
Total current liabilities.............................. 43,632 31,353
Long-term debt (Note 5)..................................... 118,173 120,204
Deferred income taxes (Notes 3 and 8)....................... 11,544 8,079
Other long-term liabilities (Note 7)........................ 5,683 6,765
-------- --------
Total liabilities...................................... 179,032 166,401
-------- --------
Shareholders' equity (Note 6)
Class A common shares; no par value; 20,539,500 shares
authorized; 5,200,472 and 4,261,806 shares issued and
5,193,174 and 4,261,806 shares outstanding; 1 vote per
share.................................................. 42,316 33,386
Class B common shares; no par value; 757,569 and 1,466,350
shares authorized, issued, and outstanding; 10 votes
per share.............................................. 5,037 9,749
Class A treasury shares, at cost, 7,298 and 0 shares...... (145) --
Cumulative other comprehensive income..................... (281) (191)
Retained earnings......................................... 27,661 17,585
-------- --------
Total shareholders' equity............................. 74,588 60,529
-------- --------
Total liabilities and shareholders' equity........... $253,620 $226,930
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated
balance sheets.
F-4
<PAGE> 96
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net sales (Note 3)................................... $ 282,849 $ 167,412 $ 124,486
Cost of sales........................................ 177,094 111,044 86,021
---------- ---------- ----------
Gross profit....................................... 105,755 56,368 38,465
Selling, general and administrative expenses......... 73,721 36,761 23,637
Amortization of goodwill and intangibles............. 2,213 1,885 1,749
---------- ---------- ----------
Income from operations............................. 29,821 17,722 13,079
Other expenses
Interest expense, net.............................. 11,703 5,556 4,829
Other expense (income), net........................ (202) (64) 96
---------- ---------- ----------
Income before income taxes and extraordinary
item............................................ 18,320 12,230 8,154
Provision for income taxes (Note 8).................. 8,244 5,277 3,538
---------- ---------- ----------
Income before extraordinary item................... 10,076 6,953 4,616
Extraordinary item (Note 4)
Loss on extinguishment of debt,
net of income tax effect of $1,419................. -- -- (2,314)
---------- ---------- ----------
Net income........................................... $ 10,076 $ 6,953 $ 2,302
========== ========== ==========
Basic income per share before extraordinary item..... $ 1.72 $ 1.22 $ 1.02
Basic extraordinary item per share................... -- -- (0.51)
---------- ---------- ----------
Basic net income per share........................... $ 1.72 $ 1.22 $ 0.51
========== ========== ==========
Weighted average common shares outstanding........... 5,867,338 5,703,601 4,547,527
========== ========== ==========
Diluted income per share before extraordinary item... $ 1.65 $ 1.17 $ 0.94
Diluted extraordinary item per share................. -- -- (0.47)
---------- ---------- ----------
Diluted net income per share......................... $ 1.65 $ 1.17 $ 0.47
========== ========== ==========
Weighted average common and common share equivalents
outstanding........................................ 6,098,205 5,933,244 4,925,464
========== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
F-5
<PAGE> 97
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CUMULATIVE
CLASS A CLASS B CLASS A FOREIGN
COMMON SHARES COMMON SHARES TREASURY SHARES CURRENCY
-------------------- ------------------ --------------- TRANSLATION
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ADJUSTMENT
---------- ------- --------- ------ ------ ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995................. 2,804,500 $17,483 485,500 $1,942 2,000 $ (81) $(139)
Net income....................................
Foreign currency translation adjustment....... (6)
Excess pension liability adjustment...........
Exercise of warrants.......................... 346,600 --
Conversion of Class B common shares into Class
A common shares............................. 541,700 2,316 (541,700) (2,316)
Conversion of Class A common shares into Class
B common shares............................. (1,522,550) (10,123) 1,522,550 10,123
Retirement of Class A treasury shares......... (2,000) (81) (2,000) 81
Issuance of common shares for cash, net of
issuance costs (Note 6(b)).................. 2,030,950 23,041
---------- ------- --------- ------ ------ ----- -----
Balances at December 31, 1996................. 4,199,200 32,636 1,466,350 9,749 -- -- (145)
Net income....................................
Foreign currency translation adjustment....... (46)
Issuance of common stock in lieu of directors'
fees........................................ 8,258 104
Issuance of common shares in conjunction with
acquisition (Note 2)........................ 26,254 346
Exercise of stock options, net................ 28,094 300
---------- ------- --------- ------ ------ ----- -----
Balances at December 31, 1997................. 4,261,806 33,386 1,466,350 9,749 -- -- (191)
Net income....................................
Foreign currency translation adjustment....... (75)
Excess pension liability adjustment...........
Issuance of common stock in lieu of directors'
fees........................................ 6,363 124
Issuance of common shares in conjunction with
acquisition (Note 2)........................ 222,496 4,078
Exercise of stock options, net................ 1,026 16
Conversion of Class B common shares into Class
A common shares............................. 708,781 4,712 (708,781) (4,712)
Purchase of Class A treasury shares........... 7,298 (145)
---------- ------- --------- ------ ------ ----- -----
Balances at December 31, 1998................. 5,200,472 $42,316 757,569 $5,037 7,298 $(145) $(266)
========== ======= ========= ====== ====== ===== =====
<CAPTION>
EXCESS
PENSION RETAINED
LIABILITY EARNINGS TOTAL
--------- -------- -------
<S> <C> <C> <C>
Balances at December 31, 1995................. $(50) $ 8,330 $27,485
Net income.................................... 2,302 2,302
Foreign currency translation adjustment....... (6)
Excess pension liability adjustment........... 50 50
Exercise of warrants.......................... --
Conversion of Class B common shares into Class
A common shares............................. --
Conversion of Class A common shares into Class
B common shares............................. --
Retirement of Class A treasury shares......... --
Issuance of common shares for cash, net of
issuance costs (Note 6(b)).................. 23,041
---- ------- -------
Balances at December 31, 1996................. -- 10,632 52,872
Net income.................................... 6,953 6,953
Foreign currency translation adjustment....... (46)
Issuance of common stock in lieu of directors'
fees........................................ 104
Issuance of common shares in conjunction with
acquisition (Note 2)........................ 346
Exercise of stock options, net................ 300
---- ------- -------
Balances at December 31, 1997................. -- 17,585 60,529
Net income.................................... 10,076 10,076
Foreign currency translation adjustment....... (75)
Excess pension liability adjustment........... (15) (15)
Issuance of common stock in lieu of directors'
fees........................................ 124
Issuance of common shares in conjunction with
acquisition (Note 2)........................ 4,078
Exercise of stock options, net................ 16
Conversion of Class B common shares into Class
A common shares............................. --
Purchase of Class A treasury shares........... (145)
---- ------- -------
Balances at December 31, 1998................. $(15) $27,661 $74,588
==== ======= =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
F-6
<PAGE> 98
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income................................................ $10,076 $ 6,953 $ 2,302
Adjustments to reconcile net income to net cash provided
by operating activities:
Extraordinary loss..................................... -- -- 2,314
Depreciation........................................... 10,076 5,131 4,304
Amortization of goodwill and intangibles............... 2,213 1,885 1,749
Deferred income taxes.................................. 1,792 1,017 320
Amortization of debt discount and deferred financing
costs................................................ 821 565 235
Gain on sales of rental equipment and property, plant
and equipment........................................ (8,236) (2,871) (1,095)
Change in assets and liabilities, net of effects of
acquisitions:
Accounts receivable.................................... (4,830) 3,111 1,610
Inventories............................................ (2,110) 527 (884)
Prepaid income taxes................................... 1,259 (865) 633
Accounts payable....................................... 3,991 (2,136) (740)
Accrued liabilities and other long-term liabilities.... 5,487 (2,690) (2,368)
Other, net............................................. (938) (260) (614)
------- ------- -------
Net cash provided by operating activities............ 19,601 10,367 7,766
------- ------- -------
Cash Flows From Investing Activities:
Property, plant and equipment additions................... (7,215) (4,410) (3,198)
Proceeds from sale of fixed assets........................ 1,097 -- --
Rental equipment additions................................ (18,081) (4,875) (1,632)
Proceeds from sales of rental equipment................... 11,298 3,628 1,098
Acquisitions, net of cash acquired (Note 2)............... (1,784) (33,467) (4,845)
Other investing activities................................ -- (15) (69)
------- ------- -------
Net cash used in investing activities................ (14,685) (39,139) (8,646)
------- ------- -------
</TABLE>
<TABLE>
<S> <C> <C> <C>
Cash Flows From Financing Activities:
Repayments of long-term debt.............................. (4,276) (67,203) (41,656)
Issuance of long-term debt................................ -- 100,000 22,819
Prepayment premium on extinguishment of long-term debt.... -- -- (2,400)
Issuance of common shares................................. 140 404 23,041
Financing costs and fees.................................. -- (4,586) (358)
Purchase of treasury shares............................... (145) -- --
Payments to former shareholder for acquisition of common
shares................................................. -- -- (1,000)
------- ------- -------
Net cash provided by (used in) financing
activities........................................ (4,281) 28,615 446
------- ------- -------
Effect of Exchange Rate Changes on Cash..................... (75) (46) (6)
------- ------- -------
Net increase (decrease) in cash...................... 560 (203) (440)
Cash, beginning of year..................................... -- 203 643
------- ------- -------
Cash, end of year........................................... $ 560 $ -- $ 203
======= ======= =======
Supplemental Disclosures:
Cash paid for income taxes................................ $ 5,055 $ 4,919 $ 2,345
Cash paid for interest.................................... 10,763 4,736 6,582
Issuance of long-term debt to seller in conjunction with
acquisition............................................ -- 5,000 --
Issuance of Class A common shares in conjunction with
acquisition............................................ 4,078 346 --
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated
statements.
F-7
<PAGE> 99
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
------- ------ ------
<S> <C> <C> <C>
Net income.................................................. $10,076 $6,953 $2,302
Other comprehensive income
Foreign currency translation adjustment................... (75) (46) (6)
Excess pension liability adjustment....................... (15) -- 50
------- ------ ------
Comprehensive income........................................ $ 9,986 $6,907 $2,346
======= ====== ======
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated
statements.
F-8
<PAGE> 100
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(1) THE COMPANY
The accompanying consolidated financial statements include the accounts of
Dayton Superior Corporation and its wholly owned subsidiaries, Dayton Superior
Canada Ltd., Dur-O-Wal, Inc., Dur-O-Wal, Ltd., and commencing September 29,
1997, Symons Corporation ("Symons") (collectively referred to as the "Company").
All significant intercompany transactions have been eliminated.
The Company is the largest North American manufacturer and distributor of
metal accessories and forms used in concrete construction and of metal
accessories used in masonry construction. As of December 31, 1998, the Company
has a distribution system consisting of a network of 10
manufacturing/distribution plants and 47 service/distribution centers in the
United States and Canada and over 4,000 dealers. The Company employs 749
salaried and 1,326 hourly personnel, of whom approximately 1,000 of the hourly
personnel and six of the salaried personnel are represented by labor unions. One
collective bargaining agreement expiring in 1999 covers 25 hourly employees at
the Company's Des Plaines, IL facility. In 1998, hourly employees (45 as of
December 31, 1998) at the Company's Kankakee, IL facility voted to be
represented by a labor union. As of December 31, 1998, no collective bargaining
agreement was in place.
The only significant difference between the Company's Class A Common Shares
(1 vote per share) and its Class B Common Shares (10 votes per share) are the
number of votes per share. The Company's Class B Common Shares are owned by
Ripplewood Holdings L.L.C. ("Ripplewood"). Ripplewood holds 13% of the Common
Shares of the Company, which represents 59% of the voting rights as of December
31, 1998. See Note 12 for subsequent event.
(2) ACQUISITIONS
(a) Symons Corporation- On September 29, 1997, the Company purchased the
stock of Symons. Symons was a private company, which owned two
businesses. The first business, the Symons division, is a leading
manufacturer of prefabricated concrete forming systems. The second
business, Richmond Screw Anchor, manufactures and sells concrete
accessories. The addition of these two businesses provides the Company
with both a complementary fourth business platform, concrete forming
systems, and expansion in the concrete accessories market. The Symons
division is being operated on a stand alone basis while the Richmond
Screw Anchor business has been blended with the Company's existing
concrete accessories division. The Company paid $34,000 (plus
acquisition costs of $3,349) for the Common Stock of Symons, of which
$32,349 was paid in cash and $5,000 was paid by delivery of a seven
year unsecured note. The Company also assumed $47,670 of long-term
debt. The purchase agreement between the Company and the former
stockholders of Symons (the "Former Stockholders") relating to the
Acquisition (the "Purchase Agreement") provides for an adjustment to
the purchase price under certain circumstances. The Company has advised
the Former Stockholders that it believes it is entitled to a purchase
price adjustment in its favor, and the Former Stockholders similarly
advised the Company that they believe they are entitled to a purchase
price adjustment in their favor. If the Company and the Former
Stockholders are unable to resolve these differences, the dispute will
be referred to a mutually satisfactory accounting firm, which is
expected to resolve such differences, in accordance with the terms of
the Purchase Agreement. On June 12, 1998, the Former Stockholders filed
a lawsuit in Delaware Chancery Court seeking a determination with
respect to a limited number of issues involved in the dispute, which
the Company believes can be resolved only through arbitration. On
October 28, 1998, the Court granted the Company's
F-9
<PAGE> 101
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
motion to dismiss with respect to certain of these issues. On December
28, 1998, the Court stayed the proceeding with respect to the issues as
to which it had retained jurisdiction, pending the outcome of
arbitration commenced by the parties with respect to the purchase price
adjustment. Either party may seek to reopen the proceedings following
the arbitration. The Company intends to vigorously pursue its rights
under the Purchase Agreement.
The cash portion of the purchase price was paid from the proceeds of
the Company's credit agreement (Note 5). The allocation of the purchase
price to the net assets acquired is as follows:
<TABLE>
<S> <C>
Current assets.............................................. $49,758
Rental equipment and property, plant and equipment.......... 55,283
Goodwill and intangible assets.............................. 8,607
Other non-current assets.................................... 1,597
Current liabilities......................................... (26,548)
Long-term debt.............................................. (47,670)
Other long-term liabilities................................. (3,678)
-------
$37,349
=======
</TABLE>
The unaudited pro forma statements of income as though Symons had been
acquired as of the beginning of 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Net sales.............................................. $252,326 $228,974
Gross profit........................................... 89,109 74,535
Income before extraordinary item....................... 6,867 5,406
Basic income per share before extraordinary item....... 1.20 0.95
Diluted income per share before extraordinary item..... 1.16 0.92
</TABLE>
The pro forma financial information is presented for informational
purposes only and is not necessarily indicative of the operating
results that would have occurred had the Symons acquisition been
consummated as of the above date, nor are they necessarily indicative
of future operating results.
(b) Cempro, Inc.- Effective January 1, 1999, the Company acquired
substantially all of the assets and assumed certain of the liabilities
of Cempro, Inc. for $5,400 in cash. The business is being operated as a
part of the Company's construction chemicals business, which was
established in early 1999.
(c) Secure, Inc.- In June 1998, the Company purchased substantially all of
the assets of Secure, Inc., a subsidiary of The Lofland Company, for
$654 in cash, including acquisition costs of $50. This business is
being operated as a part of the Company's paving products division.
The acquisition has been accounted for as a purchase, and the results
of Secure have been included in the accompanying consolidated financial
statements since the date of acquisition. The purchase price has been
allocated based on the estimated fair values of the assets including
goodwill of $50. Certain appraisals and evaluations are preliminary and
may change. Pro forma financial information is not required.
(d) Symons Concrete Forms, Inc.- In May 1998, the Company purchased all of
the stock of Symons Concrete Forms, Inc. (formerly known as CAI). The
purchase price was $6,744, including acquisition costs of $240, and was
paid in cash of $421, assumption of long-term debt of $2,245,
F-10
<PAGE> 102
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and delivery of 222,496 Class A Common Shares valued at $4,078. CAI is
being operated as a part of the Company's concrete forming systems
division.
The acquisition has been accounted for as a purchase, and the results
of CAI have been included in the accompanying consolidated financial
statements since the date of acquisition. The purchase price has been
allocated based on the estimated fair values of the assets acquired of
$8,080, including goodwill of $2,155, and assumed liabilities other
than long-term debt of $1,336. Certain appraisals and evaluations are
preliminary and may change. Pro forma financial information is not
required.
(e) Northwoods- In May 1998, the Company purchased the assets of the
Northwoods branches of Concrete Forming, Inc. for $750 in cash. The
Northwoods branches are being operated as a part of the Company's
concrete forming systems division.
The acquisition has been accounted for as a purchase, and the results
of the Northwoods branches have been included in the accompanying
consolidated financial statements since the date of acquisition. The
purchase price has been allocated based on the estimated fair values of
the assets acquired including goodwill of $450. Certain appraisals and
evaluations are preliminary and may change. Pro forma financial
information is not required.
(f) Ironco Manufacturing Co., Inc.- In February 1997, the Company acquired
certain of the assets and assumed certain of the liabilities of Ironco
Manufacturing Co., Inc. and Birmingham Bar Coating, Inc. The purchase
price, including acquisition costs, was $1,493 and was paid in cash of
$1,147 and 26,254 Class A Common Shares.
The acquisition was accounted for as a purchase and the results of the
companies have been included in the accompanying consolidated financial
statements since the date of acquisition. This purchase price has been
allocated based on the fair value of the assets acquired of $1,705,
including goodwill of $504, and liabilities assumed of $212. Pro forma
financial information is not required.
(g) Steel Structures, Inc.- In April 1996, the Company purchased certain of
the assets and assumed certain of the liabilities of Steel Structures,
Inc., for $5,601 in cash. The business is being operated as a part of
the Company's paving products business.
The acquisition was accounted for as a purchase and the results have
been included in the accompanying consolidated financial statements
since the date of acquisition. This purchase price has been allocated
on the basis of the appraised fair value of the assets acquired of
$6,113, including goodwill of $1,374, and liabilities assumed of $512.
Pro forma financial information is not required.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Inventories- Substantially all inventories of the domestic concrete
accessories, paving products and masonry products operations are stated
at the lower of last-in, first-out ("LIFO") cost (which approximates
current cost) or market. All other inventories of the Company are
stated at the lower of first-in, first-out ("FIFO") cost or market. The
Company provides net realizable value reserves which reflect the
Company's best estimate of the excess of the cost of potential obsolete
and slow moving inventory over the expected net realizable value. The
Company's inventories consist of raw materials of $7,659 and $6,957,
and finished goods of $30,022 and $26,792 as of December 31, 1998 and
1997, net of net realizable value reserves of $1,623 and $876,
respectively. The Company has no LIFO reserve as of December 31, 1998
and 1997.
F-11
<PAGE> 103
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(b) Rental Equipment- Rental equipment is manufactured by the Company for
resale and for rent to others on a short-term basis. Rental equipment
is recorded at the lower of FIFO cost or market and is depreciated over
the estimated useful life of the equipment, twelve to fifteen years, on
a straight-line method. The balances as of December 31, 1998 and 1997
are net of accumulated depreciation of $6,796 and $2,496, respectively.
Rental revenues were $44,242, $11,336 and $3,095 for the years ended
December 31, 1998, 1997, and 1996, respectively. Cost of sales
associated with rental revenues were $4,443, $1,475 and $1,175 for
1998, 1997 and 1996, respectively.
(c) Property, Plant and Equipment- Property, plant and equipment are valued
at cost and depreciated using straight-line and accelerated methods
over their estimated useful lives of 10-30 years for buildings and
improvements and 3-10 years for machinery and equipment.
Leasehold improvements are amortized over the lesser of the term of the
lease or the estimated useful life of the improvement. Improvements and
replacements are capitalized, while expenditures for maintenance and
repairs are charged to expense as incurred.
(d) Goodwill and Intangible Assets- Goodwill and intangible assets are
recorded at the date of acquisition at their allocated cost.
Amortization is provided over the estimated useful lives of 40 years
for goodwill, the term of the loan (5 to 8 years) for deferred
financing costs and the term of the agreement (1 to 5 years) for
license agreements. Accumulated amortization as of December 31, 1998
and 1997 was $16,867 and $14,087, respectively.
In accordance with Statement of Financial Accounting Standard No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" ("SFAS 121"), the carrying value of goodwill
and other long-lived assets is assessed for recoverability by
management when changes in circumstances indicate that the carrying
amount may not be recoverable, based on an analysis of undiscounted
future expected cash flows from the use and ultimate disposition of the
asset.
(e) Income Taxes- Deferred income taxes are determined by applying current
statutory tax rates to the cumulative temporary differences between the
carrying value of assets and liabilities for financial reporting and
tax purposes.
(f) Environmental Remediation Liabilities- Effective January 1, 1997, the
Company accounts for environmental remediation liabilities in
accordance with the American Institute of Certified Public Accountants
issued Statement of Position 96-1, "Environmental Remediation
Liabilities," ("SOP 96-1"). Adoption of SOP 96-1 did not have a
material impact on the Company's consolidated financial statements.
(g) Foreign Currency Translation Adjustment- The financial statements of
foreign subsidiaries and branches are maintained in their functional
currency (Canadian dollars) and are then translated into U.S. dollars.
The balance sheets are translated at end of year rates while revenues,
expenses and cash flows are translated at weighted average rates
throughout the year. Translation adjustments, which result from changes
in exchange rates from period to period, are accumulated in a separate
component of shareholders' equity. Transactions in foreign currencies
are translated into U.S. dollars at the rate in effect on the date of
the transaction. Changes in foreign exchange rates from the date of the
transaction to the date of the settlement of the asset or liability is
recorded as income or expense.
F-12
<PAGE> 104
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(h) Net Income Per Share- Basic net income per share is computed by
dividing net income available to common shareholders by the weighted
average number of common shares outstanding (adjusted for the stock
split discussed in Note 6a) during the year.
Diluted net income per share is computed by dividing net income
available to common shareholders by the weighted average number of
common and common share equivalents outstanding (adjusted for the stock
split discussed in Note 6a) during the year. Common share equivalents
include the number of shares issuable upon the exercise of outstanding
options and warrants, less the shares that could be purchased with the
proceeds from the exercise of the options and warrants, based on the
Company's average trading price.
<TABLE>
<CAPTION>
1998
---------------------------------
INCOME SHARES PER SHARE
------- --------- ---------
<S> <C> <C> <C>
Basic net income per share...................... $10,076 5,867,338 $1.72
=====
Effect of stock options (Note 6(c))............. -- 230,867
------- ---------
Diluted net income per share.................... $10,076 6,098,205 $1.65
======= ========= =====
</TABLE>
<TABLE>
<CAPTION>
1997
--------------------------------
INCOME SHARES PER SHARE
------ --------- ---------
<S> <C> <C> <C>
Basic net income per share...................... $6,953 5,703,601 $1.22
=====
Effect of stock options (Note 6(c))............. -- 229,643
------ ---------
Diluted net income per share.................... $6,953 5,933,244 $1.17
====== ========= =====
</TABLE>
<TABLE>
<CAPTION>
1996
--------------------------------
INCOME SHARES PER SHARE
------ --------- ---------
<S> <C> <C> <C>
Basic net income per share...................... $2,302 4,547,527 $0.51
=====
Effect of stock options and warrants (Notes 6(b)
and 6(c))..................................... -- 377,937
------ ---------
Diluted net income per share.................... $2,302 4,925,464 $0.47
====== ========= =====
</TABLE>
(i) Financial Instruments- The Company uses interest rate swaps to manage
interest rate risk associated with its floating rate borrowings. The
swap agreements are contracts to exchange floating rate for fixed rate
interest payments periodically over the life of the agreements without
the exchange of the underlying amounts. The differential paid or
received on the interest rate swap agreements is recognized as an
adjustment to interest expense.
(j) Revenue Recognition- The Company recognizes revenue on product and
rental equipment sales on the date of shipment. Rental revenues are
recognized ratably over the terms of the rental agreements.
(k) 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 at the balance sheet date and the reported
amounts of revenues and expenses during the year. Actual results could
differ from those estimates. Examples of accounts in which estimates
are used include the reserve for excess and obsolete inventory, the
allowance for doubtful accounts and sales returns and allowances, the
accrual for self-insured employee medical claims, the self-insured
product and general liability accrual, the
F-13
<PAGE> 105
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
self-insured workers' compensation accrual, accruals for litigation
losses, the valuation allowance for deferred tax assets, actuarial
assumptions used in determining pension benefits, and actuarial
assumptions used in determining other post-retirement benefits.
(l) Reclassifications- Certain reclassifications have been made to prior
years' amounts to conform to their 1998 classification.
(4) EXTRAORDINARY ITEM
During June 1996, the Company prepaid its $40,000 unsecured senior
promissory notes. In conjunction therewith, the Company paid a prepayment
premium of $2,400 and expensed unamortized financing costs and debt discount of
$795 and $538, respectively. The Company recorded an extraordinary loss of
$2,314, net of an income tax effect of $1,419. The Company funded this repayment
with $22,358 in proceeds from its public stock offering (Note 6(b)) and $20,042
from its 1996 credit facility.
(5) CREDIT ARRANGEMENTS
The Company has a Credit Agreement to provide for a term loan and revolving
credit facility, each of which is secured by substantially all of the assets of
the Company. The Company used the proceeds of the Credit Agreement to fund the
acquisition of all outstanding shares of Symons and to repay all amounts
outstanding on the existing term and revolving loans of both the Company and
Symons. As a result, deferred financing costs of $255 related to the Company's
term and revolving loans were expensed and reflected as interest expense in the
accompanying 1997 statement of income.
The $100,000 Term Loan requires quarterly interest payments, with principal
amount due in 2005. The Term Loan permits the Company to choose from various
interest rate options and has a weighted average interest rate of 8.15% at
December 31, 1998.
Amounts available under the Revolving Credit Facility are equal to the
lesser of (i) $40,000 or (ii) the sum of (x) 85% of eligible accounts
receivable, and (y) 60% of eligible inventories. The amount available under the
Revolving Credit Facility was $40,000 at December 31, 1998. The Revolving Credit
Facility will terminate in 2002, and has interest options based on (a) Bank One,
Dayton, NA's prime rate (7.75% at December 31, 1998) plus an amount between 0%
and 1% depending on the level of certain financial ratios (0.5% at December 31,
1998), or (b) LIBOR plus an amount between 0.75% and 2.00% depending on the
level of certain financial ratios (1.50% at December 31, 1998). The weighted
average interest rate at December 31, 1998 was 7.3%. A commitment fee of between
0.125% and 0.400% per annum will be payable on the average unused amount
depending on the level of certain financial ratios (0.25% at December 31, 1998).
Average borrowings under the Revolving Credit Facility and its predecessors
were $19,679, $25,266 and $21,400, during 1998, 1997 and 1996, respectively, at
an approximate weighted average interest rate of 7.7%, 7.6% and 8.2%,
respectively. The maximum borrowings outstanding during 1998, 1997 and 1996 were
$26,620, $32,403 and $28,180, respectively.
To manage its interest rate risk, the Company entered into two interest
rate swap agreements on a total of $50,000 of long-term debt that fixed the
LIBOR-based component of the interest rate formula. The swaps have a fixed
ninety-day LIBOR component of 6.30% and 6.33%, and expire on November 1, 2000.
The ninety-day LIBOR as of December 31, 1998 was 5.07%. All fluctuations in rate
resulting from the swaps are accounted for as interest expense. These swaps are
required by the Company's Credit Agreement and are contracts to exchange
floating rate for fixed rate interest payments without the exchange of
underlying amounts.
F-14
<PAGE> 106
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Credit Agreement contains certain restrictive covenants, which require
that, among other things, the Company maintain a minimum leverage ratio, a
minimum fixed charge coverage ratio and limit its ability to pay dividends on
Common Shares. The Company was in compliance with its loan covenants as of
December 31, 1998.
In conjunction with the acquisition of Symons, the Company issued a $5,000,
seven-year unsecured note to one of the Former Stockholders. The note requires
monthly interest payments, with principal due in September 2004. The note bears
interest at a fixed rate of 10.5%.
The Company has an Economic Development Loan from the city of Parsons,
Kansas. The loan bears interest at 7.0% and is payable in quarterly installments
of $8 through July 2005. The loan is secured by real estate in Parsons.
Following is a summary of the Company's long-term debt as of December 31,
1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Revolving lines of credit................................... $ 13,000 $ 15,000
1997 Term Loan.............................................. 100,000 100,000
Note payable to one of the Former Shareholders.............. 5,000 5,000
City of Parsons, Kansas Economic Development Loan........... 205 236
-------- --------
Total long-term debt........................................ 118,205 120,236
Less current portion........................................ (32) (32)
-------- --------
Long-term portion........................................... $118,173 $120,204
======== ========
</TABLE>
Scheduled maturities of long-term debt are $32, $32, $32, $13,032, $32 and
$105,045 for 1999, 2000, 2001, 2002, 2003 and thereafter, respectively.
The fair market value of the Company's fixed rate long-term debt is
estimated using discounted cash flow analyses based on current incremental
borrowing rates for similar types of borrowing arrangements. At December 31,
1998, the estimated fair value of the Note payable to Former Shareholder of
Symons is $5,782. The estimated fair value of the City of Parsons, Kansas
Economic Development Loan is $203. The estimated fair values of the Term Loan
and Revolving Credit Facility approximate their face values, as these facilities
have variable interest rates tied to market rates. The estimated fair value of
the interest rate swap agreements is a liability of $1,242.
(6) COMMON AND REDEEMABLE PREFERRED SHARES
(a) Stock Split- In June 1996, the Company authorized a 50-for-1 stock
split for Class A and B Common Shares. All references in the financial
statements to number of shares or share prices have been restated to
reflect the split.
(b) Public Offering of Company Shares- In June 1996, the Company completed
an initial public offering of 1,974,750 shares of Class A Common Shares
and received proceeds of $22,358, net of expenses. The proceeds from
the offering were used to prepay long-term debt.
In July 1996, the underwriters of the Company's initial public offering
of Class A Common Shares exercised a portion of their over-allotment
option pursuant to which the Company issued 56,200 shares of Class A
Common Shares and Ripplewood Holdings L.L.C. converted 56,200 shares of
its Class B Common Shares into Class A Common Shares and sold those
shares. The Company's proceeds of $683 from the issuance of those
shares were used to reduce the outstanding balance of the existing
revolving line of credit.
F-15
<PAGE> 107
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
If the offering, the amendment of the Company's credit facility and the
prepayment of the long-term debt had occurred on January 1, 1996,
income before extraordinary item for the year ended December 31, 1996,
would have been $5,561 and income per share before extraordinary item
would have been $0.94.
(c) Stock Option Plans- The Company has five stock option plans, the 1994
Stock Option Plan ("the 1994 Plan"), the 1995 Stock Option Plan ("the
1995 Plan"), the 1996 Stock Option Plan ("the 1996 Plan"), the 1997
Stock Option and Restricted Stock Plan ("the 1997 Restricted Plan") and
the 1997 Non-employee Director Stock Option Plan ("the 1997 Director
Plan"). Under all Plans, the option exercise price equals the stock's
market price on date of grant. The Company accounts for these plans
under APB Opinion No. 25, under which no compensation costs have been
recognized. Had compensation cost for these plans been determined
consistent with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), the Company's
net income and earnings per share would have been reduced to the
following pro forma amounts:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------ ------
<S> <C> <C> <C> <C>
Income before extraordinary item
available to common
shareholders:................... As Reported $10,076 $6,953 $4,616
Pro Forma 9,835 6,857 4,561
Basic income per share before
extraordinary item:............. As Reported 1.72 1.22 1.02
Pro Forma 1.68 1.20 1.00
Diluted income per share before
extraordinary item:............. As Reported 1.65 1.17 0.94
Pro Forma 1.62 1.16 0.92
</TABLE>
Because the SFAS 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in
future years.
As of December 31, 1998, the Company may grant options for up to
228,000 and 24,667 shares under the 1997 Restricted Plan and the 1997
Director Plan, respectively. No further options may be granted under
the 1994, 1995 and 1996 Plans. The Company granted 83,833 options
during 1998, of which, 9,333 vested immediately, and the other 74,500
vest ratably over three years. All options expire ten years after the
date of grant.
F-16
<PAGE> 108
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the status of the Company's stock option plans at December
31, 1998, 1997 and 1996 and changes during the years then ended is
presented in the table and narrative below:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE PER SHARE
--------- ------------------------
<S> <C> <C>
Outstanding at December 31,
1995........................... 272,750 $ 2.44
Granted at a fair value of
$4.26.......................... 25,000 10.38
------- ------
Outstanding at December 31,
1996........................... 297,750 3.11
Granted at a weighted average
fair value of $5.25............ 31,000 12.52
Exercised........................ (40,000) 4.17
Canceled......................... (12,500) 10.38
------- ------
Outstanding at December 31,
1997........................... 276,250 3.57
Granted at a weighted average
fair value of $6.83............ 83,833 17.11
Exercised........................ (2,050) 2.46
------- ------
Outstanding at December 31,
1998........................... 358,033 $ 6.75
======= ======
</TABLE>
Price ranges and other information for stock options outstanding at
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
-------------------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF EXERCISE EXERCISE REMAINING EXERCISE
PRICES SHARES PRICE LIFE SHARES PRICE
--------------------- ------- -------- --------- ------- --------
<S> <C> <C> <C> <C> <C>
$ 1.96 - $ 4.00...... 243,200 $ 2.44 5.6 years 243,200 $ 2.44
$12.50 - $12.63...... 31,000 12.52 8.5 24,750 12.53
$16.81 - $19.91...... 83,833 17.11 9.2 9,333 19.46
------- ------ --------- ------- ------
6.7
358,033 $ 6.75 years 277,283 $ 3.92
======= ====== ========= ======= ======
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black Scholes options pricing model with the following
weighted average assumptions used for grants in 1998, 1997 and 1996,
respectively: risk-free interest rates of 5.67% to 5.70%, 6.17% to
6.56% and 6.11%; expected dividend yield of 0%; expected lives of 6
years; and expected volatility of 27.87%, 28.50% and 27.96%.
(d) Treasury Shares- The Company has agreed to repurchase Class A Common
Shares issued to the former shareholders of CAI. Under certain
circumstances, the former shareholders may require the Company to
purchase Class A Common Shares at the previous day's closing price per
share. The aggregate value of the purchases is limited to $250 during
each three-month period beginning December 1, 1998 and ending May 22,
1999. As of December 31, 1998, 7,298 Class A Common Shares had been
repurchased for $145 under such agreement.
(7) RETIREMENT PLANS
(a) Company-Sponsored Pension Plans- The pension plans cover virtually all
salaried and hourly employees not covered by multi-employer pension
plans and provide benefits of stated amounts for each year of credited
service. The Company funds such plans at a rate that meets or exceeds
F-17
<PAGE> 109
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the minimum amounts required by applicable regulations. The plans'
assets are primarily invested in mutual funds comprised primarily of
common stocks and corporate and U.S. government obligations.
Postretirement Benefits- The Company provides postretirement health
care benefits on a contributory basis and life insurance benefits for
Symons salaried and hourly employees that retired prior to May 1, 1995.
<TABLE>
<CAPTION>
PENSION PENSION OTHER OTHER
BENEFITS BENEFITS BENEFITS BENEFITS
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning
of year...................... $29,169 $ 6,796 $ 681 $ --
Service cost................... 619 794 -- --
Interest cost.................. 1,630 845 71 --
Acquisition.................... -- 21,194 -- 694
Amendments..................... (360) -- 312 --
Actuarial loss (gain).......... 135 (1) (128) --
Benefits paid.................. (712) (459) (61) (13)
------- ------- ----- -----
Benefit obligation at end of
year......................... $30,481 $29,169 $ 875 $ 681
======= ======= ===== =====
CHANGE IN PLAN ASSETS
Fair value of plan assets at
beginning of year............ $27,249 $ 6,219 $ -- $ --
Actual return on plan assets... 2,402 1,085 -- --
Acquisition.................... -- 19,707 -- --
Employer contribution.......... 216 697 61 13
Benefits paid.................. (712) (459) (61) (13)
------- ------- ----- -----
Fair value of plan assets at
end of year.................. $29,155 $27,249 $ -- $ --
======= ======= ===== =====
FUNDED STATUS.................. $(1,326) $(1,920) $(875) $(681)
Unrecognized prior service
cost......................... (155) 202 288 --
Unrecognized net gain.......... (759) (150) (125) --
------- ------- ----- -----
Net amount recognized.......... $(2,240) $(1,868) $(712) $(681)
======= ======= ===== =====
AMOUNTS RECOGNIZED IN THE
STATEMENT OF FINANCIAL
POSITION CONSIST OF:
Accrued benefit liability.... $(2,440) $(1,868) $(875) $(681)
Intangible asset............. 185 -- 163 --
Accumulated other
comprehensive income...... 15 -- -- --
------- ------- ----- -----
Net amount recognized.......... $(2,240) $(1,868) $(712) $(681)
======= ======= ===== =====
</TABLE>
F-18
<PAGE> 110
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
PENSION PENSION OTHER OTHER
BENEFITS BENEFITS BENEFITS BENEFITS
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
ASSUMPTIONS AS OF DECEMBER 31
Discount rate.................. 6.75% 7% 6.75% 8.25%
Expected return on plan
assets....................... 8% 8% N/A N/A
Rate of compensation
increase..................... 4% 4% N/A N/A
COMPONENTS OF NET PERIODIC
BENEFIT COST
Service cost................... $ 619 $ 794 $ -- $ --
Interest cost.................. 1,630 845 70 --
Expected return on plan
assets....................... (1,655) (898) (4) --
Amortization of prior service
cost......................... (3) 17 24 --
Recognized actuarial gain...... (3) -- -- --
------- ------- ----- -----
Net periodic cost.............. $ 588 $ 758 $ 90 $ --
======= ======= ===== =====
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and
fair value of plan assets for the pension plans with accumulated
benefit obligations in excess of plan assets were $2,893, $2,855 and
$2,692, respectively, as of December 31, 1998 and $1,200, $1,200 and
$1,060, respectively as of December 31, 1997.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plan. A one percentage point
change in assumed health care cost trend rates would have the following
effects:
<TABLE>
<CAPTION>
1 PERCENTAGE 1 PERCENTAGE
POINT INCREASE POINT DECREASE
-------------- --------------
<S> <C> <C>
Effect on total of service and interest
cost components........................ $ 3 $ (3)
Effect on the postretirement benefit
obligation............................. 46 (43)
</TABLE>
(b) Multi-Employer Pension Plan- Approximately 12% of the Company's
employees are currently covered by collectively bargained,
multi-employer pension plans. Contributions are determined in
accordance with the provisions of negotiated union contracts and
generally are based on the number of hours worked. The Company does not
have the information available to determine its share of the
accumulated plan benefits or net assets available for benefits under
the multi-employer pension plans. The aggregate amount charged to
expense under these plans was $287, $157 and $89, for the years ended
December 31, 1998, 1997 and 1996, respectively.
(c) 401(k) Savings Plan- Most employees are eligible to participate in
Company sponsored 401(k) savings plans. Company matching contributions
vary from 0% to 50% (on the first 2%) according to terms of the
individual plans and collective bargaining agreements. The aggregate
amount charged to expense under these plans was $531, $345 and $295,
for the years ended December 31, 1998, 1997 and 1996, respectively.
(d) Retirement Contribution Account- During 1998, the Company implemented a
defined contribution plan for substantially all salaried employees. No
contributions are permitted by the employees, and the Company
contributes 1.5% to 6.0% of eligible compensation, depending on the age
of the employee. The amount expensed for the year ended December 31,
1998 was $1,167.
F-19
<PAGE> 111
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) INCOME TAXES
The following is a summary of the components of the Company's income tax
provision for the years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Currently payable:
Federal............................................... $5,312 $3,521 $2,201
State and local....................................... 1,398 704 420
Deferred................................................ 1,534 1,052 917
------ ------ ------
Total provision......................................... $8,244 $5,277 $3,538
====== ====== ======
</TABLE>
The effective income tax rate differs from the statutory federal income tax
rate for the years ended December 31, 1998, 1997 and 1996 for the following
reasons:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Statutory income tax rate.................................. 35.0% 34.0% 34.0%
State income taxes (net of federal tax benefit)............ 4.8 4.0 2.6
Nondeductible goodwill amortization and other permanent
differences.............................................. 5.2 5.1 7.0
Other, net................................................. -- -- (0.2)
---- ---- ----
Effective income tax rate.................................. 45.0% 43.1% 43.4%
==== ==== ====
</TABLE>
The components of the Company's future income tax benefits and deferred tax
liabilities as of December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Current deferred taxes:
Inventory reserves........................................ $ 50 $ (657)
Accounts receivable reserves.............................. 1,712 1,623
Alternative minimum tax credit carryforwards.............. -- 549
Accrued liabilities....................................... 2,280 2,218
Other..................................................... (521) (76)
-------- -------
Total.................................................. 3,521 3,657
-------- -------
Long-term deferred taxes:
Accelerated depreciation.................................. (13,034) (10,922)
Other long-term liabilities............................... 2,428 2,855
Other..................................................... (938) (12)
-------- -------
Total.................................................. (11,544) (8,079)
-------- -------
Net deferred taxes..................................... $ (8,023) $(4,422)
======== =======
</TABLE>
(9) SEGMENT REPORTING
The Company operates in four segments, each with a general manager:
concrete accessories (Dayton/Richmond(R)), concrete forming systems (Symons(R)),
paving products (American Highway Technology(R)) and masonry products
(Dur-O-Wal(R)). The segments are differentiated by their products and services,
all of which serve the construction industry.
Sales between segments for the year ended December 31, 1998 are recorded at
normal selling price by the selling division and at cost for the buying
division, with the profit recorded as an intersegment
F-20
<PAGE> 112
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
elimination. For the years ended December 31, 1997 and 1996, intersegment sales
were not significant. Segment assets include accounts receivable; inventories;
property, plant, and equipment; rental equipment; and an allocation of goodwill.
Corporate and unallocated assets include cash, prepaid income taxes, future tax
benefits, and financing costs. Export sales and sales by non-U.S. affiliates are
not significant. Information about the profit (loss) of each segment and the
reconciliations to the consolidated amounts for the years ended December 31,
1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Concrete Accessories.............................. $128,119 $ 92,251 $ 76,637
Concrete Forming Systems.......................... 99,471 21,066 --
Paving Products................................... 30,967 29,177 21,930
Masonry Products.................................. 24,292 24,918 25,919
-------- -------- --------
Net sales to external customers................... $282,849 $167,412 $124,486
======== ======== ========
Concrete Accessories.............................. $ 3,348 $ -- $ --
Concrete Forming Systems.......................... 5,240 -- --
-------- -------- --------
Net sales to other segments....................... $ 8,588 $ -- $ --
======== ======== ========
Concrete Accessories.............................. $ 4,053 $ 2,744 $ 3,735
Concrete Forming Systems.......................... 6,543 1,903 --
Paving Products................................... 567 466 415
Masonry Products.................................. 540 443 679
-------- -------- --------
Interest expense.................................. $ 11,703 $ 5,556 $ 4,829
======== ======== ========
Concrete Accessories.............................. $ 19,387 $ 13,723 $ 9,477
Concrete Forming Systems.......................... 6,133 364 --
Paving Products................................... 1,677 1,377 906
Masonry Products.................................. 487 5 601
Intersegment Eliminations......................... (4,153) -- --
Corporate......................................... (5,211) (3,239) (2,830)
-------- -------- --------
Income before income taxes........................ $ 18,320 $ 12,230 $ 8,154
======== ======== ========
Concrete Accessories.............................. $ 3,028 $ 2,283 $ 2,522
Concrete Forming Systems.......................... 4,992 891 --
Paving Products................................... 734 646 512
Masonry Products.................................. 1,279 1,264 1,216
Corporate......................................... 43 47 54
-------- -------- --------
Depreciation...................................... $ 10,076 $ 5,131 $ 4,304
======== ======== ========
Concrete Accessories.............................. $ 1,265 $ 1,225 $ 1,188
Concrete Forming Systems.......................... 341 24 --
Paving Products................................... 177 206 131
Masonry Products.................................. 430 430 430
-------- -------- --------
Amortization of goodwill and intangibles.......... $ 2,213 $ 1,885 $ 1,749
======== ======== ========
</TABLE>
F-21
<PAGE> 113
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information regarding each segment's assets and the reconciliation to the
consolidated amounts as of December 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Concrete Accessories........................................ $ 93,898 $ 91,952
Concrete Forming Systems.................................... 116,064 90,796
Paving Products............................................. 9,445 9,134
Masonry Products............................................ 26,115 25,316
Corporate and Unallocated................................... 8,098 9,732
-------- --------
Total Assets................................................ $253,620 $226,930
======== ========
</TABLE>
Information regarding capital expenditures by segment and the
reconciliation to the consolidated amounts for the years ended December 31,
1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------ ------
<S> <C> <C> <C>
Concrete Accessories................................... $ 3,348 $2,449 $2,335
Concrete Forming Systems............................... 2,044 1,231 --
Paving Products........................................ 1,200 401 379
Masonry Products....................................... 439 320 480
Corporate.............................................. 184 9 4
------- ------ ------
Property, Plant, and Equipment Additions............... $ 7,215 $4,410 $3,198
======= ====== ======
Concrete Accessories................................... $ 2,860 $1,966 $1,632
Concrete Forming Systems............................... 15,221 2,909 --
------- ------ ------
Rental Equipment Additions............................. $18,081 $4,875 $1,632
======= ====== ======
</TABLE>
(10) COMMITMENTS AND CONTINGENCIES
(a) Operating Leases- Rental expense for property, plant and equipment
(principally office and warehouse facilities and office equipment) was
$4,233, $2,758, and $1,899, for the years ended December 31, 1998, 1997
and 1996, respectively. Terms generally range from one to ten years and
some contain renewal options. The approximate aggregate minimum annual
rental commitments under non-cancelable operating leases are $4,117,
$3,321, $1,951, $1,637, $910, and $1,547 for 1999, 2000, 2001, 2002,
2003, and thereafter, respectively.
(b) Litigation- Symons is currently a defendant involved in a civil suit
brought by EFCO Corp., a competitor of Symons in one portion of their
business. EFCO Corp. alleged that Symons engaged in false advertising,
misappropriation of trade secrets, intentional interference with
contractual relations, and certain other activities. After a jury
trial, preliminary damages of approximately $14,000 were awarded
against Symons in January 1999. The Company believes that there is no
merit to these allegations, remains committed to vigorously pursuing
post-trial motions and appeals, and is seeking to vacate the judgments
in their entirety. The Company believes that, in the event the
judgments against it are not completely set aside, it has grounds for a
successful appeal and intends to vigorously pursue its appellate
rights. A successful appeal could result in judgment for Symons or a
new trial. Symons' liability, if any, cannot finally be determined
until such time as all rights of the parties have been exhausted or
have expired by lapse of time. The Company considers the ultimate
outcome of this litigation to be not estimable. Accordingly, the
Company has not recorded any liability for the resolution of this suit.
In the event the Company is unsuccessful in its post-trial motions and
appeals, it may have a material adverse effect on its consolidated
financial position, results of operations, or cash flows.
F-22
<PAGE> 114
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Additionally, the Company is a defendant in other various legal
proceedings arising out of the conduct of its business. While the
ultimate outcome of these lawsuits cannot be determined at this time,
management is of the opinion that any liability, notwithstanding
recoveries from insurance, would not have a material adverse effect on
the Company's consolidated financial position, results of operations,
or cash flows.
(c) Self-Insurance- The Company is self-insured for certain of its group
medical, workers' compensation and product and general liability
claims. The Company has stop loss insurance coverage at various per
occurrence and per annum levels depending on type of claim. The Company
consults with third party administrators to estimate the reserves
required for these claims. No material revisions were made to the
estimates for the years ended December 31, 1998, 1997 and 1996. The
Company has reserved $4,737 and $4,578 as of December 31, 1998 and
1997, respectively.
(11) RELATED PARTY TRANSACTIONS
During 1997, the Company paid Ripplewood a fee of $400 for financial
advisory services in connection with the acquisition of Symons Corporation and
related financing transactions.
During 1996, the Company paid Ripplewood a management fee of $125. This fee
was not charged after the initial public offering. The Company paid Ripplewood a
fee of $600 at the time the initial public offering was completed for additional
services provided in connection with the offering and related transactions. In
addition, prior to 1997, the Company reimbursed Ripplewood for the allocable
costs of certain insurance policies purchased by Ripplewood which covered both
the Company and Ripplewood.
(12) SUBSEQUENT EVENT (UNAUDITED)
On February 17, 1999, Ripplewood informed the Company that it was
converting all 757,569 Class B Common Shares held by it into an equal number of
Class A Common Shares and sold those Class A Common Shares. As a result of the
conversion, no Class B Common Shares remain outstanding.
(13) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
1998
----------------------------------------------------------------
FIRST SECOND THIRD FOURTH FULL
QUARTERLY OPERATING DATA QUARTER QUARTER QUARTER QUARTER YEAR
- ---------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales............................... $59,227 $76,754 $82,809 $64,059 $282,849
Gross profit............................ 20,254 28,441 34,174 25,557 108,426
Net income (loss)....................... (1,009) 3,731 6,226 1,128 10,076
Basic net income (loss) per share (a)... $ (0.18) $ 0.64 $ 1.05 $ 0.19 $ 1.72
Diluted net income (loss) per share
(a)................................... $ (0.18) $ 0.61 $ 1.01 $ 0.18 $ 1.65
Stock Price:
High.................................. $20.375 $22.125 $21.375 $20.875 $ 22.125
Low................................... $15.875 $16.500 $16.625 $14.375 $ 14.375
</TABLE>
F-23
<PAGE> 115
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1997
------------------------------------------------------------
FIRST SECOND THIRD FOURTH FULL
QUARTERLY OPERATING DATA QUARTER QUARTER QUARTER QUARTER YEAR
- ---------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales............................... $25,980 $39,839 $42,592 $59,001 $167,412
Gross profit............................ 7,708 12,933 14,381 21,862 56,884
Net income.............................. 160 2,951 3,393 449 6,953
Basic net income per share (a).......... $ 0.03 $ 0.52 $ 0.60 $ 0.08 $ 1.22
Diluted net income per share (a)........ $ 0.03 $ 0.51 $ 0.58 $ 0.08 $ 1.17
Stock Price:
High.................................. $13.500 $13.250 $19.438 $19.000 $ 19.438
Low................................... $11.250 $ 9.750 $12.500 $14.813 $ 9.750
</TABLE>
(a) The total of the quarterly income (loss) per share before extraordinary
item does not equal the annual income per share before extraordinary
item due to the timing of the issuance of the Company's Common Shares
and the omission of common share equivalents in quarters with net
losses for 1998 and due to rounding and to fluctuations in the
Company's stock price for 1997.
F-24
<PAGE> 116
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JULY 2, 1999 AND DECEMBER 31, 1998
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
JULY 2, DECEMBER 31,
1999 1998
-------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash...................................................... $ 1,647 $ 560
Accounts receivable, net of allowances for doubtful
accounts and sales returns and allowances of $5,408 and
$4,432................................................. 56,304 42,996
Inventories (Note 3)...................................... 38,341 36,058
Prepaid expenses and other current assets................. 2,851 4,396
Prepaid income taxes...................................... 1,181 828
Future income tax benefits................................ 3,458 3,521
-------- --------
Total current assets.............................. 103,782 88,359
-------- --------
Rental equipment, net (Note 3).............................. 58,028 52,586
-------- --------
Property, plant and equipment............................... 67,432 63,850
Less accumulated depreciation............................. (25,683) (22,069)
-------- --------
Net property, plant and equipment...................... 41,749 41,781
-------- --------
Goodwill and intangible assets, net of accumulated
amortization.............................................. 71,824 70,130
Other assets................................................ 394 764
-------- --------
Total assets...................................... $275,777 $253,620
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt (Note 4)................ $ 32 $ 32
Accounts payable.......................................... 23,550 20,749
Accrued compensation and benefits......................... 10,444 12,443
Other accrued liabilities................................. 7,547 10,408
-------- --------
Total current liabilities......................... 41,573 43,632
Long-term debt (Note 4)..................................... 137,717 118,173
Deferred income taxes....................................... 11,585 11,544
Other long-term liabilities................................. 5,514 5,683
-------- --------
Total liabilities................................. 196,389 179,032
-------- --------
Shareholders' equity
Class A common shares..................................... 47,417 42,316
Class B common shares..................................... -- 5,037
Class A treasury shares................................... (387) (145)
Cumulative other comprehensive income..................... (219) (281)
Retained earnings......................................... 32,577 27,661
-------- --------
Total shareholders' equity........................ 79,388 74,588
-------- --------
Total liabilities and shareholders' equity........ $275,777 $253,620
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated balance sheets.
F-25
<PAGE> 117
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX FISCAL MONTHS ENDED JULY 2, 1999 AND JULY 3, 1998
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE FISCAL SIX FISCAL MONTHS
MONTHS ENDED ENDED
------------------------ ------------------------
JULY 2, JULY 3, JULY 2, JULY 3,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales............................... $ 88,636 $ 76,754 $ 156,832 $ 135,981
Cost of sales........................... 55,753 48,971 100,524 88,481
---------- ---------- ---------- ----------
Gross profit.......................... 32,883 27,783 56,308 47,500
Selling, general and administrative
expenses.............................. 19,628 17,741 40,077 35,706
Amortization of goodwill and
intangibles........................... 536 537 1,183 1,032
---------- ---------- ---------- ----------
Income from operations................ 12,719 9,505 15,048 10,762
Other expenses
Interest expense, net................. 3,049 2,821 6,024 5,814
Other expense, net.................... 85 (5) 85 (1)
---------- ---------- ---------- ----------
Income before provision for income
taxes.............................. 9,585 6,689 8,939 4,949
Provision for income taxes.............. 4,314 2,958 4,023 2,227
---------- ---------- ---------- ----------
Net income.............................. $ 5,271 $ 3,731 $ 4,916 $ 2,722
========== ========== ========== ==========
Basic net income per share.............. $ 0.89 $ 0.64 $ 0.83 $ 0.47
========== ========== ========== ==========
Basic weighted average common shares
outstanding........................... 5,944,756 5,873,779 5,946,144 5,782,528
========== ========== ========== ==========
Diluted net income per share............ $ 0.85 $ 0.61 $ 0.79 $ 0.45
========== ========== ========== ==========
Diluted weighted average common and
common equivalents shares
outstanding........................... 6,170,337 6,070,936 6,185,426 6,011,089
========== ========== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
F-26
<PAGE> 118
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX FISCAL MONTHS ENDED JULY 2, 1999 AND JULY 3, 1998
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX FISCAL
MONTHS ENDED
--------------------
JULY 2, JULY 3,
1999 1998
-------- --------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income................................................ $ 4,916 $ 2,722
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation........................................... 5,948 5,055
Amortization of goodwill and intangibles............... 1,183 1,032
Deferred income taxes.................................. (640) 201
Amortization of debt discount and deferred financing
costs................................................. 419 388
Gain on sales of rental equipment and property, plant
and equipment......................................... (3,345) (3,509)
Changes in assets and liabilities, net of effects of
acquisitions:
Accounts receivable....................................... (12,740) (13,081)
Inventories............................................... (1,869) (1,036)
Prepaid income taxes...................................... (353) (1,135)
Accounts payable.......................................... 2,695 6,651
Accrued liabilities and other long-term liabilities....... (3,538) 745
Other, net................................................ 1,558 1,071
-------- --------
Net cash used in operating activities............. (5,766) (896)
-------- --------
Cash Flows From Investing Activities:
Property, plant and equipment additions................... (3,057) (3,130)
Proceeds from sale of fixed assets........................ 232 759
Rental equipment additions................................ (9,469) (8,176)
Proceeds from sales of rental equipment................... 5,177 4,929
Acquisitions (Note 2)..................................... (5,575) (1,267)
-------- --------
Net cash used in investing activities............. (12,692) (6,885)
-------- --------
Cash Flows From Financing Activities:
Issuance of long-term debt................................ 19,544 7,990
Purchase of treasury shares............................... (242) --
Issuance of common stock.................................. 181 126
-------- --------
Net cash provided by financing activities......... 19,483 8,116
-------- --------
Effect of Exchange Rate Changes on Cash..................... 62 (26)
-------- --------
Net increase in cash.............................. 1,087 309
Cash, beginning of period................................... 560 --
-------- --------
Cash, end of period......................................... $ 1,647 $ 309
======== ========
Supplemental Disclosures:
Cash paid for income taxes................................ $ 5,139 $ 3,043
Cash paid for interest.................................... 5,822 5,430
Issuance of common stock in conjunction with acquisition
(Note 2)............................................... (117) 4,000
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
F-27
<PAGE> 119
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE AND SIX FISCAL MONTHS ENDED JULY 2, 1999 AND JULY 3, 1998
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE FISCAL SIX FISCAL
MONTHS ENDED MONTHS ENDED
------------------ ------------------
JULY 2, JULY 3, JULY 2, JULY 3,
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income............................................ $5,271 $3,731 $4,916 $2,722
Other comprehensive income:
Foreign currency translation adjustment............. 44 (32) 62 (26)
------ ------ ------ ------
Comprehensive income.................................. $5,315 $3,699 $4,978 $2,696
====== ====== ====== ======
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
F-28
<PAGE> 120
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 2, 1999 AND JULY 3, 1998
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
(1) CONSOLIDATED FINANCIAL STATEMENTS
The interim consolidated financial statements included herein have been
prepared by the Company, without audit, and include, in the opinion of
management, all adjustments necessary to state fairly the information set forth
therein. Any such adjustments were of a normal recurring nature. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted, although the Company believes that the disclosures are adequate to make
the information presented not misleading. It is suggested that these unaudited
consolidated financial statements be read in conjunction with the consolidated
financial statements and the notes thereto included in the Company's annual
financial statements for the year ended December 31, 1998.
(2) ACQUISITIONS
(a) Symons Corporation - On September 29, 1997, the Company purchased the
stock of Symons Corporation ("Symons"). The purchase agreement between
the Company and the former stockholders of Symons ("the Former
Stockholders") relating to the Acquisition ("the Purchase Agreement")
provides for an adjustment to the purchase price under certain
circumstances. The Company has advised the Former Stockholders that it
believes it is entitled to a purchase price adjustment in its favor, and
the Former Stockholders similarly advised the Company that they believe
they are entitled to a purchase price adjustment in their favor. The
dispute has been referred to a mutually satisfactory accounting firm,
which is expected to resolve such differences in accordance with the
Purchase Agreement.
On June 12, 1998, the Former Stockholders filed a lawsuit in Delaware
Chancery Court seeking a determination with respect to a limited number
of issues involved in the dispute, which the Company believes can be
resolved only through arbitration. On October 28, 1998, the Court
granted the Company's motion to dismiss with respect to certain of these
issues (as to which the Company intends to proceed with arbitration) and
retained jurisdiction with respect to the remainder of the issues. On
December 28, 1998, the Court stayed the proceeding with respect to the
issues as to which it had retained jurisdiction, pending the outcome of
arbitration commenced by the parties with respect to the purchase price
adjustment. Either party may seek to reopen the proceedings following
the arbitration.
At this time, the Company can make no determination as to the amount of
the adjustment, if any, that will be made to the purchase price. The
Company intends to vigorously pursue its rights under the Purchase
Agreement.
(b) Cempro, Inc. - Effective January 1, 1999, the Company acquired
substantially all of the assets and assumed certain of the liabilities
of Cempro, Inc. ("Cempro") for approximately $5,400 in cash, including
acquisition costs of approximately $100 and a purchase price reduction
of approximately $100 received in July 1999. The business is being
operated as a part of the Company's concrete accessories business.
The acquisition has been accounted for as a purchase, and the results of
Cempro have been included in the accompanying consolidated financial
statements since the date of acquisition. The purchase price has been
allocated based on the estimated fair values of the assets acquired and
F-29
<PAGE> 121
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
liabilities assumed. Certain appraisals and evaluations are preliminary
and may change. Pro forma financial information is not required.
(c) Secure, Inc. - In June 1998, the Company purchased substantially all of
the assets of Secure, Inc., ("Secure") a subsidiary of The Lofland
Company, for approximately $700 in cash, including acquisition costs of
approximately $100. This business is being operated as a part of the
Company's paving products business.
The acquisition has been accounted for as a purchase, and the results of
Secure have been included in the accompanying consolidated financial
statements since the date of acquisition. The purchase price has been
allocated based on the estimated fair values of the assets acquired. Pro
forma financial information is not required.
(d) Symons Concrete Forms, Inc. - In May 1998, the Company purchased Symons
Concrete Forms, Inc. (formerly known as CAI). The purchase price was
approximately $6,600, including acquisition costs of approximately $200,
and was paid in cash of approximately $400, assumption of long-term debt
of $2,200, and delivery of 216,040 Class A Common Shares valued at
approximately $4,000, including a purchase price reduction of
approximately $100 (6,456 Class A Common Shares) in the second quarter
related to uncollected accounts receivable. The business is being
operated as a part of the Company's concrete forming systems division.
The acquisition has been accounted for as a purchase, and the results of
Symons Concrete Forms have been included in the accompanying
consolidated financial statements since the date of acquisition. The
purchase price has been allocated based on the estimated fair values of
the assets acquired and liabilities assumed. Pro forma financial
information is not required.
(e) Northwoods - In May 1998, the Company purchased the assets of the
Northwoods branches of Concrete Forming, Inc. ("Northwoods") for
approximately $800 in cash. The Northwoods branches are being operated
as a part of the Company's concrete forming systems division.
The acquisition has been accounted for as a purchase, and the results of
the Northwoods branches have been included in the accompanying
consolidated financial statements since the date of acquisition. The
purchase price has been allocated based on the estimated fair values of
the assets acquired. Pro forma financial information is not required.
(3) ACCOUNTING POLICIES
The interim consolidated financial statements have been prepared in accordance
with the accounting policies described in the notes to the Company's
consolidated financial statements for the year ended December 31, 1998. While
management believes that the procedures followed in the preparation of interim
financial information are reasonable, the accuracy of some estimated amounts is
dependent upon facts that will exist or calculations that will be accomplished
at year end. Examples of such estimates include changes in the LIFO reserve
(based upon the Company's best estimate of inflation to date) and management
bonuses. Any adjustments pursuant to such estimates during the fiscal quarter
were of a normal recurring nature.
(a) Fiscal Quarter - The Company's fiscal quarters are defined as the
periods ending on the Friday nearest to the end of March, June and
September.
(b) Inventories - Substantially all inventories of the domestic Dayton
Superior and Dur-O-Wal operations are stated at the lower of last in,
first out (LIFO) cost or market (which approximates current cost). All
other inventories are stated at the lower of first-in, first-out (FIFO)
cost or market. The Company had no LIFO reserve as of July 2, 1999 and
December 31, 1998.
F-30
<PAGE> 122
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Following is a summary of the components of inventories as of July 2, 1999
and December 31, 1998:
<TABLE>
<CAPTION>
JULY 2, DECEMBER 31,
1999 1998
-------- ------------
<S> <C> <C>
Raw materials..................................... $ 6,684 $ 7,659
Finished goods and work in progress............... 34,574 30,022
------- -------
41,258 37,681
Net realizable value reserve...................... (2,917) (1,623)
------- -------
$38,341 $36,058
======= =======
</TABLE>
(c) Rental Equipment - Rental equipment is manufactured by the Company for
resale and for rent to others on a short-term basis. Rental equipment is
recorded at the lower of FIFO cost or market and is depreciated over the
estimated useful life of the equipment, twelve to fifteen years, on a
straight-line method. The balances as of July 2, 1999 and December 31,
1998 are net of accumulated depreciation of $8,676 and $6,796,
respectively. Rental revenues and cost of sales associated with rental
revenue are as follows:
<TABLE>
<CAPTION>
THREE FISCAL SIX FISCAL
MONTHS ENDED MONTHS ENDED
------------------ -----------------
JULY 2, JULY 3, JULY 2, JULY 3,
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Rental revenue.......................... $12,309 $9,442 $22,818 $18,462
Cost of sales........................... 2,093 1,781 3,993 3,552
</TABLE>
(d) Financial Instruments - The Company uses interest rate swaps to manage
interest rate risk associated with its floating rate borrowing. The swap
agreements are contracts to exchange floating rate for fixed interest
payments periodically over the life of the agreements without the
exchange of the underlying amounts. The differential paid or received on
the interest rate agreements is recognized as an adjustment to interest
expense. The fair value of the interest rate swaps in place at July 2,
1999 is a liability of $535.
(e) Reclassifications - Certain reclassifications have been made to the 1998
amounts to conform to their 1999 classifications.
(4) CREDIT ARRANGEMENTS
Following is a summary of the Company's long-term debt as of July 2, 1999
and December 31, 1998:
<TABLE>
<CAPTION>
JULY 2, DECEMBER 31,
1999 1998
-------- ------------
<S> <C> <C>
Revolving lines of credit, weighted average
interest rate of 6.6%.......................... $ 32,560 $ 13,000
Term Loan, weighted average interest rate of
8.4%........................................... 100,000 100,000
Note payable to one of the Former Stockholders,
10.5%.......................................... 5,000 5,000
City of Parsons, Kansas Economic Development
Loan, 7.0%..................................... 189 205
-------- --------
Total long-term debt............................. 137,749 118,205
Less current portion............................. (32) (32)
-------- --------
Long-term portion................................ $137,717 $118,173
======== ========
</TABLE>
F-31
<PAGE> 123
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During May 1999, the Revolving Credit Facility was increased from $40,000 to
$50,000. At July 2, 1999, $50,000 of the $50,000 Revolving Credit Facility was
available, of which $32,560 of borrowings was outstanding. The average
borrowing, maximum borrowing, and weighted average interest rate for the periods
indicated are as follows:
<TABLE>
<CAPTION>
THREE FISCAL SIX FISCAL MONTHS
MONTHS ENDED ENDED
------------------ ------------------
JULY 2, JULY 3, JULY 2, JULY 3,
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Average borrowing................................ $32,356 $22,004 $27,674 $19,825
Maximum borrowing................................ 37,140 26,620 37,140 26,620
Weighted average interest rate................... 6.6% 7.5% 6.8% 7.8%
</TABLE>
The Credit Agreement contains certain restrictive covenants which, among other
things, require that the Company maintain a minimum fixed charge coverage ratio,
not exceed a certain leverage ratio and prohibit the payment of dividends on
Common Shares. The Company was in compliance with its loan covenants as of July
2, 1999.
(5) STOCK OPTION PLANS
The Company has five stock option plans all of which provide for an option
exercise price equal to the stock's market price on the date of grant and all of
which are accounted for under APB Opinion No. 25, under which no compensation
costs have been recognized. Had compensation cost for these plans been
determined consistent with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), the Company's net income
and net income per share for the three and six fiscal months ended July 2, 1999
and July 3, 1998 would have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
THREE FISCAL SIX FISCAL
MONTHS ENDED MONTHS ENDED
------------------ ------------------
JULY 2, JULY 3, JULY 2, JULY 3,
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net income........................... As Reported $5,271 $3,731 $4,916 $2,722
Pro Forma 5,191 3,631 4,836 2,588
Basic net income per share........... As Reported 0.89 0.64 0.83 0.47
Pro Forma 0.87 0.62 0.81 0.45
Diluted net income per share......... As Reported 0.85 0.61 0.79 0.45
Pro Forma 0.85 0.60 0.79 0.43
</TABLE>
Because the SFAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
F-32
<PAGE> 124
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the activity of the Company's stock option plans for the six fiscal
months ended July 2, 1999 is presented in the table below:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF EXERCISE PRICE
SHARES PER SHARE
--------- ----------------
<S> <C> <C>
Outstanding at December 31, 1998................. 358,033 $ 6.75
Granted at a weighed average fair value of
$8.27.......................................... 92,600 19.44
Exercised........................................ (2,984) 8.38
Cancelled........................................ (866) 16.81
------- ------
Outstanding at July 2, 1999...................... 446,783 $ 9.35
======= ======
</TABLE>
(6) RETIREMENT PLANS
The Company terminated and merged various defined benefit plans. As a result,
the company recorded a $0.7 million non-recurring pension plan termination gain
which is included in the selling, general, and administrative expenses.
(7) SEGMENT REPORTING
The Company operates in four segments, each with a general manager: concrete
accessories, concrete forming systems, paving products, and masonry. The
segments are differentiated by their products and services, all of which serve
the construction industry.
Sales between segments are recorded at normal selling price by the selling
division and at cost for the buying division, with the profit recorded as an
intersegment elimination. Segment assets include accounts receivable;
inventories; property, plant, and equipment; rental equipment; and an allocation
of goodwill. Corporate and unallocated assets include cash, prepaid income
taxes, future tax benefits, and financing costs. Export sales and sales by
non-U.S. affiliates are not significant.
Information about the profit (loss) of each segment and the reconciliations to
the consolidated amounts for the three and six fiscal months ended July 2, 1999
and July 3, 1998 is as follows:
<TABLE>
<CAPTION>
THREE FISCAL SIX FISCAL MONTHS
MONTHS ENDED ENDED
------------------ --------------------
JULY 2, JULY 3, JULY 2, JULY 3,
1999 1998 1999 1998
------- ------- -------- --------
<S> <C> <C> <C> <C>
Concrete Accessories............................ $39,730 $34,148 $ 70,411 $ 61,871
Concrete Forming Systems........................ 30,665 26,495 55,541 46,933
Paving Products................................. 11,065 10,224 17,738 16,195
Masonry Products................................ 7,176 5,887 13,142 10,982
------- ------- -------- --------
Net sales to external customers................. $88,636 $76,754 $156,832 $135,981
======= ======= ======== ========
Concrete Accessories............................ $ 970 $ 916 $ 2,127 $ 2,265
Concrete Forming Systems........................ 1,395 1,490 2,627 2,383
------- ------- -------- --------
Net sales to other segments..................... $ 2,365 $ 2,406 $ 4,754 $ 4,648
======= ======= ======== ========
</TABLE>
F-33
<PAGE> 125
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
THREE FISCAL SIX FISCAL MONTHS
MONTHS ENDED ENDED
------------------ --------------------
JULY 2, JULY 3, JULY 2, JULY 3,
1999 1998 1999 1998
------- ------- -------- --------
<S> <C> <C> <C> <C>
Concrete Accessories............................ $ 918 $ 962 $ 1,893 $ 1,983
Concrete Forming Systems........................ 1,806 1,553 3,507 3,201
Paving Products................................. 181 178 363 366
Masonry Products................................ 144 128 261 264
------- ------- -------- --------
Interest expense................................ $ 3,049 $ 2,821 $ 6,024 $ 5,814
======= ======= ======== ========
Concrete Accessories............................ $ 7,093 $ 5,410 $ 9,608 $ 7,320
Concrete Forming Systems........................ 2,965 2,583 3,268 1,943
Paving Products................................. 950 1,135 451 893
Masonry Products................................ 526 57 140 (469)
Intersegment Eliminations....................... (1,217) (1,164) (2,398) (2,248)
Corporate....................................... (732) (1,332) (2,130) (2,490)
------- ------- -------- --------
Income before income taxes...................... $ 9,585 $ 6,689 $ 8,939 $ 4,949
======= ======= ======== ========
Concrete Accessories............................ $ 1,027 $ 741 $ 2,148 $ 1,569
Concrete Forming Systems........................ 1,364 1,030 2,690 2,409
Paving Products................................. 200 192 423 388
Masonry Products................................ 330 331 662 659
Corporate....................................... 12 16 25 30
------- ------- -------- --------
Depreciation.................................... $ 2,933 $ 2,310 $ 5,948 $ 5,055
======= ======= ======== ========
Concrete Accessories............................ $ 353 $ 322 $ 720 $ 641
Concrete Forming Systems........................ 21 64 130 88
Paving Products................................. 54 44 118 88
Masonry Products................................ 108 107 215 215
------- ------- -------- --------
Amortization of goodwill and intangibles........ $ 536 $ 537 $ 1,183 $ 1,032
======= ======= ======== ========
</TABLE>
F-34
<PAGE> 126
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information regarding capital expenditures by segment and the reconciliation to
the consolidated amounts for the six fiscal months ended July 2, 1999 and July
3, 1998 is as follows:
<TABLE>
<CAPTION>
THREE FISCAL SIX FISCAL
MONTHS ENDED MONTHS ENDED
------------------ ------------------
JULY 2, JULY 3, JULY 2, JULY 3,
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Concrete Accessories........................ $ 569 $ 804 $1,316 $1,145
Concrete Forming Systems.................... 303 784 688 1,389
Paving Products............................. 186 288 461 469
Masonry Products............................ 358 61 513 93
Corporate................................... 34 34 79 34
------ ------ ------ ------
Property, Plant, and Equipment Additions.... $1,450 $1,971 $3,057 $3,130
====== ====== ====== ======
Concrete Accessories........................ $ 615 $ 721 $ 943 $1,264
Concrete Forming Systems.................... 2,842 3,421 8,526 6,912
------ ------ ------ ------
Rental Equipment Additions.................. $3,457 $4,142 $9,469 $8,176
====== ====== ====== ======
</TABLE>
There has been no material change in the relative assets employed by each
segment since December 31, 1998.
(8) CONTINGENCIES
Symons is currently a defendant involved in a civil suit brought by EFCO Corp.,
a competitor of Symons in one portion of their business. EFCO Corp. alleged that
Symons engaged in false advertising, misappropriation of trade secrets,
intentional interference with contractual relations, and certain other
activities. After a jury trial, preliminary damages of approximately $14,000
were awarded against Symons in January 1999. In ruling on post-trial motions in
April 1999, the Judge dismissed EFCO's claim of intentional interference with
contractual relations, but increased the damages awarded to EFCO by $100.
The Company believes that Symons has grounds for a successful appeal and remains
committed to vigorously pursuing its appellate rights. A successful appeal could
result in judgment for Symons or a new trial. Symons' liability, if any, cannot
finally be determined until such time as all rights of the parties have been
exhausted or have expired by lapse of time. The Company considers the ultimate
outcome of this litigation to be not estimable. Accordingly, the Company has not
recorded any liability for the resolution of this suit. In the event that Symons
is unsuccessful in its post-trial motions and appeals, it may have a material
adverse effect on its consolidated financial position, results of operations, or
cash flows.
(9) SUBSEQUENT EVENT
The Company has filed a registration statement with the Securities and Exchange
Commission for an underwritten public offering of convertible trust preferred
securities. The securities would be issued by a limited purpose Delaware trust
which would use the proceeds to purchase from the Company the same principal
amount of the Company's convertible junior subordinated debentures. The net
proceeds would be used by the Company to pay borrowings under its Revolving
Credit Facility.
F-35
<PAGE> 127
[Page Intentionally Left Blank]
<PAGE> 128
[Page Intentionally Left Blank]
<PAGE> 129
[Page Intentionally Left Blank]
<PAGE> 130
[Inside of Back Cover]
[Graphic]
[Same graphic as Outside Front Cover of Fold-Out.]
<PAGE> 131
SEPTEMBER 30, 1999
DAYTON SUPERIOR LOGO
DAYTON SUPERIOR CAPITAL TRUST
1,062,500 PREFERRED SECURITIES
10% Convertible Trust Preferred Securities
($20 liquidation amount per Preferred
Security) Guaranteed, to the extent described
herein by, and convertible into Class A Common
Shares of,
DAYTON SUPERIOR CORPORATION
------------------
PROSPECTUS
------------------
ROBERT W. BAIRD & CO.
INCORPORATED
LEGG MASON WOOD WALKER
INCORPORATED
MCDONALD INVESTMENTS INC.
- --------------------------------------------------------------------------------
You should only rely on the information contained or incorporated by
reference in this prospectus. We have not authorized anyone to provide you with
information different from that contained in this prospectus. We are offering to
sell, and seeking offers to buy, these securities only in jurisdictions where
offers and sales are permitted. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or of any sale of these securities.
- --------------------------------------------------------------------------------
<PAGE> 132
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate (other than the Commission Registration Fee
and the National Association of Securities Dealers, Inc. (the "NASD") Filing
Fee) of the fees and expenses, all of which are payable by the Company, in
connection with the registration and sale of the securities being registered
hereunder:
<TABLE>
<S> <C>
Commission Registration Fee................................. $ 9,591
NASD Filing Fee............................................. 3,950
NYSE Listing Fee............................................ 20,355
Initial Trustees' Fees...................................... 11,000
Blue Sky Fees and Expenses.................................. 3,000
Legal Fees and Expenses..................................... 150,000
Accounting Fees and Expenses................................ 100,000
Printing Expenses........................................... 150,000
Miscellaneous............................................... 52,104
--------
Total............................................. $500,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Article Eighth of the Company's Amended Articles of Incorporation sets
forth certain rights of directors and officers of the Company to
indemnification. Such rights provide indemnification by the Company to the
extent permitted by Ohio law. The liabilities against which a director and
officer may be indemnified and factors employed to determine whether a director
and officer is entitled to indemnification in a particular instance depend on
whether the proceedings in which the claim for indemnification arises were
brought (a) other than by and in the right of the Company ("Third-Party
Actions") or (b) by and in the right of the Company ("Derivative Actions").
In Third-Party Actions, the Company is required to indemnify each director
and officer against expenses, including attorneys' fees, judgments, decrees,
fines, penalties and amounts paid in settlement actually and reasonably incurred
by such person in connection with any threatened or actual proceeding in which
such person may be involved by reason of having acted in such capacity, if 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 Company and, with respect to any
matter the subject of a criminal proceeding, such person had no reasonable cause
to believe that such person's conduct was unlawful.
In Derivative Actions, the Company is required to indemnify each director
and officer against expenses, including attorneys' fees, actually and reasonably
incurred by such person in connection with the defense or settlement of any such
proceeding if 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
Company, except that no indemnification is permitted with respect to (1) any
matter as to which such person has been adjudged to be liable for negligence or
misconduct in the performance of such person's duty to the Company unless a
court determines such person is entitled to indemnification and (2) any
liability asserted in connection with unlawful loans, dividends, distribution,
distributions of assets and repurchases of shares of the Company under Section
1701.95 of the Ohio Revised Code.
Unless indemnification is ordered by a court, the determination as to
whether or not a person has satisfied the applicable standards of conduct (and
therefore may be indemnified) is made by the Board of Directors of the Company
by a majority vote of a quorum consisting of directors of the Company who were
not parties to the action; or if such a quorum is not obtainable, or if a quorum
of disinterested
II-1
<PAGE> 133
directors so directs, by independent legal counsel in a written opinion; or by
shareholders of the Company.
Article Eighth of the Amended Articles of Incorporation does not limit in
any way other indemnification rights to which those seeking indemnification may
be entitled.
The Company maintains insurance policies which presently provide
protection, within the maximum liability limits of the policies and subject to a
deductible amount for each claim, to the Company under its indemnification
obligations and to the directors and officers with respect to certain matters
which are not covered by the Company's indemnification obligations.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
See Exhibit Index following the signature pages to this Registration
Statement.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933 (the "Act"), each
filing of the Registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 (the "Exchange Act") (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Exchange Act) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers, and controlling persons of the Registrant
pursuant to the foregoing provisions described under Item 15 above, 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.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of the
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 Act shall be deemed to be part of the Registration Statement as of the
time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-2
<PAGE> 134
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Dayton,
State of Ohio on the 30th day of September, 1999.
DAYTON SUPERIOR CORPORATION
By: /s/ John A. Ciccarelli
-------------------------------------
John A. Ciccarelli
President and Chief Executive Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- --------------------------------- --------------------------------- ------------------
<S> <C> <C>
/s/ John A. Ciccarelli President, Chief Executive September 30, 1999
- --------------------------------- Officer and Director (principal
John A. Ciccarelli executive officer)
/s/ Alan F. McIlroy Vice President and Chief September 30, 1999
- --------------------------------- Financial Officer (principal
Alan F. McIlroy financial officer)
/s/ Thomas W. Roehrig Corporate Controller (principal September 30, 1999
- --------------------------------- accounting officer)
Thomas W. Roehrig
* Non-Executive Chairman of the September 30, 1999
- --------------------------------- Board
Matthew O. Diggs, Jr.
* Director September 30, 1999
- ---------------------------------
William F. Andrews
Director
- ---------------------------------
Timothy C. Collins
* Director September 30, 1999
- ---------------------------------
Daniel W. Duval
* Director September 30, 1999
- ---------------------------------
Matthew M. Guerreiro
* Director September 30, 1999
- ---------------------------------
Robert B. Holmes
</TABLE>
* John A. Ciccarelli, by signing his name hereto, does hereby execute this
Amendment to the Registration Statement on behalf of the directors of the
Registrant indicated above by asterisks pursuant to a power of attorney duly
executed by each such director and included in the original Registration
Statement.
By: /s/ John A. Ciccarelli
-------------------------------------
John A. Ciccarelli
Attorney-in-fact
September 30, 1999
II-3
<PAGE> 135
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Dayton Superior
Capital Trust has duly caused this Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Dayton, State of Ohio, on September 30, 1999.
DAYTON SUPERIOR CAPITAL TRUST
By DAYTON SUPERIOR CORPORATION
By: /s/ John A. Ciccarelli
-------------------------------------
John A. Ciccarelli
President and Chief Executive Officer
II-4
<PAGE> 136
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
(1) UNDERWRITING AGREEMENT
1.1 Form of Underwriting Agreement
(3) ARTICLES OF INCORPORATION AND BY-LAWS
3.1 Amended Articles of Incorporation of the Company
3.2 Code of Regulations of the Company. [Incorporated herein by
reference to Exhibit 3.3 to the Company's Registration
Statement on Form S-1 (Reg. 333-2974)]
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS,
INCLUDING INDENTURES
4.1 Senior Unsubordinated Redeemable Note of the Company in the
principal amount of $5,000,000 [Incorporated herein by
reference to Exhibit A to the Agreement set forth as Exhibit
2.1 to the Company's Current Report on Form 8-K dated June
2, 1997]
4.2 Credit Agreement dated as of September 29, 1997 among the
Company and the other parties thereto [Incorporated herein
by reference to Exhibit 4.2 to the Company's Current Report
on Form 8-K dated October 13, 1997]
4.2.1 First Amendment to Credit Agreement dated as of October 23,
1997 [Incorporated herein by reference to Exhibit 4.2.1 of
the Company's Annual Report on Form 10-K for the year ended
December 31, 1998]
4.2.2 Second Amendment to Credit Agreement dated as of June 26,
1998 [Incorporated herein by reference to Exhibit 4.1 of the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended April 2, 1999]
4.2.3 Third Amendment to Credit Agreement dated as of May 14, 1999
4.2.4 Form of Fourth Amendment to Credit Agreement dated as of
September 3, 1999
4.3 Form of Class A Common Share Certificate [Incorporated
herein by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-1 (Reg. 333-2974)]
4.4 Certificate of Trust of Dayton Superior Capital Trust
4.5 Form of Amended and Restated Trust Agreement of Dayton
Superior Capital Trust among Dayton Superior Corporation, as
depositor, Firstar Bank, N.A., as Property Trustee, Mark A.
Ferrucci, as Delaware Trustee, and the Administrative
Trustees named therein
4.6 Form of Junior Convertible Subordinated Indenture between
Dayton Superior Corporation and Firstar Bank, N.A., as
Indenture Trustee
4.7 Form of Preferred Security (included as Exhibit D to Exhibit
4.5)
4.8 Form of Junior Convertible Subordinated Debenture (included
as Sections 2.2 and 2.3 to Exhibit 4.6)
4.9 Form of Guarantee Agreement between Dayton Superior
Corporation, as Guarantor, and Firstar Bank, N.A., as
Guarantee Trustee, with respect to the Preferred Securities
of the Dayton Superior Capital Trust
(5) OPINION REGARDING LEGALITY
5.1 Opinion of Thompson Hine & Flory LLP with respect to the
legality of the securities being registered
5.2 Opinion of Young Conaway Stargatt and Taylor, LLP, special
Delaware counsel, as to the validity of the issuance of the
Preferred Securities being issued by the Dayton Superior
Capital Trust
</TABLE>
II-5
<PAGE> 137
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
(8) OPINION REGARDING TAX MATTERS
8.1 Opinion of Thompson Hine & Flory LLP as to certain tax
matters
(12) STATEMENTS REGARDING COMPUTATION OF RATIOS
12.1 Computation of Earnings to Fixed Charges
(23) CONSENTS OF EXPERTS AND COUNSEL
23.1 Consent of Arthur Andersen LLP*
23.2 Consent of Thompson Hine & Flory LLP (contained in their
opinions set forth as Exhibits 5.1 and 8.1)
23.3 Consent of Young Conaway Stargett and Taylor, LLP (contained
in their opinion set forth in Exhibit 5.2)
(24) POWERS OF ATTORNEY
24.1 Power of Attorney (included on signature pages of this
Registration Statement)
(25) STATEMENT OF ELIGIBILITY OF TRUSTEE
25.1 Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939, as amended, of Firstar Bank, N.A., as Trustee
under the Indenture, Property Trustee under the Trust
Agreement, and Guarantee Trustee under the Guarantee
</TABLE>
- ---------------
* Filed herewith.
II-6
<PAGE> 1
EXHIBIT 23.1
------------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion of or
incorporation by reference in this registration statement of our report dated
January 26, 1999 (except with respect to the matter discussed in Note 12, as to
which the date is February 17, 1999), included in Dayton Superior Corporation's
Form 10-K for the year ended December 31, 1998, and to all references to our
Firm included in this registration statement.
ARTHUR ANDERSEN LLP
Dayton, Ohio
September 30, 1999
